chapter one
LEARNING OUTCOMES
By the end of Unit 1, you should be able to:
1. Describe the concept of strategic planning for a business organization;
2. Explain how and why computer networking forms a crucial part of the strategic plan for a typical business organization today;
3. Identify three specific industries where electronic commerce (EC) technology shows maximum potential; and
4. For a given industry, describe one application of EC that might play a powerful role in re-shaping that industry.
INTRODUCTION
The aims of this first unit are twofold. First, it aims to provide you with an introduction to networking and electronic commerce (EC). Second, it aims to remind you of the importance of strategic planning in the contemporary business world and explain the interrelationships of business, information system (IS), and information technology (IT) strategies. The first part contains a brief introduction to computer networks and electronic commerce (EC).
In the second part you will learn why networks and EC are so important in the contemporary business world. It contains some very important material as one of the main objectives of this course is that you should learn to be able to identify and evaluate alternative networking/EC solutions and strategies to achieve organizational effectiveness and competitive advantage.
INTRODUCTION TO COMPUTER NETWORKS
In this unit, you will be introduced to computer networking and electronic commerce (EC). You will also learn about the important interrelationships between business strategy, information system (IS) strategy, and information technology (IT) strategy.
A computer network is essentially just two or more computers connected together by some form of telecommunications medium. Without telecommunications and networking, IT as we know it today would not exist. The convergence of the technologies of computers and telecommunications means that computer systems are now the primary tools with which staff
communicate within a department, within a firm, or around the world. Networking is also being increasingly used, in business, to connect the firm directly to both its suppliers and its customers. As consumers we have taken it for granted, for more than two decades, that we can use global computer networks for our airline ticket reservations and ATM (automatic teller machine)
transactions.
Business has long realized that effective communications mean lower costs, better control of resources and the ability to reduce expenses in many ways. However, within the last ten years there has been an increasing awareness in the business community that the innovative use of networking can give, and has given, forward looking organizations tremendous competitive advantages. Classic examples include American AirlinesÊ first online seat reservation system
· SABRE, Citibank's first ATM network, and BaxterÊs innovative online ordering and distribution network.
As businesses are increasingly being forced to compete internationally, their ability to use networking and EC has become a critical factor in maintaining not just their profitability but also their competitive edge and, ultimately, their survival.
For the time being you can assume that all examples of the use of networking mentioned above are also examples of the use of EC. (Later in this unit you will learn what is meant by the term 'electronic commerce' (EC) and the fact that networking and EC are inextricably linked.)
Today, we take it for granted that we can communicate freely from our desktop with more than 400 million people over the Internet. The business world has also realized that the Internet is now creating exciting new business opportunities because of its very rapidly increasing popularity and its global availability brought about by its open architecture. Even though there was a crash in the high-tech and EC-related stock market and we have seen the bankruptcy of the so-called 'dot-com' companies in the year 2000, we are still optimistic about the future development of EC. This is based on the fact that the trend of the growth of global Internet access has not slowed down. By the end of the year 2000, there were over 510 million people (NUA Surveys, Aug. 2001) with access to the Internet. Internet technology has already had a very major impact on intrabusiness EC in the form of Intranets and business-to-business (B2B) EC is still growing at a fast rate.
In this unit you will learn of the importance of IS and IT strategic planning for business organizations to achieve organizational effectiveness and competitive advantage. You will learn the ways in which IS/IT can contribute to business and the process of IS/IT strategic planning. You will be presented with contemporary approaches to business, IS and IT strategy planning which can help you to identify and evaluate alternative networking and EC solutions for future
business opportunities. This is one of the primary objectives of this course.
INTRODUCTION
This section provides you with a brief introduction to computer networks. Itcontains four sub-sections:
In the first sub-section you will be introduced to what computer networks are by means of a brief explanation of the general characteristics that are common to all computer networks. In the next two sub-sections you will learn of the major characteristics and differences between the two main types of network used in business. These are local area networks (LANs) and wide area networks (WANs). In the final sub-section you will learn of the technological advances and changes in the business environment that have driven the telecommunications revolution
over the past 20 years or so. In the topic on ÂDeregulationÊ you will learn how changes in the ownership, control, and marketing of telecommunications services have been brought about by deregulation, a major driver in the telecommunications revolution.
GENERAL CHARACTERISTICS OF COMPUTER NETWORKS
A computer network, used in the sense of a local or wide area data communications system, has at least two main characteristics:
More than one separate computer must be included in the network.
The network must allow user computers to transmit and receive data.
In addition, the network may allow sharing of:
Networks can be as small as two PCs sharing files in a single room, as big as the Hong Kong Jockey Club's betting system, or as vast as the Internet. The HKJC system has large computers at both the Happy Valley and Shatin racecourses that support more than 3,000 betting terminals both on- and off-course. The Internet is a massive network of networks connecting together tens of millions of computers ranging in size from PCs to massive parallel mainframe computer systems. They are all called networks as they all have the characteristics listed above.
The means of providing the connectivity between network components has resulted in two main forms of network. If the business only needs to connect together computers within a small geographical area, such as a single building, it can install its own cabling to create a LAN, or local area network. However, if the business needs to connect computers over a much wider geographical area it normally has to rely upon the services of a telecommunications authority for
some or all of its links between sites; this is termed a WAN, or wide area network. However, remember that many networks used by business are combinations of the two, and many businesses use both WANs and LANs.
Local Area Networks (LANs)
A local area network (LAN) is a privately owned network, where the connected computers are normally quite close to one another. Most LANs are located within a building, although it is possible for a LAN to operate in different buildings of a factory (or university etc.) owned by a single user. During the last 20 years, LANs have become a popular and cost-effective way of connecting users and allowing them to share resources such as programs, data, printers and file stores.
Wide Area Networks (WANs)
Wide area networks (WANs) can cover wide geographical distances ranging from several miles to across continents. Before deregulation (see next topic) of the telecommunications industry it was normally illegal for companies without government licences to set up their own private telecommunications networks. Even now, it is not usually feasible for all but the largest companies to consider setting up their own private national or international telecommunication
networks. Because of this, WANs are often described as networks that cover a wide geographical area and that use the communication services provided by one or more companies that are licensed by their governments to provide communications services to the public.
In the rest of this course we will refer to these communication service providers as 'telcos'.
HOW TECHNOLOGICAL ADVANCES AND DEREGULATION HAVE DRIVEN THE
TELECOMMUNICATIONS REVOLUTION
Technological Advances
The term IT did not come into common usage until the early 1980s. Prior to this period, companies called their IT departments EDP (Electronic Data Processing) or DP until about the early 1970s, and then MIS (Management Information Systems) or IS (Information Systems). This change in nomenclature reflects how telecommunications networks have played a rapidly increasing role in business computing over the last 20 years.
In the late 1970s and early 1980s the technologies of telecommunications, computers, and microelectronics started to converge very rapidly. The costs of these technologies also dropped dramatically as they were converging. This resulted in the new technologies suddenly being appropriate for a much wider range of uses. Also, because of the drop in costs, they became affordable to a much greater number of users and consumers. It was this phenomenon that gave
birth to the term 'IT'.
The first computer networks were WANs that linked computers and/or peripheral devices at various locations. The aim of this linkage was to allow data to be transmitted and received between units in a reliable, cost-effective manner. The process of first linking terminals and then computers over a substantial distance has been progressing since the early 1960s.
By the late 1960s, data communications technology (particularly modems) allowed terminals to routinely communicate with remote computers through telephone circuits. Although there were developments during the 1960s to link dumb terminals with remote computers, the idea of linking more than one computer did not become popular until the early 1970s.
In the late 1960s and early 1970s, a major boost to the development of the dual and integrated technologies of computing and data communications was provided by the Cold War and the US space programme, which made massive research funding available. One of the results of this massive research programme was the creation of the Advanced Research Projects Agency network (ARPAnet) which was the forerunner to todayÊs Internet. ARPAnet was a network developed in the late 1960s with funding from the Advanced Research Projects Administration (ARPA) of the United States Department of Defense. ARPAnet linked together computers at major universities and defence contractors, allowing researchers at those institutions to exchange data.
One of the first major business applications of computer networks was the American Airlines SABRE system. This was developed by American Airlines and IBM in 1976 and resulted in the worldÊs first passenger seat reservation system. The SABRE system had hundreds of scattered terminals linked to a single central processor by telephone circuits.
LAN technology was first developed in 1975 at the Palo Alto research laboratories of Xerox. Part of this pioneering research led to the development of the 'Ethernet' LAN method, which is still the basis of most of today's LANs.
As an interesting example of falling prices and rising demand, you may note that the original Ethernet connection was sold in 1980 for HK $78,000. In 1983, the price had dropped to HK $15,600, and now a complete LAN interface card containing the necessary logic on a single chip costs about HK $200.
More recent technological advances in networking have concentrated on problems of distributed processing systems. Modern client-server architectures share the processing load of an application between different processors. Thus, networking technology is an essential part of all modern client-server architectures. Virtually all modern LANs are now based on the client-server architecture.
Many larger organizations now interconnect their many departmental and regional LANs by means of WAN connections to create 'multi-network networks'. Now the Internet is a public multi-network network that spans the globe.
Telecommunications authorities have invested millions of dollars in upgrading the voice-based telephone network so that it can cope with the demands of increased digital traffic. Major infrastructure developments of fibre-optic cable networks are obvious examples of this investment. Most telecommunications companies are now able to offer services such as the integrated services digital network (ISDN), which provides the ability to carry a wide range of signals, including text, graphics, voice and video, through the same circuits.
The present distinction between WANs and LANs is rapidly becoming blurred as competitive pressures on telcos, brought about by deregulation, forces them to make ISDN and other high bandwidth services widely available to businesses. An important consequence of these recent technological advances is that all main components for an effective and flexible networking solution to business problems are now in place. In particular, recent advances in networking
technology have resulted in:
The availability of a global telecommunications infrastructure, with satellite, fibre-optic and advanced switching systems, that provides high-volume, high-quality data communications capacity.
Standardization of connection and processing protocols, such as the TCP/IP protocol suite which is the technological foundation of the Internet.
Sophisticated LAN and WAN networking systems which, combined with client-server and other distributed processing technologies, support the arrangement of processors in a wide variety of ways.
Deregulation
In addition to dramatic technological advances, the telecommunications revolution has been further accelerated by changes in the ownership, control and marketing of telecommunications services.
Until 1984, the provision of public telecommunication services, in virtually all countries, was controlled by a single common carrier (e.g. AT&T in the US and Hong Kong Telecom in Hong Kong) or by a single government-controlled Post, Telegraph and Telephone authority or PTT (e.g. the Bundespost in Germany and the Nippon Telephone and Telegraph Public Corporation in Japan). These single common carriers and PTTs were in effect government monopolies. In 1984 the US Justice Department forced AT&T to give up its monopoly and allow competing firms to sell telecommunication services and equipment. Similar deregulation has since taken place in many European and Asian countries, including Hong Kong.
Deregulation has brought about much needed competition in the industry and widened the market for new telecommunications technologies, devices and services. It has resulted in cheaper and better quality voice and data transmission services, cellular telephone services, and private satellite services, and many other advances that benefit business and the private consumer. The changes in the ownership, control, and marketing of telecommunication services, brought about by deregulation, have also dramatically accelerated recent advances in
telecommunications technology.
SELF-TEST 1.1
1. What are the main differences between LANs and WANs in terms of the distance they cover and the ownership of circuits that interconnect the computers in the network?
2. Recent technological advances have provided three important components for networking solutions to business problems. What are they?
INTRODUCTION TO ELECTRONIC COMMERCE (EC)
Introduction
This section provides you with a very brief introduction to electronic commerce (EC). It contains three sub-sections:
In the first sub-section you will be introduced to what EC is by studying short definitions of EC given by Kalakota and Whinston. In the next sub-section you will see that by definition (i.e. the definitions of EC provided earlier), networking and EC are inextricably linked. In the final sub-section you will learn what types of applications will be regarded, during the rest of this course, as being within the scope of EC. These include applications that facilitate intra-organizational business processes and collaboration, applications that deal with business-to business communication and collaboration, and applications that deal with business-to-consumer communications and trading relationships.
1.5.1 Some Initial Definitions of Electronic Commerce
Kalakota and Whinston (1997) give the following definitions of electronic commerce, which are prefaced by their important comment:
'Depending on whom you ask, electronic commerce has different definitions.
From a communications perspective, electronic commerce is the delivery of information, products/services, or payments via telephone lines, computer networks, or any other (electronic) means.
From a business process perspective, electronic commerce is the application of technology toward the automation of business transactions and workflows.
From a service perspective, electronic commerce is a tool that addresses the desire of firms, consumers, and management to cut service costs while improving the quality of goods and increasing the speed of service delivery.
From an online perspective, electronic commerce provides the capability of buying and selling products and information on the Internet and other online services.
(Kalakota and Whinston 1997, 3)
Turban and King (2003) add two more perspectives to the list:
From a collaborative perspective, EC is the facilitator for inter- and intraorganizational collaboration.
From a community perspective, EC provides a gathering place for community members to learn, transact and collaborate.
1.5.2 The Relationship between Electronic Commerce and Networking
Networking provides the infrastructure for doing business electronically, just as traditional business requires infrastructure such as roads, commercial buildings, electricity supply and telephone systems. The idea of doing business electronically over networks is nothing new. In the broad sense, EC over some traditional networks has been around for years. Some typical examples are advertising and sales over television networks, telephone networks and using
fax. Even banking services over ATM networks can be treated as a primitive form of EC.
There is no doubt that the development of networking fosters the growth of EC, particularly the standardization of network protocols which allows interoperability. A typical example is the development of electronic data interchange (EDI), which is an important business-to-business EC application. Traditionally EDI was developed over some proprietary networks. The cost of
installation was generally quite high and it had typically only been beneficial to large firms with enough sales volume to justify the costs of developing their own networks or subscribing to a value-added network (VAN). This hindered the widespread use of EDI for regions like Hong Kong where the majority of businesses are small and medium in size.
With the growth of public networks, especially the Internet and software developments that allow Web-based EDI systems to interface with traditional EDI systems, businesses of all sizes can now enjoy the benefits of paperless and efficient business transactions. On the other hand, the growth of EC also affects the development of networking technologies. The exponential growth of the Internet has been triggered by the commercialization of the global network. The
early development of the Internet was mainly restricted to academic and research organizations. Ever since the early Â90s when the commercial use of the Internet was allowed, the growth in subscribers and traffic has been phenomenal.
Today, many new networking technologies are driven by business and commercial needs. For example, the development of broadband networking technologies is mainly due to the need of commercial services such as delivery of multimedia materials and video-on-demand.
1.5.3 Major Categories of Applications of Electronic Commerce
We can identify three major categories of applications that fall within the scope of EC. These are applications that:
Intra-organizational Applications of Electronic Commerce
This category of applications, in its widest sense, includes all different types of systems used to support business processes within an organization. However, one of the most important recent phenomena in this class has been the tremendous growth in the use of Intranets.
The main reasons for the phenomenal growth of Intranets so far has been:
Business-to-business Applications of Electronic Commerce
Electronic data interchange (EDI) is essentially used to optimize supply chain management, and Extranets can be used to extend the benefits of collaborative group working to oneÊs business partners. With the Internet and the Web many new possibilities are emerging. For example, virtual enterprises based upon an inter-firm network of related business activities can be created. These virtual organizations can be extremely flexible and tailored to specific needs. Also, they only need to exist as long as they are effective and required.
Business-to-consumer Applications of Electronic Commerce
In the consumer goods arena, mail order catalogues, 'Interwood Marketing'-type TV sales and so forth have long been used as efficient methods of convenient shopping whereby products can be advertised, ordered and paid for either by mail or over the telephone. Internet-based virtual shopping malls and electronic catalogues are now rapidly taking their place.
This type of EC has the added consumer benefit of interactivity. Online catalogues are increasing in complexity, often dynamically generating the contents of Web pages depending on specific user requirements. Also, Internet purchasers can often design or configure the product to meet their own specific requirements, as opposed to having to select from a set of fixed options, as is the case with conventional catalogue shopping. Purchasing a Dell computer from Dell's website gives a good example of this flexibility. Applets downloaded to the client can ensure that the customer only makes valid design choices.
In the information goods and consumer services arena, Web-based EC provides new ways of advertising, ordering and paying for conventional consumer goods. It also provides a means of distributing any type of goods or services that are electronically transmittable.
SELF-TEST 1.2
1. What are the three major categories of EC applications identified in this section?
2. Give one example for each category of EC applications that is used in the banking industry, or any other industry you are familiar with.
THE CHANGING ROLE OF INFORMATION SYSTEMS IN BUSINESS
Introduction
You have already learned that networks exist in businesses to allow users (and computer systems) to communicate with one another and share data and other system resources. In short, networks can help reduce an organization's costs and increase its effectiveness. It is, therefore, not surprising that networking and data communications are at the heart of most contemporary business information systems (IS).
Before we continue, let us first examine the difference between information systems (IS) and information technology (IT). You may be aware that different authorities give quite different answers to even this. However, in this unit we will use Laudon and LaudonÊs (2000) definitions:
'An IS is an organizational and management solution, based on information technology, to a challenge posed by the environment.'
'IT is the computer and communications technology that is used to process data into information. IT's basic components are:
In this section we will examine:
Today, virtually all contemporary business information systems, and the business benefits derived from them, are reliant upon the existence of effective underlying telecommunications and networking systems. The pervasiveness of these network-based systems is self-evident from the use we make of them in our daily lives. (Refer to Activity 1.1.)
We have already pointed out that EC is completely reliant on networking. There is a group of related 'technologies' that have had, and are having, a major impact upon the way in which EC has developed and continues to be developed.
These 'technologies' include:
1.6.2 Networking Applications for Cost Reduction and Effectiveness
Business has long realized that effective communications mean lower costs, better control of resources and the ability to reduce expenses in many ways. Computer networks are of paramount importance in business communication systems. The following networking applications exemplify this fact.
