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Internet Strategy: The Road to Web Services Solutions Matthew W. Guah Warwick University, UK Wendy L. Currie Warwick University, UK
IRM Press Publisher of innovative scholarly and professional information technology titles in the cyberage
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ii Acquisitions Editor: Development Editor: Senior Managing Editor: Managing Editor: Copy Editor: Typesetter: Cover Design: Printed at:
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[email protected] Web site: http://www.irm-press.com and in the United Kingdom by IRM Press (an imprint of Idea Group Inc.) 3 Henrietta Street Covent Garden London WC2E 8LU Tel: 44 20 7240 0856 Fax: 44 20 7379 3313 Web site: http://www.eurospan.co.uk Copyright © 2006 by Idea Group Inc. All rights reserved. No part of this book may be reproduced, stored or distributed in any form or by any means, electronic or mechanical, including photocopying, without written permission from the publisher. Product or company names used in this book are for identification purposes only. Inclusion of the names of the products or companies does not indicate a claim of ownership by IGI of the trademark or registered trademark. Library of Congress Cataloging-in-Publication Data Internet strategy : the road to web services solutions / Matthew W. Guah and Wendy L. Currie, editors. p. cm. Summary: "This book tells you how to create, execute and evolve a customer-centric approach for your Internet-based management strategy"--Provided by publisher. Includes bibliographical references and index. ISBN 1-59140-763-X (hc) -- ISBN 1-59140-764-8 (sc) -- ISBN 1-59140-765-6 (ebook) 1. Business enterprises--Computer networks--Management. 2. Information technology--Management. 3. Web services--Management. I. Guah, Matthew W., 1963- II. Currie, Wendy, 1960HD30.37.I573 2006 004.6'068--dc22 2005013815 British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. All work contributed to this book is new, previously-unpublished material. Each chapter is assigned to at least 2-3 expert reviewers and is subject to a blind, peer review by these reviewers. The views expressed in this book are those of the authors, but not necessarily of the publisher.
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Internet Strategy: The Road to Web Services Solutions
Table of Contents
Preface .................................................................................................. vi Introduction ......................................................................................... viii Section I: Strategic Approaches to Internet for Organizations Chapter I. Application Service Provision ............................................. 1 Matthew W. Guah, Warwick University, UK Chapter II. Web Services ...................................................................... 8 Matthew W. Guah, Warwick University, UK Chapter III. Concerns ......................................................................... 17 Matthew W. Guah, Warwick University, UK Chapter IV. Recommendations ........................................................... 40 Matthew W. Guah, Warwick University, UK Section II: Case Studies Chapter V. Considering the Impact of Broadband on the Growth and Development of B2C Electronic Commerce ............................... 48 Jyoti Choudrie, Brunel University, UK Yogesh Kumar Dwivedi, Brunel University, UK
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Chapter VI. A Theoretical Approach to Evaluate Online and Traditional Trading on the NASDAQ Stock Exchange ..................... 67 Haroun Alryalat, Brunel University, UK Yogesh Kumar Dwivedi, Brunel University, UK Jasna Kuljis, Brunel University, UK Ray J. Paul, Brunel University, UK Chapter VII. Adaptive Collaborative Work and XML Web Services: Benefits of Application into Information Infrastructure and Human Resources ............................................................................................ 86 Mayumi Hori, Hakuoh University, Japan Masakazu Ohashi, Chuo University, Japan Chapter VIII. Helping Users, Mentally: A Lesson Learned from Hypertext and Web Navigation ........................................................ 101 Paulus Insap Santosa, National University of Singapore, Singapore Chapter IX. Reducing the Costs of Doing Business: Human Costs and Social Issues of IS/IT Strategies ........................ 135 Souad Mohammed, UK Chapter X. From ASP to Web Services: Identifying Key Performance Areas and Indicators for Healthcare .......................... 149 Matthew W. Guah, Warwick University, UK Wendy L. Currie, Warwick University, UK Section III: Thriving or Not Chapter XI. Future Trends ................................................................ 178 Matthew W. Guah, Warwick University, UK Chapter XII. A 21st-Century Tool for Intelligent Enterprises ......... 185 Mathew W. Guah, Warwick University, UK Chapter XIII. Conclusions ................................................................ 227 Matthew W. Guah, Warwick University, UK
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Glossary ............................................................................................. 259 About the Authors .............................................................................. 313 Index ................................................................................................... 318
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Preface
This book addresses the business issues and management concerns in relations to Internet strategies of organisations in the 21st century. By so doing, the editors hope this book will point medium- and large-sized businesses in the proper direction, to manage emerging technologies, such as Web services resources and strategies to their competitive advantage. With the phenomenon of Web services in its infancy, the authors have drawn from works of IS pioneers Markus, Porter, Checkland, and others. Their intellectual contributions, plus findings from research work by both new and experienced academics in Europe, USA, and Asia, provide a framework for discussion. Web services business model was borne out of the Application Service Provision (ASP) business model. ASP delivers personal productivity software and professional support systems, assisting an intelligent enterprise in processing information, solving business problems, developing new products, and creating new knowledge. The need to exploit Web services capabilities to preserve and enhance organisational knowledge is clearly defined by this book. This is not a textbook, but it encompasses all the practical areas in which an information system strategist functions, and also those of IT and business managers. The following criteria that are being used as the foundation for the best of textbooks on information systems are all explored in this book. They are Internet strategies and management concepts, the business and economic of information systems environment, opportunities and information about ASP and Web services, sociological aspects of Web services buyer behaviour, psychological aspects that influence consumption of Web services applications, strategic tools and tactics, market segmentation, Web services product life
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cycles and categories, commercialization, distribution, promotion, communications, organization, analysis, application integration, future aspirations of service providers, ethical issues and much more. The aim of this book is to disclose the motives and mechanisms of Web services as it is developing and changing as the 21st century unfolds. Internet strategies cannot be described intelligently without exploring some fundamental features and problems of society as a whole. That many IT managers in small and medium-size businesses are either directionless, like a boat without a rudder, or are drowning beneath waves of Internet strategies management theories that pass over their heads, and others that persist in spite of the fact that they remain unproven, may well be a reflection of the draft of general economic slowdown. An IT manager or Information Systems strategist or Business Operations manager will find that this book: • • •
Balances systems theory and proven Internet management frameworks which are illustrated with practical cases; Explains the strategic management of Internet policies in terms of capabilities of IT in business; and Provides a good guide to those who need to discover how to apply Internet for strategic advantage of an organization.
Matthew W. Guah & Wendy L. Currie Leamington, Warwickshire, UK June 2005
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Introduction
This book is about strategic direction of Internet strategies and the management of strategic change to emerging technologies, in general, and Web services, in particular. To deal with this complex topic we have structured this book into three parts containing six main areas. The first section looks at a comprehensive framework of the emerging technologies process upon which this book is structured. This part also includes chapters on Application Service Provision (ASP), Web services, Concerns, and Recommendations. These chapters clarify the various issues relating to this new phenomenon in Internet strategy. Section II includes chapters on case studies from different parts of the world showing how Web services are being used to benefit businesses. They show leadership in the Internet strategic direction and decision-making and on culture and values as these are forces that determine how Internet strategy can be managed within an organization. Section III considers how a situation analysis for the future of Web services business model might be carried out. The emphasis is on understanding the future of new technology strategies and the continuously changing business environment and technological resources. The functional subjects that relate to the management of organizational technological resources and that underpin a study of Internet strategy are examined. Following this Introduction is a Technology Review section that presents the central theme of the historical shifts from a mainframe to a client server, and now to Web services strategy. An observer of the client-server technology would have found the task of accurately discerning the path of that tech-
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nology during the last decade of the 20th century very difficult. Similarly, the reality of the Web services technology has not burst on the business scene full-blown, but has evolved over some 5 to 10 years from the ASP business model. Moreover, statistical evidence to define this emerging social and economic reality has lagged behind the writers and commentators who have identified the important features of this significant change. Chapter I contains ASP and discusses the rise and fall of this phenomenon in a relatively short period. This is followed by a similar discussion for the Web Services business model. This will then be followed by Concerns which discusses the engine that is driving the Web services industry. Just as the steam, electric, and gasoline engines became the driving forces behind the Industrial Revolution of the early 1900s, so the Internet and high-speed telecommunications infrastructure are making Web services a reality today. A resulting “information processing” industry is the business sector which is providing the impetus for this revolution, with its increasingly improving array of hardware, software, and information products and services. These technologies, in turn, are having and will continue to have profound impacts on business management, competitive advantage, and productivity. Having set the stage by describing the changing business environment for organizations today, Recommendations then moves to the need for each enterprise to fundamentally think its corporate strategy. The situation can be compared to the railroad industry in the late 1800s. It had to change its mindset from one of buying up large land tracts and laying railroad ties to one of moving goods and people from one place to another, so companies today must reconsider their traditional lines of business as they begin operating in the 21st century. For Web services vendors, it is not just a question of selling a product, but of selling a solution to a customer’s problem. This is where the lines between delivering the services and traditional versus emerging markets are blurring and changing. The qualitative dimension is as important in the Web services industry as the quantitative dimension. Quality control must be built into the front end of the service delivery cycle, not viewed as a last-minute check to be done just before contracts are reviewed. Here is where the human factor is introduced into our discussion. In essence, the intelligent enterprise is a distributed network of human talent. Within the individual enterprise, outmoded human resources management philosophies must be replaced by modern approaches that maximize the brain contribution to the products and services, not just the brawn contribution. The emphasis of Web services is on working smarter, not
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just harder. Web services strategy requires businesses to rethink not just the elements of their economic milieu, but also their political and social contexts. This does not suggest some kind of radical shift away from the profit motive to the quality-of-life motive. However, we do endeavor to point out that this strategy presents both risks and opportunities for every business in the 21st century. Much of this discussion implicitly recognizes that doing business in an intelligent enterprise forces suppliers, producers, and consumers into far closer proximity with one another than is the case in an industrial economy. Before the concluding statements, we invite the reader to look at more forms of Web service applications involving implementation issues from active researchers in both Europe and Asia. Haroun Alryalat and his colleagues at Brunel University, London, report on a strategy involving the Stock Exchange. Mayumi Hori and Masakazu Ohashi both at Hakuoh University, Japan, and Paulus Insap Santosa at the National University of Singapore, report on some respectable projects taking place in Asia involving Web services in the distribution of technology to that part of the world. Souad Mohammed clarifies several hidden costs relating to the implementation of information systems in the 21st century. Matthew Guah and Wendy Currie take the reader through an implementation of Web services in the UK National Health Service, summarizing parts I and III within a live project. Finally we examine the problem of redefining success in the business environment of the 21st century in Future Trends. Central to this discussion is the idea of adding value at each stage of the information systems life cycle. ASP, as a form of technological accomplishment, had little meaning for businesses and other organizations. Unless Web services can be linked to business innovation, the challenge for business professionals is to find ways to improve business processes by using Web services. This book has been written to take the reader into the 21st-century IS strategy paradigm. Utmost attention is paid to integrate the current business and management ideas with the deployment of Web services as one of the new information technologies. Yet, the book is rooted in the concepts that have emerged over the decades of development of the IS discipline. Web services in terms of its products and services has continued to evolve over its short history. As these changes have progressed, the landscape of the Internet technology has become crowded with new services, technologies, products, and transmission media. As the Internet has continued to evolve with the discovery of new technologies and the integration of “older” technologies such as mobile computers and broadband communications, new opportunities and markets within this area of business have opened up. Web services, as a form of electronic
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commerce, can be the sharing of business information, maintaining business relationships, and conducting business transactions by means of computer telecommunications networks. Similar to the development of the Internet’s World Wide Web, Web services has been changing both the ways organizations deal with one another and the way internal corporate processes are carried out with the assistance of telecommunication infrastructures. The capabilities offered by Web services present an opportunity to redesign the business processes of intelligent enterprises in order to reach new levels of performance. The researchers whose work underpins this book did not operate in isolation to the work of others in the IS and related fields. All through this book, selected examples of the existing literature will be discussed under the various headings of theory. Many examples and cases throughout the text have been drawn from international business areas. The purpose is to describe some interesting work, which was forerunner and inspiration to our research, while maintaining the role of theory and case studies within the interpretive tradition of IS research. The epistemology can be viewed as broadly interpretive, seeing the pursuit of meaning and understanding as subjective, and knowledge as a social construction.
Technology Review Change usually takes a long time, and the technology that transformed enterprises and the economy is no exception. Why should anyone be overwrought about the slow growth of Web services? It took mainframe computers a decade or two to become central to most firms. In fact, when IBM marketed its first mainframe computer, it estimated that 20 of these machines would fulfill the world’s need for computation! Minicomputers moved into companies and schools a little faster than mainframes, but they were also considerably less expensive. Even the ubiquitous PC took 5 to 10 years to become an important part of work life. The road travelled by these pioneers was rocky. Actual accomplishments seldom matched those initially envisioned. There were several reasons for this shortfall—a general lack of computer literacy among users, a general lack of business literacy, and an ignorance of the management role by information specialists, computing equipment that was both expensive and limited by today’s standards, and so on (McLeord, 1993). Some IS reviewers believe that one error in particular characterized the early systems above all others: they were too ambitious. Firms believed that they could build
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giant information systems to support all managers. With the benefits of hindsight, one can now describe systems designed then as being snowballed or the task attempted being unmanageable. However, some firms stuck it out, invested more resources, and eventually developed workable systems—although more modest in size than originally projected—while other firms decided to scrap the entire management information system idea and retreated to data processing. When the first computers were applied to business problems in the 1950s, there were so few users that they had almost total influence over their systems. That situation changed during the 1960s and 1970s as the number of users grew. It then became necessary to consider the combined needs of all users so that the systems could function in an efficient manner. During the 1980s, the situation became even tighter when a new player entered the picture—the enterprise (McLeord, 1993). A stage of organization/staff reliance on information systems started in the mid-1980s with demands that information systems increased operational efficiencies and managerial effectiveness. On the back of such evolution, strategic information systems gained importance as systems expected to help organizations compete. In the 21st century, information systems are being developed in an enterprise environment (see Figure 4.1).
21st Century: The Age of Information Society Beniger (1986) puts forth a seemingly influential argument that the origin of the information society may be found in the advancing industrialization of the late nineteenth century. As industrial plants increased their processing speed, the need for increased resources to control manufacturing and transportation resulted in a feedback loop wherein enterprises had to process information ever faster. The demand for sophisticated information processing equipment resulted in the development of computers. While the subsequent new technologies nurtured the development of an information society, the continuing cycles of demand pull and supply push account for the progress in the field. The Internet is simply a global network of networks that has become a necessity in the way people in enterprises access information, communicate with others, and do business in the 21st century. The Internet contains a distributed software facility that organizes the information on it into a network of interrelated electronic documents called the World Wide Web (WWW). WWW has
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changed the face of computing, both individual and enterprises resulting in the expansion and development of electronic commerce. The Internet is regarded in the 21st century as much more than a means of communication. It is also a source of information and entertainment that facilitates the development of electronic commerce. The initial stage of e-commerce ensured that all large enterprises have computer-to-computer connections with their suppliers via electronic data interchange (EDI), thereby facilitating orders completed by the click of a mouse. Unfortunately, most small companies still cannot afford such direct connections. Web services enable low-cost access to this service and having a standard PC is usually sufficient to enter this marketplace. The Internet has been a subject of enormous hype and speculation since its explosion in late 1980s. However, Web services can most certainly be said to be responsible for the latest debate surrounding its usage for purposes far beyond its original scope. By the late 1990s, ASP-like business models were applied by a proliferation of small businesses in the Western world, thereby creating what sometimes seemed a cult status with people from many parts of society talking about a “new breed of entrepreneurs.” Beyond the problems that may arise from the systematization of information, we suggest that there is within the discipline of Web services a model of infrastructure and context which is foundational but inadequate. This is the code model of Web services, deriving from the work of Sleeper and Robins taking a pragmatic look at the emerging Web services market (Porter & Millar, 1985). We will draw on a number of theoretical sources in search for an improved foundation. A link is also made to the environment reality theory of perception proposed by Little (1999).
Internet Strategy Our examination of Internet strategy begins with a look at the understanding of strategy in business and it’s purpose to achieving business goals. Nearly all written work in the area of strategy are based on the classic book by Alfred Chandler (1962), Strategy and Structure. The definition used in that book is: The determination of the basic long-term goals of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. (p. 13)
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Chandler considered strategy to be about setting general goals and deciding on the broad types of action and use of resources needed to achieve them. These involved the overall size and scope of the organization concerned, the mix of products or services being provided, and the organization’s core values. Such approach to strategy implies that strategies are the intended outcomes of systematic, rational decisions by top managers about clearly defined problems. The resulting strategic change or innovation would appear as a linear, sequential process in which strategic analysis and choice would follow unproblematic trend by strategy implementation. It has been recorded that Chandler’s views of strategy goes without its critiques (Mintzberg, 1979, 1990; Quinn & Hilmer, 1994; Whittington, 1993). Some of these authors have contrasted the idea of strategy as a deliberate, consciously intended plan with strategy as an emergent property, evolving incrementally and piecemeal out of the ideas and actions of people at different levels of the organization. Such strategies may be articulated consciously by top management in most successful organizations. Others consider such emergent, adaptive, or incremental view of strategy assumes that the internal and external environments of organizations are inherently ambiguous, unstable, and unpredictable. Others believe strategy does not assume that managers in organizations can only influence events at the margin, simply adapting pragmatically and opportunistically to continually changing circumstances. These authors consider the essence of a strategy and its crucial importance in any process of change or innovation is that it embodies the deliberate and conscious articulation of a direction. Successful strategies require both an overall sense of direction and a continuous adaptation to change. For a deeper understanding of strategies and strategy development, it is imperative to recognize their strong links with organization culture, the deeper level of basic assumptions and beliefs that are shared by members of an organization that operate unconsciously and define in a basic taken-for-granted fashion an organization’s view of itself and its environment. It has become even more accepted in the 21st century that strategies are both rooted in, and partly explained by, organization culture. Jon Clark in his book, Managing Innovation and Change (1995), outlined how the original founders of many of today’s large successful organizations—Ford in the USA, Marks & Spencer in the UK, Pirelli in Italy, and Siemens in Germany—played a crucial role in establishing their overall strategy and organizational culture. Clark (1995) also shows that organizational culture is one of the most important areas of strategy which can be influenced by top managers and visionary leaders within the organization.
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Mintzberg (1979, 1990) shows strategies to usually exist at a number of levels in any organization. These strategic levels can be generally distinguished into corporate, business, and operational. 1.
2.
3.
Corporate strategy is concerned with the overall size and scope of the organization. This involves the organization’s basic goals and objectives, its core values and overall profile, as well as the general allocation of resources to different operations. Business strategy can also be referred to as competitive strategy and is concerned with the choice of products or services to be developed and offered to particular markets and customers. This also involves the extent to which the choices made are consistent with the overall objectives of the organization. Operational strategy is concerned with the different functions within the organization. These functions could be production or service delivery, finance, personnel, research, or development which all influence and are integrated within the corporate and business strategies of the organization.
The interaction and consistency between the different levels of strategy and structure are crucial issues for the organizational performance. Clark (1995) raises the level of a long-standing debate about the relation between strategy and organization structure. Chandler (1962) phrased this debate with a phrase that “structure follows strategy.” This implies that organizations should first plan their strategy before embarking on the process of designing their structure to fit within such strategic plan. In contrast, Mintzberg (1990) argued that strategies are unlikely to be decided without reference to existing structures. The relationship between strategy and structure is likely to be reciprocity rather than a one-way determination. Mintzberg (1990) paraphrased Chandler’s “structure follows strategy” as the left foot follows the right. Clark (1995) points out that multinational corporations face a number of complex structural problems in developing strategies which are not faced by small businesses or professional organizations.
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References Beniger, J.R. (1986). The control revolution: Technological and economic origins of the information society. Cambridge, MA: Harvard University Press. Chandler, A.D. (1962). Pattern in organizational analysis: A critical examination. Business History Review, 36(2), 233–. Clark, J. (1995). Managing innovation and change. London: Sage. Little, G.R. (1999). Paper 1: Theory of perception. Retrieved June 2002, from www.grlphilosophy.co.nz McLeord Jr., R. (1993). Management information systems: A study of computer-based information systems (5th ed.). New York: Macmillan. Mintzberg, H. (1979). An emerging strategy of direct research. Administrative Science Quarterly, 24(4), 582–589. Mintzberg, H. (1990). The design school: Reconsidering the basic premises of strategic management. Strategic Management Journal, 11(3), 171. Porter, M.E., & Millar, V.E. (1985). How information gives you competitive advantage. Harvard Business Review, 62(4), 149–160. Quinn, J.B., & Hilmer, F.G. (1994). Strategic outsourcing. Sloan Management Review, Summer(39), 63–79. Whittington, G. (1993). Corporate governance and the regulation of financial reporting. Accounting and Business Research, 23(91), 311.
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Acknowledgments
So many people have played a role in the development of the ideas presented here that it is difficult to know where to begin in acknowledging them. The first draft of this manuscript was written while I was a PhD student at the Centre of Strategic Information Systems in the Department of Information Systems and Computing at Brunel University. All the staff at DISC, initially, established a wonderfully hospitable environment for this enterprise. I owe an inestimable debt of gratitude to Michael Livesey with whom I have discussed many of the ideas developed herein and who read and made numerous helpful comments and suggestions on several drafts that have been incorporated in the final version of this book. While I was writing this manuscript, I was reading Wendy Currie’s excellent book Value Creation from e-Business Models (Elsevier ButterworthHeinemann, 2004). Her study clarified my thinking on many issues and contributed to shaping the direction of my own work. I humbly appreciate her continuous support and encouragement as I seek my way through the ‘trapdoors’ of academic life. This book would not have been possible without the cooperation and assistance of the authors, reviewers, my colleagues and the staff at Idea Group Publishing. The editors would like to thank people at Idea Group, namely: Mehdi Khosrow-Pour for inviting us to produce this book, Jan Travers and Amanda Appicello for their contributions, Diane Huskinson and Michele Rossi for managing this project, especially for answering our questions and keeping us on schedule. A special word of thanks goes to Ms. Kristin Roth, for her diligence and determined stewardship during this laborious project.
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Last but certainly not least my family (including Evelyn Christine, Michael Appopo, Matthew Gbeyadeu and David Gbemie) who have all patiently borne with me through dejection and inspiration as this book has evolved. Evelyn has also provided a steady supply of patience, sound judgement and an indefatigable supply of good nature for which I will continue to owe her considerably.
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Section I Strategic Approaches to Internet for Organizations
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Application Service Provision 1
Chapter I
Application Service Provision Matthew W. Guah, Warwick University, UK
Abstract This chapter not only defines the application service provision phenomenon, but also details the issues surrounding its emergence as an Internet strategic module. It reports on several studies that concentrated on the application service provision module impact on the day-to-day operation of a business.
What is Application Service Provision (ASP)? According to the ASP Industry Consortium, an ASP is a third-party service firm that deploys, manages, and remotely hosts software applications through centrally located services in a rental or lease agreement (ASP Consortium, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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2000). Such application deliveries are done to multiple entities from data centres across a wide area network (WAN) as a service rather than a product, priced according to a license fee and maintenance contract set by the vendor. ASP is considered by many to be the new form of IT outsourcing, usually referred to as application outsourcing. While the IT industry has become accustomed to selling software as a service, the ASP business model is different due to its scale and scope of potential and existing application software offerings to small, medium, and large customers. In addition, this model enables ASPs to serve their customers irrespective of geographical, cultural, organizational, and technical constraints. The apparent complexity of the ASP model led to a taxonomy including Enterprise ASP, Vertical ASP, Pure-Play ASP, Horizontal ASP, and ASP Enabler (Figure 1.1). An earlier evaluation of different ASP business models resulted into four broad categories of delivery, integration, management and operations, and enablement (Currie, Desai, & Khan, 2004). An important debate surrounding all ASP models is the extent to which application outsourcing is different from traditional outsourcing. Figure 1.2 provides a breakdown of traditional and application outsourcing. Probably the
Figure 1.1. The evolution of the ASP models Application Centric
Initiation Evaluation Implementation Integration Services Consolidation
Customer Centric 2003
2002
2001
2000
1999
1998
1997
Virtual Application Service Provider (VASP) Application Service Delivery (ASD) Full Service Providers (FSP)
Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Figure 1.2. Three stages of IT outsourcing (Currie & Seltsikas, 2000)
most noticeable difference between the two is within the relationship with the customer. ASP is a metamorphosis of software into a service that exists on the Web, or often referred to by practitioners as Web-native software world. In this model, a giant Internet protocol (IP) network (called the Internet) is being used to effectively turn software into a service driven function that exists as a oneto-many option. The simple explanation for ASP is that a company delivers application software from a central source, delivering it over a network connection and charging a fee for its use. ASPs can also be described as the delivery of preconfigured template software from a remote location over an IP network on a subscription-based outsourcing contract. This is usually in a one-to-many relationship and must be viewed as a preimplementation outsourcing contract that can be billed as payment for a service—in relation to the UK mobile phone market, a pay-as-you-go service.
Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Emergence of ASP This section focuses on the emerging role of the ASP model. During the last five years, the ASP phenomenon has grown considerably, with many established and start-up firms developing their ASP strategies. There is a growing awareness that few activities and professions have seen such a rapid change over the past years as the activities and professions related to the field of information systems (Lee et al., 1995). Initially called “apps on tap,” this sourcing model promised to deliver best-of-breed, scalable, and flexible business applications to customer desktops (Kern, Willcocks, & Lacity, 2002). ASP was the hottest topic in 2000–2001 in what was referred to in USA as “practice management solution.” Well-established practice management software companies include Medic, Millbrook Corp., and Computer Sciences Corp. Other less-known companies are Greenway Medical, Alteer Corp., and Perfect-Practice.MD. While these companies offer remote hosting of software to their customers in the healthcare sector, they also promise the advantages of client-server applications without the expensive infrastructure or even the staff required to maintain it. Forecasts for the growth of the ASP industry vary, with Ovum (Ring, 2000) predicting it will be $25 bn and Dataquest $22.7 bn by 2003 (ASP Industry Consortium, 2000). ASPs will have a significant impact on outsourcing policies and practices if the business model successfully penetrates underexploited sectors such as health care. The early phase of the ASP model appeared to revisit the service bureau model of the 1960s and 1970s (Currie, 2000). During this period, many companies signed outsourcing contracts with a service bureau. The fashionable term “outsourcing” was rarely used, as the more narrow facilities management contracts involved mainframes data centres and bespoke software. The service bureau model was moderately successful even though there were many technical, communications, and financial problems which precluded it being a viable option for many companies. In this current era, outsourcing will continue to undergo a significant shift from the centralized computing of the 1960s and 1970s, the distributed computing of the 1980s and 1990s, through to the remote computing in the 21st century. ASPs will play a central role since they will increasingly offer a utility model to customers where the latter will purchase applications on a pay-as-you-use basis (Currie et al., 2003).
Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Application Service Provision 5
As these historical stages have evolved, the basic strategic resources and tools of economic activity have shifted, as has the nature of work and culture. In the “post-Net era,” a term coined by editors of Issues of Strategic Information Systems for its special issue in 2002, the application of knowledge and intellectual technology in response to the organized complexity of technology, organizational, and social institutions become the critical factor of production and services. The findings of many studies provide substantial evidence for the reality of the ASP industry in the USA and the transitional phase which the national economy has moved through in progressing to ASP technology (Currie, 2000). Moreover, the study also provided support for the notion that the basic sources of wealth had shifted from capital to information and knowledge resources. If ASP is a technological and economic reality, then what is its impact on business? At the outset, it is clear that the Internet’s impact on business will evolve over time and will redefine our understanding of business management, competition, and productivity. While we have been living with the consequences of the Internet for many years, our understanding of these shifts in human events has lagged behind the reality. Ironically, this delayed effect has been particularly acute in Europe in recent years, as compared to Japan and the USA. For example, in the USA, preliminary planning in moving IT outsourcing toward an ASP model emerged as a general business goal in early 1980s, and by the late l990s it had been translated into a full-scale economic development strategy. Moreover, by the late 1990s, the USA was beginning to assess its economic development strategies in the ASP industry, and the impacts such pronounced shifts in IT industry priorities would have on business. Even today, European business and political debates over IS strategic policy remain tied to traditional views of outsourcing. Many senior executives still remain sceptical or openly critical of the ASP phenomenon. These attitudes among corporate executives and senior managers betray some fundamental misunderstandings not only of the current state of the ASP industry in Europe, but also of the terms and conditions under which the advanced ASP industry in the USA will compete with European business in the future. Nearly every participant in our research with small- and medium-size companies (SME) in the UK agrees that implementing ASP solutions (which sometimes results in automating certain work flows) without first making necessary fundamental changes and improvements is the wrong way to go about business
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improvement. That is because new and better products often replace existing ones. At the same time much-needed skills may not be backed up by job descriptions and functional statements. And too often the pooling of parallel and similar operations is not considered when implementing an ASP solution. Preliminary findings of our research show some conflicting stakeholders perceptions for a successful implementation of such a model. These perceptions not only lead to a better understanding of the ethical issues involved but also of the complex relationship of these ethical issues with other technical, organizational, and social issues that need to be managed effectively.
What Does ASP Mean for Your Business? An application containing a database with all your customer information or payment due date or records of all e-mail is stored and processed by an outside provider in lieu of being on your local network. This means no one in your business needs to worry about maintaining a server full of all this information. It is painful for an organization to have to spend IT resources maintaining servers and thinking of the disasters when the system goes down or an upgrade is needed. An ASP business model allows your business the luxury of having an outside service provider, who specializes in server maintenance and support, to provide what should be an incredibly reliable and secure IT systems—something only a few businesses could afford before now. A typical ASP has to submit to government audits, provide multiple servers (redundancy), four-way (4-T3) replication, backup power systems, and 24/7 support. Most small- and medium-size companies cannot afford all that and keep up to date with necessary improvements. It also allows savings from software licensing, enabling small- and medium-size companies to be as powerful as their larger competitors. They do this by subscribing to an inexpensive monthly ASP service giving them the chance to be virtually unlimited in their capacity to store information. An ASP supplies a complete infrastructure for your business and manages the network and all the applications that you wish to run on all the computers within your company. An ASP usually charges a fixed fee to manage your network and
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applications. One important factor in this business model is that the ASP is allowed to manage your network. Your business does not need to operate its own server; instead, your computers are connected to the ASP’s server through an open connection. One major problem with ASP uptake, so far, has been that the costs of such connections have not fallen significantly as anticipated. This would have provided an attractive alternative to increasingly expensive network management. Moreover, your company would know in advance what the software and management will cost because it is being charged a fixed fee.
References ASP Industry Consortium. (2000). Industry news. Retrieved December 2002, from www.Aspindustry.org Currie, W., Desai, B., Khan, N., Wang, X., & Weerakkody, V. (2003). Vendor strategies for business process and applications outsourcing: Recent findings from field research. Hawaii International Conference on Systems Sciences, Hawaii. Currie, W.L. (2000). Expanding IS outsourcing services through application service providers. Executive Publication Series. CSIS2000/002. Currie, W.L. (2004). The organizing vision of application service provision: A process-oriented analysis. Information and Organization, 14, 237– 267. Kern, T., Willcocks, L.P., & Lacity, M.C. (2002). Application service provision: Risk assessment and mitigation. MIS Quarterly Executive, 1(2), 113–126. Lee, D.M.S., Trauth, E.M., & Farwell, D. (1995). Critical skills and knowledge requirements of IS professionals: A joint academic/industry investigation. MIS Quarterly, 19(3), 313. Ring, (2000). European market research: A report to the ASP Industry Consortium. Ovum, March.
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Chapter II
Web Services Matthew W. Guah, Warwick University, UK
Abstract Organizations today are desperate to identify new opportunities in the facilities provided by the Internet. Few have attempted to link interorganizational, interfunctional and interpersonal levels of their organizational processes via Web services. They have undertaken this process in anticipation of reshaping and improving their core business processes. This chapter details how Web services could potentially make a significant different in the integration of software applications across multiple platforms, sites and departments of an organization. The chapter concludes by advising that organizations, in the process of reviewing their Internet strategies, should at least investigate the potential impact of Web services integration because this could sooner or later become a permanent business necessity and not just a competitive advantage material.
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What are Web Services? Web services are the small software components that are available over the Internet. Publishing as Web services makes the software applications more reusable and shared by many more users. Web services enable business partnering and thereby generate a great way of revenue streaming for the companies. It also helps in reducing the development, integration, and maintenance cost of the software application. Simple Object Access Protocol (SOAP) is the communication protocol that helps in transporting the Extensible Markup Language (XML) messages between the client and server. SOAP is nothing but XML over Hypertext Transfer Protocol (HTTP). When the Web service client makes a request, the SOAP client application programming interface (API) constructs a corresponding XML message containing the remote method name and value for its parameters and sends the XML message over HTTP to the server hosting the Web services. The server receives the XML message, executes the business logic (may be written in Java), and sends the response back to the client. The Web services paradigm includes a programming model for application integration that does not discriminate between applications deployed inside and outside the enterprise. Integration and development of Web services can be done in an incremental manner, using existing languages and platforms and adopting existing legacy applications (Figure 2.1). One of Web services’ anticipated benefits is that human end-user interaction in the normal data entry Web application can be replaced by direct application-to-application communication. When we talk about the benefits of Web services, we cannot overlook a few issues in using Web services as well (Sleeper & Robins, 2002). The primary issue is security. The other Web applications, such as Java Servlets, are being accessed via HTTP browser. The user-specific information can be stored in the HTTP session and used for users’ session tracking. A fine example of this is the shopping cart application. However, because Web services are being invoked by the stand-alone client applications, the server could not have any idea about the user who is actually making the request. This would pose a major problem that any unauthorized user may consume our Web services and we do not have any control on this. Another serious problem is the tampering of XML messages while they are transmitted over wire (Wilkes, 2002).
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Figure 2.1. Web services integration model
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Web Services 11
Using XML, business analysts can define policies and express them as EML documents. These documents can have sections that are encrypted and the documents can be digitally signed, distributed, and then interpreted by the security mechanisms that configure the local software. This will allow various implementations to map from the XML description to a local platform-specific policy enforcement mechanism without requiring changes to the infrastructure.
Web Services Approach This new approach introduces the proxy-based lightweight framework for providing secure access to the Web services being requested by the clients. The basic idea is to deploy a proxy Web service that receives the request from the end client on behalf of the actual Web service. The proxy service authenticates the end client by validating the client’s credentials, which he/she had sent along with the Web service request. If the client is authenticated successfully, he/she will be given access to the requested service. The advantages of this approach are as follows: • • • • •
It is based on message-level security. It does not only authenticate the user, but it also verifies the message integrity. It does not disturb the actual Web service, which may be running on the production server. It acts like a plug-in; it can be removed and replaced with any other solution at any point in time. It hides the actual Web service; the process is abstracted from the client. The client would not know that his/her request has been intercepted and processed by a proxy.
Integrating new handlers, such as auditing and notification, is very easy. Whereas an auditing handler is for maintaining the service access information, a notification handler could be used for sending e-mails to the service providers in case of any problem in accessing the service. Someone might now want to raise a question about the performance of the proxy approach. Because of the introduction of a proxy in the communication
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path of end service, the invocation time will be a little longer. However, the performance figures are more acceptable. The proxy Web service uses Web services handlers to intercept XML messages used in Web services. It contains two major components, namely: • •
Authentication handler Proxy client
Needless to say, the authentication handler is realized by using a Web service handler and the proxy client is the back-end component. The two components are packaged into a single Web service. While the authentication handler authenticates the client, the proxy client invokes the actual Web service. To start with, the end client sends the request to the Web service proxy along with its credentials. The credentials could be either a clear text password or a digital certificate. In case of basic authentication, the credentials (username and password) need to be sent as HTTP header parameters. In the case of advanced authentication, the end client signs the XML message with his/her digital certificate and sends the signed XML message to the server. Now the client has done its job. On the server side, the authentication handler acts as an XML interceptor, which receives the XML message and the HTTP header parameters, if any. Depending on the type of authentication mechanism needed, the corresponding
Figure 2.2. Proxy-based approach to Web services (www.developer.com/ articles)
WS 1
WS 2
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implementation is invoked to verify the credentials. By providing many hooks, different kinds of implementations for the authentication could be integrated very easily. The Lightweight Directory Access Protocol (LDAP) server can act as an ACL repository, which stores all the clients’ profiles. In the process of authenticating the client, the credentials being sent by the clients can be verified against the credentials stored in the ACL repository. If they are found to be matching, the user is authenticated successfully. Otherwise, the authentication process is a failure and the handler will send the failure message to the end client. In the case of successful authentication, the proxy client invokes the actual Web service by constructing a new SOAP message and sending it to the server hosting the actual Web service. As far as the end client is concerned, he/she receives the response from the proxy Web service and the whole logic of authentication and actual service invocation is abstracted out. The other advantages of this new proxy approach over other products are as follows: • • • •
Lightweight framework Low cost Easy to integrate Quick to deploy
Web services are not a disruptive approach to hosted services, rather, they are an additive step forward. They will provide a standards-based way for different services and applications to interoperate, which will greatly reduce the integration hurdles ASPs have long faced. In the process, Web service will also give ASPs increased flexibility to create and deliver more personalized hosted solutions for their customers. Considering Web services are created and distributed by multiple entities, an ASP would not be able to ensure that individual Web services will be developed or run on the infrastructure of their choice. However, the ASP must develop and deploy its own services with infrastructure that complies with Web services standards. This will ensure that services can efficiently interact with, and take advantage of, other Web service components.
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Web Services’ Impact In the seemingly fast-paced world of the 21st century, change is the only constant and therefore event horizons are immediate; businesses cannot predict what they will need or how they will act in a year’s time. Web services are the current tools best suited to the ability to bridge the multiplicity and complexity of existing IT infrastructures. Such usefulness of ASP to an intelligent enterprise is as important as any other in the 21st-century collaborative business environment. Web services are self-contained, modular business process applications that Web users or Web connected programs can access over a network— usually by standardized XML-based interface—and in a platform-independent and language-neutral way. This makes it possible to build bridges between systems that otherwise would require extensive development efforts. Such services are designed to be published, discovered, and invoked dynamically in a distributed computing environment. By facilitating real-time programmatic interaction between applications over the Internet, Web services may allow companies to exchange information more easily in addition to other offerings, such as leverage information resources, and integrate business processes. Users can access some Web services through a peer-to-peer arrangement rather than by going to a central server. Through Web services systems can advertise the presence of business processes, information, or tasks to be consumed by other systems. Web services can be delivered to any customer device and can be created or transformed from existing applications. More importantly, Web services use repositories of services that can be searched to locate the desired function so as to create a dynamic value chain. The future of Web services goes beyond software components, because they can describe their own functionality as well as look for and dynamically interact with other Web services. They provide a means for different organizations to connect their applications with one another so as to conduct dynamic ASP across a network, no matter what their applications, design, or run-time environment. Web services represent a significant new phase in the evolution of software development and are unsurprisingly attractive to a great deal of media and industry hype. Like almost all new Internet-related technologies, the immediate opportunities have been overstated, although we believe the eventual impact could be huge. This can be demonstrated by the immediate and key role of Web services which is to provide a paradigm shift in the way business manages IT infrastructure (Hondo, Nagaratnam, & Nadalin, 2002). It provides intelligent
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enterprises with the capability of overturning the accepted norms of integration and thereby allowing all businesses to rapidly and effectively leverage the existing IT and information assets at their disposal. Intelligent enterprises currently running an outsourcing service are already seen to be one of the early gainers of the Web service revolution. However, there will be others as enterprises discover the hidden value of their intellectual assets. Considering most enterprises have until now used the Internet to improve access to existing systems, information, and services, we envisage the days when Web services promise new and innovative services that are currently impossible or prohibitively expensive to deploy. With such developments anticipated to promote the ASP business model, Web services integration is considered to be at the heart of this expectation. Through this process of connecting businesses, ASPs will be able to quickly capitalize on new opportunities by combining assets from a variety of disparate systems, creating and exposing them as Web services for the end game of fulfilling customer expectations. It is our view that any intelligent enterprise considering the ASP business model should at least investigate the potential impact of Web services integration as this will sooner or later become another permanent business necessity and not a competitive advantage material. Those intelligent enterprises that have adopted our suggested approach will not only gain advantage now in business for lower costs and better return on assets, but are also expected to develop valuable experience for the first decade of the 21st century. Considering the Internet’s history, as Web services become the standard and the expertise of ASP become more established, it should become the norm. Figure 2.3 shows that holistic approach to technology always seems to work better than piecemeal approach to information systems solution. Web Services, as it is currently is like a two-legged table. A version of Web Services Plus being practiced by a few vendors after the dot.com crash is represented by the three-legged table above. However, an even more successful model of Web Services Plus would be a properly architectured four-legged table, as presented above. The analogy here is that a two-legged table is less stable than a three-legged table while a four-legged table is even firmer (Figure 2.3).
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Figure 2.3. Evolution of Web services
•
Techno logy
•
Techno logy
•
Techno logy
•
Application
•
Application
•
Application
•
People
•
People
•
Work Flow
Conclusion This chapter has discussed Web services and the security issues involved in using Web services. It also briefed you about the various solutions available and how the proxy-based approach can be very useful for securing Web services.
References Hondo, M., Nagaratnam, N., & Nadalin, A. (2002). Securing Web services. IBM Systems Journal, 41(2). Sleeper, B., & Robins, B. (2002). The laws of evolution: A pragmatic analysis of the emerging Web services market. An analysis memo from the Stencil Group. Retrieved April 2002, from www.stencilgroup.com Wilkes, L. (2002). IBM seeks partners to drive adoption of XML Web services. Interact, February.
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Chapter III
Concerns Matthew W. Guah, Warwick University, UK
Abstract As evidence relating the reality and basic features of the application service provider (ASP) market continues to grow, there begins to be less concern about confirming that any structural economic shift has continued historically, and more concern about understanding how the ASP industry is performing, and its impacts on productivity, investment, corporate capital formation, labor force composition, and competition. The relationship between the traditional outsourcing and the “latest wave” esourcing on the one hand, and Internet investment productivity on the other, is at the centre of the IT strategic problem confronting corporate management in the 21st century.
Intelligent Enterprise Business Environment An intelligent enterprise exists within several environmental elements. These are the enterprises and individuals that exist outside the intelligent enterprise and have either a direct or indirect influence on its business activities (see Figure Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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3.1). Considering intelligent enterprises are operating in different sectors, area of emphasis, and with different policies and strategies, the environment of one enterprise is often not exactly the same as the environment of another. The business environment for intelligent enterprises includes the enterprise itself and everything else that affects its success, such as competitors, suppliers, customers, regulatory agencies, and demographic, social, and economic conditions. A properly implemented ASP business model would provide the means of fully connecting an intelligent enterprise to its environmental elements. As a strategic resource, ASP helps the flow of various resources from the elements to the enterprise and through the enterprise and back to the elements (see Figure 3.1). Some of the more common resources that flow include information flow from customers, material flow to customers, money flow to shareholders, machine flow from suppliers, and personnel flow from competitors and workers’ union. Looking at Figure 3.1, one can see a generalized theory of enterprise’s perception (Little, 1999). The theory is sufficiently imaginatively motivated so that it is dealing with the real inner core of the ASP problem—with those basic relationships which hold in general, no matter what special form the actual case may take.
Figure 3.1. A tool for controlling influences in a complex environment Education / Researchers
Customers Suppliers
Competitors
Environmental Movements Financial Community
Intelligent Enterprise Worker’s Union
Share Holders
International Government
Charities / NGO
National Government
Local Government
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An intelligent enterprise can succeed only by adapting itself to the demands of its external environment, which is often represented by a number of groups (formally called stakeholders) that affect the organization’s ability to achieve its objectives or those affected by it. Stakeholders other than participants and customers form another important part of the context. Stakeholders are people with a personal stake in an ASP system and its outputs even if they are neither its participants nor its customers. Permanent among such groups are customers, distributors, competitors, employees, suppliers, stockholders, venture capitals, trade associations, government regulators, and professional associations. An important role for the information systems is to keep the organization informed of the activities of all these stakeholders and similarly stakeholders are kept informed about the activities of the organization. Zwass (1998) describes an organization as an artificial system. He further defines an organization as a formal social unit devoted to the attainment of specific goals. With notification that a business enterprise, as a system, has to generate profit, though it may also pursue other objectives, including employment provision, and contributing to its community generally. Zwass (1998) also restricts the value measurement of an artificial system to two major criteria: effectiveness (the extent to which a system achieves its objectives) and efficiency (the consumption of resources in producing given system outputs). Considering that intelligent enterprises compete in an information society, the requirements for successful competition depends on the environment. In the case of ASP, such environment presents several serious challenges, and the role of intelligent enterprises information systems has evolved over time as competing enterprises attempt to meet these challenges. Few enterprises have, however, identified opportunities for deploying strategic information systems that have proven success in the competition process by analyzing the forces acting in the marketplace and the chains of activities through which they deliver products and services to that marketplace.
Infrastructure Issues Infrastructure is the resources the system depends on and shares with other systems. Infrastructure is typically not under the control of the systems it serves yet it plays an essential role in those systems. For ASP the technical infrastructure typically includes computer hardware, telecommunication facilities, and appropriate software designed to run on the Internet. Examining infrastructure
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may reveal untapped opportunities to use available resources, but it may also reveal constraints limiting the changes that can occur. Evaluation of infrastructure is often difficult because the same infrastructure may support some applications excessively and others insufficiently. Drawing from Porter and Millar’s theory that information systems are strategic to the extent that they are used to support or enable different elements of an enterprise’s business strategy, this paper proposes a framework that IS in larger organizational systems may enable their effective operation or may be obstacles (Porter & Millar, 1985). In an earlier paper we use the UK’s National Health Service’s system infrastructure and context as two distinct means of determining impact on larger systems (Guah & Currie, 2002). Infrastructure affects competition between businesses, geographic regions, and even nations. Inadequate infrastructure prevents business innovation and hurts intelligent enterprise efficiency. While every international businessperson can see that things have changed vastly in most of Africa and South America, the significance of infrastructure as a competitive enabler or obstacle has clearly not changed. That is because infrastructure consists of essential resources shared by many otherwise independent applications. A local region’s physical infrastructure includes its roads, public, transportation, power lines, sewers, and snow removal equipment. Its human and service infrastructure includes police, fire, hospital, and school personnel. A region’s physical and human infrastructure can be either an enabler or an obstacle and is therefore a central concern in many business decisions. The importance of certain IS infrastructure elements serve as a key motivation for the successful implementation of ASP. The required IS infrastructure raises a broad range of economic, social, and technical issues such as who should pay for infrastructure? Who should have access to/control over them and at what cost? Which technology should it include? Where ASP is involved, the economic question often puts telephone companies against cable companies, both of which can provide similar capabilities for major parts of the telecommunications system. From certain viewpoints, it can be considered the responsibilities of government to ensure that a national IT infrastructure is available as a key motivation for the previous buzz words “information superhighway.” Just as local regions depend on the transportation and communication infrastructure, infrastructure issues are important for ASP implementation and operation. These systems are built using system development tools; their operation depends on computers and telecommunication networks and on the IS staff. Deficiencies in any element of the hardware, software, or human and
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service infrastructure can cripple an information system. Conversely, a wellmanaged infrastructure with sufficient power makes it much easier to maximize business benefits from ASP.
Inadequacy of Existing Infrastructure Most people would agree that motorways such as the M4, M6, and M1 together with railways up and down the country are a part of the UK’s transportation infrastructure. Transportation is vital to the economy; it makes the movement of goods and people possible. Economic infrastructure provides a foundation on which to build commerce. Is there a technology infrastructure? At the national level, there is a communications infrastructure in the form of networks that carry voice and data traffic. In recent years, the Internet has become an infrastructure that ties a wide variety of computers together. The Internet highlights the fact that an innovation which began as an experiment can mature to become part of the infrastructure. Infrastructure begins with the components of ASP, hardware, telecommunication networks, and software as the base. A human infrastructure of IS staff members work with these components to create a series of shared technology services. These services change gradually over time and address the key business processes of the intelligent enterprises. Noninfrastructure technology is represented by applications that change frequently to serve new strategies and opportunities (Weill, 1993). It sounds in practice that much of the justification for infrastructure is based on faith. Weill (1993) did find one firm with a creative approach to paying for infrastructure. The company required careful cost-benefit analysis of each project. When this showed higher-than-necessary benefits, it was loaded with infrastructure costs to take up the slack. In essence, the company added in “infrastructure tax” to projects, not unlike airline ticket taxes to pay for airports. Infrastructure is vital, but investments in it are hard to justify if you expect an immediate return. The Singapore example presents the classic case for infrastructure; a small amount of investment and guidance creates a facility on which many organizations can build. Networking in Singapore has the potential to transform the nature of commerce on the island and to help achieve the citystate’s goals for economic development.
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Telecommunications: Facilitating ASP Emancipation Telecommunications is the electronic transmission of information over distances. In recent years this has become virtually inseparable from computer with a paired value that is vital for integrating enterprises. Most enterprises in the 21st century have access to some form of telecommunications network, which is simply an arrangement of computing and telecommunications resources for communication of information between distant locations. These enterprises are usually using one of two types of telecommunications networks which can be distinguished by their geographical scope: local area network (LAN) and wide area network (WAN). LAN is a privately owned network that interconnects processors, usually microcomputers, within a building or on a compound that includes several buildings. It provides for high-speed communication within a limited area where users can share facilities connected to the network. On the other hand, WAN is a telecommunications network that covers a large geographical area which large businesses need to interconnect their distant computer systems. Computer networks differ in scope from relatively slow WAN to very fast LAN. There are several topologies and channel capacities responsible, which the objective of this chapter does not permit of a detailed exploration. ASPs use WAN as a fundamental infrastructure to employ a variety of equipment so that the expensive links may be used efficiently. The various equipments control the message transfers and make sharing the links among a number of transfers possible. An increasing number of ASP customers have user PCs that are connected to a LAN that communicates with the WAN via a gateway. In certain cases the ASP may offer common carriers and provide value-added service that can be combined with private networks to create an overall enterprise network. As an e-commerce phenomenon, a few of the essentials of an ASP infrastructure are common carriers, value-added networks, private line, and private networks. Common carriers are companies licensed, usually by a national government, to provide telecommunications services to the public, facilitating the transmission of voice and data messages. As most countries permit only one common carrier, the service can be broken down and leased as value-added networks to vendors who then provide telecommunication services to their own customers with added values that could be of various sophistications. For increased speed and security, an enterprise may not want to share with others and could take the option of leasing its own private lines or entire networks from Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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a carrier. It has been proven that leasing links can result in savings from highvolume point-to-point communications. The above are the apparatus through which an ASP uses telecommunications to give its customer the capability to move information rapidly between distant locations and to provide the ability for their employees, customers, and suppliers to collaborate from anywhere, combined with the capability to bring processing power to the point of the application. As shown earlier in this chapter, all this offers an ASP customer the opportunities to restructure its business and to capture high competitive ground in the marketplace.
