Internet strategy the road to web services solutions irm press

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Matthew W. GuahWarwick University, UK

Wendy L. CurrieWarwick University, UK

Hershey • London • Melbourne • Singapore

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Acquisitions Editor: Renée DaviesDevelopment Editor: Kristin RothSenior Managing Editor: Amanda AppicelloManaging Editor: Jennifer NeidigCopy Editor: Lisa TosheffTypesetter: Cindy ConsoneryCover Design: Joyce LiPrinted at: Integrated Book Technology

Published in the United States of America byIRM Press (an imprint of Idea Group Inc.)701 E. Chocolate Avenue, Suite 200Hershey PA 17033-1240Tel: 717-533-8845Fax: 717-533-8661E-mail: [email protected] site: http://www.irm-press.com

and in the United Kingdom byIRM Press (an imprint of Idea Group Inc.)3 Henrietta StreetCovent GardenLondon WC2E 8LUTel: 44 20 7240 0856Fax: 44 20 7379 3313Web 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 thenames of the products or companies does not indicate a claim of ownership by IGI of the trademarkor 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 foryour 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, 1960- HD30.37.I573 2006 004.6'068--dc22

2005013815

British Cataloguing in Publication DataA 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All work contributed to this book is new, previously-unpublished material.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 atleast 2-3 expert reviewers and is subject to a blind, peer review by these reviewers. The views expressedin this book are those of the authors, but not necessarily of the publisher.

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Preface .................................................................................................. vi

Introduction ......................................................................................... viii

Section I: Strategic Approaches to Internet for Organizations

Chapter I. Application Service Provision ............................................. 1Matthew W. Guah, Warwick University, UK

Chapter II. Web Services ...................................................................... 8Matthew W. Guah, Warwick University, UK

Chapter III. Concerns ......................................................................... 17Matthew W. Guah, Warwick University, UK

Chapter IV. Recommendations ........................................................... 40Matthew W. Guah, Warwick University, UK

Section II: Case Studies

Chapter V. Considering the Impact of Broadband on the Growthand Development of B2C Electronic Commerce ............................... 48

Jyoti Choudrie, Brunel University, UKYogesh Kumar Dwivedi, Brunel University, UK

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Chapter VI. A Theoretical Approach to Evaluate Online andTraditional Trading on the NASDAQ Stock Exchange ..................... 67

Haroun Alryalat, Brunel University, UKYogesh Kumar Dwivedi, Brunel University, UKJasna Kuljis, Brunel University, UKRay J. Paul, Brunel University, UK

Chapter VII. Adaptive Collaborative Work and XML Web Services:Benefits of Application into Information Infrastructure and HumanResources ............................................................................................ 86

Mayumi Hori, Hakuoh University, JapanMasakazu Ohashi, Chuo University, Japan

Chapter VIII. Helping Users, Mentally: A Lesson Learned fromHypertext 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 KeyPerformance Areas and Indicators for Healthcare .......................... 149

Matthew W. Guah, Warwick University, UKWendy L. Currie, Warwick University, UK

Section III: Thriving or Not

Chapter XI. Future Trends ................................................................ 178Matthew W. Guah, Warwick University, UK

Chapter XII. A 21st-Century Tool for Intelligent Enterprises ......... 185Mathew W. Guah, Warwick University, UK

Chapter XIII. Conclusions ................................................................ 227Matthew W. Guah, Warwick University, UK

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Glossary ............................................................................................. 259

About the Authors .............................................................................. 313

Index ................................................................................................... 318

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This book addresses the business issues and management concerns in rela-tions to Internet strategies of organisations in the 21st century. By so doing,the editors hope this book will point medium- and large-sized businesses inthe proper direction, to manage emerging technologies, such as Web servicesresources and strategies to their competitive advantage. With the phenom-enon of Web services in its infancy, the authors have drawn from works of ISpioneers Markus, Porter, Checkland, and others. Their intellectual contribu-tions, plus findings from research work by both new and experienced aca-demics in Europe, USA, and Asia, provide a framework for discussion.Web services business model was borne out of the Application Service Provi-sion (ASP) business model. ASP delivers personal productivity software andprofessional support systems, assisting an intelligent enterprise in processinginformation, solving business problems, developing new products, and creat-ing new knowledge. The need to exploit Web services capabilities to preserveand enhance organisational knowledge is clearly defined by this book.This is not a textbook, but it encompasses all the practical areas in which aninformation system strategist functions, and also those of IT and business man-agers. The following criteria that are being used as the foundation for the bestof textbooks on information systems are all explored in this book. They areInternet strategies and management concepts, the business and economic ofinformation systems environment, opportunities and information about ASPand Web services, sociological aspects of Web services buyer behaviour, psy-chological 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, communi-cations, organization, analysis, application integration, future aspirations ofservice providers, ethical issues and much more.The aim of this book is to disclose the motives and mechanisms of Web ser-vices as it is developing and changing as the 21st century unfolds. Internetstrategies cannot be described intelligently without exploring some fundamen-tal features and problems of society as a whole. That many IT managers insmall and medium-size businesses are either directionless, like a boat withouta rudder, or are drowning beneath waves of Internet strategies managementtheories that pass over their heads, and others that persist in spite of the factthat they remain unproven, may well be a reflection of the draft of generaleconomic slowdown.An IT manager or Information Systems strategist or Business Operations man-ager will find that this book:

• Balances systems theory and proven Internet management frameworkswhich are illustrated with practical cases;

• Explains the strategic management of Internet policies in terms of capa-bilities of IT in business; and

• Provides a good guide to those who need to discover how to apply Internetfor strategic advantage of an organization.

Matthew W. Guah & Wendy L. CurrieLeamington, Warwickshire, UKJune 2005

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This book is about strategic direction of Internet strategies and the manage-ment of strategic change to emerging technologies, in general, and Web ser-vices, in particular. To deal with this complex topic we have structured thisbook into three parts containing six main areas. The first section looks at acomprehensive framework of the emerging technologies process upon whichthis book is structured. This part also includes chapters on Application Ser-vice Provision (ASP), Web services, Concerns, and Recommendations. Thesechapters clarify the various issues relating to this new phenomenon in Internetstrategy.Section II includes chapters on case studies from different parts of the worldshowing how Web services are being used to benefit businesses. They showleadership in the Internet strategic direction and decision-making and on cul-ture and values as these are forces that determine how Internet strategy canbe managed within an organization.Section III considers how a situation analysis for the future of Web servicesbusiness model might be carried out. The emphasis is on understanding thefuture of new technology strategies and the continuously changing businessenvironment and technological resources. The functional subjects that relateto the management of organizational technological resources and that under-pin a study of Internet strategy are examined.Following this Introduction is a Technology Review section that presentsthe 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 technol-ogy 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, thereality of the Web services technology has not burst on the business scenefull-blown, but has evolved over some 5 to 10 years from the ASP businessmodel. Moreover, statistical evidence to define this emerging social and eco-nomic reality has lagged behind the writers and commentators who have iden-tified the important features of this significant change.Chapter I contains ASP and discusses the rise and fall of this phenomenon ina relatively short period. This is followed by a similar discussion for the WebServices business model.This will then be followed by Concerns which discusses the engine that isdriving the Web services industry. Just as the steam, electric, and gasolineengines became the driving forces behind the Industrial Revolution of the early1900s, so the Internet and high-speed telecommunications infrastructure aremaking Web services a reality today. A resulting “information processing” in-dustry is the business sector which is providing the impetus for this revolution,with its increasingly improving array of hardware, software, and informationproducts and services. These technologies, in turn, are having and will con-tinue to have profound impacts on business management, competitive advan-tage, and productivity.Having set the stage by describing the changing business environment for or-ganizations today, Recommendations then moves to the need for each en-terprise to fundamentally think its corporate strategy. The situation can becompared to the railroad industry in the late 1800s. It had to change its mind-set from one of buying up large land tracts and laying railroad ties to one ofmoving goods and people from one place to another, so companies todaymust reconsider their traditional lines of business as they begin operating in the21st century. For Web services vendors, it is not just a question of selling aproduct, but of selling a solution to a customer’s problem. This is where thelines between delivering the services and traditional versus emerging marketsare blurring and changing.The qualitative dimension is as important in the Web services industry as thequantitative dimension. Quality control must be built into the front end of theservice delivery cycle, not viewed as a last-minute check to be done justbefore contracts are reviewed. Here is where the human factor is introducedinto our discussion. In essence, the intelligent enterprise is a distributed net-work of human talent. Within the individual enterprise, outmoded human re-sources management philosophies must be replaced by modern approachesthat maximize the brain contribution to the products and services, not just thebrawn 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 theelements 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 tothe quality-of-life motive. However, we do endeavor to point out that thisstrategy presents both risks and opportunities for every business in the 21st

century. Much of this discussion implicitly recognizes that doing business in anintelligent enterprise forces suppliers, producers, and consumers into far closerproximity with one another than is the case in an industrial economy.Before the concluding statements, we invite the reader to look at more formsof Web service applications involving implementation issues from active re-searchers in both Europe and Asia. Haroun Alryalat and his colleagues atBrunel University, London, report on a strategy involving the Stock Exchange.Mayumi Hori and Masakazu Ohashi both at Hakuoh University, Japan, andPaulus Insap Santosa at the National University of Singapore, report on somerespectable projects taking place in Asia involving Web services in the distri-bution of technology to that part of the world. Souad Mohammed clarifiesseveral hidden costs relating to the implementation of information systems inthe 21st century. Matthew Guah and Wendy Currie take the reader through animplementation of Web services in the UK National Health Service, summa-rizing parts I and III within a live project.Finally we examine the problem of redefining success in the business environ-ment of the 21st century in Future Trends. Central to this discussion is theidea of adding value at each stage of the information systems life cycle. ASP,as a form of technological accomplishment, had little meaning for businessesand other organizations. Unless Web services can be linked to business inno-vation, the challenge for business professionals is to find ways to improvebusiness processes by using Web services.This book has been written to take the reader into the 21st-century IS strategyparadigm. Utmost attention is paid to integrate the current business and man-agement ideas with the deployment of Web services as one of the new infor-mation technologies. Yet, the book is rooted in the concepts that have emergedover the decades of development of the IS discipline. Web services in termsof its products and services has continued to evolve over its short history. Asthese changes have progressed, the landscape of the Internet technology hasbecome crowded with new services, technologies, products, and transmis-sion media. As the Internet has continued to evolve with the discovery of newtechnologies and the integration of “older” technologies such as mobile com-puters and broadband communications, new opportunities and markets withinthis 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 businessrelationships, and conducting business transactions by means of computer tele-communications networks. Similar to the development of the Internet’s WorldWide Web, Web services has been changing both the ways organizations dealwith one another and the way internal corporate processes are carried outwith the assistance of telecommunication infrastructures. The capabilities of-fered by Web services present an opportunity to redesign the business pro-cesses of intelligent enterprises in order to reach new levels of performance.The researchers whose work underpins this book did not operate in isolationto the work of others in the IS and related fields. All through this book, se-lected examples of the existing literature will be discussed under the variousheadings of theory. Many examples and cases throughout the text have beendrawn from international business areas. The purpose is to describe someinteresting work, which was forerunner and inspiration to our research, whilemaintaining the role of theory and case studies within the interpretive traditionof IS research. The epistemology can be viewed as broadly interpretive, see-ing the pursuit of meaning and understanding as subjective, and knowledge asa social construction.

Technology Review

Change usually takes a long time, and the technology that transformed enter-prises and the economy is no exception. Why should anyone be overwroughtabout the slow growth of Web services? It took mainframe computers a de-cade or two to become central to most firms. In fact, when IBM marketed itsfirst mainframe computer, it estimated that 20 of these machines would fulfillthe world’s need for computation! Minicomputers moved into companies andschools a little faster than mainframes, but they were also considerably lessexpensive. Even the ubiquitous PC took 5 to 10 years to become an impor-tant part of work life. The road travelled by these pioneers was rocky. Actualaccomplishments seldom matched those initially envisioned. There were sev-eral reasons for this shortfall—a general lack of computer literacy among us-ers, a general lack of business literacy, and an ignorance of the managementrole by information specialists, computing equipment that was both expensiveand limited by today’s standards, and so on (McLeord, 1993). Some IS re-viewers believe that one error in particular characterized the early systemsabove 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 hind-sight, one can now describe systems designed then as being snowballed or thetask attempted being unmanageable. However, some firms stuck it out, in-vested more resources, and eventually developed workable systems—althoughmore modest in size than originally projected—while other firms decided toscrap the entire management information system idea and retreated to dataprocessing.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 sys-tems. That situation changed during the 1960s and 1970s as the number ofusers grew. It then became necessary to consider the combined needs of allusers so that the systems could function in an efficient manner. During the1980s, the situation became even tighter when a new player entered the pic-ture—the enterprise (McLeord, 1993). A stage of organization/staff relianceon information systems started in the mid-1980s with demands that informa-tion systems increased operational efficiencies and managerial effectiveness.On the back of such evolution, strategic information systems gained impor-tance as systems expected to help organizations compete. In the 21st century,information systems are being developed in an enterprise environment (seeFigure 4.1).

21st Century: The Age of InformationSociety

Beniger (1986) puts forth a seemingly influential argument that the origin ofthe information society may be found in the advancing industrialization of thelate nineteenth century. As industrial plants increased their processing speed,the need for increased resources to control manufacturing and transportationresulted in a feedback loop wherein enterprises had to process informationever faster. The demand for sophisticated information processing equipmentresulted in the development of computers. While the subsequent new tech-nologies nurtured the development of an information society, the continuingcycles 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 neces-sity in the way people in enterprises access information, communicate withothers, and do business in the 21st century. The Internet contains a distributedsoftware facility that organizes the information on it into a network of interre-lated 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 theexpansion and development of electronic commerce. The Internet is regardedin the 21st century as much more than a means of communication. It is also asource of information and entertainment that facilitates the development ofelectronic commerce. The initial stage of e-commerce ensured that all largeenterprises have computer-to-computer connections with their suppliers viaelectronic data interchange (EDI), thereby facilitating orders completed bythe click of a mouse. Unfortunately, most small companies still cannot affordsuch direct connections. Web services enable low-cost access to this serviceand having a standard PC is usually sufficient to enter this marketplace.The Internet has been a subject of enormous hype and speculation since itsexplosion in late 1980s. However, Web services can most certainly be said tobe responsible for the latest debate surrounding its usage for purposes farbeyond its original scope. By the late 1990s, ASP-like business models wereapplied by a proliferation of small businesses in the Western world, therebycreating what sometimes seemed a cult status with people from many parts ofsociety 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 infra-structure and context which is foundational but inadequate. This is the codemodel of Web services, deriving from the work of Sleeper and Robins takinga pragmatic look at the emerging Web services market (Porter & Millar, 1985).We will draw on a number of theoretical sources in search for an improvedfoundation. A link is also made to the environment reality theory of perceptionproposed by Little (1999).

Internet Strategy

Our examination of Internet strategy begins with a look at the understandingof strategy in business and it’s purpose to achieving business goals. Nearly allwritten work in the area of strategy are based on the classic book by AlfredChandler (1962), Strategy and Structure. The definition used in that book is:

The determination of the basic long-term goals of an enterprise and theadoption of courses of action and the allocation of resources necessaryfor carrying out these goals. (p. 13)

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Chandler considered strategy to be about setting general goals and decidingon the broad types of action and use of resources needed to achieve them.These involved the overall size and scope of the organization concerned, themix of products or services being provided, and the organization’s core val-ues. Such approach to strategy implies that strategies are the intended out-comes of systematic, rational decisions by top managers about clearly definedproblems. The resulting strategic change or innovation would appear as alinear, sequential process in which strategic analysis and choice would followunproblematic trend by strategy implementation.It has been recorded that Chandler’s views of strategy goes without its cri-tiques (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, evolvingincrementally and piecemeal out of the ideas and actions of people at differentlevels of the organization. Such strategies may be articulated consciously bytop management in most successful organizations. Others consider such emer-gent, adaptive, or incremental view of strategy assumes that the internal andexternal environments of organizations are inherently ambiguous, unstable, andunpredictable. Others believe strategy does not assume that managers in or-ganizations can only influence events at the margin, simply adapting pragmati-cally and opportunistically to continually changing circumstances. These au-thors consider the essence of a strategy and its crucial importance in any pro-cess of change or innovation is that it embodies the deliberate and consciousarticulation of a direction. Successful strategies require both an overall senseof direction and a continuous adaptation to change.For a deeper understanding of strategies and strategy development, it is im-perative to recognize their strong links with organization culture, the deeperlevel of basic assumptions and beliefs that are shared by members of an orga-nization that operate unconsciously and define in a basic taken-for-grantedfashion an organization’s view of itself and its environment. It has becomeeven more accepted in the 21st century that strategies are both rooted in, andpartly explained by, organization culture. Jon Clark in his book, ManagingInnovation and Change (1995), outlined how the original founders of manyof today’s large successful organizations—Ford in the USA, Marks & Spen-cer in the UK, Pirelli in Italy, and Siemens in Germany—played a crucial rolein establishing their overall strategy and organizational culture. Clark (1995)also shows that organizational culture is one of the most important areas ofstrategy which can be influenced by top managers and visionary leaders withinthe organization.

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Mintzberg (1979, 1990) shows strategies to usually exist at a number of lev-els in any organization. These strategic levels can be generally distinguishedinto corporate, business, and operational.

1. Corporate strategy is concerned with the overall size and scope of theorganization. This involves the organization’s basic goals and objectives,its core values and overall profile, as well as the general allocation ofresources to different operations.

2. Business strategy can also be referred to as competitive strategy and isconcerned with the choice of products or services to be developed andoffered to particular markets and customers. This also involves the extentto which the choices made are consistent with the overall objectives of theorganization.

3. Operational strategy is concerned with the different functions within theorganization. These functions could be production or service delivery,finance, personnel, research, or development which all influence and areintegrated within the corporate and business strategies of the organization.

The interaction and consistency between the different levels of strategy andstructure are crucial issues for the organizational performance.Clark (1995) raises the level of a long-standing debate about the relationbetween strategy and organization structure. Chandler (1962) phrased thisdebate with a phrase that “structure follows strategy.” This implies that orga-nizations should first plan their strategy before embarking on the process ofdesigning their structure to fit within such strategic plan. In contrast, Mintzberg(1990) argued that strategies are unlikely to be decided without reference toexisting structures. The relationship between strategy and structure is likely tobe reciprocity rather than a one-way determination. Mintzberg (1990) para-phrased Chandler’s “structure follows strategy” as the left foot follows theright. Clark (1995) points out that multinational corporations face a number ofcomplex structural problems in developing strategies which are not faced bysmall businesses or professional organizations.

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References

Beniger, J.R. (1986). The control revolution: Technological and economicorigins of the information society. Cambridge, MA: Harvard UniversityPress.

Chandler, A.D. (1962). Pattern in organizational analysis: A critical examina-tion. 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.nzMcLeord 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. Administra-

tive 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 Manage-

ment 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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So many people have played a role in the development of the ideas presentedhere that it is difficult to know where to begin in acknowledging them. Thefirst draft of this manuscript was written while I was a PhD student at theCentre of Strategic Information Systems in the Department of InformationSystems 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 havediscussed many of the ideas developed herein and who read and made nu-merous helpful comments and suggestions on several drafts that have beenincorporated in the final version of this book.While I was writing this manuscript, I was reading Wendy Currie’s excellentbook Value Creation from e-Business Models (Elsevier Butterworth-Heinemann, 2004). Her study clarified my thinking on many issues and con-tributed to shaping the direction of my own work. I humbly appreciate hercontinuous support and encouragement as I seek my way through the ‘trap-doors’ of academic life.This book would not have been possible without the cooperation and assis-tance of the authors, reviewers, my colleagues and the staff at Idea GroupPublishing. The editors would like to thank people at Idea Group, namely:Mehdi Khosrow-Pour for inviting us to produce this book, Jan Travers andAmanda Appicello for their contributions, Diane Huskinson and Michele Rossifor managing this project, especially for answering our questions and keepingus on schedule. A special word of thanks goes to Ms. Kristin Roth, for herdiligence and determined stewardship during this laborious project.

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Last but certainly not least my family (including Evelyn Christine, MichaelAppopo, Matthew Gbeyadeu and David Gbemie) who have all patiently bornewith me through dejection and inspiration as this book has evolved. Evelynhas also provided a steady supply of patience, sound judgement and an inde-fatigable supply of good nature for which I will continue to owe her consider-ably.

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Section I

Strategic Approachesto Internet for Organizations

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Application Service Provision 1

Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without writtenpermission of Idea Group Inc. is prohibited.

Chapter I

Application ServiceProvision

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 Internetstrategic module. It reports on several studies that concentrated on theapplication service provision module impact on the day-to-day operationof a business.

What is ApplicationService Provision (ASP)?

According to the ASP Industry Consortium, an ASP is a third-party servicefirm that deploys, manages, and remotely hosts software applications throughcentrally located services in a rental or lease agreement (ASP Consortium,

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2000). Such application deliveries are done to multiple entities from datacentres 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, usuallyreferred to as application outsourcing. While the IT industry has becomeaccustomed to selling software as a service, the ASP business model is differentdue to its scale and scope of potential and existing application softwareofferings to small, medium, and large customers. In addition, this model enablesASPs to serve their customers irrespective of geographical, cultural, organiza-tional, and technical constraints. The apparent complexity of the ASP model ledto a taxonomy including Enterprise ASP, Vertical ASP, Pure-Play ASP,Horizontal ASP, and ASP Enabler (Figure 1.1). An earlier evaluation ofdifferent 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 whichapplication outsourcing is different from traditional outsourcing. Figure 1.2provides a breakdown of traditional and application outsourcing. Probably the

Init iation

Evaluat ion

Implementat ion

Integrat ion

Serv ices

Consol idat ion

1997

2003

2002

2001

2000

1999

1998

Fu l l Service Providers (FSP)

Appl icat ion Service Del ivery (ASD)

Vir tual Appl icat ion Service Provider (VASP)

Appl icat ion Centr ic

Customer Centr ic

Figure 1.1. The evolution of the ASP models

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most noticeable difference between the two is within the relationship with thecustomer.ASP is a metamorphosis of software into a service that exists on the Web, oroften referred to by practitioners as Web-native software world. In thismodel, a giant Internet protocol (IP) network (called the Internet) is being usedto effectively turn software into a service driven function that exists as a one-to-many option. The simple explanation for ASP is that a company deliversapplication software from a central source, delivering it over a networkconnection and charging a fee for its use.ASPs can also be described as the delivery of preconfigured template softwarefrom a remote location over an IP network on a subscription-based outsourcingcontract. This is usually in a one-to-many relationship and must be viewed asa preimplementation outsourcing contract that can be billed as payment for aservice—in relation to the UK mobile phone market, a pay-as-you-go service.

Figure 1.2. Three stages of IT outsourcing (Currie & Seltsikas, 2000)

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Emergence of ASP

This section focuses on the emerging role of the ASP model. During the last fiveyears, the ASP phenomenon has grown considerably, with many establishedand start-up firms developing their ASP strategies. There is a growing aware-ness that few activities and professions have seen such a rapid change over thepast years as the activities and professions related to the field of informationsystems (Lee et al., 1995). Initially called “apps on tap,” this sourcing modelpromised to deliver best-of-breed, scalable, and flexible business applicationsto customer desktops (Kern, Willcocks, & Lacity, 2002). ASP was the hottesttopic in 2000–2001 in what was referred to in USA as “practice managementsolution.” Well-established practice management software companies includeMedic, Millbrook Corp., and Computer Sciences Corp. Other less-knowncompanies are Greenway Medical, Alteer Corp., and Perfect-Practice.MD.While these companies offer remote hosting of software to their customers inthe healthcare sector, they also promise the advantages of client-serverapplications without the expensive infrastructure or even the staff required tomaintain 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 (ASPIndustry Consortium, 2000). ASPs will have a significant impact on outsourcingpolicies and practices if the business model successfully penetratesunderexploited sectors such as health care.The early phase of the ASP model appeared to revisit the service bureau modelof the 1960s and 1970s (Currie, 2000). During this period, many companiessigned outsourcing contracts with a service bureau. The fashionable term“outsourcing” was rarely used, as the more narrow facilities managementcontracts involved mainframes data centres and bespoke software. The servicebureau model was moderately successful even though there were manytechnical, communications, and financial problems which precluded it being aviable option for many companies.In this current era, outsourcing will continue to undergo a significant shift fromthe centralized computing of the 1960s and 1970s, the distributed computingof 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 tocustomers where the latter will purchase applications on a pay-as-you-usebasis (Currie et al., 2003).

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As these historical stages have evolved, the basic strategic resources and toolsof 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 InformationSystems for its special issue in 2002, the application of knowledge andintellectual technology in response to the organized complexity of technology,organizational, and social institutions become the critical factor of productionand services.The findings of many studies provide substantial evidence for the reality of theASP industry in the USA and the transitional phase which the national economyhas moved through in progressing to ASP technology (Currie, 2000). More-over, the study also provided support for the notion that the basic sources ofwealth had shifted from capital to information and knowledge resources. IfASP is a technological and economic reality, then what is its impact onbusiness? At the outset, it is clear that the Internet’s impact on business willevolve over time and will redefine our understanding of business management,competition, and productivity. While we have been living with the conse-quences of the Internet for many years, our understanding of these shifts inhuman events has lagged behind the reality.Ironically, this delayed effect has been particularly acute in Europe in recentyears, as compared to Japan and the USA. For example, in the USA,preliminary planning in moving IT outsourcing toward an ASP model emergedas a general business goal in early 1980s, and by the late l990s it had beentranslated into a full-scale economic development strategy. Moreover, by thelate 1990s, the USA was beginning to assess its economic developmentstrategies in the ASP industry, and the impacts such pronounced shifts in ITindustry priorities would have on business.Even today, European business and political debates over IS strategic policyremain tied to traditional views of outsourcing. Many senior executives stillremain sceptical or openly critical of the ASP phenomenon. These attitudesamong corporate executives and senior managers betray some fundamentalmisunderstandings not only of the current state of the ASP industry in Europe,but also of the terms and conditions under which the advanced ASP industryin the USA will compete with European business in the future.Nearly every participant in our research with small- and medium-size compa-nies (SME) in the UK agrees that implementing ASP solutions (which some-times results in automating certain work flows) without first making necessaryfundamental 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 existingones. At the same time much-needed skills may not be backed up by jobdescriptions and functional statements. And too often the pooling of paralleland similar operations is not considered when implementing an ASP solution.Preliminary findings of our research show some conflicting stakeholdersperceptions for a successful implementation of such a model. These percep-tions not only lead to a better understanding of the ethical issues involved butalso of the complex relationship of these ethical issues with other technical,organizational, and social issues that need to be managed effectively.

What Does ASP Meanfor Your Business?

An application containing a database with all your customer information orpayment due date or records of all e-mail is stored and processed by an outsideprovider in lieu of being on your local network.This means no one in your business needs to worry about maintaining a serverfull of all this information. It is painful for an organization to have to spend ITresources maintaining servers and thinking of the disasters when the systemgoes down or an upgrade is needed. An ASP business model allows yourbusiness the luxury of having an outside service provider, who specializes inserver maintenance and support, to provide what should be an incrediblyreliable and secure IT systems—something only a few businesses could affordbefore now.A typical ASP has to submit to government audits, provide multiple servers(redundancy), four-way (4-T3) replication, backup power systems, and 24/7support. Most small- and medium-size companies cannot afford all that andkeep up to date with necessary improvements. It also allows savings fromsoftware licensing, enabling small- and medium-size companies to be aspowerful as their larger competitors. They do this by subscribing to aninexpensive monthly ASP service giving them the chance to be virtuallyunlimited in their capacity to store information.An ASP supplies a complete infrastructure for your business and manages thenetwork and all the applications that you wish to run on all the computers withinyour 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 isallowed to manage your network. Your business does not need to operate itsown server; instead, your computers are connected to the ASP’s serverthrough an open connection. One major problem with ASP uptake, so far, hasbeen that the costs of such connections have not fallen significantly asanticipated. This would have provided an attractive alternative to increasinglyexpensive network management. Moreover, your company would know inadvance what the software and management will cost because it is beingcharged 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 Conferenceon Systems Sciences, Hawaii.

Currie, W.L. (2000). Expanding IS outsourcing services through applicationservice providers. Executive Publication Series. CSIS2000/002.

Currie, W.L. (2004). The organizing vision of application service provision: Aprocess-oriented analysis. Information and Organization, 14, 237–267.

Kern, T., Willcocks, L.P., & Lacity, M.C. (2002). Application serviceprovision: Risk assessment and mitigation. MIS Quarterly Executive,1(2), 113–126.

Lee, D.M.S., Trauth, E.M., & Farwell, D. (1995). Critical skills and knowl-edge requirements of IS professionals: A joint academic/industry investi-gation. MIS Quarterly, 19(3), 313.

Ring, (2000). European market research: A report to the ASP IndustryConsortium. Ovum, March.

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Chapter II

Web ServicesMatthew W. Guah, Warwick University, UK

Abstract

Organizations today are desperate to identify new opportunities in thefacilities provided by the Internet. Few have attempted to linkinterorganizational, interfunctional and interpersonal levels of theirorganizational processes via Web services. They have undertaken thisprocess in anticipation of reshaping and improving their core businessprocesses. This chapter details how Web services could potentially makea significant different in the integration of software applications acrossmultiple platforms, sites and departments of an organization. The chapterconcludes by advising that organizations, in the process of reviewing theirInternet strategies, should at least investigate the potential impact of Webservices integration because this could sooner or later become a permanentbusiness 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 theInternet. Publishing as Web services makes the software applications morereusable and shared by many more users. Web services enable businesspartnering and thereby generate a great way of revenue streaming for thecompanies. It also helps in reducing the development, integration, and mainte-nance cost of the software application.Simple Object Access Protocol (SOAP) is the communication protocol thathelps in transporting the Extensible Markup Language (XML) messagesbetween the client and server. SOAP is nothing but XML over HypertextTransfer Protocol (HTTP). When the Web service client makes a request, theSOAP client application programming interface (API) constructs a corre-sponding XML message containing the remote method name and value for itsparameters and sends the XML message over HTTP to the server hosting theWeb services. The server receives the XML message, executes the businesslogic (may be written in Java), and sends the response back to the client.The Web services paradigm includes a programming model for applicationintegration that does not discriminate between applications deployed inside andoutside the enterprise. Integration and development of Web services can bedone in an incremental manner, using existing languages and platforms andadopting existing legacy applications (Figure 2.1). One of Web services’anticipated benefits is that human end-user interaction in the normal data entryWeb application can be replaced by direct application-to-application commu-nication.When we talk about the benefits of Web services, we cannot overlook a fewissues in using Web services as well (Sleeper & Robins, 2002). The primaryissue is security. The other Web applications, such as Java Servlets, are beingaccessed via HTTP browser. The user-specific information can be stored in theHTTP session and used for users’ session tracking. A fine example of this is theshopping cart application.However, because Web services are being invoked by the stand-alone clientapplications, the server could not have any idea about the user who is actuallymaking the request. This would pose a major problem that any unauthorizeduser 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 aretransmitted over wire (Wilkes, 2002).

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Figure 2.1. Web services integration model

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Using XML, business analysts can define policies and express them as EMLdocuments. These documents can have sections that are encrypted and thedocuments can be digitally signed, distributed, and then interpreted by thesecurity mechanisms that configure the local software. This will allow variousimplementations to map from the XML description to a local platform-specificpolicy enforcement mechanism without requiring changes to the infrastructure.

Web Services Approach

This new approach introduces the proxy-based lightweight framework forproviding secure access to the Web services being requested by the clients. Thebasic idea is to deploy a proxy Web service that receives the request from theend client on behalf of the actual Web service. The proxy service authenticatesthe end client by validating the client’s credentials, which he/she had sent alongwith the Web service request. If the client is authenticated successfully, he/shewill 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 andprocessed 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 providersin case of any problem in accessing the service.Someone might now want to raise a question about the performance of theproxy 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, theperformance figures are more acceptable.The proxy Web service uses Web services handlers to intercept XMLmessages 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 servicehandler and the proxy client is the back-end component. The two componentsare packaged into a single Web service. While the authentication handlerauthenticates the client, the proxy client invokes the actual Web service.To start with, the end client sends the request to the Web service proxy alongwith its credentials. The credentials could be either a clear text password or adigital certificate. In case of basic authentication, the credentials (username andpassword) need to be sent as HTTP header parameters. In the case ofadvanced authentication, the end client signs the XML message with his/herdigital certificate and sends the signed XML message to the server. Now theclient 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)

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implementation is invoked to verify the credentials. By providing many hooks,different kinds of implementations for the authentication could be integratedvery easily. The Lightweight Directory Access Protocol (LDAP) server can actas an ACL repository, which stores all the clients’ profiles.In the process of authenticating the client, the credentials being sent by theclients can be verified against the credentials stored in the ACL repository. Ifthey are found to be matching, the user is authenticated successfully. Other-wise, the authentication process is a failure and the handler will send the failuremessage to the end client. In the case of successful authentication, the proxyclient invokes the actual Web service by constructing a new SOAP messageand sending it to the server hosting the actual Web service.As far as the end client is concerned, he/she receives the response from theproxy Web service and the whole logic of authentication and actual serviceinvocation is abstracted out. The other advantages of this new proxy approachover 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 arean additive step forward. They will provide a standards-based way for differentservices and applications to interoperate, which will greatly reduce the integra-tion hurdles ASPs have long faced. In the process, Web service will also giveASPs increased flexibility to create and deliver more personalized hostedsolutions for their customers.Considering Web services are created and distributed by multiple entities, anASP would not be able to ensure that individual Web services will bedeveloped or run on the infrastructure of their choice. However, the ASP mustdevelop and deploy its own services with infrastructure that complies with Webservices 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 onlyconstant and therefore event horizons are immediate; businesses cannot predictwhat they will need or how they will act in a year’s time. Web services are thecurrent tools best suited to the ability to bridge the multiplicity and complexityof existing IT infrastructures. Such usefulness of ASP to an intelligent enterpriseis as important as any other in the 21st-century collaborative business environ-ment. Web services are self-contained, modular business process applicationsthat Web users or Web connected programs can access over a network—usually by standardized XML-based interface—and in a platform-independentand language-neutral way. This makes it possible to build bridges betweensystems that otherwise would require extensive development efforts. Suchservices are designed to be published, discovered, and invoked dynamically ina distributed computing environment. By facilitating real-time programmaticinteraction between applications over the Internet, Web services may allowcompanies 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 arrangementrather than by going to a central server. Through Web services systems canadvertise the presence of business processes, information, or tasks to beconsumed by other systems. Web services can be delivered to any customerdevice and can be created or transformed from existing applications. Moreimportantly, Web services use repositories of services that can be searched tolocate the desired function so as to create a dynamic value chain. The future ofWeb services goes beyond software components, because they can describetheir own functionality as well as look for and dynamically interact with otherWeb services. They provide a means for different organizations to connect theirapplications 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 softwaredevelopment and are unsurprisingly attractive to a great deal of media andindustry hype. Like almost all new Internet-related technologies, the immediateopportunities have been overstated, although we believe the eventual impactcould be huge. This can be demonstrated by the immediate and key role of Webservices which is to provide a paradigm shift in the way business manages ITinfrastructure (Hondo, Nagaratnam, & Nadalin, 2002). It provides intelligent

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enterprises with the capability of overturning the accepted norms of integrationand thereby allowing all businesses to rapidly and effectively leverage theexisting IT and information assets at their disposal.Intelligent enterprises currently running an outsourcing service are already seento be one of the early gainers of the Web service revolution. However, therewill be others as enterprises discover the hidden value of their intellectualassets. Considering most enterprises have until now used the Internet toimprove access to existing systems, information, and services, we envisage thedays when Web services promise new and innovative services that are currentlyimpossible or prohibitively expensive to deploy. With such developmentsanticipated to promote the ASP business model, Web services integration isconsidered to be at the heart of this expectation. Through this process ofconnecting businesses, ASPs will be able to quickly capitalize on new oppor-tunities by combining assets from a variety of disparate systems, creating andexposing them as Web services for the end game of fulfilling customerexpectations.It is our view that any intelligent enterprise considering the ASP business modelshould at least investigate the potential impact of Web services integration asthis will sooner or later become another permanent business necessity and nota competitive advantage material. Those intelligent enterprises that haveadopted our suggested approach will not only gain advantage now in businessfor lower costs and better return on assets, but are also expected to developvaluable experience for the first decade of the 21st century. Considering theInternet’s history, as Web services become the standard and the expertise ofASP become more established, it should become the norm.Figure 2.3 shows that holistic approach to technology always seems to workbetter than piecemeal approach to information systems solution.Web Services, as it is currently is like a two-legged table. A version of WebServices Plus being practiced by a few vendors after the dot.com crash isrepresented by the three-legged table above. However, an even more success-ful model of Web Services Plus would be a properly architectured four-leggedtable, as presented above. The analogy here is that a two-legged table is lessstable than a three-legged table while a four-legged table is even firmer (Figure2.3).

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• Technology

• Application

• Technology

• Application

• People

• Technology

• Application

• People

• Work Flow

Figure 2.3. Evolution of Web services

Conclusion

This chapter has discussed Web services and the security issues involved inusing Web services. It also briefed you about the various solutions available andhow 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 analysisof the emerging Web services market. An analysis memo from the StencilGroup. Retrieved April 2002, from www.stencilgroup.com

Wilkes, L. (2002). IBM seeks partners to drive adoption of XML Webservices. Interact, February.

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Chapter III

ConcernsMatthew W. Guah, Warwick University, UK

Abstract

As evidence relating the reality and basic features of the applicationservice provider (ASP) market continues to grow, there begins to be lessconcern about confirming that any structural economic shift has continuedhistorically, and more concern about understanding how the ASP industryis performing, and its impacts on productivity, investment, corporatecapital formation, labor force composition, and competition. Therelationship between the traditional outsourcing and the “latest wave” e-sourcing on the one hand, and Internet investment productivity on theother, is at the centre of the IT strategic problem confronting corporatemanagement in the 21st century.

Intelligent EnterpriseBusiness Environment

An intelligent enterprise exists within several environmental elements. These arethe enterprises and individuals that exist outside the intelligent enterprise andhave either a direct or indirect influence on its business activities (see Figure

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3.1). Considering intelligent enterprises are operating in different sectors, areaof emphasis, and with different policies and strategies, the environment of oneenterprise is often not exactly the same as the environment of another.The business environment for intelligent enterprises includes the enterprise itselfand everything else that affects its success, such as competitors, suppliers,customers, regulatory agencies, and demographic, social, and economicconditions. A properly implemented ASP business model would provide themeans of fully connecting an intelligent enterprise to its environmental elements.As a strategic resource, ASP helps the flow of various resources from theelements to the enterprise and through the enterprise and back to the elements(see Figure 3.1). Some of the more common resources that flow includeinformation flow from customers, material flow to customers, money flow toshareholders, machine flow from suppliers, and personnel flow from competi-tors and workers’ union.Looking at Figure 3.1, one can see a generalized theory of enterprise’sperception (Little, 1999). The theory is sufficiently imaginatively motivated sothat it is dealing with the real inner core of the ASP problem—with those basicrelationships which hold in general, no matter what special form the actual casemay take.

Intelligent Enterprise

Financial Community

Environmental Movements

Competitors

Worker’s Union Share

Holders

Suppliers

Customers Education / Researchers

International Government

Charities / NGO

National Government Local

Government

Figure 3.1. A tool for controlling influences in a complex environment

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An intelligent enterprise can succeed only by adapting itself to the demands ofits external environment, which is often represented by a number of groups(formally called stakeholders) that affect the organization’s ability to achieve itsobjectives or those affected by it. Stakeholders other than participants andcustomers form another important part of the context. Stakeholders are peoplewith a personal stake in an ASP system and its outputs even if they are neitherits participants nor its customers. Permanent among such groups are custom-ers, distributors, competitors, employees, suppliers, stockholders, venturecapitals, trade associations, government regulators, and professional associa-tions. An important role for the information systems is to keep the organizationinformed of the activities of all these stakeholders and similarly stakeholders arekept informed about the activities of the organization.Zwass (1998) describes an organization as an artificial system. He furtherdefines an organization as a formal social unit devoted to the attainment ofspecific goals. With notification that a business enterprise, as a system, has togenerate profit, though it may also pursue other objectives, including employ-ment provision, and contributing to its community generally. Zwass (1998) alsorestricts the value measurement of an artificial system to two major criteria:effectiveness (the extent to which a system achieves its objectives) andefficiency (the consumption of resources in producing given system outputs).Considering that intelligent enterprises compete in an information society, therequirements for successful competition depends on the environment. In thecase of ASP, such environment presents several serious challenges, and therole of intelligent enterprises information systems has evolved over time ascompeting enterprises attempt to meet these challenges. Few enterprises have,however, identified opportunities for deploying strategic information systemsthat have proven success in the competition process by analyzing the forcesacting in the marketplace and the chains of activities through which they deliverproducts and services to that marketplace.

Infrastructure Issues

Infrastructure is the resources the system depends on and shares with othersystems. Infrastructure is typically not under the control of the systems it servesyet it plays an essential role in those systems. For ASP the technical infrastruc-ture typically includes computer hardware, telecommunication facilities, andappropriate software designed to run on the Internet. Examining infrastructure

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may reveal untapped opportunities to use available resources, but it may alsoreveal constraints limiting the changes that can occur.Evaluation of infrastructure is often difficult because the same infrastructuremay support some applications excessively and others insufficiently. Drawingfrom Porter and Millar’s theory that information systems are strategic to theextent that they are used to support or enable different elements of anenterprise’s business strategy, this paper proposes a framework that IS inlarger organizational systems may enable their effective operation or may beobstacles (Porter & Millar, 1985). In an earlier paper we use the UK’sNational Health Service’s system infrastructure and context as two distinctmeans of determining impact on larger systems (Guah & Currie, 2002).Infrastructure affects competition between businesses, geographic regions,and even nations. Inadequate infrastructure prevents business innovation andhurts intelligent enterprise efficiency. While every international businesspersoncan see that things have changed vastly in most of Africa and South America,the significance of infrastructure as a competitive enabler or obstacle has clearlynot changed. That is because infrastructure consists of essential resourcesshared by many otherwise independent applications. A local region’s physicalinfrastructure includes its roads, public, transportation, power lines, sewers,and snow removal equipment. Its human and service infrastructure includespolice, fire, hospital, and school personnel. A region’s physical and humaninfrastructure can be either an enabler or an obstacle and is therefore a centralconcern in many business decisions. The importance of certain IS infrastructureelements serve as a key motivation for the successful implementation of ASP.The required IS infrastructure raises a broad range of economic, social, andtechnical issues such as who should pay for infrastructure? Who should haveaccess to/control over them and at what cost? Which technology should itinclude? Where ASP is involved, the economic question often puts telephonecompanies against cable companies, both of which can provide similar capa-bilities for major parts of the telecommunications system. From certain view-points, it can be considered the responsibilities of government to ensure that anational IT infrastructure is available as a key motivation for the previous buzzwords “information superhighway.”Just as local regions depend on the transportation and communication infra-structure, infrastructure issues are important for ASP implementation andoperation. These systems are built using system development tools; theiroperation depends on computers and telecommunication networks and on theIS 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 well-managed infrastructure with sufficient power makes it much easier to maximizebusiness benefits from ASP.

Inadequacy of Existing Infrastructure

Most people would agree that motorways such as the M4, M6, and M1together with railways up and down the country are a part of the UK’stransportation infrastructure. Transportation is vital to the economy; it makesthe movement of goods and people possible. Economic infrastructure providesa foundation on which to build commerce. Is there a technology infrastructure?At the national level, there is a communications infrastructure in the form ofnetworks that carry voice and data traffic. In recent years, the Internet hasbecome an infrastructure that ties a wide variety of computers together. TheInternet highlights the fact that an innovation which began as an experiment canmature to become part of the infrastructure.Infrastructure begins with the components of ASP, hardware, telecommunica-tion networks, and software as the base. A human infrastructure of IS staffmembers work with these components to create a series of shared technologyservices. These services change gradually over time and address the keybusiness processes of the intelligent enterprises. Noninfrastructure technologyis represented by applications that change frequently to serve new strategiesand opportunities (Weill, 1993).It sounds in practice that much of the justification for infrastructure is based onfaith. Weill (1993) did find one firm with a creative approach to paying forinfrastructure. The company required careful cost-benefit analysis of eachproject. When this showed higher-than-necessary benefits, it was loaded withinfrastructure 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 animmediate return. The Singapore example presents the classic case for infra-structure; a small amount of investment and guidance creates a facility on whichmany organizations can build. Networking in Singapore has the potential totransform the nature of commerce on the island and to help achieve the city-state’s goals for economic development.