Airline Seat Reservation Systems
Airline seat reservation systems have now been in universal use for about three decades. Originally they reduced the airlines and travel agents' operating costs and provided a much faster and more effective service to the air traveller. They also provided airlines with a way of capturing and rapidly analysing the demand for seats on particular routes at particular times and traveller 'no show' statistics. This in turn provided airlines with a way of maximizing aircraft occupancy rates, and therefore sales revenue, by 'double booking' seats to take account of
expected no show rates. Later enhancements to the core airline seat reservation systems provided airlines with powerful marketing tools and customer loyalty schemes in the form of 'frequent flyer points' bonus systems. In recent years airlines have created strategic partnerships, particularly with other airlines, which provide complementary (and non-competing) route services, and also with credit card companies, in order to provide more enticing 'frequent flyer point' and 'fly buy' marketing schemes. Today, virtually all major airlines and credit card companies run joint customer loyalty schemes where making purchases on your credit card can build up your frequent flyer points and buying an airline ticket with your credit card can build up your credit card 'reward' points. Clearly, these types of scheme would be impossible without the extensive use of networks linking together systems of airlines, credit card companies, travel agents and retail outlets.
ATM Networks
ATM networks are now universally used in retail banking because they provide a much more effective (faster, more accurate, and more convenient) way of providing a wide variety of retail banking services (cash withdrawals and deposits, account balances, cash transfers, etc.) than human bank tellers. ATM systems also substantially reduce the banks' operating costs as they significantly reduce the banks' need for branch office space and counter staff.
Point-of-Sale (POS) and Inventory Replenishment Systems
Point-of-Sale (POS) and inventory replenishment systems are also universal in all major supermarket chains and major retail stores now. Once again they provide a way for the retailer to provide a more effective service (faster, more accurate, and more convenient) to the customer and reduce the retailers' checkout staff costs and operating costs. They also facilitate automatic in-store inventory control and replenishment.
LANs and Intranets
It is highly likely that you use a workstation connected to a LAN if you work in an office environment. An obvious advantage of LANs and Intranets is that they reduce hardware costs by allowing users to share expensive peripherals (e.g. printers) and server resources. A less obvious, but far more important, advantage is that they allow workgroups to share data and knowledge which can do much to improve the overall effectiveness of workgroups, particularly knowledge workers.
1.6.3 The Changing Role of Information Systems in Business
Computer-based information systems (CBIS), supported by networking IT, have already automated much of the routine or clerical work within a business. Such systems also develop a data resource that can be used to quickly produce information for making management decisions. In addition to improving operational efficiency and supporting more effective management decision making, networking has increasingly been used by organizations to develop competitive new products and services that provide them with a strategic advantage in the global marketplace. Today's world network services are major components of products and services of major industries such as banking, air transport, and news broadcasting (and obviously the telecommunications industry itself!). More recently the Internet has provided a low cost means of connecting both to business partners and to consumers, greatly facilitating
electronic commerce (EC) and upstream and downstream supply chain management (SCM).
During the last three decades IT in general, and networking in particular, have continued to improve in functionality (what they can do) and cost-performance ratio (value for money) at an ever-increasing speed. These improvements have been the technological driver for the evolution of, or revolution in, the business applications of information systems. Next we will briefly discuss how 'new' uses of IS have evolved over the last two to three decades. However, it is very important to understand that the newer uses of IS have not made the 'old' uses obsolete. High-volume online transaction processing (OLTP) networks are still required today as much as they were in the 1970s · otherwise you wouldn't be able to get cash out of your bank's ATM machine! The newer applications are usually additions to the older applications, and not replacements for them, in terms of the business requirements they are designed to fulfil.
Data Processing (Mid-1960s to Mid-1970s)
During this period, rapid developments in third-generation computer hardware (integrated circuits) and software (operating systems and languages) and parallel developments in telecommunications made IT much cheaper and easier for business to use. IT started to become widely used by many larger businesses for data processing applications. This class of application focused on reducing labour costs, increasing accuracy, and speeding up clerical and accounting work. The earliest applications were centralized transaction or data processing (DP) systems such as basic record keeping and accounting applications. Networking facilities were soon introduced and extended these basic DP applications into areas such as online airline seat reservation and banking ATM applications. The early data communications networks thus gave rise to a large number of important online transaction processing (OLTP) systems. Many of these old mainframe-based 'legacy' systems are still in use today!
Management Information Systems (1970s)
In the 1970s the focus of the business use of IT moved away from clerical process automation, data processing, and simple general reporting to management information systems (MIS). It focused on improving and speeding up the decision-making processes of specific managers and information workers.
MIS used the data resource created by the DP applications to cost-effectively provide pre-specified summary and exception reports to improve operations and financial management control and decision making. During this period, rapid advances were also made in wide area networking and database technology. Both these technologies were required to support the increasingly complex distributed OLTP systems that were being developed. The data captured by the OLTP system and stored under the control of the new database management systems (DBMS) provided the data resource upon which the management information systems operated.
Personal Support, Group Support and Executive Support Systems (1980s–Early 1990s)
The start of the 1980s saw an increased interest in using IT to improve (individual) managerial and specialist decision making. The development of 4GLs (fourth generation programming languages) and other rapid applications development (RAD) tools made the prototyping approach feasible and facilitated the development of decision support systems (DSS). These were usually interactive, user-controlled systems supporting ad hoc enquiries and providing
support to managerial decision processes.
However, it was the increasing affordability of PCs in the mid-1980s that created a rapid growth in the use of PC-based personal support systems for both information workers and knowledge workers. Shortly afterwards the widespread introduction of LANs created an explosive growth in the number of PCs used by business and caused increased attention to be paid to improving workgroup effectiveness. This movement gained considerable impetus with the release of
proprietary groupware products (particularly Lotus Notes).
This period also saw the movement away from mainframe-centric computing to client-server architectures and enterprise-wide 'internetworks'. Client-server computing and enterprise-wide networks obviously cannot exist without modern networking and its connectivity brought about by open systems and adherence to standards. The introduction of client-server computing and enterprise-wide networks made it possible for users to access a wide variety of different
application servers (including the legacy applications on mainframes) via a Windows-based graphical user interface (GUI) from a single desktop PC (client) connected to a network.
This made it possible (or at least theoretically possible) to have access to all applications and data of an enterprise from a single workstation. This in turn made it possible to develop executive support systems (ESS), also called executive information systems (EIS). Toward the end of this period ESSs were given a boost by the release of data warehousing products which allowed the
data from a large number of separate and previously incompatible databases to be collated and stored in a single data warehouse. These data warehouses were made usable by the development of OLAP (online analytical processing) tools, which allowed the managerial user to easily search through the data in the warehouse.
Intranets, Extranets, and the Internet (1994 Onwards)
The development of Web technology (HTTP and HTML) and the release of the first commercial browsers (Mosaic Communications Company, later to become Netscape, was founded in 1994) led to a phenomenal growth in the usage of public Internet. It also led to an explosive growth in the use of Internet technology by business. The ease of use of the now ubiquitous point and click
Web GUI and the openness of Web technology (resulting in it being relatively cheap) has caused business to rapidly adopt the technology.
One of the first business uses of the technology was to develop Intranets (private corporate Internets) for information dissemination and to support groupwork. As Internet security technology developed, particularly firewall and proxy server technology (which help protect corporate computing resources from unauthorized access over the Internet), businesses started to connect their Intranets to those of their business partners creating Extranets.
Of course, inter-organizational computer networks have been in fairly widespread use for several decades. However, these traditional networks used private circuits or those belonging to VAN (Value Added Network) providers. The cost (and complexity) of using these types of circuits is usually very much higher than using the public Internet. Consequently, many smaller organizations could not afford to link to their business partners via EDI etc. The Internet has
now radically altered this situation.
The Internet also makes it possible for businesses to engage in direct business-to-consumer
EC in all its forms (PR, general marketing and advertising, micromarketing, catalogue and product display, user-driven product customization, sales, electronic payments, distribution (of informational products), general after sales and technical support, etc.).
1.6.4 A Note on Changing Views of the Role of Information Systems in Business
At the beginning of this topic we stated that there have been dramatic improvements in the functionality and cost-effectiveness of IT in general and data communications technology in particular. We also stated that these improvements have been the technological drivers for the evolution of, or revolution in, the business applications of information systems that have just
been outlined above.
However, it is not just technology that determines what information systems are introduced by business and why they introduce them. This issue will be explored in more detail in the later section on 'Developing contemporary business, IS, and IT strategies'.
SELF-TEST 1.3
1. List four applications of networking to illustrate how networks can reduce costs and increase effectiveness.
2. Outline the primary purposes of each of the following types of system:
1. What, if any, networking applications do you personally use in the organization you work for?
2. What other, if any, networking applications are used by the organization you work for?
3. What major networking applications in Hong Kong, provided by other organizations, do you use frequently as an end-user?
COSTS AND BENEFITS OF NETWORKING AND ELECTRONIC COMMERCE
Introduction
This very brief section contains a short overview of the costs and benefits of networking and EC. Many of the main general business benefits have already been discussed in the previous sections. The benefits and costs of particular types of networks and EC applications will be given a more detailed treatment in subsequent units.
However, this section also points out that any major changes to an organization's networks (including the introduction of EC applications) should take place within the framework of a coherent business network plan. It also points out that the firm's business network planning should be part of its overall business, IS and IT strategy formulation and implementation process. This particular subject is covered in the next section on 'Developing contemporary business, IS, and IT strategies'.
1.7.1 Costs and Benefits of Networking
Networking has become so widespread in business that its benefits are generally accepted with little argument. Implementing networks, or improving existing networks, has enormous potential for dramatically improving an organization's competitive position · as we have seen in the previous sections.
However, there can be substantial set-up and operational costs. Conventional WANs that use international networks of leased lines, or even the services of a VAN provider, can be very expensive to set up and very expensive to operate. We will examine these set-up and operating costs, and other networking costs, in subsequent units. All major changes to an organizationÊs networks should take place within the framework of a coherent business network plan, as changes to an organization's networks can have a major impact upon the organization's future performance. The development, implementation, and ongoing monitoring of the firm's business network plan should be part of its overall business, IS and IT strategy formulation and implementation process. This process, which obviously requires managerial resources, will be examined in the next section on 'Developing contemporary business, IS, and IT strategies'.
1.7.2 Costs and Benefits of Electronic Commerce
As you learned in previous sections, the benefits of EC overlap with those obtained from networking. The implementation of EC networks can obviously incur similar costs to those outlined previously. However, bear in mind that implementing EC applications that use the Internet can have substantially lower set-up and operating costs than those that rely upon conventional WANs.
Kalakota and Whinston summarize the many potential benefits and risks associated with the implementation of EC applications as follows:
'Electronic commerce has opened a new universe for consumers and organizations and it demands new management approaches. If exploited cleverly, electronic commerce has the potential to increase profits through better customer acquisition and retention, new information based products and services and more efficient operations.
However, companies must rethink their strategies, products and business processes in order to develop a cohesive management approach. During this effort many difficult questions need to be addressed.'
DEVELOPING CONTEMPORARY BUSINESS, IS, AND IT STRATEGIES
Introduction
In the last topic of the earlier section on ÂThe changing role of information systems in business' you learned that it is not just technology that determines what information systems are introduced by a business. How a business plans to (and does) use technology is of course partly determined by what technology is expected to be (or is) available and how much it costs. But, technology is primarily a tool of business and not an end in itself (except for the increasing
number of businesses that sell IT products and services!).
How businesses choose to use this tool also depends very much upon the following three important factors:
In the last, and main, part of this section you will learn how businesses go about determining what they want to be (i.e. their 'vision') and the planning processes they can use to turn this vision into reality. It is in this sub-section that you will learn about the processes of business strategy formulation, the difference between IS strategy and IT strategy, IS strategy formulation, IT strategy formulation and the important relationships and dependencies between them.
1.8.1 Changes in Views of Information Systems’
Primary Contribution to Business
Earlier in this unit we examined how the nature of the business applications of IT had evolved over the last three decades. In this topic we will examine how views of the primary business contribution of information systems to business have changed over the same period. The views that we are referring to are generally the views expressed in the literature by practitioners and academics.
However, before going any further it is important you understand that the primary role of a particular IS application depends upon when you look at it and how you look at it, i.e. the theoretical framework you choose with which to view it. Today when we look at Citibank's first ATM network through Porter's (1985) competitive forces framework we may see it as an example of a 'strategic system' that gave Citibank a major 'competitive advantage' when they implemented it. It is unlikely that Citibank saw it in exactly the same way when they originally
implemented the system in 1977 · as Porter's work was not published until 1985!
According to the literature, the primary contributions information systems have made to business over the last 30 years appear to have gone through the following five stages:
a means of improving internal business processes (1970s and early 1980s);
In the first part of this phase, the main role of IS was seen as business process automation with the primary aim of reducing operating costs (particularly clerical labour costs). Secondary objectives were improved speed and accuracy of Âclerical workÊ and facilitation of management control.
In the second part of this phase the main role of IS was seen as business process augmentation with the primary aim of improving managerial decision making and knowledge worker effectiveness. Secondary objectives were improved products and services and possible operating cost reductions.
Information Systems as a Competitive Weapon
In the mid-1980s the idea that IS could be used as a competitive weapon was introduced into the literature. Academics, and management, then started viewing information and IS as a strategic resource and a potential source of competitive advantage. IT and IS came to be viewed as an important weapon in the fight against increasing competition.
In the early1990s management continued to focus on information as a strategic resource, but the emphasis shifted to how this resource could be effectively shared to empower staff (e.g. proprietary groupware on LANs).
Information Systems as the Primary Tool for Business Process Reengineering
In the early 1990s the idea of business process reengineering (BPR) was introduced (Hammer and Champy 1993) and rapidly came into vogue in the literature. The primary role of IS and IT began to be seen as being the vehicle for BPR. The aim of BPR was to provide the organization with strategic advantage by fundamentally redesigning business processes to produce dramatic
improvements in product quality (or new products), service, speed, and costs.
The concept of BPR could be viewed as a combination of the business process improvement and competitive weapon views. Note, however, that the Hammer and Champy idea of BPR requires 'fundamental' redesign of business processes, not just the automation or augmentation of existing processes. Today, many authorities believe that continuous incremental BPR is rather less risk-prone and disruptive than one-off 'fundamental' BPR!
Information Systems for Supply Chain Management
The importance of supply chain management (SCM) had long been understood by larger organizations in industries such as automobile manufacturing and air and marine transport. Many of the leading players in such industries had established sophisticated inter-organizational IS, often using EDI, in the 1980s. But the complexity and cost of these private (or VAN-based) networks made them beyond the reach of many smaller businesses.
The introduction of Web technology around 1994 resulted in many businesses implementing Intranets to improve internal communications and group working. By the mid-1990s the Internet and relatively low-cost Internet technology was bringing inter-organizational IS within the reach of even small businesses. It was then only a relatively small step to interconnect the corporate Intranets of business partners in the supply chain into Extranets. Larger businesses and government agencies are currently encouraging their smaller partners and clients to connect to such networks. Obviously, the Internet also makes it possible (and sometimes very profitable) to extend the supply chain to the consumer!
Information Systems for Managing Knowledge and Supporting Virtual Organizations
Managing knowledge. Most advanced economies are now generally regarded as being predominantly knowledge-based economies. It is widely accepted that one of the most important things any organization possesses is things it knows how to do; that is, 'knowledge'. It is, therefore, understandable that the role of IS in knowledge management is now seen as being of great importance.
In order to succeed in a knowledge-based business environment, a company must be able to leverage the knowledge of its own staff and the knowledge of its business partners. Ideally it should be able to leverage the knowledge of its customers also. You will see examples, in later units, where hardware and software vendors leverage their customers' knowledge by means of websites and newsgroups where customers solve each others' support problems!
Sophisticated inter-organizational ISs, often using EDI, have been fairly widely used since the 1980s. However, these types of network were designed for the exchange of highly structured (i.e. predetermined message format) data. They were also designed to let computer systems communicate with one another. They were not designed for the creation or exchange of knowledge. Knowledge is not normally structured like an EDI message.
One particular contemporary technology has the potential to revolutionize knowledge management · WWW technology. This is not surprising since the Web was originally created to help manage the knowledge of a worldwide group of particle physicists.
Supporting virtual organizations. Today, many companies, large and small, are setting up virtual corporations that enable executives, engineers, scientists, writers, researchers and other professionals around the world to collaborate on new products and services without ever meeting face-to-face. Information and ideas can now be shared by means of the Web, email, and other electronic means.
A virtual organization (or virtual company/corporation) is an organization that uses computer networks to link people, assets and ideas. Virtual companies can
have a virtual structure that is based on formal and informal alliances with suppliers, customers, subcontractors, and even competitors. Often a single business may not have the time or resources to develop the manufacturing and distribution infrastructure, people competencies, and information technologies needed to exploit fast changing business opportunities. This network structure makes it easier to create flexible and adaptable virtual companies that are able to exploit such opportunities.
The following extract refers to a virtual organization that was created to solve a cryptographic (code-breaking) challenge issued by RSA Data Security Inc. Although the virtual organization described is not a normal 'business' organization, the extract does indicate, very well, the nature of virtual organizations in terms of the speed with which they can be created, their problem solving ability, and the power of the resources they can jointly muster.
RSA's Secret-Key Challenge Solved by
Distributed Team in Record Time
TechMall (8 Apr 1999)
The distributed.net organization utilizes the idle time of computers throughout the world to solve particularly arduous computing tasks. For the DES Challenge II, the team managed to coordinate the efforts of 22,000 participants throughout the world, linking together over 50,000 CPUs to power through 62 quadrillion possible keys. One by one, the computers crunched through all possible combinations until the winning key was found to decode the message encrypted with the DES algorithm.
The message discovered read "Many hands make light work".
The distributed.net team started the project immediately after the DES Challenge II was announced on January 13, 1998 at RSAÊs Data Security Conference in San Francisco. The team searched over 61 quadrillion, 254 trillion keys at a peak rate of 26 trillion keys per second.
TechMall (8 April 1999)
Business Drivers and Their Effect on Business Planning
Laudon and Laudon (2000) identify a number of important changes that started taking place in the business environment, particularly since the early 1990s.