Issues of Security Considering the ASP industry is riding on the back of the Internet’s overnight success, the highly publicized security flaws have raised questions about ASP suitability to serve as a reliable tool for the promotion of intelligent enterprises for the 21st century. An ASP vendor could be forgiven for thinking the primary service to its customers is to provide connections between possibly millions of computers linked to thousands of computer networks. However, the prevention of unauthorized users who steal information during transmission, who sabotage computers on the network, or who even steal information stored in those computers are major parts of the vendor’s responsibilities. Exploiting this flaw might permit hackers to gain control of designated servers and then access or destroy information they contain. As long as these risks are not as far fetched as one might hope, customers would continue to be wary about the uptake of ASP business model (Currie, Desai, Khan, Wang, & Weerakkody, 2003). The many break-ins and other general security problems occurring with Internet/intranet demonstrate some of the risks of engaging in any form of business model linking to the Internet. Many ASP vendors have tried to reduce the danger using firewalls and encryptions but such maneuvers not only reduce risk, but they also reduce the effectiveness of a networked environment (see Figure 3.2). The IT community has generally accepted that effective use of encryption and firewall techniques could eliminate much of the risk related to unauthorized access and data theft. Does any mathematical encryption guarantee absolute security? No. Just as a physical lock cannot provide absolute safety, encryption cannot guarantee privacy—if a third party uses enough computers and enough time, it will be able to break the code and read the message. However, by choosing the encryption
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Figure 3.2. Comparison of forward and reverse proxy cache security
method carefully, designers can guarantee that the time required to break the code is so long that the security provided is sufficient. It is advisable that intelligent enterprises keep this principle in mind when thinking about Internet security. When someone asserts that an encryption scheme guarantees security, what they actually mean is that although the code can be broken, the effort and time required is great. Thus, an encryption scheme that requires longer time to break than another scheme is said to be “more secure.” However, a good proportion of the small- and medium-size enterprises (SMEs) surveyed did not appreciate that many ASP vendors have tried to reduce the danger using what is called firewalls—computers that intercept incoming transmissions and check them for dangerous content. Some fear that the mere process of downloading information across the Internet may entail hidden risks (see Figure 3.2). As far as performance goes, some vendors are considering arrangements with national telecommunication giants for better data access facilities over WAN. The trend toward deregulating telecommunications must continue globally for data rates to become a much less important restriction in the future.
Overcoming Obstacles to a Commercial Future The powerful trend toward a networked society has many components, starting with the fact that use of online networks is exploding. Businesses in the 21st Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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century require tools that take advantage of the millions of people who have used computer networks for business and personal uses. These businesses rely on the fact that e-mails and e-bulletin boards are not only commonplace in leading businesses but also used for purposes ranging from answering customer service inquiries to exchanging views about personal topics and politics. Reinforcing these trends, ASP vendors are building the network capabilities into their products for intelligent enterprises to see the Web services as an important turning point for commercial opportunities because it has made the Internet so much more accessible and adaptable for nontechnical business users. Many obstacles are currently apparent, however, when one looks at the possibility that ASP will become a motivational tool for intelligent enterprises in the 21st century and a major determinant for the future of Internet influence on the world’s population. The areas of concern, mentioned in Table 3.1, relate to organization, security, online performance, freedom and control, competition, and hype versus Table 3.1. Major obstacles and proposed solutions OBSTACLES Organization
CAUSES Earlier capacity was daunting and business strategy was unproven
Security
Too many reported server break-ins and other general Internet/intranet security problems
Performance
Telecommunications infrastructure available in the 1990s globally not sufficient to support requirements General negative press about lack of control on the Internet and risk to criminal accessing confidential data Business model does not encourage differentiation
Control Competition Hype
Although ASP model was said to save costs and is enticing to SMEs, very little evidence exist
SOLUTIONS Advent of Web services to make ASP far easier to comprehend and adapt Industry to emphasize efforts in protection machinery and firewall systems Use of broadband services and improvement to infrastructure globally Some form of regulation— of an international nature—might be needed Cooperation must be based on trust between vendors and individual customer Whether the great potential of ASP to SMEs will prevail over the sceptics’ views remains to be seen. Web services is expected to provide that killer means of bridging the gap
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substance. The issue of organization is based on the way ASP has evolved. The ASP industry lacks the type of clear organization that would make it easy to use as a reliable and profitable business model. Although ASP vendors’ former capacity was daunting and strategy was unproven, the advent of Web services will make it far easier to comprehend and even adapt. Looking back at the Internet’s history, one sees many incidents that raise issues about freedom and control. Major Western nations (USA, UK, France, etc.) have either proposed or passed legislation related to criminal penalties for transmitting, accessing, or intercepting data of the Internet illegally. Although the Internet has been unregulated in the past, serious consideration of ASP-like business models could result in more legislation.
ASP as Competitive Investment The fundamental definition of what constitutes a mission-critical application remains relatively unchanged; it is those applications where even the smallest amount of downtime will have a significant negative impact on an enterprise’s operational efficiency and bottom line. However, the nature of what intelligent enterprises now deem to be mission-critical systems has altered with a far greater range of applications. One way to interest a manager in a new innovation is to show that a competitor is planning to adopt this innovation. Intelligent enterprises do respond to competition to avoid being put at a disadvantage. Banks provide a good example of investment in technology for competitive reasons. In an early study of ATM deployment, Banker and Kauffman (1988) found that ATM adoption provided a limited advantage to certain banks. The findings suggest an early advantage from installing ATMs and joining a large network. Customers clearly like ATMs and the interconnections to the banking network it provides: there is very little reason for a bank not to join an ATM network. In fact, because competitors offer ATMs and are in networks, a new bank is almost forced to invest in this technology. In 2002 ATMs were certainly competitive necessities for banking. Some banks were closing expensive branches and installing ATMs instead. However, since all banks can follow this strategy, it was unlikely one would gain a significant advantage from it. The airline industry offers another example of IS as a competitive necessity. To start an airline in the 21st century—especially in the UK and the USA—you would have to invest in some kind of ASP service for making a reservation. The
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travelling public has become accustomed to being able to make reservations and obtain tickets easily, either paper or electronic. Investments for strategy and to meet a competitive challenge may not actually benefit the enterprise making them. An enterprise may be forced to adopt new technology to stay even with the competition, as in the two examples mentioned earlier. In this case, it is not so much return on investment in ASP, but rather what is the cost of not investing? Will an enterprise lose customers and market share because it does not have a particular technology in place? Can you enter a new line of business without investing in the technology that competitors have adopted? What kinds of services do customers expect?
ASP Implementation Strategies The strategy one chooses for implementation has a direct impact on the level of investment required for an ASP initiative. One strategy is to hire external expertise, either to develop the entire application or to work with the internal IS staff. Consultants have been available for developing ASP investments since the first systems appeared. Consultants will provide advice, and many will actually undertake the development of the IT application. Carried to an extreme, the enterprise can outsource the development and even the operation of an ASP application. There are a number of network providers who offer complete xSP services (vertical, horizontal, pure play, etc.) and an enterprise might outsource its electronic data interchange efforts to them. The major advantage of using consultants and outsourcing is the availability of external expertise. ASP is so complex and difficult to implement that most intelligent enterprises include a budget for help from a consulting enterprise that has extensive experience with this package. When the enterprise enters into a consulting or outsourcing agreement for an ASP initiative, it should be aware of the need to manage its relationship with the supplier. Enterprises that have delegated the responsibility for developing a new ASP application to an outside enterprise generally have been unhappy with the results. Managers still have to monitor the agreement and work with the supplier. There are examples of many very elaborate management committees and structures established at enterprises such as Microsoft, UNISYS, and IBM to manage outsourced IS. Evidence within the past three years have shown that situations can develop in which large numbers of insurmountable problems arise with issues that, in an
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ASP vendor’s opinion, were going to cause lasting impediments to the ultimate systems implementation. Among several vendor options were these primary four: • • • •
Implemented the IS as best as they could within these constraints; Demonstrated unpalatable objection to the problem owners and set conditions for eventual completions of work; Strove to ignore the problems and created the system as if they did not exist; and Completely refused to continue work regardless of system phase.
While each of the above courses has quite a serious implication, the first option was most taken. Intelligent enterprises should determine the uptake of ASP based on their longterm IS plan and on requests for information systems by various stakeholder, that is, the prospective users, corporate management, internal IS team, customer, and supplier accessibility. It is not sufficient to implement ASP for the competitive edge the system may give the enterprise or the high payoff the system promises. The past phase of ASP has proven that not all systems that appear promising will produce sufficient business results to justify their acquisition. However, it is no surprise that certain intelligent enterprises still find it difficult to evaluate the worth of prospective new technology. Borrowing from Checkland’s Human Activity System (HAS) concept, an ASP vendor will have problem with certain stakeholders and surrounding issues (Checkland & Scholes, 1990): • •
• •
Client: the systems beneficiary can be difficult to identify due to the outsourcing nature of ASP business arrangements. Owner: the eventual system owner may be anywhere between the negotiating party to a fourth party somewhere and in some cases not able to participate in the original negotiations. Actor: these are often individuals and groups—of various types and with various needs—who are usually involved in the system at different stages. Objective: what the project is intended to achieve is highly dependent on the process and it can often be different for various users and stakeholders.
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• •
Environment: the situation in which the system will be developed and implemented grossly affects the final outcome of the process. Expectation: there are often as many assumptions of a project as the number of times it is discussed. More important, these assumptions tend to change as one goes through various stages of the system development and implementation.
The issue here is not just one of investment; it also involves learning and time. There is a learning curve, sometimes quite steep, with new technology. If the enterprise has not developed a modern infrastructure over time, it will have to invest more for a new ASP initiative because of the need to build infrastructure. It will also have a longer development time as the IS staff learns about this infrastructure and develops the new applications that require it.
Problem, Solution, or Opportunity? One stimulus for ASP solution implementation is its intention to transform the enterprise. In this light, the investment in ASP is part of a larger change programme that is meant to enable intelligent enterprises’ virtual and multipleteam structures. The resulting contributions can be described as part of the outcome of a general change effort. Change is also an opportunity. For most of the companies involved in our research, management decided on a desired organization structure and used IT investments to help create it. Managers planned for change and welcomed it as an opportunity to make the entire organization function better. Change is always a threat, as staff members are forced to alter behavior that has probably been successful until now. However, as shown in some of the examples in this book, change is also an opportunity to reshape intelligent enterprises and make them more competitive. The push toward greater connectivity is a major factor driving ASP investments in the 21st century. The UK’s Department of Trade and Industry (DTI) has encouraged (some would say mandated) a certain level of electronic data interchange (EDI) compliance for companies that wish to do business with it. Industry associations encourage companies to communicate electronically. Efficient customer response, EDI, just-in-time, continuous replenishment programs, and the Internet are all examples of the different kinds of electronic connectivity.
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For the successful implementation of ASP in the 21st century, organizations must maintain a socio-technical perspective, thereby avoiding the purely technological approach to achieving higher productivity. Indeed, balancing this with the consideration of social and human aspects of technology brings the added value of creating a workplace that will provide job satisfaction. Such information systems must be designed to fit the needs of its users and the organization at large and be capable of evolving as these needs invariably change. Such ethical considerations of information systems have moved into the forefront as information systems have become pervasive in modern businesses. Ethics, for the most part, involve making decisions about right and wrong and not necessarily about the possible and impossible and only remotely relates to production increase or decrease. The major ethical issues that have been noticed to be affecting intelligent enterprises information systems in the 21st century can be summarized into privacy, accuracy, property, and access. In an effort to modernize, every challenging intelligent enterprise in the 21st century seems to be jumping on the ASP bandwagon. There comes a point when industry analysts should implement the critical success factor (CSF). The CSF methodology—developed by John Rockart of the Massachusetts Institute of Technology—defined as those few critical areas where things must go right for the business to flourish—derives organizational information requirements from the key info needs of individual executives or managers. CSF methodology is oriented toward supporting an enterprise’s strategic direction. By combining the CSFs of these managers, one can obtain factors critical to the success of the entire enterprise. Such an approach has been proven to be useful in controlling quality of the information system in certain vertical sectors (Bergeron & Bégin, 1989).
Effects of ASP on IS Departmental Staff Employee involvement is an employee’s active participation in performing work and improving business process (Alter, 1996). The old-fashioned view of employee involvement—employee following the employer’s instruction in return for a wage—encourages employee to be passive, take little initiative, and often view themselves as adversaries of the enterprise and its management. In contrast, truly involved employees feel a responsibility to improve their work practices with the help of managers and others in the enterprise.
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ASP can directly affect employee involvement. ASP can generally be deployed in ways that increase or decrease employee involvement in their work. An ASP business model that provides information and tools for employees increases involvement because it reinforces the employee’s authority and responsibility for work. On the other hand, an ASP business model that provides information to managers or quality inspectors but not their employees can reduce involvement by reinforcing the suspicion that the employee is not really responsible. The human and service side of the infrastructure in intelligent enterprises often gets short shrift in discussions of new systems or system enhancements. Business professionals are often surprised at the amount of effort and expense absorbed by the human infrastructure. The tendency toward organizational decentralization and outsourcing of many system-related functions makes it even more important to include human infrastructure in the analysis of new systems.
Human Factors in ASP Technologies Development The rapid rate of development of these technological miracles, as they would have been viewed from an earlier age, has created a momentum of its own, and it is not surprising that concomitant concerns have also developed about the impact and influence of ASP on human society. The shrinking of time and space enabled by ASP has benefits in terms of task efficiency and wider capability for communication, but it is less obvious that ease of management or even stress at work are improved at a deeper level (Markus, 1983). The above discussion should not be taken to imply that ASP models determine the direction of intelligent enterprise management. The development and the use of an ASP solution is within management control and there is no inevitable future path. However, it can be argued that the quantity and quality of debate about the human and societal impact of computers and related technology has not matched that rate of development of the technologies themselves (Walsham, 1993). For example, the debate concerning ASP and its Web services in intelligent enterprises largely centres on questions of strategic importance and value for money rather than deeper issues of human job satisfaction and quality of life. While the mechanistic view of enterprise formed the early foundation of an intelligent enterprise management, the image of enterprises as organisms has arguably been the most influential metaphor for management practice over the
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last few decades. The corporeal view sees intelligent enterprises as analogous to living systems, existing in a wider environment on which they depend for the satisfaction of various needs. The origins of this approach can be traced back to the work of Maslow (1943), which demonstrated the importance of social needs and human factors in work activities and enterprises effectiveness. It then emphasized that management must concern itself with personal growth and development of its employees rather than confining itself to the lower-level needs of money and security. With respect to social relations as considered in Web models, it is important to note that participants include users, system developers, the senior management of the company, and any other individuals or groups who are affected by the ASP business model. Kling (1987) notes that computing developments will be attractive to some enterprise participants because they provide leverage such as increasing control, speed, and discretion over work, or in increasing their bargaining capabilities. Fear of losing control or bargaining leverage will lead some participants to oppose particular computing arrangements, and to propose alternatives that better serve their interests. It could be said that the above comprises the analysis of what Checkland (1983) defines as the HAS. HAS can be seen as a view on the social, cultural, ethical, and technical situation of the organization. Both models deal with one old problem which continues to trouble information systems today. That is, thinking about the means by which to deal with the two aspects of any new system (human beings and technology) and how they can best communicate with each other. As it relates to ASP, the industry must bring together the right mix of social (human resources) and the technical (information technology and other technology) requirements. Here is where the key hardware and identified human alternatives, costs, availability, and constraints are married together. A synopsis of an IS problem usually appears chaotic and incomprehensible. An example is the NHS IS strategy as of December 2001 (Guah & Currie, 2002). The use of a problem framework will not only show the essence of a view of the problem context but will also demonstrate that getting the context and meaning of the problem right is more important than presentation. The primary tasks should reflect the most central elements of what is often called “problem setting.” ASP vendors should demonstrate, when reviewing a given situation, that any incoming information system is intended to support, develop, and execute primary tasks originally performed by humans. They should be aware of issues that are matters of dispute that can have a deleterious affect upon primary tasks. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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In terms of IS, the issues are often much more important than the tasks. Considering it is not possible to resolve all issues with any given technology, they should always be understood and recognized. That is because reality really is complex, so the ASP industry should never approach a problem situation with a conceited or inflated view of its own capacity. Not all problems can be mapped, discussed, and designed away. Often the ASP industry will be required to develop a form of amnesia toward certain problems that are either imponderable or too political in terms of the organization or business (Guah & Currie, 2002). A detailed understanding of the above will help in providing a reasonable answer to certain essential questions that are necessary for an ASP to satisfactorily produce working solutions for its customers. A few of the general questions are: Who is doing what, for whom, and to what end? In what environment is the new system to be implemented? To whom is the final system going to be answerable? What gaps will any addition to the old system fill within the new system?
Socio-Technical Issues An intelligent enterprise normally has separate objectives when looking at IS in terms of social and technical requirements. While the social objectives refer to the expectations of major stakeholders (i.e., employees), the technical objectives (Table 3.2) refer to capacity of the organization as a whole to react to key issues. Because the social objectives (Table 3.2) of an ASP solution can broadly be seen as the expectations of the system in terms of the human beings who are going to be working with it, they will vary from one project/contract to another. As they are often undervalued, management does not tend to feel that the social Table 3.2. Socio-technical benefits of ASP SOCIAL Being relatively self-sufficient Providing a quick service Providing job satisfaction Providing professional satisfaction Improving division’s professional status
TECHNICAL Informing management Improving timeliness Improving communication Increasing information-processing capacity Providing a long-term facility
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needs of a system are as critical for system development as technical issues. They may involve different ways of organizing individuals to undertake the work required for the system, simultaneously achieving the authoritative influence. The technical objectives (Table 3.2) are the primary tasks one hopes that the system will need to undertake and would therefore need to be very specific. It is important that ASP vendors indicate to their customers the depth of detail it needs to go into.
Selecting Information Systems ASP solutions come in various forms. Ideally, selecting among the alternatives should be based on clearly stated decision criteria that help resolve trade-offs and ASP uncertainties in light of practical constraints and implementation capabilities. The trade-offs for intelligent enterprises include things such as conflicting needs of different business processes, conflicts between technical purity and business requirements, and choices between performance and price. The uncertainties include uncertainty about the direction of future technology and about what is best for the enterprise. Implementation decisions are almost never made by formula because so many different considerations do not fit well into understandable formulas. Although these ideas provide some guidance and eliminate some options, there is no ideal formula for deciding which solution and capabilities to invest in. Many IS departments could double and still not have enough people to do all the work users would like. In practice, many IS departments allocate a percentage of their available time to different project categories, such as enhancements, major new systems, and user support. However, with each category, they still need to decide which systems to work on and what capabilities to provide. Cost-benefit may help with these decisions. Cost-benefit analysis is the process of evaluating proposed systems by comparing estimated benefits and costs (Alter, 1996). While the idea of comparing estimated benefits with estimated costs may sound logical, there are several limitations in terms of ASP business model. One could see the appropriateness when the solution’s purpose is to improve efficiency. But where the system is meant to provide management information, transform an enterprise or even to upgrade the IS infrastructure, it becomes terribly difficult to predict either the benefits or the costs of the solution. Considering costbenefit analyses are usually done to justify someone’s request for resources, the
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numbers in a cost-benefit study may be biased and may ignore or understate foreseeable solution risks (Alter, 1996). Key issues for cost-benefit analysis include the difference between tangible and intangible benefits, the tendency to underestimate costs, and the effect of the timing of costs and benefits.
Agent-Based Approach to ASP Most of the ASP applications mentioned in this book automate some aspect of the procurement process, thereby helping decision makers and administration staff to complete their purchasing activity. An agent-based approach to ASP is well equipped to address the challenges of multimarket package to eprocurement. This section of the paper is devoted to looking at the goal-driven autonomous agents that aim to satisfy user requirements and preferences while being flexible enough to deal with the diversity of semantics amongst markets, suppliers, service providers, and so forth. Service agents within the ASP model are the system’s gateway to external sources of goods and services. These agents are usually aware of the source’s market model and of the protocols it uses (Zhang, Lesser, Horling, Raja, & Wagner, 2000). Service agents are not only able to determine which requests they can service, but also proactively to read these requests and they try to find an acceptable solution. Agent technology has been widely adopted in the artificial intelligence and computer science communities. An agent is a computational system that operates autonomously, communicates asynchronously, and runs dynamically on different processes in different machines, which support the anonymous interoperation of agents. These qualities make agents useful for solving issues in information-intensive e-business, including speaking ontology, advertising, service exchange, knowledge discovery, and so forth. In the ASP industry, the interoperation and coordination across distributed services is very important. The desire for more cost efficiency and less suboptimal business processes also drives the employment of agent technology in the ASP business model. This has resulted in the support of agent technology; more ASP agents seem to be appearing on the Internet providing e-services as well as exchanging information and goods with other agents. The interoperation of ASP agents leads to the formation of the e-Business Mall, which is an interaction space of agent communities under various business domains.
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As indicated in this chapter and elsewhere in this book, the significant problems in the ASP business model are the information deficiency and asymmetry between the business participants. It is also difficult for each participant to exchange information products and services in an efficient manner, and to partner in an intelligent enterprise. The social nature of knowledge sharing— especially critical business knowledge—carries high complexity. The capability advertisement and knowledge discovery, upon which agent-based approach to ASP depends, can only be achieved by message interaction among dynamic processes. Knowledge or service relevance is one basis for such approach to be introduced to real-life business procedure and service contracting in the 21st century by companies.
Tangible and Intangible Benefits Benefits are often classified as either tangible or intangible. The tangible benefits of ASP solution can be measured directly to evaluate system performance. Examples include reduction in the time per phone call, improvement in response time, reduction in the amount of disk storage used, and reduction in the error rate. Notice that tangible benefits may or may not be measured in monetary terms. However, using a cost-benefit framework for ASP solution requires translating performance improvements into monetary terms so that benefits and costs can be compared. Intangible benefits affect performance but are difficult to measure because they refer to comparatively vague concepts. A few of intangible benefits of a solution are: • • • • • • •
Better coordination Better supervision Better morale Better information for decision making Ability to evaluate more alternatives Ability to respond quickly to unexpected situations Organizational learning
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Although these goals are worthwhile, it is often difficult to measure how well they have been accomplished. Even if it is possible to measure intangible benefits, it is difficult to express them in monetary terms that can be compared with costs. All too often, project costs are tangible and benefits are intangible. Although hard to quantify, intangible benefits are important and should not be ignored. Many of the benefits of IS are intangible.
The Role of Government Having articulated these basic parameters, it is now possible to focus on specific policy issues of most immediate concern to Western governments as they develop their agendas for Internet administration. Some of the issues affecting the success of the ASP business model are apparent now, but others remain on the horizons—not a problem of today but a potential one in the future: • •
•
Modernization of the machinery and process of government. This is to include the electronic delivery of services and information. Reform of intellectual property law to accommodate access to and exploitation of works via the Internet. This is to include administration of Internet domain names on an international basis. Facilitation of the development of e-commerce including national and international initiatives and measures to protect both suppliers and consumers operating within this electronic marketplace.
The Law of Confidence The law of confidence protects information. Unlike copyright and patent law, the law of confidence is not defined by statute nor derived from class law. The guiding principle is the protection of the business interest of the organization already using and benefiting from it. The scope of this branch of intellectual property is considerable and it protects trade secrets, business know-how and information such as lists of clients and contacts, information of a personal nature and even ideas which have not yet been expressed in a tangible form (Bainbridge, 2000). A typical example would be an idea for a new software program. The contents of many databases owned by intelligent enterprises will be protected by the law of confidence. However, the major limitation is that the information Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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concerned must be of a confidential nature and the effectiveness of the law of confidence is largely or completely destroyed if the information concerned falls into the public domain; that is, if it becomes available to the public at large or becomes common knowledge to a particular group of the public such as computer software companies. Nevertheless, the law of confidence can be a useful supplement for intelligent enterprises to copyright and patent law as it can protect ideas before they are sufficiently developed to attract copyright protection or to enable an application for a patent to be made. Being rooted in equity, the law of confidence is very flexible and has proved capable of taking new technological developments in its stride.
References Alter, S. (1996). Information systems: A management perspective (2nd ed.). Benjamin/Cummings. Bainbridge, D. (2000). Introduction to computer law (4th ed.). Longman Pearson Education. Banker, R., & Kauffman, R. (1988). Strategic contributions of information technology: An empirical study of ATM networks. Proceedings of the Ninth International Conference on Information Systems, Minneapolis, MN. Bergeron, F., & Bégin, C. (1989). The use of critical success factors in evaluation of information systems: A case study. Journal of Management Information Systems, 5(4), 111–124. Checkland, P.B. (1983). Systems thinking, systems practice. Chichester, UK: Wiley. Checkland, P.B., & Scholes, J. (1990). Soft systems methodology in action. Chichester, UK: Wiley. Currie, W., Desai, B., Khan, N., Wang, X., & Weerakkody, V. (2003, January). Vendor strategies for business process and applications outsourcing: Recent findings from field research. Hawaii International Conference on Systems Sciences, Hawaii. Guah, M.W., & Currie, W.L. (2002). Evaluation of NHS information systems strategy: Exploring the ASP model. Issues of Information Systems Journal, October. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Kling, R. (1987). Defining the boundaries of computing across complex organizations. In R. Boland & R. Hirschheim (Eds.), Critical issues in information systems research. New York: Wiley. Little, G. R. (1999). Paper 1: Theory of perception. Retrieved June 2002, from www.grlphilosophy.co.nz Markus, M.L. (1983). Power, politics and MIS implementation. Communications of the ACM, 26(6), 430–445. Maslow, A.H. (1943). A theory of human motivation. Psychological Review, 50, 370–396. Porter, M.E., & Millar, V.E. (1985). How information gives you competitive advantage. Harvard Business Review, 62(4), 149–160. Walsham, G. (1993). Interpreting information systems in organisations. Chichester, UK: Wiley. Weill, P. (1993). The role and value of IT infrastructure: Some empirical observations. In M. Khosrow-Pour & M. Mahmood (Eds.), Strategic information technology management: Perspectives on organizational growth and competitive advantage (pp. 547–572). Hershey, PA: Idea Group Publishing. Zhang, X., Lesser, V., Horling, B., Raja, A., & Wagner, T. (2000). Resourcebounded searches in an information marketplace. IEEE Internet Computing: Agents on the Net, 4(2), 49–57. Zwass, V. (1998). Foundations of information systems. Irwin/McGrawHill.
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Chapter IV
Recommendations Matthew W. Guah, Warwick University, UK
Abstract After looking at a few concerns we have about Web services, this chapter suggests a number of ways to approach the Web services business model. It reminds strategists to consider a more holistic approach to IT management rather than supporting their decisions with economies of scale or cost displacement alone. The chapter uses Porter’s classic theories of competitive advantage to review Web services adoption process within organizations.
Blurring In-House IT and ASP Services One impact of the ASP industry on business is the blurring of the old boundaries in IT services between in-house and ASP vendors. In the traditional view, services are merely an add-on to the in-house sector—they are by definition at least, “nonproductive.” In ASP, services either support the growth and survival Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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of the in-house IT department, or they are perceived as socially desirable but not economically essential. Thus, IT consultancy services are important support services for short-term strategies, while “pay as you go” is perhaps nice for business but not essential to the survival of the ASP industry. At the centre of the ASP industry and critical to its wealth-producing capacity is the need for partnership, around which ancillary services revolve. What is commonly overlooked in this view is, first, the notion that the relationship between in-house and ASP is one of interdependence, not dependence. And, second, that the categories of ASP and in-house are not distinct and isolated domains, but represent two sides of a continuum. Thus, contrary to the traditional view, in ASP the growth of services helps support the growth of in-house. As the industry evolves and becomes more complex, the need for new services and specialization in the division of labor continues to increase. Inhouse migrates into strategic management and monitoring of IT standard while ASP migrates into value-added services so that “business IT becomes a service in a package form.” As the boundaries between in-house and ASP become more blurred through the use of improved communications technologies, the opportunities for entrepreneurs continue to increase.
Entrepreneurial Opportunities As the ASP industry matures, a premium is placed on ideas and the strategic use of data flow technology for new business development, rather than on economies of scale or cost displacement alone. The entrepreneur, therefore, becomes the primary user of new technology and ideas for strategic advantage. As a premium is placed on innovative ideas, small businesses acquire an advantage in being flexible enough to evolve new products and services. Moreover, as such innovation proceeds, the role of small business as source of employment continues to increase in significance, particularly in the ASP-like partnerships. Inevitably, even large corporations (such as IBM and most major players) in the ASP industry, are providing opportunities for corporate entrepreneurs to test new ideas under conditions where “normal” corporate constraints on risk-taking and new investments in internal ideas are relaxed. Corporations as large as IBM are providing opportunities for entrepreneurs to flourish internally. The term “intrapreneur” has been coined to describe this internal entrepreneur.
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When technological innovation is the main force leading to lower costs, the firm’s ability to create a competitive advantage depends on its technological skills. Technological innovations often bring costs down—sometimes significantly—thus making the cost reduction solely attributable to economies of scale seems comparatively minor. The enterprises responsible for these innovations draw a significant competitive advantage from them in terms of cost, notably when they succeed in maintaining an exclusive right upon them for a long period. Vendors can only benefit from experience through sustained effort, efficient management, and constant monitoring of costs (Dussauge, Hart, & Ramanantsoa, 1994).
Web Services and New-Game Strategy An ASP may deploy one or more of Porter’s classic theories of competitive strategies: differentiation, cost leadership, focused differentiation, or cost (Porter, 1985). The use of such competitive tactics may include internal growth or innovation, mergers or acquisitions, or strategic alliances with other enterprises or members of the same group of enterprises. However, most enterprises elect to use the new-game strategy which can be defined as a deliberate attempt to modify the forces shaping competition and the definition of the business by particular competitors (Buaron, 1981). Let us take Microsoft and Oracle, both big players in the ASP industry. The difference between spontaneous change in their competitive environments and new-game strategies has less to do with the objective characteristics of the ASP phenomenon than with their individual attitudes with respect to ASP phenomenon. In the first case, changes are seen as external to them, requiring adaptation. In the second case, however, certain initiatives by them are responsible for some changes in the industry and they have therefore deliberately based their strategy on them. Such strategies alter the pace of the change, generally making it more rapid and direct the focus of change in ways that will best benefit the innovating enterprise(s). Web services technology is one of the most important foundations for ASP new-game strategies. Thus, by accelerating the pace of Web services in the industry, a competitor with good capability in the technology reinforces its own competitive position. There are numerous papers warning that such accelerated Web service evolution increases the difficulty that other competitors have in adapting to ASP (Gottschalk, Graham, Kreger, & Snell, 2002; Honda,
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Nagaratnam, & Nadalin, 2002; The Stencil Group, 2002; Wilkes, 2002). By modifying the nature and the relative importance of the key factors for success in the ASP industry, Web service technological changes that are introduced by one or more of the vendors can lead to favorable changes in the competitive environment. In an industry built upon high volume, new technologies that are introduced by some of the competitors that nullify or minimize the impact of scale can significantly alter the nature of the competitive environment by making size a drawback rather than an advantage. Thus, referring back to the example of ASP content distribution, these innovations were driven by the actions of a few competitors, Microsoft and IBM. The changes that occurred in the competitive environment were thus the result of new-game strategies designed to change the rules of competition to their advantage: under the new rules, it was no longer a disadvantage to be a small producer. The competitive impact of such strategies is especially strong when the other competitors cannot use the same type of technology because it is not easily available, for lack of training or for financial reasons. During the period when an enterprise controls an exclusive technology, it can easily recoup its investment through high prices; but by the time this technology becomes more widely dispersed, prices tend to fall dramatically with the advent of new entrants. These investments are a significant entry barrier to competitors. However, the enterprise still manages to retain a dominant position and a good level of profitability in business, since it had recouped its initial investment many times over.
Dynamics Competitiveness Though the big vendors’ strategy depends on several factors, it is not etched in stone; rather, it will vary with the changes in the industry’s key factors for success and the relative advantage that its technology represents. Two types of competitive behavior with respect to technology can be observed: •
•
Switching from a differentiation strategy based on a technological advantage to a cost leadership strategy based on scale, accumulated experience, and a dominant market position; and Constant effort to innovate and improve technology, thereby maintaining a dynamic competitive advantage.
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Table 4.1. ASP model system life cycle (adapted from Alter, 1996) PHASES Initiation
TARGET OBJECTIVES Statement of problem IS expectations
Development
Deciding what the system should deliver Implementation IS running as part of the process to support business goals achievement Operation and Enhance system and correct bugs Maintenance
CHALLENGES Changes in expectations by time Users quite often lack a total understanding output Power and control issues within organization Diagnose/correct problems within time pressure
Oracle’s relative success so far can prove that firms displaying the first type of strategic behavior are generally those that have been able to attain a dominant position because of exclusive technology. As their technology becomes diffused over time, however, they tend to resort to competitive advantage based on their accumulated experience, good reputation, and distribution network. The second type of strategic behavior for vendors confronted with the erosion of their technology-based competitive advantage is a sustained effort to improve or even “reinvent” their technology; rather than “milking” their initial technological advantage, such firms choose to create a new competitive advantage through technological innovation. A vital difference between the ASP model and traditional system life cycle is that error in this initial phase may not proof fatal. That is because the model supports a smooth and easily controlled change method even after it goes into operation, mainly due to its third-party controlling nature. Table 4.1 describes the four general phases of any IS, which also serves as a common link for understanding and comparing different types of business processes used for building and maintaining systems within the ASP model.
ASP Becomes a Part of Strategy It is easy to focus on individual ASP investments rather than their cumulative impact. Intelligent enterprises budget for individual applications of technology and the IS staff works on a project basis. For some intelligent enterprises, the combination of all its individual investments in technology far exceeds their individual impact. A good example is SAP. Here, continued investments in ASP changed the software provision industry and SAP’s own view of its fundamental business. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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45
By becoming a necessity ASP may not create much benefit for intelligent enterprises that invest in it, except that ASP allows the enterprise to continue in a line of business. Who does benefit from investments of this type? The cynical answer might be the vendors of various kinds of ASP product and service. However, a better response is that customers benefit from better quality goods and services, and especially better customer service. Looking at our two earlier examples, customers are much better off with the presence of ATM and computerized reservation systems (CRS). An ATM is convenient and allows one to access cash without presenting a check at his or her own bank. With an ATM, you do not have to worry about a foreign bank accepting your check; from ATMs around the world you can withdraw cash. While airlines have certainly benefited from CRS, so too have customers. You can use a CRS to compare flights, times, ticket prices, and even on-time statistics for each flight. A consumer can make a reservation on a flight and complete the transaction over the telephone or the Internet. Economists talk about a concept called “consumer surplus.” How does consumer surplus relate to investments in strategic and competitive information technology? From a theoretical standpoint, consumer surplus increases as prices drop. The competitive use of ASP reduces costs and prices through applications like those in banking and airlines. The competitive use of ASP has, in many instances, reduced prices (or held down price increases), which contributes directly to consumer surplus. Technological competition may not always create an economic consumer surplus, but it does provide benefits in the form of service and convenience. An ATM can save time for the customer, something the customer may be able to value from a dollar/pound standpoint. The fact that two firms (IBM and Microsoft) had a similar Web service launched within a few months of each other means that the technology was not able to deliver a sustainable advantage from its investment. Neither was able to raise its prices directly to pay for their Web services, so the benefits from their investments in ASP all went to the customers. While the strategies of ASP vendors can thus change over time, a clear strategic direction is indispensable to success. In addition, the transition from one strategy to another is a very difficult and risky undertaking, since it requires a complete reorientation of the vendors’ efforts and radically different patterns of resource allocation. As we have seen, technology is often a major factor behind both differentiation and cost leadership strategies. It is also a critical factor in new-game strategies.
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References Alter, S. (1996). Information systems: A management perspective (2nd ed.). Benjamin/Cummings. Buaron, R. (1981). New game strategies. McKinsey Quarterly, Spring. Dussauge, P., Hart, S., & Ramanantsoa, B. (1994). Strategic technology management: Integrating product technology into global business strategies for the 1990s. Chichester, UK: John Wiley & Sons. Gottschalk, K., Graham, S., Kreger, H., & Snell, J. (2002). Introduction to Web services architecture. IBM Systems Journal, 41(2). Hondo, M., Nagaratnam, N., & Nadalin, A. (2002). Securing Web services. IBM Systems Journal, 41(2). Porter, M.E. (1985). Competitive advantage. New York: Free Press. The Stencil Group. (2002). Understanding Web services management: An analysis memo. Retrieved May 2002, from www.stencilgroup.com Wilkes, L. (2002). IBM seeks partners to drive adoption of XML Web services. Interact, February.
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Section II Case Studies
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48 Choudrie and Dwivedi
Chapter V
Considering the Impact of Broadband on the Growth and Development of B2C Electronic Commerce Jyoti Choudrie, Brunel University, UK Yogesh Kumar Dwivedi, Brunel University, UK
Abstract Internet connectivity has a profound impact on almost all aspects of human lives including social interaction and individual behaviour. The impacts may further foster due to the availability and access of broadband Internet connection. This paper focuses on evaluating the impact of broadband on the growth and development of business-to-consumer (B2C) electronic commerce. The research data was collected from a total of 104 respondents and subjected to both quantitative and qualitative
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Considering the Impact of Broadband on the Growth and Development of B2C 49
data analysis. The results indicate a significant impact of broadband use on transforming consumer behaviour towards adoption of B2C electronic commerce. The paper illustrates how broadband use has an influence on off-line purchase behaviour, online B2C electronic commerce and overall online experience. The conclusions drawn are that broadband adoption and use is encouraging the adoption of B2C electronic commerce.
Introduction It is an established fact that Internet connectivity has a significant impact on both the daily-life activities and electronic commerce consumer behaviour (Nie & Erbring, 2000). Internet innovation is transforming the production and delivery of various categories of products including information and entertainment. Furthermore, new Internet-based services such as e-mail, online conversation, and Web-driven information diffusion will slowly replace or supplement the traditional means of buying and selling (Nie & Erbring, 2000). Although the Internet is helping the spread and adoption of e-commerce, its narrow-width connection has been proven to be one of the major barriers against the growth and development of business-to-consumer (B2C) electronic commerce (Rose, Khoo, & Straub, 1999; Lee et al., 2001). Current research suggests that existing Internet connection—that is, narrowband—is limiting current consumption and access. Therefore, the aims of conducting this survey research are to examine the off-line purchase behaviour and the frequency of B2C ecommerce in the broadband environment. Other related issues that are examined in this article are reasons for shopping online, barriers to online shopping, reasons for subscribing to broadband, and overall online experience in the broadband environment. This exploratory study is structured into several sections. Section 2 provides a critical review of the previous surveys correlated with broadband impact on B2C e-commerce. This is followed by a discussion of the research method for data collection and analysis in section 3. The research findings are then presented in the form of graphs and charts in the section 4. These findings are compared and discussed in section 5. Finally, the limitations, research contributions, and future developments are evaluated and discussed in section 6.
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50 Choudrie and Dwivedi
Background Literature: Research Undertaken on B2C E-Commerce and Broadband Review of the literature for this research involved research method consisting of surveys of B2C e-commerce and broadband. This is to obtain similar contexts to this research. The initial theoretical review began by using the results of Rose, Khoo, and Straub (1999). The research identified six major categories of technological impediments to e-commerce including that of download delays. This is an attribute that broadband is viewed to overcome and is one that this research focussed upon (Rose, Khoo, & Straub, 1999). Broadband is described as a speedy Internet service. This is a primary factor that derives subscribers to adopt the broadband (Bouvard & Kurtzman, 2001). A McKinsey & Company (Carriere et al., 2000) study also reveals that high-speed and an always-on connection was the major reason for subscribing to broadband. However, increasing numbers of people are being motivated to obtain broadband by their desire to use specific Web services applications (Carriere et al., 2000). The most attractive features of broadband that UK consumers found desirable were increased speed and the ability to make voice calls whilst connected (Oftel, 2002). The unmetered access and the always-on nature of broadband are less-significant features. The reason for this may be the wide availability and use of narrowband unmetered packages. According to the study (Oftel, 2002), consumers claimed that the features of faster speeds and always-on access offered by broadband increased Internet usage and enhanced enjoyment. Furthermore, the majority of narrowband users (55%) expressed an interest in upgrading to broadband (Oftel, 2002). Additionally it has been found that broadband technologies are facilitating new Web services applications to meet consumer demands in transforming many aspects of everyday life (Carriere et al., 2000). Consequently, broadband consumers behave differently as they are online four times more than narrowband customers, use more online services, and their online experience is compelling (Figure 5.1) (Carriere et al., 2000). According to another study conducted by Nie and Erbring (2000), the majority of Internet users engage in at least five distinct types of activities on the Web; however, the most widespread use is the information search utility for products, travel, hobbies, and general information (Nie & Erbring, 2000).
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Considering the Impact of Broadband on the Growth and Development of B2C 51
Figure 5.1. Internet activities performed by U.S. consumers (Source: Adapted from McKinsey & Company, 2000) Broadband users are different
Exhibit 2
Percentage of users in the Unites States who use the Internet for ... Narrowband E-mail
Broadband
75.6
Downloading software Browsing
94 42
67
47
66
Chat
23
Buying consumer products Researching purchases made off line Using online financial services Playing games Buying software Time spent on line Hours per week
41
23
40
31
38 18
36
16 10 5.7
31 24 20.7
e-marketer: e-land inc., Ziff Davis; Time Warner; McKinsey analysis
Nie and Erbring (2000) have found that B2C online e-commerce is still conducted by a minority of Internet users. In contrast, the McKinsey & Company study (Carriere et al., 2000) found that broadband subscribers shopped online almost twice as much as narrowband subscribers (Figure 5.1). The reason for this shift is the consumers’ broadband access overcoming the problem of slow page loading. This has been viewed as a major cause for abandoning online shopping in a narrowband environment (Carriere et al., 2000). Similarly, another research study revealed that approximately half (46%) of the population using broadband at home state that more items are being bought online since they can connect more easily to the Internet using broadband (Bouvard & Kurtzman, 2001). B2C e-commerce is also being promoted via other applications utilised within the broadband domain. These include applications such as multimedia in research as explained in the following descriptions. Costa (2001) found that broadband networks allow access to other facilities such as multimedia (image, sound, and text) in a real-time context. This, in turn, has a positive influence on the selection and booking of holidays and travel tickets (Costa, 2001). Other studies that have also found the emergence of other applications via broadband are detailed in Bouvard and Kurtzman (2001). They found that multimedia,
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which is enabled by broadband, is creating a new form of consumers. These consumers are focussed upon using electronic media and entertainment. Compared to narrowband users, broadband users spend 22% more total time on electronic media and are nearly twice as likely to watch or listen to downloaded or streamed content from the Internet. However, the amount of time per day that broadband users spent on downloaded or streamed content is still relatively small (Bouvard & Kurtzman, 2001). The aforementioned findings are based on surveys conducted in the United States and represent a significant—yet small—fraction of broadband users. This is because the impact of broadband uses remains unclear, as the penetration of broadband has not been achieved widely. Therefore, the truth of sociobehavioural change may or may not be consistent with these survey findings and the early predictions made across the globe. To examine this in different social, cultural, and economic environment, researchers from different countries must move from ideological claims to empirical evidence. This is necessary to sustain broadband technology, to improve the online consumer services, and to create a favourable environment for development and growth of B2C e-commerce. This chapter is an early attempt to provide initial and empirical evidence for this topical and emerging phenomenon.
Research Method As a recent phenomenon, broadband is still in the emergent stages of the development cycle. As a result, any research that is meant to emphasise its current position could not be a longitudinal one. Therefore, this study was designed to obtain a snapshot of the B2C e-commerce frequency and other related issues in a broadband environment. For such purposes, the researchers considered survey as a suitable research method. A number of techniques are available to capture data about B2C e-commerce in the broadband environment. However, to maintain information reliability (Cornford & Smithson, 1996) and to collect sufficient data within a limited time and budget (Hall & Hall, 1996), a self-administered questionnaire was considered to be the primary survey instrument for data collection in this investigation. Fowler (1993) has suggested that “if one is going to have a self-administered questionnaire, one must reconcile oneself to closed questions, which can be
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Considering the Impact of Broadband on the Growth and Development of B2C 53
answered by simply checking a box or circling the proper response from a set provided by the researcher.” Therefore, mainly multiple and closed questions were included in the questionnaire except two open-ended questions. Initially, the literature review provided an understanding of the broadband impact phenomenon and the basis for the development of a draft questionnaire. A pilot study validated the questionnaire. This was administered to 10 known respondents familiar with the topic. The majority of the respondents validated the content of the questionnaire and suggested a number of useful improvements that were adopted in the final design. The final questionnaire consisted of a total of 41 questions that included 39 close-ended, multiple and two open-ended questions. However, many categories of this survey questionnaire are not discussed here, including consumers’ online habits and activities performed online in the broadband environment. The aforementioned categories of the survey will be presented in a separate chapter (Dwivedi & Choudrie, 2003). This is due to the focus of this chapter being an examination of the reasons for shopping online, barriers to online shopping, reasons for subscribing to broadband, off-line purchase behaviour, frequency of B2C e-commerce, and the overall online experience in the broadband environment. Due to the uncertainty regarding personnel using the broadband facility, the researchers adopted the snowball or chain sampling (Fridah, n.d.) method when selecting the respondents for the survey. Initially, respondents with broadband connections were contacted to complete the questionnaire via email. Respondents were also requested to recommend friends and family contacts who had broadband connections at home. This strategy led to the questionnaire being administered to a total of 110 broadband users during the periods of July to August 2002. The questionnaires were administered to respondents mainly using e-mail. A small number of questionnaires were distributed personally. Of the 110 questionnaires administered, 104 respondents submitted completed questionnaires via e-mail. The initial stage of data analysis involved checking the responses and providing a unique identification number to each. Using SPSS (version 10.1) and Excel applications, the research mainly generated the descriptive statistics (i.e., frequencies, percentage, cross tables, and charts) to present the research data obtained from the questionnaire. The qualitative data obtained from the openended questions were summarised and discussed in light of the quantitative data.
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Findings Using the literature, we identified several issues that needed to be investigated. In the following subsections they are identified and related to our research.
Demographic Details The respondents’ demographic details indicated that the majority of broadband users of this survey sample belonged to the age group of 20–35, had obtained higher education (undergraduate to postgraduate degree) qualifications, and had a high social and economic status. The results indicated that only 10.6% of the respondents had broadband access at home, whilst educational institutions served as a major point of broadband Internet access.
Reasons for Shopping Online According to the results of this investigation, the major reason for shopping online is convenience. The majority of the respondents (70.2%) stated that their most compelling reason for undertaking online purchasing was the convenience of shopping. The second most compelling reason was that online shopping saves time (Figure 5.2). Figure 5.2. Reasons for purchasing online Why Respondents Shop On-line?
29.80% 29.80% 49.00% 49%
60%
95.20% 95.20%
80.80% 80.80%
78.80% 78.80%
70.20% 70.20%
19.20% 19.20%
35.60% 35.60%
No Yes
21.20% 21.20%
Wider Brand Choices
Convenience
0%
4.80%
More Awareness
28.80% 28.80%
20%
Shopping Anytime
51.00% 51.00%
Lower Search Cost
40%
64.40% 64.40%
71.20% 71.20%
Save Time
Respondents
80%
Shopping from Anywhere
100%
Reasons
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Considering the Impact of Broadband on the Growth and Development of B2C 55
Barriers to Online Shopping Figure 5.3 depicts the three major impediments to online shopping. They are slow page loading, lack of trust, and difficult navigation sites. A little less than half of the respondents (42.3%) stated that they abandoned their online shopping due to slow page loading at some point of time. Whilst 27.9% respondents said that the major reasons for leaving the site without shopping is due to the difficult navigation of products/catalogues on the site. A similar percentage (28.8%) of people left the site without a purchase as they worried about trust.
Reasons for Subscribing to Broadband This research found that the most compelling reason for subscribing to broadband is faster access, rather than unmetered access or free home-phone line. Slightly over half of the respondents (58%) said that the most important reason for subscribing to broadband is the need for the high rate of data/file transfer. Statistics show that the always-on connection is the second most important reason (25%) for broadband subscription (Figure 5.4). Figure 5.3. Reasons for abandoning online shopping
No Yes
Others
Lack of Feel and Touch
Reasons
Lack of Trust
Security Problem
Technical
Difficult Navigation
100% 90% 80% 57.70% 57.70% 70% 71.20% 72.10% 72.10% 71.20% 79.80% 79.80% 81.70% 81.70% 60% 96.20% 96.20% 99% 99.00% 50% 40% 30% 42.30% 42.30% 20% 27.90% 28.80% 27.90% 28.80% 20.20% 20.20% 18.30% 18.30% 10% 3.80% 3.80% 1.00% 1% 0%
Slow Page Loading
Respondents
Reasons for abandoned online shopping
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56 Choudrie and Dwivedi
Figure 5.4. Reasons for subscribing to broadband connections 70% 58%
Respondents
60% 50% 40%
25%
30%
17.30%
20%
7.70%
10% 0%
Faster Access
Alw ays-onConnection
Un-metered Access Free Home Phone Line Reasons
Consumers’ Off-Line Purchase Behaviour in the Broadband Environment Figure 5.5 illustrates that 66% of the respondents search a site for a product before they buy it instead of the traditional channels of shopping. However, consumers still do not search the site using the Internet on a daily basis. Only 4.8% of respondents undertook this activity on a daily basis.
Figure 5.5. Frequency of using the Internet for off-line purchase research How often respondents research before purchase off-line?
36.50% 40% 35% Respondents
30%
24%
21.50%
25% 20% 15%
5.80%
6.70%
4.80%
10% 5% 0%
Never
O ffline purchase research
Rarely
Monthly
Weekly
A few times in a week
Daily
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Considering the Impact of Broadband on the Growth and Development of B2C 57
B2C Online Purchase The results illustrated that an estimated 66% of the respondents conducted online shopping in a broadband environment (Figure 5.6). However, the numbers of respondents who undertake online shopping on a daily basis are still minimal. Figure 5.6 depicts the respondents who purchase products online on a weekly or daily basis and this still falls below the 15% parameter. Furthermore, the frequency of online purchasing patterns differs in line with the offered products. Figure 5.7 demonstrates that books and music (55%) and travelrelated products (54%) are the most widely purchased products online. Following this, computing/hardware, entertainment, electronic goods, and software are the most frequently purchased goods online. In contrast, jewelery, food and beverages, and sporting goods are the least purchased products online.
Overall Online Satisfaction in the Broadband Environment Figure 5.8 illustrates that the majority of people (79%) who use broadband connections are satisfied with their online experiences. Ten percent of the Figure 5.6. Online purchase frequency How often respondents purchase on-line? 39.40% 40% 35%
Respondents
30%
23.10%
23.10%
25% 20% 9.60%
15% 10%
2.90%
1.90%
5% 0%
Never
O n-line Purchase
Rarely
Monthly
Weekly
A few times in a week
Daily
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respondents said that they are very satisfied, whilst 5 % are not satisfied with past online experiences.