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Telecommunications: Facilitating ASP Emancipation

Telecommunications is the electronic transmission of information over dis-tances. In recent years this has become virtually inseparable from computerwith a paired value that is vital for integrating enterprises. Most enterprises inthe 21st century have access to some form of telecommunications network,which is simply an arrangement of computing and telecommunications re-sources for communication of information between distant locations. Theseenterprises are usually using one of two types of telecommunications networkswhich can be distinguished by their geographical scope: local area network(LAN) and wide area network (WAN). LAN is a privately owned network thatinterconnects processors, usually microcomputers, within a building or on acompound that includes several buildings. It provides for high-speed commu-nication within a limited area where users can share facilities connected to thenetwork. On the other hand, WAN is a telecommunications network thatcovers a large geographical area which large businesses need to interconnecttheir distant computer systems. Computer networks differ in scope fromrelatively slow WAN to very fast LAN. There are several topologies andchannel capacities responsible, which the objective of this chapter does notpermit of a detailed exploration.ASPs use WAN as a fundamental infrastructure to employ a variety ofequipment so that the expensive links may be used efficiently. The variousequipments control the message transfers and make sharing the links among anumber of transfers possible. An increasing number of ASP customers haveuser PCs that are connected to a LAN that communicates with the WAN viaa gateway. In certain cases the ASP may offer common carriers and providevalue-added service that can be combined with private networks to create anoverall enterprise network.As an e-commerce phenomenon, a few of the essentials of an ASP infrastruc-ture are common carriers, value-added networks, private line, and privatenetworks. Common carriers are companies licensed, usually by a nationalgovernment, to provide telecommunications services to the public, facilitatingthe transmission of voice and data messages. As most countries permit only onecommon carrier, the service can be broken down and leased as value-addednetworks to vendors who then provide telecommunication services to their owncustomers with added values that could be of various sophistications. Forincreased speed and security, an enterprise may not want to share with othersand could take the option of leasing its own private lines or entire networks from

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a carrier. It has been proven that leasing links can result in savings from high-volume point-to-point communications.The above are the apparatus through which an ASP uses telecommunicationsto give its customer the capability to move information rapidly between distantlocations and to provide the ability for their employees, customers, andsuppliers to collaborate from anywhere, combined with the capability to bringprocessing power to the point of the application. As shown earlier in thischapter, all this offers an ASP customer the opportunities to restructure itsbusiness 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 overnightsuccess, the highly publicized security flaws have raised questions about ASPsuitability to serve as a reliable tool for the promotion of intelligent enterprisesfor the 21st century. An ASP vendor could be forgiven for thinking the primaryservice to its customers is to provide connections between possibly millions ofcomputers linked to thousands of computer networks. However, the preven-tion of unauthorized users who steal information during transmission, whosabotage computers on the network, or who even steal information stored inthose computers are major parts of the vendor’s responsibilities. Exploiting thisflaw might permit hackers to gain control of designated servers and then accessor destroy information they contain. As long as these risks are not as far fetchedas one might hope, customers would continue to be wary about the uptake ofASP business model (Currie, Desai, Khan, Wang, & Weerakkody, 2003).The many break-ins and other general security problems occurring withInternet/intranet demonstrate some of the risks of engaging in any form ofbusiness model linking to the Internet. Many ASP vendors have tried to reducethe danger using firewalls and encryptions but such maneuvers not only reducerisk, but they also reduce the effectiveness of a networked environment (seeFigure 3.2). The IT community has generally accepted that effective use ofencryption and firewall techniques could eliminate much of the risk related tounauthorized access and data theft.Does any mathematical encryption guarantee absolute security? No. Just as aphysical lock cannot provide absolute safety, encryption cannot guaranteeprivacy—if a third party uses enough computers and enough time, it will be ableto break the code and read the message. However, by choosing the encryption

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method carefully, designers can guarantee that the time required to break thecode is so long that the security provided is sufficient. It is advisable thatintelligent enterprises keep this principle in mind when thinking about Internetsecurity. When someone asserts that an encryption scheme guarantees secu-rity, what they actually mean is that although the code can be broken, the effortand time required is great. Thus, an encryption scheme that requires longer timeto 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 toreduce the danger using what is called firewalls—computers that interceptincoming transmissions and check them for dangerous content. Some fear thatthe mere process of downloading information across the Internet may entailhidden risks (see Figure 3.2). As far as performance goes, some vendors areconsidering arrangements with national telecommunication giants for betterdata access facilities over WAN. The trend toward deregulating telecommu-nications must continue globally for data rates to become a much less importantrestriction in the future.

Overcoming Obstacles to a Commercial Future

The powerful trend toward a networked society has many components, startingwith the fact that use of online networks is exploding. Businesses in the 21st

Figure 3.2. Comparison of forward and reverse proxy cache security

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century require tools that take advantage of the millions of people who haveused computer networks for business and personal uses. These businesses relyon the fact that e-mails and e-bulletin boards are not only commonplace inleading businesses but also used for purposes ranging from answering customerservice inquiries to exchanging views about personal topics and politics.Reinforcing these trends, ASP vendors are building the network capabilitiesinto their products for intelligent enterprises to see the Web services as animportant turning point for commercial opportunities because it has made theInternet so much more accessible and adaptable for nontechnical businessusers.Many obstacles are currently apparent, however, when one looks at thepossibility that ASP will become a motivational tool for intelligent enterprisesin the 21st century and a major determinant for the future of Internet influenceon 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

OBSTACLES CAUSES SOLUTIONS Organization Earlier capacity was daunting and

business strategy was unproven Advent of Web services to make ASP far easier to comprehend and adapt

Security Too many reported server break-ins and other general Internet/intranet security problems

Industry to emphasize efforts in protection machinery and firewall systems

Performance Telecommunications infrastructure available in the 1990s globally not sufficient to support requirements

Use of broadband services and improvement to infrastructure globally

Control General negative press about lack of control on the Internet and risk to criminal accessing confidential data

Some form of regulation—of an international nature—might be needed

Competition Business model does not encourage differentiation

Cooperation must be based on trust between vendors and individual customer

Hype Although ASP model was said to save costs and is enticing to SMEs, very little evidence exist

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

Table 3.1. Major obstacles and proposed solutions

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substance. The issue of organization is based on the way ASP has evolved. TheASP industry lacks the type of clear organization that would make it easy to useas a reliable and profitable business model. Although ASP vendors’ formercapacity was daunting and strategy was unproven, the advent of Web serviceswill make it far easier to comprehend and even adapt.Looking back at the Internet’s history, one sees many incidents that raise issuesabout freedom and control. Major Western nations (USA, UK, France, etc.)have either proposed or passed legislation related to criminal penalties fortransmitting, accessing, or intercepting data of the Internet illegally. Althoughthe Internet has been unregulated in the past, serious consideration of ASP-likebusiness models could result in more legislation.

ASP as Competitive Investment

The fundamental definition of what constitutes a mission-critical applicationremains relatively unchanged; it is those applications where even the smallestamount of downtime will have a significant negative impact on an enterprise’soperational efficiency and bottom line. However, the nature of what intelligententerprises now deem to be mission-critical systems has altered with a fargreater range of applications.One way to interest a manager in a new innovation is to show that a competitoris planning to adopt this innovation. Intelligent enterprises do respond tocompetition to avoid being put at a disadvantage. Banks provide a goodexample of investment in technology for competitive reasons. In an early studyof ATM deployment, Banker and Kauffman (1988) found that ATM adoptionprovided a limited advantage to certain banks. The findings suggest an earlyadvantage from installing ATMs and joining a large network. Customers clearlylike ATMs and the interconnections to the banking network it provides: thereis very little reason for a bank not to join an ATM network. In fact, becausecompetitors offer ATMs and are in networks, a new bank is almost forced toinvest in this technology. In 2002 ATMs were certainly competitive necessitiesfor banking. Some banks were closing expensive branches and installing ATMsinstead. However, since all banks can follow this strategy, it was unlikely onewould gain a significant advantage from it.The airline industry offers another example of IS as a competitive necessity. Tostart an airline in the 21st century—especially in the UK and the USA—youwould 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 reservationsand obtain tickets easily, either paper or electronic.Investments for strategy and to meet a competitive challenge may not actuallybenefit the enterprise making them. An enterprise may be forced to adopt newtechnology to stay even with the competition, as in the two examples mentionedearlier. In this case, it is not so much return on investment in ASP, but ratherwhat is the cost of not investing? Will an enterprise lose customers and marketshare because it does not have a particular technology in place? Can you entera new line of business without investing in the technology that competitors haveadopted? What kinds of services do customers expect?

ASP Implementation Strategies

The strategy one chooses for implementation has a direct impact on the levelof investment required for an ASP initiative. One strategy is to hire externalexpertise, either to develop the entire application or to work with the internalIS staff. Consultants have been available for developing ASP investments sincethe first systems appeared. Consultants will provide advice, and many willactually undertake the development of the IT application. Carried to anextreme, the enterprise can outsource the development and even the operationof an ASP application. There are a number of network providers who offercomplete xSP services (vertical, horizontal, pure play, etc.) and an enterprisemight outsource its electronic data interchange efforts to them.The major advantage of using consultants and outsourcing is the availability ofexternal expertise. ASP is so complex and difficult to implement that mostintelligent enterprises include a budget for help from a consulting enterprise thathas extensive experience with this package. When the enterprise enters into aconsulting or outsourcing agreement for an ASP initiative, it should be awareof the need to manage its relationship with the supplier. Enterprises that havedelegated the responsibility for developing a new ASP application to an outsideenterprise generally have been unhappy with the results. Managers still have tomonitor the agreement and work with the supplier. There are examples of manyvery elaborate management committees and structures established at enter-prises such as Microsoft, UNISYS, and IBM to manage outsourced IS.Evidence within the past three years have shown that situations can develop inwhich 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 ultimatesystems implementation. Among several vendor options were these primaryfour:

• 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 optionwas most taken.Intelligent enterprises should determine the uptake of ASP based on their long-term 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 thecompetitive edge the system may give the enterprise or the high payoff thesystem promises. The past phase of ASP has proven that not all systems thatappear promising will produce sufficient business results to justify their acqui-sition. However, it is no surprise that certain intelligent enterprises still find itdifficult to evaluate the worth of prospective new technology.Borrowing from Checkland’s Human Activity System (HAS) concept, an ASPvendor will have problem with certain stakeholders and surrounding issues(Checkland & Scholes, 1990):

• Client: the systems beneficiary can be difficult to identify due to theoutsourcing nature of ASP business arrangements.

• Owner: the eventual system owner may be anywhere between thenegotiating party to a fourth party somewhere and in some cases not ableto participate in the original negotiations.

• Actor: these are often individuals and groups—of various types and withvarious needs—who are usually involved in the system at different stages.

• Objective: what the project is intended to achieve is highly dependent onthe 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 andimplemented grossly affects the final outcome of the process.

• Expectation: there are often as many assumptions of a project as thenumber of times it is discussed. More important, these assumptions tendto change as one goes through various stages of the system developmentand 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 theenterprise has not developed a modern infrastructure over time, it will have toinvest 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 thisinfrastructure and develops the new applications that require it.

Problem, Solution, or Opportunity?

One stimulus for ASP solution implementation is its intention to transform theenterprise. In this light, the investment in ASP is part of a larger changeprogramme that is meant to enable intelligent enterprises’ virtual and multiple-team structures. The resulting contributions can be described as part of theoutcome of a general change effort. Change is also an opportunity. For mostof the companies involved in our research, management decided on a desiredorganization structure and used IT investments to help create it. Managersplanned for change and welcomed it as an opportunity to make the entireorganization function better. Change is always a threat, as staff members areforced 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 opportunityto reshape intelligent enterprises and make them more competitive.The push toward greater connectivity is a major factor driving ASP investmentsin the 21st century. The UK’s Department of Trade and Industry (DTI) hasencouraged (some would say mandated) a certain level of electronic datainterchange (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 pro-grams, and the Internet are all examples of the different kinds of electronicconnectivity.

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For the successful implementation of ASP in the 21st century, organizationsmust maintain a socio-technical perspective, thereby avoiding the purelytechnological approach to achieving higher productivity. Indeed, balancing thiswith the consideration of social and human aspects of technology brings theadded value of creating a workplace that will provide job satisfaction. Suchinformation systems must be designed to fit the needs of its users and theorganization at large and be capable of evolving as these needs invariablychange. Such ethical considerations of information systems have moved into theforefront as information systems have become pervasive in modern businesses.Ethics, for the most part, involve making decisions about right and wrong andnot necessarily about the possible and impossible and only remotely relates toproduction increase or decrease. The major ethical issues that have beennoticed 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 pointwhen industry analysts should implement the critical success factor (CSF). TheCSF methodology—developed by John Rockart of the Massachusetts Insti-tute of Technology—defined as those few critical areas where things must goright for the business to flourish—derives organizational information require-ments from the key info needs of individual executives or managers. CSFmethodology is oriented toward supporting an enterprise’s strategic direction.By combining the CSFs of these managers, one can obtain factors critical to thesuccess of the entire enterprise. Such an approach has been proven to be usefulin 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 performingwork and improving business process (Alter, 1996). The old-fashioned viewof employee involvement—employee following the employer’s instruction inreturn for a wage—encourages employee to be passive, take little initiative, andoften view themselves as adversaries of the enterprise and its management. Incontrast, truly involved employees feel a responsibility to improve their workpractices with the help of managers and others in the enterprise.

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ASP can directly affect employee involvement. ASP can generally be deployedin ways that increase or decrease employee involvement in their work. An ASPbusiness model that provides information and tools for employees increasesinvolvement because it reinforces the employee’s authority and responsibilityfor work. On the other hand, an ASP business model that provides informationto managers or quality inspectors but not their employees can reduce involve-ment by reinforcing the suspicion that the employee is not really responsible.The human and service side of the infrastructure in intelligent enterprises oftengets short shrift in discussions of new systems or system enhancements.Business professionals are often surprised at the amount of effort and expenseabsorbed by the human infrastructure. The tendency toward organizationaldecentralization and outsourcing of many system-related functions makes iteven more important to include human infrastructure in the analysis of newsystems.

Human Factors in ASP Technologies Development

The rapid rate of development of these technological miracles, as they wouldhave been viewed from an earlier age, has created a momentum of its own, andit is not surprising that concomitant concerns have also developed about theimpact and influence of ASP on human society. The shrinking of time and spaceenabled by ASP has benefits in terms of task efficiency and wider capability forcommunication, but it is less obvious that ease of management or even stressat work are improved at a deeper level (Markus, 1983).The above discussion should not be taken to imply that ASP models determinethe direction of intelligent enterprise management. The development and the useof an ASP solution is within management control and there is no inevitable futurepath. However, it can be argued that the quantity and quality of debate aboutthe human and societal impact of computers and related technology has notmatched that rate of development of the technologies themselves (Walsham,1993). For example, the debate concerning ASP and its Web services inintelligent enterprises largely centres on questions of strategic importance andvalue for money rather than deeper issues of human job satisfaction and qualityof life.While the mechanistic view of enterprise formed the early foundation of anintelligent enterprise management, the image of enterprises as organisms hasarguably been the most influential metaphor for management practice over the

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last few decades. The corporeal view sees intelligent enterprises as analogousto living systems, existing in a wider environment on which they depend for thesatisfaction of various needs. The origins of this approach can be traced backto the work of Maslow (1943), which demonstrated the importance of socialneeds and human factors in work activities and enterprises effectiveness. It thenemphasized that management must concern itself with personal growth anddevelopment of its employees rather than confining itself to the lower-levelneeds of money and security.With respect to social relations as considered in Web models, it is important tonote that participants include users, system developers, the senior managementof the company, and any other individuals or groups who are affected by theASP business model. Kling (1987) notes that computing developments will beattractive to some enterprise participants because they provide leverage suchas increasing control, speed, and discretion over work, or in increasing theirbargaining capabilities. Fear of losing control or bargaining leverage will leadsome participants to oppose particular computing arrangements, and topropose 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 oneold problem which continues to trouble information systems today. That is,thinking about the means by which to deal with the two aspects of any newsystem (human beings and technology) and how they can best communicatewith each other. As it relates to ASP, the industry must bring together the rightmix of social (human resources) and the technical (information technology andother technology) requirements. Here is where the key hardware and identifiedhuman alternatives, costs, availability, and constraints are married together.A synopsis of an IS problem usually appears chaotic and incomprehensible. Anexample 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 ofthe problem context but will also demonstrate that getting the context andmeaning of the problem right is more important than presentation. The primarytasks should reflect the most central elements of what is often called “problemsetting.”ASP vendors should demonstrate, when reviewing a given situation, that anyincoming information system is intended to support, develop, and executeprimary tasks originally performed by humans. They should be aware of issuesthat are matters of dispute that can have a deleterious affect upon primary tasks.

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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 reallyis complex, so the ASP industry should never approach a problem situationwith a conceited or inflated view of its own capacity. Not all problems can bemapped, discussed, and designed away. Often the ASP industry will berequired to develop a form of amnesia toward certain problems that are eitherimponderable or too political in terms of the organization or business (Guah &Currie, 2002).A detailed understanding of the above will help in providing a reasonableanswer to certain essential questions that are necessary for an ASP tosatisfactorily produce working solutions for its customers. A few of the generalquestions are: Who is doing what, for whom, and to what end? In whatenvironment is the new system to be implemented? To whom is the final systemgoing to be answerable? What gaps will any addition to the old system fill withinthe new system?

Socio-Technical Issues

An intelligent enterprise normally has separate objectives when looking at IS interms of social and technical requirements. While the social objectives refer tothe expectations of major stakeholders (i.e., employees), the technical objec-tives (Table 3.2) refer to capacity of the organization as a whole to react to keyissues.Because the social objectives (Table 3.2) of an ASP solution can broadly beseen as the expectations of the system in terms of the human beings who aregoing 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

SOCIAL TECHNICAL Being relatively self-sufficient Informing management Providing a quick service Improving timeliness Providing job satisfaction Improving communication Providing professional satisfaction Increasing information-processing

capacity Improving division’s professional status Providing a long-term facility

Table 3.2. Socio-technical benefits of ASP

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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 workrequired for the system, simultaneously achieving the authoritative influence.The technical objectives (Table 3.2) are the primary tasks one hopes that thesystem will need to undertake and would therefore need to be very specific. Itis important that ASP vendors indicate to their customers the depth of detail itneeds to go into.

Selecting Information Systems

ASP solutions come in various forms. Ideally, selecting among the alternativesshould be based on clearly stated decision criteria that help resolve trade-offsand ASP uncertainties in light of practical constraints and implementationcapabilities. The trade-offs for intelligent enterprises include things such asconflicting needs of different business processes, conflicts between technicalpurity and business requirements, and choices between performance and price.The uncertainties include uncertainty about the direction of future technologyand about what is best for the enterprise. Implementation decisions are almostnever made by formula because so many different considerations do not fit wellinto understandable formulas.Although these ideas provide some guidance and eliminate some options, thereis no ideal formula for deciding which solution and capabilities to invest in. ManyIS departments could double and still not have enough people to do all the workusers would like. In practice, many IS departments allocate a percentage oftheir available time to different project categories, such as enhancements,major new systems, and user support. However, with each category, they stillneed 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 bycomparing estimated benefits and costs (Alter, 1996). While the idea ofcomparing estimated benefits with estimated costs may sound logical, there areseveral limitations in terms of ASP business model. One could see theappropriateness when the solution’s purpose is to improve efficiency. Butwhere the system is meant to provide management information, transform anenterprise or even to upgrade the IS infrastructure, it becomes terribly difficultto predict either the benefits or the costs of the solution. Considering cost-benefit 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 understateforeseeable solution risks (Alter, 1996). Key issues for cost-benefit analysisinclude the difference between tangible and intangible benefits, the tendency tounderestimate 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 ofthe procurement process, thereby helping decision makers and administrationstaff to complete their purchasing activity. An agent-based approach to ASPis well equipped to address the challenges of multimarket package to e-procurement. This section of the paper is devoted to looking at the goal-drivenautonomous agents that aim to satisfy user requirements and preferences whilebeing 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 externalsources of goods and services. These agents are usually aware of the source’smarket model and of the protocols it uses (Zhang, Lesser, Horling, Raja, &Wagner, 2000). Service agents are not only able to determine which requeststhey can service, but also proactively to read these requests and they try to findan acceptable solution.Agent technology has been widely adopted in the artificial intelligence andcomputer science communities. An agent is a computational system thatoperates autonomously, communicates asynchronously, and runs dynamicallyon different processes in different machines, which support the anonymousinteroperation of agents. These qualities make agents useful for solving issuesin information-intensive e-business, including speaking ontology, advertising,service exchange, knowledge discovery, and so forth. In the ASP industry, theinteroperation and coordination across distributed services is very important.The desire for more cost efficiency and less suboptimal business processes alsodrives the employment of agent technology in the ASP business model. This hasresulted in the support of agent technology; more ASP agents seem to beappearing on the Internet providing e-services as well as exchanging informa-tion and goods with other agents. The interoperation of ASP agents leads to theformation of the e-Business Mall, which is an interaction space of agentcommunities under various business domains.

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As indicated in this chapter and elsewhere in this book, the significant problemsin the ASP business model are the information deficiency and asymmetrybetween the business participants. It is also difficult for each participant toexchange information products and services in an efficient manner, and topartner in an intelligent enterprise. The social nature of knowledge sharing—especially critical business knowledge—carries high complexity. The capabil-ity advertisement and knowledge discovery, upon which agent-based ap-proach to ASP depends, can only be achieved by message interaction amongdynamic processes. Knowledge or service relevance is one basis for suchapproach to be introduced to real-life business procedure and service con-tracting in the 21st century by companies.

Tangible and Intangible Benefits

Benefits are often classified as either tangible or intangible. The tangible benefitsof ASP solution can be measured directly to evaluate system performance.Examples include reduction in the time per phone call, improvement in responsetime, reduction in the amount of disk storage used, and reduction in the errorrate. Notice that tangible benefits may or may not be measured in monetaryterms. However, using a cost-benefit framework for ASP solution requirestranslating performance improvements into monetary terms so that benefits andcosts can be compared.Intangible benefits affect performance but are difficult to measure because theyrefer to comparatively vague concepts. A few of intangible benefits of a solutionare:

• 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 wellthey have been accomplished. Even if it is possible to measure intangiblebenefits, it is difficult to express them in monetary terms that can be comparedwith costs. All too often, project costs are tangible and benefits are intangible.Although hard to quantify, intangible benefits are important and should not beignored. Many of the benefits of IS are intangible.

The Role of Government

Having articulated these basic parameters, it is now possible to focus onspecific policy issues of most immediate concern to Western governments asthey develop their agendas for Internet administration. Some of the issuesaffecting the success of the ASP business model are apparent now, but othersremain 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 toinclude the electronic delivery of services and information.

• Reform of intellectual property law to accommodate access to andexploitation of works via the Internet. This is to include administration ofInternet domain names on an international basis.

• Facilitation of the development of e-commerce including national andinternational initiatives and measures to protect both suppliers and con-sumers 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. Theguiding principle is the protection of the business interest of the organizationalready using and benefiting from it. The scope of this branch of intellectualproperty is considerable and it protects trade secrets, business know-how andinformation such as lists of clients and contacts, information of a personal natureand 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. Thecontents of many databases owned by intelligent enterprises will be protectedby the law of confidence. However, the major limitation is that the information

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concerned must be of a confidential nature and the effectiveness of the law ofconfidence is largely or completely destroyed if the information concerned fallsinto the public domain; that is, if it becomes available to the public at large orbecomes common knowledge to a particular group of the public such ascomputer software companies. Nevertheless, the law of confidence can be auseful supplement for intelligent enterprises to copyright and patent law as it canprotect ideas before they are sufficiently developed to attract copyrightprotection or to enable an application for a patent to be made. Being rooted inequity, the law of confidence is very flexible and has proved capable of takingnew 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 theNinth International Conference on Information Systems, Minneapo-lis, MN.

Bergeron, F., & Bégin, C. (1989). The use of critical success factors inevaluation of information systems: A case study. Journal of Manage-ment 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 applicationsoutsourcing: Recent findings from field research. Hawaii InternationalConference on Systems Sciences, Hawaii.

Guah, M.W., & Currie, W.L. (2002). Evaluation of NHS information systemsstrategy: Exploring the ASP model. Issues of Information SystemsJournal, October.

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Kling, R. (1987). Defining the boundaries of computing across complexorganizations. In R. Boland & R. Hirschheim (Eds.), Critical issues ininformation systems research. New York: Wiley.

Little, G. R. (1999). Paper 1: Theory of perception. Retrieved June 2002, fromwww.grlphilosophy.co.nz

Markus, M.L. (1983). Power, politics and MIS implementation. Communi-cations 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 competitiveadvantage. 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 empiricalobservations. In M. Khosrow-Pour & M. Mahmood (Eds.), Strategicinformation technology management: Perspectives on organiza-tional growth and competitive advantage (pp. 547–572). Hershey,PA: Idea Group Publishing.

Zhang, X., Lesser, V., Horling, B., Raja, A., & Wagner, T. (2000). Resource-bounded searches in an information marketplace. IEEE Internet Com-puting: Agents on the Net, 4(2), 49–57.

Zwass, V. (1998). Foundations of information systems. Irwin/McGraw-Hill.

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Chapter IV

RecommendationsMatthew W. Guah, Warwick University, UK

Abstract

After looking at a few concerns we have about Web services, this chaptersuggests a number of ways to approach the Web services business model.It reminds strategists to consider a more holistic approach to ITmanagement rather than supporting their decisions with economies ofscale or cost displacement alone. The chapter uses Porter’s classictheories of competitive advantage to review Web services adoptionprocess within organizations.

Blurring In-House IT and ASP Services

One impact of the ASP industry on business is the blurring of the old boundariesin 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 atleast, “nonproductive.” In ASP, services either support the growth and survival

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of the in-house IT department, or they are perceived as socially desirable butnot economically essential. Thus, IT consultancy services are important sup-port services for short-term strategies, while “pay as you go” is perhaps nicefor business but not essential to the survival of the ASP industry. At the centreof the ASP industry and critical to its wealth-producing capacity is the need forpartnership, around which ancillary services revolve.What is commonly overlooked in this view is, first, the notion that therelationship between in-house and ASP is one of interdependence, not depen-dence. And, second, that the categories of ASP and in-house are not distinctand isolated domains, but represent two sides of a continuum. Thus, contraryto the traditional view, in ASP the growth of services helps support the growthof in-house. As the industry evolves and becomes more complex, the need fornew services and specialization in the division of labor continues to increase. In-house migrates into strategic management and monitoring of IT standard whileASP migrates into value-added services so that “business IT becomes a servicein a package form.” As the boundaries between in-house and ASP becomemore blurred through the use of improved communications technologies, theopportunities for entrepreneurs continue to increase.

Entrepreneurial Opportunities

As the ASP industry matures, a premium is placed on ideas and the strategicuse of data flow technology for new business development, rather than oneconomies 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 anadvantage in being flexible enough to evolve new products and services.Moreover, as such innovation proceeds, the role of small business as source ofemployment continues to increase in significance, particularly in the ASP-likepartnerships. Inevitably, even large corporations (such as IBM and most majorplayers) in the ASP industry, are providing opportunities for corporate entre-preneurs to test new ideas under conditions where “normal” corporate con-straints on risk-taking and new investments in internal ideas are relaxed.Corporations as large as IBM are providing opportunities for entrepreneurs toflourish internally. The term “intrapreneur” has been coined to describe thisinternal entrepreneur.

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When technological innovation is the main force leading to lower costs, thefirm’s ability to create a competitive advantage depends on its technologicalskills. Technological innovations often bring costs down—sometimes signifi-cantly—thus making the cost reduction solely attributable to economies ofscale seems comparatively minor. The enterprises responsible for these inno-vations draw a significant competitive advantage from them in terms of cost,notably when they succeed in maintaining an exclusive right upon them for a longperiod. 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 competitivestrategies: differentiation, cost leadership, focused differentiation, or cost(Porter, 1985). The use of such competitive tactics may include internal growthor innovation, mergers or acquisitions, or strategic alliances with other enter-prises or members of the same group of enterprises. However, most enterpriseselect to use the new-game strategy which can be defined as a deliberate attemptto modify the forces shaping competition and the definition of the business byparticular competitors (Buaron, 1981). Let us take Microsoft and Oracle, bothbig players in the ASP industry. The difference between spontaneous changein their competitive environments and new-game strategies has less to do withthe objective characteristics of the ASP phenomenon than with their individualattitudes with respect to ASP phenomenon. In the first case, changes are seenas external to them, requiring adaptation. In the second case, however, certaininitiatives by them are responsible for some changes in the industry and theyhave therefore deliberately based their strategy on them. Such strategies alterthe pace of the change, generally making it more rapid and direct the focus ofchange in ways that will best benefit the innovating enterprise(s).Web services technology is one of the most important foundations for ASPnew-game strategies. Thus, by accelerating the pace of Web services in theindustry, a competitor with good capability in the technology reinforces its owncompetitive position. There are numerous papers warning that such acceleratedWeb service evolution increases the difficulty that other competitors have inadapting to ASP (Gottschalk, Graham, Kreger, & Snell, 2002; Honda,

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Recommendations 43


Nagaratnam, & Nadalin, 2002; The Stencil Group, 2002; Wilkes, 2002). Bymodifying the nature and the relative importance of the key factors for successin the ASP industry, Web service technological changes that are introduced byone or more of the vendors can lead to favorable changes in the competitiveenvironment. In an industry built upon high volume, new technologies that areintroduced by some of the competitors that nullify or minimize the impact ofscale can significantly alter the nature of the competitive environment by makingsize a drawback rather than an advantage. Thus, referring back to the exampleof ASP content distribution, these innovations were driven by the actions of afew competitors, Microsoft and IBM. The changes that occurred in thecompetitive environment were thus the result of new-game strategies designedto change the rules of competition to their advantage: under the new rules, it wasno longer a disadvantage to be a small producer. The competitive impact ofsuch strategies is especially strong when the other competitors cannot use thesame type of technology because it is not easily available, for lack of trainingor for financial reasons.During the period when an enterprise controls an exclusive technology, it caneasily recoup its investment through high prices; but by the time this technologybecomes more widely dispersed, prices tend to fall dramatically with the adventof new entrants. These investments are a significant entry barrier to competi-tors. However, the enterprise still manages to retain a dominant position and agood level of profitability in business, since it had recouped its initial investmentmany times over.

Dynamics Competitiveness

Though the big vendors’ strategy depends on several factors, it is not etchedin stone; rather, it will vary with the changes in the industry’s key factors forsuccess and the relative advantage that its technology represents. Two types ofcompetitive behavior with respect to technology can be observed:

• Switching from a differentiation strategy based on a technological advan-tage to a cost leadership strategy based on scale, accumulated experi-ence, and a dominant market position; and

• Constant effort to innovate and improve technology, thereby maintaininga dynamic competitive advantage.

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44 Guah


Oracle’s relative success so far can prove that firms displaying the first type ofstrategic behavior are generally those that have been able to attain a dominantposition because of exclusive technology. As their technology becomes dif-fused over time, however, they tend to resort to competitive advantage basedon their accumulated experience, good reputation, and distribution network.The second type of strategic behavior for vendors confronted with the erosionof their technology-based competitive advantage is a sustained effort toimprove or even “reinvent” their technology; rather than “milking” their initialtechnological advantage, such firms choose to create a new competitiveadvantage through technological innovation.A vital difference between the ASP model and traditional system life cycle isthat error in this initial phase may not proof fatal. That is because the modelsupports a smooth and easily controlled change method even after it goes intooperation, mainly due to its third-party controlling nature.Table 4.1 describes the four general phases of any IS, which also serves as acommon link for understanding and comparing different types of businessprocesses 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 cumulativeimpact. Intelligent enterprises budget for individual applications of technologyand the IS staff works on a project basis. For some intelligent enterprises, thecombination of all its individual investments in technology far exceeds theirindividual impact. A good example is SAP. Here, continued investments in ASPchanged the software provision industry and SAP’s own view of its fundamen-tal business.

PHASES TARGET OBJECTIVES CHALLENGES Initiation Statement of problem IS expectations Changes in expectations

by time Development Deciding what the system should

deliver Users quite often lack a total understanding output

Implementation IS running as part of the process to support business goals achievement

Power and control issues within organization

Operation and Maintenance

Enhance system and correct bugs Diagnose/correct problems within time pressure

Table 4.1. ASP model system life cycle (adapted from Alter, 1996)

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Recommendations 45


By becoming a necessity ASP may not create much benefit for intelligententerprises that invest in it, except that ASP allows the enterprise to continuein a line of business. Who does benefit from investments of this type? Thecynical answer might be the vendors of various kinds of ASP product andservice. However, a better response is that customers benefit from betterquality goods and services, and especially better customer service.Looking at our two earlier examples, customers are much better off with thepresence of ATM and computerized reservation systems (CRS). An ATM isconvenient and allows one to access cash without presenting a check at his orher own bank. With an ATM, you do not have to worry about a foreign bankaccepting your check; from ATMs around the world you can withdraw cash.While airlines have certainly benefited from CRS, so too have customers. Youcan use a CRS to compare flights, times, ticket prices, and even on-timestatistics for each flight. A consumer can make a reservation on a flight andcomplete the transaction over the telephone or the Internet. Economists talkabout a concept called “consumer surplus.”How does consumer surplus relate to investments in strategic and competitiveinformation technology? From a theoretical standpoint, consumer surplusincreases as prices drop. The competitive use of ASP reduces costs and pricesthrough applications like those in banking and airlines. The competitive use ofASP has, in many instances, reduced prices (or held down price increases),which contributes directly to consumer surplus. Technological competition maynot always create an economic consumer surplus, but it does provide benefitsin the form of service and convenience. An ATM can save time for thecustomer, something the customer may be able to value from a dollar/poundstandpoint. The fact that two firms (IBM and Microsoft) had a similar Webservice launched within a few months of each other means that the technologywas not able to deliver a sustainable advantage from its investment. Neither wasable to raise its prices directly to pay for their Web services, so the benefits fromtheir investments in ASP all went to the customers.While the strategies of ASP vendors can thus change over time, a clear strategicdirection is indispensable to success. In addition, the transition from onestrategy to another is a very difficult and risky undertaking, since it requires acomplete reorientation of the vendors’ efforts and radically different patternsof resource allocation. As we have seen, technology is often a major factorbehind both differentiation and cost leadership strategies. It is also a criticalfactor in new-game strategies.

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46 Guah


References


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 businessstrategies for the 1990s. Chichester, UK: John Wiley & Sons.

Gottschalk, K., Graham, S., Kreger, H., & Snell, J. (2002). Introduction toWeb services architecture. 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.comWilkes, 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 Impactof Broadband on the

Growth andDevelopment of B2CElectronic Commerce

Jyoti Choudrie, Brunel University, UK

Yogesh Kumar Dwivedi, Brunel University, UK

Abstract

Internet connectivity has a profound impact on almost all aspects ofhuman lives including social interaction and individual behaviour. Theimpacts may further foster due to the availability and access of broadbandInternet connection. This paper focuses on evaluating the impact ofbroadband on the growth and development of business-to-consumer(B2C) electronic commerce. The research data was collected from a totalof 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 useon transforming consumer behaviour towards adoption of B2C electroniccommerce. The paper illustrates how broadband use has an influence onoff-line purchase behaviour, online B2C electronic commerce and overallonline experience. The conclusions drawn are that broadband adoptionand use is encouraging the adoption of B2C electronic commerce.

Introduction

It is an established fact that Internet connectivity has a significant impact on boththe daily-life activities and electronic commerce consumer behaviour (Nie &Erbring, 2000). Internet innovation is transforming the production and deliveryof 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 thetraditional means of buying and selling (Nie & Erbring, 2000). Although theInternet is helping the spread and adoption of e-commerce, its narrow-widthconnection has been proven to be one of the major barriers against the growthand development of business-to-consumer (B2C) electronic commerce (Rose,Khoo, & Straub, 1999; Lee et al., 2001). Current research suggests thatexisting Internet connection—that is, narrowband—is limiting current con-sumption and access. Therefore, the aims of conducting this survey researchare to examine the off-line purchase behaviour and the frequency of B2C e-commerce in the broadband environment. Other related issues that areexamined in this article are reasons for shopping online, barriers to onlineshopping, reasons for subscribing to broadband, and overall online experiencein the broadband environment.This exploratory study is structured into several sections. Section 2 providesa critical review of the previous surveys correlated with broadband impact onB2C e-commerce. This is followed by a discussion of the research method fordata collection and analysis in section 3. The research findings are thenpresented in the form of graphs and charts in the section 4. These findings arecompared and discussed in section 5. Finally, the limitations, research contri-butions, and future developments are evaluated and discussed in section 6.

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Background Literature:Research Undertaken on B2CE-Commerce and Broadband

Review of the literature for this research involved research method consistingof surveys of B2C e-commerce and broadband. This is to obtain similarcontexts to this research. The initial theoretical review began by using the resultsof Rose, Khoo, and Straub (1999). The research identified six major catego-ries of technological impediments to e-commerce including that of downloaddelays. This is an attribute that broadband is viewed to overcome and is one thatthis research focussed upon (Rose, Khoo, & Straub, 1999).Broadband is described as a speedy Internet service. This is a primary factorthat derives subscribers to adopt the broadband (Bouvard & Kurtzman,2001). A McKinsey & Company (Carriere et al., 2000) study also reveals thathigh-speed and an always-on connection was the major reason for subscribingto broadband. However, increasing numbers of people are being motivated toobtain broadband by their desire to use specific Web services applications(Carriere et al., 2000). The most attractive features of broadband that UKconsumers found desirable were increased speed and the ability to make voicecalls whilst connected (Oftel, 2002). The unmetered access and the always-onnature of broadband are less-significant features. The reason for this may be thewide availability and use of narrowband unmetered packages. According to thestudy (Oftel, 2002), consumers claimed that the features of faster speeds andalways-on access offered by broadband increased Internet usage and en-hanced 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 newWeb services applications to meet consumer demands in transforming manyaspects of everyday life (Carriere et al., 2000). Consequently, broadbandconsumers behave differently as they are online four times more than narrowbandcustomers, use more online services, and their online experience is compelling(Figure 5.1) (Carriere et al., 2000). According to another study conducted byNie and Erbring (2000), the majority of Internet users engage in at least fivedistinct types of activities on the Web; however, the most widespread use is theinformation search utility for products, travel, hobbies, and general information(Nie & Erbring, 2000).

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Nie and Erbring (2000) have found that B2C online e-commerce is stillconducted by a minority of Internet users. In contrast, the McKinsey &Company study (Carriere et al., 2000) found that broadband subscribersshopped online almost twice as much as narrowband subscribers (Figure 5.1).The reason for this shift is the consumers’ broadband access overcoming theproblem of slow page loading. This has been viewed as a major cause forabandoning 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 arebeing bought online since they can connect more easily to the Internet usingbroadband (Bouvard & Kurtzman, 2001).B2C e-commerce is also being promoted via other applications utilised withinthe broadband domain. These include applications such as multimedia inresearch as explained in the following descriptions. Costa (2001) found thatbroadband 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 onthe selection and booking of holidays and travel tickets (Costa, 2001). Otherstudies that have also found the emergence of other applications via broadbandare detailed in Bouvard and Kurtzman (2001). They found that multimedia,

Figure 5.1. Internet activities performed by U.S. consumers (Source:Adapted from McKinsey & Company, 2000)

Broadband users are different

Percentage of users in the Unites States who use the Internet for ...

Exhibit 2

E-mail

Downloading software

Chat

Browsing

Buying consumer products

Researching purchases made off line

Using online financial services

Playing games

Buying software

Time spent on line

Hours per week

Narrowband Broadband

75.6

42

47

23

23

31

18

16

10

5.7

94

67

66

41

40

38

36

31

24

20.7

e-marketer: e-land inc., Ziff Davis; Time Warner; McKinsey analysis

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which is enabled by broadband, is creating a new form of consumers. Theseconsumers are focussed upon using electronic media and entertainment.Compared to narrowband users, broadband users spend 22% more total timeon electronic media and are nearly twice as likely to watch or listen todownloaded or streamed content from the Internet. However, the amount oftime per day that broadband users spent on downloaded or streamed contentis still relatively small (Bouvard & Kurtzman, 2001).The aforementioned findings are based on surveys conducted in the UnitedStates and represent a significant—yet small—fraction of broadband users.This is because the impact of broadband uses remains unclear, as the penetra-tion of broadband has not been achieved widely. Therefore, the truth of socio-behavioural change may or may not be consistent with these survey findings andthe early predictions made across the globe. To examine this in different social,cultural, and economic environment, researchers from different countries mustmove from ideological claims to empirical evidence. This is necessary to sustainbroadband technology, to improve the online consumer services, and to createa favourable environment for development and growth of B2C e-commerce.This chapter is an early attempt to provide initial and empirical evidence for thistopical and emerging phenomenon.

Research Method

As a recent phenomenon, broadband is still in the emergent stages of thedevelopment cycle. As a result, any research that is meant to emphasise itscurrent position could not be a longitudinal one. Therefore, this study wasdesigned to obtain a snapshot of the B2C e-commerce frequency and otherrelated issues in a broadband environment. For such purposes, the researchersconsidered survey as a suitable research method. A number of techniques areavailable to capture data about B2C e-commerce in the broadband environ-ment. 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 primarysurvey instrument for data collection in this investigation.Fowler (1993) has suggested that “if one is going to have a self-administeredquestionnaire, one must reconcile oneself to closed questions, which can be

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answered by simply checking a box or circling the proper response from a setprovided by the researcher.” Therefore, mainly multiple and closed questionswere included in the questionnaire except two open-ended questions. Initially,the literature review provided an understanding of the broadband impactphenomenon and the basis for the development of a draft questionnaire. A pilotstudy validated the questionnaire. This was administered to 10 known respon-dents familiar with the topic. The majority of the respondents validated thecontent of the questionnaire and suggested a number of useful improvementsthat were adopted in the final design.The final questionnaire consisted of a total of 41 questions that included 39close-ended, multiple and two open-ended questions. However, many catego-ries of this survey questionnaire are not discussed here, including consumers’online habits and activities performed online in the broadband environment. Theaforementioned categories of the survey will be presented in a separate chapter(Dwivedi & Choudrie, 2003). This is due to the focus of this chapter being anexamination of the reasons for shopping online, barriers to online shopping,reasons for subscribing to broadband, off-line purchase behaviour, frequencyof B2C e-commerce, and the overall online experience in the broadbandenvironment.Due to the uncertainty regarding personnel using the broadband facility, theresearchers adopted the snowball or chain sampling (Fridah, n.d.) methodwhen selecting the respondents for the survey. Initially, respondents withbroadband connections were contacted to complete the questionnaire via e-mail. Respondents were also requested to recommend friends and familycontacts who had broadband connections at home. This strategy led to thequestionnaire being administered to a total of 110 broadband users during theperiods of July to August 2002. The questionnaires were administered torespondents mainly using e-mail. A small number of questionnaires weredistributed personally. Of the 110 questionnaires administered, 104 respon-dents submitted completed questionnaires via e-mail.The initial stage of data analysis involved checking the responses and providinga unique identification number to each. Using SPSS (version 10.1) and Excelapplications, the research mainly generated the descriptive statistics (i.e.,frequencies, percentage, cross tables, and charts) to present the research dataobtained from the questionnaire. The qualitative data obtained from the open-ended questions were summarised and discussed in light of the quantitativedata.

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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 broadbandusers of this survey sample belonged to the age group of 20–35, had obtainedhigher education (undergraduate to postgraduate degree) qualifications, andhad a high social and economic status. The results indicated that only 10.6% ofthe respondents had broadband access at home, whilst educational institutionsserved as a major point of broadband Internet access.

Reasons for Shopping Online

According to the results of this investigation, the major reason for shoppingonline is convenience. The majority of the respondents (70.2%) stated that theirmost compelling reason for undertaking online purchasing was the convenienceof shopping. The second most compelling reason was that online shoppingsaves time (Figure 5.2).

Figure 5.2. Reasons for purchasing online

70.20%

29.80%

51.00%

49%

28.80%

71.20%

4.80%

95.20%

19.20%

80.80%

35.60%

64.40%

21.20%

78.80%

0%

20%

40%

60%

80%

100%

Res

pond

ents

Con

veni

ence

Save

Tim

e

Low

er S

earc

hC

ost

Mor

eA

war

enes

s

Shop

ping

from

Any

whe

re

Shop

ping

Any

time

Wid

er B

rand

Cho

ices

Reasons

Why Respondents Shop On-line?

NoYes

29.80%

70.20%

49.00%

71.20%

95.20%80.80%

51.00%

28.80%4.80%

64.40%78.80%

21.20%35.60%

19.20%

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Barriers to Online Shopping

Figure 5.3 depicts the three major impediments to online shopping. They areslow page loading, lack of trust, and difficult navigation sites. A little less thanhalf of the respondents (42.3%) stated that they abandoned their onlineshopping 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 isdue to the difficult navigation of products/catalogues on the site. A similarpercentage (28.8%) of people left the site without a purchase as they worriedabout trust.

Reasons for Subscribing to Broadband

This research found that the most compelling reason for subscribing tobroadband is faster access, rather than unmetered access or free home-phoneline. Slightly over half of the respondents (58%) said that the most importantreason for subscribing to broadband is the need for the high rate of data/filetransfer. Statistics show that the always-on connection is the second mostimportant reason (25%) for broadband subscription (Figure 5.4).

Figure 5.3. Reasons for abandoning online shopping

42.30%

57.70%

27.90%

72.10%

3.80%

96.20%

20.20%

79.80%

28.80%

71.20%

18.30%

81.70%

1%

99%

0%10%20%30%40%50%60%70%80%90%

100%

Res

pond

ents

Slow

Pag

e Lo

adin

g

Diff

icul

t Nav

igat

ion

Tech

nica

l

Secu

rity

Prob

lem

Lack

of T

rust

Lack

of F

eel a

nd T

ouch

Oth

ers

Reasons

Reasons for abandoned online shopping

NoYes

42.30%

57.70%

72.10%

27.90%

96.20%

79.80%

3.80%20.20%

71.20%81.70%

28.80%18.30%

1.00%

99.00%

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Consumers’ Off-Line Purchase Behaviour in theBroadband Environment

Figure 5.5 illustrates that 66% of the respondents search a site for a productbefore 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. Only4.8% of respondents undertook this activity on a daily basis.

58%

25%

17.30%

7.70%

0%

10%

20%

30%

40%

50%

60%

70%

Faster Access Alw ays-on-Connection

Un-metered Access Free Home Phone Line

Reasons

Res

po

nd

ents

Figure 5.4. Reasons for subscribing to broadband connections

24%

36.50%

21.50%

5.80% 6.70% 4.80%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Res

pond

ents

O ffline purchase research

How often respondents research before purchase off-line?

