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ACCOUNTING ESTIMATES, CHANGES IN ESTIMATES, AND ACCOUNTING FOR PENSIONS AND OTHER POSTRETIREMENT PLANS: AN ETHICAL PERSPECTIVE

Author: James, Marianne L

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Abstract:

The primary purpose of financial accounting and reporting is to provide information that is useful to decision makers (FASB, 1978). Because of the complexity of financial transactions, inherent uncertainties, and the need for extensive estimates, financial information may be manipulated or "managed," thus decreasing the usefulness of the information. Accounting for defined benefit pensions and other postretirement plans is complex, involves long-term horizons with inherent uncertainties, and requires extensive estimates and assumptions, such as estimates of employee turn over rates, longevity, health care and salary trends, and discount and plan asset return rates.

Accounting for pensions and other postretirement benefit plans has evolved over time. On September 29, 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." (FASB, 2006). This standard amends but does not supercede Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for Defined Benefit Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." (FASB, 1985, 1990). SFAS 158 represents phase one of FASB's ongoing comprehensive pension and other postretirement benefit project. Additional changes, which may include changes in the calculation of expense are expected as FASB continues to examine accounting and disclosure for these defined benefit plans.

One of the major provisions of this new standard affects the methods in which pension and other postretirement benefit liabilities are calculated and recognized on sponsoring entities' balance sheets. SFAS 158 requires that entities accrue a liability to the extent that their pension and other postretirement obligations exceed the plan assets (FASB, 2006).

The provisions of SFAS 158, which was effective for fiscal periods ending after December 15, 2006 most significantly affect companies with underfunded pension and other postretirement plans. A recent estimate suggests that (prior to the issuance of SFAS 158) large companies carried approximately 300 billion in pension and other postretirement obligations off their balance sheets (Byrnes & Welch, 2005). Companies may influence the funding status of the benefit plans and thus the amount recognized on their balance sheets through their choice of the discount rates and rates of return on plan assets. This potential tool for manipulation may create ethical dilemmas for those involved in the financial reporting process.

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Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns ethical dilemmas accountants and other executives may face when selecting required estimates in accounting for and reporting of defined benefit pensions and other postretirement plans and complying with the requirements of Statement of Financial Accounting Standards No. 158. Accountants 'professional and ethical responsibilities and resolutions of the ethical dilemmas are explored. Secondary, yet important issues are the effects of the choice of estimates on financial statement results and on the usefulness and integrity of the financial statements. This case has a difficulty level of three to four and can be taught in about 45 minutes. Approximately two hours of outside preparation is necessary to fully address the issues and concepts. This case can be utilized in intermediate accounting as part of the coverage of pensions, or in a more advanced graduate class focusing more extensively on the underlying conceptual issues and the case's research components. The case has ethical, conceptual, research, and analytical components. Utilizing this case can enhance students ' oral and written communication skills.

CASE SYNOPSIS

Examples of unethical behavior by financial executives and accounting frauds, such as those at Enron, WorldCom and Adelphia Cable have renewed the public's as well as the business community's attention on the importance of truthful and ethical financial reporting. Legislation, particularly the Sarbanes-Oxley Act of 2002 has supported this renewed emphasis.

Ethicalfinancial reporting not only requires the absence of fraudulent behavior but also that entities and their accountants choose estimates that best reflect the underlying economic events. When accounting issues involve extensive estimates over a long time horizon, ethical dilemmas may arise if individuals with competing interests attempt to influence the estimates chosen. Accounting for pensions and other postretirement benefit plans requires extensive estimates over a long time horizon.

The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," which requires that companies with underfunded plans recognize the underfunded portion on their balance sheets (FASB, 2006). For some entities the effect of this provision is quite significant. Estimates chosen for the plans' discount rates and rates of return on plan assets can significantly affect the funding status and can be used to manage financial statement results.

The primary focus of this case is to examine the ethical dilemmas accountants may face when executives utilize estimates to manipulate financial statements. The case explores the effects on financial statements and their causes, effects on stakeholders, motivation of key personnel, professional and ethical responsibilities of accountants, and potential resolutions to the dilemmas. The case can be taught at the same time that retirement benefits are covered in an intermediate accounting class, or in an advanced accounting class focusing primarily on underlying conceptual issues. The case has ethical, analytical, and communication components.

INTRODUCTION

CASE DESCRIPTION*

* This is a fictitious case. Any similarities with real companies, individuals, and situations are solely coincidental.