These include the following:
Globalization
and to accomplish the realization of the vision through the best possible strategies and tactics.
Callon (1996) describes some of the typical organizational responses to these business drivers and how and why businesses are making them as follows:
'For example, to pursue new markets and opportunities while also achieving a competitive cost structure companies are resorting to decentralization of authority and responsibilities, downsizing, outsourcing, business partnering and corporate alliances through mergers
and acquisitions. Business processes are being reengineered, redefined or improved through an emphasis on quality. Companies are frequently rethinking the responsibility and accountability of employees and resorting to cross-functional teams, quality circles and other forms of
empowerment. The ability of each employee to exhibit a particular skill or capability may be seen as necessary to respond to market conditions. Business and societal pressures are also making temporary or contract employees a permanent fixture in workforce restructuring. Products are being customized to markets and specific customers and designed to
meet global standards, with a major emphasis on programs that provide value-added services. Micro marketing, the ability to identify that set of potential customers who represent the biggest opportunity, has become an important dimension of this approach.
All these responses add up to attempts to find better ways to compete by decreasing time cycles, improving organizational flexibility and improving responsiveness to customers. Key to accomplishing this is getting the right message to the right people and providing the necessary
resources to implement and support both strategies and tactics. A question in discussing the why of planning is whether all these factors have tipped the scales in favor of short time schedules, flexibility and responsiveness so that business planning is no longer practical, feasible,
or effective. Have we reached the point where things are happening so fast, product cycles are so short and the need to respond to customers on a specific basis so imperative that planning just gets in the way? Planning advocates are adamant that because of the pace you have no choice · an organization must do an effective planning job or get lost in the maze of increasing complexity. However, this planning job must be true business planning and not a budget or financially driven effort.....
.... So what does one conclude from all this? Business planning at a high level is more critical than ever. Leaving room for local adaptation and specific implementation is equally important. Doing great things within the context of a strategy is what you really want. If information systems
are to be an integral part of the implementation, then they need to be addressed at the same high level, at least in terms of the role they will play.'
BUSINESS, IS, AND IT STRATEGY FORMULATION AND THEIR INTERRELATIONSHIPS
This sub-section starts by presenting a brief 'Introduction to strategic planning' that begins with a hypothetical case study that illustrates the potential for integrating IT planning with organizational strategic planning and demonstrates how organizational goals can be achieved through telecommunication-based systems. It then outlines a possible approach to the process of strategic planning. Then a discussion on ÂContemporary approaches to business, IS, and IT strategy planning' follows.
Introduction to Strategic Planning
The Chin & Lee Co. Ltd · a hypothetical case study. The following case, though based on a real situation, is a hypothetical illustration of the potential for integrating IT planning with organizational strategic planning. It also demonstrates how organizational goals can be achieved through the use of telecommunication-based systems.
'Our business exists to provide quality electronic products to the wholesale and retail trade with the best service available and at highly competitive prices, all in the best interest of our customers, employees and shareholders.'
With that first step taken, the company began a lengthy process of strategic planning in order to fulfil that statement about its purpose in the Asian economy. During meetings over the next nine months, all the firm's managers put forth their goals, objectives and suggestions that would
support the new direction.
Some of the most surprising and profitable suggestions came from an unexpected source. The companyÊs small data processing (DP) facility was used primarily for transaction processing, and Steve Chan had recently been hired to take over DP. But when George Yu arrived, SteveÊs title was promptly changed to Information Systems & Technology (IS&T) Manager. With Steve promoted to the top management team, a whole new perspective was injected regarding the use of technology to enhance the organization. One of the primary goals, for example, incorporated into the strategic plan was to improve customer service by reducing the time from when customers place orders to the time they receive the products. The week following this goal's
acceptance by the management team, Steve came back with two objectives to support and fulfil the goal.
1. Shorten time to acknowledge orders from nine days to one day by automating customer-order entry via customer-direct entry at in-store terminals. Terminals will communicate with Chin & LeeÊs IS&T computer systems over ordinary dial-up lines.
2. Shorten time to deliver orders from six days to one day by expediting and automating order approval, warehouse notification and despatch.
As a result of these two objectives, the company would be able to deliver products to customers in the Hong Kong metropolitan area within two days, which was 14 days faster than the current time, and ten days faster than the industry average! Both these objectives would require substantial capital and development investments from the company. However, Steve was recommending a pilot project that he hoped would prove the effectiveness of the concept. If it worked, there would be no problem getting both company management and customers to agree to the changes required.
Within eight months Steve Chan and his development team had completed the advanced prototype software systems and were ready to test them with three customers who had agreed to act as test sites. After six months of operation and numerous modifications to the system based on customer feedback and the efforts of IS&T operational staff (primarily to improve performance, ease of use, and add functionality), the system was ready for full implementation. Test site results had shown that Steve had been accurate in his estimates of the potential, even erring on the conservative side. As it turned out, many customer orders were delivered
within 24 hours of the order being placed by the client store. The customers were pleased, since it meant they would not need to carry as much stock as before. The improvement was so dramatic that customers could hardly believe the difference. During the six-month test period, the three customers saw their average stock holdings decline from $2,500,000 to less than $1,000,000! In addition, the cost of order entry for Chin & Lee had declined on the test order system from $12 per order to only $2. This dramatic decrease was the result of data entry performed and validated by customer personnel from in-store terminals over dial-up lines directly into the IS&T minicomputer.
When the company marketing people got hold of these statistics, it did not take them long to see the potential for selling customers on the idea. In-store terminals cost only $5,000. The Chin & Lee sales people guaranteed that customers would recoup that cost within the first month through stock reductions, and customers did not have to pay for the terminals until that first month was over. It was an offer that could not be refused, and most of the existing customers, and many new ones, accepted it. What a change! Sales began to skyrocket as customers found that it was easier to place one automated order to Chin & Lee than multiple orders to the
competition. Quick, accurate delivery, very competitive prices and the best of service strengthened this position each month.
By the end of the first full year in operation, the new automated ordering system had fulfilled the original goal and objective beyond the wildest dreams of top management, and many new opportunities were arising each month because of the new relationship established with customers.
The process of strategic planning. You first need to know what the process of strategic planning involves, and then you should understand how modern telecommunications systems can help support and achieve organizational strategy.
The process of strategic planning must have a hierarchy of purpose or direction including:
1. the clearly defined ÂmissionÊ, or primary purpose, of the organization;
2. a description of the major overall goals that will help to achieve the mission; and
3. a precise listing of the specific, realistic and measurable objectives that will allow the organization to achieve its goals.
You can see an example of this hierarchy in the Chin & Lee Co. Ltd case. Notice how each higher-level purpose is supported by the lower-level, more detailed statement. Look closely at three items in the hierarchy listed below:
Mission statement: 'Our business exists to provide quality electronic products to
the wholesale and retail trade with the best service available and at highly competitive prices, all in the best interest of our customers, employees and shareholders.'
Goal: 'To improve customer service by reducing the time from when customers place orders to the time they receive the products.'
Objective: 'Shorten time to acknowledge orders from nine days to one day by automating customer-order entry via customer-direct entry at in-store terminals. Terminals will communicate with Chin & Lee's IS&T computer systems over ordinary dial-up lines.'
This strategic planning process is used to concisely direct the development of:
is usually shorter (a few months to one year) than the planning cycle for strategic planning which is usually three to five years. Tactical planning involves creating a blueprint to achieve the objectives. This blueprint should include the following key elements:
1. What: steps of action that need to be achieved.
2. Who: person or persons responsible for achieving specific steps of action.
3. When: specific target dates for achievement of the actions.
4. How: resources required to support and achieve the steps of action.
5. Where: place where action is to be performed (may be geographic or organizational).
Such planning, when integrated with IT strategy, can maximize the leverage gained through investments in networking. Integrated planning can open up new business opportunities, help gain advantage over competitors, increase organizational responsiveness, enhance current strengths and overcome existing weaknesses.
THE DIFFERENCE BETWEEN AN IS STRATEGY AND AN IT STRATEGY
We have discussed the difference between information systems (IS) and information technology (IT) under the section on ÂThe changing role of information systems in businessÊ. From the definitions we can see that IT provides the technological infrastructure upon which ISs are built. Usually IT, by itself, provides no direct benefit to the business. It is the application of the IT, as
part of an IS, that provides benefit.
Therefore, the information system, or IS, strategy defines what is required in terms of the processing of information. The IS strategy often focuses on aligning planned IS provision with the business goals and information needs outlined in the organizationÊs business strategy. The IS strategy may also identify and develop means of exploiting competitive opportunities, which may involve the processing of information or the exploitation of new IT.
The information technology, or IT, strategy defines the means of delivering the requirements as specified by the IS strategy. It is an enabling strategy, providing the ways that the competitive advantages identified in the IS strategy can be achieved with information technology, reliably and within budget.
In general terms, the IS strategy defines the wants, and the IT strategy subsequently defines how those wants will be provided. Ideally, the IS strategy will be driven by the business plan of the organization and will, in turn, influence that plan. Similarly, the IT strategy will be driven by the IS strategy and will, in turn, influence that strategy.
The IT strategy sets guidelines within which the IT developments of a business take place. The result of an effective IT strategy is the development of plans, standards and procedures that provide the delivery mechanism for cost-effective implementation of the IT aspects of the organizationÊs IS strategy. As such, it is an essential part of long-term planning within a business.
Clearly the formulation of an IT strategy is very closely associated with the formulation of an IS strategy. In turn, the formulation of an IS strategy is very closely associated with the formulation of a business strategy. Next we will briefly examine the nature of these important associations and dependencies.
Today it is essential that the IT planning process progresses in full knowledge of the current and expected developments in information technology in general and networking and EC in particular.
CONTEMPORARY APPROACHES TO BUSINESS, IS, AND IT STRATEGY PLANNING
Levels of business, IS and IT planning. IS planning should be integrated with the overall business planning process. The traditional way of doing this is to start with the creation of a strategic business plan and then develop an IS plan that aligns with, and is integrated with, the business plan. Then an IT plan is created that aims to provide a basic infrastructure upon which the IS plan can be implemented.
Different types of technology provide the organization with the basic IT infrastructure upon which business applications are subsequently built that provide direct benefit to the organization. It is very important that the overall architecture of this IT infrastructure is planned in an integrated and cohesive manner. The IT architecture plan provides a blueprint to guide how these infrastructural technologies should be designed, implemented and integrated for
the future. Clearly, the future applications and services that will be required by end-users cannot be provided when they want them and where they want them unless the underlying infrastructure is already in place. The same holds for urban developments in Hong Kong (and everywhere else). You cannot provide a new airport service until the road and rail infrastructures that get people to and from the airport are in place. Infrastructures do not just materialize out of thin air; they first have to be planned and then implemented!
Tactical IS and IT plans logically follow on from the strategic IS and IT architectural plans. These tactical plans can include time targets and budgetary plans, skill and IT procurement requirements, etc. The IS planning process concludes with implementation plans for specific IS projects (e.g. developing new applications systems) and IT projects (e.g. implementing a new DBMS or network).
IS planning: alignment and impact approaches. So far we have stressed the importance of aligning IS strategy with business strategy. We have also stated that it is ÂnormalÊ to first determine the business strategy and then develop an IS strategy that is in alignment with it. It is always true that the two types of strategy should be aligned and closely integrated. However, it is often desirable for IS and IT factors to be taken into account during the business planning stage as opposed to just developing an IS strategy as a passive response to a previously
formulated business strategy.
New developments in IT often present companies with the opportunity to obtain competitive and strategic advantage. It is, therefore, becoming increasingly common for companies (particularly those in IT and information intensive industries such as banking) to incorporate IS and IT factors into their business strategy planning exercises. When this occurs, IT developments can sometimes impact or even drive future business strategy.
In practice, however, most organizations that are fairly mature in their usage of IT use a combination of both the 'alignment' and 'impact' approaches mentioned above. This combined mpact/alignment approach is illustrated diagrammatically in Figure 1.1 below. This approach can be used to develop effective business strategies and the necessary IS to support them. It also
facilitates the identification of new IT opportunities that can be fed into the business planning process such that these can have a major impact upon the final outcomes of the process.
Business
Strategy
IT Strategy
IS Strategy
Business Processes
and
Organization IS Architecture
and Organization
IT Architecture and Organization
IT Opportunities
Impact
Business Domain
IT Domain
External
Development in IT
Create
Determines
Supports
Alignment
Supports
Figure 1.1: The combined impact/alignment approach to IS/IT planning The approach illustrated above identifies the relationship between the business and IT domains. It formulates business strategy and determines how business processes and organization need changing to best achieve the strategy. These planned business changes then prompt the required alignments to the IS architecture and organization. The required changes to the IS architecture (e.g.
applications portfolio) and organization (e.g. staffing and organization structure) may then prompt the required changes to the IT architecture (e.g. network, database, and computer system configuration architectures) and organization (e.g. applications development approaches and standards).
The approach also identifies how the IT domain can impact upon, or drive, the formulation of business strategy. The outcomes of the process of identifying important external developments in IT will feed into the processes of planning future IT and IS strategies. In turn, these three processes, taken in combination, will identify potential future business opportunities that could be provided by IT. These IT opportunities can then be used to impact or drive the business strategy planning process.
In 1991, Cathay Pacific was planning to react to the threat to its air-cargo business posed by the US air-express courier companies, such as UPS, which were becoming increasingly global in their operations. Therefore, a group of airlines that includes Cathy Pacific has grouped together to create a cargo information network.
The article was extracted from Cathay's 1997 WWW pages and describes the background and 1997 status of the Traxon system and Cathay's air-cargo services. The second sub-section entitled ÂUsing the Internet to extend the supply chain to the customer' describes the current status of Traxon using material obtained from the Web.
The first section provides a good example of how computer networks can help to improve the quality of service offered and to develop new services in order to counter competitive threats. The last sub-section shows how Traxon and SNS Systems (the American equivalent of Traxon) have created a global Extranet to extend their supply chain to their customers via the Internet.
Since 1984, CUBIC has become an integral part of Cathay Pacific's fully computerized cargo service. Each airwaybill can be booked on the selected date and sector with instant confirmation of space. Once booked, the cargo's journey is recorded at every stage, through departure and trans-shipment in Hong Kong to arrival at its final destination and delivery to the consignee.
Cargo agents can immediately determine where their shipments are at any stage. Cargo details can be forwarded prior to departure for pre-arrival customs clearance at the final destination.
In April 1990 Cathay Pacific joined forces with Air France, Japan Airlines and Lufthansa to establish a Global Logistics System known as TRAXON, developed to provide fast and accurate cargo information and logistics support to all sections of the air cargo industry worldwide. By mid-1995, the total number of airlines connected by TRAXON amounted to 17 · that's
most of the world's airfreight, with distribution in more than 30 countries.
There are currently 424 CUBIC display units in 64 sites around the Cathay Pacific network. Since May 1993, 1680 agents in 3850 sites have been connected with CUBIC through TRAXON enabling them to make direct booking entries and gain instant access to flight information. Enhancements to the system since its inauguration have resulted in instant and automated
printing of airwaybills, production of sales reports and generation of management data.
Product & Services
At Cathay Pacific Cargo, we believe in providing the widest possible range of service options to meet the growing needs of our customers. That's why we've created Cathay Pacific Cargo Express. A range of express services designed to help your packages and cargo arrive faster, and in better shape than ever before. Cathay Pacific Wholesale Courier and Cathay Pacific Cargo Express make up the two main arms of the Cathay Pacific Express package.
Cathay Pacific Wholesale Courier, this service offers the unmatched speed of an onboard courier with even faster customs clearance, reduced transit times and minimal documentation.
Cathay Pacific Cargo Express provides rapid airport-to-airport package delivery
Traxon at Present: Using the Internet to Extend the Supply Chain to the Customer
Today the Traxon EDI network interconnects airlines and freight forwarders allover the world as shown in Figure 1.2 on the following page.
Figure 1.2: The Traxon network (Jan 2002)
OBC is a wholesale courier service operating between Hong Kong and Bahrain, Bangkok, Dubai, Frankfurt, Jakarta, Johannesburg, Kuala Lumpur, London, Los Angeles, Manchester, Manila, Osaka, Paris, Seoul, Singapore, Sydney, Taipei, Tokyo and Vancouver. This service is now available to all courier, express and general freight forwarders.
Cathay Pacific Cargo Express provides rapid airport-to-airport package delivery
with unrestricted shipment size, priority dispatch and quicker clearance.
http://www.cathypacific.com/cgo/interactive/00,,16555,00.html (Jan,2002)
In October 1998 Traxon Europe (Oct. 1998) announced that it had launched a new Internet homepage together with its American counterpart SNS Systems. This homepage () lists links to the following airlines.
Air Canada
Air France
Air Hong Kong
All Nippon Airways Co. Ltd
British Airways
Cargolux Airlines International SA
Cathay Pacific Airways Ltd
Emirates
Finnair Oy
Hong Kong Dragon Airlines
Japan Airlines Co. Ltd
Japan Asia Airways Co. Ltd
KLM Royal Dutch Airlines
Korean Airlines Co. Ltd
Lufthansa Cargo AG
Martinair Holland NV
Nippon Cargo Airlines Co. Ltd
Northwest Airlines, Inc
Qantas Airways Ltd
Royal Air Maroc
Scandinavian Airlines System
Singapore Airlines
Swissair
United Airlines
Varig SA
Customers, who are mainly freight forwarding businesses, can follow these links to a particular airline to request up-to-the-minute flight schedule information and freight shipment status. The following screenshot (Figure 1.3) shows the enquiry screen obtained by following the link to Cathay Pacific.
Figure 1.3: The Cathay Pacific Internet enquiry page
This Internet enquiry service has been developed due to the fact that an increasing number of freight forwarder customers now prefer to use the Internet for this type of status enquiry instead of the traditional EDI connections via host to host computer links.