Never Rarely Monthly Weekly A few times in a week Daily

Figure 5.5. Frequency of using the Internet for off-line purchase research

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B2C Online Purchase

The results illustrated that an estimated 66% of the respondents conductedonline shopping in a broadband environment (Figure 5.6). However, thenumbers of respondents who undertake online shopping on a daily basis are stillminimal. Figure 5.6 depicts the respondents who purchase products online ona weekly or daily basis and this still falls below the 15% parameter. Further-more, the frequency of online purchasing patterns differs in line with the offeredproducts. Figure 5.7 demonstrates that books and music (55%) and travel-related products (54%) are the most widely purchased products online.Following this, computing/hardware, entertainment, electronic goods, andsoftware are the most frequently purchased goods online. In contrast, jewelery,food and beverages, and sporting goods are the least purchased productsonline.

Overall Online Satisfaction in the BroadbandEnvironment

Figure 5.8 illustrates that the majority of people (79%) who use broadbandconnections are satisfied with their online experiences. Ten percent of the

23.10%

39.40%

23.10%

9.60%

2.90% 1.90%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Res

pond

ents

O n-l ine Purchase

How often respondents purchase on-line?

Never Rarely Monthly Weekly A few times in a week Daily

Figure 5.6. Online purchase frequency

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respondents said that they are very satisfied, whilst 5 % are not satisfied withpast online experiences.

Discussions: Major Findingsand Interpretations

Broadband Internet Connection

Oftel (2002) has reported that only 2% of UK homes are connected to theInternet using broadband. In contrast, this research found that 10% of therespondents of this survey sample have broadband at home excluding thosewho have broadband both at home and work. This indicates an increase in thesurveyed population utilising a broadband connection. Contributing reasonsinclude the increasing competition amongst broadband service providers anda decline in broadband connection prices. However, the research is cautiousin making any claims on this particular issue.

How Can Broadband Promote the Adoption andDiffusion of B2C E-Commerce?

The findings of this survey clearly indicate that convenience and time saving (seeFigure 5.2) are major drivers leading to the adoption of e-commerce. SlowInternet connections were considered to be major barriers distracting consum-ers from making online purchases. The findings of this research support this.Forty-three percent of the consumers stated the major reason for abandoningonline shopping was slow page loading. The second most important reason isdifficult navigation of the site since 28% of the respondents abandoned onlineshopping due to this (Figure 5.3). These findings are further supported by theMcKinsey & Company (Carriere et al., 2000) investigations, which mentionedslow page loading as a reason for abandoning online shopping. Difficultnavigation of the site may occur due to several reasons, but one of the mostimportant factors is the slow Internet connection from both the client side andserver side (Rose, Khoo, & Straub, 1999). High traffic at peak times makesit even more difficult to navigate the site (Windham & Orton, 2000). Hence, theresearch concludes that slow page loading causes a major obstruction to online

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purchase. However, this may also trigger changes in the consumers’ attitudetowards subscribing to broadband, but only if consumers are really interestedin online purchasing.

Why do Consumers Subscribe to Broadband Internet?

According to this investigation the primary reason for subscribing to broadbandis a need for faster speed. Fifty-eight percent of the total respondents quotedthis reason. Twenty-five percent of the respondents said that a second majorreason to subscribe to broadband is an always-on connection. A free home-phone line is the least preferred reason for the respondents (Figure 5.4). Thefindings of this research validate the previous finding by Carriere et al. (2000),Bouvard and Kurtzman (2001), and Oftel (2002). That is, whether fasteraccess is a major reason for subscribing to broadband. However, the secondmost important factor that drives consumers to subscribing to broadbanddiffers from that of previous studies. This investigation supports the McKinsey& Company (Carriere et al., 2000) findings that an always-on connection is thesecond most important factor for subscribing to broadband. However, itcontradicts the findings of Oftel (2002), which found that a free home-phoneline is the second most important reason for subscribing to broadband.Consumers who use broadband connections do not like to log on repeatedlyand waste time. Therefore, the second most important reason is the always-onconnection. The Oftel (2002) report mentioned that consumers claimed that thefaster speed and always-on access offered by broadband increased usage andenhanced enjoyment. This further supports the findings and the researchers’views. On the basis of the above discussions, this research study concludes thatalthough faster access is a key factor for driving consumers to subscribe tobroadband, there are many other secondary factors, such as convenience andsaving time for online shopping, slow page loadings, unmetered access, freehome-phone line, and so forth, act as secondary triggers to stimulate consum-ers.

How Consumers’ Off-Line Purchasing Behaviour Differsfrom That in the Broadband Environment?

This research also found a significant shift towards higher levels of researchbefore purchase in a broadband environment is undertaken. Sixty-six percent

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of the respondents accepted that they search products and prices onlineregardless of the channel of actual purchase (Figure 5.5). This is a higher valuethan reported by Carriere et al. (2000). According to this research, 31% of therespondents undertake this in a narrowband environment and 38% in thebroadband environment (Figure 5.1) (Carriere et al., 2000). The results of thequalitative data also support this finding. When respondents were asked,“What do you think is the most important change that has occurred in yourshopping attitude and behaviour since having connected to the Internet?”, themajority of the respondents said that their shopping attitudes and behaviourshave been changed as they undertake more research before they purchase anyproducts. Due to broadband, consumers are much more aware of the market,products, and prices as they have better connections to the Internet. Accordingto one of the respondents, the following change in behaviour and attitude hasoccurred:

More selective in choice of product, with full understanding of the productby utilising several review sources being most important followed bycomparison of price being second. I will now search for a specific productin advance to when I’ll need it, as I’m aware of the time lag in receipt dueto post. This means I do not buy for the immediate satisfaction; however,this is replaced by the new pleasurable shopping experience of a parcelarriving at your door! My other traditional shopping behaviour haschanged, as I do not make so many compulsory purchases in the productsI buy online. However, this has not changed the shopping habits ofproducts I do not buy online.

Furthermore, when respondents were asked, “What do you think is the mostimportant change that has occurred in your online shopping attitude andbehaviour since having broadband?”, the majority of the respondents said thattheir researching behaviour changed incredibly in an online environment. Witha broadband connection, respondents researched much more than they didwith a narrowband connection. With broadband, consumers also enjoyedaccessing more graphical pages, which significantly enhanced their researchexperience. The respondents also accepted that in a broadband environmenttheir overall online experience is more compelling and enjoyable. Findings fromboth the close- and open-ended questions indicated that broadband has adirect impact on consumer behaviour related to online products and pricesresearch.

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How B2C Consumer Online Purchase Activity Differs inthe Broadband Environment

The McKinsey & Company research (Carriere et al., 2000) found that only23% of respondents purchase products using narrowband connections. On theother hand, 40% of broadband subscribers undertook online shopping (Carriereet al., 2000). This research found that 67% of the respondents had undertakenonline shopping. This is a major impact of broadband connections on onlineshopping behaviour (Figure 5.6). This is further supported by the data obtainedfrom the open-ended questions. When respondents were asked about the mostimportant change that has occurred in their online shopping attitudes andbehaviours since having connected with broadband, the majority of respon-dents said that their shopping behaviour changed incredibly in a broadbandenvironment. They accepted that they purchased more online in the broadbandenvironment since high-speed connections facilitate them to compare theproducts and prices rapidly, which results in a purchase. This issue is illustratedbelow:

Due to the speed of broadband I can compare products faster and arriveat a decision quicker, usually resulting in a buy. Slow connections result

Figure 5.7. Products purchased online

21.20%

78.80%

53.80%

46.20%

54.80%

45.20%

25%

75%

16.30%

83.70%

9.60%

90.40%

8.70%

91.30%

1.90%

98.10%

3.80%

96.20%

19.20%

80.80%

10.60%

89.40%

21.20%

78.80%

3.90%

96.20%

0%

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40%

60%

80%

100%

120%

Res

pond

ents

PC/H

ardw

are

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ks &

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ic

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ers

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age

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ting

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ds

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ng

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er

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What Respondents Purchase Online?

NoYes

78.80%

46.20%

21.20%

53.80%

54.80%

45.20%75%

83.70%

25%

90.40%

16.30%

91.30%

98.10%

9.60%8.70%

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96.20%80.80%

89.40%78.80%

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21.20%

3.90%

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in no purchase. For example, I do not shop online when I visit home as theyhave a “slow” 56k connection. Compulsive buys can occur in my home asI realise that I need a certain product that may not necessarily be on mymind when high-street shopping. Due to speed (again) I can find theproduct whilst the impetus is on me to purchase it. This may mean I ammore inclined to be persuaded by TV adverts!

Although broadband has an impact on online shopping, the frequency of onlinepurchases is not similar for all products. Figure 5.7 illustrates that books, music,travel and holiday reservations, electronic goods, personal computing, hard-ware, and entertainment are products that are purchased by the majority of therespondents more frequently. According to a framework proposed by Asch(2001), one can argue that although broadband triggers consumers to under-take more online purchases, it may or may not stimulate consumers to purchaseproducts with a high purchase value and high-risk involvement.

How Does Consumer Satisfaction Level Differ in aBroadband Environment?

With regards to the satisfaction levels obtained in a broadband environment, theMcKinsey & Company study (Carriere et al., 2000) found that 71% of thebroadband users’ online experience was compelling (Carriere et al., 2000).The investigation results showed that 89% of the respondents were satisfiedwith their online experiences (Figure 5.8). This value is even higher than that of

Respondents Overall On-line Experience

Not Satisfactory5%

Satisfactory79%

Very Satisfactory10%

Other6%

Figure 5.8. Level of satisfaction in broadband environment for onlineservices

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External triggers that stimulate consumers to subscribe to broadband

Online Activities

Broadband

Broadband use triggers changes in individuals online behaviour

Online B2C E-commerce (Thrice than before)

Use More Broadband-Specific Content & Applications

Use More Often

These Trigger Too Many New Behaviours

Consumer

Changes in Online Habit

Increase in Total Time Spent Online

Use Internet Many Times a Day

Use More Activities

Purchase More Number of Products

Secondary Factors

Faster Access

Always-on Connection

Video Streaming

Saving Time

Difficult Navigation

Slow Page Loading

Convenience

Download of Graphical Pages, Software, Music, and Video

Video Conferencing

Primary Factors

Purchase More Often

Search More Often (Product & Price)

More Positive Attitude

Consumer Overall On-line Experience is Compelling

E-commerce (B2C)

Broadband Applications

Figure 5.9. Impact of broadband on users online habits, activities performedand B-2-C consumer behaviour (see reference 11)

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previous studies. This illustrates that broadband has a significant impact onconsumer online satisfaction level.

Concluding Remarks

The results and discussions of this chapter indicate that broadband acted as acatalyst to changing consumer behaviour towards adoption of B2C e-com-merce. On the basis of discussion made in section 5, overall impact ofbroadband is illustrated in Figure 5.9.Most of the findings of this research are consistent with previous results, exceptcertain exclusions. This study suggests that most of the respondents subscribeto broadband to obtain faster access to the Internet. The percentages of B2Conline shopping numbers have increased and consumers are often satisfied withtheir online experiences. The findings and analysis of this study also suggeststhat the frequency of online purchasing differs within products. The mostfrequently purchased online products include books, music, travel and holidayreservation, entertainment, personal computing, and consumer electronics.Further, the findings of this research demonstrate that broadband will play amajor role in improving the B2C e-commerce market. Therefore, wideadoption of broadband by consumers will produce a significant impact onvarious components of the e-commerce ecology. As our results indicate,broadband accelerates the growth of B2C e-commerce, which has encourag-ing implications for the development of the B2C e-commerce market. How-ever, further in-depth studies are required before any business strategies areformed.

Limitations and Future Directions

The first limitation of this research is the scarcity of academic research and dataas references in order to discuss the findings and to generalise the results.Therefore, the research was forced to use the findings and data from industryresearch. The other limitation of this research is the generalisation of findingsthat are highlighted.

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The generalisations of this study required collecting the data randomly from awide geographical area. Furthermore, this research was also required tosupplement the questionnaire data with interviews. However, these were notpossible to undertake due to the shortage of time and resources.The data for this research have been collected within a short period of time. Thiscould, however, have been expanded over a longer period to eliminate anyvariables that may have produced anomalies in the results found. For formingany strategy, it is essential to collect longitudinal data from various segments ofconsumers. However, since broadband is still a novel area, empirical evidenceis difficult to obtain. Future directions for this research includes examiningconsumer behaviour and the applications and services that broadband canoffer.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 softwaredownload, entertainment, retail, travel and tourism, and so forth, on anindividual basis in order to determine the real impact.

References

Asch, D. (2001). Competing in the new economy. European BusinessJournal, 13(3), 119.

Bouvard, P., & Kurtzman, W. (2001). The broadband revolution: Howsuperfast Internet access changes media habits in American house-holds. Arbitron & Coleman.

Carriere, R. et al. (2000). Broadband changes everything. McKinsey &Company.

Cornford, T., & Smithson, S. (1996). Project research in informationsystems: A student’s guide. London: Macmillan.

Costa, L. (2001). Managing impact and use of “information & communicationtechnologies based services” in tourism sector, Final report on workinggroup E, June 2001. Retrieved July 20, 2002, from http://europa.eu.int/c o m m / e n t e r p r i s e / s e r v i c e s / t o u r i s m / w o r k i n g g r o u p s /finalreportejune2001en.pdf

Dwivedi, Y.K., & Choudrie, J. (2003, June 22–24). Investigating the impactof broadband upon the users’ online habits and the usage of Internet

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services. Paper presented at the International TelecommunicationSociety’s Asia-Indian Ocean Regional (ITS) Conference, Curtin Uni-versity 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.htmHall, 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 Elec-tronic Commerce Conference, Bled, Slovenia.

Nie, N.H., & Erbring, L. (2000, February 17). Internet and society: Apreliminary report. Stanford, CA: Stanford Institute for the QuantitativeStudy of Society (SIQSS).

Oftel. (2002). Consumer research programme: Internet & residential consum-ers. Retrieved June 17, 2002, from http://www.oftel.gov.uk/publica-tions/news/on55/res0202.htm

Rose, G., Khoo, H., & Straub, D.W. (1999). Current technological impedi-ments to B2C electronic commerce. CAIS Articles, 1(16). Retrievedfrom http://cais.isworld.org/articles/1-16/article.htm

Windham, L., & Orton, K. (2000). The soul of the new consumer: Theattitudes, behaviour, and preferences of e-customers. Oxford: WindsorBooks.

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Online and Traditional Trading on the NASDAQ 67


Chapter VI

A Theoretical Approachto Evaluate Online andTraditional Trading on

the NASDAQ StockExchange

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 tradingon the NASDAQ stock exchange using theoretical approach. The paperaims to derive future trends for the online stock trading. The following areobjectives of this paper: (1) To describe the current state of onlinetrading; (2) To compare the execution of quality trades between marketmakers and electronic communications networks (ECNs). By achieving

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68 Alryalat, Dwivedi, Kuljis and Paul


set objectives, this paper will provide insight into how ECNs are used andwhat impact they have on the overall NASDAQ market performance.

Introduction

The trading of stock involves three primary functions: the gathering of tradingorders, the execution of these orders, and the settlement of the trades. The coststructures and the social externalities of these three functions differ. Further-more, each has different regulatory issues. The ultimate goal of a well-functioning stock market is to bring together all possible buyers and sellers, sothat the market price reflects the combined preferences of all participants.The advent of online stock trading represents a unique opportunity to study theeffect of changes in the mix of naïve and sophisticated traders on marketbehavior. This setting allows us to investigate the descriptive validity of recentmodels of trade with asymmetrically informed investors. Most of the models oftrading 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 tobe replaced by services provided by the software industry and computers ischallenging traditional practices in the brokerage industry and stock exchange.Traditionally, stockbrokers have been known for their “full service,” as thefriendly “financial consultant” whom you knew for over 10 years, and whoknew your risk appetite. They would provide news about stocks and markets.They would also provide liberal financial advice. But they would also offeradvice, service, and preference in initial public offerings (IPOs) and blame it onthe broker. For these “services” they charge a commission that would some-times amount to a percentage of the value that you had traded. The key issuein full-service brokerages is that the brokers are compensated on tradingvolume, 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 onlinediscount brokerages (Web broker). Online brokerages replace people andtelephones 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, accessto market information, and no one to blame. Because of online services, the feepercentage declined dramatically.The start-up fixed costs of setting up an online firm are far lower than setting upa traditional full-service brokerage (Barber et al., 2001). Traders tend to havevery different preferences for trading with market makers and trading on anECN (which automatically matches, buys, and sells orders at specified prices)because of their different trading motives. These developments are commonlyattributed to the efficiency of “friction-free” electronic markets that lowertransaction 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 andinexpensive way to research investment opportunities. On the other hand, theInternet is also an excellent tool for fraudsters. For this reason, investors shouldalways think twice before investing in any opportunity for trading through theInternet. Online trading investors need to understand the risks of online tradingor in securities trading in general.The aim of this chapter is to evaluate current online and traditional trading onthe NASDAQ stock exchange using theoretical approach. The chapter aims toderive future trends for the online stock trading. The following are objectivesof this chapter: (1) To describe the current state of online trading; (2) Tocompare the execution of quality trades between market makers and ECNs. Byachieving set objectives, this chapter will provide insight into how ECNs areused and what impact they have on the overall NASDAQ market performance.Section 1 briefly introduces online stock trading and defines aims and objec-tives 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. Thesection includes the different trading mechanisms to match, buy, and sell ordersresulting 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 tounderstand the investor’s performance. Section 4 presents the existing regula-tion 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 Internethave and will continue to have a profound impact on the structure of the equitymarkets (Blume, 2000). A U.S. investor will be able to trade with just a clickon 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 limitedassets, day traders, less active traders, foreign investors, after-hour traders,and so on. The different ways of trading will evolve to satisfy their varyingneeds.An essential concept of national market system (NMS) was to make informa-tion on price, volume, and quotes for securities in all markets available to allinvestors, so that buyers and sellers of securities, wherever located, can makeinformed investment decisions and not pay more than the lowest price at whichsomeone is willing to sell, or not sell for less than the highest price a buyer isprepared to offer (SEC, 2000). The Securities ad Exchange Commission(SEC) believes full disclosure will ultimately produce informed investors andwill 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 indetermining the overall efficiency of the market. Market efficiency is largelyaffected by the way trading is organised (Fan et al., 2000). Despite proposedchanges in the securities trading process and the introduction of electronictrading systems, other processes determining market efficiency, including orderflow, price discovery, and order execution, remain largely unchanged (Figure6.1).Konana et al. (2000) find that for efficiency to move beyond the user interfaceinto the actual trading process, investors need a transparent window to observethe actual flow of orders, the time of execution, and the commission structureof various points in the trading process.

Figure 6.1. The market process of securities trading

informationsearch

orderrouting

negotiationand

agreement

clearing andsettlement

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Some researchers have argued that institutional rules, regulations, and monitor-ing functions would play a significant role in promoting efficiency and transpar-ency along the value chain in electronic markets.Transparency across market centers help to mitigate the effects of the fragmen-tation. Last trade and quote reporting provide a great deal of transparencyacross U.S. market centers, but market centers are not fully transparent. Forgreater transparency of price and quote information, the SEC in 1997 institutednew order handling rules (Schwartz, 2000).Current trends in the market structure for trading stocks will be worldwide. Thephysical location of the market center where the trade happens will not matter.Technology will make the location of the market center, the currency, and thetime of trade a matter of choice. Today, a major hindrance to the developmentof 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 SecuritiesDealers’ (NASD’s) acquisition of the American stock exchange in June 1998(Blume, 2000; Schwartz, 2000). The NASDAQ is not a physical entity. It isan over-the-counter market (OTC) and it relies on market makers to facilitatetrading and liquidity in stock (ensure that there are always buyers and sellers forNASDAQ-tested securities, and enable trades to be filled quickly and effi-ciently).For each stock, there is at least one market maker; NASDAQ is mainly adealership market with an average of approximately 12.3 market makers perNASDAQ stock. But the emergence of ECNs has added an auction elementin the NASDAQ market (Fan et al., 2000). Rather than being an auctionmarket, NASDAQ is a communication network between thousands of com-puters, which transmits real-time quote and trade data to more than 1.3 millionusers in 83 countries (www.nasdaq.com, 2002). Instead of brokers calling outorders, market makers place their name on a list of buyers and sellers, whichis then distributed by the NASDAQ in a split second to thousands of othercomputers. 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 tradeor enter an order into a NASDAQ-sponsored online execution system.NASDAQ market makers that trade listed stocks are currently linked to theexchanges through NASDAQ’s CAES system’s interface with the Intermarket

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Trading System (ITS) (these market makers are known as ITS/CAES marketmakers). ITS is an electronic order routing system that facilitates intermarkettrading of exchange-listed securities by allowing a broke-dealer in one marketcenter to send an order to another market center trading the same security ata better price.The NASDAQ is currently working on the technical and programming modi-fications 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 inthe NASDAQ system, and allows the public to access those orders.The NASDAQ is developing market structures to trade any stock in any nationin any currency. These new developments are in their infancy, but they point theway to the future. In recent years, the SEC has been extremely active inencouraging competition across market centers. These initiatives have had themost impact on NASDAQ. There are three main initiatives: the manning rules,

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Table 6.1. Market share of trade and daily share volumes of ECNs (SEC,2000)

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the order display rules, and alternative trading system (ATS) rules. Each ofthese can be understood through their interaction with each other and themarket.The manning rules require that a market maker in NASDAQ stocks execute acustomer’s limit order before executing an order for its own account (Blume,2000). Under the manning rules a market center had no obligation to displaya limit order that improved the NBBO.The order display rules required that a market maker that receives a bid or offerthat betters the NBBO take one of three actions, execute the limit orderimmediately against its own inventory, display the better price as part of its ownquote, or send the limit order to another market maker who would then havethe same three choices. The order display rules also required that the quotes ofECNs be integrated into the NBBO. The immediate effect of the order displayrules was to narrow spreads on the ECNs.The alternative trading system rules made it easier to establish a new exchangeand to fully integrate them into the national market system (NMS). Alternativetrading systems could choose to be a market participant and register as abroker-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 marketcenters. There are two principal types of market centers: market makers andECNs. As of June 2000, there were an average of 12.7 market makers perlisted stock, while for the top 1% of issues by dollar volume, there were anaverage 52.9 market makers. Although this number seems large, there is a highdegree of concentration of order flow in any stock in a limited number of marketmakers. Furthermore, all of these market makers are linked together throughelectronic trading systems.A major barrier to a new market center is obtaining a critical mass of order flowto thrive. Order flow is critical to every market center’s business. More orderflow means more revenue and trading profits (Fan et al., 2000). To displace anexisting market requires that the new market offers significantly better servicesthan the established market.

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It is useful to pause to consider the difference between an ECN and anexchange. ECNs are broker-dealers regulated by NASD; they match publicorders and do not act as principals. Both the ECN form of organisation and anexchange have advantages and disadvantages. A major advantage of an ECNis that NASD performs the regulatory function and frees the ECN from thisactivity. A major advantage of an exchange is that an exchange receives whatis termed “tape revenue.” Such tape revenue comes from the sale of quote andlast trade data to public vendors. This can represent between 20% to 40% ofan exchange’s revenue. As an ECN, the revenue goes to the NASD. Anotheradvantage 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 bothin the United States and abroad. The preponderance of stock exchange aroundthe world now has electronic trading platforms. The electronic systems are fast,inexpensive, eliminate intermediaries, and provide anonymity. Electronic tech-nology has made it possible to combine systems in new ways so as to give userssome of the options they want for working their orders.The ECN phenomenon is attributable to technological and regulatory develop-ments, and to an intensely competitive environment. ECNs’ enforced consoli-dation, transparency, and accessibility of price information are causing the flowof limit order to fragment onto multiple books, and ECNs’ cheap, fast,anonymous, and extended hours of trading is forcing NASDAQ to alter itstrading systems and organisation structures (Schwartz, 2000).Technological innovations that enable high-speed, low-cost electronic tradingsystems are dramatically changing the structure of financial markets. In theUnited States, ECNs are involved in more than a third of total NASDAQtrading volume.Today, ECNs account for approximately 30% of total share volume and 40%of the dollar volume traded in NASDAQ securities. ECNs account forapproximately 3% of total share and dollar volume in listed securities. Incontrast, in 1993 ECNs accounted for only 13% of share volume in NASDAQsecurities 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 lowcosts in addition to improved limit order exposure, anonymity, and increasedspeed.

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Investors’ choices of whether to send their orders to market maker or to anECN 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 andby 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 marketquality. ECN quotes play an important role in reducing trading costs. Barclayet al. (2001) found that an increased ECN trading improves market quality asmeasured by effective, realised, and time-weighted quoted spread. Theseimprovements occur in the overall market as well as for market maker tradesand quotes. We can explain that because, first, ECNs facilitate customer-to-customer trades that occur at better price than trades with intermediaries;second, ECNs attract a higher fraction of the informed orders than theuniformed order. This reduces the adverse selection costs faced by marketmakers. Finally, the lower spread available on ECN increase competition anddissipate any quasi-rent on preference market maker trades.ECNs offer several advantages over market makers such as spread ofexecution and anonymity. The main factor affecting the quality of execution isprice improvement (which is the opportunity, but not the guarantee, for an orderto be executed at a better price than what is currently publicly), and marketmakers give more price improvement to small trades than ECNs. Barclay et al.(2001) suggests that retail customers benefit when their small orders are sentto a market maker instead of to an ECN. Because the ECNs were notintegrated into the NASDAQ market, many retail investors traded at pricesinferior to those displayed by market makers and other subscribers on ECNs.This created a tow-tiered market—the traditional public market and the newECN market with better prices and limited access. Market makers could postquotes in private ECNs that were better than the quotes they posted in thepublic market. This allowed market makers to charge higher prices to retailcustomers and lower price to more price-sensitive institutional investors.Best execution does not require market makers to match the rounded ornondisplayed quotes on an ECN. Thus, customers may go directly to the ECNto get those better prices.ECN subscribers submit limit orders, which are posted on the system for othersubscribers to view. The ECN then matches contra-side orders for execution.In most cases, the buyer and seller remain anonymous, as the trade execution

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reports list only the ECN as the contra-side party. Subscribers may useadditional features of the ECN, such as negotiation or reserve size (Barclay etal., 2001).ECNs are challenging the traditional markets by providing low-cost trading andliquidity through electronic limit order matching systems (Barber & Odean,2001).When an order is placed to buy or sell stock, one might think about where andhow the order is executed can impact the overall costs of the transaction,including the price paid for the stock. Many investors who trade through onlinebrokerage accounts assume they have a direct connection to the securitiesmarket, but they do not. Just as investors have a choice of brokers, brokers alsogenerally have a choice of markets to execute the trade.The broker may route the order—especially a limit order—to an ECN ormarket maker. Some brokers now offer active traders the ability to directorders 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 onlinefirm. For example, problems can occur where

• an investor’s modem, computer, or Internet service provider is slow orfaulty;

• a broker-dealer has inadequate hardware or its Internet service provideris 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 delayor failure in an investors’ attempt to access an online firm’s automated tradingsystem (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 nochildren are more likely to switch to online trading. Those who switch to onlinetrading 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 alsohave higher levels of self-reported investment experience and a preference forinvesting in small-growth stocks with high market risk.Online investors do not generally receive such personal assistance; they dohave access to a vast array of financial information, often at no charge, such asmarket data, historical charts, industry reports, and analyst report. Thisinformation can assist them in making trading decisions (GAO, 2000).To help investors make informed decisions, the SEC and self-regulatoryorganisations (SROs) require that broker-dealers furnish investors informationrelating to margin trading. They have proposed rules concerning privacy ofinformation, and recommend that broker-dealers also furnish information abouttrading risk and best execution of trades. These are key investor protections.Through greater speed of execution, online trading allows investors to makeprofitable trades that would not have otherwise been available. Despite thepress given to Internet trading, only 11% used the Internet to buy or sell stockin 1998. These individuals tended to be younger, more affluent, and bettereducated than the typical investor (Blume, 2000).Some investors may anticipate unusual liquidity needs and switch online inhopes of facilitating liquidity-driven purchases or sales more easily. Investorstrade more when they go online simply because of greater ease of access, lowertrading costs make more trade potentially profitable. Lower trading costs,liquidity needs, speed of execution, and ease of access do not explain whyrational investors would trade more actively, more speculatively and lessprofitably 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 indollars 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 “daytraders,” that is, retail customers of brokerage firms who attempt to makeprofits intraday on small changes on the price of stocks who may also affectprice for some securities. Some day traders may add to market depth byproviding instant liquidity while those who try to profit from short-termmomentum 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. Onlineinvestors tilt their investments towards small-growth stocks with high marketrisk. Since the tilt towards small-growth stocks with high market risk isapparent both before and after online trading, Barber and Odean (1999) foundthat it does not appear that the switch from phone-based to online investing isaccompanied by a significant change in the stock investor’s own style.An investor may trade common stocks for many reasons. An investor with abonus to invest or a large bill to pay may buy or sell for liquidity reasons. If onesecurity in his/her portfolio appreciates considerably, he/she may rebalance torestore diversification to his/her portfolio. He/she may sell to capture a tax lossor may trade to speculate. The proposition that more information leads to betterdecision making is intuitively appealing. But the truth of the proposition dependson the relevance of the information to the decision and how well equipped thedecision maker is to use the information. Similarly, abundant data mayencourage investors to try to beat a market that is not fully efficient, but few havethe ability to beat through skill (Barber & Odean, 2001).Competitive markets will become fragmented in response to the diversedemand of investors. Some investors will prefer one type of market, whileothers will prefer other types. No single market structure will satisfy the needsof 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 ofsuch behaviour, especially when motivated by noise, can play a role instabilising or destabilising markets, it is useful to know whether such activity isindeed increased by this new technology. Choi et al. (2001) found that the Webaffected both trading frequency and trade size.It is very difficult to test whether a stock is mispriced. Furthermore, to someeconomists it is nearly technological that the market price of a stock is the rightprice. The experimental economics literature has spelled out the conditions that

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are most conducive to prolonged mispricing and speculative bubbles: whenthere is greater uncertainty about the future value of a security. E-commerceand the market have helped to create the conditions (Barber & Odean, 2001).These very active investors are often making decisions in a situation of highuncertainty. One measure of these heterogeneous beliefs and uncertainty is thevolatility of stock returns. The volatility of individual stock has increaseddramatically since the 1960s. In the 1990s, the volatility of these high-turnoverstocks 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 alsodifferences in stock purchase or sale price that may result from differentmethods of executing trades.Determining whether investors were getting the best possible executions of theirorders was difficult because the quality depended on a number of factors, suchas price, speed, and the likelihood of execution. Some online brokerages hadproblems ensuring quality execution of trading orders, SEC and NASD requirebroker-dealers to obtain the best execution available under the circumstancesfor their customer orders.Online investors can take steps to help ensure quality trade executions. TheSEC found that many online broker-dealers would accommodate a customer’srequest to route an order to a specific market center, although the customerwould likely be charged higher commission fees. Investors may be able to offsetthe higher fees by getting better prices for their trades. The chairman of the SECsaid investors would benefit greatly from more information about executionquality.

Overconfidence and Trading on Financial Markets

There has been much speculation that the development of the Internet and theWorld Wide Web has had a significant impact on financial market behaviours(Yue et al., 2000). The change in trading behaviour that takes place wheninvestors 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 thatoverconfidence leads to excessive trading.The only careful analysis of the behaviour of online investors is Barber andOdeon (1999), who focussed on the trading behaviour and investment perfor-mance of investors who switch from the phone to an online channel. Dataconstraints prevented detailed studies of individual investor’s behaviour andperformance. Barber and Odeon (2001) discovered many stylized facts: forinvestors who stay off-line, the more investors trade, the worse they perform(after transaction costs), and men perform worse than women. Barber andOdeon show that many of these results can be reconciled if investors areoverconfident of their investment success.Overconfident investors may trade even with their expected gains althoughtradings are not enough to offset trading cost (Odean, 1999). Lower costs andmore alternatives clearly benefit investors. Many of today’s investors are newto the market. Placing trades directly, rather than through a broker, can givesuch investors an exaggerated sense of control over the outcome of their trades.The vast amount of online investment data available will enable investors toconfirm their prior beliefs and may lead them to become overconfident in theirability to pick stock and other securities. Faster feedback may focus theinvestor’s attention on recent performance. Markets in which valuation areuncertain, investors are active and inexperienced, and money to invest is readilyavailable are prone to speculative bubbles, which can hurt all investors (Barber& Odean, 2001).The Internet has brought changes to investing which may bolster the overcon-fidence of online investors by providing an illusion of knowledge and an illusionof control, while also changing the decision criteria to which investors attend.These very active investors are often making decisions in a situation of highuncertainty. Online investors have concentrated their trading in e-commerceand other high-tech firms. Many e-commerce firms have novel, untestedbusiness plans. Many have little or no earning. Values are based on distantprojections, about which there is much disagreement. However, due to theillusions of knowledge and control, and the tendency of people in an informa-tion-rich environment to become more set in their beliefs, the volume andvariety of information available online have probably led to greater dispersionof beliefs and greater investor overconfidence (Barber & Odean, 2000).Overconfidence led them to trade active, and active trading caused subparperformance. Overconfidence occurs when factors ordinarily associated withimproved performance in skilled situations, such as choice, task familiarity,

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competition, and active involvement are present in situations at least partlygoverned by chance.As an innovative communication medium and information source, the Web hasa 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 overconfi-dence. Online investors generally manage their own stock portfolios andexecute trades at the click of a mouse. This fosters an illusion of control, whichreinforces overconfidence (Barber & Odean, 1999).The basic idea is that risk averse, overconfident traders trade more aggres-sively based on valid information than do rational traders (Odean, 1999). Asa result, overconfident traders are better able to exploit risky profit opportu-nities created by the trades of liquidity—motivated traders or the mistakes ofnoise traders (Hirshleifer & Luo, 2001; Yue et al., 2000).

Regulation

Regulation has facilitated the ECNs’ inroads into NASDAQ trading. TheECNs new order handling rules (the limit order display rule and the marketmaker rule) have made it much easier for a new ECN to capture public orderflow (Schwartz, 2000).

Alternative Trading System (ATS)

In the United States, alternative trading systems (ATS) have been used since1969 (instinet) and were able to acquire a significant market share by offeringintegrated electronic order routing and matching services for securities trading,by providing benefits to retail and institutional investors, such as better priceand lower commissions as the traditional exchanges. Thus, they attract not onlyprofessional 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 currentlyregistered with the commission as national securities exchanges or operated byregistered securities association.”

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ATS typically have sophisticated IT infrastructures that have been designedfrom scratch to support the relevant phases in the transaction process—particularly the automated matching and price discovery (SEC, 2000; Holtmannet 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 centeror order gathering function to be located anywhere in the world. A nationalmarket system assumes that one market will best serve the needs of allinvestors. Investors have different needs and different markets will develop toserve these needs.Monitoring and regulating this movement to global trading will be one of themajor regulatory challenges over the next decade. It will require that domesticregulators coordinate their regulations with those of other countries.NASDAQ has formed an alliance with the Hong Kong Stock Exchange totrade some of the more active NASDAQ stocks in Hong Kong in Hong Kongdollars during Hong Kong business hours. NASDAQ has also formed a jointventure to trade Japanese stock and U.S. stocks in Japan. Once it becomescheap and easy to trades across borders, there will be increased trading acrossborders.Today, a major barrier to the trading of U.S. equities worldwide is thesettlement process. The settling of trades is even more centralised for anyparticular issue, if the issue is registered either directly in the name of the owneror indirectly through an intermediary. In the United States, the Depository Trustand Clearing Corporation (DTCC) is the focal point for this transferring ofownership from one entity to another. The DTCC guarantees the contra-partyrisk. The problems that must be overcome in establishing global settlementplatforms are interrelated (Blume, 2000).It is imperative that U.S. regulatory bodies change their focus from theregulation of a domestic U.S. equity market to the challenges of regulating in aglobal market.

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Conclusions

This chapter presented what extant of the subject area of this research. Onlinestock trading mechanisms at exchanges are often hybrid of dealer and auctionmarkets. Different aspects of trading execution, which is the most commonlyused market centre at present, were discussed. This led to discussion of theway of execute order is organised and what is the impact on effective marketperformance, 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 effectivemarket performance, trading costs, and investors’ behaviour as opposed tomarket makers. In the future, researchers should empirically compare stocktrading with ECNs and market makers. This will establish the impact of onlinetrading on market performance. The findings will be helpful for investors tomake 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 ofEconomic Perspectives, 15(1), 41–54.

Barber, B.M., & Odean, T. (2000). Trading is hazardous to your wealth: Thecommon stock investment performance of individual investors. TheJournal of Finance, 4(2), 773–806.

Barber, B.M., & Odean, T. (2001). Boys will be boys: Gender, overconfi-dence, and common stock investment. The Quarterly Journal of Eco-nomics, February, 261–292.

Barclay, M.J., Hendershott, T., & McCormick, T. (2001). Electronic com-munications 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 ReserveBank of Atlanta, Sea Island, Georgia, University of Pennsylvania.

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Choi, J.J., Laibson, D., & Metrick, A. (2001). How does the Internet affecttrading? Evidence from investor behaviour in 401 (K) plans. The RodneyL. White Center for Fianncial Research, March, 1–68.

Daniel, K., Hirshleifer, D., & Subrahmanyam, A. (1997). A theory of overcon-fidence, 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 offinancial markets. Communications of the Association for ComputerMachinery, 43(11), 83–88.

Hirshleifer, D., & Luo, G.Y. (2001). On the survival of overconfident tradersin a competitive securities market. Journal of Financial Markets, 1–39.

Holtmann, C., Lattemann, C., Stefan, S., & Weinhardt, C. (2001). Transform-ing financial markets to retail investors. Proceedings of the 34th AnnualHawaii International Conference on System Sciences (HICSS), 34(1),1–8.

Konana, P., Menon, N.M., & Balasubramanian, S. (2000). The implicationsof online investing. Communications of the Association for ComputerMachinery, 34(1), 35–41.

Naik, N., & Yadav, P. (1999). The effects of market reform on trading costsof public investors: Evidence from the London Stock Exchange. June,1–46.

Odean, T. (1999). Do investors trade too much? American EconomicReview, December, 1–39.

Schwartz, R.A. (2002). Building a better stock market: New solution to oldproblems. Social Science, January, 1–29.

U.S. General Accounting Office (GAO). (2000). On-line trading: Betterinvestor protection information needed on brokers’ Web sites. May, 1–43.

U.S. Securities and Exchange Commission (SEC). (n.d.). Investor tips: Tradeexecution. Retrieved June 30, 2002, from www.sec.gov/investor/pubs/tradexec.htm

U.S. Securities and Exchange Commission (SEC). (n.d.). Investor tips: Trad-ing 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 CollaborativeWork and XMLWeb Services:

Benefits of Application intoInformation Infrastructure

and Human ResourcesMayumi Hori, Hakuoh University, Japan

Masakazu Ohashi, Chuo University, Japan

Abstract

In this chapter, we discuss XML Web services, which integrates differentsystems and applications into one comprehensive system. XML Webservices connects different entities such as corporations, governmentalbodies, and nonprofit organizations, enabling the adaptive collaborationwork (ACW) which is essential to promptly meet the increasingly diverseneeds and kaleidoscopic changes in the economy. ACW is critical in theubiquitous society where constant improvement of business processes andcooperation and collaboration with both existing and new systems are

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Adaptive Collaborative Work and XML Web Services 87


required. We propose the advanced application of XML Web servicesbased on the ACW would enable a variety of organizations to collaboratewith each other on the Internet and ultimately increase their productivityand efficiency. XML Web services effectively strengthens businessmanagement as it enables organizations to share personnel informationacross the board, therefore, organizations can unify management of theirhuman resources. In the ubiquitous society, whether it is public or private,organizations need to develop and cultivate human resources capable ofplanning integrative strategy with information and communicationstechnologies (ICT), designing and developing systems, managing hardwareand software, and operating/maintaining systems.XML Web servicesbased on the ACW gives suggestions on tactical solutions for theseemerging agendas.

Introduction

Over the past years, we have witnessed the drastic changes in our ubiquitoussociety. This networked society—enabled by the revolution of information andcommunications technologies (ICT)—can also be called a knowledge-basedsociety. Knowledge is no longer equivalent to establishing policies and buildingmachines as it used to be in a traditional industrial society in the 20th century thatsolely pursued efficiency. Rather, today’s knowledge is considered ecologicaland organic in a way that it is flexible enough to swiftly sense numerous shiftsin the environment. Furthermore, the main characteristic of knowledge in 21st-century networked society is connectivity through network for the purpose ofachieving higher goals. Such achievement is based on the innovations and newcreations. The new method that integrates a number of different systems andapplications into one system to enable the adaptive collaborative work (ACW)has been generating much attention as it may meet the diverse and growingdemands in the future of the ubiquitous society. In other words, in ourubiquitous society with advanced information and communications technolo-gies (ICT) infrastructure, tacit knowledge, the most difficult yet valuable typeof knowledge to be transmitted which is gained through personal experiencesand stored within individuals, is thought to have better chances of beingtransferred and stored on the network. Therefore, it is essential to build aplatform to make tacit knowledge more accessible and shareable in society.

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The business benefits of applying the ACW architecture with XML Webservices are clear. It enables a new collaboration practice on the computernetwork infrastructure such as internet Data Center (iDC). By implementingXML Web services, the architecture allows entities of different ontologicallevel to be linked laterally, therefore making it easier for them to appreciateeach other’s expertise, which essentially encourages further development andinnovation. In a broader sense, XML Web services collectively means anyservices involving the use of Web applications. However, in this chapter, wespecifically use the term as the technology that integrates numerous softwareapplications online and automatically conduct operations on its own. XMLWeb services is a method for collaboration between different systems includingthe legacy system which exchanges information written in XML and automati-cally processes the task on the network according to the object of eachprogram. The most innovative feature of this system is its compatibility with theInternet. This architecture also enables organizations to practice an integrativestrategy management which improves the quality of human resources practicesincluding 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 theACW and how it would strengthen and develop human resources. Further-more, we discuss telework as a major working format for the ACW and howit should be practiced in the ubiquitous society.

Adaptive Collaborative Workand Paradigm Shift

From the Perspectives of Providers to Those ofConsumers

The goal of the ACW is to push back the boundary of traditional definition ofnetwork as a “tool or system to get connected,” which focuses mostly on itsconvenience and efficiency. The ACW aims to build a new networkedcollaborative society, which sensitively captures the humanity of individuals aswell as a whole without restriction of time and location. This new networkedsociety 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 servicesproviders. However, by applying XML Web services, the ACW shifts its focusto the perspectives of consumers including those of corporations, municipali-ties, and citizens.Traditionally, using ICT tools required knowledge of the tools and process ofoperation. Hence, each operation with those tools required professionalservices from the products and services providers. XML Web services, on theother hand, automatically processes multiple inquiries of users on the Internetregardless of their data type or format without having users worry about thetechnical issues. Therefore, it offers services based on the perspectives of usersand brings about a paradigm shift in ICT.Further development of ICT based on the perspectives of users necessitatesthe building of a network infrastructure with which users can get connectedanytime, anywhere, and with anything. That is, we need to build a networkedenvironment not only with PCs but also with mobile phones and otherinformation equipments that provide access to constant Internet connectionfrom home, cars, trains, airplanes, or anywhere.

Sharing and Utilizing Knowledge Through the ACW:Furthering Knowledge Management by HumanResource Management (HRM)

Conventional business models had built information systems that operated onlywithin the organization, and interchangeability or interactivity was not wellconsidered. However, the rapid development of ICT has prompted thecreation of a seamless networked environment regardless of organizations’type and size. It has also encouraged the development of ubiquitous environ-ment where public institutions, such as government and local governments, canfreely access and utilize each other’s information and collaborate togetherwithout the boundary of time and space. Expansion of the versatility of ICT hasfacilitated many corporations and administrative agencies to merge and col-laborate with each other and enabled them to enter into new business schemes.On the other hand, it has become extremely difficult to maintain the competitiveadvantage in the present market as the culture of sharing and collaborationprevailed. Furthermore, government and local governments have been urged tomeet the diverse needs of the people while improving economic efficiency.

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In accordance with these situations, there is a growing interest in humanresource management (HRM) that suits well with the new paradigm ofknowledge integration and collaboration in the ubiquitous society. Some of thecore features of knowledge integration and collaboration for human resourcein 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 bound-

aries 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 competi-tiveness and product development, encourage restructuring of operation,create new business opportunities, and achieve higher competence and advan-tage in intellectual properties. In order for organizations to practice these corefeatures, it is essential to create an environment that nurtures members’creativity and accelerates motivation with appropriate incentives and evalua-tion.Traditionally, HRM in Japan has been considered as personnel and labormanagement holding a subordinate position in business strategies, and its mainagenda was how to better manage people at a worksite. As society movestoward a ubiquitous society, management needs to emphasize business strat-egies that evaluate a variety of shifts in the environment such as globalization andtechnical innovations. The personnel management in a knowledge managementsociety is required to operate as business strategies that are consistent withHRM.

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Demonstration Experiment on the ACWand HRM Utilizing XML Web Services

Benefits of XML Web Services and DemonstrationExperiment on the ACW

The benefits of utilizing XML Web services based on the adaptive collaborativesystem are as follows (Ohashi, 2003c):

1. It is platform independent, therefore it is usable regardless of the type ofhardware and software.

2. The connection is highly flexible, collaborative, and compatible with othersystems including the legacy system without making any changes to thesystem or data.

3. It enables the collaboration between the legacy systems and newlydeveloped systems.

4. It avoids overlapping investments of the ICT utilization and developmentby determining the development methods by module.