Discussions: Major Findings and Interpretations Broadband Internet Connection Oftel (2002) has reported that only 2% of UK homes are connected to the Internet using broadband. In contrast, this research found that 10% of the respondents of this survey sample have broadband at home excluding those who have broadband both at home and work. This indicates an increase in the surveyed population utilising a broadband connection. Contributing reasons include the increasing competition amongst broadband service providers and a decline in broadband connection prices. However, the research is cautious in making any claims on this particular issue.
How Can Broadband Promote the Adoption and Diffusion of B2C E-Commerce? The findings of this survey clearly indicate that convenience and time saving (see Figure 5.2) are major drivers leading to the adoption of e-commerce. Slow Internet connections were considered to be major barriers distracting consumers from making online purchases. The findings of this research support this. Forty-three percent of the consumers stated the major reason for abandoning online shopping was slow page loading. The second most important reason is difficult navigation of the site since 28% of the respondents abandoned online shopping due to this (Figure 5.3). These findings are further supported by the McKinsey & Company (Carriere et al., 2000) investigations, which mentioned slow page loading as a reason for abandoning online shopping. Difficult navigation of the site may occur due to several reasons, but one of the most important factors is the slow Internet connection from both the client side and server side (Rose, Khoo, & Straub, 1999). High traffic at peak times makes it even more difficult to navigate the site (Windham & Orton, 2000). Hence, the research concludes that slow page loading causes a major obstruction to online Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Considering the Impact of Broadband on the Growth and Development of B2C 59
purchase. However, this may also trigger changes in the consumers’ attitude towards subscribing to broadband, but only if consumers are really interested in online purchasing.
Why do Consumers Subscribe to Broadband Internet? According to this investigation the primary reason for subscribing to broadband is a need for faster speed. Fifty-eight percent of the total respondents quoted this reason. Twenty-five percent of the respondents said that a second major reason to subscribe to broadband is an always-on connection. A free homephone line is the least preferred reason for the respondents (Figure 5.4). The findings of this research validate the previous finding by Carriere et al. (2000), Bouvard and Kurtzman (2001), and Oftel (2002). That is, whether faster access is a major reason for subscribing to broadband. However, the second most important factor that drives consumers to subscribing to broadband differs from that of previous studies. This investigation supports the McKinsey & Company (Carriere et al., 2000) findings that an always-on connection is the second most important factor for subscribing to broadband. However, it contradicts the findings of Oftel (2002), which found that a free home-phone line is the second most important reason for subscribing to broadband. Consumers who use broadband connections do not like to log on repeatedly and waste time. Therefore, the second most important reason is the always-on connection. The Oftel (2002) report mentioned that consumers claimed that the faster speed and always-on access offered by broadband increased usage and enhanced enjoyment. This further supports the findings and the researchers’ views. On the basis of the above discussions, this research study concludes that although faster access is a key factor for driving consumers to subscribe to broadband, there are many other secondary factors, such as convenience and saving time for online shopping, slow page loadings, unmetered access, free home-phone line, and so forth, act as secondary triggers to stimulate consumers.
How Consumers’ Off-Line Purchasing Behaviour Differs from That in the Broadband Environment? This research also found a significant shift towards higher levels of research before purchase in a broadband environment is undertaken. Sixty-six percent Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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of the respondents accepted that they search products and prices online regardless of the channel of actual purchase (Figure 5.5). This is a higher value than reported by Carriere et al. (2000). According to this research, 31% of the respondents undertake this in a narrowband environment and 38% in the broadband environment (Figure 5.1) (Carriere et al., 2000). The results of the qualitative data also support this finding. When respondents were asked, “What do you think is the most important change that has occurred in your shopping attitude and behaviour since having connected to the Internet?”, the majority of the respondents said that their shopping attitudes and behaviours have been changed as they undertake more research before they purchase any products. Due to broadband, consumers are much more aware of the market, products, and prices as they have better connections to the Internet. According to one of the respondents, the following change in behaviour and attitude has occurred: More selective in choice of product, with full understanding of the product by utilising several review sources being most important followed by comparison of price being second. I will now search for a specific product in advance to when I’ll need it, as I’m aware of the time lag in receipt due to post. This means I do not buy for the immediate satisfaction; however, this is replaced by the new pleasurable shopping experience of a parcel arriving at your door! My other traditional shopping behaviour has changed, as I do not make so many compulsory purchases in the products I buy online. However, this has not changed the shopping habits of products I do not buy online. Furthermore, when respondents were asked, “What do you think is the most important change that has occurred in your online shopping attitude and behaviour since having broadband?”, the majority of the respondents said that their researching behaviour changed incredibly in an online environment. With a broadband connection, respondents researched much more than they did with a narrowband connection. With broadband, consumers also enjoyed accessing more graphical pages, which significantly enhanced their research experience. The respondents also accepted that in a broadband environment their overall online experience is more compelling and enjoyable. Findings from both the close- and open-ended questions indicated that broadband has a direct impact on consumer behaviour related to online products and prices research. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Considering the Impact of Broadband on the Growth and Development of B2C 61
How B2C Consumer Online Purchase Activity Differs in the Broadband Environment The McKinsey & Company research (Carriere et al., 2000) found that only 23% of respondents purchase products using narrowband connections. On the other hand, 40% of broadband subscribers undertook online shopping (Carriere et al., 2000). This research found that 67% of the respondents had undertaken online shopping. This is a major impact of broadband connections on online shopping behaviour (Figure 5.6). This is further supported by the data obtained from the open-ended questions. When respondents were asked about the most important change that has occurred in their online shopping attitudes and behaviours since having connected with broadband, the majority of respondents said that their shopping behaviour changed incredibly in a broadband environment. They accepted that they purchased more online in the broadband environment since high-speed connections facilitate them to compare the products and prices rapidly, which results in a purchase. This issue is illustrated below: Due to the speed of broadband I can compare products faster and arrive at a decision quicker, usually resulting in a buy. Slow connections result Figure 5.7. Products purchased online What Respondents Purchase Online? 120%
80%
45.20% 45.20% 54.80% 54.80%
40%
80.80% 80.80% 75% 96.20% 75% 96.20% 83.70% 98.10% 83.70% 98.10% 90.40% 90.40% 91.30% 91.30%
No Yes
53.80% 53.80%
Other
DIY/Gardening
Sporting Goods
Food & Beverage
21.20% 21.20% 19.20% 19.20% 16.30% 16.30% 9.60% 10.60% 9.60%8.70% 10.60% 3.90% 3.80% 8.70%1.90% 1.90% 3.80% 3.90%
Gifts & Flowers
25% 25%
21.20% 21.20%
Books & Music
0%
78.80% 78.80% 89.40% 89.40%
46.20% 46.20%
60%
20%
96.20% 96.20%
78.80% 78.80%
PC/Hardware
Respondents
100%
Products
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in no purchase. For example, I do not shop online when I visit home as they have a “slow” 56k connection. Compulsive buys can occur in my home as I realise that I need a certain product that may not necessarily be on my mind when high-street shopping. Due to speed (again) I can find the product whilst the impetus is on me to purchase it. This may mean I am more inclined to be persuaded by TV adverts! Although broadband has an impact on online shopping, the frequency of online purchases is not similar for all products. Figure 5.7 illustrates that books, music, travel and holiday reservations, electronic goods, personal computing, hardware, and entertainment are products that are purchased by the majority of the respondents more frequently. According to a framework proposed by Asch (2001), one can argue that although broadband triggers consumers to undertake more online purchases, it may or may not stimulate consumers to purchase products with a high purchase value and high-risk involvement.
How Does Consumer Satisfaction Level Differ in a Broadband Environment? With regards to the satisfaction levels obtained in a broadband environment, the McKinsey & Company study (Carriere et al., 2000) found that 71% of the broadband users’ online experience was compelling (Carriere et al., 2000). The investigation results showed that 89% of the respondents were satisfied with their online experiences (Figure 5.8). This value is even higher than that of Figure 5.8. Level of satisfaction in broadband environment for online services Respondents Overall On-line Experience Very Satisfactory 10% Other 6% Not Satisfactory 5%
Satisfactory 79%
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Figure 5.9. Impact of broadband on users online habits, activities performed and B-2-C consumer behaviour (see reference 11) Secondary Factors
Primary Factors
Broadband
Saving Time
Convenience
Always-on Connection
Broadband use triggers changes in individuals online behaviour
Slow Page Loading
External triggers that stimulate consumers to subscribe to broadband
Consumer
Faster Access
Video Streaming
Changes in Online Habit More Positive Attitude
Video Conferencing
Use Internet Many Times a Day
Broadband Applications
Increase in Total Time Spent Online Download of Graphical Pages, Software, Music, and Video
These Trigger Too Many New Behaviours
Online B2C E-commerce (Thrice than before)
Online Activities
Search More Often (Product & Price)
Purchase More Number of Products
Difficult Navigation
E-commerce (B2C)
Use More Often
Purchase More Often
Use More Activities
Use More Broadband-Specific Content & Applications
Consumer Overall On-line Experience is Compelling
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previous studies. This illustrates that broadband has a significant impact on consumer online satisfaction level.
Concluding Remarks The results and discussions of this chapter indicate that broadband acted as a catalyst to changing consumer behaviour towards adoption of B2C e-commerce. On the basis of discussion made in section 5, overall impact of broadband is illustrated in Figure 5.9. Most of the findings of this research are consistent with previous results, except certain exclusions. This study suggests that most of the respondents subscribe to broadband to obtain faster access to the Internet. The percentages of B2C online shopping numbers have increased and consumers are often satisfied with their online experiences. The findings and analysis of this study also suggests that the frequency of online purchasing differs within products. The most frequently purchased online products include books, music, travel and holiday reservation, entertainment, personal computing, and consumer electronics. Further, the findings of this research demonstrate that broadband will play a major role in improving the B2C e-commerce market. Therefore, wide adoption of broadband by consumers will produce a significant impact on various components of the e-commerce ecology. As our results indicate, broadband accelerates the growth of B2C e-commerce, which has encouraging implications for the development of the B2C e-commerce market. However, further in-depth studies are required before any business strategies are formed.
Limitations and Future Directions The first limitation of this research is the scarcity of academic research and data as references in order to discuss the findings and to generalise the results. Therefore, the research was forced to use the findings and data from industry research. The other limitation of this research is the generalisation of findings that are highlighted.
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The generalisations of this study required collecting the data randomly from a wide geographical area. Furthermore, this research was also required to supplement the questionnaire data with interviews. However, these were not possible to undertake due to the shortage of time and resources. The data for this research have been collected within a short period of time. This could, however, have been expanded over a longer period to eliminate any variables that may have produced anomalies in the results found. For forming any strategy, it is essential to collect longitudinal data from various segments of consumers. However, since broadband is still a novel area, empirical evidence is difficult to obtain. Future directions for this research includes examining consumer behaviour and the applications and services that broadband can offer. Studying the impact of broadband on consumer behaviour is a very broad area. There is a need to research specific areas such as music and software download, entertainment, retail, travel and tourism, and so forth, on an individual basis in order to determine the real impact.
References Asch, D. (2001). Competing in the new economy. European Business Journal, 13(3), 119. Bouvard, P., & Kurtzman, W. (2001). The broadband revolution: How superfast Internet access changes media habits in American households. Arbitron & Coleman. Carriere, R. et al. (2000). Broadband changes everything. McKinsey & Company. Cornford, T., & Smithson, S. (1996). Project research in information systems: A student’s guide. London: Macmillan. Costa, L. (2001). Managing impact and use of “information & communication technologies based services” in tourism sector, Final report on working group E, June 2001. Retrieved July 20, 2002, from http://europa.eu.int/ comm/enterprise/services/tourism/workinggroups/ finalreportejune2001en.pdf Dwivedi, Y.K., & Choudrie, J. (2003, June 22–24). Investigating the impact of broadband upon the users’ online habits and the usage of Internet Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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services. Paper presented at the International Telecommunication Society’s Asia-Indian Ocean Regional (ITS) Conference, Curtin University of Technology, Perth, Australia. Fowler, F.J. (1993). Survey research methods (2nd ed.). London: Sage. Fridah M.W. (n.d.). Sampling in research. Retrieved April 29, 2002, from http://trochim.human.Cornell.edu/tutorial/mugo/tutorial.htm Hall, D., & Hall, I. (1996). Practical social research: Project work in the community. London: Macmillan. Lee, H. et al. (2001). The growth of broadband Internet connections in South Korea: Contributing Factors. Paper presented at the 14th Bled Electronic Commerce Conference, Bled, Slovenia. Nie, N.H., & Erbring, L. (2000, February 17). Internet and society: A preliminary report. Stanford, CA: Stanford Institute for the Quantitative Study of Society (SIQSS). Oftel. (2002). Consumer research programme: Internet & residential consumers. Retrieved June 17, 2002, from http://www.oftel.gov.uk/publications/news/on55/res0202.htm Rose, G., Khoo, H., & Straub, D.W. (1999). Current technological impediments to B2C electronic commerce. CAIS Articles, 1(16). Retrieved from http://cais.isworld.org/articles/1-16/article.htm Windham, L., & Orton, K. (2000). The soul of the new consumer: The attitudes, behaviour, and preferences of e-customers. Oxford: Windsor Books.
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Online and Traditional Trading on the NASDAQ 67
Chapter VI
A Theoretical Approach to Evaluate Online and Traditional Trading on the NASDAQ Stock Exchange Haroun Alryalat, Brunel University, UK Yogesh Kumar Dwivedi, Brunel University, UK Jasna Kuljis, Brunel University, UK Ray J. Paul, Brunel University, UK
Abstract The aim of this chapter is to discuss current online and traditional trading on the NASDAQ stock exchange using theoretical approach. The paper aims to derive future trends for the online stock trading. The following are objectives of this paper: (1) To describe the current state of online trading; (2) To compare the execution of quality trades between market makers and electronic communications networks (ECNs). By achieving Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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set objectives, this paper will provide insight into how ECNs are used and what impact they have on the overall NASDAQ market performance.
Introduction The trading of stock involves three primary functions: the gathering of trading orders, the execution of these orders, and the settlement of the trades. The cost structures and the social externalities of these three functions differ. Furthermore, each has different regulatory issues. The ultimate goal of a wellfunctioning stock market is to bring together all possible buyers and sellers, so that the market price reflects the combined preferences of all participants. The advent of online stock trading represents a unique opportunity to study the effect of changes in the mix of naïve and sophisticated traders on market behavior. This setting allows us to investigate the descriptive validity of recent models of trade with asymmetrically informed investors. Most of the models of trading behavior group traders into one of two categories: informed traders (who know something about the true price of the security) or liquidity traders (who need to trade for reasons of liquidity) (Barclay, Hendershott, & McCormick, 2001; Barber et al., 2001). Technology that allows services traditionally provided by people in buildings to be replaced by services provided by the software industry and computers is challenging traditional practices in the brokerage industry and stock exchange. Traditionally, stockbrokers have been known for their “full service,” as the friendly “financial consultant” whom you knew for over 10 years, and who knew your risk appetite. They would provide news about stocks and markets. They would also provide liberal financial advice. But they would also offer advice, service, and preference in initial public offerings (IPOs) and blame it on the broker. For these “services” they charge a commission that would sometimes amount to a percentage of the value that you had traded. The key issue in full-service brokerages is that the brokers are compensated on trading volume, and not on the performance of your portfolio. Discount brokers—known as such for their “discounting” of the commission— began the practice of flat fees for trading. The Internet helped the onset of online discount brokerages (Web broker). Online brokerages replace people and telephones with computers and code, they offer cost-efficient trades, 24-hour
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service, fast trade execution, banking facilities, access to IPOs online, access to market information, and no one to blame. Because of online services, the fee percentage declined dramatically. The start-up fixed costs of setting up an online firm are far lower than setting up a traditional full-service brokerage (Barber et al., 2001). Traders tend to have very different preferences for trading with market makers and trading on an ECN (which automatically matches, buys, and sells orders at specified prices) because of their different trading motives. These developments are commonly attributed to the efficiency of “friction-free” electronic markets that lower transaction and information processing costs by reducing human intermediation (Konana, Menon, & Balasubramanian, 2000). The Internet serves as an excellent tool for investors, allowing them an easy and inexpensive way to research investment opportunities. On the other hand, the Internet is also an excellent tool for fraudsters. For this reason, investors should always think twice before investing in any opportunity for trading through the Internet. Online trading investors need to understand the risks of online trading or in securities trading in general. The aim of this chapter is to evaluate current online and traditional trading on the NASDAQ stock exchange using theoretical approach. The chapter aims to derive future trends for the online stock trading. The following are objectives of this chapter: (1) To describe the current state of online trading; (2) To compare the execution of quality trades between market makers and ECNs. By achieving set objectives, this chapter will provide insight into how ECNs are used and what impact they have on the overall NASDAQ market performance. Section 1 briefly introduces online stock trading and defines aims and objectives of this paper. Section 2 presents a background of the structure of U.S. stock market and online stock trading in the NASDAQ stock exchange. The section includes the different trading mechanisms to match, buy, and sell orders resulting in diverse market outcomes in terms of execution price and speed. Section 3 then goes into more detail about how online investors affect markets. The section provides background of investor’s behavior on financial market to understand the investor’s performance. Section 4 presents the existing regulation relative online trading with respect to a number of important factors. Finally, section 5 presents the conclusion.
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The Structure of U.S. Stock Markets Equity markets worldwide are in a state of change. Technology and the Internet have and will continue to have a profound impact on the structure of the equity markets (Blume, 2000). A U.S. investor will be able to trade with just a click on any market that provides advantages over the markets in the United States. Investors in the U.S. stock are desperate; there are institutional investors, households with substantial assets, a large number of households with limited assets, day traders, less active traders, foreign investors, after-hour traders, and so on. The different ways of trading will evolve to satisfy their varying needs. An essential concept of national market system (NMS) was to make information on price, volume, and quotes for securities in all markets available to all investors, so that buyers and sellers of securities, wherever located, can make informed investment decisions and not pay more than the lowest price at which someone is willing to sell, or not sell for less than the highest price a buyer is prepared to offer (SEC, 2000). The Securities ad Exchange Commission (SEC) believes full disclosure will ultimately produce informed investors and will eventually put increase competitive pressure on brokerage firms (Fan, Stallaert, & Whinston, 2000; Yue, Chaturvedi, & Mehta, 2000). A trading system is crucial to an exchange market and plays a critical role in determining the overall efficiency of the market. Market efficiency is largely affected by the way trading is organised (Fan et al., 2000). Despite proposed changes in the securities trading process and the introduction of electronic trading systems, other processes determining market efficiency, including order flow, price discovery, and order execution, remain largely unchanged (Figure 6.1). Konana et al. (2000) find that for efficiency to move beyond the user interface into the actual trading process, investors need a transparent window to observe the actual flow of orders, the time of execution, and the commission structure of various points in the trading process. Figure 6.1. The market process of securities trading information search
order routing
negotiation and agreement
clearing and settlement
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Some researchers have argued that institutional rules, regulations, and monitoring functions would play a significant role in promoting efficiency and transparency along the value chain in electronic markets. Transparency across market centers help to mitigate the effects of the fragmentation. Last trade and quote reporting provide a great deal of transparency across U.S. market centers, but market centers are not fully transparent. For greater transparency of price and quote information, the SEC in 1997 instituted new order handling rules (Schwartz, 2000). Current trends in the market structure for trading stocks will be worldwide. The physical location of the market center where the trade happens will not matter. Technology will make the location of the market center, the currency, and the time of trade a matter of choice. Today, a major hindrance to the development of a global market is settlement and the clearing mechanism (Blume, 2000).
The Current Scene at NASDAQ Most dramatic in the United States was the National Association of Securities Dealers’ (NASD’s) acquisition of the American stock exchange in June 1998 (Blume, 2000; Schwartz, 2000). The NASDAQ is not a physical entity. It is an over-the-counter market (OTC) and it relies on market makers to facilitate trading and liquidity in stock (ensure that there are always buyers and sellers for NASDAQ-tested securities, and enable trades to be filled quickly and efficiently). For each stock, there is at least one market maker; NASDAQ is mainly a dealership market with an average of approximately 12.3 market makers per NASDAQ stock. But the emergence of ECNs has added an auction element in the NASDAQ market (Fan et al., 2000). Rather than being an auction market, NASDAQ is a communication network between thousands of computers, which transmits real-time quote and trade data to more than 1.3 million users in 83 countries (www.nasdaq.com, 2002). Instead of brokers calling out orders, market makers place their name on a list of buyers and sellers, which is then distributed by the NASDAQ in a split second to thousands of other computers. If an investor wishes to buy a stock that trades on the NASDAQ, the broker will either call up a market maker with the information of the trade or enter an order into a NASDAQ-sponsored online execution system. NASDAQ market makers that trade listed stocks are currently linked to the exchanges through NASDAQ’s CAES system’s interface with the Intermarket Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Table 6.1. Market share of trade and daily share volumes of ECNs (SEC, 2000) Vendor
Market Share of
Exchange/Broker
Daily Share Volume
ECN Trades
Archipelago
Filed as Exchange
1%
25 million
Attain
Filed as Exchange
?
?
B-Trade
Broker
7%
35 million
BRUT
Broker
<1%
7 million
Instinet
Broker
70%
150 million
Island
Filed as Exchange
20%
95 million
NexTrade
Broker
<1%
275,000
REDIBook
Filed as Exchange
<1%
17 million
MarketXT
Broker
<1%
2 million
100%
181.25 million
TOTAL
Trading System (ITS) (these market makers are known as ITS/CAES market makers). ITS is an electronic order routing system that facilitates intermarket trading of exchange-listed securities by allowing a broke-dealer in one market center to send an order to another market center trading the same security at a better price. The NASDAQ is currently working on the technical and programming modifications to its systems needed to support this linkage (SEC, 2000). Currently, there are nine ECNs (Table 6.1) operating in the U.S. equities markets (Instinet, Island, Bloomberg Tradebook, Archipelago, REDIBook, Brut, Attain, NexTrade, and MarketXT) linked to NASDAQ through SelectNet. This link allows each ECN to display its best order for NASDAQ securities in the NASDAQ system, and allows the public to access those orders. The NASDAQ is developing market structures to trade any stock in any nation in any currency. These new developments are in their infancy, but they point the way to the future. In recent years, the SEC has been extremely active in encouraging competition across market centers. These initiatives have had the most impact on NASDAQ. There are three main initiatives: the manning rules, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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the order display rules, and alternative trading system (ATS) rules. Each of these can be understood through their interaction with each other and the market. The manning rules require that a market maker in NASDAQ stocks execute a customer’s limit order before executing an order for its own account (Blume, 2000). Under the manning rules a market center had no obligation to display a limit order that improved the NBBO. The order display rules required that a market maker that receives a bid or offer that betters the NBBO take one of three actions, execute the limit order immediately against its own inventory, display the better price as part of its own quote, or send the limit order to another market maker who would then have the same three choices. The order display rules also required that the quotes of ECNs be integrated into the NBBO. The immediate effect of the order display rules was to narrow spreads on the ECNs. The alternative trading system rules made it easier to establish a new exchange and to fully integrate them into the national market system (NMS). Alternative trading systems could choose to be a market participant and register as a broker-dealer, or to be a separate market and register as an exchange (SEC, 2000).
ECN and Market Maker Trades The trading of NASDAQ-listed stocks is spread over many more market centers. There are two principal types of market centers: market makers and ECNs. As of June 2000, there were an average of 12.7 market makers per listed stock, while for the top 1% of issues by dollar volume, there were an average 52.9 market makers. Although this number seems large, there is a high degree of concentration of order flow in any stock in a limited number of market makers. Furthermore, all of these market makers are linked together through electronic trading systems. A major barrier to a new market center is obtaining a critical mass of order flow to thrive. Order flow is critical to every market center’s business. More order flow means more revenue and trading profits (Fan et al., 2000). To displace an existing market requires that the new market offers significantly better services than the established market.
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It is useful to pause to consider the difference between an ECN and an exchange. ECNs are broker-dealers regulated by NASD; they match public orders and do not act as principals. Both the ECN form of organisation and an exchange have advantages and disadvantages. A major advantage of an ECN is that NASD performs the regulatory function and frees the ECN from this activity. A major advantage of an exchange is that an exchange receives what is termed “tape revenue.” Such tape revenue comes from the sale of quote and last trade data to public vendors. This can represent between 20% to 40% of an exchange’s revenue. As an ECN, the revenue goes to the NASD. Another advantage of an exchange is that it may have more latitude in setting its own rules (Blume, 2000). ECNs are being viewed as a competitive threat to the traditional market both in the United States and abroad. The preponderance of stock exchange around the world now has electronic trading platforms. The electronic systems are fast, inexpensive, eliminate intermediaries, and provide anonymity. Electronic technology has made it possible to combine systems in new ways so as to give users some of the options they want for working their orders. The ECN phenomenon is attributable to technological and regulatory developments, and to an intensely competitive environment. ECNs’ enforced consolidation, transparency, and accessibility of price information are causing the flow of limit order to fragment onto multiple books, and ECNs’ cheap, fast, anonymous, and extended hours of trading is forcing NASDAQ to alter its trading systems and organisation structures (Schwartz, 2000). Technological innovations that enable high-speed, low-cost electronic trading systems are dramatically changing the structure of financial markets. In the United States, ECNs are involved in more than a third of total NASDAQ trading volume. Today, ECNs account for approximately 30% of total share volume and 40% of the dollar volume traded in NASDAQ securities. ECNs account for approximately 3% of total share and dollar volume in listed securities. In contrast, in 1993 ECNs accounted for only 13% of share volume in NASDAQ securities and only 1.4% of listed share volume (SEC, 2000). NASDAQ ECN trading volume has grown rapidly over the past several years, transforming NASDAQ’s operations. ECNs’ operational efficiency (e.g., Island, one of the largest ECNs, has only about 60 employees) promises low costs in addition to improved limit order exposure, anonymity, and increased speed.
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Investors’ choices of whether to send their orders to market maker or to an ECN will depend on the total expected trading costs, including the implicit, explicit, and opportunity costs (Naik & Yadav, 1999). For some institutional investors the choice of trading venue is dynamic. Institutional investors can examine the price and depth offered by ECNs and by market makers and chooses the venue that will provide the best execution. For retail investors, however, the choice is generally static. Several previous papers have examined the effect of ECN quotes on market quality. ECN quotes play an important role in reducing trading costs. Barclay et al. (2001) found that an increased ECN trading improves market quality as measured by effective, realised, and time-weighted quoted spread. These improvements occur in the overall market as well as for market maker trades and quotes. We can explain that because, first, ECNs facilitate customer-tocustomer trades that occur at better price than trades with intermediaries; second, ECNs attract a higher fraction of the informed orders than the uniformed order. This reduces the adverse selection costs faced by market makers. Finally, the lower spread available on ECN increase competition and dissipate any quasi-rent on preference market maker trades. ECNs offer several advantages over market makers such as spread of execution and anonymity. The main factor affecting the quality of execution is price improvement (which is the opportunity, but not the guarantee, for an order to be executed at a better price than what is currently publicly), and market makers give more price improvement to small trades than ECNs. Barclay et al. (2001) suggests that retail customers benefit when their small orders are sent to a market maker instead of to an ECN. Because the ECNs were not integrated into the NASDAQ market, many retail investors traded at prices inferior to those displayed by market makers and other subscribers on ECNs. This created a tow-tiered market—the traditional public market and the new ECN market with better prices and limited access. Market makers could post quotes in private ECNs that were better than the quotes they posted in the public market. This allowed market makers to charge higher prices to retail customers and lower price to more price-sensitive institutional investors. Best execution does not require market makers to match the rounded or nondisplayed quotes on an ECN. Thus, customers may go directly to the ECN to get those better prices. ECN subscribers submit limit orders, which are posted on the system for other subscribers to view. The ECN then matches contra-side orders for execution. In most cases, the buyer and seller remain anonymous, as the trade execution Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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reports list only the ECN as the contra-side party. Subscribers may use additional features of the ECN, such as negotiation or reserve size (Barclay et al., 2001). ECNs are challenging the traditional markets by providing low-cost trading and liquidity through electronic limit order matching systems (Barber & Odean, 2001). When an order is placed to buy or sell stock, one might think about where and how the order is executed can impact the overall costs of the transaction, including the price paid for the stock. Many investors who trade through online brokerage accounts assume they have a direct connection to the securities market, but they do not. Just as investors have a choice of brokers, brokers also generally have a choice of markets to execute the trade. The broker may route the order—especially a limit order—to an ECN or market maker. Some brokers now offer active traders the ability to direct orders in NASDAQ stock to the market maker or ECN of their choice. Online trading is not always instantaneous; investors may find that technological “choke points” can slow down or prevent their order form reaching an online firm. For example, problems can occur where • • •
an investor’s modem, computer, or Internet service provider is slow or faulty; a broker-dealer has inadequate hardware or its Internet service provider is slow or delayed; or traffic on the Internet is heavy, slowing down overall usage.
A capacity problem or limitation at any of these choke points can cause delay or failure in an investors’ attempt to access an online firm’s automated trading system (SEC, 2000).
Who Trades on the Web? This section provides a profile of those who go online. Barber and Odean (2001) found that young men who are active traders with high incomes and no children are more likely to switch to online trading. Those who switch to online trading seem to experience an unusually strong performance prior to going
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online and trade more speculatively after going online. Those who switch also have higher levels of self-reported investment experience and a preference for investing in small-growth stocks with high market risk. Online investors do not generally receive such personal assistance; they do have access to a vast array of financial information, often at no charge, such as market data, historical charts, industry reports, and analyst report. This information can assist them in making trading decisions (GAO, 2000). To help investors make informed decisions, the SEC and self-regulatory organisations (SROs) require that broker-dealers furnish investors information relating to margin trading. They have proposed rules concerning privacy of information, and recommend that broker-dealers also furnish information about trading risk and best execution of trades. These are key investor protections. Through greater speed of execution, online trading allows investors to make profitable trades that would not have otherwise been available. Despite the press given to Internet trading, only 11% used the Internet to buy or sell stock in 1998. These individuals tended to be younger, more affluent, and better educated than the typical investor (Blume, 2000). Some investors may anticipate unusual liquidity needs and switch online in hopes of facilitating liquidity-driven purchases or sales more easily. Investors trade more when they go online simply because of greater ease of access, lower trading costs make more trade potentially profitable. Lower trading costs, liquidity needs, speed of execution, and ease of access do not explain why rational investors would trade more actively, more speculatively and less profitably after going online (Barber & Odean, 1999). Choi, Laibson, and Metrick (2001) document several other patterns: young, male, and wealthy participants are more likely to try the Web for trading. Participants who try the Web tend to do smaller than phone trades both in dollars and as a fraction of the portfolio being traded. Lastly, “short-term” trades make up a higher proportion of phone trades than Web trades. There is even a relatively new breed of market participant known as “day traders,” that is, retail customers of brokerage firms who attempt to make profits intraday on small changes on the price of stocks who may also affect price for some securities. Some day traders may add to market depth by providing instant liquidity while those who try to profit from short-term momentum cycles probably increase market volatility (Barber & Odean, 2001).
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The Investment Style of Online Investors The investment style of online investors differs from other investors. Online investors tilt their investments towards small-growth stocks with high market risk. Since the tilt towards small-growth stocks with high market risk is apparent both before and after online trading, Barber and Odean (1999) found that it does not appear that the switch from phone-based to online investing is accompanied by a significant change in the stock investor’s own style. An investor may trade common stocks for many reasons. An investor with a bonus to invest or a large bill to pay may buy or sell for liquidity reasons. If one security in his/her portfolio appreciates considerably, he/she may rebalance to restore diversification to his/her portfolio. He/she may sell to capture a tax loss or may trade to speculate. The proposition that more information leads to better decision making is intuitively appealing. But the truth of the proposition depends on the relevance of the information to the decision and how well equipped the decision maker is to use the information. Similarly, abundant data may encourage investors to try to beat a market that is not fully efficient, but few have the ability to beat through skill (Barber & Odean, 2001). Competitive markets will become fragmented in response to the diverse demand of investors. Some investors will prefer one type of market, while others will prefer other types. No single market structure will satisfy the needs of all investors. Some fragmentation is a natural result of competition (Blume, 2000).
How Online Investors Affect Markets Web access could be expected to increase activity. Since the prevalence of such behaviour, especially when motivated by noise, can play a role in stabilising or destabilising markets, it is useful to know whether such activity is indeed increased by this new technology. Choi et al. (2001) found that the Web affected both trading frequency and trade size. It is very difficult to test whether a stock is mispriced. Furthermore, to some economists it is nearly technological that the market price of a stock is the right price. The experimental economics literature has spelled out the conditions that
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are most conducive to prolonged mispricing and speculative bubbles: when there is greater uncertainty about the future value of a security. E-commerce and the market have helped to create the conditions (Barber & Odean, 2001). These very active investors are often making decisions in a situation of high uncertainty. One measure of these heterogeneous beliefs and uncertainty is the volatility of stock returns. The volatility of individual stock has increased dramatically since the 1960s. In the 1990s, the volatility of these high-turnover stocks rose to nearly double its highs from the previous three-decade levels (Choi et al., 2001).
Effects of ECN Trading on Overall Market Quality The total cost to trade includes not only the commission charge but also differences in stock purchase or sale price that may result from different methods of executing trades. Determining whether investors were getting the best possible executions of their orders was difficult because the quality depended on a number of factors, such as price, speed, and the likelihood of execution. Some online brokerages had problems ensuring quality execution of trading orders, SEC and NASD require broker-dealers to obtain the best execution available under the circumstances for their customer orders. Online investors can take steps to help ensure quality trade executions. The SEC found that many online broker-dealers would accommodate a customer’s request to route an order to a specific market center, although the customer would likely be charged higher commission fees. Investors may be able to offset the higher fees by getting better prices for their trades. The chairman of the SEC said investors would benefit greatly from more information about execution quality.
Overconfidence and Trading on Financial Markets There has been much speculation that the development of the Internet and the World Wide Web has had a significant impact on financial market behaviours (Yue et al., 2000). The change in trading behaviour that takes place when investors go online have increased stock market volume and volatility (Choi et
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al., 2001). This research attempts to provide a description of the theory that overconfidence leads to excessive trading. The only careful analysis of the behaviour of online investors is Barber and Odeon (1999), who focussed on the trading behaviour and investment performance of investors who switch from the phone to an online channel. Data constraints prevented detailed studies of individual investor’s behaviour and performance. Barber and Odeon (2001) discovered many stylized facts: for investors who stay off-line, the more investors trade, the worse they perform (after transaction costs), and men perform worse than women. Barber and Odeon show that many of these results can be reconciled if investors are overconfident of their investment success. Overconfident investors may trade even with their expected gains although tradings are not enough to offset trading cost (Odean, 1999). Lower costs and more alternatives clearly benefit investors. Many of today’s investors are new to the market. Placing trades directly, rather than through a broker, can give such investors an exaggerated sense of control over the outcome of their trades. The vast amount of online investment data available will enable investors to confirm their prior beliefs and may lead them to become overconfident in their ability to pick stock and other securities. Faster feedback may focus the investor’s attention on recent performance. Markets in which valuation are uncertain, investors are active and inexperienced, and money to invest is readily available are prone to speculative bubbles, which can hurt all investors (Barber & Odean, 2001). The Internet has brought changes to investing which may bolster the overconfidence of online investors by providing an illusion of knowledge and an illusion of control, while also changing the decision criteria to which investors attend. These very active investors are often making decisions in a situation of high uncertainty. Online investors have concentrated their trading in e-commerce and other high-tech firms. Many e-commerce firms have novel, untested business plans. Many have little or no earning. Values are based on distant projections, about which there is much disagreement. However, due to the illusions of knowledge and control, and the tendency of people in an information-rich environment to become more set in their beliefs, the volume and variety of information available online have probably led to greater dispersion of beliefs and greater investor overconfidence (Barber & Odean, 2000). Overconfidence led them to trade active, and active trading caused subpar performance. Overconfidence occurs when factors ordinarily associated with improved performance in skilled situations, such as choice, task familiarity, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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competition, and active involvement are present in situations at least partly governed by chance. As an innovative communication medium and information source, the Web has a great capacity to alter trading behaviour along many dimensions (Choi et al., 2001). Online investors have access to vast quantities of investment data. These data can foster an illusion of knowledge, which increases overconfidence. Online investors generally manage their own stock portfolios and execute trades at the click of a mouse. This fosters an illusion of control, which reinforces overconfidence (Barber & Odean, 1999). The basic idea is that risk averse, overconfident traders trade more aggressively based on valid information than do rational traders (Odean, 1999). As a result, overconfident traders are better able to exploit risky profit opportunities created by the trades of liquidity—motivated traders or the mistakes of noise traders (Hirshleifer & Luo, 2001; Yue et al., 2000).
Regulation Regulation has facilitated the ECNs’ inroads into NASDAQ trading. The ECNs new order handling rules (the limit order display rule and the market maker rule) have made it much easier for a new ECN to capture public order flow (Schwartz, 2000).
Alternative Trading System (ATS) In the United States, alternative trading systems (ATS) have been used since 1969 (instinet) and were able to acquire a significant market share by offering integrated electronic order routing and matching services for securities trading, by providing benefits to retail and institutional investors, such as better price and lower commissions as the traditional exchanges. Thus, they attract not only professional but also retail investors to their systems (Holtmann, Lattemann, Stefan, & Weinhardt, 2001). The SEC (2000) defines ATS as “automated systems that centralise, display, match, cross or otherwise execute trading interests, but that are not currently registered with the commission as national securities exchanges or operated by registered securities association.” Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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ATS typically have sophisticated IT infrastructures that have been designed from scratch to support the relevant phases in the transaction process— particularly the automated matching and price discovery (SEC, 2000; Holtmann et al., 2001). This enables ATS to • • •
underbid the fees exchanges charge to their customers; act more flexibly to varying customer demands or market trends; and establish themselves as competitors for the traditional exchanges.
Global Trading The market of tomorrow will be global. Technology will allow a market center or order gathering function to be located anywhere in the world. A national market system assumes that one market will best serve the needs of all investors. Investors have different needs and different markets will develop to serve these needs. Monitoring and regulating this movement to global trading will be one of the major regulatory challenges over the next decade. It will require that domestic regulators coordinate their regulations with those of other countries. NASDAQ has formed an alliance with the Hong Kong Stock Exchange to trade some of the more active NASDAQ stocks in Hong Kong in Hong Kong dollars during Hong Kong business hours. NASDAQ has also formed a joint venture to trade Japanese stock and U.S. stocks in Japan. Once it becomes cheap and easy to trades across borders, there will be increased trading across borders. Today, a major barrier to the trading of U.S. equities worldwide is the settlement process. The settling of trades is even more centralised for any particular issue, if the issue is registered either directly in the name of the owner or indirectly through an intermediary. In the United States, the Depository Trust and Clearing Corporation (DTCC) is the focal point for this transferring of ownership from one entity to another. The DTCC guarantees the contra-party risk. The problems that must be overcome in establishing global settlement platforms are interrelated (Blume, 2000). It is imperative that U.S. regulatory bodies change their focus from the regulation of a domestic U.S. equity market to the challenges of regulating in a global market. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Conclusions This chapter presented what extant of the subject area of this research. Online stock trading mechanisms at exchanges are often hybrid of dealer and auction markets. Different aspects of trading execution, which is the most commonly used market centre at present, were discussed. This led to discussion of the way of execute order is organised and what is the impact on effective market performance, trading costs, and investor behaviour. The chapter’s objective led to establishing the case for the research question: To investigate the impact, if any way, of online trading with ECNs, on effective market performance, trading costs, and investors’ behaviour as opposed to market makers. In the future, researchers should empirically compare stock trading with ECNs and market makers. This will establish the impact of online trading on market performance. The findings will be helpful for investors to make cost-effective investment strategies.
References Barber, B.M., & Odean, T. (1999). Online investors: Do the slow die first? (Working paper). Davis: University of California. Barber, B.M., & Odean, T. (2000). The Internet and the investor. Journal of Economic Perspectives, 15(1), 41–54. Barber, B.M., & Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. The Journal of Finance, 4(2), 773–806. Barber, B.M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. The Quarterly Journal of Economics, February, 261–292. Barclay, M.J., Hendershott, T., & McCormick, T. (2001). Electronic communications networks and market quality. University of Rochester, NY, May 2001, pp. 1–38. Blume, M.E. (2000, October 16). The structure of the U.S. equity markets. Paper presented at the Financial Markets Conference, Federal Reserve Bank of Atlanta, Sea Island, Georgia, University of Pennsylvania.
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Choi, J.J., Laibson, D., & Metrick, A. (2001). How does the Internet affect trading? Evidence from investor behaviour in 401 (K) plans. The Rodney L. White Center for Fianncial Research, March, 1–68. Daniel, K., Hirshleifer, D., & Subrahmanyam, A. (1997). A theory of overconfidence, self-attribution, and security market under- and over-reactions. February 19, pp 1–57. Fan, M., Stallaert, J., & Whinston A.B. (2000). The Internet and the future of financial markets. Communications of the Association for Computer Machinery, 43(11), 83–88. Hirshleifer, D., & Luo, G.Y. (2001). On the survival of overconfident traders in a competitive securities market. Journal of Financial Markets, 1–39. Holtmann, C., Lattemann, C., Stefan, S., & Weinhardt, C. (2001). Transforming financial markets to retail investors. Proceedings of the 34th Annual Hawaii International Conference on System Sciences (HICSS), 34(1), 1–8. Konana, P., Menon, N.M., & Balasubramanian, S. (2000). The implications of online investing. Communications of the Association for Computer Machinery, 34(1), 35–41. Naik, N., & Yadav, P. (1999). The effects of market reform on trading costs of public investors: Evidence from the London Stock Exchange. June, 1–46. Odean, T. (1999). Do investors trade too much? American Economic Review, December, 1–39. Schwartz, R.A. (2002). Building a better stock market: New solution to old problems. Social Science, January, 1–29. U.S. General Accounting Office (GAO). (2000). On-line trading: Better investor protection information needed on brokers’ Web sites. May, 1– 43. U.S. Securities and Exchange Commission (SEC). (n.d.). Investor tips: Trade execution. Retrieved June 30, 2002, from www.sec.gov/investor/pubs/ tradexec.htm U.S. Securities and Exchange Commission (SEC). (n.d.). Investor tips: Trading in fast-moving markets. Retrieved June 30, 2002, from www.sec.gov/ invstor/pubs/onlinetips.htm
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U.S. Securities and Exchange Commission (SEC). (n.d.). Special study: Communication network and after-hour trading. Retrieved June 30, 2002, from www.sec.gov/news/studies/ecnafter.htm Yue, W.T., Chaturvedi, A.R., & Mehta, S. (2000). Is more information better? The effect of traders’ irrational behaviour on an artificial stock market. Purdue University, pp. 660–666.
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Chapter VII
Adaptive Collaborative Work and XML Web Services:
Benefits of Application into Information Infrastructure and Human Resources Mayumi Hori, Hakuoh University, Japan Masakazu Ohashi, Chuo University, Japan
Abstract In this chapter, we discuss XML Web services, which integrates different systems and applications into one comprehensive system. XML Web services connects different entities such as corporations, governmental bodies, and nonprofit organizations, enabling the adaptive collaboration work (ACW) which is essential to promptly meet the increasingly diverse needs and kaleidoscopic changes in the economy. ACW is critical in the ubiquitous society where constant improvement of business processes and cooperation and collaboration with both existing and new systems are Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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required. We propose the advanced application of XML Web services based on the ACW would enable a variety of organizations to collaborate with each other on the Internet and ultimately increase their productivity and efficiency. XML Web services effectively strengthens business management as it enables organizations to share personnel information across the board, therefore, organizations can unify management of their human resources. In the ubiquitous society, whether it is public or private, organizations need to develop and cultivate human resources capable of planning integrative strategy with information and communications technologies (ICT), designing and developing systems, managing hardware and software, and operating/maintaining systems.XML Web services based on the ACW gives suggestions on tactical solutions for these emerging agendas.
Introduction Over the past years, we have witnessed the drastic changes in our ubiquitous society. This networked society—enabled by the revolution of information and communications technologies (ICT)—can also be called a knowledge-based society. Knowledge is no longer equivalent to establishing policies and building machines as it used to be in a traditional industrial society in the 20th century that solely pursued efficiency. Rather, today’s knowledge is considered ecological and organic in a way that it is flexible enough to swiftly sense numerous shifts in the environment. Furthermore, the main characteristic of knowledge in 21stcentury networked society is connectivity through network for the purpose of achieving higher goals. Such achievement is based on the innovations and new creations. The new method that integrates a number of different systems and applications into one system to enable the adaptive collaborative work (ACW) has been generating much attention as it may meet the diverse and growing demands in the future of the ubiquitous society. In other words, in our ubiquitous society with advanced information and communications technologies (ICT) infrastructure, tacit knowledge, the most difficult yet valuable type of knowledge to be transmitted which is gained through personal experiences and stored within individuals, is thought to have better chances of being transferred and stored on the network. Therefore, it is essential to build a platform to make tacit knowledge more accessible and shareable in society.
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The business benefits of applying the ACW architecture with XML Web services are clear. It enables a new collaboration practice on the computer network infrastructure such as internet Data Center (iDC). By implementing XML Web services, the architecture allows entities of different ontological level to be linked laterally, therefore making it easier for them to appreciate each other’s expertise, which essentially encourages further development and innovation. In a broader sense, XML Web services collectively means any services involving the use of Web applications. However, in this chapter, we specifically use the term as the technology that integrates numerous software applications online and automatically conduct operations on its own. XML Web services is a method for collaboration between different systems including the legacy system which exchanges information written in XML and automatically processes the task on the network according to the object of each program. The most innovative feature of this system is its compatibility with the Internet. This architecture also enables organizations to practice an integrative strategy management which improves the quality of human resources practices including personnel affairs, compensations, employee education and training, and project management by sharing personnel information across the board. In this chapter, we examine the efficiency of XML Web services based on the ACW and how it would strengthen and develop human resources. Furthermore, we discuss telework as a major working format for the ACW and how it should be practiced in the ubiquitous society.
Adaptive Collaborative Work and Paradigm Shift From the Perspectives of Providers to Those of Consumers The goal of the ACW is to push back the boundary of traditional definition of network as a “tool or system to get connected,” which focuses mostly on its convenience and efficiency. The ACW aims to build a new networked collaborative society, which sensitively captures the humanity of individuals as well as a whole without restriction of time and location. This new networked society connects individual-to-individual, individual-to-organization, individual-
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to-community, individual-to-society, and individual-to-world. Furthermore, ICT have been developed based on the perspectives of products and services providers. However, by applying XML Web services, the ACW shifts its focus to the perspectives of consumers including those of corporations, municipalities, and citizens. Traditionally, using ICT tools required knowledge of the tools and process of operation. Hence, each operation with those tools required professional services from the products and services providers. XML Web services, on the other hand, automatically processes multiple inquiries of users on the Internet regardless of their data type or format without having users worry about the technical issues. Therefore, it offers services based on the perspectives of users and brings about a paradigm shift in ICT. Further development of ICT based on the perspectives of users necessitates the building of a network infrastructure with which users can get connected anytime, anywhere, and with anything. That is, we need to build a networked environment not only with PCs but also with mobile phones and other information equipments that provide access to constant Internet connection from home, cars, trains, airplanes, or anywhere.
Sharing and Utilizing Knowledge Through the ACW: Furthering Knowledge Management by Human Resource Management (HRM) Conventional business models had built information systems that operated only within the organization, and interchangeability or interactivity was not well considered. However, the rapid development of ICT has prompted the creation of a seamless networked environment regardless of organizations’ type and size. It has also encouraged the development of ubiquitous environment where public institutions, such as government and local governments, can freely access and utilize each other’s information and collaborate together without the boundary of time and space. Expansion of the versatility of ICT has facilitated many corporations and administrative agencies to merge and collaborate with each other and enabled them to enter into new business schemes. On the other hand, it has become extremely difficult to maintain the competitive advantage in the present market as the culture of sharing and collaboration prevailed. Furthermore, government and local governments have been urged to meet the diverse needs of the people while improving economic efficiency. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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In accordance with these situations, there is a growing interest in human resource management (HRM) that suits well with the new paradigm of knowledge integration and collaboration in the ubiquitous society. Some of the core features of knowledge integration and collaboration for human resource in the era of knowledge management are as follows: • • • • • • •
Realization of the potentials of each member of an organization Sharing of knowledge and abilities of an organization Sharing and collaboration of knowledge and abilities beyond the boundaries of an organization Externalizing the experiences (know-how) of members Systematizing skills and intellect Collaboration between corporations and research organizations Exchanging information with clients
Practicing these core features enables organizations to reinforce their competitiveness and product development, encourage restructuring of operation, create new business opportunities, and achieve higher competence and advantage in intellectual properties. In order for organizations to practice these core features, it is essential to create an environment that nurtures members’ creativity and accelerates motivation with appropriate incentives and evaluation. Traditionally, HRM in Japan has been considered as personnel and labor management holding a subordinate position in business strategies, and its main agenda was how to better manage people at a worksite. As society moves toward a ubiquitous society, management needs to emphasize business strategies that evaluate a variety of shifts in the environment such as globalization and technical innovations. The personnel management in a knowledge management society is required to operate as business strategies that are consistent with HRM.
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Demonstration Experiment on the ACW and HRM Utilizing XML Web Services Benefits of XML Web Services and Demonstration Experiment on the ACW The benefits of utilizing XML Web services based on the adaptive collaborative system are as follows (Ohashi, 2003c): 1. 2.
3. 4. 5. 6.
It is platform independent, therefore it is usable regardless of the type of hardware and software. The connection is highly flexible, collaborative, and compatible with other systems including the legacy system without making any changes to the system or data. It enables the collaboration between the legacy systems and newly developed systems. It avoids overlapping investments of the ICT utilization and development by determining the development methods by module. It enables the sharing of the ICT sources. It offers more flexibility in data process and exchange.
These benefits improve the efficiency of business-to-business (B2B) businesses and customer relationship management (CRM), and produce new business opportunities. Utilizing XML Web services with the adaptive collaborative system also enables organizations to practice an integrative strategy management which improves the quality of human resource system, including personnel affairs, compensations, education and training of employees, and project management by sharing their personnel information across the board. Today, in order for corporations and government agencies to achieve swift decision making and innovation, they need to utilize a system that efficiently manages large-scale information and data—both in terms of quantity and quality—existing within and outside of the organization, and to make these resources shareable.