Customers can also obtain online freight shipment status from 25 airlines via Internet email using Traxon's FSR (freight shipment status request) facility. The FSR facility allows customers to send several status requests to different Traxon airlines at one time. Traxon then automatically translates the email enquiries into EDI message formats and distributes them to the airlines' computers. The Traxon system then translates the EDI format answers, received from the airline' computers, back into email format and sends the emails to the customer who
made the enquiries. Customers do not require any special applications software to use this service other than Internet email access (and a subscription to Traxon).
ACTIVITY 1.4
Cathay's traditional (prior to 1990) air-cargo business was concerned with selling air-freight space, on Cathay routes, to wholesale air-freight cargo agents and shippers. These agents would collect and consolidate and arrange delivery of shipments from individual retail customers. The international expansion of the US air-express courier companies
posed a threat to their business as they had an extremely effective distribution network in the US and provided a service directly to the retail customers.
SUMMARY
In this unit you were first provided with an introduction to networking and electronic commerce (EC). You were then reminded of the importance of strategic planning in the contemporary business world and learned of the interrelationships of business, information system (IS), and information technology (IT) strategies.
Then you studied two brief sections that gave you an introduction to the meaning and scope of the terms 'computer networks' and 'electronic commerce'. In the second part you learned why networks and electronic commerce are so important in the contemporary business world. This part also explained how electronic commerce can be used to improve supply chain management (SCM).
In the third part of the unit you studied introductory sections on 'Future trends
in networking and electronic commerce' and the 'Costs and benefits of networking and electronic commerce'.
In part four of this unit you studied a fairly long and very important section that explained why business, IS and IT strategies must be interrelated together with a number of planning approaches designed to facilitate this process. Lastly, you were presented with a case study that demonstrated how Cathay Pacific (and its business partners) had used computer networks to develop the Traxon system.
Many of the topics and issues raised in this introductory unit will be revisited and covered in considerably more depth in later units of this course. This glossary provides definitions for some key words and phrases used in this study unit.
When a definition in this glossary contains terms shown in inverted commas it indicates that those terms are also defined in this glossary. You may need to refer to their definitions to fully understand the definition that contains them.
Asymmetric Digital Subscriber Lines(ADSL)
· A specific type of 'xDSL' service used to provide high-speed transmission services over short
distances. See also 'xDSL'.
Applet · A small Java program that resides on the network in a centralized server but actually runs on the client. The network delivers them to the client machine only when requested.
ARPAnet · Advanced Research Projects Agency network:
originally developed by Xerox and then taken over by the US Department of Defense to become DARPAnet. Upon cessation of the Cold War some of the DARPAnet network came into the public domain and provided the foundation for the modern Internet.
Asynchronous Transfer Mode (ATM)
· A relatively new technology intended for very high-speed data transfer. Speeds of 155 Mb/sec to 2.4 gigabits/sec. are possible using ATM over fibre optic media. It is capable of handling real-time voice and video traffic, as well as data. It is sometimes referred to as BISDN (Broadband ISDN).
Automatic Teller Machine (ATM) networks
· Networks that interconnect Automatic Teller Machines (the banking/cash dispensing machines
that can be used by the public) to a bankÊs retail banking applications.
Client-server network
· A computing environment where end user workstations (clients) are connected to micro or
mini LAN servers and possibly to mainframe super-servers.
Common carrier ·
An organization that supplies communications services to other organizations and to the public as
authorized by government agencies.
Competitive advantage
· Developing products, services, processes, or capabilities that give a company a superior
business position relative to its competitors and other competitive forces.
Competitive forces ·
A firm must confront (1) rivalry of competitors within its industry, (2) threats of new entrants, (3) threats of substitutes, (4) the bargaining power of customers, and (5) the bargaining power of suppliers.
Connectivity · In a computer network connectivity provides the means by which computing resources are able to communicate with one another, including both the physical connections to all attached devices and the logical communications between those devices.
Consumer loop · The last part of a telco telecommunication circuit that connects the consumer's home or office to the telcoÊs local exchange or the switch that is closest to the consumer's home.
Cybermediary · Fulfils the role of informational middlemen who facilitate EC. Cybermediaries include companies like Yahoo which provide search engine services, VeriSign, which issues and authenticates digital certificates, and companies that issue digital cash.
Deregulation · In 1984 the US Justice Department deregulated the US telecommunications industry by forcing AT&T to give up its monopoly and allow competing firms to sell telecomms. services and equipment. Similar deregulation has since taken place in many European and Asian countries, including Hong Kong.
Disintermediation · The process of cutting out middlemen (or intermediaries) that occurs when the supply chain is contracted.
Electronic Commerce (EC) · The delivery of information, products/services or payments via telephone lines, computer networks, or any other (electronic) means.
Electronic Data Interchange (EDI) · The transfer of structured trade data, by agreed
message standards, from one computer system to another, by electronic means.
Electronic fund transfer point-of-sale · Use of electronic payment methods, such as credit
or debit cards at the 'point-of-sale (POS)' for immediate credit to the seller's account.
Entry barriers · Technological, financial, or legal requirements that deter firms from entering an industry.
Ethernet · A data link protocol originally designed by Xerox (and brought to the market by Xerox, Intel, and DEC) that used the 'CSMA/CD' contention resolution technique. It originally employed
coaxial cable (twisted pair is now usually used) in a bus topology and operated at 10 Mbps. It can now also use a star topology.
Extranets · The extension of a private Intranet to one's business partners. Extranets are direct network links between two or more Intranets.
goals · In the context of business planning a goal is one of the overall aims of the organization that will contribute (together with the organization's other goals) to the achievement of its 'mission'.
HTML (Hypertext Mark-up Language) · A language used for defining the structure of
documents and pages that are stored on 'Web servers' for subsequent transmission to client
browsers under 'HTTP'.
HTTP (Hypertext Transfer Protocol)
· An application-level protocol that is used on the 'World Wide Web' to store and distribute 'HTML' pages.
Intelligent Network (IN) · An intelligent network can be defined as 'a telecommunications network control architecture that is a generic platform for open, distributed,
service-independent communication'. In other words, it is a structure for the control of a
telecommunications network which allows services to be added in a uniform way, regardless
of the structure of the underlying network.
Intranet · A private corporate network that utilizes Internet software technology such as browsers and Web authoring and publishing tools.
Internet · A public interconnected global network of networks consisting of tens of thousands of packetswitched networks using the Internet protoco ('TCP/IP').
Integrated Services Digital Network (ISDN)
· A relatively new data transmission service capable of carrying a wide range of signals, including text, graphics, voice and video, through the same circuits.
Just-In-Time (JIT) · An approach to manufacturing in which workers, components, and plant are allocated to a manufacturing or assembly step at the latest possible time to meet the production schedule. The two main purposes of this approach are to make production scheduling more flexible (and responsive to market demand) and to make the manufacturing process itself more efficient.
Knowledge workers · People whose primary work activities include creating, using, and distributing information.
Local Area Network(LAN)
· A communications network that typically connects computers, terminals, and other computerized devices within a limited physical area such as an office, building, manufacturing plant, or other work site.
Location services · Services and tools that are provided (on the Internet) to help users find the information they require easily and quickly. Examples include search engines such as Yahoo and meta search engines such as Dogpile.
Mission · In the context of business planning an organizationÊs mission is its overall purpose or
reason for existence.
Objective · In the context of business planning an objective is a specific, realistic and measurable target that will contribute to the achievement of one or more of the organization's 'goals'.
Point-of-Sale (POS) · Point-of-sale (POS) systems usually capture the details of products sold at a retail outlet by reading bar coded product identification labels at the checkout. POS systems often make use of large networks to interconnect the host computer located at the company's head office, the middle level computers located at the regional distribution warehouses, and the POS computers located in the individual supermarkets in each region.
Post, Telegraph and Telephone authority (PTT)
· Before 'deregulation' the provision of all national public telecommunication services was controlled by single'common carriers' (e.g. AT&T in the US and Hong Kong Telecom in Hong Kong) or by a single government controlled PTT (e.g. the Bundespost in Germany and the NipponTelephone and Telegraph Public Corporation in Japan). These single common carriers and PTTs were in effect government controlled monopolies (because of government regulations).
Strategic information · systems Information systems that provide a firm with competitive products and services that give it a strategic advantage over its competitors in the
market-place. Also, information systems that promote business innovation, improve operational
efficiency, and build strategic information resources for a firm.
UNIT 1 INTRODUCTION TO NETWORK APPLICATIONS 48
Strategic planning · The process of identifying opportunities with strategic business potential, as well as a firm's ability to exploit such opportunities with IT.
Supply chain management (SCM)
· SCM involves collaboration between trading partners throughout the supply chain in order to
improve the flow of goods, information and funds.
System · (1) A group of interrelated or interacting elements forming a unified whole. (2) A group of interrelated components working together toward a common goal by accepting inputs and producing outputs in an organized transformation process. (3) An assembly of methods, procedures, or techniques unified by regulated interaction to form an organized whole. (4) An organized collection of people, machines, and methods required to accomplish a set of specific functions.
Transmission Control Protocol/Internet Protocol (TCP/IP)
· A network/transport protocol originally developed by the US DoD and now used as the
standard protocol for Internet and also used by UNIX.
TCP/IP protocol suite
· A group of Internet applications protocols now usually provided along with ÂTCP/IPÊ, including FTP (file transfer protocol),ÊHTTPÊ, SMTP (Simple Mail Transfer Protocol) and NNTP (Network Newsgroup Transfer Protocol).
Telecommunications company/telco
· A term now used, and used in this unit, to describe the various types of organizations that provide telecomms. services to the public. Prior to deregulation these were always common carriers or PTTs. Since deregulation most countries have several telcos that compete for the available telecomms. services market.
Telecommunications authority · See ' Post, Telegraph and Telephone (PTT) authority'.
Value Added Network (VAN)
· A private, multi-path, data-only third party managed network that is used by multiple
organizations on a subscription basis.
Virtual enterprise · A form of organization that uses IT and networks to link the people, systems, and knowledge of a variety of business partners, regardless of where they are physically located, in order to exploit a business opportunity.
Vision · When used in the context of business planning refers to a high-level view of the organization that embodies its ÂmissionÊ and ethos.
Wide Area Network (WAN)
· A data communications network covering a large geographic area.
x Digital Subscriber Line (xDSL)
· A general type of high-speed transmission service that can be used over short distances. This
technology will most likely be implemented in established telco networks with existing fibre optics links but they will allow the final link to the subscriber to utilize the existing copper wire loops for distances of up to a few miles from the nearest existing fibre optic switch. See also 'Asymmetric Digital Subscriber Lines (ADSL)'.
Self-test 1.1
1. LAN WAN Distance covered
A single building (or several closely grouped buildings such as a university campus).
Several miles to thousands of miles.
Circuit ownership
the business (or university etc.)
Telecomms. Service providing companies (telcos).
2. The three important components are:
Self-test 1.2
1. The three major categories of EC applications are:
2. Examples of EC applications in the banking industry include:
Automatic teller machine (ATM) networking applications that allow the bank's retail customers to interact directly with the bank's computer systems. (Hong Kong's EFTPOS network provides a single example of all three categories!)
Self-test 1.3
1. Examples of networking applications include:
2. MIS (Management Information Systems): improving and speeding up the decision-making processes of specific managers and information workers. Personal support, group-support and executive-support systems: improving specialist decision making (DSS), improving workgroup effectiveness (group-support systems and groupware), and executive decision support (data warehousing and OLAP).
Intranets, Extranets, and the Internet: information dissemination and to support groupwork (Intranets), low cost inter-organizational networks to link to business partners (Extranets), direct business-to-consumer EC in all its forms (the Internet and the Web).
Self-test 1.4
1. To improve the collaboration between trading partners throughout the supply chain so as to improve the flow of goods, information and funds.
2. EC technologies and services provide the means by which trading partners can create the effective inter-organizational systems that are the foundation of EC.
3. In the past the cost and time required to establish the required systems and interconnecting EDI links (and the costs of their subsequent operation) was beyond the resources of many smaller businesses. The Internet and new Internet-based EDI services have now dramatically reduced the costs, time and effort required to establish and operate these supply chain links. In particular the recent introduction of Web-enabled EDI packages and services has now brought SCM technology within the reach of smaller businesses.
4. Disintermediation is the process of cutting out intermediaries (middlemen) from the traditional supply chain. In the past, many industries, such as the software industry and the airline industry, relied upon intermediaries, such as retail stores and travel agencies, to sell their products and services to the end consumer. This used to be necessary because the airlines and software companies could not afford to lease and staff retail outlets and booking offices in every city and major town in the world. However, the Web now makes it possible for software companies and airlines to market and sell the products and services directly to their customers without the use of the traditional intermediaries.
(All established businesses that trade in informational services such as banks, stockbrokers, real estate agents, music retailers, video hire chains, as well as travel agents and software distributors, are now likely to see their businesses threatened by new entrants that are Web-based also.)
Self-test 1.5
1. The five stages are:
2. A mission statement is a clear short definition of the primary purpose of the organization and the reason for its existence. (Mission statements are supposed to be very long-term and be elevant to the organization for at least the next decade or so. To some authorities, if a business changes its mission it ceases to be the business that it used to be.)
A goal is a description of one of the overall major business aims that the organization should fulfil in order to achieve its mission. (Goals are fairly
long-term and usually cover a strategic planning period of three to five years.)
An objective is a specific, realistic and measurable business outcome that must be fulfilled in order for the business to achieve one of its goals. (Several objectives are usually identified for each goal. A particular objective is often fairly short-term and is planned to be satisfied within the next year or two.)
3. The IS strategy defines what is required in terms of the processing of information. It often focuses on aligning planned IS provision with the business goals and information needs outlined in the organization's business strategy. It may also identify and develop means of exploiting
competitive opportunities, which may involve the processing of information or the exploitation of new IT.
The IT strategy defines the means of delivering the requirements as specified by the IS strategy. It is an enabling strategy, providing the ways that the competitive advantages identified in the IS strategy can be achieved with information technology, reliably and within budget.
4. New developments in IT often present companies with the opportunity to obtain competitive and strategic advantage. Thus IT developments can sometimes impact or even drive future business strategy. (Of course this can only happen if the business makes the effort to identify
these developments and takes them into account when formulating its business strategy.)
Case Study
1. It formed strategic alliances with other major airlines to extend its cargo route network and this was been made logistically possible by their joint use of the Traxon system and network.
It developed a new air-courier service which was supported by Traxon. It improved the overall effectiveness of its cargo and courier operations and
tracking services by the Traxon network.
2. They have created a new business alliance and a combined website with their American counterpart, SNS Systems. This new website allows their freight forwarding customers, all over the world, to submit enquiries for flight schedules and the status of their freight shipments.
They have done this (in addition to providing their customers with a better service) because an increasing number of their customers prefer to use the Internet for this type of enquiry as opposed to traditional host-to-host based EDI communications.
[You should realize that freight forwarders will have their own customers making enquiries regarding the status of expected shipment deliveries etc. Clearly, the freight forwarders will be able to provide a better service to their own customers because of the Traxon Internet enquiry system. This, in turn, will help lock in TraxonÊs freight forwarding customers.]
By the end of Unit 1, you should be able to:
1. Describe the concept of strategic planning for a business organization;
2. Explain how and why computer networking forms a crucial part of the strategic plan for a typical business organization today;
3. Identify three specific industries where electronic commerce (EC) technology shows maximum potential; and
4. For a given industry, describe one application of EC that might play a powerful role in re-shaping that industry.
INTRODUCTION
The aims of this first unit are twofold. First, it aims to provide you with an introduction to networking and electronic commerce (EC). Second, it aims to remind you of the importance of strategic planning in the contemporary business world and explain the interrelationships of business, information system (IS), and information technology (IT) strategies. The first part contains a brief introduction to computer networks and electronic commerce (EC).
In the second part you will learn why networks and EC are so important in the contemporary business world. It contains some very important material as one of the main objectives of this course is that you should learn to be able to identify and evaluate alternative networking/EC solutions and strategies to achieve organizational effectiveness and competitive advantage.
INTRODUCTION TO COMPUTER NETWORKS
In this unit, you will be introduced to computer networking and electronic commerce (EC). You will also learn about the important interrelationships between business strategy, information system (IS) strategy, and information technology (IT) strategy.
A computer network is essentially just two or more computers connected together by some form of telecommunications medium. Without telecommunications and networking, IT as we know it today would not exist. The convergence of the technologies of computers and telecommunications means that computer systems are now the primary tools with which staff
communicate within a department, within a firm, or around the world. Networking is also being increasingly used, in business, to connect the firm directly to both its suppliers and its customers. As consumers we have taken it for granted, for more than two decades, that we can use global computer networks for our airline ticket reservations and ATM (automatic teller machine)
transactions.
Business has long realized that effective communications mean lower costs, better control of resources and the ability to reduce expenses in many ways. However, within the last ten years there has been an increasing awareness in the business community that the innovative use of networking can give, and has given, forward looking organizations tremendous competitive advantages. Classic examples include American AirlinesÊ first online seat reservation system
· SABRE, Citibank's first ATM network, and BaxterÊs innovative online ordering and distribution network.
As businesses are increasingly being forced to compete internationally, their ability to use networking and EC has become a critical factor in maintaining not just their profitability but also their competitive edge and, ultimately, their survival.
For the time being you can assume that all examples of the use of networking mentioned above are also examples of the use of EC. (Later in this unit you will learn what is meant by the term 'electronic commerce' (EC) and the fact that networking and EC are inextricably linked.)
Today, we take it for granted that we can communicate freely from our desktop with more than 400 million people over the Internet. The business world has also realized that the Internet is now creating exciting new business opportunities because of its very rapidly increasing popularity and its global availability brought about by its open architecture. Even though there was a crash in the high-tech and EC-related stock market and we have seen the bankruptcy of the so-called 'dot-com' companies in the year 2000, we are still optimistic about the future development of EC. This is based on the fact that the trend of the growth of global Internet access has not slowed down. By the end of the year 2000, there were over 510 million people (NUA Surveys, Aug. 2001) with access to the Internet. Internet technology has already had a very major impact on intrabusiness EC in the form of Intranets and business-to-business (B2B) EC is still growing at a fast rate.