5. It enables the sharing of the ICT sources.6. It offers more flexibility in data process and exchange.

These benefits improve the efficiency of business-to-business (B2B) busi-nesses and customer relationship management (CRM), and produce newbusiness opportunities. Utilizing XML Web services with the adaptive collabo-rative system also enables organizations to practice an integrative strategymanagement which improves the quality of human resource system, includingpersonnel affairs, compensations, education and training of employees, andproject management by sharing their personnel information across the board.Today, in order for corporations and government agencies to achieve swiftdecision making and innovation, they need to utilize a system that efficientlymanages large-scale information and data—both in terms of quantity andquality—existing within and outside of the organization, and to make theseresources shareable.

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A University

B University

Overseas

iDCiDC

EXPERIMENTAL STUDIESData managementStorage ManagementCollaborative Work ToolsKnowledge Management Software

EXPERIMENTAL STUDIESData managementStorage ManagementCollaborative Work ToolsKnowledge Management Software

Private Sector

Collaborative Work Testbed

SAN SAN

� ��

Mesh Gigabit Eethanet or WDMMAN

Backbone

C University

NAL(National Aerospace Laboratory)

Collaborative Work, Collaborative LearningCollaborative Work, Collaborative Learning

We have been building the Next-Generation Collaboration Studies Platform inTokyo since April 2003, which is supported by the Ministry of Post andTelecommunications (Ohashi, 2003a). In order to examine the effectiveness ofreal-time ACW through telecommunication and data sharing, an experimentutilizing the knowledge management systems and the wavelength divisionmultiplexing (WDM) was conducted in cooperation with several universitiesand research institutes in Japan. We examined whether incorporating thestorage area network (SAN) collaboration systems installed in the iDC and theknowledge management system would sophisticate and enhance the quality ofreal-time collaborative work.The experiment proved that real-time operation of large volumes of data witha high-speed line to be possible and the adaptive collaborative telework to bevery effective. Beyond merely sharing data through telecommunication, theexperiment demonstrated that utilizing the knowledge management systems inconjunction with the WDM facilitates an enhanced communication structure. Inessence, the union of the two systems creates a real-time collaborative researchenvironment by allowing users to share the processes and results of researchesbetween the institutions regardless of their location. This experiment wasunique in that we developed a collaborative research system that allowsresearchers to work on several different projects at the same time and also a

Figure 7.1. Collaborative work systems

WDM

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project management system that manages all the collaborative projects as awhole.This demonstration experiment of the adaptive collaboration platform wasconducted in the following settings:

1. A collaborative research and experiment system in an integrated distrib-uted environment

2. Adaptive collaboration for visual media contents production

These trials were performed using the database and applications in thecollaborative workspace located in the external storage within the iDC. Theknowledge management systems enabled users to control access to the filesand data stored in the iDC. Not only allowing authorized individuals tocustomize the settings to obtain access to specific organizations, workgroups,and workplaces, the experiment also performed detailed control over thevisibility and invisibility of the intelligent folders, bulletin boards, and e-mails.An application that intelligently relates the databases in the external storage toeach organization and management was also introduced allowing users tovoluntarily create and/or alter the settings of the collaborative workspace. Theadaptive collaboration is also an autonomous-distributed collaborative worksystem with the iDC centralized, layered data-type sharing model, whichenables the clients distributed on the network to autonomously provide servicesto their consumers (Figure 7.1).As challenges for the future, we would like to have more organizations beinvolved in the experiment in order for the further sophistication of theknowledge management systems including the advanced utilization of humanresources management.

Utilizing Both Insource and Outsource to Support theACW

The adaptive collaboration assumes the involvement of people from multipleorganizations and multiple systems. In order to maximize its effectiveness,utilizing XML Web services which correlates a variety of platform applicationson a network at real-time speeds is considered highly critical. Value-creatingorganization management in a ubiquitous society prioritizes the acceleration of

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the decision-making process which requires significant shifts in organizations’strategies and structure. It requires organizations to promote networking ofknowledge and information, and concentrate the human resources into theircore competence. Doing so would strengthen the competitiveness for thefurther creation of intellectual properties. In order to share individuals’ knowl-edge, expertise, and know-how across the board, human resources strategiesneed to be applied in organization-wide. Organizations need to change theirstructure so that they can emphasize individuals’ abilities and potentials,contrasting to traditional organizations in which employer offers his or herability (labor) and receives financial or social security in return based on thefixed long-term contract. Organizations are required to transform their natureto collaborative, networked, flat, and to produce appropriate evaluationmethod which motivates individuals and maximizes their abilities.XML Web services effectively strengthens business management as it enablesorganization to share personnel information across the board; therefore,organizations can unify management of their human resources. For instance, anintegrative cross-section management of insource human resources mayfacilitate more effective project management, personnel management, staffing,and in-house training and education.Furthermore, organizations can increase their efficiency by concentrating theirinsource into core-competence activities while outsourcing other areas such astraining and human services. It might be easier and more efficient for small- andmedium-sized enterprises and municipalities to outsource the specialists forstrategy planning. XML Web services based on the ACW system is able totransform 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 froma mere development of ICT to further sophistication of the system of societyitself. There underlies a mission coming from the need of rebuilding theJapanese society centered on digitalization. In 21st-century society, regionalcharacteristics are valued as well as the concept of globalization. Today,decentralization is receiving more interest and demand for the elaborate, finely

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tuned services for individuals and innovative measures for promoting theirregion are increasing. In other words, people are seeking individually tailoredservices rather than many-to-many, ready-made services. In order to swiftlyand appropriately satisfy a variety of needs of residents and local organizations,further development and utilization of ICT and its infrastructure in localregions—especially within the local municipalities—are essential.In the United States, government computerization is far more advanced thanthat in Japan. Each agency cooperates with one another in a horizontal way sothat one can process a complicated task that requires services from a widerange of agencies efficiently. Furthermore, the U.S. government promotestelework within governmental agencies. On the other hand, in Japan, buildingof infrastructure for telework, which may maximize the potentials of humanresources and develop information and telecommunications systems cooper-ated 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 andprovide residents and organizations with services and appropriate securitysystems due to the financial deterioration. Therefore, computerization needs tobe fair in its cost, safe and trustworthy, and contribute and meet the needs ofresidents and local organizations.The ACW plays a vital role in enabling computerization by promoting ICT withfairly low cost. It is also highly expansible for the further development andensures security in a time of disaster. For the local municipalities and organiza-tions of the 21st century, the following are the benefits of utilizing the ACWbased on XML Web services. First, it utilizes expertise and knowledge of localstaff in a more functional and collaborative way in order to promptly meet avariety of needs of local residents and organizations. Second, unlike thesectionalism often seen among governmental agencies, information can beshared across agencies which allows people to work collaboratively, thereforereducing administrative cost. Third, it is highly important in a disaster-pronecountry such as Japan to develop a collaborative system to share any informa-tion related to disaster among the government, municipalities, prefectures,cities and towns, and local organizations to efficiently enforce the emergentmeasures.In order to utilize this disaster-related system, security has to be ensured. Eachmunicipality and organization needs to administer the system in a decentralizedmanner and to be prepared for collaboration depending on the situation. TheACW can be one of the important measures against disasters. And finally, itreduces organizations’ investment in facilities and efficiently utilizes sophisti-

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cated expertise and highly technical knowledge of human resources. Forinstance, building infrastructure of information and communications systems inmunicipalities requires advanced facilities and it could cost large amount offunds for maintenance. Furthermore, it is also difficult to hire highly experiencedpeople due to its cost. The ACW enables organizations to utilize humanresources with advanced expertise for low cost.Telework, a representative form of the ACW, shares the common benefits formunicipalities and local organizations as the ACW that we mentioned above.Today, municipalities and local organizations are required to seriously considerthe implementation of telework in order to utilize the expertise within andoutside their organizations in a collaborative, networked manner. Additionally,like the private sector, municipalities are expected to increase their productivityand become more output oriented. For those reasons, telework has drawnconsiderable interest that it would increase individuals’ productivity, networkthe human resources and encourage the collaboration between differentbranches in the organization, and utilize the outsource human resources foradvanced knowledge and expertise. Telework would ultimately create anenvironment where organizations and individuals bring their expertise andgenerate innovative ideas, which leads to new business opportunities, expan-sion 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 butalso in e-government and e-local governments. For instance, in the field ofbusiness, sharing knowledge stored in information systems of each organizationwould be imperative for the concentration of intellectual resources and compe-tence for excellence of intellectual capital regardless of the size of the organi-zation. Additionally, collaboration across the divisions would encourage achiev-ing higher goals in a more creative and strategic manner. The digitization ofgovernment and local governments today has not gone further than promotingonline application procedures and introducing procurement systems. However,in the ubiquitous society, e-government and e-local governments are expectedto further disclose their information and integrate authorized operations.Moreover, they need to expand their limited concept of digitization to thedigitization of social system at large including the welfare and healthcare of

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citizens, education, regional revitalization, job development, and others that aretightly related to our daily lives.Thus far, Japan has managed to achieve developments in social welfare, healthcare, and cultivation of human resources with the social system dependent onofficialdom. However, in the era of the rapid and drastic transformation,conventional bureaucrat-led socioeconomic structures and systems have gonethrough systematic fatigue and lost their productivity. The ACW based on ICTencourages the shift from the bureaucrat-led system to public-private sector-led or private sector-led system by linking the expertise from the two differentfields.

Conclusion

For government agencies and corporate organizations to solve emergingcomplex problems in the ubiquitous society, they will need to collaborate withother branches in their organization or build industry-government-academiarelationship to collaboratively work on the problems. In a homogeneoussociety, many problems had been solved with a comprehensive approach.However, today, it is often inevitable to divide the problem into modules andthen 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 systemand development at the module level, symbolically represent their potentials inthe ubiquitous society. Accordingly, the rapid development of the ubiquitoussociety requires human resources that creatively keeps up with the rapidity. TheXML Web services we introduced in this chapter also requires developmentand training of engineers, managers, and other human resources to take its fulladvantage and maximize its effectiveness. This illustrates the more specializedand diversified needs in the ubiquitous society that necessitate experts whocollaboratively respond to the changes in business environment and findsolutions for the emerging problems.As the most representative form of the ACW, telework needs to transform itsnature from individual teleworking to working group and to working organiza-tion for the greater sophistication of business and for corresponding to thediversification of business needs. Collaborative telework may expand theeffectiveness of knowledge management as it strategically integrates high-level

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knowledge and expertise. Furthermore, in the ubiquitous society, whether it ispublic or private, organizations need to develop and cultivate human resourcescapable of planning integrative strategy with ICT, designing and developingsystems, managing hardware and software, and operating/maintaining systems.XML Web services based on the ACW gives suggestions on tactical solutionsfor these emerging agendas.

References

Beyerlein, M.M., Freedmau, S., McGee, C., & Moran, L. (2003). Beyondteams building the collaborative organization. Jossey-Bass/Pfeiffer.

Fenson, B., & Hill, S. (2003). Implementing and Managing Telework: AGuide 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 Interna-tional IFIP-Conference, Bonn, Germany.

Hori, M. (2001). The development of IT and a new work format for womenin Japan. Proceedings of t-World 2001, The Eighth InternationalAssembly on Telework, 231 Labour Policy Studies, Ministry ofLabour, Finland, Helsinki.

Hori, M. (2002). The present situation and perspective of women’s work: Howdoes IT work? Hakuoh Business Review, 11(1), Institute of BusinessResearch, 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 possibilityof women’s work: A new work format for women in Japan. The 6th

International ITF Workshop and Business Conference “Working in theNew Economy,” Amsterdam.

Hori, M., & Ohashi, M. (2004a). Implementing adaptive collaborative teleworkin 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: Collaborativework to maintain and manage the mental health. Proceedings of the 37thAnnual Hawaii International Conference on System Sciences, Ha-waii.

Hori, M., & Ohashi, M. (2004c). Telework changes working style forJapanese women. Proceedings of AWEEB2004, International Work-shop on Advanced Web Engineering for E-Business, Frankfurt, Ger-many.

Hori, M., & Ohashi, M. (2005). Applying XML Web services into health caremanagement. Proceedings of the 38th Annual Conference on SystemSciences, Hawaii.

Illegems, V., & Verbeke, A. (2004). Moving towards the virtual work-place: Managerial and societal perspectives on telework. Chichester,UK: Edward Elgar.

Nicson, D., & Siddons, S. (2003). Remote working: Linking people andorganization. Butterworth/Heinemann.

Ohashi, M. (Ed.). (2003a). Knowledge-based collaborative work. TheReport of Supplementary Budget Project of the Ministry of Post andTelecommunications. 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 e-Community.

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 e-Community.

Ohashi, M. (Ed.). (2005). XML Web services for next generation and aview 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, ChuoUniversity.

Ohashi, M., & Hori, M. (2005). The theory of economics for networksociety. 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 structuralizationprocess based on project based learning. Journal of Policy Studies,10.

Ohashi, M., Sasaki, K., & Hori, M. (2004). On the study of knowledgestructuralization and adaptive processes based on project based learning.Journal of IPCS, 7, 55–78. The Institution of Policy and CulturalStudies, 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 knowl-edge management. Journal of Policy Studies, 9.

Steward, B. (1999). Sickness absenteeism in telework: A sociological study.Proceedings of the Fourth International Telework Workshop TeleworkStrategies for the New Workforce, 61–68.

U.S. General Services Administration. (2003). The status of telework in thefederal government. Retrieved from www.telework.gov/documents/tw_rpt03/status-toc.asp

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A Lesson Learned from Hypertext and Web Navigation 101


Chapter VIII

Helping Users,Mentally:

A Lesson Learnedfrom Hypertext and

Web NavigationPaulus 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 increasinglycommon. However, several drawbacks of the current systems often causesome user frustrations. One source of frustration is the way informationis presented on the Web. It appears that virtually anyone could become aninformation source and Web site owner. As such, it is difficult, if notimpossible, to have a standardized structure on how information shouldbe structured and presented on the Web. This chapter presents acomprehensive literature review on information seeking emphasizingaspects of human cognition. It starts by pointing out some problems theinformation seekers may encounter when searching the Web. It proceedswith a navigation metaphor to compare the real-word navigation intohypertext navigation. A psychological overview of navigation is also

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presented, followed by a discussion of mental model. The chapter concludeswith a discussion of an application of a real-world navigation strategy,called wayfinding, into a hypertext system. It shows how certain Web sitedesign elements can be used as wayfinding cues.

Introduction

The World Wide Web (WWW) is a vast collection of interconnected docu-ments. Its foundation is based on the concept of hypertext. The Web consistsof hypertext, the Internet, and multimedia (Rumpradit & Donnell, 1999). TheWeb provides individuals with the potential to access large and complexinformation sources. The increasing amount of information on the Web givesopportunities, challenges, as well as problems to individuals who engage inWeb activities. The problems came from the fact that Web search engines aredesigned to support only one type of information-seeking strategy: specifyingqueries by using terms to select documents from the database (Xie, 2000).From users’ perspective, Kuhlthau (1991) states that the information searchprocess is a form of users’ constructive activity which leads to finding themeaning of information in order to extend their state of knowledge on aparticular problem or topic. It is a process of sense making, which involves thewhole individual’s experience, feelings, thoughts, and actions. Theoretical andempirical studies have identified user goal as the most important factor indefining information-seeking behavior (Belkin, Marchetti, & Cool, 1993). Thissuggests that we approach information system design from the point of view ofits users; specifically to determine how users view their domains, goals, andtasks in specifying the range and relationships of relevant information sources,and the most appropriate means of accessing them (Belkin et al., 1991). Toprovide assistance to its users, computerized information providers need toperform the following functions (Raskutti & Zukerman, 1997):

1. Recognize the goal that user is pursuing on the basis of user’s initial requestand subsequent utterances, and propose a plan to satisfy the user’s goal;and

2. Generate clarification and information-seeking queries and negotiate auser’s specifications when needed, and generate answers that inform theuser 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 acomprehensive literature review on information seeking emphasizing aspects ofhuman cognition. This chapter is divided into six sections. The section followingthis introduction points out some problems the information seekers mayencounter when searching hypertext and the Web. The second section dis-cusses 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 discussesan application of a real-world navigation strategy, called wayfinding, into ahypertext system. The chapter ends with a conclusion.

Hypertext Navigation and Its Problems

Hypertext system is “a database composed of a collection of nodes of dataitems and where relations between nodes are represented by explicit links”(Kim & Hirtle, 1995, p. 239). Hypertext is used to structure information in anonlinear fashion that enables users to search for the information on their ownperspective. These systems include user interfaces that allow users to view thenodes 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 theinformation is linked together to form a directed graph, in which each nodecontains textual information or other types of information. Outgoing links areassociated with some smaller part of the node called an anchor. Users navigatea hypertext first by activating a particular anchor then follow the associated linkto its destination. However, other computer techniques may match this defini-tion, at least partly. Nielsen then describes that

a true hypertext should also make users feel that they can move freelythrough the information according to their needs. This feeling is hard todefine precisely but certainly implies short response times and lowcognitive load when navigating. (p. 298)

The nonlinear structure of hypertext enables users to jump from one part toanother 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 providesinformation on the likely structure and organization of key elements within it”(Dillon, 1991, p. 913). However, users may not have a clear conception of therelationships within the system, not knowing where to go next, knowing whereto go but not knowing how to get there, and not knowing where they are in theoverall structure of the document (Elm & Woods, 1985). Researchers havecalled this problem as disorientation (Ransom, Wu, & Schmidt, 1997; Rumpradit& Donnell, 1999; Park & Kim, 2000). It is also called lostness, lost inhyperspace, getting lost (Edwards & Hardman, 1999; Elm & Woods 1985;Otter & Johnson, 2000; Spence, 1999). Foss (1989) elaborated this problemby stating that

being disoriented is more than not knowing the spatial layout of theframes in the hypertext network. Other problems that ‘lost’ or ‘disoriented’users have are: arriving at a particular point in a document and thenforgetting what was to be done there; neglecting to either return fromdigressions or to pursue digressions that were planned earlier; notknowing if there are any other relevant frames in the document; forgettingwhich sections have been examined or changed after hours of browsing.(p. 407)

However, Elm and Woods (1985) and Smith (1996) argued that disorientationshould be viewed in terms of user’s performance degradation rather than purelysubjective feelings of being lost.Two undesirable consequences of browsing the hypertext lead to disorienta-tion: embedded digression problem and art museum phenomenon (Foss,1989). Users could experience embedded digression problem when they try tofollow a different link while browsing another link. When they continue with thesecond link, they may have forgotten what they got from the first link. Thissituation may worsen when they find more interesting materials on the secondlink 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 topursue digressions you intended to follow. The Embedded DigressionProblem is aggravated when a lot of interesting neighboring informationis 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 iscognitive demands placed on the user of hypertext documents. Users mustdecide which path to follow in the middle of several interesting sidetracks thatmay distract them from the main task. The second type is the unfamiliarity withthe structure or conceptual organization of the hypertext network. An exampleof this type is a closure where users do not know the extent of the network orwhat proportion of it remains to be seen (Shneiderman, 1987).The art museum phenomenon could happen to users who spend their timebrowsing the Internet without any effort to memorize anything they see. Thisproblem is caused by unfamiliarity with the subject matters or any interferenceresulting from viewing a large number of items. It is also due to generalinexperience with the practice of learning by browsing. This may result inproblems with remembering the information contained within the system andproblems in consolidating and understanding the semantic content of theinformation nodes. Tripp and Roby (1990) argue that disorientation itself willlead to an increased cognitive load thus reducing the mental resources forlearning.As pointed out by Conklin (1992), hypertext users have to manage theircognitive load accordingly or they will face the difficulty in finding what theyneed among the abundant sources of information on the Internet. This is whatNielsen (1999) called the “dilemma of finding a piece of information among ahuge collection of information.” The difficulty of finding information arisesbecause users must carry out multiple tasks concurrently (Kim & Hirtle, 1995).These multiple tasks can be classified into three categories (p. 241):

1. Navigational tasks: planning and executing routes through network,2. Informational tasks: reading and understanding the contents presented in

the nodes and their relationships for summary and analysis purposes, and3. 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 thestructure or conceptual organization of hypertext network, and individuals’inexperience of using particular system—have created problems when indi-viduals work with hypertext system. In dealing with this situation, Navarro-Prieto, Scaife, and Rogers (1999) suggested three factors as the units of

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analysis that need to be considered to study the complex task of informationsearching within the Web context. These three factors are

1. the user’s experience and cognitive strategies,2. the type of searching task, and3. how the information is presented and interacted with the users.

Edwards and Hardman (1999) suggested that users would not be disorientedif they had a conceptual overview (or spatial representation) of the hypertextstructure by stating that

the main disadvantages of using hypertext at present seem to be consequentof its sheer lack of physical presence and integrity … the very flexibilityof reading on screen is disorienting for a user who can’t conceptualize anoverview 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 merelya physical movement through a space, but it also involves a cognitive activity.This cognitive element is referred to as “wayfinding.” Wayfinding involvesmental representation, route planning, and distance estimation (Darken, Allard,& Achille, 1999).Researchers have compared the way a person browses a hypertext system andthe Web to that of person navigating and wayfinding through a physicalenvironment (e.g., Parunak, 1989; Dillon, McKnight, & Richardson, 1990,1993; Jul & Furnas, 1997; Spence, 1999; Hodkinson, Kiel, & McColl-Kennedy, 2000). Browsing in a hypertext system includes many of the sametasks as wayfinding in physical spaces such as: finding individual’s currentlocation, planning the route that will accomplish individual’s task goals, andexecution of the planned route. Canter, Rivers, and Storrs (1985) have alsoconsidered the analogy between navigating data and navigating a physicalenvironment by stating that

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it is fruitful to recognize the direct parallels between navigating concreteenvironments, such as cities or buildings, and navigating data. After all,such parallels are implicit in the navigation metaphor, so it is worthestablishing whether or not there is fruitful analogy between thepsychological processes involved. (p. 93)

Parunak (1989) compared navigation strategies in physical environments andhypertext topologies. He identified five strategies that people use in navigatingphysical spaces:

1. Identifier strategy: a unique identifier or description is associated witheach entity of interest. This strategy requires an exhaustive search, but itcan be applied to any topology.

2. 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 aparticular place is much less than the total number of places. If this is notthe case, then finding the next step in the path is not easier than directlygoing to the target itself.

3. Direction strategy: the searchers use a global frame of reference toavoid exhaustive search (north-south, east-west). The strategy dependsupon the texture and comparability of the space.

4. Distance strategy: the search is bounded to a circle around one’scurrent position. Distance can be used in conjunction with direction, andis always defined in spaces where paths exist.

5. Address strategy: direction is refined by establishing an orthogonalcoordinate system in the space. The definition of orthogonal dimensionalcoordinates reduces the computational complexity of the search.

Parunak (1989) then defines five classes of topologies, which hypertextsystems can be developed based on the concept of graph theory. In increasingorder of complexity, the classes are linear and ring, hierarchy, hypercube andhypertorus, directed acyclic graph, and arbitrary structure. He also stated thatsimpler topologies allow users to use wider variety of navigational strategies,with the linear and ring structure allowing all five of strategies, whereas arbitrarystructure allows only for the default identifier strategy.

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Monk (1990) distinguished directed from exploratory navigation. Users en-gage in directed navigation when they know exactly where to find a piece ofinformation, because that location has been regularly visited in the past. On theother hand, it is quite often that users do not know where to find certain piecesof information. They just look around until interesting information pops up. Inthis situation, users are engaging in exploratory navigation. It is often implicitlyassumed that much of hypertext usage is exploratory. This distinction isindependent 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 WorldCup 2002”), and specific higher-level goal (e.g., “Who beat the Republic ofKorea team in World Cup 2002?”) can result in directed navigation (e.g.,“What was the score between Germany and Korea in the World Cup 2002semifinal?”).Navigation and query are two different tactics to accomplish either searchingtask or browsing task (Jul & Furnas, 1997). Querying is submitting a descrip-tion of the object being sought (e.g., using keyword) to a search engine, whichwill return relevant content or information. On the other hand, navigation dealswith movement of individuals sequentially around an environment, deciding ateach step where to go.Czerwinski et al. (see Jul & Furnas, 1997) distinguished situated from plan-based navigation. Situated navigation, a reactive strategy, employs a situation-specific knowledge, landmark, and incomplete information. It is employedwhen the goal looks achievable and/or close. Plan-based navigation employssurvey knowledge and generating, in advance, a complete plan to achieve acertain goal. It is used for general navigation to the goal. They noted that usersswitched between these two strategies for error recovery.

Psychology of Navigation

It is well established that people utilize a large amount of organized knowledgewhen 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 twosources:

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• incoming information from the outside world, that is, the input received bythe sense organs, and

• information already stored in memory, that is, prior knowledge derivedfrom past experience.

Based on these two kinds of information sources, Cohen (1986) described twokinds of information processing related to as bottom-up processing or data-driven processing happened when individuals attend to the incoming informa-tion from their outside world and capture them using their sense organs.Although this information might be incomplete or even ambiguous, informationstored in the memory, in form of prior knowledge, influences individuals’expectations and helps them to interpret the current input. The influence of priorknowledge is known as top-down or conceptually driven processing. Thecombination of these two kinds of information processing is sometimes knownas interactive processing.

Schema Theory

Individuals store information they gather from the real world inside theirmemory. Cohen (1986) stated that “the use of past experience to deal with newexperience 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 genericconcepts stored in memory. According to the schema theory, the knowledgewe have stored in our memory is organized as a set of schemata or mentalrepresentations, each of which incorporates all the knowledge of a given typeof object or event that we have acquired from the past experience. Schemataoperate in a top-down fashion to help us interpret the bottom-up flow ofinformation from the outside world.Schemata are unconscious mental structure that underlies the molar aspects ofhuman knowledge and skill (Brewer, 1987). They are modular, and differentcognitive domains have schemata with different structural properties. Schematainteract with incoming episodic information to modify generic information in theschema and to produce specific instantiated memory representations of theincoming episodic information. An instantiated schema is a specific cognitivestructure that results from the interaction of the old information of the genericschema and the new information from the episodic input.

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As mental representations, schemata have their own characteristics. Rumelhartand Norman (1983) give a list of five characteristics of schemata:

1. A schema for any concepts has slots that may be filled with fixed,compulsory values, or with variable, optional values. It may also havedefault value.

2. Schemata can be linked together into related systems. An overall schemamay consist of a set of subschemata (e.g., schema about picnic may be apart of larger system of schemata including “meals,” “outing,” and“parties”). Packets of knowledge about one topic are linked to packetsof knowledge about related topic.

3. Schemata represent knowledge of all kind, from simple to complexknowledge, as well as about motor actions. Individuals have schemata torepresent all levels of experience, and all level of abstraction. Thus theschema theories suppose that human memory system contains countlesspackets of knowledge.

4. Schemata incorporate all the different kinds of knowledge we haveaccumulated, including both generalizations derived from our personalexperience and facts we have been taught.

5. Various schemata at different levels may actively be engaged in recogniz-ing and interpreting new inputs. Bottom-up and top-down processing maygo through repeated cycles, and the final interpretation of new input willdepend on which schema constitutes the best fit of incoming information.

When applied to real-life experience, schemata may influence memory in anyof the following different ways (Cohen, 1986):

1. Selection. The schema guides the selection of what is encoded and storedin memory. Information that is not relevant to the currently most activeschema may be ignored.

2. Abstraction. Information in memory tends to undergo transformationfrom the specific to the general. Only the general schema is retained inmemory, while the particular episode is forgotten.

3. Integration and interpretation. According to the schema theory, asingle integrated memory representation is formed which includes infor-mation derived from the current experience, prior knowledge relating to

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it, default values supplied by the appropriate schemata, and any interpre-tation that are made. The interpretation happened based on prior knowl-edge about possible ways of behaving in a particular event.

4. Normalization. Memories of events also tend to be distorted so as to fitin with prior expectation and to be consistent with the schema. They aretherefore transformed toward the most probable or most typical event ofthat kind. People may misreport an event they witnessed because theyremember what they expected to see rather than what they actually saw.

While selection, abstraction, and normalization explain how information may belost or reduced in memory, integration and interpretation serve to enrich andelaborate 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 theconstruction of an interpretation and become the basis for predictions that aretested and then confirmed or rejected. Third, schemata are like procedures,such as computer programs, that is, an organization of activities with structuralrelationships among these activities and other entities. Four, a schema is like aparser; it breaks down, organizes, and interprets incoming data.

Cognitive Map

The mediating factors of sensory input of environmental and spatial informationare cognitive process, attitude, and belief. Through contemplation, sensoryexperience is transformed into knowing and understanding. The whole processis known as cognitive mapping (Jacobson, 1998). Cognitive mapping relates tonot only how we perceive, store, and recall information about spatial environ-ment, but also how we think and feel about the geographic environment. It isused in spatial choice and decision making in wayfinding and navigation,migration, environmental preferences for modes of transport, shopping, recre-ation, 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 whichan individual acquires, codes, stores, recalls, and decodes information

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about the relatives locations and attributes of phenomena in his everydayspatial environment. (p. 9)

The result of such process is known as a cognitive map. Thus, a cognitivemap is

a coping mechanism through which the individual answers two basicquestions 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 thespatial environment (Downs & Stea, 1977). It is a “mental representation ofphysical spaces used for navigation” (Kim & Hirtle, 1995, p. 242) and acting“as the basis for deciding upon and implementing any strategy of spatialbehavior” (Downs & Stea, 1973, p. 10). This representation is called a spatialknowledge and it is made up of three components: landmark, route, and surveyknowledge (Thorndyke & Hayes-Roth, 1982).Landmark knowledge, also known as place knowledge, represents informationabout the visual details of specific location in an environment. It includes “thesalient aspects of places encoded in a declarative form” (Kim & Hirtle, 1995,p. 242). This knowledge presumably takes the form of perception icons andimages (or the sensory data they represent). This type of knowledge can beacquired directly by viewing objects in the environment or indirectly by lookingat the photographs or films of particular objects. Thus people can know of theexistence of places and can recognize them. Location recognition depends onaccurate landmark knowledge.Procedure knowledge, also called route knowledge or primary spatial knowl-edge, represents information about the sequence of actions required to followa particular route. At a minimum, this knowledge consists of a series ofprocedure description of starting points, anchor points, subsequent landmarks,intermediate stopping points, and a final destination. This knowledge is deriveddirectly from the experience of navigating the represented route (Thorndyke &Hayes-Roth, 1982).Survey knowledge, also called configuration knowledge or secondary spatialknowledge, represents the configuration relations among locations and routesin 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 globalcoordinate system, the interobject distance. Survey knowledge concerns “thespatial layout of the salient places” (Kim & Hirtle, 1995, p. 242). Surveyknowledge is not available from direct experience, but it can be acquireddirectly from the map or through the study of other media (Thorndyke & Hayes-Roth, 1982).Dillon et al. (1993) added a fourth aspect of spatial knowledge called spatialschemata. It is inside these spatial schemata that those landmark, route, andsurvey knowledge are presented in memory.Imagine students who always make a journey between their home and theirschool, 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 fromschool to their home, they go from school to the shopping center, and from theshopping center to home. On their way from school to the shopping center, theymay encounter a new environment. This may also be true when they walk fromthe shopping center to their home. As they encounter a new environment, theywill “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, orsometimes giving directions to a lost stranger as part of their daily behavior. Thiswould 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 thatschemata represent knowledge of all kinds including about motor actions. Inthis sense, all movements in space call for some type of schema. It is possibleto conceive a range of schemata from those applicable to microspaces tomacrospaces (Cox & Zannaras, 1973). For example, we may have schematafor our home, our neighborhood, the city where we live, and a nation of whichwe are citizens. In short, besides all other schemata, in every individual thereare 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 theenvironment where any information that cannot be fitted to the schema willeventually be discarded. Cox and Zannaras (1973) further stated:

The organized structure of this spatial schema, therefore, has a tendencyfor self-perpetuation; earlier perceptions are considerably more importantthan later perceptions since they provide the basis for a core of meaningin 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 schemataapplicable to a wide variety of specific content areas.Arthur and Passini (1992) define two problems related to disorientation. Thefirst problem is called topographical or spatial agnosia in which individuals wereincapable of recognizing spaces visited on previous occasion. The secondproblem is called topographical or spatial amnesia in which individuals wereincapable of linking spaces mentally to an overall representation.The representation of environment surrounding, also called a cognitive map, ispsychological concepts that underlie the notion of spatial orientation. Depend-ing on the spatial characteristics of an environment, cognitive mapping can bevery difficult or even almost impossible operation for everyone. Spatialorientation is based on the ability to form a cognitive map. Individuals areconsidered spatially oriented if they have an adequate cognitive map of thesurrounding setting and are able to situate within that representation. Therefore,spatial orientation is the process of devising individuals with an adequatecognitive map setting along with the ability to situate themselves within thatrepresentation.

Mental Model

A mental model is “knowledge that the user has about how a system works, itscomponent parts, the processes, their interactions, and how one componentinfluences 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. Itsynthesizes several steps of a process and organizes them as a unit (Allen,1997). Mental models are “what people really have in their heads and whatguides their use of things” (Norman, 1983, p. 12). It is “the bridge between thework environment to be controlled and the mental processes underlying thiscontrol” (Rasmussen, 1990, 43). It serves to qualitatively model the effects ofchanges in a system (William, Hollan, & Stevens, 1983). It allows us to “bothunderstand problem situations and predict consequences of action contem-plated for solving the problems” (Marchionini, 1989, p. 56).A mental model can be formed through training (Borgman, 1999), based on aspecific task (Olfman & Shayo, 1997; Potosnak, 1989), engaging in aparticular activity such as information search (Diaper, 2002; Marchionini,1989; Navarro-Prieto et al., 1999), through continuous exposure to a specificitem, for example, textbooks (Dillon, 1991). It can also be formed byobservation (Lokuge, Gilbert, & Richards, 1996), and accidental encounters(Fisher, 1991). Training, with various supporting means, is one importantmethod to increase user understanding of a particular system and at the sametime to give some sort of experience to the users.Several studies (Borgman, 1999; Muramatsu & Pratt, 2001) have demon-strated how subjects developed mental model on information retrieval systemand search engine, by having their subjects trained on a Boolean logicoperation. However, not all of their subjects demonstrated what the authorswere supposed to see. These findings support the assertion that mental modelsare incomplete (Norman, 1983). Moody, Blanton, and Augustine (1996)equipped with animated conceptual model, showed that subjects presentedwith animation interacted more effectively and scored higher on the test thanthose who presented with nonanimated model. Olfman and Shayo (1997) alsoshowed that their subjects who have previous experience in database manage-ment system perform better on the given tasks than those who have noexperience.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 information-seeking activity compared to third or fourth graders. In terms of age, sixthgraders are definitely older, and as such are more mature and possess moreexperience, than third or fourth graders. Dillon (1991) showed that individualswho 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 ofaccuracy.

Mental Model Theory

Model is an approximation to objects or processes, which maintain someessential aspects of the original (Allen, 1997). It is

an image of an object or a state of affairs representing only those aspectsof the objects or state of affairs that are considered relevant in a givencontext. 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 beingconsidered: two mental and one physical. The first model is the model held bythe designer of the system, the second model is the model constructed by theusers when they are using the systems, and the third model is physical image ofthe system from which the users develop their conceptual model. Since thereare three different models, which might cause some confusion, the followingterms will be used. Model held or developed by the designer, teachers,scientists, or engineers is called conceptual model, while those constructed bythe users about the system under observation are called (user’s) mental model,and the physical image is called system image. Therefore, conceptual model isa model invented to provide an appropriate representation of system beingconsidered, in the sense of being accurate, consistent, and complete (Norman,1983).System image is what the users actually see. It includes all of the documenta-tions 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 relationwith human–computer interaction (HCI), they define a cognitive model as

a representation of a person’s knowledge consisting of (1) a set ofelemental 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-computerdialogue techniques). (p. 391)

Fisher (1991) points out that mental model of a complex system is a cognitiveconstruct that describes a user’s understanding of particular domain in the realworld by stating that

these models are formed by experience, self-exploration, training,instruction, observation, and accidental encounters. In systems thatoperate at the ‘human-computer communication’ level, the model will becentered around the properties of a computer system. (p. 21)

It is important to recognize that mental models are created for a purpose—theydo 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 conceptualmodel: it results when the user interprets the system image” (p. 47). Accordingto Rasmussen (1990), that purpose is to assist users in finding appropriateactions to achieve their goals. Rasmussen (1990) distinguishes categories ofhuman behavior according to the ways of representing the properties ofdeterministic environment as a basis for control of action into skill-rule-knowledge (or SRK) framework. Van der Velden and Arnold (1991) view thisframework to be at the sensory level, perceptual-conceptual level, andintellectual level. Based on SRK framework, Rasmussen (1990) argues that itis at the knowledge level that the mental models are used. There are severalways to use mental models: to figure out actions to perform, and interpreting thestate of environment. Mental models are also used for repairing mistakes inperformance 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 theprocess of construction. Waern’s (1990) argument is based on the dynamic ofthe mental model:

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the conceptual model or parts of it may be discarded and substituted bya new one. This means that either new objects or operations are conceivedor that old objects are given new characteristics. (p. 82)

Waern further argues that there are two different approaches in which mentalmodel can develop:

1. A bottom-up learning approach is where users start their mental modeldevelopment from incoming bits and pieces of information and put themtogether towards a more consistent and complete model.

2. In a top-down learning approach, users build a mental model from thebasis of their expectation and prior knowledge that they possess or derivefrom a similar system or task.

Allen (1997) argues that mental models are not directly observable. Allenmentions that several types of evidence have been used to infer the character-istics of mental models: prediction in which users predict what will happen nextin sequential process, explanations, diagnosis, and training. This is also evidentwhen people are answering questions about particular process. FurtheringAllen’s argument, Norman (1983, p. 8) observes the following:

1. Mental models are incomplete.2. People’s abilities to “run” their mental models are severely limited.3. Mental models are unstable: people forget the details of the system they

are using, especially when those details (or the whole system) have notbeen used for some period of time.

4. Mental models do not have firm boundaries: similar devices and opera-tions get confused with one another.

5. Mental models are “unscientific”: People maintain “superstitious” behav-ior patterns even when they know that they are unneeded because theycost little in physical effort and save mental effort.

6. Mental models are parsimonious: often people do extra physical opera-tions rather than the mental planning that would allow them to avoid thoseactions; they are willing to trade-off extra physical action for reducedmental 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 minimizingthe chances for confusion.

When users are exposed to the same system, they may have similarities anddifferences on their mental model. Ackerman and Greutmann (1990) statedthat

individual differences in action regulation exist. We supposed that theyare caused by different style of thinking. We know from work psychologythat a given task will be redefined by the subject according to his owninterpretation 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 aseries of events in which one or several events can be repeated at any point. Theseries of events consists of intention and attention, evocation of prior knowl-edge, forming a plan, action, evaluation, memorization, and interpretation.

• Intention and attention. Suppose a user is given a particular task. Sincehuman attention is restricted, the user will have to select some aspects ofthe current situation to start with. The user can select those aspects in twoalternatives: by top-down selection, in which the user has to mainly rely onthe knowledge evoked to select aspects to be observe; or by bottom-upselection, in which the user will attend situations that are not necessarilyrelated to evoke prior knowledge.

• Evocation of prior knowledge. The user actualizes prior knowledge thatshould be useful in the observed situation. The first evocation is instanta-neous 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 thatknowledge evocation is a complex process, which is poorly understood.The perception of the situation can be regarded as it is to be contained ina frame. This frame represents a subset of all knowledge that couldpossibly 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 founddysfunctional.

• 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 thetask. The lowest level of such plan concerns the actual actions to beperformed. User’s mental model determines what levels of plans areavailable, and whether a plan can be realized directly in an action. The planwill contain a description of the goal, and a description of the method toreach that goal.

• Action. Actions can be determined in two different ways: either the actionis exploratory, wherein the user just acts to see what happens, or theaction is determined by a plan described above. An exploratory action isnot necessarily random, since it is based on either presently evoked priorknowledge or currently used mental model.

• Evaluation. With respect to the given task, the result of action will beevaluated. Feedback from the system plays an important role. If theaction were exploratory, the lack of feedback would give no informationto the user and lead to no change in the mental model. If the action wereplanned, only a well-informed and experienced user would trust that theaction had the intended effect.

• Memorization. Some characteristics of the event can be stored forfurther use. The event includes the given task, the current mental modelunder construction, the observed situation, the plan, the action, theobserved result from the action, as well as the evaluation of the result. Oneshould take note that users will forget at least some part, which users didnot particularly attend, of those events.

• Interpretation of event. The action and its result are placed within thecontext of the model under construction. The events will be assimilatedinto it if they are fall into permissible characterization of the objects andoperations contained in the mental model. The interpretation of the eventswill be needed if there are some discrepancies between the action and itsresult with the context of the model under construction. Exploratoryactions may also lead to a need to change something, through theinterpretation of the results.

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Structure and Content of Mental Model

Several authors believed that mental models are organized structures consistingof objects and their relationships (Gentner & Gentner, 1983; Greeno, 1983;William et al., 1983). William et al. (1983) state that mental models arecomposed of autonomous objects with an associated topology. Autonomousobject is defined as:

a mental object with an explicit representation of state, an explicitrepresentation of its topological connection to objects, and a set ofinternal parameters.… The behavior of autonomous objects (defined inchanges of parameter value) is governed strictly to internal rules reactingto internal parameter changes and to highly constrained externalprovocation. (pp. 133–134)

Mental models are runable, although people’s abilities to run their models arelimited. One way to run a mental model is by modifying the parameters of themodel by propagating information using the internal rules and specified topol-ogy. It can also occur when autonomous objects change state. State changeconsists 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 invarious ways. It can be used as inference engine to predict the behavior ofphysical systems. It can also be used to produce explanations or justifications.It can also facilitate remembering by serving as mnemonic devices. Staggersand Norcio (1993) show that mental models are related to system learning,performance, and system design. Norman (1986) outlines the relationshipbetween 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 theuser can develop a mental model of the system—a user model—consistentwith the design model…. The user model is not formed from the designmodel: it results from the way the user interprets the system image. Thus

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in many ways, the primary task of the designer is to construct anappropriate system image, realizing that everything the user interactswith helps to form the image. (pp. 46–47).

Within human factors, particularly in human–computer interaction work amongother else, the mental model notion is used or invoked in the following ways(Wilson & Rutherford, 1989, p. 627):

1. To summon up the idea of a picture in the mind of envisionment in whichanalogical representations seem to be equated only with graphical orpictorial-type models.

2. As experimenter-created or hypothesized models to test the effects ofdifferent levels of training or task on performance.

3. In the explanation and description of behavior.4. 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 followingways (Hawk & Wang, 1999, p. 258):

1. By making learning more efficient because information is organized withinthe model

2. By setting up expectations and singling out components of the system topay attention to

3. By acting as memory aids through associations with previous experienceor specific documents/objects

4. By helping comprehension through organizing background knowledge5. By including problem-solving shortcuts

Hawk and Wang (1999) added that good problem solvers developed mentalmodels that are closer to the conceptual model and its functionality than do poorproblem 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 forassessing user’s mental model (Potosnak, 1989). Protocol analysis, also called“thinking aloud” technique, requires a user to describe his/her thought whenperforming a task. Two types of protocol analysis have been used to assessuser’s mental model: verbal and graphical. In verbal protocol analysis, usershave to spell out what their thoughts are, verbally. In graphical protocolanalysis, users have to draw a picture or diagram about how specific system,its components or elements, how these components are related to each otherenabling the system to work properly as it is intended. Researchers have beenusing verbal protocol analysis to study mental models (Muramatsu & Pratt,2000), information-seeking behavior (Branch, 2001; Park, 2000), and systemusability (Benbunan-Fich, 2001; Park, 2000).Protocol analysis using graphics/diagram has also been used in much previouswork (Fiore, Cuevas, & Oser, 2003; Gray, 1990; Padovani & Lansdale, 2003;Park, 2000; Thatcher & Greyling, 1993). The use of diagram to access user’smental model has at least two advantages: it helps to capture a shift in user’smental model during an experiment with particular system (Gray, 1990), whichmay be more difficult to spell out verbally, and it can be utilized to group usersinto several categories (Thatcher & Greyling, 1993). Billinghurst and Weghorst(1995) and Fiore et al. (2003) also showed that a sketch map helped theirsubjects make a better orientation and understanding on spatial environment.A picture (or graphic) is worth a thousand words, is an old saying applicableto many reasons and situations. Graphical information is also superior, com-pared to textual information, when it comes to help users form mental model andto get a high user-interaction performance. Rock and Donnell (1993) showedin their study that subjects who were presented with graphic-based mentalmodel and graphical-based inference explanation yielded the highest user-interaction 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 usersare different in their conceptualization of interactive systems. Their studysupports the claim that with experience, user’s mental model is closer to thedesigner’s conceptual model.

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Wayfinding

Wayfinding describes the process of reaching a destination, whether in afamiliar or unfamiliar environment. It is spatial problem solving as described byDowns and Stea (1977). Making a journey and reaching a destination arewayfinding goals. If individuals make a journey for the first time and if thedestination is unfamiliar, they are confronted with a problem for which theyneed 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 andinterrelated steps:

1. Orientation: determining where individuals are in respect to nearbyobjects and target location. This step requires that some landmarks musthave been distinguished and selected by the individuals. Individuals knowwhat the landmarks are, where they are, and their relative position inrelation to their own location.

2. Route decision: choosing a route that will get individuals to theirdestinations. It requires that individuals make a cognitive connectionbetween their current location and their destination.

3. Keeping on the right track: monitoring the route individuals have takento confirm that individuals are on the correct route and is going in the rightdirection.

4. Destination recognition: individuals must be able to decide that theyhave reached the correct destination.

Arthur and Passini (1992) in their framework for wayfinding process describethat wayfinding can be characterized by three different processes:

1. Cognitive mapping or an information generation in which individualsdevelop an understanding of the world around them, retrieves informationfrom the world, and integrates information.