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We have been building the Next-Generation Collaboration Studies Platform in Tokyo since April 2003, which is supported by the Ministry of Post and Telecommunications (Ohashi, 2003a). In order to examine the effectiveness of real-time ACW through telecommunication and data sharing, an experiment utilizing the knowledge management systems and the wavelength division multiplexing (WDM) was conducted in cooperation with several universities and research institutes in Japan. We examined whether incorporating the storage area network (SAN) collaboration systems installed in the iDC and the knowledge management system would sophisticate and enhance the quality of real-time collaborative work. The experiment proved that real-time operation of large volumes of data with a high-speed line to be possible and the adaptive collaborative telework to be very effective. Beyond merely sharing data through telecommunication, the experiment demonstrated that utilizing the knowledge management systems in conjunction with the WDM facilitates an enhanced communication structure. In essence, the union of the two systems creates a real-time collaborative research environment by allowing users to share the processes and results of researches between the institutions regardless of their location. This experiment was unique in that we developed a collaborative research system that allows researchers to work on several different projects at the same time and also a Figure 7.1. Collaborative work systems
Collaborative Work Testbed A University
B University
MAN
Mesh Gigabit Eethanet or WDM
iDC Private Sector
Backbone Overseas
C University
Collaborative CollaborativeWork, Work,Collaborative CollaborativeLearning Learning
SAN
WDM
iDC SAN
NAL(National Aerospace Laboratory)
EXPERIMENTAL EXPERIMENTAL STUDIES STUDIES Data Datamanagement management Storage StorageManagement Management Collaborative CollaborativeWork WorkTools Tools
Knowledge KnowledgeManagement ManagementSoftware Software
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project management system that manages all the collaborative projects as a whole. This demonstration experiment of the adaptive collaboration platform was conducted in the following settings: 1. 2.
A collaborative research and experiment system in an integrated distributed environment Adaptive collaboration for visual media contents production
These trials were performed using the database and applications in the collaborative workspace located in the external storage within the iDC. The knowledge management systems enabled users to control access to the files and data stored in the iDC. Not only allowing authorized individuals to customize the settings to obtain access to specific organizations, workgroups, and workplaces, the experiment also performed detailed control over the visibility and invisibility of the intelligent folders, bulletin boards, and e-mails. An application that intelligently relates the databases in the external storage to each organization and management was also introduced allowing users to voluntarily create and/or alter the settings of the collaborative workspace. The adaptive collaboration is also an autonomous-distributed collaborative work system with the iDC centralized, layered data-type sharing model, which enables the clients distributed on the network to autonomously provide services to their consumers (Figure 7.1). As challenges for the future, we would like to have more organizations be involved in the experiment in order for the further sophistication of the knowledge management systems including the advanced utilization of human resources management.
Utilizing Both Insource and Outsource to Support the ACW The adaptive collaboration assumes the involvement of people from multiple organizations and multiple systems. In order to maximize its effectiveness, utilizing XML Web services which correlates a variety of platform applications on a network at real-time speeds is considered highly critical. Value-creating organization management in a ubiquitous society prioritizes the acceleration of Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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the decision-making process which requires significant shifts in organizations’ strategies and structure. It requires organizations to promote networking of knowledge and information, and concentrate the human resources into their core competence. Doing so would strengthen the competitiveness for the further creation of intellectual properties. In order to share individuals’ knowledge, expertise, and know-how across the board, human resources strategies need to be applied in organization-wide. Organizations need to change their structure so that they can emphasize individuals’ abilities and potentials, contrasting to traditional organizations in which employer offers his or her ability (labor) and receives financial or social security in return based on the fixed long-term contract. Organizations are required to transform their nature to collaborative, networked, flat, and to produce appropriate evaluation method which motivates individuals and maximizes their abilities. XML Web services effectively strengthens business management as it enables organization to share personnel information across the board; therefore, organizations can unify management of their human resources. For instance, an integrative cross-section management of insource human resources may facilitate more effective project management, personnel management, staffing, and in-house training and education. Furthermore, organizations can increase their efficiency by concentrating their insource into core-competence activities while outsourcing other areas such as training and human services. It might be easier and more efficient for small- and medium-sized enterprises and municipalities to outsource the specialists for strategy planning. XML Web services based on the ACW system is able to transform conventional personnel management into management strategies.
Potentials of the ACW The Adaptive Collaborative Telework The ACW aims to shift the concept of computerization and infomatization from a mere development of ICT to further sophistication of the system of society itself. There underlies a mission coming from the need of rebuilding the Japanese society centered on digitalization. In 21st-century society, regional characteristics are valued as well as the concept of globalization. Today, decentralization is receiving more interest and demand for the elaborate, finely Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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tuned services for individuals and innovative measures for promoting their region are increasing. In other words, people are seeking individually tailored services rather than many-to-many, ready-made services. In order to swiftly and appropriately satisfy a variety of needs of residents and local organizations, further development and utilization of ICT and its infrastructure in local regions—especially within the local municipalities—are essential. In the United States, government computerization is far more advanced than that in Japan. Each agency cooperates with one another in a horizontal way so that one can process a complicated task that requires services from a wide range of agencies efficiently. Furthermore, the U.S. government promotes telework within governmental agencies. On the other hand, in Japan, building of infrastructure for telework, which may maximize the potentials of human resources and develop information and telecommunications systems cooperated by e-government and e-local government, has just started to be discussed. In Japan, it is difficult for local municipalities to invest in computerization and provide residents and organizations with services and appropriate security systems due to the financial deterioration. Therefore, computerization needs to be fair in its cost, safe and trustworthy, and contribute and meet the needs of residents and local organizations. The ACW plays a vital role in enabling computerization by promoting ICT with fairly low cost. It is also highly expansible for the further development and ensures security in a time of disaster. For the local municipalities and organizations of the 21st century, the following are the benefits of utilizing the ACW based on XML Web services. First, it utilizes expertise and knowledge of local staff in a more functional and collaborative way in order to promptly meet a variety of needs of local residents and organizations. Second, unlike the sectionalism often seen among governmental agencies, information can be shared across agencies which allows people to work collaboratively, therefore reducing administrative cost. Third, it is highly important in a disaster-prone country such as Japan to develop a collaborative system to share any information related to disaster among the government, municipalities, prefectures, cities and towns, and local organizations to efficiently enforce the emergent measures. In order to utilize this disaster-related system, security has to be ensured. Each municipality and organization needs to administer the system in a decentralized manner and to be prepared for collaboration depending on the situation. The ACW can be one of the important measures against disasters. And finally, it reduces organizations’ investment in facilities and efficiently utilizes sophistiCopyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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cated expertise and highly technical knowledge of human resources. For instance, building infrastructure of information and communications systems in municipalities requires advanced facilities and it could cost large amount of funds for maintenance. Furthermore, it is also difficult to hire highly experienced people due to its cost. The ACW enables organizations to utilize human resources with advanced expertise for low cost. Telework, a representative form of the ACW, shares the common benefits for municipalities and local organizations as the ACW that we mentioned above. Today, municipalities and local organizations are required to seriously consider the implementation of telework in order to utilize the expertise within and outside their organizations in a collaborative, networked manner. Additionally, like the private sector, municipalities are expected to increase their productivity and become more output oriented. For those reasons, telework has drawn considerable interest that it would increase individuals’ productivity, network the human resources and encourage the collaboration between different branches in the organization, and utilize the outsource human resources for advanced knowledge and expertise. Telework would ultimately create an environment where organizations and individuals bring their expertise and generate innovative ideas, which leads to new business opportunities, expansion of employment opportunities, and development of ICT-related engineers; hence, it would produce the driving force for local revitalization.
ACW as Social System In the ubiquitous society, sharing and utilizing of knowledge, in other words, knowledge management, become essential not only in the field of business but also in e-government and e-local governments. For instance, in the field of business, sharing knowledge stored in information systems of each organization would be imperative for the concentration of intellectual resources and competence for excellence of intellectual capital regardless of the size of the organization. Additionally, collaboration across the divisions would encourage achieving higher goals in a more creative and strategic manner. The digitization of government and local governments today has not gone further than promoting online application procedures and introducing procurement systems. However, in the ubiquitous society, e-government and e-local governments are expected to further disclose their information and integrate authorized operations. Moreover, they need to expand their limited concept of digitization to the digitization of social system at large including the welfare and healthcare of Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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citizens, education, regional revitalization, job development, and others that are tightly related to our daily lives. Thus far, Japan has managed to achieve developments in social welfare, health care, and cultivation of human resources with the social system dependent on officialdom. However, in the era of the rapid and drastic transformation, conventional bureaucrat-led socioeconomic structures and systems have gone through systematic fatigue and lost their productivity. The ACW based on ICT encourages the shift from the bureaucrat-led system to public-private sectorled or private sector-led system by linking the expertise from the two different fields.
Conclusion For government agencies and corporate organizations to solve emerging complex problems in the ubiquitous society, they will need to collaborate with other branches in their organization or build industry-government-academia relationship to collaboratively work on the problems. In a homogeneous society, many problems had been solved with a comprehensive approach. However, today, it is often inevitable to divide the problem into modules and then apply knowledge to solve each modulated problem. As discussed in chapter two, the benefits of the adaptive collaborative system, such as collaboration with the legacy system without applying special system and development at the module level, symbolically represent their potentials in the ubiquitous society. Accordingly, the rapid development of the ubiquitous society requires human resources that creatively keeps up with the rapidity. The XML Web services we introduced in this chapter also requires development and training of engineers, managers, and other human resources to take its full advantage and maximize its effectiveness. This illustrates the more specialized and diversified needs in the ubiquitous society that necessitate experts who collaboratively respond to the changes in business environment and find solutions for the emerging problems. As the most representative form of the ACW, telework needs to transform its nature from individual teleworking to working group and to working organization for the greater sophistication of business and for corresponding to the diversification of business needs. Collaborative telework may expand the effectiveness of knowledge management as it strategically integrates high-level Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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knowledge and expertise. Furthermore, in the ubiquitous society, whether it is public or private, organizations need to develop and cultivate human resources capable of planning integrative strategy with ICT, designing and developing systems, managing hardware and software, and operating/maintaining systems. XML Web services based on the ACW gives suggestions on tactical solutions for these emerging agendas.
References Beyerlein, M.M., Freedmau, S., McGee, C., & Moran, L. (2003). Beyond teams building the collaborative organization. Jossey-Bass/Pfeiffer. Fenson, B., & Hill, S. (2003). Implementing and Managing Telework: A Guide for Those Who Make It Happen. Praeger. Fisher, K., Fisher, M.D. (2001). The distance manager. McGraw-Hill. Grundy, A.F., Köhler, D., Oechtering, V., & Petersen, U. (Eds.). (1997). Women, work and computerization. Proceedings of the 6th International IFIP-Conference, Bonn, Germany. Hori, M. (2001). The development of IT and a new work format for women in Japan. Proceedings of t-World 2001, The Eighth International Assembly on Telework, 231 Labour Policy Studies, Ministry of Labour, Finland, Helsinki. Hori, M. (2002). The present situation and perspective of women’s work: How does IT work? Hakuoh Business Review, 11(1), Institute of Business Research, Hakuoh University. Hori, M. (2003). Society of telework and working for women. Tokyo: Publishers of Chuo University. Hori, M., & Ohashi, M. (2001). Information technology and the possibility of women’s work: A new work format for women in Japan. The 6th International ITF Workshop and Business Conference “Working in the New Economy,” Amsterdam. Hori, M., & Ohashi, M. (2004a). Implementing adaptive collaborative telework in public administration, eAdoption and the knowledge economy: Issues, applications, case studies. In P. Cunningham & M. Cunningham (Eds.), (pp. 708–714). IOS Press.
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Hori, M., & Ohashi, M. (2004b). Telework and mental health: Collaborative work to maintain and manage the mental health. Proceedings of the 37th Annual Hawaii International Conference on System Sciences, Hawaii. Hori, M., & Ohashi, M. (2004c). Telework changes working style for Japanese women. Proceedings of AWEEB2004, International Workshop on Advanced Web Engineering for E-Business, Frankfurt, Germany. Hori, M., & Ohashi, M. (2005). Applying XML Web services into health care management. Proceedings of the 38th Annual Conference on System Sciences, Hawaii. Illegems, V., & Verbeke, A. (2004). Moving towards the virtual workplace: Managerial and societal perspectives on telework. Chichester, UK: Edward Elgar. Nicson, D., & Siddons, S. (2003). Remote working: Linking people and organization. Butterworth/Heinemann. Ohashi, M. (Ed.). (2003a). Knowledge-based collaborative work. The Report of Supplementary Budget Project of the Ministry of Post and Telecommunications. Tokyo: Ministry of Post and Telecommunications. Ohashi, M. (2003b). Public iDC and c-Society. Tokyo: Kogaku Tosho. Ohashi, M. (Ed.). (2003c). The Report of the Society for the Advanced Studies on e-Society. Tokyo: The Society of the Basis for the eCommunity. Ohashi, M. (2003d). Time business. Tokyo: NTT Publication. Ohashi, M. (Ed.). (2004). The Report of the Advanced Studies for the Social Capital on e-Society. Tokyo: The Society of the Basis for the eCommunity. Ohashi, M. (Ed.). (2005). XML Web services for next generation and a view of citizen centric. Tokyo: Kinokuniya Ltd. Ohashi, M., & Hori, M. (2005). On the studies of adaptive collaborative work. Journal of IPCS, 12, The Institution of Policy and Cultural Studies, Chuo University. Ohashi, M., & Hori, M. (2005). The theory of economics for network society. Tokyo: Kinokuniya Company Ltd.
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Ohashi, M., & Nagai, M. (2001). Internet data center revolution. Tokyo: Impress. Ohashi, M., & Sasaki, K. (2003). On the study of knowledge structuralization process based on project based learning. Journal of Policy Studies,10. Ohashi, M., Sasaki, K., & Hori, M. (2004). On the study of knowledge structuralization and adaptive processes based on project based learning. Journal of IPCS, 7, 55–78. The Institution of Policy and Cultural Studies, Chuo University. Organisation for Economic Co-operation and Development (OECD). (2002). OECD employment outlook. Paris. Sasaki, K., & Ohashi, M. (2001). Key issues for the next generation knowledge management. Journal of Policy Studies, 9. Steward, B. (1999). Sickness absenteeism in telework: A sociological study. Proceedings of the Fourth International Telework Workshop Telework Strategies for the New Workforce, 61–68. U.S. General Services Administration. (2003). The status of telework in the federal government. Retrieved from www.telework.gov/documents/ tw_rpt03/status-toc.asp
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Chapter VIII
Helping Users, Mentally:
A Lesson Learned from Hypertext and Web Navigation Paulus Insap Santosa, National University of Singapore, Singapore
Abstract The World Wide Web offers a vast collection of information. As the result, information seeking and related activities have become increasingly common. However, several drawbacks of the current systems often cause some user frustrations. One source of frustration is the way information is presented on the Web. It appears that virtually anyone could become an information source and Web site owner. As such, it is difficult, if not impossible, to have a standardized structure on how information should be structured and presented on the Web. This chapter presents a comprehensive literature review on information seeking emphasizing aspects of human cognition. It starts by pointing out some problems the information seekers may encounter when searching the Web. It proceeds with a navigation metaphor to compare the real-word navigation into hypertext navigation. A psychological overview of navigation is also Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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presented, followed by a discussion of mental model. The chapter concludes with a discussion of an application of a real-world navigation strategy, called wayfinding, into a hypertext system. It shows how certain Web site design elements can be used as wayfinding cues.
Introduction The World Wide Web (WWW) is a vast collection of interconnected documents. Its foundation is based on the concept of hypertext. The Web consists of hypertext, the Internet, and multimedia (Rumpradit & Donnell, 1999). The Web provides individuals with the potential to access large and complex information sources. The increasing amount of information on the Web gives opportunities, challenges, as well as problems to individuals who engage in Web activities. The problems came from the fact that Web search engines are designed to support only one type of information-seeking strategy: specifying queries by using terms to select documents from the database (Xie, 2000). From users’ perspective, Kuhlthau (1991) states that the information search process is a form of users’ constructive activity which leads to finding the meaning of information in order to extend their state of knowledge on a particular problem or topic. It is a process of sense making, which involves the whole individual’s experience, feelings, thoughts, and actions. Theoretical and empirical studies have identified user goal as the most important factor in defining information-seeking behavior (Belkin, Marchetti, & Cool, 1993). This suggests that we approach information system design from the point of view of its users; specifically to determine how users view their domains, goals, and tasks in specifying the range and relationships of relevant information sources, and the most appropriate means of accessing them (Belkin et al., 1991). To provide assistance to its users, computerized information providers need to perform the following functions (Raskutti & Zukerman, 1997): 1.
2.
Recognize the goal that user is pursuing on the basis of user’s initial request and subsequent utterances, and propose a plan to satisfy the user’s goal; and Generate clarification and information-seeking queries and negotiate a user’s specifications when needed, and generate answers that inform the user of the plan proposed by the systems to satisfy the user’s goal.
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To have a better understanding of information seeking, this chapter presents a comprehensive literature review on information seeking emphasizing aspects of human cognition. This chapter is divided into six sections. The section following this introduction points out some problems the information seekers may encounter when searching hypertext and the Web. The second section discusses navigation metaphor to compare the real-word navigation into hypertext. A psychological overview of navigation is presented in the third section, followed by a discussion of mental model in section four. Section five discusses an application of a real-world navigation strategy, called wayfinding, into a hypertext system. The chapter ends with a conclusion.
Hypertext Navigation and Its Problems Hypertext system is “a database composed of a collection of nodes of data items and where relations between nodes are represented by explicit links” (Kim & Hirtle, 1995, p. 239). Hypertext is used to structure information in a nonlinear fashion that enables users to search for the information on their own perspective. These systems include user interfaces that allow users to view the nodes by traversing the link. It is by traversing the hypertext link users can find, learn, and explore the databases content (Foss, 1989). Nielsen (1990) considers hypertext as a nonsequential writing, where the information is linked together to form a directed graph, in which each node contains textual information or other types of information. Outgoing links are associated with some smaller part of the node called an anchor. Users navigate a hypertext first by activating a particular anchor then follow the associated link to its destination. However, other computer techniques may match this definition, at least partly. Nielsen then describes that a true hypertext should also make users feel that they can move freely through the information according to their needs. This feeling is hard to define precisely but certainly implies short response times and low cognitive load when navigating. (p. 298) The nonlinear structure of hypertext enables users to jump from one part to another quite easily. With the repeat usage of such a system, users may
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“possess some form of mental representation for a document type that provides information on the likely structure and organization of key elements within it” (Dillon, 1991, p. 913). However, users may not have a clear conception of the relationships within the system, not knowing where to go next, knowing where to go but not knowing how to get there, and not knowing where they are in the overall structure of the document (Elm & Woods, 1985). Researchers have called this problem as disorientation (Ransom, Wu, & Schmidt, 1997; Rumpradit & Donnell, 1999; Park & Kim, 2000). It is also called lostness, lost in hyperspace, getting lost (Edwards & Hardman, 1999; Elm & Woods 1985; Otter & Johnson, 2000; Spence, 1999). Foss (1989) elaborated this problem by stating that being disoriented is more than not knowing the spatial layout of the frames in the hypertext network. Other problems that ‘lost’ or ‘disoriented’ users have are: arriving at a particular point in a document and then forgetting what was to be done there; neglecting to either return from digressions or to pursue digressions that were planned earlier; not knowing if there are any other relevant frames in the document; forgetting which sections have been examined or changed after hours of browsing. (p. 407) However, Elm and Woods (1985) and Smith (1996) argued that disorientation should be viewed in terms of user’s performance degradation rather than purely subjective feelings of being lost. Two undesirable consequences of browsing the hypertext lead to disorientation: embedded digression problem and art museum phenomenon (Foss, 1989). Users could experience embedded digression problem when they try to follow a different link while browsing another link. When they continue with the second link, they may have forgotten what they got from the first link. This situation may worsen when they find more interesting materials on the second link that impressed them to follow this link. Foss pointed out that pursuing multiple paths and digressions leads to a lot of trouble such as: losing your place, forgetting to return from digression, and neglecting to pursue digressions you intended to follow. The Embedded Digression Problem is aggravated when a lot of interesting neighboring information is around to distract you from your main task. (p. 408)
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Foss categorized the origin of embedded digression problem into two types. The first origin is cognitive overhead (Conklin, 1992). Cognitive overhead is cognitive demands placed on the user of hypertext documents. Users must decide which path to follow in the middle of several interesting sidetracks that may distract them from the main task. The second type is the unfamiliarity with the structure or conceptual organization of the hypertext network. An example of this type is a closure where users do not know the extent of the network or what proportion of it remains to be seen (Shneiderman, 1987). The art museum phenomenon could happen to users who spend their time browsing the Internet without any effort to memorize anything they see. This problem is caused by unfamiliarity with the subject matters or any interference resulting from viewing a large number of items. It is also due to general inexperience with the practice of learning by browsing. This may result in problems with remembering the information contained within the system and problems in consolidating and understanding the semantic content of the information nodes. Tripp and Roby (1990) argue that disorientation itself will lead to an increased cognitive load thus reducing the mental resources for learning. As pointed out by Conklin (1992), hypertext users have to manage their cognitive load accordingly or they will face the difficulty in finding what they need among the abundant sources of information on the Internet. This is what Nielsen (1999) called the “dilemma of finding a piece of information among a huge collection of information.” The difficulty of finding information arises because users must carry out multiple tasks concurrently (Kim & Hirtle, 1995). These multiple tasks can be classified into three categories (p. 241): 1. 2. 3.
Navigational tasks: planning and executing routes through network, Informational tasks: reading and understanding the contents presented in the nodes and their relationships for summary and analysis purposes, and Task management coordinating informational and navigational tasks (e.g., keeping track of digressions to incidental topics)
Several causes—unfamiliarity with the subject matter, unfamiliarity with the structure or conceptual organization of hypertext network, and individuals’ inexperience of using particular system—have created problems when individuals work with hypertext system. In dealing with this situation, NavarroPrieto, Scaife, and Rogers (1999) suggested three factors as the units of Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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analysis that need to be considered to study the complex task of information searching within the Web context. These three factors are 1. 2. 3.
the user’s experience and cognitive strategies, the type of searching task, and how the information is presented and interacted with the users.
Edwards and Hardman (1999) suggested that users would not be disoriented if they had a conceptual overview (or spatial representation) of the hypertext structure by stating that the main disadvantages of using hypertext at present seem to be consequent of its sheer lack of physical presence and integrity … the very flexibility of reading on screen is disorienting for a user who can’t conceptualize an overview of the structure. (p. 91)
Navigation Metaphor Navigation is an incremental real-time process that integrates physical activity (called locomotion) and decision making (Jul & Furnas, 1997). It is not merely a physical movement through a space, but it also involves a cognitive activity. This cognitive element is referred to as “wayfinding.” Wayfinding involves mental representation, route planning, and distance estimation (Darken, Allard, & Achille, 1999). Researchers have compared the way a person browses a hypertext system and the Web to that of person navigating and wayfinding through a physical environment (e.g., Parunak, 1989; Dillon, McKnight, & Richardson, 1990, 1993; Jul & Furnas, 1997; Spence, 1999; Hodkinson, Kiel, & McCollKennedy, 2000). Browsing in a hypertext system includes many of the same tasks as wayfinding in physical spaces such as: finding individual’s current location, planning the route that will accomplish individual’s task goals, and execution of the planned route. Canter, Rivers, and Storrs (1985) have also considered the analogy between navigating data and navigating a physical environment by stating that
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it is fruitful to recognize the direct parallels between navigating concrete environments, such as cities or buildings, and navigating data. After all, such parallels are implicit in the navigation metaphor, so it is worth establishing whether or not there is fruitful analogy between the psychological processes involved. (p. 93) Parunak (1989) compared navigation strategies in physical environments and hypertext topologies. He identified five strategies that people use in navigating physical spaces: 1.
2.
3.
4.
5.
Identifier strategy: a unique identifier or description is associated with each entity of interest. This strategy requires an exhaustive search, but it can be applied to any topology. Path strategy: a procedural route of how to get the target is provided. This strategy is used if the number of places directly accessible from a particular place is much less than the total number of places. If this is not the case, then finding the next step in the path is not easier than directly going to the target itself. Direction strategy: the searchers use a global frame of reference to avoid exhaustive search (north-south, east-west). The strategy depends upon the texture and comparability of the space. Distance strategy: the search is bounded to a circle around one’s current position. Distance can be used in conjunction with direction, and is always defined in spaces where paths exist. Address strategy: direction is refined by establishing an orthogonal coordinate system in the space. The definition of orthogonal dimensional coordinates reduces the computational complexity of the search.
Parunak (1989) then defines five classes of topologies, which hypertext systems can be developed based on the concept of graph theory. In increasing order of complexity, the classes are linear and ring, hierarchy, hypercube and hypertorus, directed acyclic graph, and arbitrary structure. He also stated that simpler topologies allow users to use wider variety of navigational strategies, with the linear and ring structure allowing all five of strategies, whereas arbitrary structure allows only for the default identifier strategy.
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Monk (1990) distinguished directed from exploratory navigation. Users engage in directed navigation when they know exactly where to find a piece of information, because that location has been regularly visited in the past. On the other hand, it is quite often that users do not know where to find certain pieces of information. They just look around until interesting information pops up. In this situation, users are engaging in exploratory navigation. It is often implicitly assumed that much of hypertext usage is exploratory. This distinction is independent of the user’s higher-level goal to extract information from the text. Both general higher-level goal (e.g., “Find countries that participated in World Cup 2002”), and specific higher-level goal (e.g., “Who beat the Republic of Korea team in World Cup 2002?”) can result in directed navigation (e.g., “What was the score between Germany and Korea in the World Cup 2002 semifinal?”). Navigation and query are two different tactics to accomplish either searching task or browsing task (Jul & Furnas, 1997). Querying is submitting a description of the object being sought (e.g., using keyword) to a search engine, which will return relevant content or information. On the other hand, navigation deals with movement of individuals sequentially around an environment, deciding at each step where to go. Czerwinski et al. (see Jul & Furnas, 1997) distinguished situated from planbased navigation. Situated navigation, a reactive strategy, employs a situationspecific knowledge, landmark, and incomplete information. It is employed when the goal looks achievable and/or close. Plan-based navigation employs survey knowledge and generating, in advance, a complete plan to achieve a certain goal. It is used for general navigation to the goal. They noted that users switched between these two strategies for error recovery.
Psychology of Navigation It is well established that people utilize a large amount of organized knowledge when engaging in any mental and most physical activities (Wilson & Rutherford, 1989). Cohen (1986) stated that many mental activities such as remembering, perceiving, and problem solving, involve a combination of information from two sources:
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• •
incoming information from the outside world, that is, the input received by the sense organs, and information already stored in memory, that is, prior knowledge derived from past experience.
Based on these two kinds of information sources, Cohen (1986) described two kinds of information processing related to as bottom-up processing or datadriven processing happened when individuals attend to the incoming information from their outside world and capture them using their sense organs. Although this information might be incomplete or even ambiguous, information stored in the memory, in form of prior knowledge, influences individuals’ expectations and helps them to interpret the current input. The influence of prior knowledge is known as top-down or conceptually driven processing. The combination of these two kinds of information processing is sometimes known as interactive processing.
Schema Theory Individuals store information they gather from the real world inside their memory. Cohen (1986) stated that “the use of past experience to deal with new experience is a fundamental feature of the way human mind works” (p. 27). According to Rumelhart (1980) and Rumelhart and Norman (1988), schema (plural: schemas or schemata) is a data structure for representing the generic concepts stored in memory. According to the schema theory, the knowledge we have stored in our memory is organized as a set of schemata or mental representations, each of which incorporates all the knowledge of a given type of object or event that we have acquired from the past experience. Schemata operate in a top-down fashion to help us interpret the bottom-up flow of information from the outside world. Schemata are unconscious mental structure that underlies the molar aspects of human knowledge and skill (Brewer, 1987). They are modular, and different cognitive domains have schemata with different structural properties. Schemata interact with incoming episodic information to modify generic information in the schema and to produce specific instantiated memory representations of the incoming episodic information. An instantiated schema is a specific cognitive structure that results from the interaction of the old information of the generic schema and the new information from the episodic input. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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As mental representations, schemata have their own characteristics. Rumelhart and Norman (1983) give a list of five characteristics of schemata: 1.
2.
3.
4.
5.
A schema for any concepts has slots that may be filled with fixed, compulsory values, or with variable, optional values. It may also have default value. Schemata can be linked together into related systems. An overall schema may consist of a set of subschemata (e.g., schema about picnic may be a part of larger system of schemata including “meals,” “outing,” and “parties”). Packets of knowledge about one topic are linked to packets of knowledge about related topic. Schemata represent knowledge of all kind, from simple to complex knowledge, as well as about motor actions. Individuals have schemata to represent all levels of experience, and all level of abstraction. Thus the schema theories suppose that human memory system contains countless packets of knowledge. Schemata incorporate all the different kinds of knowledge we have accumulated, including both generalizations derived from our personal experience and facts we have been taught. Various schemata at different levels may actively be engaged in recognizing and interpreting new inputs. Bottom-up and top-down processing may go through repeated cycles, and the final interpretation of new input will depend on which schema constitutes the best fit of incoming information.
When applied to real-life experience, schemata may influence memory in any of the following different ways (Cohen, 1986): 1.
2.
3.
Selection. The schema guides the selection of what is encoded and stored in memory. Information that is not relevant to the currently most active schema may be ignored. Abstraction. Information in memory tends to undergo transformation from the specific to the general. Only the general schema is retained in memory, while the particular episode is forgotten. Integration and interpretation. According to the schema theory, a single integrated memory representation is formed which includes information derived from the current experience, prior knowledge relating to
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4.
it, default values supplied by the appropriate schemata, and any interpretation that are made. The interpretation happened based on prior knowledge about possible ways of behaving in a particular event. Normalization. Memories of events also tend to be distorted so as to fit in with prior expectation and to be consistent with the schema. They are therefore transformed toward the most probable or most typical event of that kind. People may misreport an event they witnessed because they remember what they expected to see rather than what they actually saw.
While selection, abstraction, and normalization explain how information may be lost or reduced in memory, integration and interpretation serve to enrich and elaborate the memory trace. Rumelhart (1980) describes schemata in terms of four metaphors. First, schemata are like plays, which are written with actions, characters, settings, and so forth. Second, schemata are like theories in that they guide the construction of an interpretation and become the basis for predictions that are tested and then confirmed or rejected. Third, schemata are like procedures, such as computer programs, that is, an organization of activities with structural relationships among these activities and other entities. Four, a schema is like a parser; it breaks down, organizes, and interprets incoming data.
Cognitive Map The mediating factors of sensory input of environmental and spatial information are cognitive process, attitude, and belief. Through contemplation, sensory experience is transformed into knowing and understanding. The whole process is known as cognitive mapping (Jacobson, 1998). Cognitive mapping relates to not only how we perceive, store, and recall information about spatial environment, but also how we think and feel about the geographic environment. It is used in spatial choice and decision making in wayfinding and navigation, migration, environmental preferences for modes of transport, shopping, recreation, housing, and learning new environments and maps. Downs and Stea (1973) offer a formal definition of cognitive mapping as a process composed of a series of psychological transformations by which an individual acquires, codes, stores, recalls, and decodes information
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about the relatives locations and attributes of phenomena in his everyday spatial environment. (p. 9) The result of such process is known as a cognitive map. Thus, a cognitive map is a coping mechanism through which the individual answers two basic questions quickly and efficiently: (1) where certain valued things are; (2) how to get to where they are from where he is. (p. 10) With this cognitive map, individuals organize representation of some part of the spatial environment (Downs & Stea, 1977). It is a “mental representation of physical spaces used for navigation” (Kim & Hirtle, 1995, p. 242) and acting “as the basis for deciding upon and implementing any strategy of spatial behavior” (Downs & Stea, 1973, p. 10). This representation is called a spatial knowledge and it is made up of three components: landmark, route, and survey knowledge (Thorndyke & Hayes-Roth, 1982). Landmark knowledge, also known as place knowledge, represents information about the visual details of specific location in an environment. It includes “the salient aspects of places encoded in a declarative form” (Kim & Hirtle, 1995, p. 242). This knowledge presumably takes the form of perception icons and images (or the sensory data they represent). This type of knowledge can be acquired directly by viewing objects in the environment or indirectly by looking at the photographs or films of particular objects. Thus people can know of the existence of places and can recognize them. Location recognition depends on accurate landmark knowledge. Procedure knowledge, also called route knowledge or primary spatial knowledge, represents information about the sequence of actions required to follow a particular route. At a minimum, this knowledge consists of a series of procedure description of starting points, anchor points, subsequent landmarks, intermediate stopping points, and a final destination. This knowledge is derived directly from the experience of navigating the represented route (Thorndyke & Hayes-Roth, 1982). Survey knowledge, also called configuration knowledge or secondary spatial knowledge, represents the configuration relations among locations and routes in an environment. This type of knowledge encodes the topographic properties
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of the space, including the locations of objects with respect to a fixed global coordinate system, the interobject distance. Survey knowledge concerns “the spatial layout of the salient places” (Kim & Hirtle, 1995, p. 242). Survey knowledge is not available from direct experience, but it can be acquired directly from the map or through the study of other media (Thorndyke & HayesRoth, 1982). Dillon et al. (1993) added a fourth aspect of spatial knowledge called spatial schemata. It is inside these spatial schemata that those landmark, route, and survey knowledge are presented in memory. Imagine students who always make a journey between their home and their school, and vice versa, in which they take the same route every day. One day, these students decide to take a different route. Instead of going directly from school to their home, they go from school to the shopping center, and from the shopping center to home. On their way from school to the shopping center, they may encounter a new environment. This may also be true when they walk from the shopping center to their home. As they encounter a new environment, they will “adjust” their knowledge about a new environment they just encountered, based on their “old” knowledge of going from school to home. As such, cognitive mapping is not a passive process but an active one (Downs & Stea, 1977). Individuals take a journey to work, a trip to a recreational area, or sometimes giving directions to a lost stranger as part of their daily behavior. This would not be possible without some sort of cognitive map.
Spatial Schemata and Spatial Orientation The concept of cognitive map has also gone by the name of mental map (Cox & Zannaras, 1973) and spatial schema (Lee, 1969). It is mentioned that schemata represent knowledge of all kinds including about motor actions. In this sense, all movements in space call for some type of schema. It is possible to conceive a range of schemata from those applicable to microspaces to macrospaces (Cox & Zannaras, 1973). For example, we may have schemata for our home, our neighborhood, the city where we live, and a nation of which we are citizens. In short, besides all other schemata, in every individual there are several schemata related to the spatial information. This is where the term “spatial schema” came from.
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Spatial schema is based on actual sensory and verbal contact with the environment where any information that cannot be fitted to the schema will eventually be discarded. Cox and Zannaras (1973) further stated: The organized structure of this spatial schema, therefore, has a tendency for self-perpetuation; earlier perceptions are considerably more important than later perceptions since they provide the basis for a core of meaning in the schema to which later perceptions must be assimilated. (p. 163) One way to arrange schemata is by location specificity. On one hand, individuals may develop schemata applicable to highly specific content areas; on the other hand, individuals may also develop more general schemata applicable to a wide variety of specific content areas. Arthur and Passini (1992) define two problems related to disorientation. The first problem is called topographical or spatial agnosia in which individuals were incapable of recognizing spaces visited on previous occasion. The second problem is called topographical or spatial amnesia in which individuals were incapable of linking spaces mentally to an overall representation. The representation of environment surrounding, also called a cognitive map, is psychological concepts that underlie the notion of spatial orientation. Depending on the spatial characteristics of an environment, cognitive mapping can be very difficult or even almost impossible operation for everyone. Spatial orientation is based on the ability to form a cognitive map. Individuals are considered spatially oriented if they have an adequate cognitive map of the surrounding setting and are able to situate within that representation. Therefore, spatial orientation is the process of devising individuals with an adequate cognitive map setting along with the ability to situate themselves within that representation.
Mental Model A mental model is “knowledge that the user has about how a system works, its component parts, the processes, their interactions, and how one component influences another” (Fein, Olson, & Olson, 1993, p. 157). This mental model
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is supposed to help people in learning and understanding complex situation. It synthesizes several steps of a process and organizes them as a unit (Allen, 1997). Mental models are “what people really have in their heads and what guides their use of things” (Norman, 1983, p. 12). It is “the bridge between the work environment to be controlled and the mental processes underlying this control” (Rasmussen, 1990, 43). It serves to qualitatively model the effects of changes in a system (William, Hollan, & Stevens, 1983). It allows us to “both understand problem situations and predict consequences of action contemplated for solving the problems” (Marchionini, 1989, p. 56). A mental model can be formed through training (Borgman, 1999), based on a specific task (Olfman & Shayo, 1997; Potosnak, 1989), engaging in a particular activity such as information search (Diaper, 2002; Marchionini, 1989; Navarro-Prieto et al., 1999), through continuous exposure to a specific item, for example, textbooks (Dillon, 1991). It can also be formed by observation (Lokuge, Gilbert, & Richards, 1996), and accidental encounters (Fisher, 1991). Training, with various supporting means, is one important method to increase user understanding of a particular system and at the same time to give some sort of experience to the users. Several studies (Borgman, 1999; Muramatsu & Pratt, 2001) have demonstrated how subjects developed mental model on information retrieval system and search engine, by having their subjects trained on a Boolean logic operation. However, not all of their subjects demonstrated what the authors were supposed to see. These findings support the assertion that mental models are incomplete (Norman, 1983). Moody, Blanton, and Augustine (1996) equipped with animated conceptual model, showed that subjects presented with animation interacted more effectively and scored higher on the test than those who presented with nonanimated model. Olfman and Shayo (1997) also showed that their subjects who have previous experience in database management system perform better on the given tasks than those who have no experience. A user’s mental model relates to the user’s age—because, for some reason, older users are more experienced than younger users—and habit. Marchionini (1989) showed that sixth-grade students performed better in informationseeking activity compared to third or fourth graders. In terms of age, sixth graders are definitely older, and as such are more mature and possess more experience, than third or fourth graders. Dillon (1991) showed that individuals who used to use certain text type possess a superstructure or model of that text
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which enables them to predict where information is located with high level of accuracy.
Mental Model Theory Model is an approximation to objects or processes, which maintain some essential aspects of the original (Allen, 1997). It is an image of an object or a state of affairs representing only those aspects of the objects or state of affairs that are considered relevant in a given context. It is an abstraction from the real object or state of affairs. (Rupietta, 1990, p. 322) Norman (1986) defines three different concepts related to the system being considered: two mental and one physical. The first model is the model held by the designer of the system, the second model is the model constructed by the users when they are using the systems, and the third model is physical image of the system from which the users develop their conceptual model. Since there are three different models, which might cause some confusion, the following terms will be used. Model held or developed by the designer, teachers, scientists, or engineers is called conceptual model, while those constructed by the users about the system under observation are called (user’s) mental model, and the physical image is called system image. Therefore, conceptual model is a model invented to provide an appropriate representation of system being considered, in the sense of being accurate, consistent, and complete (Norman, 1983). System image is what the users actually see. It includes all of the documentations and instructions that come together with the system. By using the system, users develop their mental models about the system under consideration. Gillan and Breedin (1990) call mental model a cognitive model. In its relation with human–computer interaction (HCI), they define a cognitive model as a representation of a person’s knowledge consisting of (1) a set of elemental concepts (elements in a model of an HCI might include windows, menus, tables, and graphics), (2) the relation among the elements (for
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example, a mouse and a touch screen might be related to as input devices), and (3) the relations among groups of associated elements (for example, a group of input devices might be related to a group of user-computer dialogue techniques). (p. 391) Fisher (1991) points out that mental model of a complex system is a cognitive construct that describes a user’s understanding of particular domain in the real world by stating that these models are formed by experience, self-exploration, training, instruction, observation, and accidental encounters. In systems that operate at the ‘human-computer communication’ level, the model will be centered around the properties of a computer system. (p. 21) It is important to recognize that mental models are created for a purpose—they do not exist as some sort of optional extra in the user’s head (Green, 1990). Norman (1986) cautions that “mental model is not formed from the conceptual model: it results when the user interprets the system image” (p. 47). According to Rasmussen (1990), that purpose is to assist users in finding appropriate actions to achieve their goals. Rasmussen (1990) distinguishes categories of human behavior according to the ways of representing the properties of deterministic environment as a basis for control of action into skill-ruleknowledge (or SRK) framework. Van der Velden and Arnold (1991) view this framework to be at the sensory level, perceptual-conceptual level, and intellectual level. Based on SRK framework, Rasmussen (1990) argues that it is at the knowledge level that the mental models are used. There are several ways to use mental models: to figure out actions to perform, and interpreting the state of environment. Mental models are also used for repairing mistakes in performance on intended actions, and for learning how to do the tasks (Green, 1990). Mental models change as users gain more experience (Hawk & Wang, 1999). Waern (1990) argues that users might change their mental model while in the process of construction. Waern’s (1990) argument is based on the dynamic of the mental model:
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the conceptual model or parts of it may be discarded and substituted by a new one. This means that either new objects or operations are conceived or that old objects are given new characteristics. (p. 82) Waern further argues that there are two different approaches in which mental model can develop: 1.
2.
A bottom-up learning approach is where users start their mental model development from incoming bits and pieces of information and put them together towards a more consistent and complete model. In a top-down learning approach, users build a mental model from the basis of their expectation and prior knowledge that they possess or derive from a similar system or task.
Allen (1997) argues that mental models are not directly observable. Allen mentions that several types of evidence have been used to infer the characteristics of mental models: prediction in which users predict what will happen next in sequential process, explanations, diagnosis, and training. This is also evident when people are answering questions about particular process. Furthering Allen’s argument, Norman (1983, p. 8) observes the following: 1. 2. 3.
4. 5.
6.
Mental models are incomplete. People’s abilities to “run” their mental models are severely limited. Mental models are unstable: people forget the details of the system they are using, especially when those details (or the whole system) have not been used for some period of time. Mental models do not have firm boundaries: similar devices and operations get confused with one another. Mental models are “unscientific”: People maintain “superstitious” behavior patterns even when they know that they are unneeded because they cost little in physical effort and save mental effort. Mental models are parsimonious: often people do extra physical operations rather than the mental planning that would allow them to avoid those actions; they are willing to trade-off extra physical action for reduced mental model complexity. This is especially true where the extra actions
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allow one simplified rule to apply to a variety of devices, thus minimizing the chances for confusion. When users are exposed to the same system, they may have similarities and differences on their mental model. Ackerman and Greutmann (1990) stated that individual differences in action regulation exist. We supposed that they are caused by different style of thinking. We know from work psychology that a given task will be redefined by the subject according to his own interpretation of the goals and degree of freedom. (p. 133)
Construction of Mental Model Waern (1990) describes the construction of mental model to take place by a series of events in which one or several events can be repeated at any point. The series of events consists of intention and attention, evocation of prior knowledge, forming a plan, action, evaluation, memorization, and interpretation. •
•
Intention and attention. Suppose a user is given a particular task. Since human attention is restricted, the user will have to select some aspects of the current situation to start with. The user can select those aspects in two alternatives: by top-down selection, in which the user has to mainly rely on the knowledge evoked to select aspects to be observe; or by bottom-up selection, in which the user will attend situations that are not necessarily related to evoke prior knowledge. Evocation of prior knowledge. The user actualizes prior knowledge that should be useful in the observed situation. The first evocation is instantaneous and is not governed by any conscious effort on the part of the user. Knowledge is evoked on the basis of perceived (not the objective) characteristics of the observed situation. Waern (1990) warns that knowledge evocation is a complex process, which is poorly understood. The perception of the situation can be regarded as it is to be contained in a frame. This frame represents a subset of all knowledge that could possibly be associated to the situation at hand. This frame will restrict the
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•
•
•
•
•
subsequent processing and will be confined until the frame is found dysfunctional. Forming a plan. From the task and current status of the mental model, the user may formulate a plan about what to do in order to perform the task. The lowest level of such plan concerns the actual actions to be performed. User’s mental model determines what levels of plans are available, and whether a plan can be realized directly in an action. The plan will contain a description of the goal, and a description of the method to reach that goal. Action. Actions can be determined in two different ways: either the action is exploratory, wherein the user just acts to see what happens, or the action is determined by a plan described above. An exploratory action is not necessarily random, since it is based on either presently evoked prior knowledge or currently used mental model. Evaluation. With respect to the given task, the result of action will be evaluated. Feedback from the system plays an important role. If the action were exploratory, the lack of feedback would give no information to the user and lead to no change in the mental model. If the action were planned, only a well-informed and experienced user would trust that the action had the intended effect. Memorization. Some characteristics of the event can be stored for further use. The event includes the given task, the current mental model under construction, the observed situation, the plan, the action, the observed result from the action, as well as the evaluation of the result. One should take note that users will forget at least some part, which users did not particularly attend, of those events. Interpretation of event. The action and its result are placed within the context of the model under construction. The events will be assimilated into it if they are fall into permissible characterization of the objects and operations contained in the mental model. The interpretation of the events will be needed if there are some discrepancies between the action and its result with the context of the model under construction. Exploratory actions may also lead to a need to change something, through the interpretation of the results.
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Structure and Content of Mental Model Several authors believed that mental models are organized structures consisting of objects and their relationships (Gentner & Gentner, 1983; Greeno, 1983; William et al., 1983). William et al. (1983) state that mental models are composed of autonomous objects with an associated topology. Autonomous object is defined as: a mental object with an explicit representation of state, an explicit representation of its topological connection to objects, and a set of internal parameters.… The behavior of autonomous objects (defined in changes of parameter value) is governed strictly to internal rules reacting to internal parameter changes and to highly constrained external provocation. (pp. 133–134) Mental models are runable, although people’s abilities to run their models are limited. One way to run a mental model is by modifying the parameters of the model by propagating information using the internal rules and specified topology. It can also occur when autonomous objects change state. State change consists of replacement of one set of behavior rules with another.
The Usage of Mental Model William et al. (1983) posits that mental model can assist human reasoning in various ways. It can be used as inference engine to predict the behavior of physical systems. It can also be used to produce explanations or justifications. It can also facilitate remembering by serving as mnemonic devices. Staggers and Norcio (1993) show that mental models are related to system learning, performance, and system design. Norman (1986) outlines the relationship between mental models and system design as follows: The problem is to design the system so that, first, it follows a consistent, coherent conceptualization—a design model—and, second, so that the user can develop a mental model of the system—a user model—consistent with the design model…. The user model is not formed from the design model: it results from the way the user interprets the system image. Thus Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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in many ways, the primary task of the designer is to construct an appropriate system image, realizing that everything the user interacts with helps to form the image. (pp. 46–47). Within human factors, particularly in human–computer interaction work among other else, the mental model notion is used or invoked in the following ways (Wilson & Rutherford, 1989, p. 627): 1.
2. 3. 4.
To summon up the idea of a picture in the mind of envisionment in which analogical representations seem to be equated only with graphical or pictorial-type models. As experimenter-created or hypothesized models to test the effects of different levels of training or task on performance. In the explanation and description of behavior. In the explicit or implicit requirement that they be employed as a tool in design—on operational need.
In problem solving, mental models seem to help problem solvers in the following ways (Hawk & Wang, 1999, p. 258): 1. 2. 3. 4. 5.
By making learning more efficient because information is organized within the model By setting up expectations and singling out components of the system to pay attention to By acting as memory aids through associations with previous experience or specific documents/objects By helping comprehension through organizing background knowledge By including problem-solving shortcuts
Hawk and Wang (1999) added that good problem solvers developed mental models that are closer to the conceptual model and its functionality than do poor problem solvers. Good problem solvers may have more mental models as well. In short, expert mental models’ are better organized than those of novices (Mayer, 1997; Shayo & Olfman, 1998).
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Accessing Mental Model Protocol analysis and knowledge acquisition are two most common ways for assessing user’s mental model (Potosnak, 1989). Protocol analysis, also called “thinking aloud” technique, requires a user to describe his/her thought when performing a task. Two types of protocol analysis have been used to assess user’s mental model: verbal and graphical. In verbal protocol analysis, users have to spell out what their thoughts are, verbally. In graphical protocol analysis, users have to draw a picture or diagram about how specific system, its components or elements, how these components are related to each other enabling the system to work properly as it is intended. Researchers have been using verbal protocol analysis to study mental models (Muramatsu & Pratt, 2000), information-seeking behavior (Branch, 2001; Park, 2000), and system usability (Benbunan-Fich, 2001; Park, 2000). Protocol analysis using graphics/diagram has also been used in much previous work (Fiore, Cuevas, & Oser, 2003; Gray, 1990; Padovani & Lansdale, 2003; Park, 2000; Thatcher & Greyling, 1993). The use of diagram to access user’s mental model has at least two advantages: it helps to capture a shift in user’s mental model during an experiment with particular system (Gray, 1990), which may be more difficult to spell out verbally, and it can be utilized to group users into several categories (Thatcher & Greyling, 1993). Billinghurst and Weghorst (1995) and Fiore et al. (2003) also showed that a sketch map helped their subjects make a better orientation and understanding on spatial environment. A picture (or graphic) is worth a thousand words, is an old saying applicable to many reasons and situations. Graphical information is also superior, compared to textual information, when it comes to help users form mental model and to get a high user-interaction performance. Rock and Donnell (1993) showed in their study that subjects who were presented with graphic-based mental model and graphical-based inference explanation yielded the highest userinteraction performance among other combinations. Another method to assess a user’s mental model is scaling techniques (Kellogg & Breen, 1987). This method can be used to show how expert and novice users are different in their conceptualization of interactive systems. Their study supports the claim that with experience, user’s mental model is closer to the designer’s conceptual model.
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Wayfinding Wayfinding describes the process of reaching a destination, whether in a familiar or unfamiliar environment. It is spatial problem solving as described by Downs and Stea (1977). Making a journey and reaching a destination are wayfinding goals. If individuals make a journey for the first time and if the destination is unfamiliar, they are confronted with a problem for which they need to find a solution. The solution is a plan of action. Downs and Stea (1977) describe wayfinding as “the process of solving one class of spatial problems, the movement of a person from one location on the earth’s surface to another” (p. 124). It is the users’ ability to maneuver in electronic space (Kerr, 1990). Downs and Stea (1977) break the wayfinding process into four sequential and interrelated steps: 1.
2.
3.
4.
Orientation: determining where individuals are in respect to nearby objects and target location. This step requires that some landmarks must have been distinguished and selected by the individuals. Individuals know what the landmarks are, where they are, and their relative position in relation to their own location. Route decision: choosing a route that will get individuals to their destinations. It requires that individuals make a cognitive connection between their current location and their destination. Keeping on the right track: monitoring the route individuals have taken to confirm that individuals are on the correct route and is going in the right direction. Destination recognition: individuals must be able to decide that they have reached the correct destination.
Arthur and Passini (1992) in their framework for wayfinding process describe that wayfinding can be characterized by three different processes: 1.
2.
Cognitive mapping or an information generation in which individuals develop an understanding of the world around them, retrieves information from the world, and integrates information. Decision-making process where an individual plans actions and structures them into an overall wayfinding plan.
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3.
Decision-execution process where an individual transfers decision into physical behavioral actions.