In this unit you will learn of the importance of IS and IT strategic planning for business organizations to achieve organizational effectiveness and competitive advantage. You will learn the ways in which IS/IT can contribute to business and the process of IS/IT strategic planning. You will be presented with contemporary approaches to business, IS and IT strategy planning which can help you to identify and evaluate alternative networking and EC solutions for future
business opportunities. This is one of the primary objectives of this course.
INTRODUCTION
This section provides you with a brief introduction to computer networks. Itcontains four sub-sections:
- General characteristics of computer networks
- LANs
- WANs
- How technological advances and deregulation have driven the telecommunications revolution.
In the first sub-section you will be introduced to what computer networks are by means of a brief explanation of the general characteristics that are common to all computer networks. In the next two sub-sections you will learn of the major characteristics and differences between the two main types of network used in business. These are local area networks (LANs) and wide area networks (WANs). In the final sub-section you will learn of the technological advances and changes in the business environment that have driven the telecommunications revolution
over the past 20 years or so. In the topic on ÂDeregulationÊ you will learn how changes in the ownership, control, and marketing of telecommunications services have been brought about by deregulation, a major driver in the telecommunications revolution.
GENERAL CHARACTERISTICS OF COMPUTER NETWORKS
A computer network, used in the sense of a local or wide area data communications system, has at least two main characteristics:
More than one separate computer must be included in the network.
The network must allow user computers to transmit and receive data.
In addition, the network may allow sharing of:
- physical components (such as printers);
- file stores (such as hard disks); and
- software components (such as programs and data).
Networks can be as small as two PCs sharing files in a single room, as big as the Hong Kong Jockey Club's betting system, or as vast as the Internet. The HKJC system has large computers at both the Happy Valley and Shatin racecourses that support more than 3,000 betting terminals both on- and off-course. The Internet is a massive network of networks connecting together tens of millions of computers ranging in size from PCs to massive parallel mainframe computer systems. They are all called networks as they all have the characteristics listed above.
The means of providing the connectivity between network components has resulted in two main forms of network. If the business only needs to connect together computers within a small geographical area, such as a single building, it can install its own cabling to create a LAN, or local area network. However, if the business needs to connect computers over a much wider geographical area it normally has to rely upon the services of a telecommunications authority for
some or all of its links between sites; this is termed a WAN, or wide area network. However, remember that many networks used by business are combinations of the two, and many businesses use both WANs and LANs.
Local Area Networks (LANs)
A local area network (LAN) is a privately owned network, where the connected computers are normally quite close to one another. Most LANs are located within a building, although it is possible for a LAN to operate in different buildings of a factory (or university etc.) owned by a single user. During the last 20 years, LANs have become a popular and cost-effective way of connecting users and allowing them to share resources such as programs, data, printers and file stores.
Wide Area Networks (WANs)
Wide area networks (WANs) can cover wide geographical distances ranging from several miles to across continents. Before deregulation (see next topic) of the telecommunications industry it was normally illegal for companies without government licences to set up their own private telecommunications networks. Even now, it is not usually feasible for all but the largest companies to consider setting up their own private national or international telecommunication
networks. Because of this, WANs are often described as networks that cover a wide geographical area and that use the communication services provided by one or more companies that are licensed by their governments to provide communications services to the public.
In the rest of this course we will refer to these communication service providers as 'telcos'.
HOW TECHNOLOGICAL ADVANCES AND DEREGULATION HAVE DRIVEN THE
TELECOMMUNICATIONS REVOLUTION
Technological Advances
The term IT did not come into common usage until the early 1980s. Prior to this period, companies called their IT departments EDP (Electronic Data Processing) or DP until about the early 1970s, and then MIS (Management Information Systems) or IS (Information Systems). This change in nomenclature reflects how telecommunications networks have played a rapidly increasing role in business computing over the last 20 years.
In the late 1970s and early 1980s the technologies of telecommunications, computers, and microelectronics started to converge very rapidly. The costs of these technologies also dropped dramatically as they were converging. This resulted in the new technologies suddenly being appropriate for a much wider range of uses. Also, because of the drop in costs, they became affordable to a much greater number of users and consumers. It was this phenomenon that gave
birth to the term 'IT'.
The first computer networks were WANs that linked computers and/or peripheral devices at various locations. The aim of this linkage was to allow data to be transmitted and received between units in a reliable, cost-effective manner. The process of first linking terminals and then computers over a substantial distance has been progressing since the early 1960s.
By the late 1960s, data communications technology (particularly modems) allowed terminals to routinely communicate with remote computers through telephone circuits. Although there were developments during the 1960s to link dumb terminals with remote computers, the idea of linking more than one computer did not become popular until the early 1970s.
In the late 1960s and early 1970s, a major boost to the development of the dual and integrated technologies of computing and data communications was provided by the Cold War and the US space programme, which made massive research funding available. One of the results of this massive research programme was the creation of the Advanced Research Projects Agency network (ARPAnet) which was the forerunner to todayÊs Internet. ARPAnet was a network developed in the late 1960s with funding from the Advanced Research Projects Administration (ARPA) of the United States Department of Defense. ARPAnet linked together computers at major universities and defence contractors, allowing researchers at those institutions to exchange data.
One of the first major business applications of computer networks was the American Airlines SABRE system. This was developed by American Airlines and IBM in 1976 and resulted in the worldÊs first passenger seat reservation system. The SABRE system had hundreds of scattered terminals linked to a single central processor by telephone circuits.
LAN technology was first developed in 1975 at the Palo Alto research laboratories of Xerox. Part of this pioneering research led to the development of the 'Ethernet' LAN method, which is still the basis of most of today's LANs.
As an interesting example of falling prices and rising demand, you may note that the original Ethernet connection was sold in 1980 for HK $78,000. In 1983, the price had dropped to HK $15,600, and now a complete LAN interface card containing the necessary logic on a single chip costs about HK $200.
More recent technological advances in networking have concentrated on problems of distributed processing systems. Modern client-server architectures share the processing load of an application between different processors. Thus, networking technology is an essential part of all modern client-server architectures. Virtually all modern LANs are now based on the client-server architecture.
Many larger organizations now interconnect their many departmental and regional LANs by means of WAN connections to create 'multi-network networks'. Now the Internet is a public multi-network network that spans the globe.
Telecommunications authorities have invested millions of dollars in upgrading the voice-based telephone network so that it can cope with the demands of increased digital traffic. Major infrastructure developments of fibre-optic cable networks are obvious examples of this investment. Most telecommunications companies are now able to offer services such as the integrated services digital network (ISDN), which provides the ability to carry a wide range of signals, including text, graphics, voice and video, through the same circuits.
The present distinction between WANs and LANs is rapidly becoming blurred as competitive pressures on telcos, brought about by deregulation, forces them to make ISDN and other high bandwidth services widely available to businesses. An important consequence of these recent technological advances is that all main components for an effective and flexible networking solution to business problems are now in place. In particular, recent advances in networking
technology have resulted in:
The availability of a global telecommunications infrastructure, with satellite, fibre-optic and advanced switching systems, that provides high-volume, high-quality data communications capacity.
Standardization of connection and processing protocols, such as the TCP/IP protocol suite which is the technological foundation of the Internet.
Sophisticated LAN and WAN networking systems which, combined with client-server and other distributed processing technologies, support the arrangement of processors in a wide variety of ways.
Deregulation
In addition to dramatic technological advances, the telecommunications revolution has been further accelerated by changes in the ownership, control and marketing of telecommunications services.
Until 1984, the provision of public telecommunication services, in virtually all countries, was controlled by a single common carrier (e.g. AT&T in the US and Hong Kong Telecom in Hong Kong) or by a single government-controlled Post, Telegraph and Telephone authority or PTT (e.g. the Bundespost in Germany and the Nippon Telephone and Telegraph Public Corporation in Japan). These single common carriers and PTTs were in effect government monopolies. In 1984 the US Justice Department forced AT&T to give up its monopoly and allow competing firms to sell telecommunication services and equipment. Similar deregulation has since taken place in many European and Asian countries, including Hong Kong.
Deregulation has brought about much needed competition in the industry and widened the market for new telecommunications technologies, devices and services. It has resulted in cheaper and better quality voice and data transmission services, cellular telephone services, and private satellite services, and many other advances that benefit business and the private consumer. The changes in the ownership, control, and marketing of telecommunication services, brought about by deregulation, have also dramatically accelerated recent advances in
telecommunications technology.
SELF-TEST 1.1
1. What are the main differences between LANs and WANs in terms of the distance they cover and the ownership of circuits that interconnect the computers in the network?
2. Recent technological advances have provided three important components for networking solutions to business problems. What are they?
INTRODUCTION TO ELECTRONIC COMMERCE (EC)
Introduction
This section provides you with a very brief introduction to electronic commerce (EC). It contains three sub-sections:
- Some initial definitions of electronic commerce
- The relationship between electronic commerce and networking
- Major categories of applications of electronic commerce.
In the first sub-section you will be introduced to what EC is by studying short definitions of EC given by Kalakota and Whinston. In the next sub-section you will see that by definition (i.e. the definitions of EC provided earlier), networking and EC are inextricably linked. In the final sub-section you will learn what types of applications will be regarded, during the rest of this course, as being within the scope of EC. These include applications that facilitate intra-organizational business processes and collaboration, applications that deal with business-to business communication and collaboration, and applications that deal with business-to-consumer communications and trading relationships.
1.5.1 Some Initial Definitions of Electronic Commerce
Kalakota and Whinston (1997) give the following definitions of electronic commerce, which are prefaced by their important comment:
'Depending on whom you ask, electronic commerce has different definitions.
From a communications perspective, electronic commerce is the delivery of information, products/services, or payments via telephone lines, computer networks, or any other (electronic) means.
From a business process perspective, electronic commerce is the application of technology toward the automation of business transactions and workflows.
From a service perspective, electronic commerce is a tool that addresses the desire of firms, consumers, and management to cut service costs while improving the quality of goods and increasing the speed of service delivery.
From an online perspective, electronic commerce provides the capability of buying and selling products and information on the Internet and other online services.
(Kalakota and Whinston 1997, 3)
Turban and King (2003) add two more perspectives to the list:
From a collaborative perspective, EC is the facilitator for inter- and intraorganizational collaboration.
From a community perspective, EC provides a gathering place for community members to learn, transact and collaborate.
1.5.2 The Relationship between Electronic Commerce and Networking
Networking provides the infrastructure for doing business electronically, just as traditional business requires infrastructure such as roads, commercial buildings, electricity supply and telephone systems. The idea of doing business electronically over networks is nothing new. In the broad sense, EC over some traditional networks has been around for years. Some typical examples are advertising and sales over television networks, telephone networks and using
fax. Even banking services over ATM networks can be treated as a primitive form of EC.
There is no doubt that the development of networking fosters the growth of EC, particularly the standardization of network protocols which allows interoperability. A typical example is the development of electronic data interchange (EDI), which is an important business-to-business EC application. Traditionally EDI was developed over some proprietary networks. The cost of
installation was generally quite high and it had typically only been beneficial to large firms with enough sales volume to justify the costs of developing their own networks or subscribing to a value-added network (VAN). This hindered the widespread use of EDI for regions like Hong Kong where the majority of businesses are small and medium in size.
With the growth of public networks, especially the Internet and software developments that allow Web-based EDI systems to interface with traditional EDI systems, businesses of all sizes can now enjoy the benefits of paperless and efficient business transactions. On the other hand, the growth of EC also affects the development of networking technologies. The exponential growth of the Internet has been triggered by the commercialization of the global network. The
early development of the Internet was mainly restricted to academic and research organizations. Ever since the early Â90s when the commercial use of the Internet was allowed, the growth in subscribers and traffic has been phenomenal.
Today, many new networking technologies are driven by business and commercial needs. For example, the development of broadband networking technologies is mainly due to the need of commercial services such as delivery of multimedia materials and video-on-demand.
1.5.3 Major Categories of Applications of Electronic Commerce
We can identify three major categories of applications that fall within the scope of EC. These are applications that:
- facilitate intra-organizational business processes and collaboration;
- deal with business-to-business communication and collaboration; and
- deal with business-to-consumer communications and trading relationships.
Intra-organizational Applications of Electronic Commerce
This category of applications, in its widest sense, includes all different types of systems used to support business processes within an organization. However, one of the most important recent phenomena in this class has been the tremendous growth in the use of Intranets.
The main reasons for the phenomenal growth of Intranets so far has been:
- They facilitate group-work.
- They permit the interconnection of disparate computing platforms into an apparently seamless network.
- They use browsers that provide users with an easy-to-use, and now increasingly familiar, hypertext-linked point and click interface.
- They are based upon open Internet standards.
Business-to-business Applications of Electronic Commerce
Electronic data interchange (EDI) is essentially used to optimize supply chain management, and Extranets can be used to extend the benefits of collaborative group working to oneÊs business partners. With the Internet and the Web many new possibilities are emerging. For example, virtual enterprises based upon an inter-firm network of related business activities can be created. These virtual organizations can be extremely flexible and tailored to specific needs. Also, they only need to exist as long as they are effective and required.
Business-to-consumer Applications of Electronic Commerce
In the consumer goods arena, mail order catalogues, 'Interwood Marketing'-type TV sales and so forth have long been used as efficient methods of convenient shopping whereby products can be advertised, ordered and paid for either by mail or over the telephone. Internet-based virtual shopping malls and electronic catalogues are now rapidly taking their place.
This type of EC has the added consumer benefit of interactivity. Online catalogues are increasing in complexity, often dynamically generating the contents of Web pages depending on specific user requirements. Also, Internet purchasers can often design or configure the product to meet their own specific requirements, as opposed to having to select from a set of fixed options, as is the case with conventional catalogue shopping. Purchasing a Dell computer from Dell's website gives a good example of this flexibility. Applets downloaded to the client can ensure that the customer only makes valid design choices.
In the information goods and consumer services arena, Web-based EC provides new ways of advertising, ordering and paying for conventional consumer goods. It also provides a means of distributing any type of goods or services that are electronically transmittable.
SELF-TEST 1.2
1. What are the three major categories of EC applications identified in this section?
2. Give one example for each category of EC applications that is used in the banking industry, or any other industry you are familiar with.
THE CHANGING ROLE OF INFORMATION SYSTEMS IN BUSINESS
Introduction
You have already learned that networks exist in businesses to allow users (and computer systems) to communicate with one another and share data and other system resources. In short, networks can help reduce an organization's costs and increase its effectiveness. It is, therefore, not surprising that networking and data communications are at the heart of most contemporary business information systems (IS).
Before we continue, let us first examine the difference between information systems (IS) and information technology (IT). You may be aware that different authorities give quite different answers to even this. However, in this unit we will use Laudon and LaudonÊs (2000) definitions:
'An IS is an organizational and management solution, based on information technology, to a challenge posed by the environment.'
'IT is the computer and communications technology that is used to process data into information. IT's basic components are:
- Computer hardware, which is the physical equipment used for the input, processing, data storage, and output activities in an information system.
- Computer software, which is the pre-programmed instructions that control and coordinate the work of the computer hardware in an information system.
- Telecommunications technology, which is the physical devices and software that link various computer hardware components and transfer data from one physical location to another. '
In this section we will examine:
- The reliance of contemporary information technology on networking
- Networking applications for cost reduction and effectiveness
- The changing role of information systems in business.
Today, virtually all contemporary business information systems, and the business benefits derived from them, are reliant upon the existence of effective underlying telecommunications and networking systems. The pervasiveness of these network-based systems is self-evident from the use we make of them in our daily lives. (Refer to Activity 1.1.)
We have already pointed out that EC is completely reliant on networking. There is a group of related 'technologies' that have had, and are having, a major impact upon the way in which EC has developed and continues to be developed.
These 'technologies' include:
- the information superhighway;
- the Internet;
- electronic data interchange (EDI);
- groupware, including electronic meeting systems, video conferencing, data conferencing and electronic meeting software, real time data conferencing and electronic meeting software, document imaging and workflow management;
- Intranets: utilizing Internet technology to support workgroups; and
- Extranets: linking together the Intranets of business partners.
1.6.2 Networking Applications for Cost Reduction and Effectiveness
Business has long realized that effective communications mean lower costs, better control of resources and the ability to reduce expenses in many ways. Computer networks are of paramount importance in business communication systems. The following networking applications exemplify this fact.
Airline Seat Reservation Systems
Airline seat reservation systems have now been in universal use for about three decades. Originally they reduced the airlines and travel agents' operating costs and provided a much faster and more effective service to the air traveller. They also provided airlines with a way of capturing and rapidly analysing the demand for seats on particular routes at particular times and traveller 'no show' statistics. This in turn provided airlines with a way of maximizing aircraft occupancy rates, and therefore sales revenue, by 'double booking' seats to take account of
expected no show rates. Later enhancements to the core airline seat reservation systems provided airlines with powerful marketing tools and customer loyalty schemes in the form of 'frequent flyer points' bonus systems. In recent years airlines have created strategic partnerships, particularly with other airlines, which provide complementary (and non-competing) route services, and also with credit card companies, in order to provide more enticing 'frequent flyer point' and 'fly buy' marketing schemes. Today, virtually all major airlines and credit card companies run joint customer loyalty schemes where making purchases on your credit card can build up your frequent flyer points and buying an airline ticket with your credit card can build up your credit card 'reward' points. Clearly, these types of scheme would be impossible without the extensive use of networks linking together systems of airlines, credit card companies, travel agents and retail outlets.
ATM Networks
ATM networks are now universally used in retail banking because they provide a much more effective (faster, more accurate, and more convenient) way of providing a wide variety of retail banking services (cash withdrawals and deposits, account balances, cash transfers, etc.) than human bank tellers. ATM systems also substantially reduce the banks' operating costs as they significantly reduce the banks' need for branch office space and counter staff.
Point-of-Sale (POS) and Inventory Replenishment Systems
Point-of-Sale (POS) and inventory replenishment systems are also universal in all major supermarket chains and major retail stores now. Once again they provide a way for the retailer to provide a more effective service (faster, more accurate, and more convenient) to the customer and reduce the retailers' checkout staff costs and operating costs. They also facilitate automatic in-store inventory control and replenishment.