2. Decision-making process where an individual plans actions and struc-tures them into an overall wayfinding plan.

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3. Decision-execution process where an individual transfers decision intophysical behavioral actions.

Arthur and Passini (1992) define “to reach a destination” as a final wayfindingtask, which is one sort of spatial problem-solving procedure. They further statethat any cues that exist in a particular environment are called spatial information,and if those cues relate to the wayfinding task, they are called spatialknowledge. In order to complete the wayfinding task (besides spatial informa-tion), an adequate amount of general information is also needed. Both spatialand general information are categorized into three categories: sensory informa-tion, memory information, and inferred information.Different wayfinding strategies may be employed depending on the availabilityof the collectible information. For example, if only sensory information isavailable to the individuals, they have to perform a much more exhaustivespatial information search to reach the destination than if they followed routedirections in memory (that is, memory information). Thus, the availability of thespatial information type is influential in determining the wayfinding strategy(Chen & Stanney, 1999).As suggested by Jul and Furnas (1997), physically navigating a Web site isclicking the available links. However, in doing so, users are guided with whatthey see on the screen, which are commonly regarded as navigational cues.Navigational cues that appear on the screen are supposed to help users to havea better mental representation. Due to the fact that these cues can help usersin shaping their mental representations of Web structures, which in fact is amental activity, navigational cues should be called wayfinding cues. Severalwayfinding cues that are commonly used within Web sites include color, text,graphics icons (Kerr, 1990), (Internet speed) traffic light in the form of simplehyperlink annotation (Campbell & Maglio, 1999), graphics level of detail andlabel 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 mayutilize navigational tools or aids. These can be a site map and/or bookmark(Padovani & Lansdale, 2003), back and forward button, history feature, andaddress window (Hodkinson et al., 2000).

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Conclusion

Information seeking is a complex process comprising several activities bothmentally and physically. Mental activities include combination of severalspecific mental models related to a particular information problem that can bedescribed functionally and structurally (Marchionini, 1989). Functionally, thiscombination of mental models controls search by

extracting key concepts from the information problem, identifying criteriafor search process, selecting candidate information sources, monitoringlookup (search) and examination procedure, and using result to modifyitself. (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 modelspertinent 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 ofrules for combining these components and monitoring progress. (p. 56)

Physically, what individuals do when they are seeking information is followinga 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 informa-tion, or just simply exit the process. When individuals are looking for certaininformation—especially on the Web—their main load will be on their mentalactivities, although this may never be realized.In order to be successful in navigational task, it is very important to have a goodspatial navigation skill (Elm & Woods, 1985). Elm and Woods (1985) statedthat a good navigation skill is shown by (p. 927)

1. the ability to generate specific routes as task demands require (that is, toderive new and unforeseen information, particularly in the form of newrelationships among data);

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2. the ability to traverse or generate new routes as skillfully as familiar ones;and

3. orientation abilities, that is, the development of a concept of “here” inrelation to other place.

Edwards and Hardman (1999) argue that the first and the second item in theabove list would be sufficient for users to navigate effectively through ahypertext system. For the third item, they mentioned that it may or may not benecessary for the users to possess that ability. However, users may be temptedto create a comprehensive cognitive spatial map of the data structures,complete with their locations and routes.

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Reducing the Costs of Doing Business 135


Chapter IX

Reducing the Costsof Doing Business:

Human Costs and SocialIssues of IS/IT Strategies

Souad Mohamed, UK

Abstract

One of management objectives when dealing with Web services (orrelated Internet strategies) is to cut business costs. Information systems(IS) literature has to date focussed primarily on research related to directcosts, that is, costs that occur in IS budgets (Bannister & Remenyi, 1999).IS research into strategic planning on the other hand has underestimatedthe expenditure of hidden costs as part of the adoption of new informationtechnology systems within organisations. One of the difficulties regularlyfaced by IS investment planners is the identification, and thus managementof, 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 afundamental part of the cost estimation of strategic planning whenadopting IS. The research adopts an indirect human cost taxonomyproposed by Mohamed, Irani, and Baldwin (2002) associated withmanagement, employee, finance, and maintenance divisions of anorganisation.

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To conclude the author argues that to aid strategic planning in anorganisation and to use it to their competitive advantage, understandingand managing the critical indirect human costs incurred during theadoption of information technology systems is essential in supportingdecision makers’ effective management of these costs.

Introduction

One of management’s main objectives when dealing with Web services (orrelated Internet strategies) is to cut business costs. Information systems (IS)literature has to date focussed primarily on research related to direct costs, thatis, costs that occur in IS budgets (Bannister & Remenyi, 1999). IS research intostrategic planning on the other hand has undervalued the expenditure of hiddencosts as part of the adoption of new information technology systems withinorganisations. Remenyi and Williams (1996) define hidden costs to be thoseambiguous costs that may occur in other departments as an outcome of theadoption of a new system. Direct costs are considered to be easy to identifyand relatively simple to measure, while indirect costs are hidden and not easilymeasured—one of the difficulties that those planning IS investment face is theidentification, and thus management, of hidden indirect costs (Mohamed &Irani, 2002).A review of the normative literature of IS evaluation, with a general focus onIS costs, revealed that there is a pressing need for those adopting informationsystems to better identify the potential indirect costs associated with theadoption of IS. For example, Dier and Mooney (1994) note that indirect costssymbolise more than 80% of the total lifetime IT/IS project costs. Thus,organisations need to gain a better understanding of indirect cost implicationsand their potential sources. Indirect costs, however, are varied and numerous.Irani (2002) reports that indirect costs escalate out of control and arecategorised as human and organisational.This chapter focuses particularly on the indirect human costs associated withthe adoption of information technology/systems in general and Web services inparticular. It identifies the need to account for the soft components (e.g., humancosts) as a fundamental part of the cost estimation of strategic planning whenadopting IS. The identification of these indirect human costs may enableorganisations to avoid some of the complications that they may meet when

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adopting a Web services application, and thus would enable companies tomanage and control their expenditure better.

Indirect Human Costs of anEmerging New Technology

There is a considerable amount of money spent on IS and the use of technologyto support core business functions (Irani, Love, & Hides, 2000), yet not all theanticipated benefits are achieved. New technologies such as Web services areusually adopted to provide ways to lower costs and tighten business relation-ships. Nevertheless, various indirect costs occur as a result of introducing a newtechnology as well. Having reviewed the normative literature on IS costs, it isargued that one element of indirect costs, that is, indirect human costs, is poorlyunderstood. It has been explained, earlier in the book, that Web services arenot perceived merely from a hardware point of view, but also seen from amanagement point of view as a technology that facilitates the work of differentdivisions together within an organisation.Wood (2004) reports that in the United States it is estimated by the IT TrainingAssociation that there are 10 million IT workers, and each cost their corpora-tions more than $2,000 per year on training, thus amounting to more than a $20billion market. Remenyi, Money, Sherwood-Smith, & Irani (2000) note thatmany 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 iscosting so much (Bannister, 1999). Currie and Irani (1999) and Al-Yaseen,Baldwin, and Eldabi (2003) reveal that management dedicate only minimalattention to the less clear, or hidden, indirect costs.Research studies have argued that human aspects must always be consideredin the deployment of IS (e.g., Berghout, 1997). When adopting an informationsystem, 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 socialsystem as much as it is a technical/economic system. Taking these aspects andtheir impacts into account will help managers to be aware of the social impactsof IS and account for any resulting costs (direct and indirect). Recognising thehuman 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 thesystem life cycle.As an organisation is a confederation of individuals, IT/IS managers need tohave a comprehensive understanding of the social/soft issues that might occurwithin the context of the information system, in particular those that would affectan individual at the workplace in general, and especially those that are costrelated. Many human-related costs are mentioned in the context of evaluationin IS literature; however, they are not categorised or said to be critical orinfluential 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 costsleads to escalated project costs, which contribute to project failure or termi-nation before the implementation stage is reached: in some cases, projects maycontinue, due to momentum and practical pressure.Love and Irani (2001) conclude that if management wish to maximise benefitsand control their IT expenditure, then they need to position themselves to beable to identify indirect costs. Mohamed, Irani, and Baldwin (2002) assert thatidentifying these costs, categorising them, and identifying their impacts facilitatethe development of evaluation in IS as a social process, and could minimise theirimpact on the overall budget. Moreover, there is no clear consensus orapproach for measuring these costs, which, as cited in the literature, cansignificantly hinder the progress of an organisation in the IS practice. Thus,identifying and understanding at least the impact of these indirect human costson the organisation will help in gaining a better understanding of the indirectcosts associated with new emerging technologies, leading decision makers toprepare more accurate financial plans, budget estimates, and budget allocationfor their IT/IS capital investments.When introducing a new system many managers may decide to assign someemployees to a training course, their decisions based solely on direct costs suchas the actual training fee. Nevertheless, training has many other costs associ-ated with it. Eventually they will realise that there is need for replacement staffto do the jobs of the staff members who are away on training. Althoughorganisations may send employees on training courses in the belief that they willimplement what they have learnt immediately when the training period is over,resulting in a more effective working environment, nevertheless a great deal oftime 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 personallevel, 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 indirecthuman costs. These are all examples of indirect human costs that are caused byintroducing 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 newsystem. To help managers identify these costs, the following section exploresin more detail the indirect human costs of an emerging new technology anddescribes how these indirect human costs are actually a cost to an organisation.Identifying such potential costs associated with new technologies allows abetter understanding of their impacts and contributes towards improveddecision making.Table 9.1 illustrates the indirect human costs that Mohamed (2003) hasidentified as costs resulting from introducing a new system.

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

Table 9.1. Indirect human costs associated with IS adoption

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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 managementwill 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 whenintroducing any new system to an organisation, training will be required forusers 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 anIS cost. In particular, the time spent reading manuals, self-help activities, andinformal job training are untraceable. The implication of this for the business isthat they do not keep track of time; hence, an indirect cost occurs that has notbeen budgeted for.

• Learning costs: As new users or new systems are introduced to theorganisation, the users are likely to go through a learning curve. As a result,a temporary loss in productivity occurs as the users become familiar withthe 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 anacceptable level (Hochstrasser, 1990; Remenyi et al., 2000).

• Costs of resistance: Introduction of a new IS could result in anunexpected political power shift that leads some individuals or groups toresist extras. Consequently, staff may engage in behaviour that results ina disruption or even the removal of an entire system. This is clearly aninfluential indirect human cost, as it has a great impact on the organisation;not only do they have to rectify the consequences of resistance, but alsobear the cost of resolving the resistance if possible (Hochstrasser, 1990).Moreover, lack of commitment to change could result in a nonoperationalworking environment, with user resistance resulting in escalating opera-tional costs (Stefanou, 2000).

• Effort and dedication: This occurs when a new system is introduced, asmanagement at all levels spend time exploring the new system, discoveringits business potential, and absorbing the transition from the old system tothe new system. Here, managers are being less productive, and so notadding any value to the organisation, although they are still receiving theirfull wages (Hochstrasser, 1992). The time utilised by management and

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staff incorporating the new system into the existing organisational workinglife results in an indirect cost to the organisation. Staff members who areinfluenced by the use of the new system will take time to become used tothe new system, and their usual activities will not be fully performed.Consequently, the organisation will encounter high indirect integrationhuman cost (Hochstrasser, 1990; Irani, 1999; Love & Irani, 2001).

• Cost of redefining roles: Introduction of IS in some cases leads toorganisational restructuring. By destruction of the organisation’s hierar-chy and reducing the number of levels, middle management is exposed toa bigger market environment, thus requiring greater flexibility. The disrup-tion caused by this transition may result in various consequences ofintangible costs within the organisation (Hochstrasser, 1990). Change inroles may lead to the introduction of training, redundancy, and promotion(Hinton & Kaye, 1994).

• Missed costs: Bannister, McCabe, and Remenyi (2001) state that oneof the major problems in tracing IS costs is misassigning costs. Displace-ment cost (also called reallocation) is proposed as one of these misassignedcosts. This is encountered when people and operations have to bereallocated to accommodate a new system. Bannister (1999) suggeststhat, for example, if a member of the IS staff goes on training abroad, thecost of the airfare is recorded as a travel expense, the accommodation asmiscellaneous, and other expenses as entertainment, when essentially theyare all actually IS training costs. Bannister et al. (2001) call both disruptioncosts and displacement costs missed costs. Kaplan (1986) reported thatthe introduction of a new system’s implementation is usually accompaniedwith a short-term loss in productivity as systems are disrupted; IS staff willnot 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 staffturnover or redundancies in the organisation. Some organisations mayreduce labour costs, believing that they are justifying their investment in IT,as new systems are more efficient, more tasks can be allocated to anemployee, and thus less people are needed for the job. Nevertheless, thisis almost impossible to measure in financial terms and results in a significantchange in the knowledge base of the organisation that is impossible topredict (Hinton & Kaye, 1994) and could have a significant negativeimpact on the organisation’s development.

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• Deskilling: This is the inability to fully utilise the potential skills ofemployees. For example, as a result of a new system being introduced, theorganisation may assign less demanding tasks to very skilled employees(Hinton & Kaye, 1994). As a result, the employees may seek differentjobs, or the organisation may continue to assign high salaries for job rolesthat are worth less in financial terms. Investing in IT at the expense ofreduction in labour cost leads to a situation where it is difficult toaccurately predict the costs involved (Hinton & Kaye, 1994). As anoutcome, significant costs could result from losing time and money alreadyinvested in an employee who has left, in addition to requiring the sameamount 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 systemintroduced 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 newmarketable value. Rejecting the request may result in the employeesseeking employment elsewhere (Hochstasser, 1992, 1990). Thus, it issuggested that increasing the salary of an employee who is newly trained,rather than rejecting his/her request of a salary increase might minimise oreven prevent future indirect/direct costs from occurring, such as newrecruitment costs and loss of productivity when employing new staff.

• Beliefs, feelings, and perceptions: Implementing new software cancreate susceptibilities, which may have a negative impact on the emotionsof personnel. The implementation approach needs to take human factorssuch as beliefs and perceptions into consideration (Stefanou, 2000).

• Training costs: This could occur when end users are provided with theskills to use the newly presented system, training the staff (e.g., develop-ment, operators, integrators, etc.) with the essential technical skills for theproject. 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 staffwhilst they are in training. Furthermore, management time is an indirectcost in terms of transferring their knowledge to the IS staff. As mentionedabove, neither IS staff nor management personnel will be doing theirroutine jobs during that period (Hochstrasser, 1992, 1990; Pratt, 1998;Patterson & Johann, 1998; Remenyi et al., 2000). This is in addition to allthe 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 theorganisation’s stockholders and particularly large investments also needto see quality financial returns. Delayed delivery of a system couldindirectly have a negative effect on the stock price of the organisation. Anindirect human cost may occur through loss of confidence and fear offinancial losses leading to stock prices declining. Moreover, delayeddelivery of an IS project implies maintaining the function of two systems(the old and new) at the same time. Clearly, this would require twice theeffort from staff, and further costs may be driven by the overtime fordevelopment staff or even external support staff in the form of consultantsand contractors (Yourdan, 1989).

• Integration costs: The time utilised by management and staff incorpo-rating the new system into the existing organisational working life resultsin indirect costs for the organisation. Staff members who are influenced bythe use of the new system will take time to become used to it, and thus theirusual activities will not be performed fully. Thus, the organisation willencounter high indirect human costs (Hochstrasser, 1990; Irani, 1999;Love & Irani, 2001).

• Redundancy costs: The functioning of IS is still being directed towardsaccomplishing huge improvements in productivity, such as those sup-posed by business process reengineering which can be as high as a 10-foldenhancement. Obviously, such development will mean major redeploy-ment or rationalisation of staff. Therefore, this will mean making majorredundancy payments to those workers who are entitled to them (Hinton& Kaye, 1994).

• Staff turnover costs: As mentioned above as a result of training for thenew system new skills are acquired. The acquisition of new skills andproficiencies may result in staff either requesting an increase in salary ordeciding to seek new employment. As an outcome, significant costs couldresult from losing time and money already invested in the employee, inaddition requiring the same amount of money (if not more) for a substituteemployee. In addition to spending a great deal of time and effort,recruitment costs include the cost of advertising or using expert recruit-ment (Hochstrasser, 1992, 1990; Irani, 1999; Love & Irani, 2001). Highturnover can lead to critical posts remaining vacant for long periods.

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• Misunderstanding: This can lead to unforeseen problems, and it is saidto be one of the biggest problems, as it can easily lead to inaccuratedeliverables, which can lead to great delays in the whole process(Mohamed, 2004).

• Inaccurate deliverable: This is the situation where the deliverable is notwhat the client wanted, which is not unusual in IS projects. It is said to bebiggest indirect human cost—manufacturers deliver what they thoughtwas required, but the client says, “We didn’t want this—you misunder-stood.” This misunderstanding of what is actually required comes underthe category of poor communication. This is usually due to a poorrequirement analysis process (Mohamed, 2004). This has a huge impact;although there are checkpoints, in the worst-case scenario, the wholeprocess may have to be started again. The manufacturer needs to fix whathas been delivered to match what the client actually wanted, if this ispossible. This indirect human cost is very influential; days and weeks canbe lost as a result of these cost. Installation and scheduling are affected,sales teams will have to expedite the process through chasing the kit, forexample, proof of delivery.

• Cost of user involvement: This is a human cost that is associated withIT divisions in particular. It is mainly caused by the end user not having ITskills and not knowing exactly what to order (Mohamed, 2004). This costmainly includes scheduling teams and installation staff.

Given the amount of money spent on information systems and the often-considerable amount of risk involved, it would seem that a better understandingof indirect costs and their impact on both employees and the organisation areneeded. Clearly, the introduction of a new system is an influential driver ofindirect human costs, as it has a great impact on the organisation, and leads tomany indirect human costs. It is argued that having identified these indirecthuman costs, decision makers could more accurately predict the financial andhuman costs of the systems that they choose and whose value they subsequentlyhave to justify.

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Conclusion

Research suggests that indirect human costs are not considered, primarilybecause they are hidden and not easily identified. This chapter has highlightedthe need to look more closely at social issues and indirect human costsassociated with new emerging technologies. The focus needs to be changedfrom technicalities and direct aspects to indirect and social issues. In doing so,the author explores the various indirect human cost factors and their impact onthe organisation, and establishes a need to account for these cost factors whenadopting a new system.As new systems are introduced to the organisation, the users are likely torequire training, and will hence go through a learning period; a great deal oftime is required to integrate a new system. Consequently, a loss in productiv-ity occurs as the user becomes familiar with the system. As a result of trainingor the acquisition of new skills, employees will be aware of their new, highlymarketable skills. Therefore, they may request an increase in their salaries toreflect their greater marketable value. Rejecting the request may result in staffturnover. Furthermore, introduction of a new IS could result in an unpredictedpolitical power shift that leads some individuals or groups to resist, as well asresulting in escalating operational costs. Introducing a new system may alsoresult in managers being less productive, and hence not adding any value to theorganisation. As a result of the introduction of the new system, the organisationmay assign less demanding tasks to very skilled employees, which is likely tolead to indirect human costs such as job dissatisfaction and staff turnover.High staff turnover results in a significant change in the knowledge base of theorganisation that is impossible to predict.To conclude the author argues that to aid strategic planning in an organisationand to use it to their competitive advantage, understanding and managing theindirect human costs incurred during the adoption of new information technol-ogy systems is essential in supporting decision makers’ effective managementof these costs. Once these costs are identified, they can be managed, estimated,and reduced. In addition, it will provide greater transparency for those whorequire further evidence or justification of how and why those decisions weremade.

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From ASP to Web Services: Identifying Key Performance Areas and Indicators 149


Chapter X

From ASP toWeb Services:Identifying Key

Performance Areas andIndicators for Healthcare


Wendy L. Currie, Warwick University, UK

Abstract

Value creation from e-business for customers in healthcare is an importanttopic in academic and practitioner circles. This chapter reports thefindings from a two-year research study, which found that disappointingresults from the much-hyped application service provider (ASP) businessmodel is currently being replaced by perceived new opportunities fromWeb services. Yet past failings from ASP do not guarantee future successwith Web services models, particularly as evidence shows that accruingvalue-added benefits from e-business initiatives is often fraught withdifficulty. Healthcare is no exception, and is likely to pose more problemsgiven the complexity of the organizational structures, processes,procedures, and activities within this vertical sector. This research study

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calls for a more rigorous approach in identifying and evaluating keyperformance areas and indicators from new e-business initiatives involvingemerging technologies and platforms such as Web services. Yet themeasures and metrics used for healthcare may differ from those adoptedin other sectors. Healthcare professionals will therefore need to developcontext specific key performance areas (KPAs) and KPIs, and cautionagainst accepting at “face value” the value proposition devised by Webservice providers.

Introduction

The process of healthcare management modernization is maturing in Europe,North America, and in other developed countries. This has resulted to anexponential increase in demand for rapid business process execution, moreaccurate and timely information, and additional automated information systems(IS). Interest in Web services is emerging in many different guises. As subsetof e-business, Web services offer customers software as a service. Theprinciple 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 fromASP (Hagel, 2002), Web services are designed to resolve problems of poorintegration (interoperability) between software applications and low customersatisfaction. This research study treats the Web services business model as themain 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 vendorsoffering software as a service, and for e-business models more generally.This chapter presents the findings from a two-year research that examines boththe supply side and customer side of deploying, hosting, and integrating e-business models, focussing primarily on Web services in the UK health sector.The chapter is structured into three main areas. It begins with a discussion ofASP taxonomies and argues that the various templates for ASP were essen-tially flawed for a combination of technical or business reasons. Within thehealthcare sector, technology vendors failed to develop e-business models that

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created value for customers. They adopted a technology push strategy whereproduct and services are offered to customers without a clear understanding oftheir business requirements (Cassidy, 2002). This section is followed by anoverview of the research study and methods used for data collection andanalysis. Next, we present the results from a questionnaire survey and inter-views with healthcare professionals. Using a risk assessment framework, whichcaptures five key performance areas (KPAs) for evaluating the software-as-a-service business model (which includes both ASP and Web services)(Currie, 2003), this research applies this framework within the healthcaresector. Comparing the results from healthcare with those of five sectors (Currieet al., 2004), we observe that priorities and preferences vary. This suggests thatservice provider vendors need to identify a more rigorous approach indeveloping their value propositions from e-business for specific industrialsectors, since a one-size-fits-all approach is inappropriate. The chapterconcludes by offering future directions for research on emerging technologieswithin healthcare.

Lessons from the First Phaseof the ASP Model

The emergence of the ASP model suggested an answer to prevailing question:“Why should small businesses and non-IT organizations spend substantialresources on continuously upgrading their IT?” Many believed that applicationoutsourcing, using the ASP model could provide the solution to enhancing ITefficiency and reducing the total cost of ownership of IT (IDC, 2000). Withinthe context of healthcare, ASPs could offer both horizontal (business facing)and vertical (sector specific) software solutions. An example of the latter couldbe in the form of electronic patient records (EPR) systems (Guah & Currie,2004). An ASP assumes responsibility for buying, hosting, and maintaining asoftware application on its own facilities, publishing its user interfaces over thenetworks, and provides its clients with a shared access to the publishedinterfaces. The customer simply has to subscribe to the service to receive theapplication over an Internet or dedicated intranet connection, as an alternativeto hosting the same application in-house (Guah & Currie, 2004).The impetus behind ASP was fuelled by the belief that utility computingoffered a new business model to customers, similar to electricity, gas, and

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water. The commercialization of the Internet meant that, as network trafficincreased in a firm’s data centre, IT architecture would trigger other resourcesinto 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, theconcept of “software as a service” was created. Accessing IT resources in thisway would result in reduced up-front investment and expenditure, enablingfirms to buy services on a variable-price basis (Dewire, 2000). This fuelledopportunities in the late 1990s for service providers to offer software applica-tions and IT infrastructure on a rental, pay-as-you-go pricing model (Bennet &Timbrell, 2000). An ASP could be a commercial entity, providing a paidservice to customers (Susarla, Barua, & Whinston, 2003) or, conversely, anot-for-profit organization supporting end users (Currie et al., 2004).In healthcare, an ASP may provide some mix of application services forlaboratory, prescribing, charting, outpatient visit, coding, and clinician sched-uling, and reporting. Some may even offer clinical alerts normally associatedwith expensive institution-based EPR systems, including health warnings ofpotential drug reactions. Through the provision of this one-to-many model overthe Internet, an ASP takes patient charts and medical records and keeps themon a centrally managed repository, to which a healthcare provider can gainaccess from anywhere in the world. This can allow for a physician to review thepatient’s medication lists from all previous encounters and their prescription-filling habits (provided all the legal requirements of patient confidentiality havebeen arranged).

ASP Taxonomies

Taxonomies represent “ideal-type” scenarios, which may not exist in their pureform (Currie et al., 2004). They are useful for providing a framework fororganizing phenomena by attempting to deconstruct the various componentsand/or characteristics. Variations exist within ideal-typical categories, as wellas overlap between categories. During the first wave of the ASP market, manydifferent types of ASP emerged. Some were concerned to offer a broad,horizontal product and service portfolio, while others target specific verticalindustry sectors such as healthcare. Table 10.1 focuses on a horizontal ASPproducts/services portfolio, and Table 10.2 looks at the service providerstargeting the healthcare vertical sector. Each of these categories implies adifferent outsourcing relationship between supplier and customer.

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The first ASP taxonomy (Table 10.1) delineates ASPs into vertical (industryspecific), horizontal (across/within business functions); enterprise (complexsoftware such as ERP and CRM); pure-play (Web-enabled applications) andinfrastructure (data centre, networking, and other supporting technology)(Currie et al., 2004). Whilst many research analysts and pundits suggested thatvertical ASPs offered excellent opportunities for business development, theyalso needed to address key challenges, such as a limited customer base;potential problems in serving only one sector/subsector; potential overrelianceon one Internet service vendor (ISV); and others. By restricting their potentialcustomer base, vertical ASPs believed they could offer a high level of servicesince they marketed themselves as having an in-depth knowledge of the sector/subsector they served.

Type of ASP Description Generic Examples Key Challenges Mixed/ Vertical

Industry specific (health, finance, transportation)

SchlumbergerSema (health) Bloomberg (finance) S/W for Excellence (dental)

Limited customer base Reliant upon major vendors Restricted by sector-based economic

Horizontal Business software (accounting, human resource, travel)

Salesforce.com (HR) Concur (travel) SAGE (accounting)

Low barriers to entry Undifferentiated products/services

Enterprise Complex business software (ERP, CRM, supply, and logistics)

SAP Oracle McKesson

Very expensive for small/medium organisations Channel conflicts Data security/integrity

Pure-Play Internet/Web-enabled software application (e-mail/security/disaster recovery)

Graphnet Health iSoft Mail.com

Unprofitable commodity applications Reliant upon VC funding Unstable/volatile/dynamic market

Infrastructure Technology partners to ASP (telco, data centre, networking)

Cable and Wireless BT CISCO

Technical inhibitors Over-capacity Severe competition

Table 10.1. Taxonomy of ASPs based on a horizontal product/serviceportfolio (Currie et al., 2004)

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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, andmanaged services providers (Hagel, 2002, p. 45). Comparing the two ASPtaxonomies reveals significant similarities with considerable overlap betweencategories and activities of the various players. The ideal-typical categoriesprovided by different taxonomies offer an illustration of the market/strategicpositioning and product/service portfolios of ASPs, and should not be treatedas rigid categories in their own right. Given the confusion which surrounded thefirst wave of ASPs, attempts to deconstruct the ASP business model andmarket into taxonomies is a useful exercise, which may provide some clarity tothe phenomenon under scrutiny.ASP taxonomies can be further mapped across the netsourcing stack, whichcaptures a variety of customer/supplier scenarios “where relationships in thisspace are very complicated” (Kern, Lacity, & Willcocks, 2002, p. 115). Forexample, an ASP delivering a hosted software application to the end customer,may subcontract data centre services, billing, help desk, and other supportservices to additional firms. Furthermore, the ASP may not even own or havedeveloped the software, as this may be the intellectual property of an Internetservice vendor. In the case of enterprise ASPs and ASP resellers, developers,and aggregators, these firms may form complex strategic alliances or partner-ships with leading ERP vendors, usually for specific target customer (Table10.2).As a forerunner to the current Web services market, ASP was highly volatile,dynamic, and immature market. A recent review of the ASP industry (Susarlaet al., 2003) concluded that the technological factors like scalability, speed andfocus, and the behavioral aspects of price and flexibility were the key driversof the model. The inhibitors of the model were poor connectivity, lack of trustin the model, reluctance to be locked into long-term contracts with suppliers,lack of customization, poor choice and suitability of software applications fromASPs, and few opportunities to integrate disparate applications across tech-nology platforms and business environments. These factors and others ledHagel (2002) to conclude that

ASPs in many respects represented a false start in the efforts to break outof the enterprise straitjacket. In particular, few of them adopted Webservices architectures as their technology platform. Instead, they attemptedto build businesses on the Internet using traditional technology

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architectures … this proved to be a significant flaw in the early ASP modeland explains many difficulties these businesses experienced. (p. 43)

The taxonomy indicates that many different service provider firms operatewithin the ASP space. More recently, many of these firms have abandoned the“ASP” acronym and now relabel themselves “Web service vendors.” Againsta backdrop of failed ASPs, these firms recognize the need to obtain marketleadership through strategic differentiation and revenue generation. Whilstmany e-business models were premised on the basis that developing a brandpreceded profitability (Cassidy, 2002), start-up firms, in particular, are unlikelyto secure second-round venture capital funding without demonstrating acapacity to generate revenues. So from a vendor perspective, entering themarket with a poorly thought-through or “flawed” (Hagel, 2002) e-businessmodel will not be sustainable. Equally, from a customer viewpoint, rigorousperformance measurement and assessment of benefits and risks is critical, notjust in terms of the software application capability, but also in terms of whether

Type of ASP Description Healthcare Examples Key Challenges Resellers Provide new Internet-

based distribution channel and “rental” pricing model for traditional enterprise applications

Graphnet Health ISoft CSE Health

Gaining customer acceptance, especially new pricing models

Developers Develop new applications and deliver on the Internet with “rental” pricing model

CSE Health EMIS AVOCA Systems

Large investment in own IT infrastructure; Long lead times; Gaining trust and acceptance in marketplace; Competition with other ISVs

Aggregators Integrate and market packages of applications provided by ASP develops

First DataBank Europe CISCO McKesson Info Solution

Potential channel conflicts with ISVs; Too many products/services on offer; Competition with other ISVs

Hosting Services

Provide specialised facilities and support services for companies deploying Internet-based applications

IBM Microsoft Sun

Potential overcapacity in an overcrowded market, confusing business model and partners with “unstable” ASPs

Managed Service Providers

Provide specialised application management

IOKO365 Siemens Healthcare Services SAP

Severe competition in overcrowded market, confusing business model for customers

Table 10.2. A taxonomy of ASPs based on vertical industry positioning(adapted from Hagel, 2002)

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the service provider is likely to remain in business. This taxonomy, developedfrom prior research (Currie, 2003), provides a useful framework for analyzingthe 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 researchstudy that was developed to investigate the deployment, hosting, and integra-tion of the ASP and Web services technologies from both a supply-side anddemand-side perspective. The overall research was in two phases. The firstphase, comprising of a pilot study, was conducted in the United States and UK(Currie & Seltsikas, 2001). An exploratory-descriptive case study methodol-ogy (Yin, 1994) was used to investigate 28 ASP vendors and seven customersites in the UK. The dual focus upon supply side and demand side was criticalfor obtaining a balanced view between vendor aspirations about the value oftheir business models, and customer experiences, which may suggest a lessoptimistic picture. The unit of analysis was the business model (Amit & Zott,2001), not the firm or industry level, so a case study methodology wasanticipated 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 researchstudies by the EPSRC and ESRC, respectively. Industrial collaborators wereselected for the roles of technology partner, service providers, and potential orexisting customers. These studies were concerned with identifying sources ofvalue creation from the ASP business model and Web services technologies infive key performance areas (namely, delivery and enablement; integration;management and operations; client/vendor relationships; and business trans-formation).

• Research Methodology: The research followed a number of stagesinvolving the use of both qualitative and quantitative data collectiontechniques and approaches (Walsham, 1993). A questionnaire surveyand covering note were distributed by e-mail to businesses and healthcareorganizations all over the UK. These organizations were listed on anational 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. Toensure relevant managers and practitioners responded, the covering noteclearly stated the purpose of the questionnaire and requested that it bepassed on to the person(s) with responsibility for managing healthcare e-business.

• The Questionnaire: Scales to address the research questions were notavailable from the literature, so the questionnaire was developed based onthe theory of strategic value (Banker & Kauffman, 1988). It included achecklist, open-ended questions, and a section seeking organizationaldata. Research questions under part I required respondents to answeryes/no if Internet technologies application in healthcare was bringing valueto patients. Data in part II of the questionnaire was collected by open-ended questions seeking respondents’ views on the best approach tohealthcare 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, wasused to increase the reliability of data since all respondents were asked thesame questions, but some added supplementary information. The purposewas to impose uniformity across the sample of representation, rather thanto replicate the data obtained from each participant (Yin, 1994).

• The Sample: As a result of the first phase of the research carried out inthe United States and UK, a database of 700 international firms wasdeveloped, all of which had developed an ASP business model. The dataserved to build up a data bank of market intelligence on a variety of ASPfirms and their offerings. Many of these firms were tracked over a four-year period to identify changes in their business models. From this sampleof 700 ASPs, about 55% continued in application provisioning (excludinginfrastructure) by the time phase two of the research began. A goodnumber of the original sample had ceased to exist (about 24%) and somehad been taken over by other firms (about 6%). The remaining (about15%) had changed their business model, moving away from software asa service (Kakabadse & Kakabadse, 2002) to data storage and managedservices provisioning. The ASP database proved to be a very usefulsource of market intelligence for the research study since it helped todevelop a questionnaire survey targeted at the healthcare sector.

• Healthcare Survey: In phase two of the research, a total of 350questionnaires 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 ruraltowns in an effort to avoid bias. The vendors were drawn from a list ofbusinesses negotiating for contract under a “primary service providers”scheme (Guah & Currie, 2004). After persistent follow-up (telephonecalls) exercise, 225 questionnaires were completed and returned, repre-senting a 64% total return rate. As this study was exploratory in nature andwas designed to develop a framework to inform practice and guide futureresearch, rather than testing hypotheses (Avison & Fitzgerald, 2003) the225 organizations’ situations on which it is based provided useful prelimi-nary data.

Respondents were mainly middle-level business managers (60%) offeringvarious Internet-related services in Web services to the global healthcareindustry, while the rest (40%) consisted of medical practitioners working in theNHS. The 40% included IT coordinators at different institutions nationwide;some already implementing Web services architecture locally. The vendororganizations were predominantly American and British, consistent with thebusiness structure in the UK. Seventy-eight percent of the companies werelarge ones with an annual turnover of over £1 bn, while 13% had between £25m 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 whichapplication outsourcing is different from traditional outsourcing (ASP IndustryConsortium, 2000). Probably the most noticeable difference between the twois within the relationship with the customer. Unlike traditional outsourcing, theASP model would target individual health centres and trusts within the NHS.The ASP model can be replicated into an appropriate mixed economy forhealthcare. There is an issue of not only trying to persuade and convince bothinternal and external stakeholders about the value of current capabilities butalso 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 astate of evolution towards a form of “federal governance architecture” (Zmud,1988). These are instances where the authority for the management of ITinfrastructure is vested with a central IT unit but the authority for the manage-ment of IT application and use is vested with individual business units—orregional trust, in the case of the NHS. Such a situation has promoted theimportance of a variety of coordination mechanisms, such as IT councils, ITsteering councils, service-level agreements, and charge-back internal account-ing systems, as structural overlays to supplement the hybrid “federal gover-nance architecture” (Zmud, 1988). The potential for current ASPs to satisfac-torily provide such service to the NHS does exist but certain concentratedimprovement would need to be made to their services. The critical nature ofNHS services requires the service provider to provide higher-value andmanaged 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 andperformance. The monitoring of such control is seen through real-time feed-back. A formal reliability check must be put in place to assure that thedistribution of any type of content to the various NHS edges safely takes placewithout disrupting other critical network operations. To improve reliability, thecontent and services of the ASP infrastructure would need to be moved“closer” to the users. Such actions would not only significantly reduce require-ment on network performance, but also result in the creation of a session andcontent-aware routing architecture (Figure 10.1). A large organization such asthe NHS would need visibility and control at all levels of service and quality ofdelivery. By doing so, an undoubtedly high level of satisfaction can bemaintained which requires a significant reduction to current network problemsand bottlenecks.One NHS trust executive assessed that content distribution competence ofmost ASPs would need to improve in terms of static content and on demandstreaming. The NHS needs a significant amount of small and large objects tobe delivered promptly and accurately. By demand of the services there arecontinuous needs to issue similar content at differing times of the network. A

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significant amount of live streaming is required in NHS institutions. Suchsystems 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 verydelicate stream management and scale optimization.Considering all of the previous information, the fundamental goal of the ASP interms of content provision can be summarized into one phrase: “Getting the rightinformation to the right place at the right time.” Thus the NHS demands a fasteraccess, more reliable access, and accountable and secure system with guaran-teed synchronization with other internal systems.Due to ASP being a relatively new concept, large members of the health sectorreact to the model with confusion. Although an ASP manages and deliversapplications capabilities to multiple entities from data centres across a widearea network (WAN), a virtual private network (VPN), or an intranet, thereare also vertical ASPs that target a specific market/sector. An ASP could bea commercial entity, providing a paid service to customers or, conversely, anot-for-profit organization supporting end users (Currie, 2000). The verticalASP model would be critical for those researching into NHS IS&T strategy andoutsourcing since they will be a major force within the software and computingservices industry. The model would include these four key factors:

Figure 10.1. Improving reliability in health data distribution using ASP

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• The supporting technological framework, including cameras, scanners,telephones, fax machines, computers, switches, disks, CD, video andaudio, 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 andsoftware needed to access, manipulate, organize, and digest;

• The governance, management, and use of information, including thestandards to ensure interoperability, interconnectivity, reliability, andsecurity of systems, and the physical, technological, and legal means toprotect the privacy, confidentiality, and security of personal information(Figure 10.2); and

• The people and organizations involved in creating the information, devel-oping the applications and systems, constructing the facilities, and thoseusing this model to deliver, maintain, and improve health-related servicesfor the benefit of all.

The rapid development and wide-scale implementation of information tech-nologies, in a wide variety of trusts, has provided the capability to achieve thevision of increased use of evidence-based decision-making processes (Figure10.2). At the same time, the increasing pressures to contain and reduce costshave made the new information systems a potential agent of change. Theevidence on which clinicians based their decisions is crucial to improving themanagement and cost efficiency of the NHS. The development of a nationalhealth information system accessible to all those in the NHS will ensure thataccurate, up-to-date information is on hand when it is needed.

Enter

prise

ASP Pureplay ASP

Vertic

al S

ervic

e Pro

vider

Horizontal ASP

A S P

E na ble m e nt

F ull Se rv ic eP ro v is io n

C u s to m e r

A S P A g g re g a to r M o d e l

E R P

C R M

e -P ro c u re m e n t

A ss e t M a n a g e m e n t D o c u m e n t M a n a g e m e n t

F in a n cia l

H R

e M a il

W e b H o stin g

Regional NHS Trust

Figure 10.2. Evolutionary healthcare ASP aggregator model (Currie,2000)

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KPAs for ASP and Web ServicesValue Creation in Healthcare

The complexity of the regulatory and partnership contract “chains” withinhealthcare (Institute of Medicine, 2002; Wanless, 2002) has resulted inextraordinary obscurity in the security, access, and control requirements forparticipating organizations: SchlumbergerSema, EMIS, and McKesson arethree major German, British, and American healthcare enterprises, respec-tively. They have more than five operating companies each with complicated“contracting chains.” Such complexity creates two primary problems in the UKhealth sector:

• Getting and registering the existence of required healthcare business andsoftware processes and data in “real time”; and

• Allowing only those who need access to software processes and patientdata to do so selectively and under knowable and auditable circum-stances.

The research operationalized five KPAs (Currie, 2003), which are potentialsources of value creation from ASP: delivery and enablement, management andoperations, integration, client/vendor alliances/partnerships, and business trans-formation. This framework, we argue, is also relevant for evaluating Webservices. Each category is discussed below in the context of healthcareorganizations.

Delivery and Enablement

A commonly used sales pitch on the part of ASPs was to offer 24x7 softwareapplications availability, though customers’ requirements varied according tothe nature of the business use. However, this could not serve healthcareorganizations’ need for extensive communication and interconnectivity arisingfrom adoption of standards and integrated IS (Institute of Medicine, 2002).These organizations have a current need to identify new opportunities in theavailability 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 pro-cesses via Web services, through which they can reshape and improve theircore business processes (Gerowitz, Lemieux-Charles, Heginbothan, & Johnson,1996). IT managers interviewed within the NHS were disappointed at thecurrent lack of capacity to access enterprise-wide information from databases.Their major requirement is for IS that provides numerous opportunities tocoordinate organizational activities by facilitating communication and informa-tion exchange across departments, branches, partners, and patients carerswithout the need to go through horizontal or vertical chains of command.ASPs resisted this demand, as customization would lead to reduced profits, oreven a financial loss. The ability to offer scalability of the software applicationwas another facet of delivery and enablement. Generally, the less complex theapplication, the easier it was to scale to high numbers. To a large extent, e-mailwas the easiest application to offer, as there was no need for customization.From the data analysis, the largest single issue in terms of delivery andenablement was the fear about data security and integrity. Most ASPspossessed large IT capability in the form of data centres; many pure-play ASPsoutsourced this facility (Kern et al., 2002). Yet security of patient data was aserious impediment, as many potential customers in the health sector werereluctant to experiment with an ASP business model, which was immature andpoorly supported.

Management and Operations

One of the perceived benefits of ASP is that healthcare organizations would beable to concentrate on their core competencies (Perseid, 2003). ASP vendorsargued that the remote delivery of software applications would release manag-ers from the perennial problems of running in-house IT departments. Thiswould allow them more time to develop IT and e-business strategy rather thanthe day-to-day operations. This justification has been used in traditional formsof outsourcing over many years (Willcocks & Lacity, 1998). Our findingssuggest that most of the software applications offered by vendors were looselydefined as horizontal business applications (i.e., accounting, HR, fixed assetmanagement software, etc.). Even where healthcare organizations were de-ploying ASP for more complex applications, there was little evidence that thescale and scope of usage amounted to extra time for managers to engage inother 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 reducedusing a remote software delivery model. Our findings pointed to a lack ofrelevance in TCO models, particularly for the NHS with increasing demands onlow IT budgets. One NHS IT manager said:

Our overall IT spending is only about £150 k per annum. I don’t thinkusing a Web service solution will necessarily save us much money. But ifit means fewer headaches with physicians using IT, then I would beprepared to pay more for Web services!

Considering Web services are new technologies that sprung from the ASPbusiness model and are used mostly to automate linkages among applications,they are generally anticipated to make critical systems connections not onlypossible but also easy and cheap (Kreger, 2003; Sleeper & Robins, 2001). ITmanagers believe making connections between NHS organizations and theirapplications exponentially increases the complexity and cost to their jobs.Indeed business activities, for the NHS, involve communications and transac-tions with other organizations, such as trading partners, suppliers, and patients.Hagel (2002) argues that organizations with better and cheaper connectionswith one another could gain cost savings in the short term and look forward inthe longer term to collaborating more innovatively to give customers morevalue.

Integration

Despite poor results from ASP in regard to integrating disparate softwareapplications, Web services could potentially make a significant difference inintegrating software applications across multiple platforms, sites, and depart-ments of healthcare organizations. A commonly cited benefit from ASP firmswas that software applications across business and IT functions could beintegrated to fulfil the goal of enterprise application integration (EAI). ManyASPs planned to develop a wide portfolio of business applications (includingERP, CRM, accounting and financials, logistics, etc.). But most of theseapplications were “stand alone,” provided on a one-to-many model. With Webservices, these applications could eventually be integrated to provide thecustomer with a comprehensive enterprise solution (Majeed, 2003).

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An important question is whether Web services can be deployed and managedwithin healthcare; where there is a need for patient data and processes to beintegrated, possibly across multiple platforms, environments, and sites. Tomanage such real-time procedure requires the integration of complex enter-prise information (Figure 10.3).