Arthur and Passini (1992) define “to reach a destination” as a final wayfinding task, which is one sort of spatial problem-solving procedure. They further state that any cues that exist in a particular environment are called spatial information, and if those cues relate to the wayfinding task, they are called spatial knowledge. In order to complete the wayfinding task (besides spatial information), an adequate amount of general information is also needed. Both spatial and general information are categorized into three categories: sensory information, memory information, and inferred information. Different wayfinding strategies may be employed depending on the availability of the collectible information. For example, if only sensory information is available to the individuals, they have to perform a much more exhaustive spatial information search to reach the destination than if they followed route directions in memory (that is, memory information). Thus, the availability of the spatial information type is influential in determining the wayfinding strategy (Chen & Stanney, 1999). As suggested by Jul and Furnas (1997), physically navigating a Web site is clicking the available links. However, in doing so, users are guided with what they see on the screen, which are commonly regarded as navigational cues. Navigational cues that appear on the screen are supposed to help users to have a better mental representation. Due to the fact that these cues can help users in shaping their mental representations of Web structures, which in fact is a mental activity, navigational cues should be called wayfinding cues. Several wayfinding cues that are commonly used within Web sites include color, text, graphics icons (Kerr, 1990), (Internet speed) traffic light in the form of simple hyperlink annotation (Campbell & Maglio, 1999), graphics level of detail and label placement (Devlin & Bernstein, 1997), text and background colors (Ling & Schaik, 2002), link color (Schaik & Link, 2003), reserved area, link color, mouse pointer, pop-up (Weinreich & Lamersdorf, 2000), and contextual aids (Park & Kim, 2000). Besides wayfinding cues, in order to safe time, users may utilize navigational tools or aids. These can be a site map and/or bookmark (Padovani & Lansdale, 2003), back and forward button, history feature, and address window (Hodkinson et al., 2000).
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Conclusion Information seeking is a complex process comprising several activities both mentally and physically. Mental activities include combination of several specific mental models related to a particular information problem that can be described functionally and structurally (Marchionini, 1989). Functionally, this combination of mental models controls search by extracting key concepts from the information problem, identifying criteria for search process, selecting candidate information sources, monitoring lookup (search) and examination procedure, and using result to modify itself. (p. 56) Structurally, an information-seeking system includes a set of mental models associated with various information sources (databases and accompanying search systems), a set of mental models pertinent to a particular information problem (task domain knowledge), an historical record of past applications of the information seeking system (self awareness which allows analogy and checks context), and a set of rules for combining these components and monitoring progress. (p. 56) Physically, what individuals do when they are seeking information is following a route by clicking information or icon toward the information they intent to find. After finding what they are looking for, they may continue with other information, or just simply exit the process. When individuals are looking for certain information—especially on the Web—their main load will be on their mental activities, although this may never be realized. In order to be successful in navigational task, it is very important to have a good spatial navigation skill (Elm & Woods, 1985). Elm and Woods (1985) stated that a good navigation skill is shown by (p. 927) 1.
the ability to generate specific routes as task demands require (that is, to derive new and unforeseen information, particularly in the form of new relationships among data);
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2. 3.
the ability to traverse or generate new routes as skillfully as familiar ones; and orientation abilities, that is, the development of a concept of “here” in relation to other place.
Edwards and Hardman (1999) argue that the first and the second item in the above list would be sufficient for users to navigate effectively through a hypertext system. For the third item, they mentioned that it may or may not be necessary for the users to possess that ability. However, users may be tempted to create a comprehensive cognitive spatial map of the data structures, complete with their locations and routes.
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Thorndyke, P.W., & Hayes-Roth, B. (1982). Differences in spatial knowledge acquired from maps and navigation. Cognitive Psychology, 14, 560– 589. Tripp, S.D., & Roby, W. (1990). Orientation and disorientation in hypertext lexicon. Journal of Computer-Based Instruction, 17(4), 120–124. Van der Velden, J.M., & Arnold, A.G. (1991). Mental models and the evaluation of user interfaces: A case study of library system. In D. Ackerman & M.J. Tauber (Eds.), Mental models and human computer interaction II (pp. 179–189). North-Holland, The Netherlands: Elsevier Science. Waern, Y. (1990). On the dynamics of mental models. In D. Ackerman & M.J. Tauber (Eds.), Mental models and human computer interaction I (pp. 73–93). North-Holland, The Netherlands: Elsevier Science. Weinreich, H., & Lamersdorf, W. (2000). Concepts for improved visualization of Web link attributes. Computer Networks, 33, 403–416. William, M.D., Hollan, J.D., & Stevens, A.L. (1983). Human reasoning about physical system. In D. Gentner & A.L. Stevens (Eds.), Mental models (pp. 131–154). Hillsdale, NJ: Lawrence Erlbaum. Wilson, J.R., & Rutherford, A. (1989). Mental models: Theory and application in human factors. Human Factors, 31(6), 617–634. Xie, H.I. (2000). Shifts of interactive intentions and information—Strategies in interactive information retrieval. Journal of the American Society for Information Science, 51(9), 841–857.
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Chapter IX
Reducing the Costs of Doing Business:
Human Costs and Social Issues of IS/IT Strategies Souad Mohamed, UK
Abstract One of management objectives when dealing with Web services (or related Internet strategies) is to cut business costs. Information systems (IS) literature has to date focussed primarily on research related to direct costs, that is, costs that occur in IS budgets (Bannister & Remenyi, 1999). IS research into strategic planning on the other hand has underestimated the expenditure of hidden costs as part of the adoption of new information technology systems within organisations. One of the difficulties regularly faced by IS investment planners is the identification, and thus management of, hidden indirect costs, for example, human indirect costs (Mohamed & Irani, 2002). This chapter addresses the increasing need to identify the “critical indirect human costs” associated with IS adoption as a fundamental part of the cost estimation of strategic planning when adopting IS. The research adopts an indirect human cost taxonomy proposed by Mohamed, Irani, and Baldwin (2002) associated with management, employee, finance, and maintenance divisions of an organisation. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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To conclude the author argues that to aid strategic planning in an organisation and to use it to their competitive advantage, understanding and managing the critical indirect human costs incurred during the adoption of information technology systems is essential in supporting decision makers’ effective management of these costs.
Introduction One of management’s main objectives when dealing with Web services (or related Internet strategies) is to cut business costs. Information systems (IS) literature has to date focussed primarily on research related to direct costs, that is, costs that occur in IS budgets (Bannister & Remenyi, 1999). IS research into strategic planning on the other hand has undervalued the expenditure of hidden costs as part of the adoption of new information technology systems within organisations. Remenyi and Williams (1996) define hidden costs to be those ambiguous costs that may occur in other departments as an outcome of the adoption of a new system. Direct costs are considered to be easy to identify and relatively simple to measure, while indirect costs are hidden and not easily measured—one of the difficulties that those planning IS investment face is the identification, and thus management, of hidden indirect costs (Mohamed & Irani, 2002). A review of the normative literature of IS evaluation, with a general focus on IS costs, revealed that there is a pressing need for those adopting information systems to better identify the potential indirect costs associated with the adoption of IS. For example, Dier and Mooney (1994) note that indirect costs symbolise more than 80% of the total lifetime IT/IS project costs. Thus, organisations need to gain a better understanding of indirect cost implications and their potential sources. Indirect costs, however, are varied and numerous. Irani (2002) reports that indirect costs escalate out of control and are categorised as human and organisational. This chapter focuses particularly on the indirect human costs associated with the adoption of information technology/systems in general and Web services in particular. It identifies the need to account for the soft components (e.g., human costs) as a fundamental part of the cost estimation of strategic planning when adopting IS. The identification of these indirect human costs may enable organisations to avoid some of the complications that they may meet when Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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adopting a Web services application, and thus would enable companies to manage and control their expenditure better.
Indirect Human Costs of an Emerging New Technology There is a considerable amount of money spent on IS and the use of technology to support core business functions (Irani, Love, & Hides, 2000), yet not all the anticipated benefits are achieved. New technologies such as Web services are usually adopted to provide ways to lower costs and tighten business relationships. Nevertheless, various indirect costs occur as a result of introducing a new technology as well. Having reviewed the normative literature on IS costs, it is argued that one element of indirect costs, that is, indirect human costs, is poorly understood. It has been explained, earlier in the book, that Web services are not perceived merely from a hardware point of view, but also seen from a management point of view as a technology that facilitates the work of different divisions together within an organisation. Wood (2004) reports that in the United States it is estimated by the IT Training Association that there are 10 million IT workers, and each cost their corporations more than $2,000 per year on training, thus amounting to more than a $20 billion market. Remenyi, Money, Sherwood-Smith, & Irani (2000) note that many decision makers believe that the total cost of IS is too high; nevertheless, many IS managers in organisations are not even sure what it is in IS that is costing so much (Bannister, 1999). Currie and Irani (1999) and Al-Yaseen, Baldwin, and Eldabi (2003) reveal that management dedicate only minimal attention to the less clear, or hidden, indirect costs. Research studies have argued that human aspects must always be considered in the deployment of IS (e.g., Berghout, 1997). When adopting an information system, in addition to the financial factors, a variety of social factors (e.g., teamwork, decision making, group decision making, stress, and training) should also be addressed. It is argued here that an organisation is a social system as much as it is a technical/economic system. Taking these aspects and their impacts into account will help managers to be aware of the social impacts of IS and account for any resulting costs (direct and indirect). Recognising the human issues/costs that affect IS in a work context will enable organisations to
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be aware of them and always endeavour to include them in all stages of the system life cycle. As an organisation is a confederation of individuals, IT/IS managers need to have a comprehensive understanding of the social/soft issues that might occur within the context of the information system, in particular those that would affect an individual at the workplace in general, and especially those that are cost related. Many human-related costs are mentioned in the context of evaluation in IS literature; however, they are not categorised or said to be critical or influential at any stage of the system/project life cycle. There is, nonetheless, evidence to suggest that these indirect costs account for much of the IS budget, hidden or otherwise. It is suggested that the inability to identify indirect costs leads to escalated project costs, which contribute to project failure or termination before the implementation stage is reached: in some cases, projects may continue, due to momentum and practical pressure. Love and Irani (2001) conclude that if management wish to maximise benefits and control their IT expenditure, then they need to position themselves to be able to identify indirect costs. Mohamed, Irani, and Baldwin (2002) assert that identifying these costs, categorising them, and identifying their impacts facilitate the development of evaluation in IS as a social process, and could minimise their impact on the overall budget. Moreover, there is no clear consensus or approach for measuring these costs, which, as cited in the literature, can significantly hinder the progress of an organisation in the IS practice. Thus, identifying and understanding at least the impact of these indirect human costs on the organisation will help in gaining a better understanding of the indirect costs associated with new emerging technologies, leading decision makers to prepare more accurate financial plans, budget estimates, and budget allocation for their IT/IS capital investments. When introducing a new system many managers may decide to assign some employees to a training course, their decisions based solely on direct costs such as the actual training fee. Nevertheless, training has many other costs associated with it. Eventually they will realise that there is need for replacement staff to do the jobs of the staff members who are away on training. Although organisations may send employees on training courses in the belief that they will implement what they have learnt immediately when the training period is over, resulting in a more effective working environment, nevertheless a great deal of time is actually spent on transferring the training to other IS staff. Furthermore, IS managers may be interested in training that will benefit them on a personal level, rather than being interested in the organisational benefits, which again will
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result in the indirect human costs of morale hazard and many other indirect human costs. These are all examples of indirect human costs that are caused by introducing a new technology. All of the above costs have been recently empirically confirmed by Mohamed (2004) to be indirect human costs that result from the introduction of a new system. To help managers identify these costs, the following section explores in more detail the indirect human costs of an emerging new technology and describes how these indirect human costs are actually a cost to an organisation. Identifying such potential costs associated with new technologies allows a better understanding of their impacts and contributes towards improved decision making. Table 9.1 illustrates the indirect human costs that Mohamed (2003) has identified as costs resulting from introducing a new system.
Table 9.1. Indirect human costs associated with IS adoption Indirect Human Cost Factors (IHC)
Loss of Time Learning Cost Resistance to New Systems Effort and Dedication Spent by Management Consequences of Redefined Roles Mismanagement of Training Allocation of Employees Integration With New Systems Rejecting Salary Raise Staff Turnover Loss of Productivity Displacement (Misassigned Costs) Reduction in Knowledge Base Deskilling Cost Associated With Redundancy Cost of User Involvement Disruption Costs Belief, Feeling, and Perception Misunderstanding Inaccurate Deliverable Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Indirect Human Cost Factors Time: Management time is an indirect cost in terms of transferring their training/ knowledge to the IS staff. The reason is that neither IS staff nor the management will be doing their routine jobs during the training period (Hochstrasser, 1992; Irani, 1999; Love, Irani, Li, & Cheng, 2000; Patterson & Johann, 1998; Pratt, 1998). Moreover, Bannister (1999) and Love et al. (2000) state that when introducing any new system to an organisation, training will be required for users of the system. Unless the organisation obtains a time-recording system, the indirect cost of the time spent in training would not usually show up as an IS cost. In particular, the time spent reading manuals, self-help activities, and informal job training are untraceable. The implication of this for the business is that they do not keep track of time; hence, an indirect cost occurs that has not been budgeted for. •
•
•
Learning costs: As new users or new systems are introduced to the organisation, the users are likely to go through a learning curve. As a result, a temporary loss in productivity occurs as the users become familiar with the system. It is likely that mistakes will occur and be corrected over time, which will add to the cost of learning to activate the system to an acceptable level (Hochstrasser, 1990; Remenyi et al., 2000). Costs of resistance: Introduction of a new IS could result in an unexpected political power shift that leads some individuals or groups to resist extras. Consequently, staff may engage in behaviour that results in a disruption or even the removal of an entire system. This is clearly an influential indirect human cost, as it has a great impact on the organisation; not only do they have to rectify the consequences of resistance, but also bear the cost of resolving the resistance if possible (Hochstrasser, 1990). Moreover, lack of commitment to change could result in a nonoperational working environment, with user resistance resulting in escalating operational costs (Stefanou, 2000). Effort and dedication: This occurs when a new system is introduced, as management at all levels spend time exploring the new system, discovering its business potential, and absorbing the transition from the old system to the new system. Here, managers are being less productive, and so not adding any value to the organisation, although they are still receiving their full wages (Hochstrasser, 1992). The time utilised by management and
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staff incorporating the new system into the existing organisational working life results in an indirect cost to the organisation. Staff members who are influenced by the use of the new system will take time to become used to the new system, and their usual activities will not be fully performed. Consequently, the organisation will encounter high indirect integration human cost (Hochstrasser, 1990; Irani, 1999; Love & Irani, 2001). Cost of redefining roles: Introduction of IS in some cases leads to organisational restructuring. By destruction of the organisation’s hierarchy and reducing the number of levels, middle management is exposed to a bigger market environment, thus requiring greater flexibility. The disruption caused by this transition may result in various consequences of intangible costs within the organisation (Hochstrasser, 1990). Change in roles may lead to the introduction of training, redundancy, and promotion (Hinton & Kaye, 1994). Missed costs: Bannister, McCabe, and Remenyi (2001) state that one of the major problems in tracing IS costs is misassigning costs. Displacement cost (also called reallocation) is proposed as one of these misassigned costs. This is encountered when people and operations have to be reallocated to accommodate a new system. Bannister (1999) suggests that, for example, if a member of the IS staff goes on training abroad, the cost of the airfare is recorded as a travel expense, the accommodation as miscellaneous, and other expenses as entertainment, when essentially they are all actually IS training costs. Bannister et al. (2001) call both disruption costs and displacement costs missed costs. Kaplan (1986) reported that the introduction of a new system’s implementation is usually accompanied with a short-term loss in productivity as systems are disrupted; IS staff will not be doing their job as efficiently until users become adjusted. Kaplan (1986) refers to this as disruption costs. Reduction in knowledge base: This is usually a result of a high staff turnover or redundancies in the organisation. Some organisations may reduce labour costs, believing that they are justifying their investment in IT, as new systems are more efficient, more tasks can be allocated to an employee, and thus less people are needed for the job. Nevertheless, this is almost impossible to measure in financial terms and results in a significant change in the knowledge base of the organisation that is impossible to predict (Hinton & Kaye, 1994) and could have a significant negative impact on the organisation’s development.
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•
•
•
•
Deskilling: This is the inability to fully utilise the potential skills of employees. For example, as a result of a new system being introduced, the organisation may assign less demanding tasks to very skilled employees (Hinton & Kaye, 1994). As a result, the employees may seek different jobs, or the organisation may continue to assign high salaries for job roles that are worth less in financial terms. Investing in IT at the expense of reduction in labour cost leads to a situation where it is difficult to accurately predict the costs involved (Hinton & Kaye, 1994). As an outcome, significant costs could result from losing time and money already invested in an employee who has left, in addition to requiring the same amount of money (if not more) for recruiting a substitute employee (Hochstrasser, 1992, 1990). Rejecting increase in salary: As a result of training for a new system introduced or acquiring new skills in any way, end users, operations staff, and support staff will be aware of their new marketable skills. Therefore, they may well request an increase in their salaries to reflect their new marketable value. Rejecting the request may result in the employees seeking employment elsewhere (Hochstasser, 1992, 1990). Thus, it is suggested that increasing the salary of an employee who is newly trained, rather than rejecting his/her request of a salary increase might minimise or even prevent future indirect/direct costs from occurring, such as new recruitment costs and loss of productivity when employing new staff. Beliefs, feelings, and perceptions: Implementing new software can create susceptibilities, which may have a negative impact on the emotions of personnel. The implementation approach needs to take human factors such as beliefs and perceptions into consideration (Stefanou, 2000). Training costs: This could occur when end users are provided with the skills to use the newly presented system, training the staff (e.g., development, operators, integrators, etc.) with the essential technical skills for the project. This will not just contain the cost of the training courses, materials, manuals, and facilities; it will also cover the cost of replacing the IS staff whilst they are in training. Furthermore, management time is an indirect cost in terms of transferring their knowledge to the IS staff. As mentioned above, neither IS staff nor management personnel will be doing their routine jobs during that period (Hochstrasser, 1992, 1990; Pratt, 1998; Patterson & Johann, 1998; Remenyi et al., 2000). This is in addition to all the indirect human cost factors associated with cost of time and loss of
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productivity as a result of the employee not being sufficiently trained (Li, Love, & Irani, 2000). Delay costs: Enormous investments in IT/IS require the approval of the organisation’s stockholders and particularly large investments also need to see quality financial returns. Delayed delivery of a system could indirectly have a negative effect on the stock price of the organisation. An indirect human cost may occur through loss of confidence and fear of financial losses leading to stock prices declining. Moreover, delayed delivery of an IS project implies maintaining the function of two systems (the old and new) at the same time. Clearly, this would require twice the effort from staff, and further costs may be driven by the overtime for development staff or even external support staff in the form of consultants and contractors (Yourdan, 1989). Integration costs: The time utilised by management and staff incorporating the new system into the existing organisational working life results in indirect costs for the organisation. Staff members who are influenced by the use of the new system will take time to become used to it, and thus their usual activities will not be performed fully. Thus, the organisation will encounter high indirect human costs (Hochstrasser, 1990; Irani, 1999; Love & Irani, 2001). Redundancy costs: The functioning of IS is still being directed towards accomplishing huge improvements in productivity, such as those supposed by business process reengineering which can be as high as a 10-fold enhancement. Obviously, such development will mean major redeployment or rationalisation of staff. Therefore, this will mean making major redundancy payments to those workers who are entitled to them (Hinton & Kaye, 1994). Staff turnover costs: As mentioned above as a result of training for the new system new skills are acquired. The acquisition of new skills and proficiencies may result in staff either requesting an increase in salary or deciding to seek new employment. As an outcome, significant costs could result from losing time and money already invested in the employee, in addition requiring the same amount of money (if not more) for a substitute employee. In addition to spending a great deal of time and effort, recruitment costs include the cost of advertising or using expert recruitment (Hochstrasser, 1992, 1990; Irani, 1999; Love & Irani, 2001). High turnover can lead to critical posts remaining vacant for long periods.
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•
•
•
Misunderstanding: This can lead to unforeseen problems, and it is said to be one of the biggest problems, as it can easily lead to inaccurate deliverables, which can lead to great delays in the whole process (Mohamed, 2004). Inaccurate deliverable: This is the situation where the deliverable is not what the client wanted, which is not unusual in IS projects. It is said to be biggest indirect human cost—manufacturers deliver what they thought was required, but the client says, “We didn’t want this—you misunderstood.” This misunderstanding of what is actually required comes under the category of poor communication. This is usually due to a poor requirement analysis process (Mohamed, 2004). This has a huge impact; although there are checkpoints, in the worst-case scenario, the whole process may have to be started again. The manufacturer needs to fix what has been delivered to match what the client actually wanted, if this is possible. This indirect human cost is very influential; days and weeks can be lost as a result of these cost. Installation and scheduling are affected, sales teams will have to expedite the process through chasing the kit, for example, proof of delivery. Cost of user involvement: This is a human cost that is associated with IT divisions in particular. It is mainly caused by the end user not having IT skills and not knowing exactly what to order (Mohamed, 2004). This cost mainly includes scheduling teams and installation staff.
Given the amount of money spent on information systems and the oftenconsiderable amount of risk involved, it would seem that a better understanding of indirect costs and their impact on both employees and the organisation are needed. Clearly, the introduction of a new system is an influential driver of indirect human costs, as it has a great impact on the organisation, and leads to many indirect human costs. It is argued that having identified these indirect human costs, decision makers could more accurately predict the financial and human costs of the systems that they choose and whose value they subsequently have to justify.
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Conclusion Research suggests that indirect human costs are not considered, primarily because they are hidden and not easily identified. This chapter has highlighted the need to look more closely at social issues and indirect human costs associated with new emerging technologies. The focus needs to be changed from technicalities and direct aspects to indirect and social issues. In doing so, the author explores the various indirect human cost factors and their impact on the organisation, and establishes a need to account for these cost factors when adopting a new system. As new systems are introduced to the organisation, the users are likely to require training, and will hence go through a learning period; a great deal of time is required to integrate a new system. Consequently, a loss in productivity occurs as the user becomes familiar with the system. As a result of training or the acquisition of new skills, employees will be aware of their new, highly marketable skills. Therefore, they may request an increase in their salaries to reflect their greater marketable value. Rejecting the request may result in staff turnover. Furthermore, introduction of a new IS could result in an unpredicted political power shift that leads some individuals or groups to resist, as well as resulting in escalating operational costs. Introducing a new system may also result in managers being less productive, and hence not adding any value to the organisation. As a result of the introduction of the new system, the organisation may assign less demanding tasks to very skilled employees, which is likely to lead to indirect human costs such as job dissatisfaction and staff turnover. High staff turnover results in a significant change in the knowledge base of the organisation that is impossible to predict. To conclude the author argues that to aid strategic planning in an organisation and to use it to their competitive advantage, understanding and managing the indirect human costs incurred during the adoption of new information technology systems is essential in supporting decision makers’ effective management of these costs. Once these costs are identified, they can be managed, estimated, and reduced. In addition, it will provide greater transparency for those who require further evidence or justification of how and why those decisions were made.
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References Al-Yaseen, H., Baldwin, L., & Eldabi, T. (2003). IT operational use evaluation: Does it matter? Proceedings of the International Business Information Management Conference, Cairo, Egypt, December 16–18. Bannister, F. (1999). Did we pay for that? The awkward problem of IT cost. Proceedings of the 6th European Conference on Information Technology Evaluation, MCIL, Reading, UK, November 4–5. Bannister, F., McCabe, P., & Remenyi, D. (2001). How much did we really pay for that? The awkward problem of information technology cost. The Electronic Journal of Information Systems Evaluation, 5(1), 1–20. Bannister, F., & Remenyi, D. (1999). Value perception in IT investment decisions. The Electronic Journal of Information Systems Evaluation. Retrieved from http://is.twi.tudelft.nl/ejise/ fr_ind.html Bannister, F., & Remenyi, D. (2000). Acts of faith: Instinct, value and IT investment decisions. Journal of Information Technology, 15(3), 231– 241. Berghout, E.W. (1997). Evaluation of information technology. Proceedings of the Fourth European Conference on the Evaluation of Information Technology, Delft University, Delft, The Netherlands, October 30–31. Currie, W., & Irani, Z. (1999). Evaluating the benefits, costs and risks of IT/ IS outsourcing in a maturing market. Proceedings of the 6th European Conference for IT Evaluation, Brunel University, London, November 4–5. Dier, D.H., & Mooney, J.G. (1994). Enhancing the evaluation of information technology investment through comprehensive cost analysis. Proceedings of the 1st European Conference on IT Evaluation, Henley Management College, Henley on Thames, UK, September 13–14. Hinton, C.M., & Kaye, G.R. (1994). A framework for understanding investments in information and communication technologies (OBS Working Paper). Milton Keynes, UK: Open University. Hochstrasser, B. (1990). Evaluating IT investments—matching techniques to projects. Journal of Information Technology, 5(4), 215–221. Hochstrasser, B. (1992). Justifying IT investments. Proceedings of Advanced Information Systems, The New Technologies in Today’s Business Environment, UK. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Irani, Z. (1999). IT/IS investment justification: An interpretive case study. Proceedings of the 32nd Annual Hawaii International Conference on Systems Sciences, Los Alamitos, CA, January 5–8. Irani, Z. (2002). Information systems evaluation: Navigating through the problem domain. Information and Management, 40(1), 11–24. Irani Z., Love, P.E.D., & Hides, M.T. (2000). Investment evaluation of new technology: Integrating IT/IS cost management into a model. Proceedings of the Association for Information System, 2000 Americas Conference on Information Systems (AMCIS 2000), Long Beach, CA, August 10–13. Kaplan, R. (1986). Must CIM be justified on faith alone? Harvard Business Review, 64(2), 87–95. Li, H., Love, P., & Irani, Z. (2000). A preliminary investigation into the relationship between the use of IT/IS and the productivity of professional consulting firms in construction. International Journal of Construction Information Technology, 8(1), 15–27. Love, P., & Irani, Z. (2001). Evaluation of IT cost in construction. Automation in Construction, 10(6), 649–658. Love, P.E.D, Irani, Z., Li, H., & Cheng, E.W.L. (2000). A model for assessing the organisational costs of IT/IS in construction organisation. Proceedings of the Construction Information Technology Conference Icelandic Building Research, Institute in Affiliation With CIB Working Commission W78, IABSE and EG-SEA-AI, Reykjavik, Iceland, June 28–30. Mohamed, S. (2003). Socio-organisational dilemma: Indirect management human costs. Proceedings of HAAMAHHA the 8th International Conference on Human Aspects of Advanced Manufacturing, Rome, Italy, May 26–30. Mohamed, S. (2004). An exploration of indirect human costs associated with information systems adoption. Unpublished doctoral thesis, Brunel University, London. Mohamed, S., Irani, Z., & Baldwin, L. (2002). Proposing taxonomy of indirect human costs for the evaluation of information systems. Proceedings of the 7th Annual Conference of the UK Academy for Information Systems, Leeds Metropolitan University, Leeds, UK, April 10–12.
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Mohamed, S., & Irani, Z. (2002). Developing taxonomy of information systems indirect human costs. Proceedings of the 2nd International Conference on Systems Thinking in Management, University of Salford, Salford, UK. Patterson, P., & Johann, B. (1998). Why new IT systems don’t pay off. Information Technology, 35(11), 64–67. Pratt, S. (1998). Should software be leased/rented? Corner. IT Finance, (35). Remenyi, D., Money, A., Sherwood-Smith, M., & Irani, Z. (2000). Effective measurement and management of IT costs and benefits. Oxford: Butterworth Heinemann. Remeneyi, D., & Williams, B. (1996). The nature of research: Qualitative or quantitative, narrow paradigmatic. International Journal of Information Systems, 6(2), 131–146. Stefanou, J. (2000). IT cost. The evaluation of enterprise resource planning (ERP) systems. Technology in manufacturing. The International Journal of Computer Applications in Technology, 12(2), 90–101. Wood, A. (2004). Measuring the RIO of training. CIO Magazine. Retrieved February 26, 2004, from http://www.cio. com/archive/021501/roi.html Yourdan, E. (1989). Modern structured analysis. Prentice-Hall.
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Chapter X
From ASP to Web Services:
Identifying Key Performance Areas and Indicators for Healthcare Matthew W. Guah, Warwick University, UK Wendy L. Currie, Warwick University, UK
Abstract Value creation from e-business for customers in healthcare is an important topic in academic and practitioner circles. This chapter reports the findings from a two-year research study, which found that disappointing results from the much-hyped application service provider (ASP) business model is currently being replaced by perceived new opportunities from Web services. Yet past failings from ASP do not guarantee future success with Web services models, particularly as evidence shows that accruing value-added benefits from e-business initiatives is often fraught with difficulty. Healthcare is no exception, and is likely to pose more problems given the complexity of the organizational structures, processes, procedures, and activities within this vertical sector. This research study Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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calls for a more rigorous approach in identifying and evaluating key performance areas and indicators from new e-business initiatives involving emerging technologies and platforms such as Web services. Yet the measures and metrics used for healthcare may differ from those adopted in other sectors. Healthcare professionals will therefore need to develop context specific key performance areas (KPAs) and KPIs, and caution against accepting at “face value” the value proposition devised by Web service providers.
Introduction The process of healthcare management modernization is maturing in Europe, North America, and in other developed countries. This has resulted to an exponential increase in demand for rapid business process execution, more accurate and timely information, and additional automated information systems (IS). Interest in Web services is emerging in many different guises. As subset of e-business, Web services offer customers software as a service. The principle of operation is similar to the application service provision (ASP) model, priced on a pay-as-you-go, utility model of business computing (Currie, Desai, & Khan, 2004). Against a background of disappointing results from ASP (Hagel, 2002), Web services are designed to resolve problems of poor integration (interoperability) between software applications and low customer satisfaction. This research study treats the Web services business model as the main unit of analysis and seeks to identify how value is created for customers (Perseid, 2003; Sleeper & Robins, 2001). Despite the promises of vendors, Web services have fared poorly in terms of attracting a large client base (CBDI, 2003). The reasons for this are both technical and commercial (Hagel, 2002). The fallout from the ASP market provides some important lessons for vendors offering software as a service, and for e-business models more generally. This chapter presents the findings from a two-year research that examines both the supply side and customer side of deploying, hosting, and integrating ebusiness models, focussing primarily on Web services in the UK health sector. The chapter is structured into three main areas. It begins with a discussion of ASP taxonomies and argues that the various templates for ASP were essentially flawed for a combination of technical or business reasons. Within the healthcare sector, technology vendors failed to develop e-business models that
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created value for customers. They adopted a technology push strategy where product and services are offered to customers without a clear understanding of their business requirements (Cassidy, 2002). This section is followed by an overview of the research study and methods used for data collection and analysis. Next, we present the results from a questionnaire survey and interviews with healthcare professionals. Using a risk assessment framework, which captures five key performance areas (KPAs) for evaluating the software-asa-service business model (which includes both ASP and Web services) (Currie, 2003), this research applies this framework within the healthcare sector. Comparing the results from healthcare with those of five sectors (Currie et al., 2004), we observe that priorities and preferences vary. This suggests that service provider vendors need to identify a more rigorous approach in developing their value propositions from e-business for specific industrial sectors, since a one-size-fits-all approach is inappropriate. The chapter concludes by offering future directions for research on emerging technologies within healthcare.
Lessons from the First Phase of the ASP Model The emergence of the ASP model suggested an answer to prevailing question: “Why should small businesses and non-IT organizations spend substantial resources on continuously upgrading their IT?” Many believed that application outsourcing, using the ASP model could provide the solution to enhancing IT efficiency and reducing the total cost of ownership of IT (IDC, 2000). Within the context of healthcare, ASPs could offer both horizontal (business facing) and vertical (sector specific) software solutions. An example of the latter could be in the form of electronic patient records (EPR) systems (Guah & Currie, 2004). An ASP assumes responsibility for buying, hosting, and maintaining a software application on its own facilities, publishing its user interfaces over the networks, and provides its clients with a shared access to the published interfaces. The customer simply has to subscribe to the service to receive the application over an Internet or dedicated intranet connection, as an alternative to hosting the same application in-house (Guah & Currie, 2004). The impetus behind ASP was fuelled by the belief that utility computing offered a new business model to customers, similar to electricity, gas, and Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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water. The commercialization of the Internet meant that, as network traffic increased in a firm’s data centre, IT architecture would trigger other resources into action, including idle servers, applications, or pools of network storage. The firm would pay only for the amount of time it used the services. Thus, the concept of “software as a service” was created. Accessing IT resources in this way would result in reduced up-front investment and expenditure, enabling firms to buy services on a variable-price basis (Dewire, 2000). This fuelled opportunities in the late 1990s for service providers to offer software applications and IT infrastructure on a rental, pay-as-you-go pricing model (Bennet & Timbrell, 2000). An ASP could be a commercial entity, providing a paid service to customers (Susarla, Barua, & Whinston, 2003) or, conversely, a not-for-profit organization supporting end users (Currie et al., 2004). In healthcare, an ASP may provide some mix of application services for laboratory, prescribing, charting, outpatient visit, coding, and clinician scheduling, and reporting. Some may even offer clinical alerts normally associated with expensive institution-based EPR systems, including health warnings of potential drug reactions. Through the provision of this one-to-many model over the Internet, an ASP takes patient charts and medical records and keeps them on a centrally managed repository, to which a healthcare provider can gain access from anywhere in the world. This can allow for a physician to review the patient’s medication lists from all previous encounters and their prescriptionfilling habits (provided all the legal requirements of patient confidentiality have been arranged).
ASP Taxonomies Taxonomies represent “ideal-type” scenarios, which may not exist in their pure form (Currie et al., 2004). They are useful for providing a framework for organizing phenomena by attempting to deconstruct the various components and/or characteristics. Variations exist within ideal-typical categories, as well as overlap between categories. During the first wave of the ASP market, many different types of ASP emerged. Some were concerned to offer a broad, horizontal product and service portfolio, while others target specific vertical industry sectors such as healthcare. Table 10.1 focuses on a horizontal ASP products/services portfolio, and Table 10.2 looks at the service providers targeting the healthcare vertical sector. Each of these categories implies a different outsourcing relationship between supplier and customer.
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Table 10.1. Taxonomy of ASPs based on a horizontal product/service portfolio (Currie et al., 2004) Type of ASP Mixed/ Vertical
Description Industry specific (health, finance, transportation)
Horizontal
Business software (accounting, human resource, travel) Complex business software (ERP, CRM, supply, and logistics) Internet/Webenabled software application (email/security/dis aster recovery) Technology partners to ASP (telco, data centre, networking)
Enterprise
Pure-Play
Infrastructure
Generic Examples SchlumbergerSema (health) Bloomberg (finance) S/W for Excellence (dental) Salesforce.com (HR) Concur (travel) SAGE (accounting)
Key Challenges Limited customer base Reliant upon major vendors Restricted by sector-based economic Low barriers to entry Undifferentiated products/services
SAP Oracle McKesson
Very expensive for small/medium organisations Channel conflicts Data security/integrity Unprofitable commodity applications Reliant upon VC funding Unstable/volatile/dynamic market
Graphnet Health iSoft Mail.com
Cable and Wireless BT CISCO
Technical inhibitors Over-capacity Severe competition
The first ASP taxonomy (Table 10.1) delineates ASPs into vertical (industry specific), horizontal (across/within business functions); enterprise (complex software such as ERP and CRM); pure-play (Web-enabled applications) and infrastructure (data centre, networking, and other supporting technology) (Currie et al., 2004). Whilst many research analysts and pundits suggested that vertical ASPs offered excellent opportunities for business development, they also needed to address key challenges, such as a limited customer base; potential problems in serving only one sector/subsector; potential overreliance on one Internet service vendor (ISV); and others. By restricting their potential customer base, vertical ASPs believed they could offer a high level of service since they marketed themselves as having an in-depth knowledge of the sector/ subsector they served.
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The second taxonomy (Table 10.2) of the ASP market adopts five categories: ASP resellers, ASP developers, ASP aggregators, hosting services, and managed services providers (Hagel, 2002, p. 45). Comparing the two ASP taxonomies reveals significant similarities with considerable overlap between categories and activities of the various players. The ideal-typical categories provided by different taxonomies offer an illustration of the market/strategic positioning and product/service portfolios of ASPs, and should not be treated as rigid categories in their own right. Given the confusion which surrounded the first wave of ASPs, attempts to deconstruct the ASP business model and market into taxonomies is a useful exercise, which may provide some clarity to the phenomenon under scrutiny. ASP taxonomies can be further mapped across the netsourcing stack, which captures a variety of customer/supplier scenarios “where relationships in this space are very complicated” (Kern, Lacity, & Willcocks, 2002, p. 115). For example, an ASP delivering a hosted software application to the end customer, may subcontract data centre services, billing, help desk, and other support services to additional firms. Furthermore, the ASP may not even own or have developed the software, as this may be the intellectual property of an Internet service vendor. In the case of enterprise ASPs and ASP resellers, developers, and aggregators, these firms may form complex strategic alliances or partnerships with leading ERP vendors, usually for specific target customer (Table 10.2). As a forerunner to the current Web services market, ASP was highly volatile, dynamic, and immature market. A recent review of the ASP industry (Susarla et al., 2003) concluded that the technological factors like scalability, speed and focus, and the behavioral aspects of price and flexibility were the key drivers of the model. The inhibitors of the model were poor connectivity, lack of trust in the model, reluctance to be locked into long-term contracts with suppliers, lack of customization, poor choice and suitability of software applications from ASPs, and few opportunities to integrate disparate applications across technology platforms and business environments. These factors and others led Hagel (2002) to conclude that ASPs in many respects represented a false start in the efforts to break out of the enterprise straitjacket. In particular, few of them adopted Web services architectures as their technology platform. Instead, they attempted to build businesses on the Internet using traditional technology
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architectures … this proved to be a significant flaw in the early ASP model and explains many difficulties these businesses experienced. (p. 43) The taxonomy indicates that many different service provider firms operate within the ASP space. More recently, many of these firms have abandoned the “ASP” acronym and now relabel themselves “Web service vendors.” Against a backdrop of failed ASPs, these firms recognize the need to obtain market leadership through strategic differentiation and revenue generation. Whilst many e-business models were premised on the basis that developing a brand preceded profitability (Cassidy, 2002), start-up firms, in particular, are unlikely to secure second-round venture capital funding without demonstrating a capacity to generate revenues. So from a vendor perspective, entering the market with a poorly thought-through or “flawed” (Hagel, 2002) e-business model will not be sustainable. Equally, from a customer viewpoint, rigorous performance measurement and assessment of benefits and risks is critical, not just in terms of the software application capability, but also in terms of whether
Table 10.2. A taxonomy of ASPs based on vertical industry positioning (adapted from Hagel, 2002) Type of ASP Description Resellers Provide new Internetbased distribution channel and “rental” pricing model for traditional enterprise applications Developers Develop new applications and deliver on the Internet with “rental” pricing model
Healthcare Examples Graphnet Health ISoft CSE Health
Key Challenges Gaining customer acceptance, especially new pricing models
CSE Health EMIS AVOCA Systems
Aggregators Integrate and market packages of applications provided by ASP develops
First DataBank Europe CISCO McKesson Info Solution
Hosting Services
IBM Microsoft Sun
Large investment in own IT infrastructure; Long lead times; Gaining trust and acceptance in marketplace; Competition with other ISVs Potential channel conflicts with ISVs; Too many products/services on offer; Competition with other ISVs Potential overcapacity in an overcrowded market, confusing business model and partners with “unstable” ASPs Severe competition in overcrowded market, confusing business model for customers
Managed Service Providers
Provide specialised facilities and support services for companies deploying Internet-based applications Provide specialised application management
IOKO365 Siemens Healthcare Services SAP
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the service provider is likely to remain in business. This taxonomy, developed from prior research (Currie, 2003), provides a useful framework for analyzing the adoption and diffusion of software applications in a healthcare setting.
The Research Study The findings reported in this chapter are part of a larger, five-year research study that was developed to investigate the deployment, hosting, and integration of the ASP and Web services technologies from both a supply-side and demand-side perspective. The overall research was in two phases. The first phase, comprising of a pilot study, was conducted in the United States and UK (Currie & Seltsikas, 2001). An exploratory-descriptive case study methodology (Yin, 1994) was used to investigate 28 ASP vendors and seven customer sites in the UK. The dual focus upon supply side and demand side was critical for obtaining a balanced view between vendor aspirations about the value of their business models, and customer experiences, which may suggest a less optimistic picture. The unit of analysis was the business model (Amit & Zott, 2001), not the firm or industry level, so a case study methodology was anticipated to provide a rich data set for analyzing firm activities and behavior (Currie et al., 2004). The result from the pilot study led to the funding of two additional research studies by the EPSRC and ESRC, respectively. Industrial collaborators were selected for the roles of technology partner, service providers, and potential or existing customers. These studies were concerned with identifying sources of value creation from the ASP business model and Web services technologies in five key performance areas (namely, delivery and enablement; integration; management and operations; client/vendor relationships; and business transformation). •
Research Methodology: The research followed a number of stages involving the use of both qualitative and quantitative data collection techniques and approaches (Walsham, 1993). A questionnaire survey and covering note were distributed by e-mail to businesses and healthcare organizations all over the UK. These organizations were listed on a national database held and maintained by the National Health Service (NHS), the providers of healthcare to UK residents on a free-for-all at-
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•
•
•
the-point-of-delivery basis, plus those maintained by the university. To ensure relevant managers and practitioners responded, the covering note clearly stated the purpose of the questionnaire and requested that it be passed on to the person(s) with responsibility for managing healthcare ebusiness. The Questionnaire: Scales to address the research questions were not available from the literature, so the questionnaire was developed based on the theory of strategic value (Banker & Kauffman, 1988). It included a checklist, open-ended questions, and a section seeking organizational data. Research questions under part I required respondents to answer yes/no if Internet technologies application in healthcare was bringing value to patients. Data in part II of the questionnaire was collected by openended questions seeking respondents’ views on the best approach to healthcare performance improvement and Web services value creation. Respondents were asked to give their reasons in open-ended questions. A semistructured questionnaire, rather than open-ended questions, was used to increase the reliability of data since all respondents were asked the same questions, but some added supplementary information. The purpose was to impose uniformity across the sample of representation, rather than to replicate the data obtained from each participant (Yin, 1994). The Sample: As a result of the first phase of the research carried out in the United States and UK, a database of 700 international firms was developed, all of which had developed an ASP business model. The data served to build up a data bank of market intelligence on a variety of ASP firms and their offerings. Many of these firms were tracked over a fouryear period to identify changes in their business models. From this sample of 700 ASPs, about 55% continued in application provisioning (excluding infrastructure) by the time phase two of the research began. A good number of the original sample had ceased to exist (about 24%) and some had been taken over by other firms (about 6%). The remaining (about 15%) had changed their business model, moving away from software as a service (Kakabadse & Kakabadse, 2002) to data storage and managed services provisioning. The ASP database proved to be a very useful source of market intelligence for the research study since it helped to develop a questionnaire survey targeted at the healthcare sector. Healthcare Survey: In phase two of the research, a total of 350 questionnaires were distributed to NHS Information Authority (NHSIA) directors, current and prospective suppliers of IS to the NHS, and
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medical practitioners from general practices in major cities as well as rural towns in an effort to avoid bias. The vendors were drawn from a list of businesses negotiating for contract under a “primary service providers” scheme (Guah & Currie, 2004). After persistent follow-up (telephone calls) exercise, 225 questionnaires were completed and returned, representing a 64% total return rate. As this study was exploratory in nature and was designed to develop a framework to inform practice and guide future research, rather than testing hypotheses (Avison & Fitzgerald, 2003) the 225 organizations’ situations on which it is based provided useful preliminary data. Respondents were mainly middle-level business managers (60%) offering various Internet-related services in Web services to the global healthcare industry, while the rest (40%) consisted of medical practitioners working in the NHS. The 40% included IT coordinators at different institutions nationwide; some already implementing Web services architecture locally. The vendor organizations were predominantly American and British, consistent with the business structure in the UK. Seventy-eight percent of the companies were large ones with an annual turnover of over £1 bn, while 13% had between £25 m to £1 bn, and 9% were considered small with an annual turnover of less than £25 m.
ASP Model for Healthcare An important debate surrounding all ASP models is the extent to which application outsourcing is different from traditional outsourcing (ASP Industry Consortium, 2000). Probably the most noticeable difference between the two is within the relationship with the customer. Unlike traditional outsourcing, the ASP model would target individual health centres and trusts within the NHS. The ASP model can be replicated into an appropriate mixed economy for healthcare. There is an issue of not only trying to persuade and convince both internal and external stakeholders about the value of current capabilities but also to ensure their participation in a somewhat relational architecture.
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Content Distribution: A Major ASP Shortfall Over the past few years, the IS strategy for most organizations have been in a state of evolution towards a form of “federal governance architecture” (Zmud, 1988). These are instances where the authority for the management of IT infrastructure is vested with a central IT unit but the authority for the management of IT application and use is vested with individual business units—or regional trust, in the case of the NHS. Such a situation has promoted the importance of a variety of coordination mechanisms, such as IT councils, IT steering councils, service-level agreements, and charge-back internal accounting systems, as structural overlays to supplement the hybrid “federal governance architecture” (Zmud, 1988). The potential for current ASPs to satisfactorily provide such service to the NHS does exist but certain concentrated improvement would need to be made to their services. The critical nature of NHS services requires the service provider to provide higher-value and managed service. The ASPs would need to be prepared to offer an intelligent “content aware” architecture that complements the existing IP infrastructure (Figure 10.1). A major form of visibility and control is demonstrated through content and performance. The monitoring of such control is seen through real-time feedback. A formal reliability check must be put in place to assure that the distribution of any type of content to the various NHS edges safely takes place without disrupting other critical network operations. To improve reliability, the content and services of the ASP infrastructure would need to be moved “closer” to the users. Such actions would not only significantly reduce requirement on network performance, but also result in the creation of a session and content-aware routing architecture (Figure 10.1). A large organization such as the NHS would need visibility and control at all levels of service and quality of delivery. By doing so, an undoubtedly high level of satisfaction can be maintained which requires a significant reduction to current network problems and bottlenecks. One NHS trust executive assessed that content distribution competence of most ASPs would need to improve in terms of static content and on demand streaming. The NHS needs a significant amount of small and large objects to be delivered promptly and accurately. By demand of the services there are continuous needs to issue similar content at differing times of the network. A
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Figure 10.1. Improving reliability in health data distribution using ASP
significant amount of live streaming is required in NHS institutions. Such systems require an extremely high-quality feed over a very reliable network (Arnott, 2002). Due to the multiplicity of the NHS, there are various points of “flash crowd” requiring a technology to facilitate the same content at one time. This would mean the use of edge relay over the ASP network with a very delicate stream management and scale optimization. Considering all of the previous information, the fundamental goal of the ASP in terms of content provision can be summarized into one phrase: “Getting the right information to the right place at the right time.” Thus the NHS demands a faster access, more reliable access, and accountable and secure system with guaranteed synchronization with other internal systems. Due to ASP being a relatively new concept, large members of the health sector react to the model with confusion. Although an ASP manages and delivers applications capabilities to multiple entities from data centres across a wide area network (WAN), a virtual private network (VPN), or an intranet, there are also vertical ASPs that target a specific market/sector. An ASP could be a commercial entity, providing a paid service to customers or, conversely, a not-for-profit organization supporting end users (Currie, 2000). The vertical ASP model would be critical for those researching into NHS IS&T strategy and outsourcing since they will be a major force within the software and computing services industry. The model would include these four key factors:
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•
•
•
•
The supporting technological framework, including cameras, scanners, telephones, fax machines, computers, switches, disks, CD, video and audio, platforms, cable wires, satellites, optical fibre, microwave nets, televisions, monitors, and so forth; The available information whether in the form of text, sound, images, data, stored in the many different archival facilities, and the applications and software needed to access, manipulate, organize, and digest; The governance, management, and use of information, including the standards to ensure interoperability, interconnectivity, reliability, and security of systems, and the physical, technological, and legal means to protect the privacy, confidentiality, and security of personal information (Figure 10.2); and The people and organizations involved in creating the information, developing the applications and systems, constructing the facilities, and those using this model to deliver, maintain, and improve health-related services for the benefit of all.
The rapid development and wide-scale implementation of information technologies, in a wide variety of trusts, has provided the capability to achieve the vision of increased use of evidence-based decision-making processes (Figure 10.2). At the same time, the increasing pressures to contain and reduce costs have made the new information systems a potential agent of change. The evidence on which clinicians based their decisions is crucial to improving the management and cost efficiency of the NHS. The development of a national health information system accessible to all those in the NHS will ensure that accurate, up-to-date information is on hand when it is needed. Figure 10.2. Evolutionary healthcare ASP aggregator model (Currie, 2000)
En t
er pr is
e
AS P
Pu re p ASP
la
yA
C u s to m e r
Regional NHS Trust
SP
A S P A g g re g a to r M o d e l
on iz or l ta P AS
Ve rti ca l
E na ble m e nt
Se rv ice
H
Pr ov id
er
F ull Se rvic e P ro v is io n
ERP
e M a il
CRM
HR
A ss e t M a n a g e m e n t
Docum ent Man ageme nt
e -P ro c u re m e n t
W e b H o stin g F in a n cia l
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KPAs for ASP and Web Services Value Creation in Healthcare The complexity of the regulatory and partnership contract “chains” within healthcare (Institute of Medicine, 2002; Wanless, 2002) has resulted in extraordinary obscurity in the security, access, and control requirements for participating organizations: SchlumbergerSema, EMIS, and McKesson are three major German, British, and American healthcare enterprises, respectively. They have more than five operating companies each with complicated “contracting chains.” Such complexity creates two primary problems in the UK health sector: • •
Getting and registering the existence of required healthcare business and software processes and data in “real time”; and Allowing only those who need access to software processes and patient data to do so selectively and under knowable and auditable circumstances.
The research operationalized five KPAs (Currie, 2003), which are potential sources of value creation from ASP: delivery and enablement, management and operations, integration, client/vendor alliances/partnerships, and business transformation. This framework, we argue, is also relevant for evaluating Web services. Each category is discussed below in the context of healthcare organizations.
Delivery and Enablement A commonly used sales pitch on the part of ASPs was to offer 24x7 software applications availability, though customers’ requirements varied according to the nature of the business use. However, this could not serve healthcare organizations’ need for extensive communication and interconnectivity arising from adoption of standards and integrated IS (Institute of Medicine, 2002). These organizations have a current need to identify new opportunities in the availability of databases (Ferlie & Shortell, 2001; Majeed, 2003; Wong, 2001) about patient and other medical records. The anticipation is to link
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interorganizational, interfunctional, and interpersonal levels of healthcare processes via Web services, through which they can reshape and improve their core business processes (Gerowitz, Lemieux-Charles, Heginbothan, & Johnson, 1996). IT managers interviewed within the NHS were disappointed at the current lack of capacity to access enterprise-wide information from databases. Their major requirement is for IS that provides numerous opportunities to coordinate organizational activities by facilitating communication and information exchange across departments, branches, partners, and patients carers without the need to go through horizontal or vertical chains of command. ASPs resisted this demand, as customization would lead to reduced profits, or even a financial loss. The ability to offer scalability of the software application was another facet of delivery and enablement. Generally, the less complex the application, the easier it was to scale to high numbers. To a large extent, e-mail was the easiest application to offer, as there was no need for customization. From the data analysis, the largest single issue in terms of delivery and enablement was the fear about data security and integrity. Most ASPs possessed large IT capability in the form of data centres; many pure-play ASPs outsourced this facility (Kern et al., 2002). Yet security of patient data was a serious impediment, as many potential customers in the health sector were reluctant to experiment with an ASP business model, which was immature and poorly supported.