LANs and Intranets
It is highly likely that you use a workstation connected to a LAN if you work in an office environment. An obvious advantage of LANs and Intranets is that they reduce hardware costs by allowing users to share expensive peripherals (e.g. printers) and server resources. A less obvious, but far more important, advantage is that they allow workgroups to share data and knowledge which can do much to improve the overall effectiveness of workgroups, particularly knowledge workers.
1.6.3 The Changing Role of Information Systems in Business
Computer-based information systems (CBIS), supported by networking IT, have already automated much of the routine or clerical work within a business. Such systems also develop a data resource that can be used to quickly produce information for making management decisions. In addition to improving operational efficiency and supporting more effective management decision making, networking has increasingly been used by organizations to develop competitive new products and services that provide them with a strategic advantage in the global marketplace. Today's world network services are major components of products and services of major industries such as banking, air transport, and news broadcasting (and obviously the telecommunications industry itself!). More recently the Internet has provided a low cost means of connecting both to business partners and to consumers, greatly facilitating
electronic commerce (EC) and upstream and downstream supply chain management (SCM).
During the last three decades IT in general, and networking in particular, have continued to improve in functionality (what they can do) and cost-performance ratio (value for money) at an ever-increasing speed. These improvements have been the technological driver for the evolution of, or revolution in, the business applications of information systems. Next we will briefly discuss how 'new' uses of IS have evolved over the last two to three decades. However, it is very important to understand that the newer uses of IS have not made the 'old' uses obsolete. High-volume online transaction processing (OLTP) networks are still required today as much as they were in the 1970s · otherwise you wouldn't be able to get cash out of your bank's ATM machine! The newer applications are usually additions to the older applications, and not replacements for them, in terms of the business requirements they are designed to fulfil.
Data Processing (Mid-1960s to Mid-1970s)
During this period, rapid developments in third-generation computer hardware (integrated circuits) and software (operating systems and languages) and parallel developments in telecommunications made IT much cheaper and easier for business to use. IT started to become widely used by many larger businesses for data processing applications. This class of application focused on reducing labour costs, increasing accuracy, and speeding up clerical and accounting work. The earliest applications were centralized transaction or data processing (DP) systems such as basic record keeping and accounting applications. Networking facilities were soon introduced and extended these basic DP applications into areas such as online airline seat reservation and banking ATM applications. The early data communications networks thus gave rise to a large number of important online transaction processing (OLTP) systems. Many of these old mainframe-based 'legacy' systems are still in use today!
Management Information Systems (1970s)
In the 1970s the focus of the business use of IT moved away from clerical process automation, data processing, and simple general reporting to management information systems (MIS). It focused on improving and speeding up the decision-making processes of specific managers and information workers.
MIS used the data resource created by the DP applications to cost-effectively provide pre-specified summary and exception reports to improve operations and financial management control and decision making. During this period, rapid advances were also made in wide area networking and database technology. Both these technologies were required to support the increasingly complex distributed OLTP systems that were being developed. The data captured by the OLTP system and stored under the control of the new database management systems (DBMS) provided the data resource upon which the management information systems operated.
Personal Support, Group Support and Executive Support Systems (1980s–Early 1990s)
The start of the 1980s saw an increased interest in using IT to improve (individual) managerial and specialist decision making. The development of 4GLs (fourth generation programming languages) and other rapid applications development (RAD) tools made the prototyping approach feasible and facilitated the development of decision support systems (DSS). These were usually interactive, user-controlled systems supporting ad hoc enquiries and providing
support to managerial decision processes.
However, it was the increasing affordability of PCs in the mid-1980s that created a rapid growth in the use of PC-based personal support systems for both information workers and knowledge workers. Shortly afterwards the widespread introduction of LANs created an explosive growth in the number of PCs used by business and caused increased attention to be paid to improving workgroup effectiveness. This movement gained considerable impetus with the release of
proprietary groupware products (particularly Lotus Notes).
This period also saw the movement away from mainframe-centric computing to client-server architectures and enterprise-wide 'internetworks'. Client-server computing and enterprise-wide networks obviously cannot exist without modern networking and its connectivity brought about by open systems and adherence to standards. The introduction of client-server computing and enterprise-wide networks made it possible for users to access a wide variety of different
application servers (including the legacy applications on mainframes) via a Windows-based graphical user interface (GUI) from a single desktop PC (client) connected to a network.
This made it possible (or at least theoretically possible) to have access to all applications and data of an enterprise from a single workstation. This in turn made it possible to develop executive support systems (ESS), also called executive information systems (EIS). Toward the end of this period ESSs were given a boost by the release of data warehousing products which allowed the
data from a large number of separate and previously incompatible databases to be collated and stored in a single data warehouse. These data warehouses were made usable by the development of OLAP (online analytical processing) tools, which allowed the managerial user to easily search through the data in the warehouse.
Intranets, Extranets, and the Internet (1994 Onwards)
The development of Web technology (HTTP and HTML) and the release of the first commercial browsers (Mosaic Communications Company, later to become Netscape, was founded in 1994) led to a phenomenal growth in the usage of public Internet. It also led to an explosive growth in the use of Internet technology by business. The ease of use of the now ubiquitous point and click
Web GUI and the openness of Web technology (resulting in it being relatively cheap) has caused business to rapidly adopt the technology.
One of the first business uses of the technology was to develop Intranets (private corporate Internets) for information dissemination and to support groupwork. As Internet security technology developed, particularly firewall and proxy server technology (which help protect corporate computing resources from unauthorized access over the Internet), businesses started to connect their Intranets to those of their business partners creating Extranets.
Of course, inter-organizational computer networks have been in fairly widespread use for several decades. However, these traditional networks used private circuits or those belonging to VAN (Value Added Network) providers. The cost (and complexity) of using these types of circuits is usually very much higher than using the public Internet. Consequently, many smaller organizations could not afford to link to their business partners via EDI etc. The Internet has
now radically altered this situation.
The Internet also makes it possible for businesses to engage in direct business-to-consumer
EC in all its forms (PR, general marketing and advertising, micromarketing, catalogue and product display, user-driven product customization, sales, electronic payments, distribution (of informational products), general after sales and technical support, etc.).
1.6.4 A Note on Changing Views of the Role of Information Systems in Business
At the beginning of this topic we stated that there have been dramatic improvements in the functionality and cost-effectiveness of IT in general and data communications technology in particular. We also stated that these improvements have been the technological drivers for the evolution of, or revolution in, the business applications of information systems that have just
been outlined above.
However, it is not just technology that determines what information systems are introduced by business and why they introduce them. This issue will be explored in more detail in the later section on 'Developing contemporary business, IS, and IT strategies'.
SELF-TEST 1.3
1. List four applications of networking to illustrate how networks can reduce costs and increase effectiveness.
2. Outline the primary purposes of each of the following types of system:
- Management information systems (MIS)
- Personal support, group-support and executive-support systems
- Intranets, Extranets, and the Internet.
1. What, if any, networking applications do you personally use in the organization you work for?
2. What other, if any, networking applications are used by the organization you work for?
3. What major networking applications in Hong Kong, provided by other organizations, do you use frequently as an end-user?
COSTS AND BENEFITS OF NETWORKING AND ELECTRONIC COMMERCE
Introduction
This very brief section contains a short overview of the costs and benefits of networking and EC. Many of the main general business benefits have already been discussed in the previous sections. The benefits and costs of particular types of networks and EC applications will be given a more detailed treatment in subsequent units.
However, this section also points out that any major changes to an organization's networks (including the introduction of EC applications) should take place within the framework of a coherent business network plan. It also points out that the firm's business network planning should be part of its overall business, IS and IT strategy formulation and implementation process. This particular subject is covered in the next section on 'Developing contemporary business, IS, and IT strategies'.
1.7.1 Costs and Benefits of Networking
Networking has become so widespread in business that its benefits are generally accepted with little argument. Implementing networks, or improving existing networks, has enormous potential for dramatically improving an organization's competitive position · as we have seen in the previous sections.
However, there can be substantial set-up and operational costs. Conventional WANs that use international networks of leased lines, or even the services of a VAN provider, can be very expensive to set up and very expensive to operate. We will examine these set-up and operating costs, and other networking costs, in subsequent units. All major changes to an organizationÊs networks should take place within the framework of a coherent business network plan, as changes to an organization's networks can have a major impact upon the organization's future performance. The development, implementation, and ongoing monitoring of the firm's business network plan should be part of its overall business, IS and IT strategy formulation and implementation process. This process, which obviously requires managerial resources, will be examined in the next section on 'Developing contemporary business, IS, and IT strategies'.
1.7.2 Costs and Benefits of Electronic Commerce
As you learned in previous sections, the benefits of EC overlap with those obtained from networking. The implementation of EC networks can obviously incur similar costs to those outlined previously. However, bear in mind that implementing EC applications that use the Internet can have substantially lower set-up and operating costs than those that rely upon conventional WANs.
Kalakota and Whinston summarize the many potential benefits and risks associated with the implementation of EC applications as follows:
'Electronic commerce has opened a new universe for consumers and organizations and it demands new management approaches. If exploited cleverly, electronic commerce has the potential to increase profits through better customer acquisition and retention, new information based products and services and more efficient operations.
However, companies must rethink their strategies, products and business processes in order to develop a cohesive management approach. During this effort many difficult questions need to be addressed.'
(Kalakota and Whinston 1997, 23 24)
The introduction of EC will always require changes to be made to existing business processes and structures. In many cases these changes will be quite radical and risk-prone for established businesses. In many business areas new entrants actually face less risk than established businesses because they do not However, it is important to make clear the fact that many businesses that fail to invest in EC may incur very high (lost) opportunity costs; they may forfeit their business to their competitors and to new entrants that do invest in EC.DEVELOPING CONTEMPORARY BUSINESS, IS, AND IT STRATEGIES
Introduction
In the last topic of the earlier section on ÂThe changing role of information systems in business' you learned that it is not just technology that determines what information systems are introduced by a business. How a business plans to (and does) use technology is of course partly determined by what technology is expected to be (or is) available and how much it costs. But, technology is primarily a tool of business and not an end in itself (except for the increasing
number of businesses that sell IT products and services!).
How businesses choose to use this tool also depends very much upon the following three important factors:
- how the business sees itself, what its plans and objectives are, and how it determines these;
- its perception of the environmental threats (and opportunities) to the achievement of its plans; and
- how it sees the technology as being able to contribute to counter these threats, provide new opportunities and contribute to the achievement of it plans and objectives.
- Changes in the views of information systemsÊ primary contribution to business
- Business drivers and their effect on business planning
- Business, IS, and IT strategy formulation and their interrelationships.
In the last, and main, part of this section you will learn how businesses go about determining what they want to be (i.e. their 'vision') and the planning processes they can use to turn this vision into reality. It is in this sub-section that you will learn about the processes of business strategy formulation, the difference between IS strategy and IT strategy, IS strategy formulation, IT strategy formulation and the important relationships and dependencies between them.
1.8.1 Changes in Views of Information Systems’
Primary Contribution to Business
Earlier in this unit we examined how the nature of the business applications of IT had evolved over the last three decades. In this topic we will examine how views of the primary business contribution of information systems to business have changed over the same period. The views that we are referring to are generally the views expressed in the literature by practitioners and academics.
However, before going any further it is important you understand that the primary role of a particular IS application depends upon when you look at it and how you look at it, i.e. the theoretical framework you choose with which to view it. Today when we look at Citibank's first ATM network through Porter's (1985) competitive forces framework we may see it as an example of a 'strategic system' that gave Citibank a major 'competitive advantage' when they implemented it. It is unlikely that Citibank saw it in exactly the same way when they originally
implemented the system in 1977 · as Porter's work was not published until 1985!
According to the literature, the primary contributions information systems have made to business over the last 30 years appear to have gone through the following five stages:
a means of improving internal business processes (1970s and early 1980s);
- a competitive weapon (mid-1980s to mid-1990s);
- the primary tool for business process reengineering (BPR) (early to mid- 1990s);
- a means of improving supply chain management (SCM) practices and extending the supply chain to the consumer (mid-1990s to the present);
- a means of managing knowledge and supporting virtual organizations (mid-1990s to the present).
In the first part of this phase, the main role of IS was seen as business process automation with the primary aim of reducing operating costs (particularly clerical labour costs). Secondary objectives were improved speed and accuracy of Âclerical workÊ and facilitation of management control.
In the second part of this phase the main role of IS was seen as business process augmentation with the primary aim of improving managerial decision making and knowledge worker effectiveness. Secondary objectives were improved products and services and possible operating cost reductions.
Information Systems as a Competitive Weapon
In the mid-1980s the idea that IS could be used as a competitive weapon was introduced into the literature. Academics, and management, then started viewing information and IS as a strategic resource and a potential source of competitive advantage. IT and IS came to be viewed as an important weapon in the fight against increasing competition.
In the early1990s management continued to focus on information as a strategic resource, but the emphasis shifted to how this resource could be effectively shared to empower staff (e.g. proprietary groupware on LANs).
Information Systems as the Primary Tool for Business Process Reengineering
In the early 1990s the idea of business process reengineering (BPR) was introduced (Hammer and Champy 1993) and rapidly came into vogue in the literature. The primary role of IS and IT began to be seen as being the vehicle for BPR. The aim of BPR was to provide the organization with strategic advantage by fundamentally redesigning business processes to produce dramatic
improvements in product quality (or new products), service, speed, and costs.
The concept of BPR could be viewed as a combination of the business process improvement and competitive weapon views. Note, however, that the Hammer and Champy idea of BPR requires 'fundamental' redesign of business processes, not just the automation or augmentation of existing processes. Today, many authorities believe that continuous incremental BPR is rather less risk-prone and disruptive than one-off 'fundamental' BPR!
Information Systems for Supply Chain Management
The importance of supply chain management (SCM) had long been understood by larger organizations in industries such as automobile manufacturing and air and marine transport. Many of the leading players in such industries had established sophisticated inter-organizational IS, often using EDI, in the 1980s. But the complexity and cost of these private (or VAN-based) networks made them beyond the reach of many smaller businesses.
The introduction of Web technology around 1994 resulted in many businesses implementing Intranets to improve internal communications and group working. By the mid-1990s the Internet and relatively low-cost Internet technology was bringing inter-organizational IS within the reach of even small businesses. It was then only a relatively small step to interconnect the corporate Intranets of business partners in the supply chain into Extranets. Larger businesses and government agencies are currently encouraging their smaller partners and clients to connect to such networks. Obviously, the Internet also makes it possible (and sometimes very profitable) to extend the supply chain to the consumer!
Information Systems for Managing Knowledge and Supporting Virtual Organizations
Managing knowledge. Most advanced economies are now generally regarded as being predominantly knowledge-based economies. It is widely accepted that one of the most important things any organization possesses is things it knows how to do; that is, 'knowledge'. It is, therefore, understandable that the role of IS in knowledge management is now seen as being of great importance.
In order to succeed in a knowledge-based business environment, a company must be able to leverage the knowledge of its own staff and the knowledge of its business partners. Ideally it should be able to leverage the knowledge of its customers also. You will see examples, in later units, where hardware and software vendors leverage their customers' knowledge by means of websites and newsgroups where customers solve each others' support problems!
Sophisticated inter-organizational ISs, often using EDI, have been fairly widely used since the 1980s. However, these types of network were designed for the exchange of highly structured (i.e. predetermined message format) data. They were also designed to let computer systems communicate with one another. They were not designed for the creation or exchange of knowledge. Knowledge is not normally structured like an EDI message.
One particular contemporary technology has the potential to revolutionize knowledge management · WWW technology. This is not surprising since the Web was originally created to help manage the knowledge of a worldwide group of particle physicists.
Supporting virtual organizations. Today, many companies, large and small, are setting up virtual corporations that enable executives, engineers, scientists, writers, researchers and other professionals around the world to collaborate on new products and services without ever meeting face-to-face. Information and ideas can now be shared by means of the Web, email, and other electronic means.
A virtual organization (or virtual company/corporation) is an organization that uses computer networks to link people, assets and ideas. Virtual companies can
have a virtual structure that is based on formal and informal alliances with suppliers, customers, subcontractors, and even competitors. Often a single business may not have the time or resources to develop the manufacturing and distribution infrastructure, people competencies, and information technologies needed to exploit fast changing business opportunities. This network structure makes it easier to create flexible and adaptable virtual companies that are able to exploit such opportunities.
The following extract refers to a virtual organization that was created to solve a cryptographic (code-breaking) challenge issued by RSA Data Security Inc. Although the virtual organization described is not a normal 'business' organization, the extract does indicate, very well, the nature of virtual organizations in terms of the speed with which they can be created, their problem solving ability, and the power of the resources they can jointly muster.
RSA's Secret-Key Challenge Solved by
Distributed Team in Record Time
TechMall (8 Apr 1999)
The message discovered read "Many hands make light work".
The distributed.net team started the project immediately after the DES Challenge II was announced on January 13, 1998 at RSAÊs Data Security Conference in San Francisco. The team searched over 61 quadrillion, 254 trillion keys at a peak rate of 26 trillion keys per second.
TechMall (8 April 1999)
Business Drivers and Their Effect on Business Planning
Laudon and Laudon (2000) identify a number of important changes that started taking place in the business environment, particularly since the early 1990s.
These include the following:
Globalization
- (Problems of) Management and control in a global marketplace
- Competition in world markets
- Global work groups
- Global delivery systems
- (The rapid shift toward) Knowledge- and information-based economies
- (The need for increased) Productivity
- (The need to rapidly introduce)New products and services
- (The need for changes in styles of) Leadership
- (Increases in) Time-based competition
- Shorter product life
- Turbulent environment
- Limited employee knowledge base
- Flattening (the organization structure)
- Decentralization
- (The need for increased) Flexibility
- Location independence
- Low transaction and coordination costs
- Empowerment (of junior and middle level employees)
- (The need for improved) Collaborative work and teamwork
(Laudon and Laudon 2000)
These important business drivers have significantly changed the nature and focus of business planning. In the past Âbusiness planningÊ was often little more than financial budgeting and associated controls. Today, however, business planning is no longer regarded as being primarily a control function and a way of avoiding business risks. The challenges of today demand that planning should be used as the way to communicate the vision of the organization (the direction)and to accomplish the realization of the vision through the best possible strategies and tactics.