• Manufacturing: Integrated global pharmaceutical information on drugsmanufacturing process

• Metadata: Information about what is contained in these phases ofdevelopment

• Clinical: Clinical trial, side effects, outcomes, and in “real-life” effects ofdrugs

• Validation: Strategic planning data on the validation of the drug for thetarget patients

• Administrative: Healthcare claims, membership, diagnostic, and treat-ment data

• Financial: Design, development, pricing, deployment, and patient intel-ligence data

Figure 10.3 illustrates the data model for the integration of information acrossthe value chain of a healthcare organization that is multivendor and multisource.Such organization encourages the definition and sharing of data—within theorganization and among partners and regulators. Two “stacks” of data arearticulated in Figure 10.3:

• Clinical: The data and information supporting medical and research anddevelopment (R&D) of new drug entities

• Administrative and Financial: The data and information supporting theprocesses of drug approval, production, distribution, and patient caremonitoring

Interviews with medical practitioners in the NHS found that integration ofsoftware applications was not an immediate priority, or rather, not a prioritythey were prepared to pay for. So how can ASP and Web services benefit theNHS? Many organizations in the NHS were deploying ASP solutions which

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were non-mission critical, for example, e-mail, rather than ERP. One medicalconsultant, using an electronic diary application, commented:

We were not particularly looking for a Web service solution to organizeour time management. However, when a vendor approached us with aproduct for diary scheduling, we thought to give it a try. The mainadvantage of this is that you can make changes to patient appointmentsfrom a remote location and submit the data to the surgery. It is particularlyuseful for staff working away from the surgery for long periods, but thecurrent 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 alliancesand partnerships with technology and service providers (Currie et al., 2004;Ferergul, 2002). Yet many of these partnerships and alliances proved to be

Research

Clinical Trials

Metadata Security Access andControls

Manufacturing

Financial Sys

Target Group Regulations

Product Optimisation

Distribution

Enterprise Network Architecture

Clinical Processes Administrative and Financial

Systems Integration Architecture

External and Internal Organisations

Research Target and Discovery Product Optimisation Clinical Trials

Strategic Planning Financial Accountability Distribution and Support Regulatory Approval

Security, Access, and Controls

Regulatory Agencies Service Providers Patients Organisations Technology Partners

In-House Server

Figure 10.3. Complex data generated by healthcare enterprises valuechain (Perseid, 2003)

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unsustainable and insecure. For example, large technology sector firms, sucha telecommunications firms, saw opportunities in partnering with independentsoftware vendors (ISVs) to offer hosted software applications on a utilitymodel. The coming together of a utility model of pricing with a new deliverymechanism for software was perceived as a promising opportunity. In addition,hardware manufacturers saw benefits of developing new business by manufac-turing “thin client” PCs where data would be stored remotely, that is, on theserver farms owned by the telco. Whilst these arrangements looked like a win-win scenario for all, the reality proved otherwise in most cases. Indeed, theventure 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 toincrease, particularly as management decisions to procure software are likelyto be taken at a much higher level than middle management, for example.Research into two NHS organizations found disappointing results from theASP business model. Two NHS organizations had to alter their strategies whentheir service providers went out of business.Both organizations lost time and money in resolving the problem and are lesslikely to use an ASP in the future. Whilst predicting the financial stability andviability of ASPs is difficult to do in an unpredictable market, the degree ofcommitment to a strategic alliance or partnership from a large technologyprovider or ISV is equally problematic. Our findings suggested that even wherelarge firms (telcos, ISVs, hardware manufacturers, etc.) entered into a strategicalliance with ASPs, this was easily unravelled if the business objectives werenot achieved within a specific time period. As greater numbers of ASPs failed,ASP adoption rates became fewer. Surviving vendors could not convincepotential customers that the ASP business model offered them new benefits foroutsourcing their business software applications.

Business Transformation

A more nebulous aspect to ASP is business transformation. With the growth inhealthcare ICTs, managers and medical practitioners are faced with a confusingarray of software applications from a variety of ASP vendors. The businesstransformational characteristics of different offerings were not well articulated

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by ASP vendors, as many were unable to provide practical examples ofperformance improvement in specific healthcare/technology activities or tasks(Currie et al., 2004). Today, many pundits claim that Web services wouldintegrate ICT with patient care. They also suggest that using Web servicessolutions would help the healthcare organizations keep pace with the latest ICTand give them all the benefits of outsourcing, which had previously accrued onlyto large firms. For the healthcare organization, several financial and functionalbenefits are realized (Guah & Currie, 2002):

• The internal and external divisions, partnerships, and regulatory agencyrelationships can be realistically automated for the first time, since accessis defined by Web services.

• Systems integration costs are dramatically reduced and interfaces arestandardized, 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 thehypothetical benefits of e-business. However, they were unable to relate thesebenefits to their day-to-day practical healthcare operations. Many NHS staffsimply described the ASP business model as “a return to service bureaus undera different name,” rather than an ICT innovation which would enhance theirbusiness processes. The business transformational characteristics of the major-ity of ASP offerings were also low, as this was dependent upon integration(Table 10.3). NHS did not deploy software applications for critical healthcareactivities, and many managers were reluctant to do so because of fears of datasecurity.

Results from the Questionnaire Survey

Against the background of the five KPAs (see Currie, 2003) as discussed in theprevious section, the questionnaire survey was developed to elicit data andinformation on how potential and existing ASP customers evaluate a range ofKPIs 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 theapproximately six KPAs. A questionnaire survey instrument is reproduced inAppendix 2. It is outside the scope of the present chapter to discuss all thefindings from the questionnaire survey, particularly the sample organizationsprevious outsourcing experience. All respondents gave their job title, companyaddress, 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 latestIT products and services to healthcare professionals. Many ASPs thereforetargeted specific vertical sectors such as health to enable them to penetrate thismarket more successfully, as general e-business trade fairs were unlikely toattract healthcare personnel.Other variations in priorities emerged. For example, whilst the health sectorshared similar concerns with the other sectors (apart from travel) in giving a highpriority to data security and integrity, it also identified allowing managers toconcentrate on their “core” competencies as an important KPI. This mayreflect the significant changes within the health sector marked by increasedpaperwork and other forms of bureaucracy. Using an ASP model wastherefore perceived as having some advantages in this activity.

Key Performance Indicators

Average Score for All Sectors

Average for Healthcare Organisations

Delivery and Enablement 24x7 software applications availability 2.69 2.29 Delivery of end-to-end solution 2.62 2.57 Ability to migrate existing data 2.76 3.14 Data security and integrity 3.33 3.57 Disaster recovery, backup, and restore procedures 3.28 3.57 Plan to access all software applications online 2.20 2.57 Integration Integration of software applications across multiple platforms, sites, and environments

2.37 2.0

Business process redesign through software applications integration

2.10 2.0

To create a “seamless” IT organisation 2.30 2.57 To create an IT infrastructure for better manageability 2.42 2.86 To achieve faster software application implementation 2.41 2.14 Resultant synergy from combination of applications 2.10 1.86

Table 10.3. Scores of key performance indicators subdivided into areas

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Table 10.3. (continued)

Key Performance Indicators

Average Score for All Sectors

Average for Healthcare Organisations

Management and Operations To allow management to concentrate on core activities 2.85 3.14 To reduce total cost of ownership (TCO) through software applications outsourcing

2.64 2.71

To eliminate the problem of managing IT 2.35 2.57 To pursue e-business strategy 2.0 1.57 External (hosted) applications infrastructure better value for money

2.25 2.14

External (hosted) software applications infrastructure more cost effective than traditional outsourcing

2.07 2.0

Greater flexibility of outsourcing as opposed to in-house management of software applications

2.06 1.71

Business Transformation To keep pace with the latest information and communications technologies (ICT)

2.31 1.57

To integrate ICT with the core business 2.65 3.14 To treat ICT as a service to the core business only 1.96 2.14 Strategic plan to increase ICT outsourcing 1.79 2.14 To gain senior management support for ICT 2.27 3.29 Client/Vendor Relationships Desire to develop strategic partnerships with vendors 1.97 1.86 Outsourcing success depends on good service-level agreement (SLA)

3.04 3.71

Financial stability of vendor critical to outsourcing decision 2.93 3.43 Single point of contact (with vendor) 2.71 3.57 Responsiveness of vendor to ICT changes 2.61 3.57 The strength of the strategic partnerships between vendors 2.42 3.0 Mergers/acquisitions/takeovers between vendors 2.14 2.86 Total score in this section 92.89 97.84

The integration of ICT with the core business was highlighted by health asimportant, but less so for the other three sectors. In healthcare, in particular, thelack of integration of ICT has resulted in numerous disparate softwareapplications, although efforts are now in place to devise a national IT strategyfor healthcare (Guah & Currie, 2002). An interesting finding was that astrategic plan to increase IT outsourcing was given relatively low priority inall sectors (apart from health). Whereas the health sector was likely to increaseits IT outsourcing as a result of a national IT strategy, the other sectors did notperceive this KPI as a high priority. Within the sectors, finance, IT, andmanufacturing, 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 managementsupport for IT (health)—scored higher than 3. In the case of the latter, it is notsurprising that the centralized nature of IT procurement in healthcare precludesIT vendors from gaining access to key personnel (Guah & Currie, 2004).One of the surprising findings from the questionnaire survey in relation to theASP vendor rhetoric was in the area of integration. Contrary to ASP sales andmarketing literature, which emphasizes the importance of integration (particu-larly enterprise application integration), no respondents in the sample scoredhigher than 3 for any KPI within this category. Indeed, the KPI, strategic planto increase ICT outsourcing, was not seen as an important priority by samplefirms and gaining senior management support for ICT was only considereda priority in healthcare organizations. It is therefore suggested that, withoutthese two KPIs being perceived as highly important, the responsibility fornegotiating SLAs is likely to be delegated to more junior management and ITstaff, possibly increasing risk. This observation has already been made in theoutsourcing 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 potentialcustomers. Clearly, most of the sales and marketing rhetoric of ASP vendorsappeared to echo the messages given to the large customer. Questionstherefore arise as to the extent these messages were relevant for healthcareorganizations, in particular, that a healthcare organization would reduce itsTCO of IT using an ASP solution despite a low annual IT spend, or thatefficiency would be greatly improved with 24x7 software availability.

Discussion and Conclusion

This chapter has provided a snapshot of research results derived from a five-year study on the deployment, hosting, and integration of ASP (Currie, 2003;Currie et al., 2004). It focuses specifically on the UK healthcare sector, whichis receiving a major investment in IT over the next 5 years. Whilst it is notpossible to draw definitive conclusions from the results, the variations in thepriorities within and across the five KPAs points to some interesting observa-tions. The results discussed in this paper are indicative of the problems, whichbeset the first wave of the ASP market, most notably, a failure of ASP vendorsto provide an attractive value proposition to organizations (Hagel, 2002).

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Existing literature on healthcare systems have identified four basic types ofapplications 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 theother types but implemented using Internet technologyGroup Collaboration: The original purpose of the Internet was essentially toenable (academic) group collaboration. Proprietary group collaboration appli-cations 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 processsystems capability, it is unsophisticated and unstable by comparison to thetried-and-trusted but proprietary commercial equivalents. The Internet wasnever designed to offer more than a very basic transaction capability as iscurrently required to support healthcare processes. Patient Intelligence:Patient intelligence usually involves looking for patterns within very large datasets, in the order of millions of individual data items. Viewing reports and simplegraphics is easily supported; however, complex manipulation of graphicalinformation does not work well using today’s Internet technology due tonetwork capacity restraints. E-Commerce: At its most basic, e-commerce isbuying and selling over the Internet, whether to consumers or business tobusiness. NHS systems may not require a financial transaction system but theneed to interact with patients is promoting e-commerce-type system to a higherposition on NHSIA strategic agenda.Whilst the ASP market continues to undergo large-scale change, which is asymptom of competing in a highly volatile and dynamic marketplace (Eisenhardt& Martin, 2000), the main finding from the research study has been the failureof vendors to create value for potential and some existing customers. Bydelineating KPIs across five KPAs as the results from the questionnaire surveypoint to some interesting findings, which provide a snapshot of how potentialand existing customers of ASPs evaluate the ASP or software-as-a-servicemodel. Further research is now underway to provide more detailed vendor andcustomer scenarios across vertical sectors (i.e., health and finance) andproduct/services offerings (i.e., ERP) to provide specific examples of howvendors may tailor their offerings to more closely meet the needs of customers.This is particularly important given the current cynicism and myths surroundingthe business value of e-business (Howcroft, 2001).Any healthcare organization tempted to fill the gaps with older technologiesshould 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 featuresof Web services, for example, should be implemented as modules with clearlydefined interfaces (Kreger, 2003). In this way, it will be easier to replace theproprietary extensions with evolving Web services standards as they becomeavailable.Finally, a staged, pragmatic implementation of Web services at the edge ofenterprises is by no means without pitfalls. This approach gives organizationstime to learn about these technologies and to develop insights into the broaderoperational and strategic possibilities of strategic collaborations. In the UK,NHS executives were lulled into complacency by the simple and mundanenature of Web services. By their early tactical implementations, they haveoverlooked the broader opportunities and lost valuable time—NHS-Direct isa good example (Wanless, 2002). It is management’s attitude that willultimately 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 forcertification and audit of application service provider. Application Ser-vice Provider, 10(3), 239–252.

Amit, R., & Zott, C. (2001). Value creation in e-business. Strategic Manage-ment Journal, 22, 493–520.

Arnott, S. (2002). Broadband NHS is in the pipeline. Computing, March, 1.ASP Industry Consortium. (2000). Industry news. www.Aspindustry.orgAvison, D.E., & Fitzgerald, G. (2003). Where now for development method-

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Bennet, C., & Timbrell, G. (2000). Application services providers, will theysucceed? 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 InformationTechnology, 19(1), 39–58.

Currie W.L. (2000). Expanding IS outsourcing services through applicationservice 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 agree-ments. 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 inthe 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 UShospitals. Health Services Management Research, 6, 69–78.

Guah, M.W., & Currie, W.L. (2004). Application service provision: Atechnology and working tool for healthcare organisation in the knowledgeage. International Journal of Healthcare Technology and Manage-ment, 6(1/2), 84–98.

Guah, M.W., & Currie, W.L. (2002). Evaluation of NHS information systemsstrategy: Exploring the ASP model. Issues of Information SystemsJournal, III, 222–228.

Hagel, J. III (2002). Out of the box: Strategies for achieving profits todayand growth tomorrow through Web services. Boston: Harvard Busi-ness School Press.

Haines, M. (2002). Knowledge management in the NHS – Platform forchange. Retrieved November 2002, from www.healthknowledge.org.uk

Howcroft, D. (2001). After the goldrush: Deconstructing the myths of thedot.com market. Journal of Information Technology, 16(4), 195–204.

Institute of Medicine. (2002). Crossing the quality chasm: A new healthsystem for the 21st century. Washington, DC: National Academy Press.

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Kakabadse, N., & Kakabadse, A. (2002). Software as a service via applica-tion 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 businessapplications and services over a network. New York: Prentice Hall.

Kreger, H. (2003). Fulfilling the Web services promise. Communications ofthe ACM, 46(6), 29–34.

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Majeed, A. (2003). Ten ways to improve information technology in the NHS.British Medical Journal, 326, 202–206.

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Sleeper, B., & Robins, B. (2001). Defining Web services. Accessed April2002, from www.stencilgroup.com

Susarla, A., Barua, A., & Whinston, A.B. (2003). Understanding the servicecomponent of application service provision: An empirical analysis ofsatisfaction with ASP services. MIS Quarterly, 27(1), 91–123.

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Weill, P., & Vitale, M.R. (2001). Place to space–Migrating to eBusinessmodels. Boston: Harvard Business School Press.

Willcocks, L., & Lacity, M. (1998). Strategic sourcing of informationsystems. 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/WebServicesTheNextEvolutionofApplicationIntegration.pdf

Yin, R.K. (1994). Case study research: Design and methods. Sage Publi-cations.

Zmud, R.W. (1988). Building relationships throughout the corporateentity. Washington, DC: ICIT Press.

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Section III

Thriving or Not

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Chapter XI

Future TrendsMatthew 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 Internetstrategies in the next decade and possibly beyond. This chapter beginswith financial forecasts from the professionals and later warns thatorganizations must first be in the position to refine their business models,crystallize their value propositions and strengthen the quality andmanagement strategies of their services.

Introduction

What remains unclear in the early part of the 21st century concerning the linkagebetween Internet investment production and the application service provider(ASP) market is the extent to which the rate of ASP like services productivitywill continue to rise in the face of slower advances in Internet stock market.According to Forester Research, the proportion of ASP business in the

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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 tothe effect of the stock market collapse) and is currently being projected at $15bn by 2006. The overall business interests in the ASP model will continue to risewith proportionally higher rates of investment by vendors versus traditionaloutsourcing. We attribute this optimistic forecast to four trends:

1. Continuing improvements in capabilities and cost-performance charac-teristics of remote support services by vendors;

2. Improvements in capabilities and cost-performance characteristics of thetechnology at the system or application level;

3. Continual development of the telecommunications infrastructure to sup-port ASP performance; and

4. Gradual reduction of institutional and social barriers to the introduction ofASP model as a viable business strategy.

Future Analysis

It does not make sense to emphasis the social and technical resources andconstraints of a new industry (like ASP) without thinking about the future of theresulting information system. While no one can say, with any degree ofcertainty, what the future holds, it is always possible to speculate on the natureof changes. Such consideration of future conditions usually helps to avoid someof 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 futureanalysis theory:

1. Prediction of possible changes: This area looks at the kinds of changesthat are possible, that is, technological, legal, political, or economic. Itrequires the investigation of the context and situation of the organizationin which the work is being done. Other items needed to help with thisinvestigation include structure plans and prediction of mid-term develop-ment of the institution that could be medium plan. This is meant to devisean appropriate system analysis stage of the development process thereby

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giving some idea of the type of expansion, contraction, and change that willoccur and with which the incoming system will have to deal.

2. Likely outcome of system: Here one takes a peep into the futureassuming the likely effects of an improved information system. There arecertainly all kinds of disruptive and constructive events that may be relatedto the development of a new system. A few of the most pertinent ones withregards to ASP implementation are staff redundancy, change of loyalty ofexisting IS staffs, new reporting procedures, and so forth.

3. Features susceptible to change: This looks at the features of theproposed system that are more susceptible to change. Questions such as,where would one expect the new system to change first and whether thiscan be planned for, come into play here. Other issues involved here areif certain data would need to be collected or some existing collectionprocedures would need to change. And even if some existing sections ordivisions would continue to maintain their structures.

4. Horizon of the system: One would look at the extent and horizon of thesystem. It is at this stage that an ASP would begin to think in terms of thelong-term view. While we admit this is obviously guesswork, it gives onea sense of humility in the initial design and requires an ASP vendor tospeculate as to how what is being planned today may be the building blockfor further developments into the long-term future.

The pursuit of technical efficiency in the operation of various complex technolo-gies required by ASP to operate in the 21st century will continue to requireskilful management of these technologies, and the technical personnel neededto operate and maintain the tools. An intelligent enterprise activity will largelybe concerned with managing the technical attributes of ASP tools and not withthe management of the use and intellectual content of the information andknowledge. While such management will focus on internal operations, and arelargely a middle-management and professional-staff function, that stage ofinformation-management development will continue to expand as more com-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 costsavings are usually quite significant, but such enterprise will soon encounterunanticipated difficulties because of organizational and operational problems.One such is usually the fact that integrating the ASP technologies often demandsnew 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 moreemphasis will need to be placed on business management of informationresources and management personnel who will define and direct the use ofthese assets and resources in the organization. Even more pressing are thepressures for change in adopting a more management-oriented view of thisdomain that are arising from various stakeholders (both internal and external)who are beginning to recognize the enormous potential for profitability andproductivity embedded in the emerging products and services of the ASPindustry.

Software as a Service

Web services environment-based computing is likely to evolve rapidly in thehosting realm. ASPs therefore need to identify and partner with infrastructurevendors able to help them fully capitalize on this trend. Web services are rapidlymoving to the forefront of major service providers’ strategies for the next phaseof Internet-centric computing. Web services began to constitute one of thecomputing industry’s most important trends during 2002 and potentiallyprovide almost limitless, new service and revenue opportunities. The questionthus 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 infrastructurevendor has identified support for Web services as a strategic priority. Thesevendors have each determined that a key success factor for their business to goforward seriously depends on its ability to support what could likely becomea flood of Web services components.This prepares the way for Web services to aid the software-as-a-services trendto gain significant market traction and appeal. Many research studies haveshown that ASPs are totally confused about what Web services actually are andthe promises they hold for the IT industry (Kakabadse & Kakabadse, 2002;Currie, Desai, & Khan, 2004). Very little sense is made of the response fromquestions such as “What exactly are Web services?”, “What do Web servicesdo for businesses?”, “How can ASPs benefit from Web services?”.Like all other previous new technologies in the IT industry, Web services haveyet to emerge with a universally agreed-upon definition. However, manyproponents describe Web services as discrete software components that runon top of the Internet as though it were a huge distributed operating system. This

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means Web services are analogous to software components, making up theelements of a full application that runs on a single-server operating system.Although Web services provide some valuable piece of functionality, they donot individually provide all of the business logic necessary for a completeapplication or hosted service. Such a feature requires individual Web servicesto interact with each other and with other Web-based applications to completewhatever task they are chartered to do. Here is where the idea of standardinterfaces and messaging protocols come in.Application development can therefore create Web services from scratch, orencompass pieces of legacy code with software wrappers that add theapplication programming interfaces (APIs) necessary for the legacy code tofunction as Web services. As they are built with the same open standards, Webservices built to run on one operating system or within one infrastructure canautomatically interact with Web services running on a completely differentsoftware infrastructure.One little issue of complication is the fact that Web services tend to fall into twobroad categories:

1. Some Web services can function primarily as building block componentsthat other Web services applications can access and exploit directly andautomatically. These Web services allow for no user interface and nointerventions.

2. Other Web services require user invocation and interaction.

Considering Web services are an even newer phenomenon than ASP, thescope of Web services functionality is rather broad and the stages of a clear andcommon definition are still evolving. As IT giants—for example, IBM, SUN,Microsoft, CISCO, and so forth—gain more experience in deploying andimproving Web services development, the definition will be refined andstandardized. All service providers need to think of Web services as part oftheir continuum of the software-as-a-service model. Web services should notbe considered as a disruptive approach to hosted services, but rather as anadditional step forward for IT service provision. They could provide astandardized way for different services and applications to interoperate, whichwill greatly reduce the integration hurdles ASPs have been facing for a longtime. 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 fortheir customers.In similar regards, ASPs would not always be able to ensure that individualWeb services will be developed or run on the infrastructure of their choice. Thatis because Web services are created and distributed by multiple entities. ASPsmust therefore develop and deploy their own services with infrastructure thatcomplies with Web service standards; to be certain that their services canefficiently interact with, and take advantage of, other Web service components.Most of these initiatives will only take if ASPs identify and partner withinfrastructure 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 theIT industry (Cassidy, 2002) and that the worst days have past. While thecurrent economic slump is slowing much industry activity, the fundamentaldrivers for software as a service remain strong, and business interests arecontinuing to push this business model inexorably forward. However, many arelooking to see ASPs evolve. They must refine their business models (Lacity &Willcocks, 2002), crystallize their value propositions (Currie, 2004), andstrengthen 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 becomingsimpler because several brand-name vendors moved to field preintegratedsuites of applications on different platform elements. Nevertheless, ASPs arenot doing enough to unravel the mysteries of a new business model based onWeb services technologies. This is probably the most differentiating challenge.Very few ASPs are beginning to show their clear understanding that the needto exploit this new business model early will gain an edge. They are alsoadjusting more flexibly and rapidly to market demands by delivering more of thenew services and capabilities that Web services will engender. A clear warningis that ASPs that are slow to embrace Web services could very well be caughtshort, 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 applicationservice provisioning in five vertical sectors. Journal of InformationTechnology, 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 ofmythic proportions. MIS Quarterly, 18(2), 121–127.

Dotan, T. (2002). How can ebusiness improve customer satisfaction? Casestudies in the financial services industry. Journal of Information Tech-nology Cases and Applications, 4(4), 22–48.

Kakabadse, N., & Kakabadse, A. (2002). Software as a service via applica-tion 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 SystemsResearch, 11(1), 61–82.

Lacity, M., & Willcocks, L. (2002). Regional perspectives: Survey of IToutsourcing experiences in US and UK organizations. In Advancedtopics 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 method-ologies (pp. 67–76). (AFM Exploratory Series no. 16). Armidale,Australia: New England University.

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Chapter XII

A 21st-Century Tool forIntelligent Enterprises


Abstract

This chapter suitably summarizes all the points covered in this book byapplying them to 21st-century intelligent enterprises. By addressing thebusiness issues and management concerns of a 21st-century intelligententerprise, we hope this chapter points medium- and large-sized businessesin the proper direction, to manage application service provider (ASP)resources and strategies to their competitive advantage. With thephenomenon of ASP in its infancy, we draw from works of IS pioneersMarkus, Porter, Checkland, and others. Their intellectual contributions,plus findings from research work at CSIS, provide a framework fordiscussion. ASP delivers personal productivity software and professionalsupport systems, assisting an intelligent enterprise in processinginformation, solving business problems, developing new products, andcreating new knowledge. The need to exploit ASP capabilities to preserveand enhance organizational knowledge is clearly defined by this chapter.

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Introduction

To deal with this complex topic we have structured this chapter into four mainareas: Background, Concerns, Recommendations, and Future Trends.Background presents the central theme of the historical shifts from a main-frame 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 ofaccurately discerning the path of that technology during the last decade of the20th century very difficult. Similarly, the reality of the ASP technology has notfully burst on the business scene, but has evolved over some 5 to 10 years.Moreover, statistical evidence to define this emerging social and economicreality has lagged behind the writers and commentators who have identified theimportant features of this significant change.Next, Concerns discusses the engine that is driving the ASP industry. Just asthe steam, electric, and gasoline engines became the driving forces behind theIndustrial Revolution of the early 1900s, so the Internet and high-speedtelecommunications infrastructure are making the ASP a reality today. Aresulting “information processing” industry is the business sector that is provid-ing the impetus for this revolution, with its increasingly improving array ofhardware, software, and information products and services. These technolo-gies, in turn, are having and will continue to have profound impacts on businessmanagement, competitive advantage, and productivity.Having set the stage by describing the changing business environment of theintelligent enterprise, Recommendations then move to the need for eachenterprise to fundamentally think its corporate strategy. For ASP vendors, it isnot just a question of selling a product, but of selling a solution to a customer’sproblem. This is where the lines between delivering the services and betweentraditional versus emerging markets are blurring and changing.The qualitative dimension is as important in an ASP industry as the quantitativedimension. Quality control must be built into the front end of the service deliverycycle, not viewed as a last-minute check to be done just before contracts arereviewed. Here is where the human factor is introduced into our discussion. Inessence the intelligent enterprise is a distributed network of human talent.Within the individual enterprise, outmoded human resources managementphilosophies must be replaced by modern approaches that maximize the braincontribution to the products and services, not just the brawn contribution. Theemphasis 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 itseconomic milieu, but its political and social contexts as well. This does notsuggest some kind of radical shift away from the profit motive to the quality-of-life motive. But we do endeavour to point out that this strategy presents bothrisks and opportunities for every business in the 21st century. Much of thisdiscussion implicitly recognizes that doing business in an intelligent enterpriseforces suppliers, producers, and consumers into far closer proximity with oneanother than is the case in an industrial economy.Finally, we examine the problem of redefining success in the business environ-ment of the 21st century in Future Trends. Central to this discussion is the ideaof adding value at each stage of the information systems life cycle. ASP, as aform of technological accomplishment, has little meaning for intelligent enter-prises, however, unless ASP’s Web services can be linked to businessinnovation. The challenge for business professionals is to find ways to improvebusiness processes by using Web services.This chapter has been written to take the reader into the 21st-century IS strategyparadigm. Utmost attention is paid to integrate the current business andmanagement ideas with the deployment of ASP as one of the new informationtechnologies. Yet, the chapter is rooted in the concepts that have emerged overthe decades of development of the IS discipline. ASP in terms of its productsand services has continued to evolve over its short history. As these changeshave progressed, the landscape of the Internet technology has become crowdedwith new services, technologies, products, and transmission media. As theInternet has continued to evolve with the discovery of new technologies and theintegration of “older” technologies such as mobile computers and broadbandcommunications, new opportunities and markets within this area of businesshave opened up. ASP, as a form of electronic commerce, is the sharing ofbusiness information, maintaining business relationships, and conducting busi-ness transactions by means of computer telecommunications networks. Similarto the development of the Internet’s World Wide Web, ASP has been changingboth the ways organization deal with one another and the way internalcorporate processes are carried out with the assistance of telecommunicationinfrastructures. The capabilities offered by ASP present an opportunity toredesign the business processes of intelligent enterprises in order to reach newlevels of performance.The research which underpins this chapter was not conducted in isolation of thework of others in the IS and related fields. In the remainder of this chapter, someof the existing literature will be discussed under the various headings of theory.

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Many examples and cases throughout the text have been drawn from interna-tional business areas. The purpose is to describe some interesting work, whichwas forerunner and inspiration for the research, while maintaining the role oftheory and case studies within the interpretive tradition of IS research. Theepistemology can be viewed as broadly interpretive, seeing the pursuit ofmeaning and understanding as subjective, and knowledge as a social construc-tion.

Background

Change usually takes a long time, and the technology that transformedenterprises and the economy is no exception. Why should anyone be over-wrought about the slow growth of ASP? It took mainframe computers a decadeor two to become central to most firms. In fact when IBM marketed its firstmainframe computer, it estimated that 20 of these machines would fulfil theworld’s need for computation! Minicomputers moved into companies andschools a little faster than mainframes, but they were also considerably lessexpensive. Even the ubiquitous PC took 5 to 10 years to become an importantpart of work life. The road travelled by these pioneers was rocky. Actualaccomplishments seldom matched those initially envisioned. There were sev-eral 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 byinformation specialists, computing equipment that was both expensive andlimited by today’s standards, and so on (McLeord, 1993). Some IS reviewersbelieve that one error in particular characterized the early systems above allother: They were too ambitious. Firms believed that they could build giantinformation systems to support all managers. With the benefits of hindsight, onecan now describe systems designed then as being snowballed or the taskattempted being unmanageable. However, some firms stuck it out, investedmore resources, and eventually developed workable systems—although moremodest in size than originally projected, while other firms decided to scrap theentire management information system idea and retreated to data processing.When the first computers were applied to business problems in the 1950s, therewere so few users that they had almost total influence over their systems. Thatsituation changed during the 1960s and 1970s as the number of users grew. Itthen 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 situationbecame even tighter when a new player entered the picture—the enterprise(McLeord, 1993). A stage of organization/staff reliance on information sys-tems started in the mid-1980s with demands that information systems increasedoperational efficiencies and managerial effectiveness. On the backs of suchevolution, strategic information systems gained importance as systems ex-pected to help organizations compete. In the 21st century, information systemsare developed in an enterprise environment.

21st Century:The Age of Information Society

Beniger puts forth a seemingly influential argument that the origin of theinformation society may be found in the advancing industrialization of the late19th century (Beniger, 1986). Accordingly, as industrial plants increased theirprocessing speed, the need for increased resources to control manufacturingand transportation resulted to a feedback loop wherein enterprises had toprocess information ever faster. Fittingly, the demand for sophisticated infor-mation processing equipment resulted in the development of computers. Whilethe subsequent new technologies further pushed the development of aninformation society, the continuing cycles of demand pull and supply pushaccount for the progress in the field.The Internet is simply a global network of networks that has become a necessityin the way people in enterprises access information, communicate with others,and do business in the 21st century. The Internet contains a distributed softwarefacility that organizes the information on it into network of interrelated elec-tronic documents called World Wide Web (WWW). WWW has changed theface of computing, both individual and enterprises resulting in the expansion ofelectronic commerce attainment. The Internet is regarded in the 21st century tobe beyond a means of communication. It is also a source of information andentertainment that facilitates the development of electronic commerce. Theinitial 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. ASPs ensure

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access to this service costing little and usually having a standard PC is sufficientto enter this marketplace.The Internet has been a subject of enormous hype and speculation since itsexplosion in late 1980s. However, ASP can most certainly be said to beresponsible for the latest debate surrounding its usage for purposes far beyondits original scope. By the late 1990s ASP-like business models were beenapplied by a proliferation of small businesses in the Western world therebycreating what sometimes seemed a cult status with people from many parts ofsociety talking about a “new breed of intelligent entrepreneurs.”Beyond the problems that may arise from the systematization of information, wesuggest there is within the discipline of ASP a model of infrastructure andcontext which is foundational, but inadequate. This is the code model of ASP,deriving from the work of Sleeper and Robins (2002) taking a pragmatic lookat the emerging Web services market. We will draw on a number of theoreticalsources in a search for an improved foundation. A link is also made to theenvironment reality theory of perception proposed by Little (1999).

Emergence of ASP

The early phase of ASP model appeared to revisit the service bureau model ofthe 1960s and 1970s (Currie, 2000). During this period, many companiessigned outsourcing contracts with a service bureau. The fashionable termoutsourcing was rarely used, as the more narrow facilities managementcontracts involved mainframes data centres and bespoke software. The servicebureau model was moderately successful although there were many technical,communications, and financial problems which precluded it from being a viableoption for many companies.In this era, outsourcing will continue to undergo a significant shift from thecentralized computing of the 1960s and 1970s, the distributed computing of the1980s and 1990s, through to the remote computing in the 21st century. ASPswill play a central role since they will increasingly offer a utility model tocustomers 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 toolsof economic activity have shifted, as has the nature of work and culture. In thepost-Net era, a term coined by editors of Issues of Strategic InformationSystems for its special issue in 2002, the application of knowledge and

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intellectual technology in response to the organized complexity of technology,organizational and social institutions become the critical factor of productionand services.The findings of our previous study provided substantial evidence for the realityof the ASP industry in the United States and the transitional phase which thenational economy has moved through in progressing to the ASP technology(Currie, 2000). Moreover, the study also provided support for the notion thatthe basic sources of wealth had shifted from capital to information andknowledge resources. If ASP is a technological and economic reality, thenwhat is its impact on business? At the outset, it is clear that the Internet’s impacton business will evolve over time and will redefine our understanding ofbusiness management, competition, and productivity. While we have beenliving with the consequences of the Internet for many years, our understandingof these shifts in human events has lagged behind the reality.Ironically, this delayed effect has been particularly acute in Europe in recentyears, as compared to Japan and the United States. For example, in the UnitedStates, preliminary planning in moving that IT outsourcing toward an ASPmodel emerged as a general business goal in early 1980s and by late l990s hadbeen translated into a full-scale economic development strategy. Moreover, bythe late 1990s, the United States was beginning to assess its economicdevelopment strategies in the ASP industry, and the impacts such pronouncedshifts in IT industry priorities would have on business.Even today, European business and political debates over IS strategic policyremain tied to traditional views of outsourcing. Many senior executives stillremain sceptical or openly critical of the ASP phenomenon. These attitudesamong corporate executives and senior managers betray some fundamentalmisunderstandings not only of the current state of the ASP industry in Europe,but also of the terms and conditions under which the advanced ASP industryin the United States will compete with European business in the future.Nearly every participant in our research with small- and medium-sized compa-nies (SME) in the UK agrees that implementing ASP solution (which sometimesresults into automating certain work flows) without first making necessaryfundamental changes and improvements are the wrong way to go aboutbusiness improvement. That’s because new and better products often replaceexisting ones. At the same time much needed skills may not be backed up byposition descriptions and functional statements. And too often the pooling ofparallel and similar operations is not considered when implementing an ASPsolution.

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Preliminary findings of our research show some conflicting stakeholdersperceptions for a successful implementation of such a model. This not only leadsto a better understanding of the ethical issues involved but also of the complexrelation of these ethical issues with other technical, organizational, and socialissues that need to be managed effectively.

Concerns

As evidence relating the reality and basic features of the ASP market continuesto grow, there begins to be less concern about confirming that any structuraleconomic shift has continued historically, and more concern about understand-ing how the ASP industry is performing, and its impact on productivity,investment, corporate capital formation, labor force composition, and compe-tition. The relationship between the traditional outsourcing and the “latestwave” e-sourcing on the one hand, and Internet investment productivity on theother, is at the centre of the IT strategic problem confronting corporatemanagement in the 21st century.

Intelligent Enterprise Business Environment

An intelligent enterprise exists within several environmental elements. These arethe enterprises and individuals that exist outside the intelligent enterprise andhave either a direct or indirect influence on its business activities. Consideringintelligent enterprises are operating in different sectors, area of emphasis andwith different policies and strategies, the environment of one enterprise is oftennot exactly the same as the environment of another.The business environment for intelligent enterprises includes the enterprise itselfand everything else that affects its success, such as competitors, suppliers,customers, regulatory agencies, and demographic, social, and economicconditions. A properly implemented ASP business model would provide themeans of fully connecting an intelligent enterprise to its environmental elements.As a strategic resource, ASP helps the flow of various resources from theelements to the enterprise and through the enterprise and back to the elements.Some of the more common resources that flow include information flow fromcustomers, material flow to customers, money flow to shareholders, machineflow from suppliers, and personnel flow from competitors and workers’ union.

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Looking at the environment of intelligent enterprises, one can see a generalizedtheory of enterprise’s perception (Little, 1999). The theory is sufficientlyimaginatively motivated so that it is dealing with the real inner core of the ASPproblem—with those basic relationships which hold in general, no matter whatspecial form the actual case may take.An intelligent enterprise can succeed only by adapting itself to the demands ofits external environment, which is often represented by a number of groups(formally called stakeholders) that affect the organization’s ability to achieve itsobjectives or those affected by it. Stakeholders other than participants andcustomers form another important part of the context. Stakeholders are peoplewith a personal stake in an ASP system and its outputs even if they are neitherits participants nor its customers. Permanent among such groups are custom-ers, distributors, competitors, employees, suppliers, stockholders, venturecapitals, trade associations, government regulators, and professional associa-tions. An important role for the information systems is to keep the organizationinformed of the activities of all these stakeholders.Zwass (1988) describes an organization as an artificial system. He furtherdefines an organization as a formal social unit devoted to the attainment ofspecific goals. With notification that a business enterprise, as a system, has togenerate profit though it may also pursue other objectives, including employ-ment provision, and contributing to its community generally. Zwass (1988) alsorestricts the value measurement of an artificial system to two major criteria:effectiveness (the extent to which a system achieves its objectives) andefficiency (the consumption of resources in producing given system outputs).Considering that intelligent enterprises compete in an information society, therequirements for successful competition depends on the environment. In thecase of ASP, such environment presents several serious challenges, and therole of intelligent enterprises information systems has evolved over time ascompeting enterprises attempt to meet these challenges. Few enterprises have,however, identified opportunities for deploying strategic information systemsthat have proven success in the competition process by analyzing the forcesacting in the marketplace and the chains of activities through which they deliverproducts and services to that marketplace.

Infrastructure Issues

Infrastructure is the resources the system depends on and shares with othersystems. Infrastructure is typically not under the control of the systems it serves

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yet plays an essential role in those systems. For ASP the technical infrastructuretypically includes computer hardware, telecommunication facilities, and appro-priate software designed to run on the Internet. Examining infrastructure mayreveal untapped opportunities to use available resources, but it may also revealconstraints limiting the changes that can occur.Evaluation of infrastructure is often difficult because the same infrastructuremay support some applications excessively and others insufficiently. Drawingfrom Porter and Millar’s (1985) theory that “Information systems are strategicto the extent that they are used to support or enable different elements of aenterprise’s business strategy,” this chapter proposes a framework that IS inlarger organizational systems may enable their effective operation or may beobstacles (Porter & Millar, 1985). In an earlier paper, we use the UnitedKingdom’s National Health Service’s system infrastructure and context as twodistinct 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 andhurts intelligent enterprise efficiency. While every international businessman/women can see that things have changed vastly in most of Africa and SouthAmerica, the significance of infrastructure as a competitive enabler or obstaclehas clearly not changed. That is because infrastructure consists of essentialresources shared by many otherwise independent applications. A local region’sphysical infrastructure includes its roads, public, transportation, power lines,sewers, and snow removal equipment. Its human and service infrastructureincludes police, fire, hospital, and school personnel. A region’s physical andhuman infrastructure can be either an enabler or an obstacle and is therefore acentral concern in many business decisions. The importance of certain ISinfrastructure elements serve as a key motivation for the successful implemen-tation of ASP. The required IS infrastructure raises a broad range of economic,social, and technical issues such as who should pay for infrastructure? Whoshould have access to/control over them and at cost? Which technology shouldit include? Where ASP is involved, the economic question often puts telephonecompanies against cable companies, both of whom can provide similar capa-bilities for major parts of the telecommunications system. From certain view-points, it can be considered the responsibilities of government to ensure anational IT infrastructure is available as a key motivation for the previously buzzwords “information superhighway.”Just as local regions depend on the transportation and communication infra-structure, infrastructure issues are important for ASP implementation and

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operation. These systems are built using system development tools; theiroperation depends on computers and telecommunication networks and on theIS staff. Deficiencies in any element of the hardware, software or human andservice infrastructure can cripple an information system. Conversely, a well-managed infrastructure with sufficient power makes it much easier to maximizebusiness benefits from ASP.

Inadequacy of Existing Infrastructure

Most people would agree that motorways such as the M4, M6, and M1together with railways up and down the country are a part of the UK’stransportation infrastructure. Transportation is vital to the economy; it makesthe movement of goods and people possible. Economic infrastructure providesa foundation on which to build commerce. Is there a technology infrastructure?At the national level, there is a communications infrastructure in the form ofnetworks that carry voice and data traffic. In recent years, the Internet hasbecome an infrastructure that ties a wide variety of computers together. TheInternet highlights the fact that an innovation which began as an experiment canmature to become part of the infrastructure.Infrastructure begins with the components of ASP, hardware, telecommunica-tion networks, and software as the base. A human infrastructure of IS staffmembers work with these components to create a series of shared technologyservices. These services change gradually over time and address the keybusiness processes of the intelligent enterprises. Noninfrastructure technologyis represented by applications that change frequently to serve new strategiesand opportunities (Weill, Broadbent, & Butler, 1996).It sounds in practice that much of the justification for infrastructure is based onfaith. Weill (1993) did find one firm with a creative approach to paying forinfrastructure. The company required careful cost-benefit analysis of eachproject. When this showed higher-than-necessary benefits, it was loaded withinfrastructure 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 animmediate return. The Singapore example presents the classic case for infra-structure; a small amount investment and guidance creates a facility on whichmany organizations can build. Networking in Singapore has the potential totransform the nature of commerce on the island and to help achieve the city-state’s goals for economic development.

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Telecommunications: Facilitating ASP Emancipation

Telecommunications is the electronic transmission of information over dis-tances. In recent years this has become virtually inseparable from computerwith a paired value that is vital for integrating enterprises. Most enterprises inthe 21st century have access to some form of telecommunication network,which is simply an arrangement of computing and telecommunications re-sources for communication of information between distant locations. Theseenterprises are usually using one of two types of telecommunications networkswhich can be distinguished by their geographical scope: local area network(LAN) and wide area network (WAN). LAN is a privately owned network thatinterconnects processors, usually microcomputers, within a building or on acompound that includes several buildings. It provides for a high-speed commu-nication within a limited area where users can share facilities connected to thenetwork. On the other hand, WAN is a telecommunication network that coversa large geographical area which large businesses need to interconnect theirdistant computer systems. Computer networks differ in scope from relativelyslow WAN to very fast LAN. There are several topologies and channelcapacities responsible, which the objective of this chapter does not permit ofa detailed exploration.ASPs use WAN as a fundamental infrastructure to employ a variety ofequipment so that the expensive links may be used efficiently. The variousequipments control the message transfers and make sharing the links among anumber of transfers possible. An increasing number of ASP customers haveuser PCs that are connected to a LAN that communicate with the WAN via agateway. In certain cases the ASP may offer common carriers and providevalue-added service that can be combined with private networks to create anoverall enterprise network.As an e-commerce phenomenon, a few of the essentials of an ASP infrastruc-ture are common carriers, value-added networks, private line, and privatenetworks. Common carriers are companies licensed, usually by a nationalgovernment, to provide telecommunications services to the public, facilitatingthe transmission of voice and data messages. As most countries permit only onecommon carrier, the service can be broken down and leased as value-addednetworks to vendors who then provide telecommunication services to their owncustomers with added values that could be of various sophistication. Forincreased speed and security, an enterprise may not want to share with othersand could take the option of leasing its own private lines or entire networks from

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a carrier. It has been proven that leasing links can result in savings from high-volume point-to-point communications.The above are the apparatus through which an ASP uses telecommunicationsto give its customer the capability to move information rapidly between distantlocations and to provide the ability for their employees, customers andsuppliers to collaborate from anywhere, combined with the capability to bringprocessing power to the point of the application. As shown earlier in thischapter, all this offers an ASP customer the opportunities to restructure itsbusiness and to capture high competitive ground in the marketplace.

Security

Considering the ASP industry is riding on the back of Internet’s overnightsuccess, the highly publicized security flaws have raised questions about ASP’ssuitability to serve as a reliable tool for the promotion of intelligent enterprisesfor the 21st century. An ASP vendor could be forgiven for thinking the primaryservice to its customers is to provide connections between possibly millions ofcomputers linked to thousands of computer networks. However, the preven-tion of unauthorized users who steal information during transmission, whosabotage computers on the network, or who even steal information stored inthose computers are major parts of the vendor’s responsibilities. Exploiting thisflaw might permit hackers to gain control of designated servers and then accessor destroy information they contain. As long as these risks are not as far fetchedas one might hope, customers would continue to be wary about the uptake ofASP business model (Currie, Desai, Khan, Wang, & Weerakkody, 2003).The many break-ins and other general security problems occurring withInternet/intranet demonstrate some of the risks of engaging in any form ofbusiness model linking to the Internet. Many ASP vendors have tried to reducethe danger using firewalls and encryptions, but such maneuvers not only reducerisk, but they also reduce the effectiveness of a networked environment. TheIT community has generally accepted that effective use of encryption andfirewall techniques could eliminate much of the risk related to unauthorizedaccess and data theft.Does any mathematical encryption guarantee absolute security? No. Just as aphysical lock cannot provide absolute safety, encryption cannot guaranteeprivacy—if a third party uses enough computers and enough time, they will beable 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 tobreak the code is so long that the security provided is sufficient. It is advisablethat intelligent enterprises keep this principle in mind when thinking aboutInternet security. When someone asserts that an encryption scheme guaranteessecurity, 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 requireslonger time to break than another scheme is said to be “more secure.”However, a good proportion of the SMEs surveyed did not appreciate thatmany ASP vendors have tried to reduce the danger using what is calledfirewalls—computers that intercept incoming transmissions and check them fordangerous content. Some fear that the mere process of downloading informa-tion across the Internet may entail hidden risks. As far as performance goes,some vendors are considering arrangements with national telecommunicationgiants for better data access facilities over WAN. The trend towards deregulatingtelecommunications must continue globally for data rates to become a muchless important restriction in the future.