Management and Operations One of the perceived benefits of ASP is that healthcare organizations would be able to concentrate on their core competencies (Perseid, 2003). ASP vendors argued that the remote delivery of software applications would release managers from the perennial problems of running in-house IT departments. This would allow them more time to develop IT and e-business strategy rather than the day-to-day operations. This justification has been used in traditional forms of outsourcing over many years (Willcocks & Lacity, 1998). Our findings suggest that most of the software applications offered by vendors were loosely defined as horizontal business applications (i.e., accounting, HR, fixed asset management software, etc.). Even where healthcare organizations were deploying ASP for more complex applications, there was little evidence that the scale and scope of usage amounted to extra time for managers to engage in other activities. Other benefits to firms were defined in terms of cost savings.
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Many vendors used TCO models to show how IT costs would be reduced using a remote software delivery model. Our findings pointed to a lack of relevance in TCO models, particularly for the NHS with increasing demands on low IT budgets. One NHS IT manager said: Our overall IT spending is only about £150 k per annum. I don’t think using a Web service solution will necessarily save us much money. But if it means fewer headaches with physicians using IT, then I would be prepared to pay more for Web services! Considering Web services are new technologies that sprung from the ASP business model and are used mostly to automate linkages among applications, they are generally anticipated to make critical systems connections not only possible but also easy and cheap (Kreger, 2003; Sleeper & Robins, 2001). IT managers believe making connections between NHS organizations and their applications exponentially increases the complexity and cost to their jobs. Indeed business activities, for the NHS, involve communications and transactions with other organizations, such as trading partners, suppliers, and patients. Hagel (2002) argues that organizations with better and cheaper connections with one another could gain cost savings in the short term and look forward in the longer term to collaborating more innovatively to give customers more value.
Integration Despite poor results from ASP in regard to integrating disparate software applications, Web services could potentially make a significant difference in integrating software applications across multiple platforms, sites, and departments of healthcare organizations. A commonly cited benefit from ASP firms was that software applications across business and IT functions could be integrated to fulfil the goal of enterprise application integration (EAI). Many ASPs planned to develop a wide portfolio of business applications (including ERP, CRM, accounting and financials, logistics, etc.). But most of these applications were “stand alone,” provided on a one-to-many model. With Web services, these applications could eventually be integrated to provide the customer with a comprehensive enterprise solution (Majeed, 2003).
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An important question is whether Web services can be deployed and managed within healthcare; where there is a need for patient data and processes to be integrated, possibly across multiple platforms, environments, and sites. To manage such real-time procedure requires the integration of complex enterprise information (Figure 10.3). • • • • • •
Manufacturing: Integrated global pharmaceutical information on drugs manufacturing process Metadata: Information about what is contained in these phases of development Clinical: Clinical trial, side effects, outcomes, and in “real-life” effects of drugs Validation: Strategic planning data on the validation of the drug for the target patients Administrative: Healthcare claims, membership, diagnostic, and treatment data Financial: Design, development, pricing, deployment, and patient intelligence data
Figure 10.3 illustrates the data model for the integration of information across the value chain of a healthcare organization that is multivendor and multisource. Such organization encourages the definition and sharing of data—within the organization and among partners and regulators. Two “stacks” of data are articulated in Figure 10.3: • •
Clinical: The data and information supporting medical and research and development (R&D) of new drug entities Administrative and Financial: The data and information supporting the processes of drug approval, production, distribution, and patient care monitoring
Interviews with medical practitioners in the NHS found that integration of software applications was not an immediate priority, or rather, not a priority they were prepared to pay for. So how can ASP and Web services benefit the NHS? Many organizations in the NHS were deploying ASP solutions which
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Figure 10.3. Complex data generated by healthcare enterprises value chain (Perseid, 2003) Clinical Processes
Research Target and Discovery Product Optimisation Clinical Trials
Financial Sys
Research
Clinical Trials Target Group
Manufacturing
Regulations
Administrative and Financial
Strategic Planning Financial Accountability Distribution and Support Regulatory Approval
Distribution
Product Optimisation
Metadata Security Access andControls
Systems Integration Architecture Security, Access, and Controls
Enterprise Network Architecture
External and Internal Organisations
In-House Server
Regulatory Agencies Service Providers Patients Organisations Technology Partners
were non-mission critical, for example, e-mail, rather than ERP. One medical consultant, using an electronic diary application, commented: We were not particularly looking for a Web service solution to organize our time management. However, when a vendor approached us with a product for diary scheduling, we thought to give it a try. The main advantage of this is that you can make changes to patient appointments from a remote location and submit the data to the surgery. It is particularly useful for staff working away from the surgery for long periods, but the current shortage of GPs in the NHS does not encourage that.
Client Vendor Alliances/Partnerships The ASP business model was premised on the formation of strategic alliances and partnerships with technology and service providers (Currie et al., 2004; Ferergul, 2002). Yet many of these partnerships and alliances proved to be
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unsustainable and insecure. For example, large technology sector firms, such a telecommunications firms, saw opportunities in partnering with independent software vendors (ISVs) to offer hosted software applications on a utility model. The coming together of a utility model of pricing with a new delivery mechanism for software was perceived as a promising opportunity. In addition, hardware manufacturers saw benefits of developing new business by manufacturing “thin client” PCs where data would be stored remotely, that is, on the server farms owned by the telco. Whilst these arrangements looked like a winwin scenario for all, the reality proved otherwise in most cases. Indeed, the venture between Cable & Wireless a-Services™, Microsoft and Compaq, designed to offer hosted applications was short lived, lasting under two years. The main reason for this was the immaturity of the ASP model. Within the context of healthcare organizations, the complexity is likely to increase, particularly as management decisions to procure software are likely to be taken at a much higher level than middle management, for example. Research into two NHS organizations found disappointing results from the ASP business model. Two NHS organizations had to alter their strategies when their service providers went out of business. Both organizations lost time and money in resolving the problem and are less likely to use an ASP in the future. Whilst predicting the financial stability and viability of ASPs is difficult to do in an unpredictable market, the degree of commitment to a strategic alliance or partnership from a large technology provider or ISV is equally problematic. Our findings suggested that even where large firms (telcos, ISVs, hardware manufacturers, etc.) entered into a strategic alliance with ASPs, this was easily unravelled if the business objectives were not achieved within a specific time period. As greater numbers of ASPs failed, ASP adoption rates became fewer. Surviving vendors could not convince potential customers that the ASP business model offered them new benefits for outsourcing their business software applications.
Business Transformation A more nebulous aspect to ASP is business transformation. With the growth in healthcare ICTs, managers and medical practitioners are faced with a confusing array of software applications from a variety of ASP vendors. The business transformational characteristics of different offerings were not well articulated
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by ASP vendors, as many were unable to provide practical examples of performance improvement in specific healthcare/technology activities or tasks (Currie et al., 2004). Today, many pundits claim that Web services would integrate ICT with patient care. They also suggest that using Web services solutions would help the healthcare organizations keep pace with the latest ICT and give them all the benefits of outsourcing, which had previously accrued only to large firms. For the healthcare organization, several financial and functional benefits are realized (Guah & Currie, 2002): •
• •
The internal and external divisions, partnerships, and regulatory agency relationships can be realistically automated for the first time, since access is defined by Web services. Systems integration costs are dramatically reduced and interfaces are standardized, by as much as an order of magnitude. Data integration is facilitated as database proliferation ceases.
Our research findings suggest that healthcare organizations were aware of the hypothetical benefits of e-business. However, they were unable to relate these benefits to their day-to-day practical healthcare operations. Many NHS staff simply described the ASP business model as “a return to service bureaus under a different name,” rather than an ICT innovation which would enhance their business processes. The business transformational characteristics of the majority of ASP offerings were also low, as this was dependent upon integration (Table 10.3). NHS did not deploy software applications for critical healthcare activities, and many managers were reluctant to do so because of fears of data security.
Results from the Questionnaire Survey Against the background of the five KPAs (see Currie, 2003) as discussed in the previous section, the questionnaire survey was developed to elicit data and information on how potential and existing ASP customers evaluate a range of KPIs in relation to their own business requirements. Using a scale of 0–4 (0 =
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not applicable; 1 = not important; 2 = quite important; 3 = very important; 4 = critically important), respondents were asked to rank each KPI across the approximately six KPAs. A questionnaire survey instrument is reproduced in Appendix 2. It is outside the scope of the present chapter to discuss all the findings from the questionnaire survey, particularly the sample organizations previous outsourcing experience. All respondents gave their job title, company address, and other details about product/service offerings and size of company. For example, the trade fairs attended in the health sector aimed to sell the latest IT products and services to healthcare professionals. Many ASPs therefore targeted specific vertical sectors such as health to enable them to penetrate this market more successfully, as general e-business trade fairs were unlikely to attract healthcare personnel. Other variations in priorities emerged. For example, whilst the health sector shared similar concerns with the other sectors (apart from travel) in giving a high priority to data security and integrity, it also identified allowing managers to concentrate on their “core” competencies as an important KPI. This may reflect the significant changes within the health sector marked by increased paperwork and other forms of bureaucracy. Using an ASP model was therefore perceived as having some advantages in this activity.
Table 10.3. Scores of key performance indicators subdivided into areas Key Performance Indicators Delivery and Enablement 24x7 software applications availability Delivery of end-to-end solution Ability to migrate existing data Data security and integrity Disaster recovery, backup, and restore procedures Plan to access all software applications online Integration Integration of software applications across multiple platforms, sites, and environments Business process redesign through software applications integration To create a “seamless” IT organisation To create an IT infrastructure for better manageability To achieve faster software application implementation Resultant synergy from combination of applications
Average Average for Score for Healthcare All Sectors Organisations 2.69 2.62 2.76 3.33 3.28 2.20
2.29 2.57 3.14 3.57 3.57 2.57
2.37
2.0
2.10
2.0
2.30 2.42 2.41 2.10
2.57 2.86 2.14 1.86
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Table 10.3. (continued) Key Performance Indicators Management and Operations To allow management to concentrate on core activities To reduce total cost of ownership (TCO) through software applications outsourcing To eliminate the problem of managing IT To pursue e-business strategy External (hosted) applications infrastructure better value for money External (hosted) software applications infrastructure more cost effective than traditional outsourcing Greater flexibility of outsourcing as opposed to in-house management of software applications Business Transformation To keep pace with the latest information and communications technologies (ICT) To integrate ICT with the core business To treat ICT as a service to the core business only Strategic plan to increase ICT outsourcing To gain senior management support for ICT Client/Vendor Relationships Desire to develop strategic partnerships with vendors Outsourcing success depends on good service-level agreement (SLA) Financial stability of vendor critical to outsourcing decision Single point of contact (with vendor) Responsiveness of vendor to ICT changes The strength of the strategic partnerships between vendors Mergers/acquisitions/takeovers between vendors Total score in this section
Average Average for Score for Healthcare All Sectors Organisations 2.85 2.64
3.14 2.71
2.35 2.0 2.25
2.57 1.57 2.14
2.07
2.0
2.06
1.71
2.31
1.57
2.65 1.96 1.79 2.27
3.14 2.14 2.14 3.29
1.97 3.04
1.86 3.71
2.93 2.71 2.61 2.42 2.14 92.89
3.43 3.57 3.57 3.0 2.86 97.84
The integration of ICT with the core business was highlighted by health as important, but less so for the other three sectors. In healthcare, in particular, the lack of integration of ICT has resulted in numerous disparate software applications, although efforts are now in place to devise a national IT strategy for healthcare (Guah & Currie, 2002). An interesting finding was that a strategic plan to increase IT outsourcing was given relatively low priority in all sectors (apart from health). Whereas the health sector was likely to increase its IT outsourcing as a result of a national IT strategy, the other sectors did not perceive this KPI as a high priority. Within the sectors, finance, IT, and manufacturing, IT outsourcing is now relatively mature, as opposed to travel. Within the area, business transformation, only two KPIs—to integrate IT
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with the core business (finance and health) and to gain senior management support for IT (health)—scored higher than 3. In the case of the latter, it is not surprising that the centralized nature of IT procurement in healthcare precludes IT vendors from gaining access to key personnel (Guah & Currie, 2004). One of the surprising findings from the questionnaire survey in relation to the ASP vendor rhetoric was in the area of integration. Contrary to ASP sales and marketing literature, which emphasizes the importance of integration (particularly enterprise application integration), no respondents in the sample scored higher than 3 for any KPI within this category. Indeed, the KPI, strategic plan to increase ICT outsourcing, was not seen as an important priority by sample firms and gaining senior management support for ICT was only considered a priority in healthcare organizations. It is therefore suggested that, without these two KPIs being perceived as highly important, the responsibility for negotiating SLAs is likely to be delegated to more junior management and IT staff, possibly increasing risk. This observation has already been made in the outsourcing literature (Willcocks & Lacity, 1998). Our results, however, pointed to relatively low scoring for these KPIs, suggesting that ASP vendors had possibly misinterpreted the needs of potential customers. Clearly, most of the sales and marketing rhetoric of ASP vendors appeared to echo the messages given to the large customer. Questions therefore arise as to the extent these messages were relevant for healthcare organizations, in particular, that a healthcare organization would reduce its TCO of IT using an ASP solution despite a low annual IT spend, or that efficiency would be greatly improved with 24x7 software availability.
Discussion and Conclusion This chapter has provided a snapshot of research results derived from a fiveyear study on the deployment, hosting, and integration of ASP (Currie, 2003; Currie et al., 2004). It focuses specifically on the UK healthcare sector, which is receiving a major investment in IT over the next 5 years. Whilst it is not possible to draw definitive conclusions from the results, the variations in the priorities within and across the five KPAs points to some interesting observations. The results discussed in this paper are indicative of the problems, which beset the first wave of the ASP market, most notably, a failure of ASP vendors to provide an attractive value proposition to organizations (Hagel, 2002). Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Existing literature on healthcare systems have identified four basic types of applications detailed below (Ferlie & Shortell, 2001; Haines, 2002; Majeed, 2003): group collaboration; healthcare support systems; business intelligence; and e-commerce. The fourth category is a combination of one or more of the other types but implemented using Internet technology Group Collaboration: The original purpose of the Internet was essentially to enable (academic) group collaboration. Proprietary group collaboration applications in the NHS are consequently under great pressure from their low-cost, tested, and robust Internet equivalents (Laroia, 2002; Majeed, 2003). Healthcare Process Systems: Although the Internet does offer process systems capability, it is unsophisticated and unstable by comparison to the tried-and-trusted but proprietary commercial equivalents. The Internet was never designed to offer more than a very basic transaction capability as is currently required to support healthcare processes. Patient Intelligence: Patient intelligence usually involves looking for patterns within very large data sets, in the order of millions of individual data items. Viewing reports and simple graphics is easily supported; however, complex manipulation of graphical information does not work well using today’s Internet technology due to network capacity restraints. E-Commerce: At its most basic, e-commerce is buying and selling over the Internet, whether to consumers or business to business. NHS systems may not require a financial transaction system but the need to interact with patients is promoting e-commerce-type system to a higher position on NHSIA strategic agenda. Whilst the ASP market continues to undergo large-scale change, which is a symptom of competing in a highly volatile and dynamic marketplace (Eisenhardt & Martin, 2000), the main finding from the research study has been the failure of vendors to create value for potential and some existing customers. By delineating KPIs across five KPAs as the results from the questionnaire survey point to some interesting findings, which provide a snapshot of how potential and existing customers of ASPs evaluate the ASP or software-as-a-service model. Further research is now underway to provide more detailed vendor and customer scenarios across vertical sectors (i.e., health and finance) and product/services offerings (i.e., ERP) to provide specific examples of how vendors may tailor their offerings to more closely meet the needs of customers. This is particularly important given the current cynicism and myths surrounding the business value of e-business (Howcroft, 2001). Any healthcare organization tempted to fill the gaps with older technologies should be wary of creating hybrids that will limit its options when Web services
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alternatives become available. Proprietary extensions to fill gaps in the features of Web services, for example, should be implemented as modules with clearly defined interfaces (Kreger, 2003). In this way, it will be easier to replace the proprietary extensions with evolving Web services standards as they become available. Finally, a staged, pragmatic implementation of Web services at the edge of enterprises is by no means without pitfalls. This approach gives organizations time to learn about these technologies and to develop insights into the broader operational and strategic possibilities of strategic collaborations. In the UK, NHS executives were lulled into complacency by the simple and mundane nature of Web services. By their early tactical implementations, they have overlooked the broader opportunities and lost valuable time—NHS-Direct is a good example (Wanless, 2002). It is management’s attitude that will ultimately determine who creates value with Web services (Gerowitz et al., 1996).
References Ahn, J.G., Leem, C.S., & Yang, J.H. (2001). Jae Geun AhnA framework for certification and audit of application service provider. Application Service Provider, 10(3), 239–252. Amit, R., & Zott, C. (2001). Value creation in e-business. Strategic Management Journal, 22, 493–520. Arnott, S. (2002). Broadband NHS is in the pipeline. Computing, March, 1. ASP Industry Consortium. (2000). Industry news. www.Aspindustry.org Avison, D.E., & Fitzgerald, G. (2003). Where now for development methodologies? Communications of the ACM, 46(1), 79–82. Banker, R., & Kauffman, R. (1988). Strategic contributions of information technology: An empirical study of ATM networks. Proceedings of the Ninth International Conference on Information Systems, Minneapolis, MN. Bennet, C., & Timbrell, G. (2000). Application services providers, will they succeed? Information Systems Frontiers, 2(2), 195–211.
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Cassidy, J. (2002). Dot.con: The greatest story ever sold. London: Penguin. CBDI Report. (2003). Insight for Web service and software component practice. Web Services Usage Survey, February/March. Currie, W., Desai, B., & Khan, N. (2004). Customer evaluation of application services provisioning in five vertical sectors. Journal of Information Technology, 19(1), 39–58. Currie W.L. (2000). Expanding IS outsourcing services through application service providers (Executive Publication Series. CSIS2000/002). Eisenhardt, K., & Martin, J.A. (2000). Dynamic capabilities: What are they? Strategic Management Journal, 21, 1105–1121. Ferergul, C. (2002). Best practices in Web hosting service level agreements. Stamford, CT: Meta Group. Retrieved May, 2002, from http// techupdate.zdnet.com/techupdate/stories/ main/ Ferlie, E.B., & Shortell, S.M. (2001). Improving the quality of health care in the United Kingdom and the United States: A framework for change. Milbank Quarterly, 79, 281–315. Gerowitz, M., Lemieux-Charles, L., Heginbothan, C., & Johnson, B. (1996). Top management culture and performance in Canadian, UK and US hospitals. Health Services Management Research, 6, 69–78. Guah, M.W., & Currie, W.L. (2004). Application service provision: A technology and working tool for healthcare organisation in the knowledge age. International Journal of Healthcare Technology and Management, 6(1/2), 84–98. Guah, M.W., & Currie, W.L. (2002). Evaluation of NHS information systems strategy: Exploring the ASP model. Issues of Information Systems Journal, III, 222–228. Hagel, J. III (2002). Out of the box: Strategies for achieving profits today and growth tomorrow through Web services. Boston: Harvard Business School Press. Haines, M. (2002). Knowledge management in the NHS – Platform for change. Retrieved November 2002, from www.healthknowledge.org.uk Howcroft, D. (2001). After the goldrush: Deconstructing the myths of the dot.com market. Journal of Information Technology, 16(4), 195–204. Institute of Medicine. (2002). Crossing the quality chasm: A new health system for the 21st century. Washington, DC: National Academy Press.
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Kakabadse, N., & Kakabadse, A. (2002). Software as a service via application service providers (ASPs) model of sourcing: An exploratory study. Journal of Information Technology Cases and Applications, 4(2), 26–44. Kern, T., Lacity, M., & Willcocks, L. (2002). Netsourcing: Renting business applications and services over a network. New York: Prentice Hall. Kreger, H. (2003). Fulfilling the Web services promise. Communications of the ACM, 46(6), 29–34. Laroia, A. (2002). Leveraging Web services to connect the healthcare enterprise. Retrieved February, 2002, from http://e-serv.ebizq. net/wbs/ larois_1.html Majeed, A. (2003). Ten ways to improve information technology in the NHS. British Medical Journal, 326, 202–206. Orlikowski, W.J., & Tyre, M.J. (1994). Windows of opportunity: Temporal patterns of technological adaptation in organisations. Organisation Science, May, 98–118. Perseid Software Limited. (2003). The strategic value of Web services for healthcare and the life sciences. Retrieved August 2003, from www.perseudsiftware.com Sleeper, B., & Robins, B. (2001). Defining Web services. Accessed April 2002, from www.stencilgroup.com Susarla, A., Barua, A., & Whinston, A.B. (2003). Understanding the service component of application service provision: An empirical analysis of satisfaction with ASP services. MIS Quarterly, 27(1), 91–123. Wanless, D. (2002). Securing our future health: Taking a long-term view (final report of an independent review of the long-term resource requirement for the NHS). London. Walsham, G. (1993). Interpreting information systems in organisations. Chichester, UK: Wiley. Weill, P., & Vitale, M.R. (2001). Place to space–Migrating to eBusiness models. Boston: Harvard Business School Press. Willcocks, L., & Lacity, M. (1998). Strategic sourcing of information systems. Chichester, UK: Wiley.
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Wong, S. (2001). Web services: The next evolution of application integration. Retrieved November 2002, from www.grgcc.com/pdf/WebServices TheNextEvolutionofApplicationIntegration.pdf Yin, R.K. (1994). Case study research: Design and methods. Sage Publications. Zmud, R.W. (1988). Building relationships throughout the corporate entity. Washington, DC: ICIT Press.
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Chapter XI
Future Trends Matthew W. Guah, Warwick University, UK
Abstract Now that we have seen what organizations are doing with Web services, the rest of this book will look at how Web services will affect Internet strategies in the next decade and possibly beyond. This chapter begins with financial forecasts from the professionals and later warns that organizations must first be in the position to refine their business models, crystallize their value propositions and strengthen the quality and management strategies of their services.
Introduction What remains unclear in the early part of the 21st century concerning the linkage between Internet investment production and the application service provider (ASP) market is the extent to which the rate of ASP like services productivity will continue to rise in the face of slower advances in Internet stock market. According to Forester Research, the proportion of ASP business in the Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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outsourcing market peaked at about $800 m in 2000 and was projecting for $25 bn by 2005. However, it actually declined by the year 2001 (due partly to the effect of the stock market collapse) and is currently being projected at $15 bn by 2006. The overall business interests in the ASP model will continue to rise with proportionally higher rates of investment by vendors versus traditional outsourcing. We attribute this optimistic forecast to four trends: 1. 2. 3. 4.
Continuing improvements in capabilities and cost-performance characteristics of remote support services by vendors; Improvements in capabilities and cost-performance characteristics of the technology at the system or application level; Continual development of the telecommunications infrastructure to support ASP performance; and Gradual reduction of institutional and social barriers to the introduction of ASP model as a viable business strategy.
Future Analysis It does not make sense to emphasis the social and technical resources and constraints of a new industry (like ASP) without thinking about the future of the resulting information system. While no one can say, with any degree of certainty, what the future holds, it is always possible to speculate on the nature of changes. Such consideration of future conditions usually helps to avoid some of the problems identified during the early stages of IS analysis. Land (1987), in his study of future environments and conditions, came up with a theory of “future analysis.” Here are four areas of our concern from Land’s future analysis theory: 1.
Prediction of possible changes: This area looks at the kinds of changes that are possible, that is, technological, legal, political, or economic. It requires the investigation of the context and situation of the organization in which the work is being done. Other items needed to help with this investigation include structure plans and prediction of mid-term development of the institution that could be medium plan. This is meant to devise an appropriate system analysis stage of the development process thereby
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2.
3.
4.
giving some idea of the type of expansion, contraction, and change that will occur and with which the incoming system will have to deal. Likely outcome of system: Here one takes a peep into the future assuming the likely effects of an improved information system. There are certainly all kinds of disruptive and constructive events that may be related to the development of a new system. A few of the most pertinent ones with regards to ASP implementation are staff redundancy, change of loyalty of existing IS staffs, new reporting procedures, and so forth. Features susceptible to change: This looks at the features of the proposed system that are more susceptible to change. Questions such as, where would one expect the new system to change first and whether this can be planned for, come into play here. Other issues involved here are if certain data would need to be collected or some existing collection procedures would need to change. And even if some existing sections or divisions would continue to maintain their structures. Horizon of the system: One would look at the extent and horizon of the system. It is at this stage that an ASP would begin to think in terms of the long-term view. While we admit this is obviously guesswork, it gives one a sense of humility in the initial design and requires an ASP vendor to speculate as to how what is being planned today may be the building block for further developments into the long-term future.
The pursuit of technical efficiency in the operation of various complex technologies required by ASP to operate in the 21st century will continue to require skilful management of these technologies, and the technical personnel needed to operate and maintain the tools. An intelligent enterprise activity will largely be concerned with managing the technical attributes of ASP tools and not with the management of the use and intellectual content of the information and knowledge. While such management will focus on internal operations, and are largely a middle-management and professional-staff function, that stage of information-management development will continue to expand as more complex technologies (i.e., Web services) are introduced in intelligent enterprises. It can be argued that an enterprise could well rest at a plateau where cost savings are usually quite significant, but such enterprise will soon encounter unanticipated difficulties because of organizational and operational problems. One such is usually the fact that integrating the ASP technologies often demands new structures and functions that many businesses are not prepared to assume.
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If the use of ASP, as a converging technology is to be effective, much more emphasis will need to be placed on business management of information resources and management personnel who will define and direct the use of these assets and resources in the organization. Even more pressing are the pressures for change in adopting a more management-oriented view of this domain that are arising from various stakeholders (both internal and external) who are beginning to recognize the enormous potential for profitability and productivity embedded in the emerging products and services of the ASP industry.
Software as a Service Web services environment-based computing is likely to evolve rapidly in the hosting realm. ASPs therefore need to identify and partner with infrastructure vendors able to help them fully capitalize on this trend. Web services are rapidly moving to the forefront of major service providers’ strategies for the next phase of Internet-centric computing. Web services began to constitute one of the computing industry’s most important trends during 2002 and potentially provide almost limitless, new service and revenue opportunities. The question thus far has been, “Are ASPs willing and prepared to exploit Web services?” In the first few years of the 21st century, virtually every major IT infrastructure vendor has identified support for Web services as a strategic priority. These vendors have each determined that a key success factor for their business to go forward seriously depends on its ability to support what could likely become a flood of Web services components. This prepares the way for Web services to aid the software-as-a-services trend to gain significant market traction and appeal. Many research studies have shown that ASPs are totally confused about what Web services actually are and the promises they hold for the IT industry (Kakabadse & Kakabadse, 2002; Currie, Desai, & Khan, 2004). Very little sense is made of the response from questions such as “What exactly are Web services?”, “What do Web services do for businesses?”, “How can ASPs benefit from Web services?”. Like all other previous new technologies in the IT industry, Web services have yet to emerge with a universally agreed-upon definition. However, many proponents describe Web services as discrete software components that run on top of the Internet as though it were a huge distributed operating system. This Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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means Web services are analogous to software components, making up the elements of a full application that runs on a single-server operating system. Although Web services provide some valuable piece of functionality, they do not individually provide all of the business logic necessary for a complete application or hosted service. Such a feature requires individual Web services to interact with each other and with other Web-based applications to complete whatever task they are chartered to do. Here is where the idea of standard interfaces and messaging protocols come in. Application development can therefore create Web services from scratch, or encompass pieces of legacy code with software wrappers that add the application programming interfaces (APIs) necessary for the legacy code to function as Web services. As they are built with the same open standards, Web services built to run on one operating system or within one infrastructure can automatically interact with Web services running on a completely different software infrastructure. One little issue of complication is the fact that Web services tend to fall into two broad categories: 1.
2.
Some Web services can function primarily as building block components that other Web services applications can access and exploit directly and automatically. These Web services allow for no user interface and no interventions. Other Web services require user invocation and interaction.
Considering Web services are an even newer phenomenon than ASP, the scope of Web services functionality is rather broad and the stages of a clear and common definition are still evolving. As IT giants—for example, IBM, SUN, Microsoft, CISCO, and so forth—gain more experience in deploying and improving Web services development, the definition will be refined and standardized. All service providers need to think of Web services as part of their continuum of the software-as-a-service model. Web services should not be considered as a disruptive approach to hosted services, but rather as an additional step forward for IT service provision. They could provide a standardized way for different services and applications to interoperate, which will greatly reduce the integration hurdles ASPs have been facing for a long time. In the process, Web services will also have given ASPs an increased
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flexibility to create and deliver more customized or unique hosted solutions for their customers. In similar regards, ASPs would not always be able to ensure that individual Web services will be developed or run on the infrastructure of their choice. That is because Web services are created and distributed by multiple entities. ASPs must therefore develop and deploy their own services with infrastructure that complies with Web service standards; to be certain that their services can efficiently interact with, and take advantage of, other Web service components. Most of these initiatives will only take if ASPs identify and partner with infrastructure vendor that can help them fully capitalize on this trend.
After the Dot.com Era Many industry reviewers are beginning to predict the end of the bad time for the IT industry (Cassidy, 2002) and that the worst days have past. While the current economic slump is slowing much industry activity, the fundamental drivers for software as a service remain strong, and business interests are continuing to push this business model inexorably forward. However, many are looking to see ASPs evolve. They must refine their business models (Lacity & Willcocks, 2002), crystallize their value propositions (Currie, 2004), and strengthen the quality and management strategies of their services (Davenport & Stoddard, 1994; Dotan, 2002; Kauffman, McAndrews, & Wang, 2000). Cassidy (2002) demonstrates that the infrastructure decision is becoming simpler because several brand-name vendors moved to field preintegrated suites of applications on different platform elements. Nevertheless, ASPs are not doing enough to unravel the mysteries of a new business model based on Web services technologies. This is probably the most differentiating challenge. Very few ASPs are beginning to show their clear understanding that the need to exploit this new business model early will gain an edge. They are also adjusting more flexibly and rapidly to market demands by delivering more of the new services and capabilities that Web services will engender. A clear warning is that ASPs that are slow to embrace Web services could very well be caught short, as competitors move to take advantage of these multiplying components.
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References Cassidy, J. (2002). DOT.CON: The greatest story ever sold. London: Penguin. Currie, W., Desai, B., & Khan, N. (2004). Customer evaluation of application service provisioning in five vertical sectors. Journal of Information Technology, 19(1), 39–58. Currie, W.L. (2004). The organizing vision of application service provisioning: A process-oriented analysis. Information and Organization, 14, 237– 267. Davenport, T.H., & Stoddard, D.B. (1994). Reengineering business change of mythic proportions. MIS Quarterly, 18(2), 121–127. Dotan, T. (2002). How can ebusiness improve customer satisfaction? Case studies in the financial services industry. Journal of Information Technology Cases and Applications, 4(4), 22–48. Kakabadse, N., & Kakabadse, A. (2002). Software as a service via application service providers (ASPs) model of sourcing: An exploratory study. Journal of Information Technology Cases and Applications, 4(2), 26–44. Kauffman, R.J., McAndrews, J., & Wang, Y. (2000). Opening the ‘black box’ of network externalities in network adoption. Information Systems Research, 11(1), 61–82. Lacity, M., & Willcocks, L. (2002). Regional perspectives: Survey of IT outsourcing experiences in US and UK organizations. In Advanced topics in global information management (pp. 160–189). Hershey, PA: Idea Group. Land, F. (1987). Is an information theory enough? In Avison et al. (Eds.), Information systems in the 1990s: Book 1—Concepts and methodologies (pp. 67–76). (AFM Exploratory Series no. 16). Armidale, Australia: New England University.
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Chapter XII
A 21st-Century Tool for Intelligent Enterprises Matthew W. Guah, Warwick University, UK
Abstract This chapter suitably summarizes all the points covered in this book by applying them to 21st-century intelligent enterprises. By addressing the business issues and management concerns of a 21st-century intelligent enterprise, we hope this chapter points medium- and large-sized businesses in the proper direction, to manage application service provider (ASP) resources and strategies to their competitive advantage. With the phenomenon of ASP in its infancy, we draw from works of IS pioneers Markus, Porter, Checkland, and others. Their intellectual contributions, plus findings from research work at CSIS, provide a framework for discussion. ASP delivers personal productivity software and professional support systems, assisting an intelligent enterprise in processing information, solving business problems, developing new products, and creating new knowledge. The need to exploit ASP capabilities to preserve and enhance organizational knowledge is clearly defined by this chapter. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Introduction To deal with this complex topic we have structured this chapter into four main areas: Background, Concerns, Recommendations, and Future Trends. Background presents the central theme of the historical shifts from a mainframe to a client-server, and now to an ASP strategy for intelligent enterprises. An observer of the client-server technology would have found the task of accurately discerning the path of that technology during the last decade of the 20th century very difficult. Similarly, the reality of the ASP technology has not fully burst on the business scene, but has evolved over some 5 to 10 years. Moreover, statistical evidence to define this emerging social and economic reality has lagged behind the writers and commentators who have identified the important features of this significant change. Next, Concerns discusses the engine that is driving the ASP industry. Just as the steam, electric, and gasoline engines became the driving forces behind the Industrial Revolution of the early 1900s, so the Internet and high-speed telecommunications infrastructure are making the ASP a reality today. A resulting “information processing” industry is the business sector that is providing the impetus for this revolution, with its increasingly improving array of hardware, software, and information products and services. These technologies, in turn, are having and will continue to have profound impacts on business management, competitive advantage, and productivity. Having set the stage by describing the changing business environment of the intelligent enterprise, Recommendations then move to the need for each enterprise to fundamentally think its corporate strategy. For ASP vendors, it is not just a question of selling a product, but of selling a solution to a customer’s problem. This is where the lines between delivering the services and between traditional versus emerging markets are blurring and changing. The qualitative dimension is as important in an ASP industry as the quantitative dimension. Quality control must be built into the front end of the service delivery cycle, not viewed as a last-minute check to be done just before contracts are reviewed. Here is where the human factor is introduced into our discussion. In essence the intelligent enterprise is a distributed network of human talent. Within the individual enterprise, outmoded human resources management philosophies must be replaced by modern approaches that maximize the brain contribution to the products and services, not just the brawn contribution. The emphasis of ASP in intelligent enterprises is on working smarter, not just
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harder. ASP strategy requires businesses to rethink not just the elements of its economic milieu, but its political and social contexts as well. This does not suggest some kind of radical shift away from the profit motive to the quality-oflife motive. But we do endeavour to point out that this strategy presents both risks and opportunities for every business in the 21st century. Much of this discussion implicitly recognizes that doing business in an intelligent enterprise forces suppliers, producers, and consumers into far closer proximity with one another than is the case in an industrial economy. Finally, we examine the problem of redefining success in the business environment of the 21st century in Future Trends. Central to this discussion is the idea of adding value at each stage of the information systems life cycle. ASP, as a form of technological accomplishment, has little meaning for intelligent enterprises, however, unless ASP’s Web services can be linked to business innovation. The challenge for business professionals is to find ways to improve business processes by using Web services. This chapter has been written to take the reader into the 21st-century IS strategy paradigm. Utmost attention is paid to integrate the current business and management ideas with the deployment of ASP as one of the new information technologies. Yet, the chapter is rooted in the concepts that have emerged over the decades of development of the IS discipline. ASP in terms of its products and services has continued to evolve over its short history. As these changes have progressed, the landscape of the Internet technology has become crowded with new services, technologies, products, and transmission media. As the Internet has continued to evolve with the discovery of new technologies and the integration of “older” technologies such as mobile computers and broadband communications, new opportunities and markets within this area of business have opened up. ASP, as a form of electronic commerce, is the sharing of business information, maintaining business relationships, and conducting business transactions by means of computer telecommunications networks. Similar to the development of the Internet’s World Wide Web, ASP has been changing both the ways organization deal with one another and the way internal corporate processes are carried out with the assistance of telecommunication infrastructures. The capabilities offered by ASP present an opportunity to redesign the business processes of intelligent enterprises in order to reach new levels of performance. The research which underpins this chapter was not conducted in isolation of the work of others in the IS and related fields. In the remainder of this chapter, some of the existing literature will be discussed under the various headings of theory. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Many examples and cases throughout the text have been drawn from international business areas. The purpose is to describe some interesting work, which was forerunner and inspiration for the research, while maintaining the role of theory and case studies within the interpretive tradition of IS research. The epistemology can be viewed as broadly interpretive, seeing the pursuit of meaning and understanding as subjective, and knowledge as a social construction.
Background Change usually takes a long time, and the technology that transformed enterprises and the economy is no exception. Why should anyone be overwrought about the slow growth of ASP? It took mainframe computers a decade or two to become central to most firms. In fact when IBM marketed its first mainframe computer, it estimated that 20 of these machines would fulfil the world’s need for computation! Minicomputers moved into companies and schools a little faster than mainframes, but they were also considerably less expensive. Even the ubiquitous PC took 5 to 10 years to become an important part of work life. The road travelled by these pioneers was rocky. Actual accomplishments seldom matched those initially envisioned. There were several reasons for this shortfall—a general lack of computer literacy among users, a general lack of business literacy and an ignorance of the management role by information specialists, computing equipment that was both expensive and limited by today’s standards, and so on (McLeord, 1993). Some IS reviewers believe that one error in particular characterized the early systems above all other: They were too ambitious. Firms believed that they could build giant information systems to support all managers. With the benefits of hindsight, one can now describe systems designed then as being snowballed or the task attempted being unmanageable. However, some firms stuck it out, invested more resources, and eventually developed workable systems—although more modest in size than originally projected, while other firms decided to scrap the entire management information system idea and retreated to data processing. When the first computers were applied to business problems in the 1950s, there were so few users that they had almost total influence over their systems. That situation changed during the 1960s and 1970s as the number of users grew. It then became necessary to consider the combined needs of all users so that the
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systems could function in an efficient manner. During the 1980s the situation became even tighter when a new player entered the picture—the enterprise (McLeord, 1993). A stage of organization/staff reliance on information systems started in the mid-1980s with demands that information systems increased operational efficiencies and managerial effectiveness. On the backs of such evolution, strategic information systems gained importance as systems expected to help organizations compete. In the 21st century, information systems are developed in an enterprise environment.
21 st Century: The Age of Information Society Beniger puts forth a seemingly influential argument that the origin of the information society may be found in the advancing industrialization of the late 19th century (Beniger, 1986). Accordingly, as industrial plants increased their processing speed, the need for increased resources to control manufacturing and transportation resulted to a feedback loop wherein enterprises had to process information ever faster. Fittingly, the demand for sophisticated information processing equipment resulted in the development of computers. While the subsequent new technologies further pushed the development of an information society, the continuing cycles of demand pull and supply push account for the progress in the field. The Internet is simply a global network of networks that has become a necessity in the way people in enterprises access information, communicate with others, and do business in the 21st century. The Internet contains a distributed software facility that organizes the information on it into network of interrelated electronic documents called World Wide Web (WWW). WWW has changed the face of computing, both individual and enterprises resulting in the expansion of electronic commerce attainment. The Internet is regarded in the 21st century to be beyond a means of communication. It is also a source of information and entertainment that facilitates the development of electronic commerce. The initial stage of e-commerce ensured that all large enterprises have computer-tocomputer connections with their suppliers via electronic data interchange (EDI) thereby facilitating orders completed by the click of a mouse. Unfortunately, most small companies still cannot afford such direct connections. ASPs ensure
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access to this service costing little and usually having a standard PC is sufficient to enter this marketplace. The Internet has been a subject of enormous hype and speculation since its explosion in late 1980s. However, ASP can most certainly be said to be responsible for the latest debate surrounding its usage for purposes far beyond its original scope. By the late 1990s ASP-like business models were been applied by a proliferation of small businesses in the Western world thereby creating what sometimes seemed a cult status with people from many parts of society talking about a “new breed of intelligent entrepreneurs.” Beyond the problems that may arise from the systematization of information, we suggest there is within the discipline of ASP a model of infrastructure and context which is foundational, but inadequate. This is the code model of ASP, deriving from the work of Sleeper and Robins (2002) taking a pragmatic look at the emerging Web services market. We will draw on a number of theoretical sources in a search for an improved foundation. A link is also made to the environment reality theory of perception proposed by Little (1999).
Emergence of ASP The early phase of ASP model appeared to revisit the service bureau model of the 1960s and 1970s (Currie, 2000). During this period, many companies signed outsourcing contracts with a service bureau. The fashionable term outsourcing was rarely used, as the more narrow facilities management contracts involved mainframes data centres and bespoke software. The service bureau model was moderately successful although there were many technical, communications, and financial problems which precluded it from being a viable option for many companies. In this era, outsourcing will continue to undergo a significant shift from the centralized computing of the 1960s and 1970s, the distributed computing of the 1980s and 1990s, through to the remote computing in the 21st century. ASPs will play a central role since they will increasingly offer a utility model to customers where they will purchase applications on a pay-as-you-use basis (Currie, 2000). As these historical stages have evolved, the basic strategic resources and tools of economic activity have shifted, as has the nature of work and culture. In the post-Net era, a term coined by editors of Issues of Strategic Information Systems for its special issue in 2002, the application of knowledge and Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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intellectual technology in response to the organized complexity of technology, organizational and social institutions become the critical factor of production and services. The findings of our previous study provided substantial evidence for the reality of the ASP industry in the United States and the transitional phase which the national economy has moved through in progressing to the ASP technology (Currie, 2000). Moreover, the study also provided support for the notion that the basic sources of wealth had shifted from capital to information and knowledge resources. If ASP is a technological and economic reality, then what is its impact on business? At the outset, it is clear that the Internet’s impact on business will evolve over time and will redefine our understanding of business management, competition, and productivity. While we have been living with the consequences of the Internet for many years, our understanding of these shifts in human events has lagged behind the reality. Ironically, this delayed effect has been particularly acute in Europe in recent years, as compared to Japan and the United States. For example, in the United States, preliminary planning in moving that IT outsourcing toward an ASP model emerged as a general business goal in early 1980s and by late l990s had been translated into a full-scale economic development strategy. Moreover, by the late 1990s, the United States was beginning to assess its economic development strategies in the ASP industry, and the impacts such pronounced shifts in IT industry priorities would have on business. Even today, European business and political debates over IS strategic policy remain tied to traditional views of outsourcing. Many senior executives still remain sceptical or openly critical of the ASP phenomenon. These attitudes among corporate executives and senior managers betray some fundamental misunderstandings not only of the current state of the ASP industry in Europe, but also of the terms and conditions under which the advanced ASP industry in the United States will compete with European business in the future. Nearly every participant in our research with small- and medium-sized companies (SME) in the UK agrees that implementing ASP solution (which sometimes results into automating certain work flows) without first making necessary fundamental changes and improvements are the wrong way to go about business improvement. That’s because new and better products often replace existing ones. At the same time much needed skills may not be backed up by position descriptions and functional statements. And too often the pooling of parallel and similar operations is not considered when implementing an ASP solution. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Preliminary findings of our research show some conflicting stakeholders perceptions for a successful implementation of such a model. This not only leads to a better understanding of the ethical issues involved but also of the complex relation of these ethical issues with other technical, organizational, and social issues that need to be managed effectively.
Concerns As evidence relating the reality and basic features of the ASP market continues to grow, there begins to be less concern about confirming that any structural economic shift has continued historically, and more concern about understanding how the ASP industry is performing, and its impact on productivity, investment, corporate capital formation, labor force composition, and competition. The relationship between the traditional outsourcing and the “latest wave” e-sourcing on the one hand, and Internet investment productivity on the other, is at the centre of the IT strategic problem confronting corporate management in the 21st century.
Intelligent Enterprise Business Environment An intelligent enterprise exists within several environmental elements. These are the enterprises and individuals that exist outside the intelligent enterprise and have either a direct or indirect influence on its business activities. Considering intelligent enterprises are operating in different sectors, area of emphasis and with different policies and strategies, the environment of one enterprise is often not exactly the same as the environment of another. The business environment for intelligent enterprises includes the enterprise itself and everything else that affects its success, such as competitors, suppliers, customers, regulatory agencies, and demographic, social, and economic conditions. A properly implemented ASP business model would provide the means of fully connecting an intelligent enterprise to its environmental elements. As a strategic resource, ASP helps the flow of various resources from the elements to the enterprise and through the enterprise and back to the elements. Some of the more common resources that flow include information flow from customers, material flow to customers, money flow to shareholders, machine flow from suppliers, and personnel flow from competitors and workers’ union. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Looking at the environment of intelligent enterprises, one can see a generalized theory of enterprise’s perception (Little, 1999). The theory is sufficiently imaginatively motivated so that it is dealing with the real inner core of the ASP problem—with those basic relationships which hold in general, no matter what special form the actual case may take. An intelligent enterprise can succeed only by adapting itself to the demands of its external environment, which is often represented by a number of groups (formally called stakeholders) that affect the organization’s ability to achieve its objectives or those affected by it. Stakeholders other than participants and customers form another important part of the context. Stakeholders are people with a personal stake in an ASP system and its outputs even if they are neither its participants nor its customers. Permanent among such groups are customers, distributors, competitors, employees, suppliers, stockholders, venture capitals, trade associations, government regulators, and professional associations. An important role for the information systems is to keep the organization informed of the activities of all these stakeholders. Zwass (1988) describes an organization as an artificial system. He further defines an organization as a formal social unit devoted to the attainment of specific goals. With notification that a business enterprise, as a system, has to generate profit though it may also pursue other objectives, including employment provision, and contributing to its community generally. Zwass (1988) also restricts the value measurement of an artificial system to two major criteria: effectiveness (the extent to which a system achieves its objectives) and efficiency (the consumption of resources in producing given system outputs). Considering that intelligent enterprises compete in an information society, the requirements for successful competition depends on the environment. In the case of ASP, such environment presents several serious challenges, and the role of intelligent enterprises information systems has evolved over time as competing enterprises attempt to meet these challenges. Few enterprises have, however, identified opportunities for deploying strategic information systems that have proven success in the competition process by analyzing the forces acting in the marketplace and the chains of activities through which they deliver products and services to that marketplace.
Infrastructure Issues Infrastructure is the resources the system depends on and shares with other systems. Infrastructure is typically not under the control of the systems it serves Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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yet plays an essential role in those systems. For ASP the technical infrastructure typically includes computer hardware, telecommunication facilities, and appropriate software designed to run on the Internet. Examining infrastructure may reveal untapped opportunities to use available resources, but it may also reveal constraints limiting the changes that can occur. Evaluation of infrastructure is often difficult because the same infrastructure may support some applications excessively and others insufficiently. Drawing from Porter and Millar’s (1985) theory that “Information systems are strategic to the extent that they are used to support or enable different elements of a enterprise’s business strategy,” this chapter proposes a framework that IS in larger organizational systems may enable their effective operation or may be obstacles (Porter & Millar, 1985). In an earlier paper, we use the United Kingdom’s National Health Service’s system infrastructure and context as two distinct means of determining impact on larger systems (Guah & Currie, 2002). Infrastructure affects competition between businesses, geographic regions, and even nations. Inadequate infrastructure prevents business innovation and hurts intelligent enterprise efficiency. While every international businessman/ women can see that things have changed vastly in most of Africa and South America, the significance of infrastructure as a competitive enabler or obstacle has clearly not changed. That is because infrastructure consists of essential resources shared by many otherwise independent applications. A local region’s physical infrastructure includes its roads, public, transportation, power lines, sewers, and snow removal equipment. Its human and service infrastructure includes police, fire, hospital, and school personnel. A region’s physical and human infrastructure can be either an enabler or an obstacle and is therefore a central concern in many business decisions. The importance of certain IS infrastructure elements serve as a key motivation for the successful implementation of ASP. The required IS infrastructure raises a broad range of economic, social, and technical issues such as who should pay for infrastructure? Who should have access to/control over them and at cost? Which technology should it include? Where ASP is involved, the economic question often puts telephone companies against cable companies, both of whom can provide similar capabilities for major parts of the telecommunications system. From certain viewpoints, it can be considered the responsibilities of government to ensure a national IT infrastructure is available as a key motivation for the previously buzz words “information superhighway.” Just as local regions depend on the transportation and communication infrastructure, infrastructure issues are important for ASP implementation and
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operation. These systems are built using system development tools; their operation depends on computers and telecommunication networks and on the IS staff. Deficiencies in any element of the hardware, software or human and service infrastructure can cripple an information system. Conversely, a wellmanaged infrastructure with sufficient power makes it much easier to maximize business benefits from ASP. Inadequacy of Existing Infrastructure Most people would agree that motorways such as the M4, M6, and M1 together with railways up and down the country are a part of the UK’s transportation infrastructure. Transportation is vital to the economy; it makes the movement of goods and people possible. Economic infrastructure provides a foundation on which to build commerce. Is there a technology infrastructure? At the national level, there is a communications infrastructure in the form of networks that carry voice and data traffic. In recent years, the Internet has become an infrastructure that ties a wide variety of computers together. The Internet highlights the fact that an innovation which began as an experiment can mature to become part of the infrastructure. Infrastructure begins with the components of ASP, hardware, telecommunication networks, and software as the base. A human infrastructure of IS staff members work with these components to create a series of shared technology services. These services change gradually over time and address the key business processes of the intelligent enterprises. Noninfrastructure technology is represented by applications that change frequently to serve new strategies and opportunities (Weill, Broadbent, & Butler, 1996). It sounds in practice that much of the justification for infrastructure is based on faith. Weill (1993) did find one firm with a creative approach to paying for infrastructure. The company required careful cost-benefit analysis of each project. When this showed higher-than-necessary benefits, it was loaded with infrastructure costs to take up the slack. In essence, the company added in “infrastructure tax” to projects, not unlike airline ticket taxes to pay for airports. Infrastructure is vital, but investments in it are hard to justify if you expect an immediate return. The Singapore example presents the classic case for infrastructure; a small amount investment and guidance creates a facility on which many organizations can build. Networking in Singapore has the potential to transform the nature of commerce on the island and to help achieve the citystate’s goals for economic development. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Telecommunications: Facilitating ASP Emancipation Telecommunications is the electronic transmission of information over distances. In recent years this has become virtually inseparable from computer with a paired value that is vital for integrating enterprises. Most enterprises in the 21st century have access to some form of telecommunication network, which is simply an arrangement of computing and telecommunications resources for communication of information between distant locations. These enterprises are usually using one of two types of telecommunications networks which can be distinguished by their geographical scope: local area network (LAN) and wide area network (WAN). LAN is a privately owned network that interconnects processors, usually microcomputers, within a building or on a compound that includes several buildings. It provides for a high-speed communication within a limited area where users can share facilities connected to the network. On the other hand, WAN is a telecommunication network that covers a large geographical area which large businesses need to interconnect their distant computer systems. Computer networks differ in scope from relatively slow WAN to very fast LAN. There are several topologies and channel capacities responsible, which the objective of this chapter does not permit of a detailed exploration. ASPs use WAN as a fundamental infrastructure to employ a variety of equipment so that the expensive links may be used efficiently. The various equipments control the message transfers and make sharing the links among a number of transfers possible. An increasing number of ASP customers have user PCs that are connected to a LAN that communicate with the WAN via a gateway. In certain cases the ASP may offer common carriers and provide value-added service that can be combined with private networks to create an overall enterprise network. As an e-commerce phenomenon, a few of the essentials of an ASP infrastructure are common carriers, value-added networks, private line, and private networks. Common carriers are companies licensed, usually by a national government, to provide telecommunications services to the public, facilitating the transmission of voice and data messages. As most countries permit only one common carrier, the service can be broken down and leased as value-added networks to vendors who then provide telecommunication services to their own customers with added values that could be of various sophistication. For increased speed and security, an enterprise may not want to share with others and could take the option of leasing its own private lines or entire networks from Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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a carrier. It has been proven that leasing links can result in savings from highvolume point-to-point communications. The above are the apparatus through which an ASP uses telecommunications to give its customer the capability to move information rapidly between distant locations and to provide the ability for their employees, customers and suppliers to collaborate from anywhere, combined with the capability to bring processing power to the point of the application. As shown earlier in this chapter, all this offers an ASP customer the opportunities to restructure its business and to capture high competitive ground in the marketplace. Security Considering the ASP industry is riding on the back of Internet’s overnight success, the highly publicized security flaws have raised questions about ASP’s suitability to serve as a reliable tool for the promotion of intelligent enterprises for the 21st century. An ASP vendor could be forgiven for thinking the primary service to its customers is to provide connections between possibly millions of computers linked to thousands of computer networks. However, the prevention of unauthorized users who steal information during transmission, who sabotage computers on the network, or who even steal information stored in those computers are major parts of the vendor’s responsibilities. Exploiting this flaw might permit hackers to gain control of designated servers and then access or destroy information they contain. As long as these risks are not as far fetched as one might hope, customers would continue to be wary about the uptake of ASP business model (Currie, Desai, Khan, Wang, & Weerakkody, 2003). The many break-ins and other general security problems occurring with Internet/intranet demonstrate some of the risks of engaging in any form of business model linking to the Internet. Many ASP vendors have tried to reduce the danger using firewalls and encryptions, but such maneuvers not only reduce risk, but they also reduce the effectiveness of a networked environment. The IT community has generally accepted that effective use of encryption and firewall techniques could eliminate much of the risk related to unauthorized access and data theft. Does any mathematical encryption guarantee absolute security? No. Just as a physical lock cannot provide absolute safety, encryption cannot guarantee privacy—if a third party uses enough computers and enough time, they will be able to break the code and read the message. However, by choosing the
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encryption method carefully, designers can guarantee that the time required to break the code is so long that the security provided is sufficient. It is advisable that intelligent enterprises keep this principle in mind when thinking about Internet security. When someone asserts that an encryption scheme guarantees security, what he/she actually means is that although the code can be broken, the effort and time required is great. Thus, an encryption scheme that requires longer time to break than another scheme is said to be “more secure.” However, a good proportion of the SMEs surveyed did not appreciate that many ASP vendors have tried to reduce the danger using what is called firewalls—computers that intercept incoming transmissions and check them for dangerous content. Some fear that the mere process of downloading information across the Internet may entail hidden risks. As far as performance goes, some vendors are considering arrangements with national telecommunication giants for better data access facilities over WAN. The trend towards deregulating telecommunications must continue globally for data rates to become a much less important restriction in the future. Obstacles to a Commercial Future The powerful trend toward a networked society has many components, starting with the fact that use of online networks is exploding. Intelligent enterprises of the 21st century require tools that take advantage of the millions of people who have used computer networks for business and personal uses. These enterprises oomph on the fact that e-mails and electronic bulletin boards are not only commonplace in leading businesses but also used for purposes ranging from answering customer service inquiries to exchanging views about personal topics and politics. Reinforcing these trends, ASP vendors are building the network capabilities into their products for intelligent enterprises to see the Web services as an important turning point for commercial opportunities because it has made the Internet so much more accessible and adaptable for nontechnical business users. Many obstacles are currently apparent, however, when one looks at the possibility that ASP will become a motivational tool for intelligent enterprises in the 21st century and a major determinant for the future of Internet influence on the world’s population. The areas of concern, relate to organization, security, online performance, freedom and control, competition, and hype versus substance. The issue of
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organization is based on the way ASP has evolved. The ASP industry lacks the type of clear organization that would make it easy to use as a reliable and profitable business model. Although ASP vendors’ former capacity was daunting and strategy was unproven, the advent of Web services will make it far easier to comprehend and even adapt. Looking back at the Internet’s history, one sees many incidents that raise issues about freedom and control. Major Western nations (United States, UK, France, etc.) have either proposed or passed legislation related to criminal penalties for transmitting, accessing, or intercepting data of the Internet illegally. Although the Internet has been unregulated in the past, serious consideration of ASP-like business model could result in more legislation.