Callon (1996) describes some of the typical organizational responses to these business drivers and how and why businesses are making them as follows:
'For example, to pursue new markets and opportunities while also achieving a competitive cost structure companies are resorting to decentralization of authority and responsibilities, downsizing, outsourcing, business partnering and corporate alliances through mergers
and acquisitions. Business processes are being reengineered, redefined or improved through an emphasis on quality. Companies are frequently rethinking the responsibility and accountability of employees and resorting to cross-functional teams, quality circles and other forms of
empowerment. The ability of each employee to exhibit a particular skill or capability may be seen as necessary to respond to market conditions. Business and societal pressures are also making temporary or contract employees a permanent fixture in workforce restructuring. Products are being customized to markets and specific customers and designed to
meet global standards, with a major emphasis on programs that provide value-added services. Micro marketing, the ability to identify that set of potential customers who represent the biggest opportunity, has become an important dimension of this approach.
All these responses add up to attempts to find better ways to compete by decreasing time cycles, improving organizational flexibility and improving responsiveness to customers. Key to accomplishing this is getting the right message to the right people and providing the necessary
resources to implement and support both strategies and tactics. A question in discussing the why of planning is whether all these factors have tipped the scales in favor of short time schedules, flexibility and responsiveness so that business planning is no longer practical, feasible,
or effective. Have we reached the point where things are happening so fast, product cycles are so short and the need to respond to customers on a specific basis so imperative that planning just gets in the way? Planning advocates are adamant that because of the pace you have no choice · an organization must do an effective planning job or get lost in the maze of increasing complexity. However, this planning job must be true business planning and not a budget or financially driven effort.....
.... So what does one conclude from all this? Business planning at a high level is more critical than ever. Leaving room for local adaptation and specific implementation is equally important. Doing great things within the context of a strategy is what you really want. If information systems
are to be an integral part of the implementation, then they need to be addressed at the same high level, at least in terms of the role they will play.'
(Callon 1996, 284 287)
BUSINESS, IS, AND IT STRATEGY FORMULATION AND THEIR INTERRELATIONSHIPS
This sub-section starts by presenting a brief 'Introduction to strategic planning' that begins with a hypothetical case study that illustrates the potential for integrating IT planning with organizational strategic planning and demonstrates how organizational goals can be achieved through telecommunication-based systems. It then outlines a possible approach to the process of strategic planning. Then a discussion on ÂContemporary approaches to business, IS, and IT strategy planning' follows.
Introduction to Strategic Planning
The Chin & Lee Co. Ltd · a hypothetical case study. The following case, though based on a real situation, is a hypothetical illustration of the potential for integrating IT planning with organizational strategic planning. It also demonstrates how organizational goals can be achieved through the use of telecommunication-based systems.
Chin & Lee Co. Ltd
Frank Lo, company comptroller, sits back in his desk chair and shakes his head as he thinks of the events of the past four years. Chin & Lee Co. Ltd (Hong Kong), a manufacturer of wholesale and retail electronic products, had slowly lost market share and profitability · up until four years ago. With the arrival of their new CEO, George Yu, all that changed. The first thing George did was to call a staff meeting of all middle and top managers. He asked one question: 'Why are you here?' On that single question hung the future of the company and the future of many managers in the room. In the following weeks, the group met often, both formally and informally, to discuss that simple question. When the discussions ended, the conclusion was published as the 'Chin & Lee Co. Ltd Mission Statement'. It consisted of the deceptively simple statement:'Our business exists to provide quality electronic products to the wholesale and retail trade with the best service available and at highly competitive prices, all in the best interest of our customers, employees and shareholders.'
With that first step taken, the company began a lengthy process of strategic planning in order to fulfil that statement about its purpose in the Asian economy. During meetings over the next nine months, all the firm's managers put forth their goals, objectives and suggestions that would
support the new direction.
Some of the most surprising and profitable suggestions came from an unexpected source. The companyÊs small data processing (DP) facility was used primarily for transaction processing, and Steve Chan had recently been hired to take over DP. But when George Yu arrived, SteveÊs title was promptly changed to Information Systems & Technology (IS&T) Manager. With Steve promoted to the top management team, a whole new perspective was injected regarding the use of technology to enhance the organization. One of the primary goals, for example, incorporated into the strategic plan was to improve customer service by reducing the time from when customers place orders to the time they receive the products. The week following this goal's
acceptance by the management team, Steve came back with two objectives to support and fulfil the goal.
1. Shorten time to acknowledge orders from nine days to one day by automating customer-order entry via customer-direct entry at in-store terminals. Terminals will communicate with Chin & LeeÊs IS&T computer systems over ordinary dial-up lines.
2. Shorten time to deliver orders from six days to one day by expediting and automating order approval, warehouse notification and despatch.
As a result of these two objectives, the company would be able to deliver products to customers in the Hong Kong metropolitan area within two days, which was 14 days faster than the current time, and ten days faster than the industry average! Both these objectives would require substantial capital and development investments from the company. However, Steve was recommending a pilot project that he hoped would prove the effectiveness of the concept. If it worked, there would be no problem getting both company management and customers to agree to the changes required.
Within eight months Steve Chan and his development team had completed the advanced prototype software systems and were ready to test them with three customers who had agreed to act as test sites. After six months of operation and numerous modifications to the system based on customer feedback and the efforts of IS&T operational staff (primarily to improve performance, ease of use, and add functionality), the system was ready for full implementation. Test site results had shown that Steve had been accurate in his estimates of the potential, even erring on the conservative side. As it turned out, many customer orders were delivered
within 24 hours of the order being placed by the client store. The customers were pleased, since it meant they would not need to carry as much stock as before. The improvement was so dramatic that customers could hardly believe the difference. During the six-month test period, the three customers saw their average stock holdings decline from $2,500,000 to less than $1,000,000! In addition, the cost of order entry for Chin & Lee had declined on the test order system from $12 per order to only $2. This dramatic decrease was the result of data entry performed and validated by customer personnel from in-store terminals over dial-up lines directly into the IS&T minicomputer.
When the company marketing people got hold of these statistics, it did not take them long to see the potential for selling customers on the idea. In-store terminals cost only $5,000. The Chin & Lee sales people guaranteed that customers would recoup that cost within the first month through stock reductions, and customers did not have to pay for the terminals until that first month was over. It was an offer that could not be refused, and most of the existing customers, and many new ones, accepted it. What a change! Sales began to skyrocket as customers found that it was easier to place one automated order to Chin & Lee than multiple orders to the
competition. Quick, accurate delivery, very competitive prices and the best of service strengthened this position each month.
By the end of the first full year in operation, the new automated ordering system had fulfilled the original goal and objective beyond the wildest dreams of top management, and many new opportunities were arising each month because of the new relationship established with customers.
The process of strategic planning. You first need to know what the process of strategic planning involves, and then you should understand how modern telecommunications systems can help support and achieve organizational strategy.
The process of strategic planning must have a hierarchy of purpose or direction including:
1. the clearly defined ÂmissionÊ, or primary purpose, of the organization;
2. a description of the major overall goals that will help to achieve the mission; and
3. a precise listing of the specific, realistic and measurable objectives that will allow the organization to achieve its goals.
You can see an example of this hierarchy in the Chin & Lee Co. Ltd case. Notice how each higher-level purpose is supported by the lower-level, more detailed statement. Look closely at three items in the hierarchy listed below:
Mission statement: 'Our business exists to provide quality electronic products to
the wholesale and retail trade with the best service available and at highly competitive prices, all in the best interest of our customers, employees and shareholders.'
Goal: 'To improve customer service by reducing the time from when customers place orders to the time they receive the products.'
Objective: 'Shorten time to acknowledge orders from nine days to one day by automating customer-order entry via customer-direct entry at in-store terminals. Terminals will communicate with Chin & Lee's IS&T computer systems over ordinary dial-up lines.'
This strategic planning process is used to concisely direct the development of:
- the goods and services provided by the organization;
- the functions and processes used; and
- the people, finance, facilities and other resources required.
is usually shorter (a few months to one year) than the planning cycle for strategic planning which is usually three to five years. Tactical planning involves creating a blueprint to achieve the objectives. This blueprint should include the following key elements:
1. What: steps of action that need to be achieved.
2. Who: person or persons responsible for achieving specific steps of action.
3. When: specific target dates for achievement of the actions.
4. How: resources required to support and achieve the steps of action.
5. Where: place where action is to be performed (may be geographic or organizational).
Such planning, when integrated with IT strategy, can maximize the leverage gained through investments in networking. Integrated planning can open up new business opportunities, help gain advantage over competitors, increase organizational responsiveness, enhance current strengths and overcome existing weaknesses.
THE DIFFERENCE BETWEEN AN IS STRATEGY AND AN IT STRATEGY
We have discussed the difference between information systems (IS) and information technology (IT) under the section on ÂThe changing role of information systems in businessÊ. From the definitions we can see that IT provides the technological infrastructure upon which ISs are built. Usually IT, by itself, provides no direct benefit to the business. It is the application of the IT, as
part of an IS, that provides benefit.
Therefore, the information system, or IS, strategy defines what is required in terms of the processing of information. The IS strategy often focuses on aligning planned IS provision with the business goals and information needs outlined in the organizationÊs business strategy. The IS strategy may also identify and develop means of exploiting competitive opportunities, which may involve the processing of information or the exploitation of new IT.
The information technology, or IT, strategy defines the means of delivering the requirements as specified by the IS strategy. It is an enabling strategy, providing the ways that the competitive advantages identified in the IS strategy can be achieved with information technology, reliably and within budget.
In general terms, the IS strategy defines the wants, and the IT strategy subsequently defines how those wants will be provided. Ideally, the IS strategy will be driven by the business plan of the organization and will, in turn, influence that plan. Similarly, the IT strategy will be driven by the IS strategy and will, in turn, influence that strategy.
The IT strategy sets guidelines within which the IT developments of a business take place. The result of an effective IT strategy is the development of plans, standards and procedures that provide the delivery mechanism for cost-effective implementation of the IT aspects of the organizationÊs IS strategy. As such, it is an essential part of long-term planning within a business.
Clearly the formulation of an IT strategy is very closely associated with the formulation of an IS strategy. In turn, the formulation of an IS strategy is very closely associated with the formulation of a business strategy. Next we will briefly examine the nature of these important associations and dependencies.
Today it is essential that the IT planning process progresses in full knowledge of the current and expected developments in information technology in general and networking and EC in particular.
CONTEMPORARY APPROACHES TO BUSINESS, IS, AND IT STRATEGY PLANNING
Levels of business, IS and IT planning. IS planning should be integrated with the overall business planning process. The traditional way of doing this is to start with the creation of a strategic business plan and then develop an IS plan that aligns with, and is integrated with, the business plan. Then an IT plan is created that aims to provide a basic infrastructure upon which the IS plan can be implemented.
Different types of technology provide the organization with the basic IT infrastructure upon which business applications are subsequently built that provide direct benefit to the organization. It is very important that the overall architecture of this IT infrastructure is planned in an integrated and cohesive manner. The IT architecture plan provides a blueprint to guide how these infrastructural technologies should be designed, implemented and integrated for
the future. Clearly, the future applications and services that will be required by end-users cannot be provided when they want them and where they want them unless the underlying infrastructure is already in place. The same holds for urban developments in Hong Kong (and everywhere else). You cannot provide a new airport service until the road and rail infrastructures that get people to and from the airport are in place. Infrastructures do not just materialize out of thin air; they first have to be planned and then implemented!
Tactical IS and IT plans logically follow on from the strategic IS and IT architectural plans. These tactical plans can include time targets and budgetary plans, skill and IT procurement requirements, etc. The IS planning process concludes with implementation plans for specific IS projects (e.g. developing new applications systems) and IT projects (e.g. implementing a new DBMS or network).
IS planning: alignment and impact approaches. So far we have stressed the importance of aligning IS strategy with business strategy. We have also stated that it is ÂnormalÊ to first determine the business strategy and then develop an IS strategy that is in alignment with it. It is always true that the two types of strategy should be aligned and closely integrated. However, it is often desirable for IS and IT factors to be taken into account during the business planning stage as opposed to just developing an IS strategy as a passive response to a previously
formulated business strategy.
New developments in IT often present companies with the opportunity to obtain competitive and strategic advantage. It is, therefore, becoming increasingly common for companies (particularly those in IT and information intensive industries such as banking) to incorporate IS and IT factors into their business strategy planning exercises. When this occurs, IT developments can sometimes impact or even drive future business strategy.
In practice, however, most organizations that are fairly mature in their usage of IT use a combination of both the 'alignment' and 'impact' approaches mentioned above. This combined mpact/alignment approach is illustrated diagrammatically in Figure 1.1 below. This approach can be used to develop effective business strategies and the necessary IS to support them. It also
facilitates the identification of new IT opportunities that can be fed into the business planning process such that these can have a major impact upon the final outcomes of the process.
Business
Strategy
IT Strategy
IS Strategy
Business Processes
and
Organization IS Architecture
and Organization
IT Architecture and Organization
IT Opportunities
Impact
Business Domain
IT Domain
External
Development in IT
Create
Determines
Supports
Alignment
Supports
Figure 1.1: The combined impact/alignment approach to IS/IT planning The approach illustrated above identifies the relationship between the business and IT domains. It formulates business strategy and determines how business processes and organization need changing to best achieve the strategy. These planned business changes then prompt the required alignments to the IS architecture and organization. The required changes to the IS architecture (e.g.
applications portfolio) and organization (e.g. staffing and organization structure) may then prompt the required changes to the IT architecture (e.g. network, database, and computer system configuration architectures) and organization (e.g. applications development approaches and standards).
The approach also identifies how the IT domain can impact upon, or drive, the formulation of business strategy. The outcomes of the process of identifying important external developments in IT will feed into the processes of planning future IT and IS strategies. In turn, these three processes, taken in combination, will identify potential future business opportunities that could be provided by IT. These IT opportunities can then be used to impact or drive the business strategy planning process.
SELF-TEST 1.4
- According to the literature, the primary contributions information systems have made to business over the last 30 years have gone through five main stages. What are these stages?
- The traditional process for formulating, and subsequently implementing, a business strategy identifies a hierarchy of purpose or direction, including a 'mission statement', 'goals', and
- 'objectives'. Briefly describe what is meant by each of the terms given in quotation marks.
- What is the difference between an IS strategy and an IT strategy?
- Why is it becoming increasingly common for companies (particularly those in IT and information intensive industries such as banking) to incorporate IS and IT factors into their business strategy planning exercises?
Case Study: (CPX-Traxon)
Introduction
This case study concerns Cathay PacificÊs air-cargo business and the development of the Traxon air cargo network. The case material is presented in three sub-sections that trace the development of Traxon over the last decade.Introduction
In 1991, Cathay Pacific was planning to react to the threat to its air-cargo business posed by the US air-express courier companies, such as UPS, which were becoming increasingly global in their operations. Therefore, a group of airlines that includes Cathy Pacific has grouped together to create a cargo information network.
The article was extracted from Cathay's 1997 WWW pages and describes the background and 1997 status of the Traxon system and Cathay's air-cargo services. The second sub-section entitled ÂUsing the Internet to extend the supply chain to the customer' describes the current status of Traxon using material obtained from the Web.
The first section provides a good example of how computer networks can help to improve the quality of service offered and to develop new services in order to counter competitive threats. The last sub-section shows how Traxon and SNS Systems (the American equivalent of Traxon) have created a global Extranet to extend their supply chain to their customers via the Internet.
Traxon 1997
Introduction
From its origins as a small regional freight operator established in 1946, Cathay Pacific has grown to become the world's 11th largest carrier of international air cargo in 1994, and in the top ten for 1995. Cathay Pacific makes around 20 per cent of its revenue from cargo and mail business, totalling US$720 million in 1994.Introduction
Traxon
The massive flow of cargo now carried around the airline's network requires a high level of information technology support to ensure shipments are correctly assigned and that they arrive at the final destination on time. All this is handled by Cathay Unisys Booking and Information for Cargo (CUBIC) system.Since 1984, CUBIC has become an integral part of Cathay Pacific's fully computerized cargo service. Each airwaybill can be booked on the selected date and sector with instant confirmation of space. Once booked, the cargo's journey is recorded at every stage, through departure and trans-shipment in Hong Kong to arrival at its final destination and delivery to the consignee.
Cargo agents can immediately determine where their shipments are at any stage. Cargo details can be forwarded prior to departure for pre-arrival customs clearance at the final destination.
In April 1990 Cathay Pacific joined forces with Air France, Japan Airlines and Lufthansa to establish a Global Logistics System known as TRAXON, developed to provide fast and accurate cargo information and logistics support to all sections of the air cargo industry worldwide. By mid-1995, the total number of airlines connected by TRAXON amounted to 17 · that's
most of the world's airfreight, with distribution in more than 30 countries.
There are currently 424 CUBIC display units in 64 sites around the Cathay Pacific network. Since May 1993, 1680 agents in 3850 sites have been connected with CUBIC through TRAXON enabling them to make direct booking entries and gain instant access to flight information. Enhancements to the system since its inauguration have resulted in instant and automated
printing of airwaybills, production of sales reports and generation of management data.
Product & Services
At Cathay Pacific Cargo, we believe in providing the widest possible range of service options to meet the growing needs of our customers. That's why we've created Cathay Pacific Cargo Express. A range of express services designed to help your packages and cargo arrive faster, and in better shape than ever before. Cathay Pacific Wholesale Courier and Cathay Pacific Cargo Express make up the two main arms of the Cathay Pacific Express package.
Cathay Pacific Wholesale Courier, this service offers the unmatched speed of an onboard courier with even faster customs clearance, reduced transit times and minimal documentation.