Obstacles to a Commercial Future

The powerful trend toward a networked society has many components, startingwith the fact that use of online networks is exploding. Intelligent enterprises ofthe 21st century require tools that take advantage of the millions of people whohave used computer networks for business and personal uses. These enter-prises oomph on the fact that e-mails and electronic bulletin boards are not onlycommonplace in leading businesses but also used for purposes ranging fromanswering customer service inquiries to exchanging views about personaltopics and politics. Reinforcing these trends, ASP vendors are building thenetwork capabilities into their products for intelligent enterprises to see theWeb services as an important turning point for commercial opportunitiesbecause it has made the Internet so much more accessible and adaptable fornontechnical business users.Many obstacles are currently apparent, however, when one looks at thepossibility that ASP will become a motivational tool for intelligent enterprisesin the 21st century and a major determinant for the future of Internet influenceon 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 thetype of clear organization that would make it easy to use as a reliable andprofitable business model. Although ASP vendors’ former capacity wasdaunting and strategy was unproven, the advent of Web services will make itfar easier to comprehend and even adapt.Looking back at the Internet’s history, one sees many incidents that raise issuesabout freedom and control. Major Western nations (United States, UK,France, etc.) have either proposed or passed legislation related to criminalpenalties for transmitting, accessing, or intercepting data of the Internet illegally.Although the Internet has been unregulated in the past, serious consideration ofASP-like business model could result in more legislation.

ASP as Competitive Investment

The fundamental definition of what constitutes a mission-critical applicationremains relatively unchanged; it is those applications where even the smallestamount of downtime will have a significant negative impact on an enterprise’soperational efficiency and bottom line. But the nature of what intelligententerprises now deem to be mission-critical systems has altered with a fargreater range of applications.One way to interest a manager in a new innovation is to show that a competitoris planning to adopt this innovation. Intelligent enterprises do respond tocompetition to avoid being put at a disadvantage. Banks provide a goodexample of investment in technology for competitive reasons. In an early studyof ATM deployment, Banker and Kauffman (1988) found that ATM adoptionprovided a limited advantage to certain banks. The findings suggest an earlyadvantage from installing ATMs and joining a large network. Customers clearlylike ATMs and the interconnections to the banking network it provides: thereis very little reason for a bank not to join an ATM network. In fact, becausecompetitors offer ATMs and are in networks, a new bank is almost forced toinvest in this technology. In 2002, ATMs are certainly competitive necessitiesfor banking. Some banks are closing expensive branches and installing ATMsinstead. However, since all banks can follow this strategy, it is unlikely one willgain a significant advantage from it.The airline industry offers another example of IS as a competitive necessity. Tostart an airline in the 21st century—especially in the UK and United States, youwould 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 reservationsand obtain tickets easily, either physical or electronic.Investments for strategy and to meet a competitive challenge may not actuallybenefit the enterprise making them. An enterprise may be forced, as in the twoexamples mentioned earlier, to adopt new technology to stay even with thecompetition. In this case, it is not so much return on investment in ASP, butrather what is the cost of not investing. Will an enterprise lose customers andmarket share because it does not have a particular technology in place? Canyou enter a new line of business without investing in the technology thatcompetitors have adopted? What kinds of services do customers expect?

ASP Implementation Strategies

The strategy one chooses for implementation has a direct impact on the levelof investment required for an ASP initiative. One strategy is to hire externalexpertise; either to develop the entire application or to work with the internalIS staff. Consultants have been available for developing ASP investments sincethe first systems appeared. Consultants will provide advice, and many willactually undertake the development of the IT application. Carried to anextreme, the enterprise can outsource the development and even the operationof an ASP application. There are a number of network providers who offercomplete xSP services (vertical, horizontal, pure play, etc.) and an enterprisemight outsource its electronic data interchange efforts to them.The major advantage of using consultants and outsourcing is the availability ofexternal expertise. ASP is so complex and difficult to implement that mostintelligent enterprises include a budget for help from a consulting enterprise thathas extensive experience with this package. When the enterprise enters into aconsulting or outsourcing agreement for an ASP initiative, it should be awareof the need to manage its relationship with the supplier. Enterprises that havedelegated the responsibility for developing a new ASP application to an outsideenterprise generally have been unhappy with the results. Managers still have tomonitor the agreement and work with the supplier. There are examples of manyvery elaborate management committees and structures established at enter-prises such as Microsoft, UNISYS, and IBM to manage outsourced IS.Evidence within the past 3 years have shown that situation can develop in whichlarge numbers of insurmountable problems arise with issues that, in an ASPvendor’s opinion, were going to cause lasting impediments to the ultimate

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systems implementation. Among several vendor options were these primaryfour:

1. Implemented the IS as best as they could within these constraints;2. Demonstrated unpalatable objection to the problem owners and set

conditions for eventual completions of work;3. Strove to ignore the problems and created the system as if they did not

exist; and4. Completely refused to continue work regardless of system phase.

While each of the above courses has quite a serious implication, the first optionwas most taken.Intelligent enterprises should determine the uptake of ASP based on their long-term 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 thecompetitive edge the system may give the enterprise or the high payoff thesystem promises. The past phase of ASP has proven that not all systems thatappear promising will produce sufficient business results to justify their acqui-sition. However, it is no surprise that certain intelligent enterprises still find itdifficult to evaluate the worth of prospective new technology.Borrowing from Checkland’s Human Activity System (HAS) concept, an ASPvendor will have problems with certain stakeholders and surrounding issues(Checkland & Scholes, 1990):

1. Client: the system’s beneficiary can be difficult to identify due to theoutsourcing nature of ASP business arrangements.

2. Owner: the eventual system owner may be anywhere between thenegotiating party to a fourth party somewhere and in some cases not ableto participate in the original negotiations.

3. Actor: these are often individuals and groups—of various types and withvarious needs—who are usually involved in the system are differentstages.

4. Objective: what the project is intended to achieve is highly dependent onthe process and it can often be different for various users and stakehold-ers.

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5. Environment: the situation in which the system will be developed andimplemented grossly affects the final outcome of the process.

6. Expectation: there are often as many assumptions of a project as thenumber of times it is discussed. More important, these assumptions tendto change as one goes through various stages of the system developmentand 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 theenterprise has not developed a modern infrastructure over time, it will have toinvest 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 thisinfrastructure and develops the new applications that require it.

Problem, Solution, or Opportunity?

One stimulus for ASP solution implementation is its intention to transform theenterprise. In this light, the investment in ASP is part of a larger changeprogramme that is meant to enable intelligent enterprises’ virtual and multiple-team structures. The resulted contributions can be described as part of theoutcome of a general change effort. Change is also an opportunity. For mostof the companies involved in our research, management decided on a desiredorganization structure and used IT investments to help create it. Managersplanned for change and welcomed it as an opportunity to make the entireorganization function better. Change is always a threat, as staffs are forced toalter behavior that has probably been successful until now. However, as shownin some of the examples in this book, change is also an opportunity to reshapeintelligent enterprise and make them more competitive.The push towards greater connectivity is a major factor driving ASP invest-ments in the 21st century. The UK’s Department of Trade and Industry (DTI)has encouraged (some would say mandated) a certain level of EDI compliancefor companies that wish to do business with it. Industry associations encouragecompanies to communicate electronically. Efficient customer response, EDI,just-in-time, continuous replenishment programs, and the Internet are allexamples of different kinds of electronic connectivity.

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For the successful implementation of ASP in the 21st century, organizationsmust maintain a socio-technical perspective, thereby avoiding the purelytechnological approach to achieving higher productivity. Rather balancing thisact with the consideration of social and human aspects of technology brings theadded value of creating a workplace that will provide job satisfaction. Suchinformation systems must be designed to fit the needs of its users and theorganization at large and be capable of evolving as these needs invariablychange. Such ethical considerations of information systems have moved into theforefront as information systems have become pervasive in modern businesses.Ethics, for the most part, involve making decisions about right and wrong andnot necessarily about possible and impossible and remotely relates to produc-tion increase or decrease. The major ethical issues that have been noticed to beaffecting intelligent enterprises information systems in the 21st century can besummarized 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 pointwhen the industry analysts should implement the critical success factor (CSF).The CSF methodology—developed by John Rockart of the MassachusettsInstitute of Technology—is defined as those few critical areas where thingsmust go right for the business to flourish—derives organizational informationrequirements from the key information needs of the individual executives ormanagers. CSF methodology is oriented toward supporting an enterprise’sstrategic direction. By combining the CSFs of these managers, one can obtainfactors critical to the success of the entire enterprise. Such an approach hasbeen proven to be useful in controlling quality of the information system incertain vertical sectors (Bergeron & Bégin, 1989).

Effects of ASP on IS Departmental Staff

Employee involvement is an employee’s active participation in performingwork and improving business process (Alter, 1996). The old-fashioned viewof employee involvement—employee following the employer’s instruction inreturn 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 workpractices with the help of managers and others in the enterprise.ASP can directly affect employee involvement. ASP can generally be deployedin ways that increase or decrease employee involvement in their work. An ASP

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business model that provides information and tools for employees increasesinvolvement because they reinforce the employee’s authority and responsibilityfor work. On the other hand, an ASP business model that provides informationto managers or quality inspectors but not their employees can reduce involve-ment by reinforcing the suspicion that the employee is not really responsible.The human and service side of the infrastructure in intelligent enterprises oftengets short shrift in discussions of new systems or system enhancements.Business professionals are often surprised at the amount of effort and expenseabsorbed by the human infrastructure. The tendency towards organizationaldecentralization and outsourcing of many system-related functions makes iteven more important to include human infrastructure in the analysis of newsystems.

Human Factors in ASP Technologies Development

The rapid rate of development of these technological miracles, as they wouldhave been viewed from an earlier age, has created a momentum of its own, andit is not surprising that concomitant concerns have also developed about theimpact and influence of ASP on human society. The shrinking of time and spaceenabled by ASP has benefits in terms of task efficiency and wider capability forcommunication, but it is less obvious that ease of management or even stressat work are improved at a deeper level (Markus, 1983).The above discussion should not be taken to imply that ASP models determinethe direction of intelligent enterprise management. The development and the useof an ASP solution is within management control and there is no inevitable futurepath. However, it can be argued that the quantity and quality of debate aboutthe human and societal impact of computers and related technology has notmatched that rate of development of the technologies themselves (Walsham,1993). For example, the debate concerning ASP and its Web services inintelligent enterprises largely centres on questions of strategic importance andvalue for money rather than deeper issues of human job satisfaction and qualityof life.While the mechanistic view of enterprise formed the early foundation of anintelligent enterprise management, the image of enterprises as organisms hasarguably been the most influential metaphor for management practice over thelast few decades. The corporeal view sees intelligent enterprises as analogousto 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 backto the work of Maslow (1943), which demonstrated the importance of socialneeds and human factors in work activities and enterprises effectiveness. It thenemphasized that management must concern itself with personal growth anddevelopment of its employees rather than confining itself to the lower-levelneeds of money and security.With respect to social relations as considered in Web models, it is important tonote that participants include users, system developers, senior management ofthe company, and any other individuals or groups who are affected by the ASPbusiness model. Kling (1987) notes that computing developments will beattractive to some enterprise participants because they provide leverage suchas increasing control, speed, and discretion over work, or in increasing theirbargaining capabilities. Fear of losing control or bargaining leverage will leadsome participants to oppose particular computing arrangements, and to pro-pose 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 oneold problem that continues to trouble information systems today. That is,thinking about the means by which to deal with the two aspects of any newsystem (human beings and technology) and how they can best communicatewith each other. As it relates to ASP, the industry must bring together the rightmix of social (human resources) and the technical (information technology andother technology) requirements. Here is where the key hardware and identifiedhuman alternatives, costs, availability, and constraints are married together.A synopsis of an IS problem usually appears chaotic and incomprehensible. Anexample 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 ofthe problem context but also demonstrate that getting the context and meaningof the problem right is more important than presentation. The primary tasksshould reflect the most central elements of what is often called “problemsetting.”ASP vendors should demonstrate, when reviewing a given situation, that anyincoming IS is intended to support, develop, and execute primary tasksoriginally performed by humans. They should be aware of issues that arematters of dispute that can have a deleterious affect upon primary tasks. Interms 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,

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they should always be understood and recognized. That is because reality reallyis complex, so the ASP industry should never approach a problem situationwith a conceited or inflated view of its own capacity. Not all problems can bemapped, discussed, and designed away. Often the ASP industry will berequired to develop a form of amnesia towards certain problems that are eitherimponderable or too political, in terms of the organization or business (Guah &Currie, 2002).A detailed understanding of the above will help in providing a reasonableanswer to certain essential questions that are necessary for an ASP tosatisfactorily produce working solutions for its customers. A few of the generalquestions are who is doing what, for whom, and to what end? In whatenvironment is the new system to be implemented? To whom is the final systemgoing to be answerable? What gaps will any addition to the old system fill withinthe new system?

Socio-Technical Issues

An intelligent enterprise normally has separate objectives when looking at IS interms of social and technical requirements. While the social objectives refer tothe expectations of major stakeholders (i.e., employees), the technical objec-tives 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 theexpectations of the system in terms of the human beings who are going to beworking with it, they will vary from one project/contract to another. As they areoften undervalued, management does not tend to feel that the social needs ofa system are as critical for system development as technical issues. They mayinvolve different ways of organizing individuals to undertake the work requiredfor the system, simultaneously achieving the authoritative influence.The technical objectives are the primary tasks one hopes that the system willneed to undertake and would therefore need to be very specific. It is importantthat ASP vendors indicate to their customers the depth of detail it needs to gointo.

Selecting Information Systems

ASP solutions come in various forms. Ideally, selecting among the alternativesshould be based on clearly stated decision criteria that help resolve trade-offs

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and ASP uncertainties in light of practical constraints and implementationcapabilities. The trade-offs for intelligent enterprises include things such asconflicting needs of different business processes, conflicts between technicalpurity and business requirements, and choices between performance and price.The uncertainties include uncertainty about the direction of future technologyand about what is best for the enterprise. Implementation decisions are almostnever made by formula because so many different considerations do not fit wellinto understandable formulas.Although these ideas provide some guidance and eliminate some options, thereis no ideal formula for deciding which solution and capabilities to invest in. ManyIS departments could double and still not have enough people to do all the workusers would like. In practice, many IS departments allocate a percentage oftheir available time to different project categories, such as enhancements,major new systems, and user support. But with each category, they still needto 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 bycomparing estimated benefits and costs (Alter, 1996). While the idea ofcomparing estimated benefits with estimated costs may sound logical, there areseveral limitations in terms of ASP business model. One could see theappropriateness when the solution’s purpose is to improve efficiency. Butwhere the system is meant to provide management information, transform anenterprise, or even to upgrade the IS infrastructure, it becomes terribly difficultto predict either the benefits or the costs of the solution. Considering cost-benefit analyses are usually done to justify someone’s request for resources, thenumbers in a cost-benefit study may be biased and may ignore or understateforeseeable solution risks (Alter, 1996). Key issues for cost-benefit analysisinclude the difference between tangible and intangible benefits, the tendency tounderestimate 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 aspectof the procurement processes, thereby helping decision makers and adminis-tration staff to complete their purchasing activity. An agent-based approach toASP is well equipped to address the challenges of multimarket package to e-procurement. 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 prefer-ences while being flexible enough to deal with the diversity of semanticsamongst markets, suppliers, service providers, and so forth.Service agents within the ASP model are the system’s gateway to externalsources of goods and services. These agents are usually aware of the source’smarket model and of the protocols it uses (Zhang, Lesser, Horling, Raja, &Wagner, 2000). Service agents are not only able to determine which requestsit can service, but also proactively reads these requests and tries to find anacceptable solution.Agent technology has been widely adopted in the artificial intelligence andcomputer science communities. An agent is a computational system thatoperates autonomously, communicates asynchronously, and runs dynamicallyon different processes in different machines, which support the anonymousinteroperation of agents. These qualities make agents useful for solving issuesin information-intensive e-business, including speaking ontology, advertising,service exchange, knowledge discovery, and so forth. In the ASP industry, theinteroperation and coordination across distributed services is very important.The desire for more cost efficiency and less suboptimal business processes alsodrives the employment of agent technology in the ASP business model. This hasresulted to the support of agent technology, more ASP agents seem to beappearing on the Internet providing e-services as well as exchanging informa-tion and goods with other agents. The interoperation of ASP agents leads to theformation of the e-Business Mall, which is an interaction space of agentcommunities under various business domains.As indicated in this chapter and elsewhere in this book, the significant problemsin the ASP business model are the information deficiency and asymmetrybetween the business participants. It is also difficult for each participant toexchange information products and services in an efficient manner, and topartner in an intelligent enterprise. The social nature of knowledge sharing—especially critical business knowledge—carries high complexity. The capabil-ity advertisement and knowledge discovery, upon which agent-based ap-proach to ASP depends, can only be achieved by message interaction amongdynamic processes. Knowledge or service relevance is one basis for suchapproach to be introduced to real-life business procedure and service con-tracting 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 benefitsof ASP solution can be measured directly to evaluate system performance.Examples include reduction in the time per phone call, improvement in responsetime, reduction in the amount of disk storage used, and reduction in the errorrate. Notice that tangible benefits may or may not be measured in monetaryterms. However, using a cost-benefit framework for ASP solution requirestranslating performance improvements into monetary terms so that benefits andcosts can be compared.Intangible benefits affect performance but are difficult to measure because theyrefer to comparatively vague concepts. A few of the intangible benefits of asolution 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 wellthey have been accomplished. Even if it is possible to measure intangiblebenefits, it is difficult to express them in monetary terms that can be comparedwith costs. All too often, project costs are tangible and benefits are intangible.Although hard to quantify, intangible benefits are important and should not beignored. 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 fromclass law. The scope of this branch of intellectual property is considerable and

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it protects trade secrets, business know-how and information such as lists ofclients and contacts, information of a personal nature, and even ideas that havenot yet been expressed in a tangible form (Bainbridge, 2000). A typicalexample would be an idea for a new software program. The contents of manydatabases owned by intelligent enterprises will be protected by the law ofconfidence. However, the major limitation is that the information concernedmust be of a confidential nature and the effectiveness of the law of confidenceis largely or completely destroyed if the information concerned falls into thepublic domain; that is, if it becomes available to the public at large or becomescommon knowledge to a particular group of the public such as computersoftware companies. Nevertheless, the law of confidence can be a usefulsupplement for intelligent enterprises to copyright and patent law as it canprotect ideas before they are sufficiently developed to attract copyrightprotection or to enable an application for a patent to be made. Being rooted inequity, the law of confidence is very flexible and has proved capable of takingnew technological developments in its stride.

Recommendations


One impact of the ASP industry on business is the blurring of the old boundariesin 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 atleast, “nonproductive.” In ASP, services either support the growth and survivalof the in-house IT department, or they are perceived as socially desirable butnot economically essential. Thus, IT consultancy services are important sup-port services for short-term strategies, while “pay as you go” is perhaps nicefor business but not essential to the survival of ASP industry. At the centre ofthe ASP industry and critical to its wealth-producing capacity is the need forpartnership, around which ancillary services revolve.What is commonly overlooked in this view is, first, the notion that therelationship between in-house and ASP is one of interdependence, not depen-dence. And second, that the categories of ASP and in-house are not distinctand isolated domains, but represent two sides of a continuum. Thus, contraryto 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 fornew services and specialization in the division of labor continues to increase. In-house migrates into strategic management and monitoring of IT standard whileASP migrates into value-added services so that “business IT becomes a servicein a package form.” As the boundaries between in-house and ASP becomemore blurred through the use of improved communications technologies, theopportunities for entrepreneurs continue to increase.


As the ASP industry matures, a premium is placed on ideas and strategic useof data flow technology for new business development, rather than on econom-ics of scale or cost displacement alone. The entrepreneur, therefore, becomesthe primary user of new technology and ideas for strategic advantage. As apremium is placed on innovative ideas, small businesses acquire an advantagein being flexible enough to evolve new products and services. Moreover, assuch innovation precedes, the role of small business as source of employmentcontinues to increase in significance, particularly in the ASP-like partnerships.Inevitably, even large corporations (e.g., IBM and most major players) in theASP industry, are providing opportunities for corporate entrepreneurs to testnew ideas under conditions where “normal” corporate constraints on risk-taking and new investments in internal ideas are relaxed. Corporations as largeas IBM are providing opportunities for entrepreneurs to flourish internally. Theterm “intrapreneur” has been coined to describe this internal entrepreneur.When technological innovation is the main force leading to lower costs, thefirm’s ability to create a competitive advantage depends on its technologicalskills. Technological innovations often bring costs down—sometimes signifi-cantly—thus making the cost reduction solely attributable to economies ofscale seems comparatively minor. The enterprises responsible for these inno-vations draw a significant competitive advantage from them in terms of cost,notably when they succeed in maintaining an exclusive right upon them for a longperiod. 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 competitivestrategies: differentiation, cost leadership, focused differentiation, or cost(Porter, 1985). The use of such competitive tactics may include internal growthor innovation, mergers or acquisitions, or strategic alliances with other enter-prises or members of the same group of enterprises. However, most enterpriseselect to use the new-game strategy which can be defined as a deliberate attemptto modify the forces shaping competition and the definition of the business byparticular competitors (Buaron, 1981). Let us take Microsoft and Oracle, bothbig players in the ASP industry. The difference between spontaneous changein their competitive environments and new-game strategies has less to do withthe objective characteristics of the ASP phenomenon than with their individualattitudes with respect to ASP phenomenon. In the first case, changes are seenas external to them, requiring adaptation. In the second case, however, certaininitiatives by them are responsible for some changes in the industry and theyhave therefore deliberately based their strategy on them. Such strategies alterthe pace of the change, generally making it more rapid and direct the focus ofchange in ways that will best benefit the innovating enterprise(s).Web services technology is one of the most important foundations for ASPnew-game strategies. Thus, by accelerating the pace of Web services in theindustry, a competitor with good capability in the technology reinforces its owncompetitive position. There are numerous papers warning that such acceleratedWeb service evolution increases the difficulty that other competitors have inadapting to ASP (Gottschalk, Graham, Kreger, & Snell, 2002; Hondo,Nagaratnam, & Nadalin, 2002; The Stencil Group, 2002; Wilkes, 2002). Bymodifying the nature and the relative importance of the key factors for successin the ASP industry, Web service technological changes that are introduced byone or more of the vendors can lead to favorable changes in the competitiveenvironment. In an industry built upon high volume, new technologies that areintroduced by some of the competitors that nullify or minimize the impact ofscale can significantly alter the nature of the competitive environment by makingsize a drawback rather than an advantage. Thus, referring back to the exampleof ASP content distribution, these innovations were driven by the actions of afew relatively small competitors, Microsoft and IBM. The changes thatoccurred in the competitive environment were thus the result of new-gamestrategies designed to change the rules of competition to their advantage: underthe 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 othercompetitors cannot use the same type of technology because it is not easilyavailable, for lack of training, or for financial reasons.During the period when an enterprise controls an exclusive technology, it caneasily recoup its investment through high prices; but by the time this technologybecomes more widely dispersed, prices tend to fall dramatically with the adventof new entrants. These investments are a significant entry barrier to competi-tors. However, the enterprise still manages to retain dominant position andgood level of profitability in business, since it had recouped its initial investmentmany times over.



• Switching from a differentiation strategy based on a technological advan-tage to a cost leadership strategy based on scale, accumulated experi-ence, and a dominant market position; and

• Constant effort to innovate and improve technology, thereby maintaininga dynamic competitive advantage.

Oracle’s relative success so far can prove that firms displaying the first type ofstrategic behavior are generally those that have been able to attain a dominantposition because of exclusive technology. As their technology becomes dif-fused over time, however, they tend to resort to competitive advantage basedupon their accumulated experience, good reputation, and distribution network.The second type of strategic behavior for vendors confronted with the erosionof their technology-based competitive advantage is a sustained effort toimprove or even “reinvent” their technology; rather than “milking” their initialtechnological advantage, such firms choose to create a new competitiveadvantage through technological innovation.A vital difference between the ASP model and traditional system life cycle isthat error in this initial phase may not proof fatal. That is because the model

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supports a smooth and easily controlled change method even after it goes intooperation, mainly due to its third-party controlling nature.


It is easy to focus on individual ASP investments rather than their cumulativeimpact. Intelligent enterprises budget for individual applications of technologyand the IS staff works on a project basis. For some intelligent enterprises, thecombination of all its individual investments in technology far exceeds theirindividual impact. A good example is SAP. Here, continued investments in ASPchanged the software provision industry and SAP’s own view of its fundamen-tal business.By becoming a necessity ASP may not create much benefit for intelligententerprises that invest in it, except that ASP allows the enterprise to continuein a line of business. Who does benefit from investments of this type? Thecynical answer might be the vendors of various kinds of ASP product andservice. However, a better response is that customers benefit from betterquality goods and services, and especially better customer service.Looking at our two earlier examples, customers are much better off with thepresence of ATM and CRS. An ATM is convenient and allows one to accesscash without presenting a check at his or her own bank. With an ATM, you donot have to worry about a foreign bank accepting your check; from ATMsaround the world you can withdraw cash. While airlines have certainlybenefited from computerised reservations systems, so have customers. Youcan use a CRS to compare flights, times, ticket prices, and even on-timestatistics for each flight. A consumer can make a reservation on a flight andcomplete the transaction over the telephone or the Internet. Economists talkabout a concept called “consumer surplus.”How does consumer surplus relate to investments in strategic and competitiveinformation technology? From a theoretical standpoint, consumer surplusincreases as prices drop. The competitive use of ASP reduces costs and pricesthrough applications like those in banking and airlines. The competitive use ofASP has, in many instances, reduced prices (or held down price increases),which contributes directly to consumer surplus. Technological competition maynot always create an economic consumer surplus, but it does provide benefitsin the form of service and convenience. A bank ATM can save time for thecustomer, 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 Webservice launched within few months of each other means that the technologywas not able to deliver a sustainable advantage from its investment. Neither wasable to raise its prices directly to pay for their Web services, so the benefits fromtheir investments in ASP all went to the customers.While the strategies of ASP vendors can thus change over time, a clear strategicdirection is indispensable to success. In addition, the transition from onestrategy to another is a very difficult and risky undertaking, since it requires acomplete reorientation of the vendors’ efforts and radically different patternsof resource allocation. As we have seen, technology is often a major factorbehind both differentiation and cost leadership strategies. It is also a criticalfactor in “new-game” strategies.

Future Trends

What remains unclear in the early part of the 21st century concerning the linkagebetween Internet investment production and the ASP market is the extent towhich the rate of ASP-like services productivity will continue to rise in the faceof slower advances in Internet stock market. According to Forester Researchthe 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 actuallydeclined by the year 2001 (due partly to the effect of stock market collapse)and currently being projected at $15 billion by 2006. The overall businessinterests in the ASP model will continue to rise with proportionally higher ratesof investment by vendors versus traditional outsourcing. We attribute thisoptimistic forecast to four trends:

1. Continuing improvements in capabilities and cost-performance charac-teristics of remote support services by vendors;

2. Improvements in capabilities and cost-performance characteristics of thetechnology at the system or application level;

3. Continual development of the telecommunications infrastructure to sup-port ASP performance; and

4. Gradual reduction of institutional and social barriers to the introduction ofASP 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 onlyconstant and therefore event horizons are immediate. Considering that intelli-gent enterprises cannot predict what they will need or how they will act in ayear’s time. Web services are enterprise current tools best suited with theability to bridge the multiplicity and complexity of existing IT infrastructures.Such usefulness of ASP to an intelligent enterprise is as important as any otherin 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 standardizedXML-based interface—and in a platform-independent and language-neutralway. This makes it possible to build bridges between systems that otherwisewould require extensive development efforts. Such services are designed to bepublished, discovered, and invoked dynamically in a distributed computingenvironment. By facilitating real-time programmatic interaction between appli-cations over the Internet, Web services may allow companies to exchangeinformation more easily in addition to other offerings like leverage informationresources, and integrate business processes. Users can access some Web services through a peer-to-peer arrangementrather than by going to a central server. Through Web services, systems canadvertise the presence of business processes, information, or tasks to beconsumed by other systems. Web services can be delivered to any customerdevice and can be created or transformed from existing applications. Moreimportantly, Web services use repositories of services that can be searched tolocate the desired function so as to create a dynamic value chain. The future ofWeb services go beyond software components, because they can describetheir own functionality as well as look for and dynamically interact with otherWeb services. They provide a means for different organizations to connect theirapplications 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 softwaredevelopment and is unsurprisingly attracting a great deal of media and industryhype. Like almost all new Internet-related technologies, the immediate oppor-tunities have been overstated, although we believe the eventual impact could behuge. This can be demonstrated by the immediate and key role of Web serviceswhich is to provide paradigm shift in the way business manages IT infrastruc-ture. It provides intelligent enterprises with the capability of overturning the

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accepted norms of integration and thereby allowing all businesses to rapidly andeffectively leverage the existing IT and information assets at their disposal.Intelligent enterprises currently running an outsourcing service are already seento be one of the early gainers of the Web service revolution. However, therewill be others as enterprises discover the hidden value of their intellectualassets. Considering most enterprises have until now used the Internet toimprove access to existing systems, information and services, we envisage thedays when Web services promise new and innovative services that are currentlyimpossible or prohibitively expensive to deploy. With such developmentsanticipated to promote the ASP business model, Web services integration isconsidered to be at the heart of this expectation. Through this process ofconnecting businesses, ASP will be able to quickly capitalise on new oppor-tunities by combining assets from a variety of disparate systems, creating andexposing them as Web services for the end-game of fulfilling customerexpectations.It is our view that any intelligent enterprise considering ASP business modelshould at least investigate the potential impact of Web services integration asthis will sooner or later become another permanent business necessity and nota competitive advantage material. Those intelligent enterprises that haveadopted our suggested approach will not only gain advantage now in businessfor lower costs and better return on assets, but are also expected to developvaluable experience for the first decade of the 21st century. ConsideringInternet’s history, as Web services becomes the standard and the expertise ofASP become more established, it should become the norm.

Future Analysis

It does not make sense to emphasize the social and technical resources andconstraints of a new industry (e.g., ASP) without thinking about the future ofthe resulting information system. While no one can say, with any degree ofcertainty, what the future holds, it is always possible to speculate on the natureof changes. Such consideration of future conditions usually helps to avoid someof 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 futureanalysis theory:

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1. Prediction of possible changes: This area looks at the kinds of changesthat are possible, that is, technological, legal, political, or economic. Itrequires the investigation of context and situation of the organization inwhich the work is being done. Other items needed to help with thisinvestigation include structure plans and prediction of mid-term develop-ment of the institution that could be medium plan. This is meant to devisean appropriate system analysis stage of the development process, therebygiving some idea of the type of expansion, contraction, and change that willoccur and which the incoming system will have to deal with.

2. Likely outcome of system: Here, one takes a peep into the futureassuming the likely effects of an improved information system. There arecertainly all kinds of disruptive and constructive events that may be relatedto the development of a new system. Few of the most pertinent ones withregards to ASP implementation are staff redundancy, change of loyalty ofexisting IS staffs, new reporting procedures, and so forth.

3. Features susceptible to change: This looks at the features of theproposed system that are more susceptible to change. Questions such aswhere would one expect the new system to change first and whether thiscan be planned for, come into play here. Other issues involved here areif certain data would need to be collected or some existing collectionprocedures would need to change, and even if some existing sections ordivisions would continue to maintain their structures.

4. Horizon of the system: One would look at the extent and horizon of thesystem. It is at this stage that an ASP would begin to think in terms of thelong-term view. While we admit this is obviously guesswork, it gives onea sense of humility in the initial design and requires an ASP vendor tospeculate as to how what is being planed today may be the building blockfor further developments into the long-term future.

The pursuit of technical efficiency in the operation of various complex technolo-gies required by ASP to operate in the 21st century will continue to requireskilful management of these technologies, and the technical personnel neededto operate and maintain the tools. An intelligent enterprise activity will largelybe concerned with managing the technical attributes of ASP tools and not withthe management of the use and intellectual content of the information andknowledge. While such management will focus on internal operations, andlargely a middle-management and professional-staff function, that stage ofinformation-management development will continue to expand as more com-

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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 costsavings are usually quite significant, but such enterprise will soon encounterunanticipated difficulties because of organizational and operational problems.One of such is usually the fact that integrating the ASP technologies oftendemands new structures and functions that many businesses are not preparedto assume. If the use of ASP, as a converging technology is to be effective, muchmore emphasis will need to be placed on business management of informationresources and management personnel who will define and direct the use ofthese assets and resources in the organization. Even more pressing are thepressures for change in adopting a more management-oriented view of thisdomain that are arising from various stakeholders (both internal and external)who are beginning to recognize the enormous potential for profitability andproductivity embedded in the emerging products and services of the ASPindustry.

Conclusion

We can safely conclude that policy makers in all fields, not just in IS, are forcedinto ill-considered conclusions and recommendations because they still viewtheir management strategies in pre-Internet terms. Moreover, they are stillconstrained by statistical calculations based on outmoded and obsolete clas-sification approaches, as well as on invalid assumptions about the fundamentalsources of profit and capital formation.Recent evidence shows that European business continues to lose importantsectors of the economy to international competition because senior managershave been slow to modify and rethink business strategy and management in thepost-Net-era versus pre-Net-era. Seen in this light, the emergence of ASPbusiness model has had and will continue to have pronounced impacts onbusiness management and strategy.Through the skilful use of new “intellectual technology” such as more efficientbroadband utility, better and more integrated system, automated reportingprocesses, combined with new uses of computers, wireless technology, andcomputer numerical control devices, the productivity of research and develop-ment (R&D) in business strategy is changing in the ASP industry. Any argumentthat the ASP industry is in decline seriously misreads the nature of the

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transformations occurring. Indeed, rather than wringing one’s hands about thedemise of the ASP industry, it is more appropriate to perceive that the ASPindustry is leading to a more mature stage of business model development usingnew ideas and new technologies as critical factors of service provision.IS staff members are important stakeholders in most ASP solutions since theyare responsible for system operation and enhancement. As professionals in thefield, they have a deeper understanding than business professionals about whatit takes to build and maintain a solid ASP solution. They also have a clearer viewof the technical relationships between different systems and of policies andpractices related to systems. Business professionals in intelligent enterprisesshould not ignore the technical infrastructure and context issues identifiedabove; rather they should also realize that IS staff are usually much more awareof the technical structure and rationale in both areas.While “the more the merrier” almost always applies for some characteristics ofASP solution such as customer satisfaction and information quality, the rightlevels of many other characteristics such as capacity, security, and flexibilityshould be a compromise between problems of excess and problems ofdeficiency. There are often instances when too much capacity means less couldhave been spent, whereas too little capacity limits departmental process output.Likewise, too much consistency may mean IS departmental staff cannot usetheir creativity to respond to changes, whereas too little makes the businessprocess inefficient and the results chaotic.The pressure of new business environment in the 21st century has resulted intime-based competition. Such competition takes place where those first tomarket have a chance to preempt the competition. This does not only meandeveloping a new product faster than your competitors, but it also requires theassociated delivery mechanism: first to give a quote on the product price, firstto develop an agile manufacturing system to instantaneously move the assemblyline to a different product, or first to deliver the product to the customer.ASP is one of the main sources of competitive advantage for intelligententerprises in the 21st century. It can lower costs through scale or experience.ASP can also contribute to the differentiation of the organization’s products orservices, becoming the foundation of a differentiation strategy enabling the firmto avoid direct price competition. Lastly, ASP technological change plays acrucial role in new-game strategies where firms deliberately change the rules totheir advantage by modifying the forces shaping competition in the industry.ASP plays a significant role in strategy making, and selection of technologiesby the intelligent enterprise is a task which must be done with great care.

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Another noticeable reason for implementing ASP solution is oriented to thebusiness objective of gaining competitive advantage in business unit andcorporate strategy and not exclusively to cost-effective management of infor-mation resources and technologies. The primary focus here is on business-unitstrategy and direction, and on integrating the business unit’s external andinternal environments. An important factor to be considered is the quality of theintelligence analysis and information collection and processing performed bymanagers and staff rather than on the use of the information tools.Infrastructure is something that an intelligent enterprise needs. An investment inASP infrastructure is an investment for the future; it provides the resourcesneeded to take advantage of future opportunities. A substantial portion of anintelligent enterprise’s ASP budget may be devoted to infrastructure, whichmeans 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 Defenceand the National Science Foundation subsidized the development of thisnetwork; currently users of the Net finance it. It is doubtful that one could obtainthe date, or evaluate the pound value of the impact of the Net, to do a return-on-investment calculation for this investment. It seems clear that the Internet hasprovided many different kinds of value to its users, which is what one hopes forin making infrastructure investments.Two key points of this chapter are that not all investments in ASP should beexpected to show a measurable return, and investments can have value to anintelligent enterprise even without demonstrable financial return. In manyorganizations, there seems to be a strong belief that every investment is madewith the expectation of a positive return.Obtaining value from IS is important for intelligent enterprises to survive andflourish in the highly competitive economy of the 21st century. Many of usbelieve that the information system holds the key to success as companiesdevelop systems that provide them with a competitive advantage. IS also letsmanagers create dynamic, new organization structures to compete moreeffectively. Intelligent enterprises that create value through information systemswill be the winners in the 21st century.Of course, it is not always the case that the consumer is the only winner fromstrategic investments in ASP. We have seen that the airline CRS vendors gainedsignificant direct and indirect revenue from deploying their systems to travelagents. 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 thetelecommunications infrastructure providers industries that participate in it bymaking it easier for consumers to order their products and services.Value can be said to have many different definitions when looking at ASPinvestments, which are not always easy to estimate or measure. Such a complexinvestment problem means that managers have to gather information andconsider a variety of factors in making their decisions about allocating re-sources to ASP initiatives. Upon making the decision to allocate, they have tomonitor carefully the conversion of the investment into an ASP solution, ascreating value is a major challenge that requires significant management effortand attention.It is important for an intelligent enterprise to have a strategy, plan, and visionfor ASP solution. The downturn of the first phase has clearly shown, in somecases, that businesses overall strategy were more important in deciding toimplement an ASP solution than was the economic analysis for the investment.It would seem unethical to provide a formula for combining all the criteriamentioned in this chapter to come up with a decision to implement an ASPsolution. Readers would notice some of the issues touched on are quantitativewhile others are qualitative. Organizations that came through ASP first phasesomehow successfully, made wise decisions about investments in ASP imple-mentation. Managers in these businesses view ASP solution as an asset andbelieve that their ASP investments produce value for the organization. Not onlycan you see that they had strategy and vision for the technology but also thatthey are actively managing their ASP solution. The resulting effect is they do notsit around and look for value from ASP solution; rather, they create value fromASP solution.We hope this chapter has presented sufficient evidence to establish thefollowing:

1. There is value from investing in ASP.2. Each type of investment has a potentially different opportunity for a

payoff, and for some applications, we may not be able to show aquantitative return.

3. The process of moving from the investment to an actual IT initiative isfiltered by conversion effectiveness; there have been widely varyingdegrees 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 ASPinvestments, you will have to rely more on qualitative arguments becausepotential benefits are difficult to measure and to estimate. In other cases, thereare well-known capital budgeting approaches one can apply to provide someguidance on the investment.The manager of an intelligent enterprise needs to keep the above-mentionedfindings in mind. They suggest that in making decisions about ASP investment,you should:

1. Determine the type of investment, for example, infrastructure or competi-tive necessity;

2. Estimate the likely return from the investment given its type;3. Estimate the probability that there will be a return;4. Estimate the probability of successfully converting the investment into an

application.

Information systems in the 21st century virtually enable not only all businessprocesses but also the coordination of multiple processes for intelligententerprises. Business process here refers to a set of related tasks performed toprovide a defined work output—a newly designed product, a customized orderdelivered to the buyer, or a business plan—which should deliver a well-definedvalue to either an internal or external customer. Many processes in a traditionalbusiness could be radically changed to take advantage of the capabilitiesoffered by ASP. The greater the scope of the process innovation, the larger thebenefits that may be expected which obviously means the greater the risk to theproject. While many process innovations fail, those that succeed tend todramatically improve the performance of the enterprise.The purpose of this chapter has been to provide a view of the historicalevolution of the ASP phenomenon as a prelude to defining a conceptualframework for understanding IS strategy for intelligent enterprise in the 21st

century. The reader has also been provided with the major steps in evaluatingthe strategic value of implementing an ASP solution in the context of improvingthe overall business performance and competitive advantage.Such initial success in the development of business relationship, outside thetraditional 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 ofthe service industry. Whether the ASP industry could be part of the future ofevery intelligent enterprise depends in part on its history, management, currentcapabilities, and on the directions it might develop.Rethinking your business in terms of Internet economy, formulating newstrategies for gaining competitive advantage, and raising the level of awarenessof people throughout your enterprise to the notion information itself can andshould be looked upon as a strategic corporate asset, are great steps but onlythe first steps for success in the 21st century. In addition, both structural andprocedural changes must take place for an intelligent enterprise to put itsconvictions into operation. Could ASP provide you with such necessary toolthereby directing your focus into the reality of a 21st-century intelligentorganisation?

References


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


Beniger, J.R. (1986). The control revolution: Technological and economicorigins of the information society. Cambridge, MA: Harvard UniversityPress.


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 Conferenceon Systems Sciences, Hawaii, January.

Currie, W.L. (2000). Expanding IS outsourcing services through applica-tion service providers. Executive Publication Series. CSIS2000/002.

Dussauge, P., Hart, S., & Ramanantsoa, B. (1994). Strategic technologymanagement: Integrating product technology into global businessstrategies for the 1990s. Chichester, UK: Wiley.


Guah, M.W., & Currie, W.L. (2002). Evaluation of NHS information systemsstrategy: Exploring the ASP model. Issues of Information SystemsJournal, October.


Kling, R. (1987). Defining the boundaries of computing across complexorganisations: In R. Boland & R. Hirschheim (Eds.), Critical issues ininformation 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 methodolo-gies (pp. 67–76). Armidale, Australia: New England University Press.

Little, G.R. (1999). Paper 1: Theory of perception. Retrieved June 2002, fromwww.grlphilosophy. co.nz

Markus, M.L. (1983). Power, politics and MIS implementation, Communi-cations 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 ofcomputer-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 analysisof the emerging Web services market. An analysis memo from The StencilGroup. Retrieved April 2002, from www.stencilgroup.com

The Stencil Group. (2002). Understanding Web services management: Ananalysis memo. Retrieved May 2002, from www.stencilgroup.com


Weill, P. (1993). The role and value of IT infrastructure: Some empiricalobservations. In M. Khosrow-Pour ad M. Mahmood (Eds.), Strategicinformation technology management: Perspectives on organisationalgrowth and competitive advantage (pp. 547–572). Hershey, PA: IdeaGroup Publishing.

Weill, P., Broadbent, M., & Butler, C. (1996). Exploring how firms view ITinfrastructure. Melbourne, Australia: Melbourne Business School.


Zhang, X., Lesser, V., Horling, B., Raja, A., & Wagner, T. (2000, pp. 49–57).Resource-bounded searches in an information marketplace. IEEE InternetComputing: Agents on the Net, 4(2).

Zwass, V. (1998). Foundations of information systems. Irwin/McGraw-Hill.

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Chapter XIII

ConclusionsMatthew W. Guah, Warwick University, UK

Abstract

This chapter recaps the strategic direction of Internet-based businessmodels over the last decade and points organizations to modify andrethink their business strategies and organization management after thedot.com era. It also reiterates a few implications for an organization’sdecision to invest in Web services and looks at the issues involved inmanaging transitions to Web services. This is followed by a look at Webservices as a form of challenge to new organizational arrangement. Thechapter concludes with factors to consider when implementing andevaluating a successful Internet strategy.

Introduction

We can safely conclude that policy makers in all fields, not just in IS, are forcedinto ill-considered conclusions and recommendations because they still viewtheir management strategies in pre-Internet terms. Moreover, they are still

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constrained by statistical calculations based on outmoded and obsolete clas-sification approaches, as well as on invalid assumptions about the fundamentalsources of profit and capital formation.Recent evidence shows that European business continues to lose importantsectors of the economy to international competition because senior managershave been slow to modify and rethink business strategy and management inpost-Net era versus pre-Net era. Seen in this light, the emergence of ASPbusiness model has had and will continue to have pronounced impacts onbusiness management and strategy.Through the skilful use of new “intellectual technology” such as more efficientbroadband utility, better and more integrated systems, automated reportingprocesses, combined with new uses of computers, wireless technology, andcomputer numerical control devices, the productivity of research and develop-ment (R&D) in business strategy is changing in the application service provider(ASP) industry. Any argument that the ASP industry is in decline seriouslymisreads the nature of the transformations occurring. Indeed, rather thanwringing one’s hands about the demise of the ASP industry, it is moreappropriate to perceive that the ASP industry is leading to a more mature stageof business model development using new ideas and new technologies ascritical factors of service provision.

Stakeholders

IS staff members are important stakeholders in most ASP solutions since theyare responsible for system operation and enhancement. As professionals in thefield, they have a deeper understanding than business professionals about whatit takes to build and maintain a solid ASP solution. They also have a clearer viewof the technical relationships between different systems and of policies andpractices related to systems. Business professionals in intelligent enterprisesshould not ignore the technical infrastructure and context issues identifiedabove; rather they should also realize that IS staff are usually much more awareof the technical structure and rationale in both areas.While “the more the merrier” almost always applies for some characteristics ofASP solution such as customer satisfaction and information quality, the rightlevels of many other characteristics such as capacity, security, and flexibilityshould be a compromise between problems of excess and problems of

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deficiency. There are often instances when too much capacity means less couldhave been spent, whereas too little capacity limits departmental process output.Likewise, too much consistency may mean IS departmental staff cannot usetheir creativity to respond to changes, whereas too little makes the businessprocess inefficient and the results chaotic.