ASP as Competitive Investment The fundamental definition of what constitutes a mission-critical application remains relatively unchanged; it is those applications where even the smallest amount of downtime will have a significant negative impact on an enterprise’s operational efficiency and bottom line. But the nature of what intelligent enterprises now deem to be mission-critical systems has altered with a far greater range of applications. One way to interest a manager in a new innovation is to show that a competitor is planning to adopt this innovation. Intelligent enterprises do respond to competition to avoid being put at a disadvantage. Banks provide a good example of investment in technology for competitive reasons. In an early study of ATM deployment, Banker and Kauffman (1988) found that ATM adoption provided a limited advantage to certain banks. The findings suggest an early advantage from installing ATMs and joining a large network. Customers clearly like ATMs and the interconnections to the banking network it provides: there is very little reason for a bank not to join an ATM network. In fact, because competitors offer ATMs and are in networks, a new bank is almost forced to invest in this technology. In 2002, ATMs are certainly competitive necessities for banking. Some banks are closing expensive branches and installing ATMs instead. However, since all banks can follow this strategy, it is unlikely one will gain a significant advantage from it. The airline industry offers another example of IS as a competitive necessity. To start an airline in the 21st century—especially in the UK and United States, you would have to invest in some kind of ASP service for making a reservation. The
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travelling public has become accustomed to being able to make reservations and obtain tickets easily, either physical or electronic. Investments for strategy and to meet a competitive challenge may not actually benefit the enterprise making them. An enterprise may be forced, as in the two examples mentioned earlier, to adopt new technology to stay even with the competition. In this case, it is not so much return on investment in ASP, but rather what is the cost of not investing. Will an enterprise lose customers and market share because it does not have a particular technology in place? Can you enter a new line of business without investing in the technology that competitors have adopted? What kinds of services do customers expect? ASP Implementation Strategies The strategy one chooses for implementation has a direct impact on the level of investment required for an ASP initiative. One strategy is to hire external expertise; either to develop the entire application or to work with the internal IS staff. Consultants have been available for developing ASP investments since the first systems appeared. Consultants will provide advice, and many will actually undertake the development of the IT application. Carried to an extreme, the enterprise can outsource the development and even the operation of an ASP application. There are a number of network providers who offer complete xSP services (vertical, horizontal, pure play, etc.) and an enterprise might outsource its electronic data interchange efforts to them. The major advantage of using consultants and outsourcing is the availability of external expertise. ASP is so complex and difficult to implement that most intelligent enterprises include a budget for help from a consulting enterprise that has extensive experience with this package. When the enterprise enters into a consulting or outsourcing agreement for an ASP initiative, it should be aware of the need to manage its relationship with the supplier. Enterprises that have delegated the responsibility for developing a new ASP application to an outside enterprise generally have been unhappy with the results. Managers still have to monitor the agreement and work with the supplier. There are examples of many very elaborate management committees and structures established at enterprises such as Microsoft, UNISYS, and IBM to manage outsourced IS. Evidence within the past 3 years have shown that situation can develop in which large numbers of insurmountable problems arise with issues that, in an ASP vendor’s opinion, were going to cause lasting impediments to the ultimate
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systems implementation. Among several vendor options were these primary four: 1. 2. 3. 4.
Implemented the IS as best as they could within these constraints; Demonstrated unpalatable objection to the problem owners and set conditions for eventual completions of work; Strove to ignore the problems and created the system as if they did not exist; and Completely refused to continue work regardless of system phase.
While each of the above courses has quite a serious implication, the first option was most taken. Intelligent enterprises should determine the uptake of ASP based on their longterm IS plan and on requests for information systems by various stakeholder, that is, the prospective users, corporate management, internal IS team, customer, and supplier accessibility. It is not sufficient to implement ASP for the competitive edge the system may give the enterprise or the high payoff the system promises. The past phase of ASP has proven that not all systems that appear promising will produce sufficient business results to justify their acquisition. However, it is no surprise that certain intelligent enterprises still find it difficult to evaluate the worth of prospective new technology. Borrowing from Checkland’s Human Activity System (HAS) concept, an ASP vendor will have problems with certain stakeholders and surrounding issues (Checkland & Scholes, 1990): 1. 2.
3.
4.
Client: the system’s beneficiary can be difficult to identify due to the outsourcing nature of ASP business arrangements. Owner: the eventual system owner may be anywhere between the negotiating party to a fourth party somewhere and in some cases not able to participate in the original negotiations. Actor: these are often individuals and groups—of various types and with various needs—who are usually involved in the system are different stages. Objective: what the project is intended to achieve is highly dependent on the process and it can often be different for various users and stakeholders.
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5. 6.
Environment: the situation in which the system will be developed and implemented grossly affects the final outcome of the process. Expectation: there are often as many assumptions of a project as the number of times it is discussed. More important, these assumptions tend to change as one goes through various stages of the system development and implementation.
The issue here is not just one of investment; it also involves learning and time. There is a learning curve, sometime quite steep, with new technology. If the enterprise has not developed a modern infrastructure over time, it will have to invest more for a new ASP initiative because of the need to build infrastructure. It will also have a longer development time as the IS staff learns about this infrastructure and develops the new applications that require it.
Problem, Solution, or Opportunity? One stimulus for ASP solution implementation is its intention to transform the enterprise. In this light, the investment in ASP is part of a larger change programme that is meant to enable intelligent enterprises’ virtual and multipleteam structures. The resulted contributions can be described as part of the outcome of a general change effort. Change is also an opportunity. For most of the companies involved in our research, management decided on a desired organization structure and used IT investments to help create it. Managers planned for change and welcomed it as an opportunity to make the entire organization function better. Change is always a threat, as staffs are forced to alter behavior that has probably been successful until now. However, as shown in some of the examples in this book, change is also an opportunity to reshape intelligent enterprise and make them more competitive. The push towards greater connectivity is a major factor driving ASP investments in the 21st century. The UK’s Department of Trade and Industry (DTI) has encouraged (some would say mandated) a certain level of EDI compliance for companies that wish to do business with it. Industry associations encourage companies to communicate electronically. Efficient customer response, EDI, just-in-time, continuous replenishment programs, and the Internet are all examples of different kinds of electronic connectivity.
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For the successful implementation of ASP in the 21st century, organizations must maintain a socio-technical perspective, thereby avoiding the purely technological approach to achieving higher productivity. Rather balancing this act with the consideration of social and human aspects of technology brings the added value of creating a workplace that will provide job satisfaction. Such information systems must be designed to fit the needs of its users and the organization at large and be capable of evolving as these needs invariably change. Such ethical considerations of information systems have moved into the forefront as information systems have become pervasive in modern businesses. Ethics, for the most part, involve making decisions about right and wrong and not necessarily about possible and impossible and remotely relates to production increase or decrease. The major ethical issues that have been noticed to be affecting intelligent enterprises information systems in the 21st century can be summarized into privacy, accuracy, property, and access. In an effort to modernize every challenging intelligent enterprise in the 21st century seems to be jumping on the ASP bandwagon. There comes a point when the industry analysts should implement the critical success factor (CSF). The CSF methodology—developed by John Rockart of the Massachusetts Institute of Technology—is defined as those few critical areas where things must go right for the business to flourish—derives organizational information requirements from the key information needs of the individual executives or managers. CSF methodology is oriented toward supporting an enterprise’s strategic direction. By combining the CSFs of these managers, one can obtain factors critical to the success of the entire enterprise. Such an approach has been proven to be useful in controlling quality of the information system in certain vertical sectors (Bergeron & Bégin, 1989). Effects of ASP on IS Departmental Staff Employee involvement is an employee’s active participation in performing work and improving business process (Alter, 1996). The old-fashioned view of employee involvement—employee following the employer’s instruction in return for a wage—encourages employees to be passive, take little initiative, and often view themselves as adversaries of the enterprise and its management. In contrast, truly involved employees feel a responsibility to improve their work practices with the help of managers and others in the enterprise. ASP can directly affect employee involvement. ASP can generally be deployed in ways that increase or decrease employee involvement in their work. An ASP Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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business model that provides information and tools for employees increases involvement because they reinforce the employee’s authority and responsibility for work. On the other hand, an ASP business model that provides information to managers or quality inspectors but not their employees can reduce involvement by reinforcing the suspicion that the employee is not really responsible. The human and service side of the infrastructure in intelligent enterprises often gets short shrift in discussions of new systems or system enhancements. Business professionals are often surprised at the amount of effort and expense absorbed by the human infrastructure. The tendency towards organizational decentralization and outsourcing of many system-related functions makes it even more important to include human infrastructure in the analysis of new systems. Human Factors in ASP Technologies Development The rapid rate of development of these technological miracles, as they would have been viewed from an earlier age, has created a momentum of its own, and it is not surprising that concomitant concerns have also developed about the impact and influence of ASP on human society. The shrinking of time and space enabled by ASP has benefits in terms of task efficiency and wider capability for communication, but it is less obvious that ease of management or even stress at work are improved at a deeper level (Markus, 1983). The above discussion should not be taken to imply that ASP models determine the direction of intelligent enterprise management. The development and the use of an ASP solution is within management control and there is no inevitable future path. However, it can be argued that the quantity and quality of debate about the human and societal impact of computers and related technology has not matched that rate of development of the technologies themselves (Walsham, 1993). For example, the debate concerning ASP and its Web services in intelligent enterprises largely centres on questions of strategic importance and value for money rather than deeper issues of human job satisfaction and quality of life. While the mechanistic view of enterprise formed the early foundation of an intelligent enterprise management, the image of enterprises as organisms has arguably been the most influential metaphor for management practice over the last few decades. The corporeal view sees intelligent enterprises as analogous to living systems, existing in a wider environment on which they depend for the
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satisfaction of various needs. The origins of this approach can be traced back to the work of Maslow (1943), which demonstrated the importance of social needs and human factors in work activities and enterprises effectiveness. It then emphasized that management must concern itself with personal growth and development of its employees rather than confining itself to the lower-level needs of money and security. With respect to social relations as considered in Web models, it is important to note that participants include users, system developers, senior management of the company, and any other individuals or groups who are affected by the ASP business model. Kling (1987) notes that computing developments will be attractive to some enterprise participants because they provide leverage such as increasing control, speed, and discretion over work, or in increasing their bargaining capabilities. Fear of losing control or bargaining leverage will lead some participants to oppose particular computing arrangements, and to propose alternatives that better serve their interests. It could be said that the above comprises the analysis of what Checkland (1983) defines as the HAS. HAS can be seen as a view on the social, cultural, ethical, and technical situation of the organization. Both models deal with one old problem that continues to trouble information systems today. That is, thinking about the means by which to deal with the two aspects of any new system (human beings and technology) and how they can best communicate with each other. As it relates to ASP, the industry must bring together the right mix of social (human resources) and the technical (information technology and other technology) requirements. Here is where the key hardware and identified human alternatives, costs, availability, and constraints are married together. A synopsis of an IS problem usually appears chaotic and incomprehensible. An example is the NHS IS strategy as of December 2001 (Guah & Currie, 2002). The use of a problem framework will not only show the essence of a view of the problem context but also demonstrate that getting the context and meaning of the problem right is more important than presentation. The primary tasks should reflect the most central elements of what is often called “problem setting.” ASP vendors should demonstrate, when reviewing a given situation, that any incoming IS is intended to support, develop, and execute primary tasks originally performed by humans. They should be aware of issues that are matters of dispute that can have a deleterious affect upon primary tasks. In terms of the IS, the issues are often much more important than the tasks. Considering it is not possible to resolve all issues with any given technology, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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they should always be understood and recognized. That is because reality really is complex, so the ASP industry should never approach a problem situation with a conceited or inflated view of its own capacity. Not all problems can be mapped, discussed, and designed away. Often the ASP industry will be required to develop a form of amnesia towards certain problems that are either imponderable or too political, in terms of the organization or business (Guah & Currie, 2002). A detailed understanding of the above will help in providing a reasonable answer to certain essential questions that are necessary for an ASP to satisfactorily produce working solutions for its customers. A few of the general questions are who is doing what, for whom, and to what end? In what environment is the new system to be implemented? To whom is the final system going to be answerable? What gaps will any addition to the old system fill within the new system? Socio-Technical Issues An intelligent enterprise normally has separate objectives when looking at IS in terms of social and technical requirements. While the social objectives refer to the expectations of major stakeholders (i.e., employees), the technical objectives refer to capacity of the organization as a whole to react to key issues. Because the social objectives of an ASP solution can broadly be seen as the expectations of the system in terms of the human beings who are going to be working with it, they will vary from one project/contract to another. As they are often undervalued, management does not tend to feel that the social needs of a system are as critical for system development as technical issues. They may involve different ways of organizing individuals to undertake the work required for the system, simultaneously achieving the authoritative influence. The technical objectives are the primary tasks one hopes that the system will need to undertake and would therefore need to be very specific. It is important that ASP vendors indicate to their customers the depth of detail it needs to go into.
Selecting Information Systems ASP solutions come in various forms. Ideally, selecting among the alternatives should be based on clearly stated decision criteria that help resolve trade-offs Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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and ASP uncertainties in light of practical constraints and implementation capabilities. The trade-offs for intelligent enterprises include things such as conflicting needs of different business processes, conflicts between technical purity and business requirements, and choices between performance and price. The uncertainties include uncertainty about the direction of future technology and about what is best for the enterprise. Implementation decisions are almost never made by formula because so many different considerations do not fit well into understandable formulas. Although these ideas provide some guidance and eliminate some options, there is no ideal formula for deciding which solution and capabilities to invest in. Many IS departments could double and still not have enough people to do all the work users would like. In practice, many IS departments allocate a percentage of their available time to different project categories, such as enhancements, major new systems, and user support. But with each category, they still need to decide which systems to work on and what capabilities to provide. Costbenefit may help with these decisions. Cost-benefit analysis is the process of evaluating proposed systems by comparing estimated benefits and costs (Alter, 1996). While the idea of comparing estimated benefits with estimated costs may sound logical, there are several limitations in terms of ASP business model. One could see the appropriateness when the solution’s purpose is to improve efficiency. But where the system is meant to provide management information, transform an enterprise, or even to upgrade the IS infrastructure, it becomes terribly difficult to predict either the benefits or the costs of the solution. Considering costbenefit analyses are usually done to justify someone’s request for resources, the numbers in a cost-benefit study may be biased and may ignore or understate foreseeable solution risks (Alter, 1996). Key issues for cost-benefit analysis include the difference between tangible and intangible benefits, the tendency to underestimate costs, and the effect of the timing of costs and benefits.
Agent-Based Approach to ASP Most of the ASP applications, mentioned in this chapter, automate some aspect of the procurement processes, thereby helping decision makers and administration staff to complete their purchasing activity. An agent-based approach to ASP is well equipped to address the challenges of multimarket package to eprocurement. This section of the chapter is devoted to looking at the goal-
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driven autonomous agents which aim to satisfy user requirements and preferences while being flexible enough to deal with the diversity of semantics amongst markets, suppliers, service providers, and so forth. Service agents within the ASP model are the system’s gateway to external sources of goods and services. These agents are usually aware of the source’s market model and of the protocols it uses (Zhang, Lesser, Horling, Raja, & Wagner, 2000). Service agents are not only able to determine which requests it can service, but also proactively reads these requests and tries to find an acceptable solution. Agent technology has been widely adopted in the artificial intelligence and computer science communities. An agent is a computational system that operates autonomously, communicates asynchronously, and runs dynamically on different processes in different machines, which support the anonymous interoperation of agents. These qualities make agents useful for solving issues in information-intensive e-business, including speaking ontology, advertising, service exchange, knowledge discovery, and so forth. In the ASP industry, the interoperation and coordination across distributed services is very important. The desire for more cost efficiency and less suboptimal business processes also drives the employment of agent technology in the ASP business model. This has resulted to the support of agent technology, more ASP agents seem to be appearing on the Internet providing e-services as well as exchanging information and goods with other agents. The interoperation of ASP agents leads to the formation of the e-Business Mall, which is an interaction space of agent communities under various business domains. As indicated in this chapter and elsewhere in this book, the significant problems in the ASP business model are the information deficiency and asymmetry between the business participants. It is also difficult for each participant to exchange information products and services in an efficient manner, and to partner in an intelligent enterprise. The social nature of knowledge sharing— especially critical business knowledge—carries high complexity. The capability advertisement and knowledge discovery, upon which agent-based approach to ASP depends, can only be achieved by message interaction among dynamic processes. Knowledge or service relevance is one basis for such approach to be introduced to real-life business procedure and service contracting in the 21st century by intelligent enterprises.
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Tangible and Intangible Benefits Benefits are often classified as either tangible or intangible. The tangible benefits of ASP solution can be measured directly to evaluate system performance. Examples include reduction in the time per phone call, improvement in response time, reduction in the amount of disk storage used, and reduction in the error rate. Notice that tangible benefits may or may not be measured in monetary terms. However, using a cost-benefit framework for ASP solution requires translating performance improvements into monetary terms so that benefits and costs can be compared. Intangible benefits affect performance but are difficult to measure because they refer to comparatively vague concepts. A few of the intangible benefits of a solution are: • • • • • • •
Better coordination Better supervision Better morale Better information for decision making Ability to evaluate more alternatives Ability to respond quickly to unexpected situations Organizational learning
Although these goals are worthwhile, it is often difficult to measure how well they have been accomplished. Even if it is possible to measure intangible benefits, it is difficult to express them in monetary terms that can be compared with costs. All too often, project costs are tangible and benefits are intangible. Although hard to quantify, intangible benefits are important and should not be ignored. Many of the benefits of IS are intangible.
The Law of Confidence The law of confidence protects information. Unlike copyright and patent law, the law of confidence is not defined by statute or derives almost entirely from class law. The scope of this branch of intellectual property is considerable and Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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it protects trade secrets, business know-how and information such as lists of clients and contacts, information of a personal nature, and even ideas that have not yet been expressed in a tangible form (Bainbridge, 2000). A typical example would be an idea for a new software program. The contents of many databases owned by intelligent enterprises will be protected by the law of confidence. However, the major limitation is that the information concerned must be of a confidential nature and the effectiveness of the law of confidence is largely or completely destroyed if the information concerned falls into the public domain; that is, if it becomes available to the public at large or becomes common knowledge to a particular group of the public such as computer software companies. Nevertheless, the law of confidence can be a useful supplement for intelligent enterprises to copyright and patent law as it can protect ideas before they are sufficiently developed to attract copyright protection or to enable an application for a patent to be made. Being rooted in equity, the law of confidence is very flexible and has proved capable of taking new technological developments in its stride.
Recommendations Blurring In-House IT and ASP Services One impact of the ASP industry on business is the blurring of the old boundaries in IT services between in-house and ASP vendors. In the traditional view, services are merely an add-on to the in-house sector—they are by definition at least, “nonproductive.” In ASP, services either support the growth and survival of the in-house IT department, or they are perceived as socially desirable but not economically essential. Thus, IT consultancy services are important support services for short-term strategies, while “pay as you go” is perhaps nice for business but not essential to the survival of ASP industry. At the centre of the ASP industry and critical to its wealth-producing capacity is the need for partnership, around which ancillary services revolve. What is commonly overlooked in this view is, first, the notion that the relationship between in-house and ASP is one of interdependence, not dependence. And second, that the categories of ASP and in-house are not distinct and isolated domains, but represent two sides of a continuum. Thus, contrary to the traditional view, in ASP the growth of services helps support the growth Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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of in-house. As the industry evolves and becomes more complex, the need for new services and specialization in the division of labor continues to increase. Inhouse migrates into strategic management and monitoring of IT standard while ASP migrates into value-added services so that “business IT becomes a service in a package form.” As the boundaries between in-house and ASP become more blurred through the use of improved communications technologies, the opportunities for entrepreneurs continue to increase.
Entrepreneurial Opportunities As the ASP industry matures, a premium is placed on ideas and strategic use of data flow technology for new business development, rather than on economics of scale or cost displacement alone. The entrepreneur, therefore, becomes the primary user of new technology and ideas for strategic advantage. As a premium is placed on innovative ideas, small businesses acquire an advantage in being flexible enough to evolve new products and services. Moreover, as such innovation precedes, the role of small business as source of employment continues to increase in significance, particularly in the ASP-like partnerships. Inevitably, even large corporations (e.g., IBM and most major players) in the ASP industry, are providing opportunities for corporate entrepreneurs to test new ideas under conditions where “normal” corporate constraints on risktaking and new investments in internal ideas are relaxed. Corporations as large as IBM are providing opportunities for entrepreneurs to flourish internally. The term “intrapreneur” has been coined to describe this internal entrepreneur. When technological innovation is the main force leading to lower costs, the firm’s ability to create a competitive advantage depends on its technological skills. Technological innovations often bring costs down—sometimes significantly—thus making the cost reduction solely attributable to economies of scale seems comparatively minor. The enterprises responsible for these innovations draw a significant competitive advantage from them in terms of cost, notably when they succeed in maintaining an exclusive right upon them for a long period. Vendors can only benefit from experience through sustained effort, efficient management, and constant monitoring of costs (Dussauge, Hart, & Ramanantsoa, 1994).
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Web Services and New-Game Strategy An ASP may deploy one or more of Porter’s classic theories of competitive strategies: differentiation, cost leadership, focused differentiation, or cost (Porter, 1985). The use of such competitive tactics may include internal growth or innovation, mergers or acquisitions, or strategic alliances with other enterprises or members of the same group of enterprises. However, most enterprises elect to use the new-game strategy which can be defined as a deliberate attempt to modify the forces shaping competition and the definition of the business by particular competitors (Buaron, 1981). Let us take Microsoft and Oracle, both big players in the ASP industry. The difference between spontaneous change in their competitive environments and new-game strategies has less to do with the objective characteristics of the ASP phenomenon than with their individual attitudes with respect to ASP phenomenon. In the first case, changes are seen as external to them, requiring adaptation. In the second case, however, certain initiatives by them are responsible for some changes in the industry and they have therefore deliberately based their strategy on them. Such strategies alter the pace of the change, generally making it more rapid and direct the focus of change in ways that will best benefit the innovating enterprise(s). Web services technology is one of the most important foundations for ASP new-game strategies. Thus, by accelerating the pace of Web services in the industry, a competitor with good capability in the technology reinforces its own competitive position. There are numerous papers warning that such accelerated Web service evolution increases the difficulty that other competitors have in adapting to ASP (Gottschalk, Graham, Kreger, & Snell, 2002; Hondo, Nagaratnam, & Nadalin, 2002; The Stencil Group, 2002; Wilkes, 2002). By modifying the nature and the relative importance of the key factors for success in the ASP industry, Web service technological changes that are introduced by one or more of the vendors can lead to favorable changes in the competitive environment. In an industry built upon high volume, new technologies that are introduced by some of the competitors that nullify or minimize the impact of scale can significantly alter the nature of the competitive environment by making size a drawback rather than an advantage. Thus, referring back to the example of ASP content distribution, these innovations were driven by the actions of a few relatively small competitors, Microsoft and IBM. The changes that occurred in the competitive environment were thus the result of new-game strategies designed to change the rules of competition to their advantage: under the new rules, it was no longer a disadvantage to be a small producer. The
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competitive impact of such strategies is especially strong when the other competitors cannot use the same type of technology because it is not easily available, for lack of training, or for financial reasons. During the period when an enterprise controls an exclusive technology, it can easily recoup its investment through high prices; but by the time this technology becomes more widely dispersed, prices tend to fall dramatically with the advent of new entrants. These investments are a significant entry barrier to competitors. However, the enterprise still manages to retain dominant position and good level of profitability in business, since it had recouped its initial investment many times over.
Dynamics Competitiveness Though the big vendors’ strategy depends on several factors, it is not etched in stone; rather, it will vary with the changes in the industry’s key factors for success and the relative advantage that its technology represents. Two types of competitive behavior with respect to technology can be observed: •
•
Switching from a differentiation strategy based on a technological advantage to a cost leadership strategy based on scale, accumulated experience, and a dominant market position; and Constant effort to innovate and improve technology, thereby maintaining a dynamic competitive advantage.
Oracle’s relative success so far can prove that firms displaying the first type of strategic behavior are generally those that have been able to attain a dominant position because of exclusive technology. As their technology becomes diffused over time, however, they tend to resort to competitive advantage based upon their accumulated experience, good reputation, and distribution network. The second type of strategic behavior for vendors confronted with the erosion of their technology-based competitive advantage is a sustained effort to improve or even “reinvent” their technology; rather than “milking” their initial technological advantage, such firms choose to create a new competitive advantage through technological innovation. A vital difference between the ASP model and traditional system life cycle is that error in this initial phase may not proof fatal. That is because the model Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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supports a smooth and easily controlled change method even after it goes into operation, mainly due to its third-party controlling nature. ASP Becomes a Part of Strategy It is easy to focus on individual ASP investments rather than their cumulative impact. Intelligent enterprises budget for individual applications of technology and the IS staff works on a project basis. For some intelligent enterprises, the combination of all its individual investments in technology far exceeds their individual impact. A good example is SAP. Here, continued investments in ASP changed the software provision industry and SAP’s own view of its fundamental business. By becoming a necessity ASP may not create much benefit for intelligent enterprises that invest in it, except that ASP allows the enterprise to continue in a line of business. Who does benefit from investments of this type? The cynical answer might be the vendors of various kinds of ASP product and service. However, a better response is that customers benefit from better quality goods and services, and especially better customer service. Looking at our two earlier examples, customers are much better off with the presence of ATM and CRS. An ATM is convenient and allows one to access cash without presenting a check at his or her own bank. With an ATM, you do not have to worry about a foreign bank accepting your check; from ATMs around the world you can withdraw cash. While airlines have certainly benefited from computerised reservations systems, so have customers. You can use a CRS to compare flights, times, ticket prices, and even on-time statistics for each flight. A consumer can make a reservation on a flight and complete the transaction over the telephone or the Internet. Economists talk about a concept called “consumer surplus.” How does consumer surplus relate to investments in strategic and competitive information technology? From a theoretical standpoint, consumer surplus increases as prices drop. The competitive use of ASP reduces costs and prices through applications like those in banking and airlines. The competitive use of ASP has, in many instances, reduced prices (or held down price increases), which contributes directly to consumer surplus. Technological competition may not always create an economic consumer surplus, but it does provide benefits in the form of service and convenience. A bank ATM can save time for the customer, something the customer may be able to value from a dollar/pound
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standpoint. The fact that two firms (IBM and Microsoft) had a similar Web service launched within few months of each other means that the technology was not able to deliver a sustainable advantage from its investment. Neither was able to raise its prices directly to pay for their Web services, so the benefits from their investments in ASP all went to the customers. While the strategies of ASP vendors can thus change over time, a clear strategic direction is indispensable to success. In addition, the transition from one strategy to another is a very difficult and risky undertaking, since it requires a complete reorientation of the vendors’ efforts and radically different patterns of resource allocation. As we have seen, technology is often a major factor behind both differentiation and cost leadership strategies. It is also a critical factor in “new-game” strategies.
Future Trends What remains unclear in the early part of the 21st century concerning the linkage between Internet investment production and the ASP market is the extent to which the rate of ASP-like services productivity will continue to rise in the face of slower advances in Internet stock market. According to Forester Research the proportion of ASP business in the outsourcing market peaked at about $800 m in 2000 and was projecting for $25 bn by 2005. However, it actually declined by the year 2001 (due partly to the effect of stock market collapse) and currently being projected at $15 billion by 2006. The overall business interests in the ASP model will continue to rise with proportionally higher rates of investment by vendors versus traditional outsourcing. We attribute this optimistic forecast to four trends: 1. 2. 3. 4.
Continuing improvements in capabilities and cost-performance characteristics of remote support services by vendors; Improvements in capabilities and cost-performance characteristics of the technology at the system or application level; Continual development of the telecommunications infrastructure to support ASP performance; and Gradual reduction of institutional and social barriers to the introduction of ASP model as a viable business strategy.
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Web Services In the seemingly fast-paced world of the 21st century, change is the only constant and therefore event horizons are immediate. Considering that intelligent enterprises cannot predict what they will need or how they will act in a year’s time. Web services are enterprise current tools best suited with the ability to bridge the multiplicity and complexity of existing IT infrastructures. Such usefulness of ASP to an intelligent enterprise is as important as any other in the 21st-century collaborative business environment. Web services are selfcontained, modular business process applications that Web users or Webconnected programs can access over a network—usually by standardized XML-based interface—and in a platform-independent and language-neutral way. This makes it possible to build bridges between systems that otherwise would require extensive development efforts. Such services are designed to be published, discovered, and invoked dynamically in a distributed computing environment. By facilitating real-time programmatic interaction between applications over the Internet, Web services may allow companies to exchange information more easily in addition to other offerings like leverage information resources, and integrate business processes. Users can access some Web services through a peer-to-peer arrangement rather than by going to a central server. Through Web services, systems can advertise the presence of business processes, information, or tasks to be consumed by other systems. Web services can be delivered to any customer device and can be created or transformed from existing applications. More importantly, Web services use repositories of services that can be searched to locate the desired function so as to create a dynamic value chain. The future of Web services go beyond software components, because they can describe their own functionality as well as look for and dynamically interact with other Web services. They provide a means for different organizations to connect their applications with one another so as to conduct dynamic ASP across a network, no matter what their applications, design, or run-time environment. Web services represent a significant new phase in the evolution of software development and is unsurprisingly attracting a great deal of media and industry hype. Like almost all new Internet-related technologies, the immediate opportunities have been overstated, although we believe the eventual impact could be huge. This can be demonstrated by the immediate and key role of Web services which is to provide paradigm shift in the way business manages IT infrastructure. It provides intelligent enterprises with the capability of overturning the Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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accepted norms of integration and thereby allowing all businesses to rapidly and effectively leverage the existing IT and information assets at their disposal. Intelligent enterprises currently running an outsourcing service are already seen to be one of the early gainers of the Web service revolution. However, there will be others as enterprises discover the hidden value of their intellectual assets. Considering most enterprises have until now used the Internet to improve access to existing systems, information and services, we envisage the days when Web services promise new and innovative services that are currently impossible or prohibitively expensive to deploy. With such developments anticipated to promote the ASP business model, Web services integration is considered to be at the heart of this expectation. Through this process of connecting businesses, ASP will be able to quickly capitalise on new opportunities by combining assets from a variety of disparate systems, creating and exposing them as Web services for the end-game of fulfilling customer expectations. It is our view that any intelligent enterprise considering ASP business model should at least investigate the potential impact of Web services integration as this will sooner or later become another permanent business necessity and not a competitive advantage material. Those intelligent enterprises that have adopted our suggested approach will not only gain advantage now in business for lower costs and better return on assets, but are also expected to develop valuable experience for the first decade of the 21st century. Considering Internet’s history, as Web services becomes the standard and the expertise of ASP become more established, it should become the norm.
Future Analysis It does not make sense to emphasize the social and technical resources and constraints of a new industry (e.g., ASP) without thinking about the future of the resulting information system. While no one can say, with any degree of certainty, what the future holds, it is always possible to speculate on the nature of changes. Such consideration of future conditions usually helps to avoid some of the problems identified during the early stages of IS analysis. Land (1987), in his study of future environments and conditions, came up with a theory of “future analysis.” Here are four areas of our concern from Land’s future analysis theory:
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1.
Prediction of possible changes: This area looks at the kinds of changes that are possible, that is, technological, legal, political, or economic. It requires the investigation of context and situation of the organization in which the work is being done. Other items needed to help with this investigation include structure plans and prediction of mid-term development of the institution that could be medium plan. This is meant to devise an appropriate system analysis stage of the development process, thereby giving some idea of the type of expansion, contraction, and change that will occur and which the incoming system will have to deal with.
2.
Likely outcome of system: Here, one takes a peep into the future assuming the likely effects of an improved information system. There are certainly all kinds of disruptive and constructive events that may be related to the development of a new system. Few of the most pertinent ones with regards to ASP implementation are staff redundancy, change of loyalty of existing IS staffs, new reporting procedures, and so forth. Features susceptible to change: This looks at the features of the proposed system that are more susceptible to change. Questions such as where would one expect the new system to change first and whether this can be planned for, come into play here. Other issues involved here are if certain data would need to be collected or some existing collection procedures would need to change, and even if some existing sections or divisions would continue to maintain their structures. Horizon of the system: One would look at the extent and horizon of the system. It is at this stage that an ASP would begin to think in terms of the long-term view. While we admit this is obviously guesswork, it gives one a sense of humility in the initial design and requires an ASP vendor to speculate as to how what is being planed today may be the building block for further developments into the long-term future.
3.
4.
The pursuit of technical efficiency in the operation of various complex technologies required by ASP to operate in the 21st century will continue to require skilful management of these technologies, and the technical personnel needed to operate and maintain the tools. An intelligent enterprise activity will largely be concerned with managing the technical attributes of ASP tools and not with the management of the use and intellectual content of the information and knowledge. While such management will focus on internal operations, and largely a middle-management and professional-staff function, that stage of information-management development will continue to expand as more comCopyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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plex technologies (i.e., Web services) are introduced in intelligent enterprises. It can be argued that an enterprise could well rest at a plateau where cost savings are usually quite significant, but such enterprise will soon encounter unanticipated difficulties because of organizational and operational problems. One of such is usually the fact that integrating the ASP technologies often demands new structures and functions that many businesses are not prepared to assume. If the use of ASP, as a converging technology is to be effective, much more emphasis will need to be placed on business management of information resources and management personnel who will define and direct the use of these assets and resources in the organization. Even more pressing are the pressures for change in adopting a more management-oriented view of this domain that are arising from various stakeholders (both internal and external) who are beginning to recognize the enormous potential for profitability and productivity embedded in the emerging products and services of the ASP industry.
Conclusion We can safely conclude that policy makers in all fields, not just in IS, are forced into ill-considered conclusions and recommendations because they still view their management strategies in pre-Internet terms. Moreover, they are still constrained by statistical calculations based on outmoded and obsolete classification approaches, as well as on invalid assumptions about the fundamental sources of profit and capital formation. Recent evidence shows that European business continues to lose important sectors of the economy to international competition because senior managers have been slow to modify and rethink business strategy and management in the post-Net-era versus pre-Net-era. Seen in this light, the emergence of ASP business model has had and will continue to have pronounced impacts on business management and strategy. Through the skilful use of new “intellectual technology” such as more efficient broadband utility, better and more integrated system, automated reporting processes, combined with new uses of computers, wireless technology, and computer numerical control devices, the productivity of research and development (R&D) in business strategy is changing in the ASP industry. Any argument that the ASP industry is in decline seriously misreads the nature of the Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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transformations occurring. Indeed, rather than wringing one’s hands about the demise of the ASP industry, it is more appropriate to perceive that the ASP industry is leading to a more mature stage of business model development using new ideas and new technologies as critical factors of service provision. IS staff members are important stakeholders in most ASP solutions since they are responsible for system operation and enhancement. As professionals in the field, they have a deeper understanding than business professionals about what it takes to build and maintain a solid ASP solution. They also have a clearer view of the technical relationships between different systems and of policies and practices related to systems. Business professionals in intelligent enterprises should not ignore the technical infrastructure and context issues identified above; rather they should also realize that IS staff are usually much more aware of the technical structure and rationale in both areas. While “the more the merrier” almost always applies for some characteristics of ASP solution such as customer satisfaction and information quality, the right levels of many other characteristics such as capacity, security, and flexibility should be a compromise between problems of excess and problems of deficiency. There are often instances when too much capacity means less could have been spent, whereas too little capacity limits departmental process output. Likewise, too much consistency may mean IS departmental staff cannot use their creativity to respond to changes, whereas too little makes the business process inefficient and the results chaotic. The pressure of new business environment in the 21st century has resulted in time-based competition. Such competition takes place where those first to market have a chance to preempt the competition. This does not only mean developing a new product faster than your competitors, but it also requires the associated delivery mechanism: first to give a quote on the product price, first to develop an agile manufacturing system to instantaneously move the assembly line to a different product, or first to deliver the product to the customer. ASP is one of the main sources of competitive advantage for intelligent enterprises in the 21st century. It can lower costs through scale or experience. ASP can also contribute to the differentiation of the organization’s products or services, becoming the foundation of a differentiation strategy enabling the firm to avoid direct price competition. Lastly, ASP technological change plays a crucial role in new-game strategies where firms deliberately change the rules to their advantage by modifying the forces shaping competition in the industry. ASP plays a significant role in strategy making, and selection of technologies by the intelligent enterprise is a task which must be done with great care. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Another noticeable reason for implementing ASP solution is oriented to the business objective of gaining competitive advantage in business unit and corporate strategy and not exclusively to cost-effective management of information resources and technologies. The primary focus here is on business-unit strategy and direction, and on integrating the business unit’s external and internal environments. An important factor to be considered is the quality of the intelligence analysis and information collection and processing performed by managers and staff rather than on the use of the information tools. Infrastructure is something that an intelligent enterprise needs. An investment in ASP infrastructure is an investment for the future; it provides the resources needed to take advantage of future opportunities. A substantial portion of an intelligent enterprise’s ASP budget may be devoted to infrastructure, which means that it will be difficult to show a return on this investment. The Internet represents a major infrastructure that is available to individuals, businesses, and governments around the world. The Department of Defence and the National Science Foundation subsidized the development of this network; currently users of the Net finance it. It is doubtful that one could obtain the date, or evaluate the pound value of the impact of the Net, to do a returnon-investment calculation for this investment. It seems clear that the Internet has provided many different kinds of value to its users, which is what one hopes for in making infrastructure investments. Two key points of this chapter are that not all investments in ASP should be expected to show a measurable return, and investments can have value to an intelligent enterprise even without demonstrable financial return. In many organizations, there seems to be a strong belief that every investment is made with the expectation of a positive return. Obtaining value from IS is important for intelligent enterprises to survive and flourish in the highly competitive economy of the 21st century. Many of us believe that the information system holds the key to success as companies develop systems that provide them with a competitive advantage. IS also lets managers create dynamic, new organization structures to compete more effectively. Intelligent enterprises that create value through information systems will be the winners in the 21st century. Of course, it is not always the case that the consumer is the only winner from strategic investments in ASP. We have seen that the airline CRS vendors gained significant direct and indirect revenue from deploying their systems to travel agents. It is also possible that a strategic application can result in greater sale
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for an entire industry. It will be interesting to see if ASP increases sales for the telecommunications infrastructure providers industries that participate in it by making it easier for consumers to order their products and services. Value can be said to have many different definitions when looking at ASP investments, which are not always easy to estimate or measure. Such a complex investment problem means that managers have to gather information and consider a variety of factors in making their decisions about allocating resources to ASP initiatives. Upon making the decision to allocate, they have to monitor carefully the conversion of the investment into an ASP solution, as creating value is a major challenge that requires significant management effort and attention. It is important for an intelligent enterprise to have a strategy, plan, and vision for ASP solution. The downturn of the first phase has clearly shown, in some cases, that businesses overall strategy were more important in deciding to implement an ASP solution than was the economic analysis for the investment. It would seem unethical to provide a formula for combining all the criteria mentioned in this chapter to come up with a decision to implement an ASP solution. Readers would notice some of the issues touched on are quantitative while others are qualitative. Organizations that came through ASP first phase somehow successfully, made wise decisions about investments in ASP implementation. Managers in these businesses view ASP solution as an asset and believe that their ASP investments produce value for the organization. Not only can you see that they had strategy and vision for the technology but also that they are actively managing their ASP solution. The resulting effect is they do not sit around and look for value from ASP solution; rather, they create value from ASP solution. We hope this chapter has presented sufficient evidence to establish the following: 1. 2.
3.
There is value from investing in ASP. Each type of investment has a potentially different opportunity for a payoff, and for some applications, we may not be able to show a quantitative return. The process of moving from the investment to an actual IT initiative is filtered by conversion effectiveness; there have been widely varying degrees of success in developing applications from IT investments.
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Consider the possible upside benefits that might come from an ASP investment. This approach is both quantitative and qualitative. For some types of ASP investments, you will have to rely more on qualitative arguments because potential benefits are difficult to measure and to estimate. In other cases, there are well-known capital budgeting approaches one can apply to provide some guidance on the investment. The manager of an intelligent enterprise needs to keep the above-mentioned findings in mind. They suggest that in making decisions about ASP investment, you should: 1. 2. 3. 4.
Determine the type of investment, for example, infrastructure or competitive necessity; Estimate the likely return from the investment given its type; Estimate the probability that there will be a return; Estimate the probability of successfully converting the investment into an application.
Information systems in the 21st century virtually enable not only all business processes but also the coordination of multiple processes for intelligent enterprises. Business process here refers to a set of related tasks performed to provide a defined work output—a newly designed product, a customized order delivered to the buyer, or a business plan—which should deliver a well-defined value to either an internal or external customer. Many processes in a traditional business could be radically changed to take advantage of the capabilities offered by ASP. The greater the scope of the process innovation, the larger the benefits that may be expected which obviously means the greater the risk to the project. While many process innovations fail, those that succeed tend to dramatically improve the performance of the enterprise. The purpose of this chapter has been to provide a view of the historical evolution of the ASP phenomenon as a prelude to defining a conceptual framework for understanding IS strategy for intelligent enterprise in the 21st century. The reader has also been provided with the major steps in evaluating the strategic value of implementing an ASP solution in the context of improving the overall business performance and competitive advantage. Such initial success in the development of business relationship, outside the traditional line of outsourcing, fuelled the expansion and wide diffusion of the
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capacity of ASP vendors to have far-reaching implications for many aspects of the service industry. Whether the ASP industry could be part of the future of every intelligent enterprise depends in part on its history, management, current capabilities, and on the directions it might develop. Rethinking your business in terms of Internet economy, formulating new strategies for gaining competitive advantage, and raising the level of awareness of people throughout your enterprise to the notion information itself can and should be looked upon as a strategic corporate asset, are great steps but only the first steps for success in the 21st century. In addition, both structural and procedural changes must take place for an intelligent enterprise to put its convictions into operation. Could ASP provide you with such necessary tool thereby directing your focus into the reality of a 21 st-century intelligent organisation?
References Alter, S. (1996). Information systems: A management perspective (2nd ed.). Benjamin/Cummings. ASP Industry Consortium. (2000). Industry news (www.aspindustry.org). Bainbridge, D. (2000). Introduction to computer law (4th ed.). Longman Pearson Education. Banker, R., & Kauffman, R. (1988). Strategic contributions of information technology: An empirical study of ATM networks. Proceedings of the Ninth International Conference on Information Systems, Minneapolis, MN. Beniger, J.R. (1986). The control revolution: Technological and economic origins of the information society. Cambridge, MA: Harvard University Press. Bergeron, F., & Bégin, C. (1989). The use of critical success factors in evaluation of information systems: A case study. Journal of Management Information Systems, 5(4), 111–124. Buaron, R. (1981). New game strategies. The McKinsey Quarterly, Spring. Checkland, P.B. (1983). Systems thinking, systems practice. Chichester, UK: Wiley.
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Checkland, P.B., & Scholes, J. (1990). Soft systems methodology in action. Chichester, UK: Wiley. Currie, W., Desai, B., Khan, N., Wang, X., & Weerakkody, V. (2003). Vendor strategies for business process and applications outsourcing: Recent findings from field research. Hawaii International Conference on Systems Sciences, Hawaii, January. Currie, W.L. (2000). Expanding IS outsourcing services through application service providers. Executive Publication Series. CSIS2000/002. Dussauge, P., Hart, S., & Ramanantsoa, B. (1994). Strategic technology management: Integrating product technology into global business strategies for the 1990s. Chichester, UK: Wiley. Gottschalk, K., Graham, S., Kreger, H., & Snell, J. (2002). Introduction to Web services architecture. IBM Systems Journal, 41(2). Guah, M.W., & Currie, W.L. (2002). Evaluation of NHS information systems strategy: Exploring the ASP model. Issues of Information Systems Journal, October. Hondo, M., Nagaratnam, N., & Nadalin, A. (2002). Securing Web services. IBM Systems Journal, 41(2). Kling, R. (1987). Defining the boundaries of computing across complex organisations: In R. Boland & R. Hirschheim (Eds.), Critical issues in information systems research. New York: Wiley. Land, F. (1987). Is an information theory enough? In Avison et al. (Eds.), Information systems in the 1990s: Book 1–Concepts and methodologies (pp. 67–76). Armidale, Australia: New England University Press. Little, G.R. (1999). Paper 1: Theory of perception. Retrieved June 2002, from www.grlphilosophy. co.nz Markus, M.L. (1983). Power, politics and MIS implementation, Communications of the ACM, 26(6), 430–445. Maslow, A.H. (1943). A theory of human motivation. Psychological Review, 50, 370–396. McLeord Jr., R. (1993). Management information systems: A study of computer-based information systems (5th ed.). New York: Macmillan. Porter, M.E. (1985). Competitive advantage. New York: Free Press. Porter, M.E., & Millar, V.E. (1985). How information gives you competitive advantage. Harvard Business Review, 62(4), 149–160.
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Sleeper, B. & Robins, B. (2002). The laws of evolution: A pragmatic analysis of the emerging Web services market. An analysis memo from The Stencil Group. Retrieved April 2002, from www.stencilgroup.com The Stencil Group. (2002). Understanding Web services management: An analysis memo. Retrieved May 2002, from www.stencilgroup.com Walsham, G. (1993). Interpreting information systems in organisations. Chichester, UK: Wiley. Weill, P. (1993). The role and value of IT infrastructure: Some empirical observations. In M. Khosrow-Pour ad M. Mahmood (Eds.), Strategic information technology management: Perspectives on organisational growth and competitive advantage (pp. 547–572). Hershey, PA: Idea Group Publishing. Weill, P., Broadbent, M., & Butler, C. (1996). Exploring how firms view IT infrastructure. Melbourne, Australia: Melbourne Business School. Wilkes, L. (2002). IBM seeks partners to drive adoption of XML Web services. Interact, February. Zhang, X., Lesser, V., Horling, B., Raja, A., & Wagner, T. (2000, pp. 49–57). Resource-bounded searches in an information marketplace. IEEE Internet Computing: Agents on the Net, 4(2). Zwass, V. (1998). Foundations of information systems. Irwin/McGrawHill.
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Chapter XIII
Conclusions Matthew W. Guah, Warwick University, UK
Abstract This chapter recaps the strategic direction of Internet-based business models over the last decade and points organizations to modify and rethink their business strategies and organization management after the dot.com era. It also reiterates a few implications for an organization’s decision to invest in Web services and looks at the issues involved in managing transitions to Web services. This is followed by a look at Web services as a form of challenge to new organizational arrangement. The chapter concludes with factors to consider when implementing and evaluating a successful Internet strategy.