- Wholesale onboard courier service
- Package weight up to 32 kg
- Package dimensions up to 157 cm
- Consolidated bags and 'less-than-bag-load' (LBL) accepted
- Simple, fully inclusive pricing
(Cathay Pacific Cargo 1997)
Cathay Pacific Cargo Express provides rapid airport-to-airport package delivery
- with unrestricted shipment size, priority dispatch and quicker clearance.
- Late close-outs and special handling for all shipments
- Package weight up to 50 kg
- Package dimensions up to 210 cm
- No maximum shipment size
- No booking required for shipments below 100 kg
- Guaranteed uplift
- Simple, fully inclusive pricing
Today the Traxon EDI network interconnects airlines and freight forwarders allover the world as shown in Figure 1.2 on the following page.
Figure 1.2: The Traxon network (Jan 2002)
OBC is a wholesale courier service operating between Hong Kong and Bahrain, Bangkok, Dubai, Frankfurt, Jakarta, Johannesburg, Kuala Lumpur, London, Los Angeles, Manchester, Manila, Osaka, Paris, Seoul, Singapore, Sydney, Taipei, Tokyo and Vancouver. This service is now available to all courier, express and general freight forwarders.
Cathay Pacific Cargo Express provides rapid airport-to-airport package delivery
with unrestricted shipment size, priority dispatch and quicker clearance.
http://www.cathypacific.com/cgo/interactive/00,,16555,00.html (Jan,2002)
In October 1998 Traxon Europe (Oct. 1998) announced that it had launched a new Internet homepage together with its American counterpart SNS Systems. This homepage (
Air Canada
Air France
Air Hong Kong
All Nippon Airways Co. Ltd
British Airways
Cargolux Airlines International SA
Cathay Pacific Airways Ltd
Emirates
Finnair Oy
Hong Kong Dragon Airlines
Japan Airlines Co. Ltd
Japan Asia Airways Co. Ltd
KLM Royal Dutch Airlines
Korean Airlines Co. Ltd
Lufthansa Cargo AG
Martinair Holland NV
Nippon Cargo Airlines Co. Ltd
Northwest Airlines, Inc
Qantas Airways Ltd
Royal Air Maroc
Scandinavian Airlines System
Singapore Airlines
Swissair
United Airlines
Varig SA
Customers, who are mainly freight forwarding businesses, can follow these links to a particular airline to request up-to-the-minute flight schedule information and freight shipment status. The following screenshot (Figure 1.3) shows the enquiry screen obtained by following the link to Cathay Pacific.
Figure 1.3: The Cathay Pacific Internet enquiry page
This Internet enquiry service has been developed due to the fact that an increasing number of freight forwarder customers now prefer to use the Internet for this type of status enquiry instead of the traditional EDI connections via host to host computer links.
Customers can also obtain online freight shipment status from 25 airlines via Internet email using Traxon's FSR (freight shipment status request) facility. The FSR facility allows customers to send several status requests to different Traxon airlines at one time. Traxon then automatically translates the email enquiries into EDI message formats and distributes them to the airlines' computers. The Traxon system then translates the EDI format answers, received from the airline' computers, back into email format and sends the emails to the customer who
made the enquiries. Customers do not require any special applications software to use this service other than Internet email access (and a subscription to Traxon).
ACTIVITY 1.4
posed a threat to their business as they had an extremely effective distribution network in the US and provided a service directly to the retail customers.
What are the three main ways in which Cathay originally (in the early 1990s) used the Traxon system to improve its cargo operations and to counter these competitive threats? How, in the late 1990s, has Traxon made use of the Internet and why has it done so?
SUMMARY
In this unit you were first provided with an introduction to networking and electronic commerce (EC). You were then reminded of the importance of strategic planning in the contemporary business world and learned of the interrelationships of business, information system (IS), and information technology (IT) strategies.
Then you studied two brief sections that gave you an introduction to the meaning and scope of the terms 'computer networks' and 'electronic commerce'. In the second part you learned why networks and electronic commerce are so important in the contemporary business world. This part also explained how electronic commerce can be used to improve supply chain management (SCM).
In the third part of the unit you studied introductory sections on 'Future trends
in networking and electronic commerce' and the 'Costs and benefits of networking and electronic commerce'.
In part four of this unit you studied a fairly long and very important section that explained why business, IS and IT strategies must be interrelated together with a number of planning approaches designed to facilitate this process. Lastly, you were presented with a case study that demonstrated how Cathay Pacific (and its business partners) had used computer networks to develop the Traxon system.
When a definition in this glossary contains terms shown in inverted commas it indicates that those terms are also defined in this glossary. You may need to refer to their definitions to fully understand the definition that contains them.
Asymmetric Digital Subscriber Lines(ADSL)
· A specific type of 'xDSL' service used to provide high-speed transmission services over short
distances. See also 'xDSL'.
Applet · A small Java program that resides on the network in a centralized server but actually runs on the client. The network delivers them to the client machine only when requested.
ARPAnet · Advanced Research Projects Agency network:
originally developed by Xerox and then taken over by the US Department of Defense to become DARPAnet. Upon cessation of the Cold War some of the DARPAnet network came into the public domain and provided the foundation for the modern Internet.
Asynchronous Transfer Mode (ATM)
· A relatively new technology intended for very high-speed data transfer. Speeds of 155 Mb/sec to 2.4 gigabits/sec. are possible using ATM over fibre optic media. It is capable of handling real-time voice and video traffic, as well as data. It is sometimes referred to as BISDN (Broadband ISDN).
Automatic Teller Machine (ATM) networks
· Networks that interconnect Automatic Teller Machines (the banking/cash dispensing machines
that can be used by the public) to a bankÊs retail banking applications.
Client-server network
· A computing environment where end user workstations (clients) are connected to micro or
mini LAN servers and possibly to mainframe super-servers.
Common carrier ·
An organization that supplies communications services to other organizations and to the public as
authorized by government agencies.
Competitive advantage
· Developing products, services, processes, or capabilities that give a company a superior
business position relative to its competitors and other competitive forces.
Competitive forces ·
A firm must confront (1) rivalry of competitors within its industry, (2) threats of new entrants, (3) threats of substitutes, (4) the bargaining power of customers, and (5) the bargaining power of suppliers.
Connectivity · In a computer network connectivity provides the means by which computing resources are able to communicate with one another, including both the physical connections to all attached devices and the logical communications between those devices.
Consumer loop · The last part of a telco telecommunication circuit that connects the consumer's home or office to the telcoÊs local exchange or the switch that is closest to the consumer's home.
Cybermediary · Fulfils the role of informational middlemen who facilitate EC. Cybermediaries include companies like Yahoo which provide search engine services, VeriSign, which issues and authenticates digital certificates, and companies that issue digital cash.
Deregulation · In 1984 the US Justice Department deregulated the US telecommunications industry by forcing AT&T to give up its monopoly and allow competing firms to sell telecomms. services and equipment. Similar deregulation has since taken place in many European and Asian countries, including Hong Kong.
Disintermediation · The process of cutting out middlemen (or intermediaries) that occurs when the supply chain is contracted.
Electronic Commerce (EC) · The delivery of information, products/services or payments via telephone lines, computer networks, or any other (electronic) means.
Electronic Data Interchange (EDI) · The transfer of structured trade data, by agreed
message standards, from one computer system to another, by electronic means.
Electronic fund transfer point-of-sale · Use of electronic payment methods, such as credit
or debit cards at the 'point-of-sale (POS)' for immediate credit to the seller's account.
Entry barriers · Technological, financial, or legal requirements that deter firms from entering an industry.
Ethernet · A data link protocol originally designed by Xerox (and brought to the market by Xerox, Intel, and DEC) that used the 'CSMA/CD' contention resolution technique. It originally employed
coaxial cable (twisted pair is now usually used) in a bus topology and operated at 10 Mbps. It can now also use a star topology.
Extranets · The extension of a private Intranet to one's business partners. Extranets are direct network links between two or more Intranets.
goals · In the context of business planning a goal is one of the overall aims of the organization that will contribute (together with the organization's other goals) to the achievement of its 'mission'.
HTML (Hypertext Mark-up Language) · A language used for defining the structure of
documents and pages that are stored on 'Web servers' for subsequent transmission to client
browsers under 'HTTP'.
HTTP (Hypertext Transfer Protocol)
· An application-level protocol that is used on the 'World Wide Web' to store and distribute 'HTML' pages.
Intelligent Network (IN) · An intelligent network can be defined as 'a telecommunications network control architecture that is a generic platform for open, distributed,
service-independent communication'. In other words, it is a structure for the control of a
telecommunications network which allows services to be added in a uniform way, regardless
of the structure of the underlying network.
Intranet · A private corporate network that utilizes Internet software technology such as browsers and Web authoring and publishing tools.
Internet · A public interconnected global network of networks consisting of tens of thousands of packetswitched networks using the Internet protoco ('TCP/IP').
Integrated Services Digital Network (ISDN)
· A relatively new data transmission service capable of carrying a wide range of signals, including text, graphics, voice and video, through the same circuits.
Just-In-Time (JIT) · An approach to manufacturing in which workers, components, and plant are allocated to a manufacturing or assembly step at the latest possible time to meet the production schedule. The two main purposes of this approach are to make production scheduling more flexible (and responsive to market demand) and to make the manufacturing process itself more efficient.
Knowledge workers · People whose primary work activities include creating, using, and distributing information.
Local Area Network(LAN)
· A communications network that typically connects computers, terminals, and other computerized devices within a limited physical area such as an office, building, manufacturing plant, or other work site.
Location services · Services and tools that are provided (on the Internet) to help users find the information they require easily and quickly. Examples include search engines such as Yahoo and meta search engines such as Dogpile.
Mission · In the context of business planning an organizationÊs mission is its overall purpose or
reason for existence.
Objective · In the context of business planning an objective is a specific, realistic and measurable target that will contribute to the achievement of one or more of the organization's 'goals'.
Point-of-Sale (POS) · Point-of-sale (POS) systems usually capture the details of products sold at a retail outlet by reading bar coded product identification labels at the checkout. POS systems often make use of large networks to interconnect the host computer located at the company's head office, the middle level computers located at the regional distribution warehouses, and the POS computers located in the individual supermarkets in each region.
Post, Telegraph and Telephone authority (PTT)
· Before 'deregulation' the provision of all national public telecommunication services was controlled by single'common carriers' (e.g. AT&T in the US and Hong Kong Telecom in Hong Kong) or by a single government controlled PTT (e.g. the Bundespost in Germany and the NipponTelephone and Telegraph Public Corporation in Japan). These single common carriers and PTTs were in effect government controlled monopolies (because of government regulations).
Strategic information · systems Information systems that provide a firm with competitive products and services that give it a strategic advantage over its competitors in the
market-place. Also, information systems that promote business innovation, improve operational
efficiency, and build strategic information resources for a firm.
UNIT 1 INTRODUCTION TO NETWORK APPLICATIONS 48
Strategic planning · The process of identifying opportunities with strategic business potential, as well as a firm's ability to exploit such opportunities with IT.
Supply chain management (SCM)
· SCM involves collaboration between trading partners throughout the supply chain in order to
improve the flow of goods, information and funds.
System · (1) A group of interrelated or interacting elements forming a unified whole. (2) A group of interrelated components working together toward a common goal by accepting inputs and producing outputs in an organized transformation process. (3) An assembly of methods, procedures, or techniques unified by regulated interaction to form an organized whole. (4) An organized collection of people, machines, and methods required to accomplish a set of specific functions.
Transmission Control Protocol/Internet Protocol (TCP/IP)
· A network/transport protocol originally developed by the US DoD and now used as the
standard protocol for Internet and also used by UNIX.
TCP/IP protocol suite
· A group of Internet applications protocols now usually provided along with ÂTCP/IPÊ, including FTP (file transfer protocol),ÊHTTPÊ, SMTP (Simple Mail Transfer Protocol) and NNTP (Network Newsgroup Transfer Protocol).
Telecommunications company/telco
· A term now used, and used in this unit, to describe the various types of organizations that provide telecomms. services to the public. Prior to deregulation these were always common carriers or PTTs. Since deregulation most countries have several telcos that compete for the available telecomms. services market.
Telecommunications authority · See ' Post, Telegraph and Telephone (PTT) authority'.
Value Added Network (VAN)
· A private, multi-path, data-only third party managed network that is used by multiple
organizations on a subscription basis.
Virtual enterprise · A form of organization that uses IT and networks to link the people, systems, and knowledge of a variety of business partners, regardless of where they are physically located, in order to exploit a business opportunity.
Vision · When used in the context of business planning refers to a high-level view of the organization that embodies its ÂmissionÊ and ethos.
Wide Area Network (WAN)
· A data communications network covering a large geographic area.
x Digital Subscriber Line (xDSL)
· A general type of high-speed transmission service that can be used over short distances. This
technology will most likely be implemented in established telco networks with existing fibre optics links but they will allow the final link to the subscriber to utilize the existing copper wire loops for distances of up to a few miles from the nearest existing fibre optic switch. See also 'Asymmetric Digital Subscriber Lines (ADSL)'.
Self-test 1.1
1. LAN WAN Distance covered
A single building (or several closely grouped buildings such as a university campus).
Several miles to thousands of miles.
Circuit ownership
the business (or university etc.)
Telecomms. Service providing companies (telcos).
2. The three important components are:
the availability of a global telecommunications infrastructure that provides high-volume, high-quality data communications capacity; standardization of connection and processing protocols, such as the TCP/IP protocol suite; and sophisticated LAN/WAN networking systems which, combined with client-server and other distributed processing technologies, support the arrangement of processors in a wide variety of ways.
1. The three major categories of EC applications are:
applications that facilitate intra-organizational business processes and collaboration; applications that deal with business-to-business communication and collaboration; and applications that deal with business-to-consumer communications and trading relationships.
Teller machine networks that allow counter clerks to carry out banking business processes. Inter-bank networking applications (such as SWIFT · the ÂSociety for Worldwide Interbank Telecommunications' messaging) that allow different banks to transfer funds electronically.
Self-test 1.3
1. Examples of networking applications include:
Airline seat reservation systems Banking ATM networks Retail POS and inventory replenishment systems LANs.
Intranets, Extranets, and the Internet: information dissemination and to support groupwork (Intranets), low cost inter-organizational networks to link to business partners (Extranets), direct business-to-consumer EC in all its forms (the Internet and the Web).
Self-test 1.4
1. To improve the collaboration between trading partners throughout the supply chain so as to improve the flow of goods, information and funds.
2. EC technologies and services provide the means by which trading partners can create the effective inter-organizational systems that are the foundation of EC.
3. In the past the cost and time required to establish the required systems and interconnecting EDI links (and the costs of their subsequent operation) was beyond the resources of many smaller businesses. The Internet and new Internet-based EDI services have now dramatically reduced the costs, time and effort required to establish and operate these supply chain links. In particular the recent introduction of Web-enabled EDI packages and services has now brought SCM technology within the reach of smaller businesses.
4. Disintermediation is the process of cutting out intermediaries (middlemen) from the traditional supply chain. In the past, many industries, such as the software industry and the airline industry, relied upon intermediaries, such as retail stores and travel agencies, to sell their products and services to the end consumer. This used to be necessary because the airlines and software companies could not afford to lease and staff retail outlets and booking offices in every city and major town in the world. However, the Web now makes it possible for software companies and airlines to market and sell the products and services directly to their customers without the use of the traditional intermediaries.
(All established businesses that trade in informational services such as banks, stockbrokers, real estate agents, music retailers, video hire chains, as well as travel agents and software distributors, are now likely to see their businesses threatened by new entrants that are Web-based also.)
Self-test 1.5
1. The five stages are:
a means of improving internal business processes (1970s and early 1980s); a competitive weapon (mid-1980s to mid-1990s); the primary tool for business process engineering (BPR) (early to mid- 1990s); a means of improving supply chain management (SCM) practices and extending the supply chain to the consumer (mid-1990s to the present); a means of managing knowledge and supporting virtual organizations (mid-1990s to the present).
2. A mission statement is a clear short definition of the primary purpose of the organization and the reason for its existence. (Mission statements are supposed to be very long-term and be elevant to the organization for at least the next decade or so. To some authorities, if a business changes its mission it ceases to be the business that it used to be.)
A goal is a description of one of the overall major business aims that the organization should fulfil in order to achieve its mission. (Goals are fairly
long-term and usually cover a strategic planning period of three to five years.)
An objective is a specific, realistic and measurable business outcome that must be fulfilled in order for the business to achieve one of its goals. (Several objectives are usually identified for each goal. A particular objective is often fairly short-term and is planned to be satisfied within the next year or two.)
3. The IS strategy defines what is required in terms of the processing of information. It often focuses on aligning planned IS provision with the business goals and information needs outlined in the organization's business strategy. It may also identify and develop means of exploiting
competitive opportunities, which may involve the processing of information or the exploitation of new IT.
The IT strategy defines the means of delivering the requirements as specified by the IS strategy. It is an enabling strategy, providing the ways that the competitive advantages identified in the IS strategy can be achieved with information technology, reliably and within budget.
4. New developments in IT often present companies with the opportunity to obtain competitive and strategic advantage. Thus IT developments can sometimes impact or even drive future business strategy. (Of course this can only happen if the business makes the effort to identify
these developments and takes them into account when formulating its business strategy.)
Case Study
1. It formed strategic alliances with other major airlines to extend its cargo route network and this was been made logistically possible by their joint use of the Traxon system and network.
It developed a new air-courier service which was supported by Traxon. It improved the overall effectiveness of its cargo and courier operations and
tracking services by the Traxon network.
2. They have created a new business alliance and a combined website with their American counterpart, SNS Systems. This new website allows their freight forwarding customers, all over the world, to submit enquiries for flight schedules and the status of their freight shipments.
They have done this (in addition to providing their customers with a better service) because an increasing number of their customers prefer to use the Internet for this type of enquiry as opposed to traditional host-to-host based EDI communications.
[You should realize that freight forwarders will have their own customers making enquiries regarding the status of expected shipment deliveries etc. Clearly, the freight forwarders will be able to provide a better service to their own customers because of the Traxon Internet enquiry system. This, in turn, will help lock in TraxonÊs freight forwarding customers.]
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