Competition

The pressure of new business environment in the 21st century has resulted intime-based competition. Such competition takes place where those first tomarket have a chance to preempt the competition. This does not only meandeveloping a new product faster than your competitors, but also requires theassociated delivery mechanism: first to give a quote on the product price, firstto develop an agile manufacturing system to instantaneously move the assemblyline to a different product, or first to deliver the product to customer.ASP is one of the main sources of competitive advantage for intelligententerprises in the 21st century. It can lower costs through scale or experience.ASP can also contribute to the differentiation of the organization’s products orservices, becoming the foundation of a differentiation strategy enabling the firmto avoid direct price competition. Last, ASP technological change plays acrucial role in new-game strategies where firms deliberately change the rules totheir advantage by modifying the forces shaping competition in the industry.ASP plays a significant role in strategy making, and selection of technologiesby the intelligent enterprise is a task that must be done with great care.Another noticeable reason for implementing ASP solution is oriented to thebusiness objective of gaining competitive advantage in business unit andcorporate strategy and not exclusively to cost-effective management of infor-mation resources and technologies. The primary focus here is on business-unitstrategy and direction, and on integrating the business unit’s external andinternal environments. An important factor to be considered is the quality of theintelligence analysis and information collection and processing performed bymanagers 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 inASP infrastructure is an investment for the future; it provides the resourcesneeded to take advantage of future opportunities. A substantial portion of anintelligent enterprise’s ASP budget may be devoted to infrastructure, whichmeans 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 Defenceand the National Science Foundation subsidized the development of thisnetwork; currently users of the Net finance it. It is doubtful that one could obtainthe date, or evaluate the pound value of the impact of the Net, to do a return-on-investment calculation for this investment. It seems clear that the Internet hasprovided many different kinds of value to its users, which is what one hopes forin making infrastructure investments.

ASP Value

Two key points of this chapter are that not all investments in ASP should beexpected to show a measurable return, and investments can have value to anintelligent enterprise even without demonstrable financial return. In manyorganizations, there seems to be a strong belief that every investment is madewith the expectation of a positive return.Obtaining value from IS is important for intelligent enterprises to survive andflourish in the highly competitive economy of the 21st century. Many of usbelieve that the information system holds the key to success as companiesdevelop systems that provide them with a competitive advantage. IS also letsmanagers create dynamic, new organization structures to compete moreeffectively. Intelligent enterprises that create value through information systemswill be the winners in the 21st century.Of course, it is not always the case that the consumer is the only winner fromstrategic investments in ASP. We have seen that the airline CRS vendors gainedsignificant direct and indirect revenue from deploying their systems to travelagents. It is also possible that a strategic application can result in boosting salesfor 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 bymaking it easier for consumers to order their products and services.Value can be said to have many different definitions when looking at ASPinvestments, which are not always easy to estimate or measure. Such a complexinvestment problem means that managers have to gather information andconsider a variety of factors in making their decisions about allocating re-sources to ASP initiatives. Upon making the decision to allocate, they have tomonitor carefully the conversion of the investment into an ASP solution, ascreating value is a major challenge that requires significant management effortand attention.

Implications for theASP Investment Decision

It is important for an intelligent enterprise to have a strategy, plan, and visionfor ASP solution. The downturn of the first phase has clearly shown, in somecases, that business’s overall strategy was more important in deciding toimplement an ASP solution than was the economic analysis for the investment.It would seem unethical to provide a formula for combining all the criteriamentioned in this chapter to come up with a decision to implement an ASPsolution. Readers would notice some of the issues touched on are quantitativewhile others are qualitative. Organizations that came through ASP first phasesomehow successfully made wise decisions about investments in ASP imple-mentation. Managers in these businesses view ASP solution as an asset andbelieve that their ASP investments produce value for the organization. Not onlycan you see that they had strategy and vision for the technology but also thatthey are actively managing their ASP solution. The resulting effect is they do notsit around and look for value from ASP solution; rather, they create value fromASP solution.We hope this paper has presented sufficient evidence to establish that

1. there is value from investing in ASP;2. each type of investment has a potentially different opportunity for a payoff,

and for some applications, we may not be able to show a quantitativereturn; and

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3. the process of moving from the investment to an actual IT initiative isfiltered by conversion effectiveness; there have been widely varyingdegrees 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 ASPinvestments, you will have to rely more on qualitative arguments becausepotential benefits are hard to measure and to estimate. In other cases, there arewell-known capital budgeting approaches one can apply to provide someguidance on the investment.The manager of an intelligent enterprise needs to keep the above-mentionedfindings in mind. They suggest that in making decisions about ASP investment,you should do the following:

1. Determine the type of investment, for example, infrastructure or competi-tive necessity.

2. Estimate the likely return from the investment given its type.3. Estimate the probability that there will be a return.4. Estimate the probability of successfully converting the investment into an

application.

Information systems in the 21st century virtually enable not only all businessprocesses but also the coordination of multiple processes for intelligententerprises. Business process here refers to a set of related tasks performed toprovide a defined work output—a newly designed product, a customized orderdelivered to the buyer, or a business plan—which should deliver a well-definedvalue to either an internal or external customer. Many processes in a traditionalbusiness could be radically changed to take advantage of the capabilitiesoffered by ASP. The greater the scope of the process innovation, the larger thebenefits that may be expected which obviously means the greater the risk to theproject. While many process innovations fail, those that succeed tend todramatically improve the performance of the enterprise.The purpose of this chapter has been to provide a view of the historicalevolution of the ASP phenomenon as a prelude to defining a conceptualframework 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 improvingthe overall business performance and competitive advantage.Such initial success in the development of business relationship, outside thetraditional line of outsourcing, fuelled the expansion and wide diffusion of thecapacity of ASP vendors to have far-reaching implications for many aspects ofthe service industry. Whether or not the ASP industry could be part of the futureof 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 newstrategies for gaining competitive advantage, and raising the level of awarenessof people throughout your enterprise to the notion information itself can andshould be looked upon as a strategic corporate asset, are great steps but onlythe first steps for success in the 21st century. In addition, both structural andprocedural changes must take place for an intelligent enterprise to put itsconvictions into operation. Could ASP provide you with such necessary toolthereby directing your focus into the reality of a 21st-century intelligentorganization?


One impact of the ASP industry on business is the blurring of the old boundariesin 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 atleast, “nonproductive.” In ASP, services either support the growth and survivalof the in-house IT department, or they are perceived as socially desirable butnot economically essential. Thus, IT consultancy services are important sup-port services for short-term strategies, while “pay as you go” is perhaps nicefor business but not essential to the survival of ASP industry. At the centre ofthe ASP industry and critical to its wealth-producing capacity is the need forpartnership, around which ancillary services revolve.What is commonly overlooked in this view is, first, the notion that therelationship between in-house and ASP is one of interdependence, not depen-dence. And, second, that the categories of ASP and in-house are not distinctand isolated domains, but represent two sides of a continuum. Thus, contraryto 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 fornew services and specialization in the division of labor continues to increase. In-house migrates into strategic management and monitoring of IT standard whileASP migrates into value-added services so that “business IT becomes a servicein a package form.” As the boundaries between in-house and ASP becomemore blurred through the use of improved communications technologies, theopportunities for entrepreneurs continue to increase.


As the ASP industry matures, a premium is placed on ideas and strategic useof data flow technology for new business development, rather than on econom-ics of scale or cost displacement alone. The entrepreneur, therefore, becomesthe primary user of new technology and ideas for strategic advantage. As apremium is placed on innovative ideas, small businesses acquire an advantagein being flexible enough to evolve new products and services. Moreover, assuch innovation precedes, the role of small business as source of employmentcontinues to increase in significance, particularly in the ASP-like partnerships.Inevitably, even large corporations (e.g., IBM and most major players) in theASP industry are providing opportunities for corporate entrepreneurs to testnew ideas under conditions where “normal” corporate constraints on risktaking and new investments in internal ideas are relaxed. Corporations as largeas IBM are providing opportunities for entrepreneurs to flourish internally. Theterm “intrapreneur” has been coined to describe this internal entrepreneur.When technological innovation is the main force leading to lower costs, thefirm’s ability to create a competitive advantage depends on its technologicalskills. Technological innovations often bring costs down—sometimes signifi-cantly—thus making the cost reduction solely attributable to economies ofscale seems comparatively minor. The enterprises responsible for these inno-vations draw a significant competitive advantage from them in terms of cost,notably when they succeed in maintaining an exclusive right upon them for a longperiod. 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 competitivestrategies: differentiation, cost leadership, focused differentiation, or cost(Porter, 1985). The use of such competitive tactics may include internal growthor innovation, mergers or acquisitions, or strategic alliances with other enter-prises or members of the same group of enterprises. However, most enterpriseselect to use the new-game strategy which can be defined as a deliberate attemptto modify the forces shaping competition and the definition of the business byparticular competitors (Buaron, 1981). Let us take Microsoft and Oracle, bothbig players in the ASP industry. The difference between spontaneous changein their competitive environments and new-game strategies has less to do withthe objective characteristics of the ASP phenomenon than with their individualattitudes with respect to ASP phenomenon. In the first case, changes are seenas external to them, requiring adaptation. In the second case, however, certaininitiatives by them are responsible for some changes in the industry and theyhave therefore deliberately based their strategy on them. Such strategies alterthe pace of the change, generally making it more rapid and direct the focus ofchange in ways that will best benefit the innovating enterprise(s). Web services technology is one of the most important foundations for ASPnew-game strategies. Thus, by accelerating the pace of Web services in theindustry, a competitor with good capability in the technology reinforces its owncompetitive position. There are numerous papers warning that such acceleratedWeb service evolution increases the difficulty that other competitors have inadapting to ASP (Gottschalk, Graham, Kreger, & Snell, 2002; Hondo,Nagaratnam, & Nadalin, 2002; The Stencil Group, 2002; Wilkes, 2002). Bymodifying the nature and the relative importance of the key factors for successin the ASP industry, Web service technological changes that are introduced byone or more of the vendors can lead to favorable changes in the competitiveenvironment. In an industry built upon high volume, new technologies that areintroduced by some of the competitors that nullify or minimize the impact ofscale can significantly alter the nature of the competitive environment by makingsize a drawback rather than an advantage. Thus, referring back to the exampleof ASP content distribution, these innovations were driven by the actions of afew relatively small competitors, Microsoft and IBM. The changes thatoccurred in the competitive environment were thus the result of new-gamestrategies designed to change the rules of competition to their advantage: underthe 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 othercompetitors cannot use the same type of technology because it is not easilyavailable, for lack of training, or for financial reasons.During the period when an enterprise controls an exclusive technology, it caneasily recoup its investment through high prices; but by the time this technologybecomes more widely dispersed, prices tend to fall dramatically with the adventof new entrants. These investments are a significant entry barrier to competi-tors. However, the enterprise still manages to retain dominant position andgood level of profitability in business, since it had recouped its initial investmentmany times over.



• Switching from a differentiation strategy based on a technological advan-tage to a cost leadership strategy based on scale, accumulated experi-ence, and a dominant market position

• Constant effort to innovate and improve technology, thereby maintaininga dynamic competitive advantage

PHASES TARGET OBJECTIVES CHALLENGES Initiation Statement of problem IS expectations Changes in expectations

by time Development Deciding what the system should

deliver Users’ quite often lack a total understanding output

Implementation IS running as part of the process to support business goals achievement

Power and control issues within organization

Operation and Maintenance

Enhance system and correct bugs Diagnose/correct problems within time pressure

Table 13.1. ASP model system life cycle (1)

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Oracle’s relative success so far can prove that firms displaying the first type ofstrategic behavior are generally those that have been able to attain a dominantposition because of exclusive technology. As their technology becomes dif-fused over time, however, they tend to resort to competitive advantage basedupon their accumulated experience, good reputation, and distribution network.The second type of strategic behavior for vendors confronted with the erosionof their technology-based competitive advantage is a sustained effort toimprove or even “reinvent” their technology; rather than “milking” their initialtechnological advantage, such firms choose to create a new competitiveadvantage through technological innovation.A vital difference between the ASP model and traditional system life cycle isthat error in this initial phase may not proof fatal. That is because the modelsupports a smooth and easily controlled change method even after it goes intooperation, mainly due to its third-party controlling nature.Table 13.1 describes the four general phases of any IS, which also serves asa common link for understanding and comparing different types of businessprocesses used for building and maintaining systems within the ASP model.


It is easy to focus on individual ASP investments rather than their cumulativeimpact. Intelligent enterprises budget for individual applications of technologyand the IS staff works on a project basis. For some intelligent enterprises, thecombination of all its individual investments in technology far exceeds theirindividual impact. A good example is SAP. Here, continued investments in ASPchanged the software provision industry and SAP’s own view of its fundamen-tal business.By becoming a necessity ASP may not create much benefit for intelligententerprises that invest in it, except that ASP allows the enterprise to continuein a line of business. Who does benefit from investments of this type? Thecynical answer might be the vendors of various kinds of ASP product andservice. However, a better response is that customers benefit from betterquality goods and services, and especially better customer service.Looking at our two earlier examples, customers are much better off with thepresence of ATM and CRS. An ATM is convenient and allows one to accesscash 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 ATMsaround the world you can withdraw cash. While airlines have certainlybenefited from computerised reservations systems, so have customers. Youcan use a CRS to compare flights, times, ticket prices, and even on-timestatistics for each flight. A consumer can make a reservation on a flight andcomplete the transaction over the telephone or the Internet. Economists talkabout a concept called ‘consumer surplus.’How does consumer surplus relate to investments in strategic and competitiveinformation technology? From a theoretical standpoint, consumer surplusincreases as prices drop. The competitive use of ASP reduces costs and pricesthrough applications like those in banking and airlines. The competitive use ofASP has, in many instances, reduced prices (or held down price increases),which contributes directly to consumer surplus. Technological competition maynot always create an economic consumer surplus, but it does provide benefitsin the form of service and convenience. A bank ATM can save time for thecustomer, something the customer may be able to value from a dollar/poundstandpoint. The fact that two firms (IBM and Microsoft) had a similar webservice launched within few months of each other means that the technologywas not able to deliver a sustainable advantage from its investment. Neither wasable to raise its prices directly to pay for their Web services, so the benefits fromtheir investments in ASP all went to the customers.While the strategies of ASP vendors can thus change over time, a clear strategicdirection is indispensable to success. In addition, the transition from onestrategy to another is a very difficult and risky undertaking, since it requires acomplete reorientation of the vendors’ efforts and radically different patternsof resource allocation. As we have seen, technology is often a major factorbehind both differentiation and cost leadership strategies. It is also a criticalfactor in “new-game” strategies.

Internet Strategic Direction

Too many organizations today practice the belief that they can generate newInternet strategic direction faster than their rivals. Such belief leads to therepetition 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 strategyfor businesses in the later decades of the 20th century, they could not possiblework for the Internet strategy in the 21st century. The simple reason is due toits dependence on the principle of finding the stable equilibrium organizationparadigm. Not only are such paradigms consistent with our scientific education,but they also turn to reinforce the message that an organization either installstability and achieve success or it will experience instability and thus failure.Due to the rapidly changing nature of the Internet, successful Internet strategiescannot flow from choices between stability and instability. It rather emergesfrom choices of both stability and instability. Any organization that finds itscurrent Internet strategy to be successful must learn that future success willdepend on its ability to change the way it focuses on the adjustment of suchstrategy to the future needs of the business. Only by so doing can managementsee that creativity is intimately connected with instability, tension, conflict, andthe changing perspectives the Internet environment provokes.As the well-publicized example of IBM has shown, organizations that stick tothe old stable equilibrium way of seeing their strategic direction will simplyrepeat their past or even imitate their competitors who have already moved onto better strategies. Such approach to Internet strategy introduces the conceptof facing the unknown head-on instead of sidestepping by pretending that it isapproximately known. The result of this risky approach is to manage Internetstrategy in a way that is far from comforting but far more dynamic and far moreuseful in turbulent times. Such approach has to do with creating the conditionsan IT department can self-organize to innovate. It also means accepting that thedepartment 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 contra-dictory positions and behavior in an organization. Such approaches are nowbeing used by Nokia which has budgets and production schedules as well ashierarchies with power concentrated at the top. However, Nokia also enablesindividuals and groups—in different countries—to pursue new ideas in relativefreedom.Such approach to Internet strategy can allow for the positive use of instabilityand crisis to generate new perspectives, provoking continual questioning andorganizational learning through with unknowable futures can be created anddiscovered. The approach also faces reality and accepts the consequentincrease in levels of anxiety as necessary for creative activity. After observingthis approach to Internet strategy, one can see that stable equilibrium paradigmis a defence against anxiety and one which blocks creative work in a continu-ously changing industry.Why do we need a new approach to managing Internet strategies?

1. The current approach is not serving the businesses well enough. Organi-zations are continuously changing their Internet strategies and in somecases, at a phenomenal cost to the entire business—often resulting to stafflosing their jobs. A clear justification here is the waste of resources anda substantial disruption to people’s lives when these strategies fail and theorganizations have to absolve the costs. It also slows down the learningprocess of managing the Internet—and information technology in gen-eral—when we have to keep going back to square one, starting with asmall size and all its associated growing pains. Organizations that quiteoften fail to succeed with Internet strategies learn the reality that the stableequilibrium will not work. Instead, continuing success lies far fromequilibrium.

2. Modern technologies have shown that old approaches are based onrarely questioned assumptions about the nature of systems. Nearly all oldapproaches to Internet strategies in the 20th century say that successrequires cohesive teams that share a vision and a culture, that pursue astrategic intent in a rational, orderly manner leading to adaptation to thebusiness. They aim to make the organization’s future knowable. Only thencan they be presumably subject to rational critique.

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This section has explored what the new far-from-equilibrium paradigm meansin relation to Internet strategy and what difference the change of focus makesto the actions that an organization must design to achieve successful Internetstrategies. Such attempt to refocus can have profound consequences for theentire 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 organizationswas 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 Americanbusiness, one so new that its significance is still difficult to evaluate. Thenew technology does not yet have a single established name. We shall callit Information Technology. It is composed of several parts. One includestechniques for processing large amounts of information rapidly, and it isepitomised by the high speed computer. (p. 41)

Much of the then debate (see Myers, 1967) centered on the issue of whethercomputer technology would be used to centralized or decentralized productionoperations control. It also involved the question of the intermediate layerbetween top management and the workforce was appeared to be leading totwo extreme points of either erosion or enhancement as a consequence ofcomputerization (Stewart, 1971; Whisler, 1970). It seemed cleared then thatmiddle management would be replaced by information systems that werecompletely controlled by computers. Also that remaining managers would bereduced to a basic routine monitoring function (Munford & Ward, 1965) andeven if the effect of computerization on management was small, junior manage-ment and supervisory jobs would become partially or fully exterminated.Two different studies in the mid-1960s by Munford and Banks (1967) andWhisler (1967) claimed that information technology would lead to the follow-ing:

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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 empha-ses:

• That Web services may enable an organization to either centralize ordecentralize decision-making authority. That is because Web services donot determine organizational structure. Instead, the determination oforganizational structure is done by the way Web services are introducedand used.

• Those Web services strategies, which promote centralization, are likely toerode the control responsibilities of lower line management, supervisory,and operative staffs.

• That Web services strategies, which promote decentralization, couldeither reduce or increase the control responsibility of supervisory forlower-level managers.

The above clearly goes to say that these early studies indicated the importanceof examining the process by which emerging technologies (i.e., Web services)are introduced into an organisation. The organizational significance of Webservices derives from their ability to capture, store, manipulate, and rapidlydistribute information on which decisions can be made. For the most part, thesesystems have been used to improve the efficiency of hierarchical organizations,through replacing traditional manual reporting systems of communication andcontrol. Thus, it is not the information being processed that is new, rather, thesudden availability, accuracy, and immediacy of this information to manage-ment which has changed the nature of operations control within these organi-zations. Web services can provide—through maintaining a historical record offluctuation in supply and demand of various resources—managements are ableto evaluation potential strategies for changing the future level or method ofresource provision. As Web services bring about new diversity of operatortasks 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 oncurrent or past performance, the consequence of change for the organizationand control of work remains an important area of managerial choice. Such isthe importance of examining the process by which Web services are introducedinto 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 unfold-ing, nonlinear, dynamic process in which players and actions are never clearlydefined. During the period an organisation is in the process of managingtransition to Web services, there are likely to be a number of unforeseencontingencies. These may necessitate a modification of intended pathways andstated objectives of achieving whatever the intended future state of thatorganization was anticipated. The need to revise strategies to meet the demandsof unpredictable events may form part of that predefined task of evaluation andappraisal. This may result from the response of individuals or groups toproblems arising from the transition to Web services process. Whether theindividual tasks are part of the holistic plan or evolve over time, they still needto be managed efficiently. The management of such occurrences during theprocess of Web services transitions is critical to successful establishment of anynew organizational arrangements. The significance of key stages in Webservices transition centres on the ability of key players to maintain an overviewof the multiple and changing routes that Web services transition and theiractions in creating, displacing, redefining, and directing the ongoing develop-ment of information system strategy.Web services transition is usually not a short-term project that last over fewdays or weeks. Consequently, its management cannot be a self-containedchange which is expected to take a short period. The dynamics are that of large-scale change and of a qualitatively different nature, which may require a highdegree of understanding and stamina on the part of the service provider and anyparty within the organisation who may have to deal directly with the messy, andat times painful and unsettling, task of managing Web services transition. Thecomplexity and untidy nature of Web services transitions, partly stem from thetime frame associated them. On the other hand, they highlight the importanceof top-level management in championing the process of Web services transitiontowards its long-term objectives.

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The importance of different tasks in Web services transition process is tomaintain some form of continuity in steering the process towards a successfulend. Such end, in practice, is often continually redefined throughout thetransition process. However, there are a number of tasks associated with minortransitions within a larger information systems strategic change initiative.Therefore, the management of major Web services application is likely toinvolve a diverse range of transitional tasks, activities, and decision which insome cases may appear as discrete and small-scale applications within abroader and more loosely coupled framework of e-business strategy. This mayadd to the sense of confusion and chaos, particularly during the busy periodsof transition when the disruption to the organization production and serviceoperations may be at its height. Symptoms of this stage are as follows:

• An increase in client top management concern brought about by a declinein organization production

• A general feeling of frustration and anxiety among the client’s lack ofability to see the end of the transition period

• Dissatisfaction and low morale among the clerical/administrative staffwaiting to perform their normal duties under transitional arrangements

• High levels of stress and resistance among project champion and ITdepartmental authorities who may be experiencing criticisms both fromtop management and the workforce

At this stage, the power and politics of this transitional process is clearly inevidence and the initial vision Web service implementation may be seriouslycalled 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 toallay the fears and frustrations of different employee groups within the clientorganization.Farther along the journey, when the Web service transition process is reachingcompletion and the hurdles, disruptions and conflicts become anecdotes andlegendary pastimes, a period of comparative stability may occur and act toconstrain further emerging technology developments in the way. The serviceproviders sometimes feel that their tasks have been completed and their visionachieved. Project champion and staff of the client organisation may find that lessattention is paid to their views as a period of operation using the newapplications—sometimes resulting to new work arrangements—becomes a

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part of their daily routines. Staff in the client organization may find the long-termprocess of Web services transitions to have created an expectation that e-business strategies are the norm and the formal completion of IS strategy maybe seen to mark an end to top-management commitment to improvement ofwork conditions/environments.A range of issues and problems which often arise during the process of Webservices transition may make it difficult to provide comprehensive explanationsfor management decision to implement emerging technologies strategy. How-ever, these issues and problems can also be used to formulate practicalguidelines and derive longitudinal case study. The results could provide acomparatively robust methodology for cross-referencing and checking datavalidity and furthering the documented knowledge of Web services transitionprocess.In the section which follows, healthcare organizational implications of adoptinga Web service are discussed. A look at the processual approach to managingWeb services implementation is summarized and some guidelines for ISstrategic management is outlined. The chapter concludes by reemphasizing thetheoretical and practical benefits of adopting a processual approach to thestudy and management of Web services transitions.

Challenge of New OrganizationalArrangement

The emergence of new organizational arrangements—as a result of Webservices implementation—can present a number of challenges for client orga-nization. Orlikowski and Barley (2001) suggest an element in learning to acceptnew technology in an institution involves rethinking traditional concepts of jobfunctions, organization hierarchies, and even the nature of jobs. Within theirstudies the common threads included movement from an adversarial to a morecollaborative system of relations, an emphasis on commitment, the tendency todefine management, and the gradual replacement of single operator tasks withteamwork activities.The challenge of new organizational arrangements after Web services imple-mentation centres on the successful management of Web services transitionfrom 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

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by supervisors and an adversarial and combative system of staff relations seemsto be the norm. In Web services applications, certain individual tasks arereplaced by group activities and staff are taking on control of IT responsibilitiespreviously carried out by higher ranking personnel. A more harmonious systemof employees is being encouraged through participative information systemsmanagement activities. However, as the experiences reported in other parts ofthis book have highlighted, these changes can also create a number of newproblems and issues for IT staff. Consequently, the challenge of Web servicestransition also incorporates a need for critical appraisal and for an ability torecognize and accommodate ongoing contingencies and unexpected out-comes.As well as such internal changes resulting from Web services transition, theremay also be a shift along the relational continuum of external customer–supplierrelations. Any of such transition involving emerging technologies mirror thechange in information systems practices which are being used to improveinternal employee relations and can also be represented by a continuum whichranges from adversarial to more collaborative systems. A more conventionaladversarial customer–supplier relation based on contract formulation may bereplaced with a collaborative approach based on trust, joint participation, andthe objective of mutual benefits and rewards. Managing these transitions is notonly about meeting the intraorganizational challenges, but also about managingnew collaborative interorganizational arrangements with major supplier andclient organizations. This movement towards a more collaborative system ofcontract relationships highlights the increasing reliance organizations are plac-ing on good customer–supplier relations, in order to respond to competitivepressures resultant of the internationalization and globalization of the IT market.Web services, in this light, are contributing to the movement towards collabo-rative organizational networks. This signals a reevaluation of the qualitativeelements of organizations and an attempt to adopt more responsive and flexiblepatterns of structural arrangements, combined with cooperative operationalrelationships. Within organizations, the emphasis is on teamwork, joint worker–management consultation, and the development of a culture of commitment andstaff involvement. The new duties of in-house IT managers—usually referredto as IT coordinators—involve collaborating and communicating workplaceissues as a part of the participative decision making about IT processes andensuring that client staff learn new skills, work collaboratively, and committhemselves to continuous process improvement. This does not signal a reversalin the division of labor traditional in the workplace. Rather, an emergence of anew form of work organization based on the incorporation of indirect elements

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of control into cooperative teamwork arrangements between applicationservice providers and staff of client organizations.Within such patterns of work organization, staff are required to be moreadaptable and responsible to daily demands and be prepared to internalize newworking practices which are the antithesis of traditional methods for copingwith the unexpected. It demonstrates that traditional operating practicespreviously deemed acceptable and now viewed as unacceptable. These neworganizational arrangements still act to constrain operator choice within pre-defined working practices, though the principles centre on staff involvementand teamwork collaboration. Web services implementation can sometimesbring out considerable staff resistance towards emerging technology strategieswhich aim to devolve information systems policy decisions to joint consultativecommittees. Although service providers may have greater autonomy over thepace and pattern of corporate IT, they do not have any control over corporatepolicies and are expected to continually adapt to ongoing programs of Webservices applications and their usages. Service providers are also expected toidentify process problems, intervene in production to rectify them, and suggestchanges in the organisation usage of the system to prevent recurrence. Thiswidens the responsibility for service providers, creates extra stress for projectmanagers of service providers, and makes their experience of work moreprecarious as client organisation staff live on the edge of perpetual stops inproduction or service operations. This has created the need for serviceproviders to respond quickly to IT network problems. In accordance with thenew philosophy of teamwork and problem solving between service providersand client organizations, the service provider must reveal to IT coordinatorswithin the client organization, when they do not have immediate answers to ITproblems and estimate when the anticipated resolution will be found. Thiseradicates traditional barriers between functions avoids undermining of confi-dence from staff of client organizations. Most joint coordination committeeswithin Web services projects undergo a process of redefinition in response tothe introduction of emerging technologies and new techniques.Traditional support and systems control responsibilities embedded in structuralarrangements prior to implementation of Web services are no longer appropri-ate under joint coordination arrangements. However these changes are oftensimply ignored and just left to in-house IT managers and team leaders toredefine their position. Typically, there has been a shift in task emphasis awayfrom inspection functions and technical issues towards elements of staffrelations, 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 controlresponsibilities of supervisors and emergence of remote workgroup leaders.These informal positions are usually occupied or held by supervisory relation-ship to other operators in the control and coordination of workgroup activities.This suggests that the function of supervision remains central in Web servicestransition, though no longer carried out by formally defined corporate staff. Thiscan be seen as a quantitative reduction in the number of organizationally definedsupervisors and a qualitative expansion in the function of supervision. Conse-quently, supervision is undergoing a complex redefinition in which the charac-teristics of the newly emerging supervisory positions remain unclear and ill-defined.The above nature and character of the new organizational arrangements signala move away from the traditional adversarial approach to managing IT contractrelationships towards the development of collaborative customer–supplierrelationships based on reciprocity and high-trust, long-term partnerships. Italso indicates how major IT product and client organizational process changemay require rethinking in adaptation procedures for many organizations in anetwork as a result of implementing Web services. The successful implemen-tation of Web services in the future may be contained within the structuralarrangements of a single organization, but require a series of IS strategies wherea number of different organizations combine together for the purpose of forminga collaborative IT networks to meet the dynamic and competitive markets ofa global economy. Such a strategy may not signify a paradigmatic shift, althougha move along existing IT applications design, support, and maintenancestrategies would be adjusted to reflect modern e-business innovations. Thesuccessful management of these strategies is part of the new emerging technolo-gies challenges confronting future practitioners and systems strategists.

Processual Approach to Web Services

This book brings the reader the temporal and processual nature of Webservices which makes it difficult to analyze and understand. In a series oflongitudinal case studies, the approach has supported processual analysis, anddemonstrated how critical events during the Web services transition processmay serve to impede, hasten, or redirect the route to e-business model. It alsoshows 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 temporalnature 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 needfor Web services will arise, and a decisions will be made on whether toinvest in a major e-business model;

• there is a time frame over which IT infrastructure will be purchased andconsultants hired to implement Web services; and

• there is a stage in which new IT operating practices will become the normwithin the context of Web services.

These show a temporal history of large-scale Web services implementationprogramme and involve a number of tasks which the client organization willengage in during the process of managing these strategic transitions.While there may be a contractually defined beginning and endpoint to Webservices transition, what actually happens in the intervening period is oftenmuddled, confused, and difficult to understand. This complex period in theimplementation of Web services does not depend on managing logical se-quences of events which phase models can often suggest. Rather, it depends onmanaging a composite and nonlinear series of Web services transitional taskscomposing of decision-making and non-decision-making activities and histori-cal events. Data collected within these categories can later be recombined toconstruct a more detailed and contextual understanding of the process of Webservices transition. Though the historical dimension to the unfolding of a Webservices transition, “black box” process of e-business implementation maymove backwards and forwards between various tasks. It could be involved ina number of different activities simultaneously. It is therefore important to stressthat whilst it is useful to identify categories for analytical purposes, Webservices transition should not be treated as representing a rational, sequentialseries of steps in the process of managing transitions. Rather, it should betreated as providing a useful analytical technique for uncovering and makingsense of the dynamic process of Web services transition.Among the issues relative to processual nature of Web services transition arethe need to account for the substance of the transition, the political decision-making processes which may influence and shape the direction and speed ofWeb services transition, and the context in which the transition takes place. Theutility of processual framework helps client organizations in securing customer

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data and making sense of the factors that shape the Web services transitionprocess.The decision to implement Web services, the choice of Web services applica-tions, and the emerging technologies will generally be influenced by the clientorganization’s management strategic objectives, the state of the industrymarket, and the availability and applicability of alternative systems and philoso-phies to particular business environments. During the transition of Webservices, business market considerations are likely to decline in significance,whereas occupational and staff concerns are likely to increase in importanceand influence the outcome of client management’s strategic intentions. Thesefactors may further serve to shape the operational use made of the newinformation systems. During the transitional period, staff will learn to finallyadapt to the transition. In the process, they are likely to redefine the conse-quences of the transition for their positions within the new organizationalstructures and operating practices imposed by management during the initialoperation of the new information systems. It is worth noting the possibility togeneralise the relative importance of a range of variables in shaping the processof organizational transitions. These variables need to be examined empiricallyin order to evaluate their significance in redefining particular types of informa-tion flow and systems of managing control in different operating environments.

Practical Guidelines on Managing Web ServicesTransition

A major thesis in this book is that there can be no simple prescriptions formanaging Web services implementation successfully. What may prove suc-cessful in one context and in one organization may not prove appropriate toanother organization operating from different locations at some future point intime. Consequently, it would neither be appropriate nor feasible to produce anexhaustive list of key things to be accomplished for a successful transition toWeb services. This seems to indicate a return to a chaos theory of managingtransitions, but the chapters in section II do provide materials from whichlessons on the management of Web services transition can be extracted(especially the Chapters VIII and XI which both illustrate successful manage-ment of a large-scale Web services implementation). The text in this book canbe used to formulate a series of guidelines which should be seriously consideredby IT practitioners and systems strategists about to embark on programs ofWeb services transition.

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Such a guideline should not advocate a single emergent homogenous structureto be prescribed as an appropriate design for any organization. It should ratheremphasize the importance of ongoing time frames and the interconnecteddynamics between the substance, context, and politics of the transition process.Web services transition is viewed as an ongoing process which is bothprogressive and regressive, is planned and unplanned, and incorporatesintended and unintended innovations from the initial conception of the need toimplement an e-business strategy through to the exploitation of emergingtechnologies. Web services transition is not right for a situational approach thattends to use snapshot models and assume that context is singular andunproblematic. The perspective used for Web services transition sensitizes thepractitioner to the importance of the interplay between information systemsgovernance and control on the one hand, and the history and culture of the clientorganizational hierarchy and system dynamics on the other. In certain situa-tions, the transition to Web services is able to identify competing histories ofinformation systems anarchy in the client business and show how the organiza-tional mission statement may be rewritten to lend support to the claims ofdiffering vested interest groups, thereby reflect the political agendas of power-ful decision makers rather than representing certain restructuring in the past.

Emerging Technologies

Questions concerning the management of emerging technologies and theimplications of Web services within an organization and control of work havestimulated considerable debate. Much of such debate has concentrated on theconsequences of the speed of technological change for economic well-beingand the levels of unemployment resulting from the implementation of Internettechnologies. Certain researchers claimed that the economic imperative foradopting emerging technologies meant that a choice had to be made betweena high level of structural unemployment or a high level of technologicalunemployment.The capacity for emerging to display jobs stems from its broad area ofapplication. The miniaturization of the Internet full power in the hands of certainmultinationals scares the masses of global workforce. The relationship betweenlabor displacement and the level of e-business strategies implementation bybusinesses can readily be identified in case study analyses, and is often a keyissue surrounding the introduction of emerging technologies. Some see this to

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be particularly significant, given the capacity of emerging technologies toimprove 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 information-integration associated with tertiary automation, which underlies many of thechanges currently occurring in the IT industry (Dawson, 1994, p. 125).Configurations may be made up in a very wide range of patterns; the mutuallyinteracting components may be deployed in many ways to meet particularrequirements. Considering, the implementation of Web services does requirethat considerable attention be given to the nontechnical components in order toachieve successful outcome. Failure to do so may result in what has beentermed as “productivity paradox.” This is where despite an organizationaladoption of emerging technology, there is a general decline in productivity.The enabling characteristics of Web services provide systems strategies and ITpractitioners with a number of options in the way emerging technologies areintroduced and used within organizations. Although this book supports the viewthat emerging technology does not determine outcomes, some authors believethat care should be taken when discounting certain types of emerging technolo-gies simply because they are forms of the e-business model. This suggests thate-business does have an independent influence and may reduce or eliminatetasks requiring manual skills, and generate complex tasks requiring interpretiveand problem-solving skills. They note that the tendency in managing emergingtechnologies adoption has been to ignore the new task and skills requirementsand therefore undermine the effective use of e-business through reducingreliance on skilled human intervention.

Dynamics for a Successful Internet Strategy

The general approach to Internet strategy sees the dynamics of success asregular and stable patterns of behavior. This idea is built on the assumption thatit is possible, in principle, to predict the behavior of the emerging technology.In essence, if an organization cannot predict it, the organization could not secureregularity and stability, thereby resulting in surprises and crises instead. Suchpredictability is only possible if there are clear-cut connections between causeand effect in Internet strategies, denoting that a given action leads to a knownoutcome in known circumstances.

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Such beliefs about cause and effects in Internet strategies lead an organizationto wish for long-term goals, missions, and visions. Like other forms ofmanagement, IT management teams are inclined to think in ways that alwaysexplain success as the realization of someone’s vision. They are always lookingat the effect of a successfully implemented strategy in a straight line for the directcause in certain specific vision.This book develops the reasons for concluding that today’s dominant frame ofreference for understanding Internet strategy is inadequate, thus justifying aneed for a new mind-set. The rest of this book explores what this new mind-set means to the following key questions organizations in the 21st century askabout their Internet strategies:

• What kind of Internet strategy do we need if we are to be successful in thenew Internet Age?

• What do we need to do to generate continuing creativity and innovationin our business taking advantage of emerging technologies?

• What strategic thinking is required for the Internet Age and how do we doit in irregular and contentious circumstances?

• How do we establish strategic direction and intention when the future ofcurrent technologies is unknown?

• How do we control the Internet applications our businesses rely onstrategically when the future is not only open-ended but also unpredict-able?

• How do we secure participation and unleash the creative potential of ourmost qualified staff in the latest technology yet guarantee their futurecommitment?

Different strategists are faced with the above questions in dealing with Internettechnologies, which are quite clearly characterized by stability and instability,predictability and unpredictability, regularity and irregularity, contention andconsensus, and intention and chance.Most organizations today prescribe to having a strategic plan for Internet andrelated technologies. Such strategic plans usually think of Internet strategy asa plan, which by definition focuses on their attention on securing a widely sharedcommitment to achieve a foreseeable future state of the organization’s tech-nologies. In reality, they are focussing their attention on a pattern in actions that

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is cohesive, consistent, and integrating, yet trying to produce regularity and tosustain stable equilibrium, both internally and externally.This fails to take into consideration that in practice, actions and their conse-quences are only regular and foreseeable when they represent repetitions of thepast. The planning mentality is therefore leading to a design action thatreinforces the direction already established for the organization. Such mentalityleads to the concrete building on their strengths, sticking to their core busi-nesses, and making only small, logically incremental changes. Consequently,when organizations focus on the predictable, their actions are usually predict-able as well.How can such thinking be spread around the organisation? Staff members aremore readily able to share commitment to certain aims or organizational policywhen they are able to foresee the consequences for themselves, their individualdepartments, regional, or national branch. They will find it very difficult to sharecommitment when they are faced with ambiguous, open-ended issues aboutInternet technologies that directly (or indirectly) show no clear future impact ontheir work. By insisting on prior shared intention and regular patterns of action,the planning mentality actually predisposes staff members to avoid open-endedissues with unknowable future consequences. Such approach to Internetstrategic planning contains a built-in bias to continue down already establishedpaths of action.A frequently used criticism to ineffective use of Internet strategy lays the blameon organizational politics. This argument emphasizes that management consistsof people who make decisions about Internet strategy based on the need toprogress their own careers even if those decisions are not in the interest of theorganization’s future technological position. A part of management may betrying to build departmental and business unit empires which obstruct theformulation and implementation of sensible long-term Internet plans and theachievement of technological visions.Why do we equate stability and excellence with performance of successfulInternet strategies?First, there is a widespread assumption that irregularities in Internet strategicperformance are due to the incompetence of certain applications of theemerging technologies. It is viewed that any serious faltering in performance ofthe emerging technologies from a particular Internet strategy is usually followedby a rapid change in management team or consultant responsible for thestrategy. Adopting this assumption that irregular technology performance is

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primarily a consequence of incompetence encourages one to look for theorganizational structures, control systems, implementation plan, cultures, man-agement styles, technical skills, and project leadership characteristics thatconstitute competence. The conclusion is therefore drawn that the elements ofcompetence can be identified and installed, then the organization will largely beable to banish the unstable technology performance.Such identification of technology competencies have been taking place fordecades as documented by Checkland and Scholes (1990), Lacity andWillcocks (1998), Markus and Soh (1993), Orlikowski (1993), and Gottschalket al. (2002) among others. The initiatives of these authors—and manyothers—have identified what are regarded as the key competencies requiredat different stages in the compilation of technology strategic plans. Sinceunstable performance is thought to be due to emerging technology incompe-tence, the organization often seeks to remove it, and in doing so, securestability.Second, even if it was possible to successfully identify and install the elementsof technological competence, organizations will still not banish performanceinstability altogether. That is because future changes in the Internet, and otheraspects of the environment within which organizations have to operate, cannotbe forecast with complete accuracy. Every organization, therefore, will be hitfrom 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 unforeseenways. Resulting from all these, unstable emerging technologies performancewill be generated by what amounts to ignorance. Because the emergingtechnologies are ignorant of the random shocks coming from the environment,their systems will exhibit irregularities in performance no matter how competentthe technologies are. However, ignorance can be conquered, to some extent,by gathering and processing more information about the emerging technologiesand operating environment, by applying more sophisticated forecasting tech-niques, and conducting more research on the customers’ requirements. Rigor-ous technologies tend to overcome ignorance as far as they are able to. Theywill turn as many apparently random shocks as possible into predictable eventsand design actions to deal with them in advance of the changes occurring. Theyalso tend to banish ignorance and thus secure stability.The first and second reasons have shown that instability in Internet strategiesis the consequence of incompetence and ignorance. Can it be safely assumedthen that these are the only enemies of success? But is the unstable emerging

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technologies performance being observed really due only to some combinationof ignorance and incompetence?Third, the existence of chaotic and self-organizing behavior of dynamic Internetapplications must lead organizations to challenge the view that irregularperformance is not due solely to incompetence and ignorance. Where thebehavior of an Internet application is driven by certain kinds of feedbackmechanism, that system’s performance or behavior may be unstable purelybecause of the structure of the feedback mechanism itself. Instability of aparticular kind is a fundamental property of the structure of commonly foundfeedback mechanisms. Far from being the enemy of success, this particularstructural 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 whichsuch instability occurs, instead of trying to remove it. Without instability, thesystem will be incapable of developing new, innovative forms of behavior. It willbe trapped into endlessly repeating its past and existing behavior.If an organizational system is driven by feedback mechanisms of the particularkind, then its technologies performance could be unstable for reasons that haveto do with the very structure of the organizational system itself. With thisconclusion, therefore, it would mean that even if an organization totallybanished incompetence and ignorance, the technological performance of itsbusiness would still display instability. An organization would therefore have toexhibit instability if it was to be innovative. Systems, success, and instabilitywould be intimately interconnected.The practical point to be considered is whether an organisation is a feedbacksystem and whether it is the kind of feedback system to which the newunderstanding of complex dynamics in Internet strategies applies. If anorganisation is such a feedback system it becomes a matter of practicalimportance to identify the conditions in which it will display inherent structuralinstability of the kind required for continuing creativity. These considerationsare of practical importance because the actions of Internet strategists dependon what they believe about the nature of success. In a case where they believethat instability is an inherent and necessary feature of a successful organisation,they will seek to provoke certain kinds of instability. On the other hand, theymay believe that instability is due simply to incompetence and ignorance, andis hence the enemy of success. In such case, they will seek to banish all formsof instability. Making the wrong judgement in this regard, however, could leadto major problems for the organisation’s future technologies position.

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References


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Glossary

Access Control Mechanism: A mechanism that limits the actions that can beperformed by an authenticated person or group.

Accessibility: The extent to which the user can obtain data in an appropriateformat and in time for effective use; to locate data stored in a computer systemor in computer-related equipment for the purpose of reading, writing, or movingdata or instructions to operate the data.

Accumulator: A special-purpose register in the central processing unit usedto store the results of arithmetic operations temporarily.

Ad Management: Methodology and software that enable organizations toperform a variety of activities involved in Web advertising.

Advanced Planning And Scheduling (APS): Programs that use algorithmsto identify optimal solutions to complex planning problems that are bound byconstraints.

Alliance Strategy: Competitive strategy in which an organization works withbusiness partners in partnerships, alliances, joint ventures, or virtual organiza-tion.

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Alliances: Cooperative business arrangements between two or more busi-nesses with complementary capabilities.

Analytic Style: A systematic style of perceiving information where onefollows a structured, well-organized, and deductive approach in arriving at adecision.

API: Application programming interface

Application: The use of computer-based routines for specific purposes suchas accounts receivable maintenance, inventory control, and new productselection. It could also be software or computer program that process data toprovide output for such a purpose.

Application Controls: Controls designed to protect specific applications.

Application-Level Proxy: A firewall that permits requests for Web pages tomove from the public Internet to the private network.

Application Generator: A program that produces application softwarebased on information submitted by the user. A software procedure producedfrom a description of the functions wanted by users. A type of fourth-generationlanguage.

Application Programmer: Develops software, usually in third- and/or fourth-generation languages, to generate reports, update records, and perform otherfunctions involving data stored in the database.

Application Service Provider (APS): An agent or vendor who assembles thefunctions needed by enterprises and packages them with outsourced develop-ment, operations, maintenance, and other services; the provision of informationsystem or computer application over the Internet that became widely practicedin the late 1990s.

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Documents

Internet strategy the road to web services solutions irm press