Introduction We can safely conclude that policy makers in all fields, not just in IS, are forced into ill-considered conclusions and recommendations because they still view their management strategies in pre-Internet terms. Moreover, they are still Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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constrained by statistical calculations based on outmoded and obsolete classification approaches, as well as on invalid assumptions about the fundamental sources of profit and capital formation. Recent evidence shows that European business continues to lose important sectors of the economy to international competition because senior managers have been slow to modify and rethink business strategy and management in post-Net era versus pre-Net era. Seen in this light, the emergence of ASP business model has had and will continue to have pronounced impacts on business management and strategy. Through the skilful use of new “intellectual technology” such as more efficient broadband utility, better and more integrated systems, automated reporting processes, combined with new uses of computers, wireless technology, and computer numerical control devices, the productivity of research and development (R&D) in business strategy is changing in the application service provider (ASP) industry. Any argument that the ASP industry is in decline seriously misreads the nature of the transformations occurring. Indeed, rather than wringing one’s hands about the demise of the ASP industry, it is more appropriate to perceive that the ASP industry is leading to a more mature stage of business model development using new ideas and new technologies as critical factors of service provision.
Stakeholders IS staff members are important stakeholders in most ASP solutions since they are responsible for system operation and enhancement. As professionals in the field, they have a deeper understanding than business professionals about what it takes to build and maintain a solid ASP solution. They also have a clearer view of the technical relationships between different systems and of policies and practices related to systems. Business professionals in intelligent enterprises should not ignore the technical infrastructure and context issues identified above; rather they should also realize that IS staff are usually much more aware of the technical structure and rationale in both areas. While “the more the merrier” almost always applies for some characteristics of ASP solution such as customer satisfaction and information quality, the right levels of many other characteristics such as capacity, security, and flexibility should be a compromise between problems of excess and problems of Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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deficiency. There are often instances when too much capacity means less could have been spent, whereas too little capacity limits departmental process output. Likewise, too much consistency may mean IS departmental staff cannot use their creativity to respond to changes, whereas too little makes the business process inefficient and the results chaotic.
Competition The pressure of new business environment in the 21st century has resulted in time-based competition. Such competition takes place where those first to market have a chance to preempt the competition. This does not only mean developing a new product faster than your competitors, but also requires the associated delivery mechanism: first to give a quote on the product price, first to develop an agile manufacturing system to instantaneously move the assembly line to a different product, or first to deliver the product to customer. ASP is one of the main sources of competitive advantage for intelligent enterprises in the 21st century. It can lower costs through scale or experience. ASP can also contribute to the differentiation of the organization’s products or services, becoming the foundation of a differentiation strategy enabling the firm to avoid direct price competition. Last, ASP technological change plays a crucial role in new-game strategies where firms deliberately change the rules to their advantage by modifying the forces shaping competition in the industry. ASP plays a significant role in strategy making, and selection of technologies by the intelligent enterprise is a task that must be done with great care. Another noticeable reason for implementing ASP solution is oriented to the business objective of gaining competitive advantage in business unit and corporate strategy and not exclusively to cost-effective management of information resources and technologies. The primary focus here is on business-unit strategy and direction, and on integrating the business unit’s external and internal environments. An important factor to be considered is the quality of the intelligence analysis and information collection and processing performed by managers and staff rather than on the use of the information tools.
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Infrastructure Infrastructure is something that an intelligent enterprise needs. An investment in ASP infrastructure is an investment for the future; it provides the resources needed to take advantage of future opportunities. A substantial portion of an intelligent enterprise’s ASP budget may be devoted to infrastructure, which means that it will be difficult to show a return on this investment. The Internet represents a major infrastructure that is available to individuals, businesses, and governments around the world. The Department of Defence and the National Science Foundation subsidized the development of this network; currently users of the Net finance it. It is doubtful that one could obtain the date, or evaluate the pound value of the impact of the Net, to do a returnon-investment calculation for this investment. It seems clear that the Internet has provided many different kinds of value to its users, which is what one hopes for in making infrastructure investments.
ASP Value Two key points of this chapter are that not all investments in ASP should be expected to show a measurable return, and investments can have value to an intelligent enterprise even without demonstrable financial return. In many organizations, there seems to be a strong belief that every investment is made with the expectation of a positive return. Obtaining value from IS is important for intelligent enterprises to survive and flourish in the highly competitive economy of the 21st century. Many of us believe that the information system holds the key to success as companies develop systems that provide them with a competitive advantage. IS also lets managers create dynamic, new organization structures to compete more effectively. Intelligent enterprises that create value through information systems will be the winners in the 21st century. Of course, it is not always the case that the consumer is the only winner from strategic investments in ASP. We have seen that the airline CRS vendors gained significant direct and indirect revenue from deploying their systems to travel agents. It is also possible that a strategic application can result in boosting sales for an entire industry. It will be interesting to see if ASP increases sales for the
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telecommunications infrastructure providers industries that participate in it by making it easier for consumers to order their products and services. Value can be said to have many different definitions when looking at ASP investments, which are not always easy to estimate or measure. Such a complex investment problem means that managers have to gather information and consider a variety of factors in making their decisions about allocating resources to ASP initiatives. Upon making the decision to allocate, they have to monitor carefully the conversion of the investment into an ASP solution, as creating value is a major challenge that requires significant management effort and attention.
Implications for the ASP Investment Decision It is important for an intelligent enterprise to have a strategy, plan, and vision for ASP solution. The downturn of the first phase has clearly shown, in some cases, that business’s overall strategy was more important in deciding to implement an ASP solution than was the economic analysis for the investment. It would seem unethical to provide a formula for combining all the criteria mentioned in this chapter to come up with a decision to implement an ASP solution. Readers would notice some of the issues touched on are quantitative while others are qualitative. Organizations that came through ASP first phase somehow successfully made wise decisions about investments in ASP implementation. Managers in these businesses view ASP solution as an asset and believe that their ASP investments produce value for the organization. Not only can you see that they had strategy and vision for the technology but also that they are actively managing their ASP solution. The resulting effect is they do not sit around and look for value from ASP solution; rather, they create value from ASP solution. We hope this paper has presented sufficient evidence to establish that 1. 2.
there is value from investing in ASP; each type of investment has a potentially different opportunity for a payoff, and for some applications, we may not be able to show a quantitative return; and
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3.
the process of moving from the investment to an actual IT initiative is filtered by conversion effectiveness; there have been widely varying degrees of success in developing applications from IT investments.
Consider the possible upside benefits that might come from an ASP investment. This approach is both quantitative and qualitative. For some types of ASP investments, you will have to rely more on qualitative arguments because potential benefits are hard to measure and to estimate. In other cases, there are well-known capital budgeting approaches one can apply to provide some guidance on the investment. The manager of an intelligent enterprise needs to keep the above-mentioned findings in mind. They suggest that in making decisions about ASP investment, you should do the following: 1. 2. 3. 4.
Determine the type of investment, for example, infrastructure or competitive necessity. Estimate the likely return from the investment given its type. Estimate the probability that there will be a return. Estimate the probability of successfully converting the investment into an application.
Information systems in the 21st century virtually enable not only all business processes but also the coordination of multiple processes for intelligent enterprises. Business process here refers to a set of related tasks performed to provide a defined work output—a newly designed product, a customized order delivered to the buyer, or a business plan—which should deliver a well-defined value to either an internal or external customer. Many processes in a traditional business could be radically changed to take advantage of the capabilities offered by ASP. The greater the scope of the process innovation, the larger the benefits that may be expected which obviously means the greater the risk to the project. While many process innovations fail, those that succeed tend to dramatically improve the performance of the enterprise. The purpose of this chapter has been to provide a view of the historical evolution of the ASP phenomenon as a prelude to defining a conceptual framework for understanding IS strategy for intelligent enterprise in the 21st century. The reader has also been provided with the major steps in evaluating
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the strategic value of implementing an ASP solution in the context of improving the overall business performance and competitive advantage. Such initial success in the development of business relationship, outside the traditional line of outsourcing, fuelled the expansion and wide diffusion of the capacity of ASP vendors to have far-reaching implications for many aspects of the service industry. Whether or not the ASP industry could be part of the future of every intelligent enterprise depends in part on its history, management, current capabilities, and on the directions it might develop. Rethinking your business in terms of Internet economy, formulating new strategies for gaining competitive advantage, and raising the level of awareness of people throughout your enterprise to the notion information itself can and should be looked upon as a strategic corporate asset, are great steps but only the first steps for success in the 21st century. In addition, both structural and procedural changes must take place for an intelligent enterprise to put its convictions into operation. Could ASP provide you with such necessary tool thereby directing your focus into the reality of a 21 st-century intelligent organization?
Blurring In-House IT and ASP Services One impact of the ASP industry on business is the blurring of the old boundaries in IT services between in-house and ASP vendors. In the traditional view, services are merely an add-on to the in-house sector—they are by definition at least, “nonproductive.” In ASP, services either support the growth and survival of the in-house IT department, or they are perceived as socially desirable but not economically essential. Thus, IT consultancy services are important support services for short-term strategies, while “pay as you go” is perhaps nice for business but not essential to the survival of ASP industry. At the centre of the ASP industry and critical to its wealth-producing capacity is the need for partnership, around which ancillary services revolve. What is commonly overlooked in this view is, first, the notion that the relationship between in-house and ASP is one of interdependence, not dependence. And, second, that the categories of ASP and in-house are not distinct and isolated domains, but represent two sides of a continuum. Thus, contrary to the traditional view, in ASP the growth of services helps support the growth
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of in-house. As the industry evolves and becomes more complex, the need for new services and specialization in the division of labor continues to increase. Inhouse migrates into strategic management and monitoring of IT standard while ASP migrates into value-added services so that “business IT becomes a service in a package form.” As the boundaries between in-house and ASP become more blurred through the use of improved communications technologies, the opportunities for entrepreneurs continue to increase.
Entrepreneurial Opportunities As the ASP industry matures, a premium is placed on ideas and strategic use of data flow technology for new business development, rather than on economics of scale or cost displacement alone. The entrepreneur, therefore, becomes the primary user of new technology and ideas for strategic advantage. As a premium is placed on innovative ideas, small businesses acquire an advantage in being flexible enough to evolve new products and services. Moreover, as such innovation precedes, the role of small business as source of employment continues to increase in significance, particularly in the ASP-like partnerships. Inevitably, even large corporations (e.g., IBM and most major players) in the ASP industry are providing opportunities for corporate entrepreneurs to test new ideas under conditions where “normal” corporate constraints on risk taking and new investments in internal ideas are relaxed. Corporations as large as IBM are providing opportunities for entrepreneurs to flourish internally. The term “intrapreneur” has been coined to describe this internal entrepreneur. When technological innovation is the main force leading to lower costs, the firm’s ability to create a competitive advantage depends on its technological skills. Technological innovations often bring costs down—sometimes significantly—thus making the cost reduction solely attributable to economies of scale seems comparatively minor. The enterprises responsible for these innovations draw a significant competitive advantage from them in terms of cost, notably when they succeed in maintaining an exclusive right upon them for a long period. Vendors can only benefit from experience through sustained effort, efficient management and constant monitoring of costs (Dussauge, Hart, & Ramanantsoa, 1994).
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Web Services and New Game Strategy An ASP may deploy one or more of Porter’s classic theories of competitive strategies: differentiation, cost leadership, focused differentiation, or cost (Porter, 1985). The use of such competitive tactics may include internal growth or innovation, mergers or acquisitions, or strategic alliances with other enterprises or members of the same group of enterprises. However, most enterprises elect to use the new-game strategy which can be defined as a deliberate attempt to modify the forces shaping competition and the definition of the business by particular competitors (Buaron, 1981). Let us take Microsoft and Oracle, both big players in the ASP industry. The difference between spontaneous change in their competitive environments and new-game strategies has less to do with the objective characteristics of the ASP phenomenon than with their individual attitudes with respect to ASP phenomenon. In the first case, changes are seen as external to them, requiring adaptation. In the second case, however, certain initiatives by them are responsible for some changes in the industry and they have therefore deliberately based their strategy on them. Such strategies alter the pace of the change, generally making it more rapid and direct the focus of change in ways that will best benefit the innovating enterprise(s). Web services technology is one of the most important foundations for ASP new-game strategies. Thus, by accelerating the pace of Web services in the industry, a competitor with good capability in the technology reinforces its own competitive position. There are numerous papers warning that such accelerated Web service evolution increases the difficulty that other competitors have in adapting to ASP (Gottschalk, Graham, Kreger, & Snell, 2002; Hondo, Nagaratnam, & Nadalin, 2002; The Stencil Group, 2002; Wilkes, 2002). By modifying the nature and the relative importance of the key factors for success in the ASP industry, Web service technological changes that are introduced by one or more of the vendors can lead to favorable changes in the competitive environment. In an industry built upon high volume, new technologies that are introduced by some of the competitors that nullify or minimize the impact of scale can significantly alter the nature of the competitive environment by making size a drawback rather than an advantage. Thus, referring back to the example of ASP content distribution, these innovations were driven by the actions of a few relatively small competitors, Microsoft and IBM. The changes that occurred in the competitive environment were thus the result of new-game strategies designed to change the rules of competition to their advantage: under the new rules, it was no longer a disadvantage to be a small producer. The
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competitive impact of such strategies is especially strong when the other competitors cannot use the same type of technology because it is not easily available, for lack of training, or for financial reasons. During the period when an enterprise controls an exclusive technology, it can easily recoup its investment through high prices; but by the time this technology becomes more widely dispersed, prices tend to fall dramatically with the advent of new entrants. These investments are a significant entry barrier to competitors. However, the enterprise still manages to retain dominant position and good level of profitability in business, since it had recouped its initial investment many times over.
Dynamics Competitiveness Though the big vendors’ strategy depends on several factors, it is not etched in stone; rather, it will vary with the changes in the industry’s key factors for success and the relative advantage that its technology represents. Two types of competitive behavior with respect to technology can be observed: •
•
Switching from a differentiation strategy based on a technological advantage to a cost leadership strategy based on scale, accumulated experience, and a dominant market position Constant effort to innovate and improve technology, thereby maintaining a dynamic competitive advantage
Table 13.1. ASP model system life cycle (1) PHASES Initiation Development
TARGET OBJECTIVES Statement of problem IS expectations
Deciding what the system should deliver Implementation IS running as part of the process to support business goals achievement Operation and Enhance system and correct bugs Maintenance
CHALLENGES Changes in expectations by time Users’ quite often lack a total understanding output Power and control issues within organization Diagnose/correct problems within time pressure
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Oracle’s relative success so far can prove that firms displaying the first type of strategic behavior are generally those that have been able to attain a dominant position because of exclusive technology. As their technology becomes diffused over time, however, they tend to resort to competitive advantage based upon their accumulated experience, good reputation, and distribution network. The second type of strategic behavior for vendors confronted with the erosion of their technology-based competitive advantage is a sustained effort to improve or even “reinvent” their technology; rather than “milking” their initial technological advantage, such firms choose to create a new competitive advantage through technological innovation. A vital difference between the ASP model and traditional system life cycle is that error in this initial phase may not proof fatal. That is because the model supports a smooth and easily controlled change method even after it goes into operation, mainly due to its third-party controlling nature. Table 13.1 describes the four general phases of any IS, which also serves as a common link for understanding and comparing different types of business processes used for building and maintaining systems within the ASP model. ASP Becomes a Part of Strategy It is easy to focus on individual ASP investments rather than their cumulative impact. Intelligent enterprises budget for individual applications of technology and the IS staff works on a project basis. For some intelligent enterprises, the combination of all its individual investments in technology far exceeds their individual impact. A good example is SAP. Here, continued investments in ASP changed the software provision industry and SAP’s own view of its fundamental business. By becoming a necessity ASP may not create much benefit for intelligent enterprises that invest in it, except that ASP allows the enterprise to continue in a line of business. Who does benefit from investments of this type? The cynical answer might be the vendors of various kinds of ASP product and service. However, a better response is that customers benefit from better quality goods and services, and especially better customer service. Looking at our two earlier examples, customers are much better off with the presence of ATM and CRS. An ATM is convenient and allows one to access cash without presenting a check at his or her own bank. With an ATM, you do
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not have to worry about a foreign bank accepting your check; from ATMs around the world you can withdraw cash. While airlines have certainly benefited from computerised reservations systems, so have customers. You can use a CRS to compare flights, times, ticket prices, and even on-time statistics for each flight. A consumer can make a reservation on a flight and complete the transaction over the telephone or the Internet. Economists talk about a concept called ‘consumer surplus.’ How does consumer surplus relate to investments in strategic and competitive information technology? From a theoretical standpoint, consumer surplus increases as prices drop. The competitive use of ASP reduces costs and prices through applications like those in banking and airlines. The competitive use of ASP has, in many instances, reduced prices (or held down price increases), which contributes directly to consumer surplus. Technological competition may not always create an economic consumer surplus, but it does provide benefits in the form of service and convenience. A bank ATM can save time for the customer, something the customer may be able to value from a dollar/pound standpoint. The fact that two firms (IBM and Microsoft) had a similar web service launched within few months of each other means that the technology was not able to deliver a sustainable advantage from its investment. Neither was able to raise its prices directly to pay for their Web services, so the benefits from their investments in ASP all went to the customers. While the strategies of ASP vendors can thus change over time, a clear strategic direction is indispensable to success. In addition, the transition from one strategy to another is a very difficult and risky undertaking, since it requires a complete reorientation of the vendors’ efforts and radically different patterns of resource allocation. As we have seen, technology is often a major factor behind both differentiation and cost leadership strategies. It is also a critical factor in “new-game” strategies.
Internet Strategic Direction Too many organizations today practice the belief that they can generate new Internet strategic direction faster than their rivals. Such belief leads to the repetition of the following:
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Formulate visions Prepare long-term plans Document strategic milestones and how to monitor their achievements Set out phrases in the organization’s mission statement relating to Internet strategy Design strategy to persuade people (staff and customers) to share the same culture Encourage widespread participation and consensus for the strategy Install control systems for top executives easily set the direction and keep in control
While the above might have proven successful in general management strategy for businesses in the later decades of the 20th century, they could not possible work for the Internet strategy in the 21st century. The simple reason is due to its dependence on the principle of finding the stable equilibrium organization paradigm. Not only are such paradigms consistent with our scientific education, but they also turn to reinforce the message that an organization either install stability and achieve success or it will experience instability and thus failure. Due to the rapidly changing nature of the Internet, successful Internet strategies cannot flow from choices between stability and instability. It rather emerges from choices of both stability and instability. Any organization that finds its current Internet strategy to be successful must learn that future success will depend on its ability to change the way it focuses on the adjustment of such strategy to the future needs of the business. Only by so doing can management see that creativity is intimately connected with instability, tension, conflict, and the changing perspectives the Internet environment provokes. As the well-publicized example of IBM has shown, organizations that stick to the old stable equilibrium way of seeing their strategic direction will simply repeat their past or even imitate their competitors who have already moved on to better strategies. Such approach to Internet strategy introduces the concept of facing the unknown head-on instead of sidestepping by pretending that it is approximately known. The result of this risky approach is to manage Internet strategy in a way that is far from comforting but far more dynamic and far more useful in turbulent times. Such approach has to do with creating the conditions an IT department can self-organize to innovate. It also means accepting that the department has not idea what the long-term future holds for any emerging
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technologies based on the Internet. This approach is about sustaining contradictory positions and behavior in an organization. Such approaches are now being used by Nokia which has budgets and production schedules as well as hierarchies with power concentrated at the top. However, Nokia also enables individuals and groups—in different countries—to pursue new ideas in relative freedom. Such approach to Internet strategy can allow for the positive use of instability and crisis to generate new perspectives, provoking continual questioning and organizational learning through with unknowable futures can be created and discovered. The approach also faces reality and accepts the consequent increase in levels of anxiety as necessary for creative activity. After observing this approach to Internet strategy, one can see that stable equilibrium paradigm is a defence against anxiety and one which blocks creative work in a continuously changing industry. Why do we need a new approach to managing Internet strategies? 1.
2.
The current approach is not serving the businesses well enough. Organizations are continuously changing their Internet strategies and in some cases, at a phenomenal cost to the entire business—often resulting to staff losing their jobs. A clear justification here is the waste of resources and a substantial disruption to people’s lives when these strategies fail and the organizations have to absolve the costs. It also slows down the learning process of managing the Internet—and information technology in general—when we have to keep going back to square one, starting with a small size and all its associated growing pains. Organizations that quite often fail to succeed with Internet strategies learn the reality that the stable equilibrium will not work. Instead, continuing success lies far from equilibrium. Modern technologies have shown that old approaches are based on rarely questioned assumptions about the nature of systems. Nearly all old approaches to Internet strategies in the 20th century say that success requires cohesive teams that share a vision and a culture, that pursue a strategic intent in a rational, orderly manner leading to adaptation to the business. They aim to make the organization’s future knowable. Only then can they be presumably subject to rational critique.
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This section has explored what the new far-from-equilibrium paradigm means in relation to Internet strategy and what difference the change of focus makes to the actions that an organization must design to achieve successful Internet strategies. Such attempt to refocus can have profound consequences for the entire approach an organization adopts to the strategy for Web services.
Web Services and Your Organization The debate on the effects of emerging information technology in organizations was initiated in the late 1950s. That was when Leavitt and Whisler (1958) stated in their paper titled “Management in the 80s”: Over the last decade a new technology has begun to take hold in American business, one so new that its significance is still difficult to evaluate. The new technology does not yet have a single established name. We shall call it Information Technology. It is composed of several parts. One includes techniques for processing large amounts of information rapidly, and it is epitomised by the high speed computer. (p. 41) Much of the then debate (see Myers, 1967) centered on the issue of whether computer technology would be used to centralized or decentralized production operations control. It also involved the question of the intermediate layer between top management and the workforce was appeared to be leading to two extreme points of either erosion or enhancement as a consequence of computerization (Stewart, 1971; Whisler, 1970). It seemed cleared then that middle management would be replaced by information systems that were completely controlled by computers. Also that remaining managers would be reduced to a basic routine monitoring function (Munford & Ward, 1965) and even if the effect of computerization on management was small, junior management and supervisory jobs would become partially or fully exterminated. Two different studies in the mid-1960s by Munford and Banks (1967) and Whisler (1967) claimed that information technology would lead to the following:
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• • • •
Reduction in the number of clerical staff Displacement of departments through increased integration Centralization of control Erosion of the control responsibility of certain categories of supervisors
In our efforts to examine the relation between Web services and organizations’ adaptation, these early debates raised several major points for further emphases: •
•
•
That Web services may enable an organization to either centralize or decentralize decision-making authority. That is because Web services do not determine organizational structure. Instead, the determination of organizational structure is done by the way Web services are introduced and used. Those Web services strategies, which promote centralization, are likely to erode the control responsibilities of lower line management, supervisory, and operative staffs. That Web services strategies, which promote decentralization, could either reduce or increase the control responsibility of supervisory for lower-level managers.
The above clearly goes to say that these early studies indicated the importance of examining the process by which emerging technologies (i.e., Web services) are introduced into an organisation. The organizational significance of Web services derives from their ability to capture, store, manipulate, and rapidly distribute information on which decisions can be made. For the most part, these systems have been used to improve the efficiency of hierarchical organizations, through replacing traditional manual reporting systems of communication and control. Thus, it is not the information being processed that is new, rather, the sudden availability, accuracy, and immediacy of this information to management which has changed the nature of operations control within these organizations. Web services can provide—through maintaining a historical record of fluctuation in supply and demand of various resources—managements are able to evaluation potential strategies for changing the future level or method of resource provision. As Web services bring about new diversity of operator tasks and seems to be showing the potential for improving management
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decision making through the provision of accurate up-to-date information on current or past performance, the consequence of change for the organization and control of work remains an important area of managerial choice. Such is the importance of examining the process by which Web services are introduced into organizations. This is one of the objectives of this book.
Managing Transitions to Web Services Ensuring the smooth transitions of Web services is about managing an unfolding, nonlinear, dynamic process in which players and actions are never clearly defined. During the period an organisation is in the process of managing transition to Web services, there are likely to be a number of unforeseen contingencies. These may necessitate a modification of intended pathways and stated objectives of achieving whatever the intended future state of that organization was anticipated. The need to revise strategies to meet the demands of unpredictable events may form part of that predefined task of evaluation and appraisal. This may result from the response of individuals or groups to problems arising from the transition to Web services process. Whether the individual tasks are part of the holistic plan or evolve over time, they still need to be managed efficiently. The management of such occurrences during the process of Web services transitions is critical to successful establishment of any new organizational arrangements. The significance of key stages in Web services transition centres on the ability of key players to maintain an overview of the multiple and changing routes that Web services transition and their actions in creating, displacing, redefining, and directing the ongoing development of information system strategy. Web services transition is usually not a short-term project that last over few days or weeks. Consequently, its management cannot be a self-contained change which is expected to take a short period. The dynamics are that of largescale change and of a qualitatively different nature, which may require a high degree of understanding and stamina on the part of the service provider and any party within the organisation who may have to deal directly with the messy, and at times painful and unsettling, task of managing Web services transition. The complexity and untidy nature of Web services transitions, partly stem from the time frame associated them. On the other hand, they highlight the importance of top-level management in championing the process of Web services transition towards its long-term objectives.
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The importance of different tasks in Web services transition process is to maintain some form of continuity in steering the process towards a successful end. Such end, in practice, is often continually redefined throughout the transition process. However, there are a number of tasks associated with minor transitions within a larger information systems strategic change initiative. Therefore, the management of major Web services application is likely to involve a diverse range of transitional tasks, activities, and decision which in some cases may appear as discrete and small-scale applications within a broader and more loosely coupled framework of e-business strategy. This may add to the sense of confusion and chaos, particularly during the busy periods of transition when the disruption to the organization production and service operations may be at its height. Symptoms of this stage are as follows: • • • •
An increase in client top management concern brought about by a decline in organization production A general feeling of frustration and anxiety among the client’s lack of ability to see the end of the transition period Dissatisfaction and low morale among the clerical/administrative staff waiting to perform their normal duties under transitional arrangements High levels of stress and resistance among project champion and IT departmental authorities who may be experiencing criticisms both from top management and the workforce
At this stage, the power and politics of this transitional process is clearly in evidence and the initial vision Web service implementation may be seriously called into question. A major problem facing the service providers, at this stage, is how to maintain the momentum of change. Yet the service providers have to allay the fears and frustrations of different employee groups within the client organization. Farther along the journey, when the Web service transition process is reaching completion and the hurdles, disruptions and conflicts become anecdotes and legendary pastimes, a period of comparative stability may occur and act to constrain further emerging technology developments in the way. The service providers sometimes feel that their tasks have been completed and their vision achieved. Project champion and staff of the client organisation may find that less attention is paid to their views as a period of operation using the new applications—sometimes resulting to new work arrangements—becomes a Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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part of their daily routines. Staff in the client organization may find the long-term process of Web services transitions to have created an expectation that ebusiness strategies are the norm and the formal completion of IS strategy may be seen to mark an end to top-management commitment to improvement of work conditions/environments. A range of issues and problems which often arise during the process of Web services transition may make it difficult to provide comprehensive explanations for management decision to implement emerging technologies strategy. However, these issues and problems can also be used to formulate practical guidelines and derive longitudinal case study. The results could provide a comparatively robust methodology for cross-referencing and checking data validity and furthering the documented knowledge of Web services transition process. In the section which follows, healthcare organizational implications of adopting a Web service are discussed. A look at the processual approach to managing Web services implementation is summarized and some guidelines for IS strategic management is outlined. The chapter concludes by reemphasizing the theoretical and practical benefits of adopting a processual approach to the study and management of Web services transitions.
Challenge of New Organizational Arrangement The emergence of new organizational arrangements—as a result of Web services implementation—can present a number of challenges for client organization. Orlikowski and Barley (2001) suggest an element in learning to accept new technology in an institution involves rethinking traditional concepts of job functions, organization hierarchies, and even the nature of jobs. Within their studies the common threads included movement from an adversarial to a more collaborative system of relations, an emphasis on commitment, the tendency to define management, and the gradual replacement of single operator tasks with teamwork activities. The challenge of new organizational arrangements after Web services implementation centres on the successful management of Web services transition from an in-house–based to Web-based application management. In doing so, client staff may be left with the feeling of being closely observed and directed Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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by supervisors and an adversarial and combative system of staff relations seems to be the norm. In Web services applications, certain individual tasks are replaced by group activities and staff are taking on control of IT responsibilities previously carried out by higher ranking personnel. A more harmonious system of employees is being encouraged through participative information systems management activities. However, as the experiences reported in other parts of this book have highlighted, these changes can also create a number of new problems and issues for IT staff. Consequently, the challenge of Web services transition also incorporates a need for critical appraisal and for an ability to recognize and accommodate ongoing contingencies and unexpected outcomes. As well as such internal changes resulting from Web services transition, there may also be a shift along the relational continuum of external customer–supplier relations. Any of such transition involving emerging technologies mirror the change in information systems practices which are being used to improve internal employee relations and can also be represented by a continuum which ranges from adversarial to more collaborative systems. A more conventional adversarial customer–supplier relation based on contract formulation may be replaced with a collaborative approach based on trust, joint participation, and the objective of mutual benefits and rewards. Managing these transitions is not only about meeting the intraorganizational challenges, but also about managing new collaborative interorganizational arrangements with major supplier and client organizations. This movement towards a more collaborative system of contract relationships highlights the increasing reliance organizations are placing on good customer–supplier relations, in order to respond to competitive pressures resultant of the internationalization and globalization of the IT market. Web services, in this light, are contributing to the movement towards collaborative organizational networks. This signals a reevaluation of the qualitative elements of organizations and an attempt to adopt more responsive and flexible patterns of structural arrangements, combined with cooperative operational relationships. Within organizations, the emphasis is on teamwork, joint worker– management consultation, and the development of a culture of commitment and staff involvement. The new duties of in-house IT managers—usually referred to as IT coordinators—involve collaborating and communicating workplace issues as a part of the participative decision making about IT processes and ensuring that client staff learn new skills, work collaboratively, and commit themselves to continuous process improvement. This does not signal a reversal in the division of labor traditional in the workplace. Rather, an emergence of a new form of work organization based on the incorporation of indirect elements Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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of control into cooperative teamwork arrangements between application service providers and staff of client organizations. Within such patterns of work organization, staff are required to be more adaptable and responsible to daily demands and be prepared to internalize new working practices which are the antithesis of traditional methods for coping with the unexpected. It demonstrates that traditional operating practices previously deemed acceptable and now viewed as unacceptable. These new organizational arrangements still act to constrain operator choice within predefined working practices, though the principles centre on staff involvement and teamwork collaboration. Web services implementation can sometimes bring out considerable staff resistance towards emerging technology strategies which aim to devolve information systems policy decisions to joint consultative committees. Although service providers may have greater autonomy over the pace and pattern of corporate IT, they do not have any control over corporate policies and are expected to continually adapt to ongoing programs of Web services applications and their usages. Service providers are also expected to identify process problems, intervene in production to rectify them, and suggest changes in the organisation usage of the system to prevent recurrence. This widens the responsibility for service providers, creates extra stress for project managers of service providers, and makes their experience of work more precarious as client organisation staff live on the edge of perpetual stops in production or service operations. This has created the need for service providers to respond quickly to IT network problems. In accordance with the new philosophy of teamwork and problem solving between service providers and client organizations, the service provider must reveal to IT coordinators within the client organization, when they do not have immediate answers to IT problems and estimate when the anticipated resolution will be found. This eradicates traditional barriers between functions avoids undermining of confidence from staff of client organizations. Most joint coordination committees within Web services projects undergo a process of redefinition in response to the introduction of emerging technologies and new techniques. Traditional support and systems control responsibilities embedded in structural arrangements prior to implementation of Web services are no longer appropriate under joint coordination arrangements. However these changes are often simply ignored and just left to in-house IT managers and team leaders to redefine their position. Typically, there has been a shift in task emphasis away from inspection functions and technical issues towards elements of staff relations, teamwork facilitation, and planning for implementation of IT strate-
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gies. Such changes have also been marked by an increase in the control responsibilities of supervisors and emergence of remote workgroup leaders. These informal positions are usually occupied or held by supervisory relationship to other operators in the control and coordination of workgroup activities. This suggests that the function of supervision remains central in Web services transition, though no longer carried out by formally defined corporate staff. This can be seen as a quantitative reduction in the number of organizationally defined supervisors and a qualitative expansion in the function of supervision. Consequently, supervision is undergoing a complex redefinition in which the characteristics of the newly emerging supervisory positions remain unclear and illdefined. The above nature and character of the new organizational arrangements signal a move away from the traditional adversarial approach to managing IT contract relationships towards the development of collaborative customer–supplier relationships based on reciprocity and high-trust, long-term partnerships. It also indicates how major IT product and client organizational process change may require rethinking in adaptation procedures for many organizations in a network as a result of implementing Web services. The successful implementation of Web services in the future may be contained within the structural arrangements of a single organization, but require a series of IS strategies where a number of different organizations combine together for the purpose of forming a collaborative IT networks to meet the dynamic and competitive markets of a global economy. Such a strategy may not signify a paradigmatic shift, although a move along existing IT applications design, support, and maintenance strategies would be adjusted to reflect modern e-business innovations. The successful management of these strategies is part of the new emerging technologies challenges confronting future practitioners and systems strategists.
Processual Approach to Web Services This book brings the reader the temporal and processual nature of Web services which makes it difficult to analyze and understand. In a series of longitudinal case studies, the approach has supported processual analysis, and demonstrated how critical events during the Web services transition process may serve to impede, hasten, or redirect the route to e-business model. It also shows a processual approach providing a useful methodology for the system-
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atic analysis of qualitative, longitudinal data. The book draws on the temporal nature of large-scale Web services applications and is based on the view that •
• •
there is a period in time in which an idea or a conception about the need for Web services will arise, and a decisions will be made on whether to invest in a major e-business model; there is a time frame over which IT infrastructure will be purchased and consultants hired to implement Web services; and there is a stage in which new IT operating practices will become the norm within the context of Web services.
These show a temporal history of large-scale Web services implementation programme and involve a number of tasks which the client organization will engage in during the process of managing these strategic transitions. While there may be a contractually defined beginning and endpoint to Web services transition, what actually happens in the intervening period is often muddled, confused, and difficult to understand. This complex period in the implementation of Web services does not depend on managing logical sequences of events which phase models can often suggest. Rather, it depends on managing a composite and nonlinear series of Web services transitional tasks composing of decision-making and non-decision-making activities and historical events. Data collected within these categories can later be recombined to construct a more detailed and contextual understanding of the process of Web services transition. Though the historical dimension to the unfolding of a Web services transition, “black box” process of e-business implementation may move backwards and forwards between various tasks. It could be involved in a number of different activities simultaneously. It is therefore important to stress that whilst it is useful to identify categories for analytical purposes, Web services transition should not be treated as representing a rational, sequential series of steps in the process of managing transitions. Rather, it should be treated as providing a useful analytical technique for uncovering and making sense of the dynamic process of Web services transition. Among the issues relative to processual nature of Web services transition are the need to account for the substance of the transition, the political decisionmaking processes which may influence and shape the direction and speed of Web services transition, and the context in which the transition takes place. The utility of processual framework helps client organizations in securing customer Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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data and making sense of the factors that shape the Web services transition process. The decision to implement Web services, the choice of Web services applications, and the emerging technologies will generally be influenced by the client organization’s management strategic objectives, the state of the industry market, and the availability and applicability of alternative systems and philosophies to particular business environments. During the transition of Web services, business market considerations are likely to decline in significance, whereas occupational and staff concerns are likely to increase in importance and influence the outcome of client management’s strategic intentions. These factors may further serve to shape the operational use made of the new information systems. During the transitional period, staff will learn to finally adapt to the transition. In the process, they are likely to redefine the consequences of the transition for their positions within the new organizational structures and operating practices imposed by management during the initial operation of the new information systems. It is worth noting the possibility to generalise the relative importance of a range of variables in shaping the process of organizational transitions. These variables need to be examined empirically in order to evaluate their significance in redefining particular types of information flow and systems of managing control in different operating environments.
Practical Guidelines on Managing Web Services Transition A major thesis in this book is that there can be no simple prescriptions for managing Web services implementation successfully. What may prove successful in one context and in one organization may not prove appropriate to another organization operating from different locations at some future point in time. Consequently, it would neither be appropriate nor feasible to produce an exhaustive list of key things to be accomplished for a successful transition to Web services. This seems to indicate a return to a chaos theory of managing transitions, but the chapters in section II do provide materials from which lessons on the management of Web services transition can be extracted (especially the Chapters VIII and XI which both illustrate successful management of a large-scale Web services implementation). The text in this book can be used to formulate a series of guidelines which should be seriously considered by IT practitioners and systems strategists about to embark on programs of Web services transition. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Such a guideline should not advocate a single emergent homogenous structure to be prescribed as an appropriate design for any organization. It should rather emphasize the importance of ongoing time frames and the interconnected dynamics between the substance, context, and politics of the transition process. Web services transition is viewed as an ongoing process which is both progressive and regressive, is planned and unplanned, and incorporates intended and unintended innovations from the initial conception of the need to implement an e-business strategy through to the exploitation of emerging technologies. Web services transition is not right for a situational approach that tends to use snapshot models and assume that context is singular and unproblematic. The perspective used for Web services transition sensitizes the practitioner to the importance of the interplay between information systems governance and control on the one hand, and the history and culture of the client organizational hierarchy and system dynamics on the other. In certain situations, the transition to Web services is able to identify competing histories of information systems anarchy in the client business and show how the organizational mission statement may be rewritten to lend support to the claims of differing vested interest groups, thereby reflect the political agendas of powerful decision makers rather than representing certain restructuring in the past.
Emerging Technologies Questions concerning the management of emerging technologies and the implications of Web services within an organization and control of work have stimulated considerable debate. Much of such debate has concentrated on the consequences of the speed of technological change for economic well-being and the levels of unemployment resulting from the implementation of Internet technologies. Certain researchers claimed that the economic imperative for adopting emerging technologies meant that a choice had to be made between a high level of structural unemployment or a high level of technological unemployment. The capacity for emerging to display jobs stems from its broad area of application. The miniaturization of the Internet full power in the hands of certain multinationals scares the masses of global workforce. The relationship between labor displacement and the level of e-business strategies implementation by businesses can readily be identified in case study analyses, and is often a key issue surrounding the introduction of emerging technologies. Some see this to
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be particularly significant, given the capacity of emerging technologies to improve the control of operations through enabling the more effective capture, storage, manipulation, and distribution of critical business information. “Configurational technologies” have been used to refer to the informationintegration associated with tertiary automation, which underlies many of the changes currently occurring in the IT industry (Dawson, 1994, p. 125). Configurations may be made up in a very wide range of patterns; the mutually interacting components may be deployed in many ways to meet particular requirements. Considering, the implementation of Web services does require that considerable attention be given to the nontechnical components in order to achieve successful outcome. Failure to do so may result in what has been termed as “productivity paradox.” This is where despite an organizational adoption of emerging technology, there is a general decline in productivity. The enabling characteristics of Web services provide systems strategies and IT practitioners with a number of options in the way emerging technologies are introduced and used within organizations. Although this book supports the view that emerging technology does not determine outcomes, some authors believe that care should be taken when discounting certain types of emerging technologies simply because they are forms of the e-business model. This suggests that e-business does have an independent influence and may reduce or eliminate tasks requiring manual skills, and generate complex tasks requiring interpretive and problem-solving skills. They note that the tendency in managing emerging technologies adoption has been to ignore the new task and skills requirements and therefore undermine the effective use of e-business through reducing reliance on skilled human intervention.
Dynamics for a Successful Internet Strategy The general approach to Internet strategy sees the dynamics of success as regular and stable patterns of behavior. This idea is built on the assumption that it is possible, in principle, to predict the behavior of the emerging technology. In essence, if an organization cannot predict it, the organization could not secure regularity and stability, thereby resulting in surprises and crises instead. Such predictability is only possible if there are clear-cut connections between cause and effect in Internet strategies, denoting that a given action leads to a known outcome in known circumstances.
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Such beliefs about cause and effects in Internet strategies lead an organization to wish for long-term goals, missions, and visions. Like other forms of management, IT management teams are inclined to think in ways that always explain success as the realization of someone’s vision. They are always looking at the effect of a successfully implemented strategy in a straight line for the direct cause in certain specific vision. This book develops the reasons for concluding that today’s dominant frame of reference for understanding Internet strategy is inadequate, thus justifying a need for a new mind-set. The rest of this book explores what this new mindset means to the following key questions organizations in the 21st century ask about their Internet strategies: • • • • •
•
What kind of Internet strategy do we need if we are to be successful in the new Internet Age? What do we need to do to generate continuing creativity and innovation in our business taking advantage of emerging technologies? What strategic thinking is required for the Internet Age and how do we do it in irregular and contentious circumstances? How do we establish strategic direction and intention when the future of current technologies is unknown? How do we control the Internet applications our businesses rely on strategically when the future is not only open-ended but also unpredictable? How do we secure participation and unleash the creative potential of our most qualified staff in the latest technology yet guarantee their future commitment?
Different strategists are faced with the above questions in dealing with Internet technologies, which are quite clearly characterized by stability and instability, predictability and unpredictability, regularity and irregularity, contention and consensus, and intention and chance. Most organizations today prescribe to having a strategic plan for Internet and related technologies. Such strategic plans usually think of Internet strategy as a plan, which by definition focuses on their attention on securing a widely shared commitment to achieve a foreseeable future state of the organization’s technologies. In reality, they are focussing their attention on a pattern in actions that Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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is cohesive, consistent, and integrating, yet trying to produce regularity and to sustain stable equilibrium, both internally and externally. This fails to take into consideration that in practice, actions and their consequences are only regular and foreseeable when they represent repetitions of the past. The planning mentality is therefore leading to a design action that reinforces the direction already established for the organization. Such mentality leads to the concrete building on their strengths, sticking to their core businesses, and making only small, logically incremental changes. Consequently, when organizations focus on the predictable, their actions are usually predictable as well. How can such thinking be spread around the organisation? Staff members are more readily able to share commitment to certain aims or organizational policy when they are able to foresee the consequences for themselves, their individual departments, regional, or national branch. They will find it very difficult to share commitment when they are faced with ambiguous, open-ended issues about Internet technologies that directly (or indirectly) show no clear future impact on their work. By insisting on prior shared intention and regular patterns of action, the planning mentality actually predisposes staff members to avoid open-ended issues with unknowable future consequences. Such approach to Internet strategic planning contains a built-in bias to continue down already established paths of action. A frequently used criticism to ineffective use of Internet strategy lays the blame on organizational politics. This argument emphasizes that management consists of people who make decisions about Internet strategy based on the need to progress their own careers even if those decisions are not in the interest of the organization’s future technological position. A part of management may be trying to build departmental and business unit empires which obstruct the formulation and implementation of sensible long-term Internet plans and the achievement of technological visions. Why do we equate stability and excellence with performance of successful Internet strategies? First, there is a widespread assumption that irregularities in Internet strategic performance are due to the incompetence of certain applications of the emerging technologies. It is viewed that any serious faltering in performance of the emerging technologies from a particular Internet strategy is usually followed by a rapid change in management team or consultant responsible for the strategy. Adopting this assumption that irregular technology performance is
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primarily a consequence of incompetence encourages one to look for the organizational structures, control systems, implementation plan, cultures, management styles, technical skills, and project leadership characteristics that constitute competence. The conclusion is therefore drawn that the elements of competence can be identified and installed, then the organization will largely be able to banish the unstable technology performance. Such identification of technology competencies have been taking place for decades as documented by Checkland and Scholes (1990), Lacity and Willcocks (1998), Markus and Soh (1993), Orlikowski (1993), and Gottschalk et al. (2002) among others. The initiatives of these authors—and many others—have identified what are regarded as the key competencies required at different stages in the compilation of technology strategic plans. Since unstable performance is thought to be due to emerging technology incompetence, the organization often seeks to remove it, and in doing so, secure stability. Second, even if it was possible to successfully identify and install the elements of technological competence, organizations will still not banish performance instability altogether. That is because future changes in the Internet, and other aspects of the environment within which organizations have to operate, cannot be forecast with complete accuracy. Every organization, therefore, will be hit from time to time by unforeseen, random shocks from its environment. Organizations must also consider that customer requirements and technologies’ responses to changing situations in business may also develop in unforeseen ways. Resulting from all these, unstable emerging technologies performance will be generated by what amounts to ignorance. Because the emerging technologies are ignorant of the random shocks coming from the environment, their systems will exhibit irregularities in performance no matter how competent the technologies are. However, ignorance can be conquered, to some extent, by gathering and processing more information about the emerging technologies and operating environment, by applying more sophisticated forecasting techniques, and conducting more research on the customers’ requirements. Rigorous technologies tend to overcome ignorance as far as they are able to. They will turn as many apparently random shocks as possible into predictable events and design actions to deal with them in advance of the changes occurring. They also tend to banish ignorance and thus secure stability. The first and second reasons have shown that instability in Internet strategies is the consequence of incompetence and ignorance. Can it be safely assumed then that these are the only enemies of success? But is the unstable emerging Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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technologies performance being observed really due only to some combination of ignorance and incompetence? Third, the existence of chaotic and self-organizing behavior of dynamic Internet applications must lead organizations to challenge the view that irregular performance is not due solely to incompetence and ignorance. Where the behavior of an Internet application is driven by certain kinds of feedback mechanism, that system’s performance or behavior may be unstable purely because of the structure of the feedback mechanism itself. Instability of a particular kind is a fundamental property of the structure of commonly found feedback mechanisms. Far from being the enemy of success, this particular structural instability is vital to the ability of the system to be continually creative. Consequently, it is necessary to sustain the system in the conditions in which such instability occurs, instead of trying to remove it. Without instability, the system will be incapable of developing new, innovative forms of behavior. It will be trapped into endlessly repeating its past and existing behavior. If an organizational system is driven by feedback mechanisms of the particular kind, then its technologies performance could be unstable for reasons that have to do with the very structure of the organizational system itself. With this conclusion, therefore, it would mean that even if an organization totally banished incompetence and ignorance, the technological performance of its business would still display instability. An organization would therefore have to exhibit instability if it was to be innovative. Systems, success, and instability would be intimately interconnected. The practical point to be considered is whether an organisation is a feedback system and whether it is the kind of feedback system to which the new understanding of complex dynamics in Internet strategies applies. If an organisation is such a feedback system it becomes a matter of practical importance to identify the conditions in which it will display inherent structural instability of the kind required for continuing creativity. These considerations are of practical importance because the actions of Internet strategists depend on what they believe about the nature of success. In a case where they believe that instability is an inherent and necessary feature of a successful organisation, they will seek to provoke certain kinds of instability. On the other hand, they may believe that instability is due simply to incompetence and ignorance, and is hence the enemy of success. In such case, they will seek to banish all forms of instability. Making the wrong judgement in this regard, however, could lead to major problems for the organisation’s future technologies position.
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References Bergeron, F., & Bégin, C. (1989). The use of critical success factors in evaluation of information systems: A case study. Journal of Management Information Systems, 5(4), 111–124. Buaron, R. (1981). New game strategies. The McKinsey Quarterly, Spring. Checkland, P.B., & Scholes, J. (1990). Soft systems methodology in action. Chichester, UK: Wiley. Dawson, P. (1994). Organizational change: A processual approach. London: Paul Chapman. Dussauge, P., Hart, S., & Ramanantsoa, B. (1994). Strategic technology management: Integrating product technology into global business strategies for the 1990s. Chichester, UK: Wiley. Gottschalk, K., Graham, S., Kreger, H., & Snell, J. (2002). Introduction to Web services architecture. IBM Systems Journal, 41(2). Lacity, M.C., & Willcocks, L.P. (1998). An empirical investigation of information technology sourcing practices: Lessons from experience. MIS Quarterly, 22(3), 3363–3408. Leavitt, H., & Whisler, T. (1958). Management in the 80s. Harvard Business Review, 36, 41–48. Markus, M.L., & Soh, C. (1993). Banking on information technology: Converting IT spending into firm performance. In R.D. Banker, R.J. Kauffman, & M.A. Mahmood (Eds.), Strategic information technology management: Perspectives on organizational growth and competitive advantage (pp. 375–403). Hershey, PA: Idea Group Publishing. Munford, E., & Banks, O. (1967). The computer and the clerk. London: Routledge & Keegan Paul. Munford, E., & Ward, T. (1965). How the computer changes management. New Society, 6(156), 6–9. Myers, C. (1967). The impact of computers on management. Cambridge, MA: MIT Press. Orlikowski, W.J. (1993). CASE tools as organizational change: Investigating incremental and radical changes in systems development. MIS Quarterly, 17(3), 309–340.
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Orlikowski, M.J., & Barley, S.R. (2001). Technology and institutions: What can research on information technology and research on organizations learn from each other? MIS Quarterly, 25(2), 145. Porter, M.E. (1985). Competitive advantage. New York: Free Press. The Stencil Group. (2002). Understanding Web services management: An analysis memo. Retrieved May 2002, from www.stencilgroup.com Stewart, R. (1971). How computers affect management. London: Macmillan. Whisler, T. (1967). The impact of information technology on organizational control. In C. Myers (Ed.), The impact of computers on management. Cambridge, MA: MIT Press. Whisler, T. (1970). The impact of computers in organizations. New York: Praeger. Wilkes, L. (2002). IBM seeks partners to drive adoption of XML Web services. Interact, February.
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Glossary
Access Control Mechanism: A mechanism that limits the actions that can be performed by an authenticated person or group. Accessibility: The extent to which the user can obtain data in an appropriate format and in time for effective use; to locate data stored in a computer system or in computer-related equipment for the purpose of reading, writing, or moving data or instructions to operate the data. Accumulator: A special-purpose register in the central processing unit used to store the results of arithmetic operations temporarily. Ad Management: Methodology and software that enable organizations to perform a variety of activities involved in Web advertising. Advanced Planning And Scheduling (APS): Programs that use algorithms to identify optimal solutions to complex planning problems that are bound by constraints. Alliance Strategy: Competitive strategy in which an organization works with business partners in partnerships, alliances, joint ventures, or virtual organization. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Alliances: Cooperative business arrangements between two or more businesses with complementary capabilities. Analytic Style: A systematic style of perceiving information where one follows a structured, well-organized, and deductive approach in arriving at a decision. API: Application programming interface Application: The use of computer-based routines for specific purposes such as accounts receivable maintenance, inventory control, and new product selection. It could also be software or computer program that process data to provide output for such a purpose. Application Controls: Controls designed to protect specific applications. Application-Level Proxy: A firewall that permits requests for Web pages to move from the public Internet to the private network. Application Generator: A program that produces application software based on information submitted by the user. A software procedure produced from a description of the functions wanted by users. A type of fourth-generation language. Application Programmer: Develops software, usually in third- and/or fourthgeneration languages, to generate reports, update records, and perform other functions involving data stored in the database. Application Service Provider (APS): An agent or vendor who assembles the functions needed by enterprises and packages them with outsourced development, operations, maintenance, and other services; the provision of information system or computer application over the Internet that became widely practiced in the late 1990s.
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