Katie Schmaltz, CPA, CIA, has just been promoted to assistant controller of Mottins Corporation, a publically traded company that manufactures component parts for consumer electronics. For the past four years, she worked for Mottins as their internal auditor. She enjoyed her work as internal auditor, but she is excited about becoming the company's assistant controller. Katie is very proud of being an accounting professional and believes that professional ethics are of paramount importance. She considers Cynthia Cooper, the internal audit director who together with two colleagues discovered and the reported the WorldCom fraud, a role model. The company recently and unexpectedly lost its controller to early retirement. The new controller, Jim Kariton, will be joining the company in a few days. Meanwhile, Katie familiarizes herself with the financial reporting process, the general ledger, and the most recent financial statements.

Mottins Corporation has been growing and prospering during the past five years. As part of its growth and expansion project, the company recently purchased the patent for a new innovative parts manufacturing process that the company hopes will increase its sales by 100 percent over the next five years.

Mottins Corporation sponsors a defined benefit pension plan, as well as a postretirement health care plan. Virtually all of the company's employees are covered by these plans. Both plans are underfunded; the pension fund is slightly underfunded, while the other postretirement benefit plan is significantly underfunded. Consistent with the requirements of SFAS 87 and SFAS 106, no liability had to be accrued on the company's 2005 balance sheet for its retirement benefit plans.

Katie reviews the note disclosures for the defined benefit pension and retiree health care plans and notices that for the fiscal year ended December 31, 2006, the company properly adopted SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, "which amends both SFAS 87 and 106.

While reviewing the financial statement notes, Katie notices that Mottins recognized $223,000 in long-term pension and other postretirement benefit liabilities. Katie, who had read in the financial press that some companies that sponsored underfunded employee retirement plans were quite adversely affected by the provisions of the new standards, is pleased to learn of this relatively small impact of SFAS 158 on her company's financial statements.

Upon further review of the financial statement notes regarding the pension and postretirement health care plans, she notices that the company increased its discount rate assumptions from 5.5 percent to 6 percent for the year 2006. She recalculates the projected pension and accumulated postretirement benefit obligations utilizing the 2005 discount rate assumption and realizes that the total effect of the 0.5 percent increase in the discount rate was a reduction of $848,000 in total liabilities. She calls the actuary who provides actuarial assumptions and estimates for the company's plans and learns that the change was within reasonable limits and had been specifically requested by the former controller.

Two weeks later, Jim Kariton, the new controller discusses a number of forthcoming financial reporting issues with Katie. Katie is pleasantly impressed by the new controller's qualifications, personality, and interpersonal skills. She is looking forward to a collegial and rewarding professional relationship with her new superior.

At the end of their conversation, Jim instructs Katie to contact the company's actuary and request his support for increasing the discount rate by 0.25 percent in 2007 and the long-term expected rate of return on plan assets by 0.25 percent for both the pension and health care plans. Katie states that she noticed that the discount rate had already been increased by 0.5 percent for 2006. Jim indicates that a further increase is warranted by overall increases in interest rates, and that the long-term expected rate of return on plan assets should be increased to 9.25 percent due to an enhanced outlook for the plans' investments. Katie can't help wondering about the motivation for this newest increase.

A week later, while visiting CFO Mike Johans' office to drop off a report, she overhears him speaking with the pension fund manager, asking for a change in the investment mix to increase the percentage of higher-yield, lower-rated securities in the plan assets. During the phone conversation, he impresses on the fund manager that the securities markets are expected to flourish. Katie has heard that the fund manager is a good friend of the CFO and that they play golf together on a weekly basis.

Katie talks to her friend in Human Resources and learns that the CFO has apprised the Director of Human Resources about a potential change in the retirement plan to a 401(k) plan for new employees and the elimination of the retirement health care cost plan. Katie also is covered under the current plans and is concerned for her and her colleagues' welfare.

Katie is unaware that meanwhile, the CEO, John Ballon, has been meeting with individual board members for lunch and other outside activities, utilizing the opportunity to encourage board members to vote for a curtailment of employee benefit plans. John Ballon knows that the company will need to decrease its expenses to continue meeting or beating its earnings trends and targets. John's and other executives' bonuses are directly contingent on meeting earnings forecasts. In addition, John holds a large number of stock options, currently valued at 1.4 million dollars. He plans to meet earnings forecast for each year until his planned retirement in three years.

A few weeks later, one of Katie's colleagues casually mentions that her boss, CEO John Ballon has been meeting with several board members, some of whom are also on the company's audit committee. She also mentions that she overheard a reference to employee benefit plans. After considering this new information, Katie begins to suspect that the CEO may be trying to influence board members' votes regarding the retirement plans.

Katie decides to again mention her concerns regarding the planned increases in the discount rate and rate of return assumptions for the retirement plans; the controller states that the increases are justified and that the CFO recommended them. Katie asks him whether the company planned to make any changes in the retirement plans in the future. The controller indicates that he knows of no such plans and again asks her not to concern herself with these issues. He also hints that if financial results are favorable for the company he will recommend that she receive a bonus for all her hard work.

Katie decides to call the company's former controller at home to inform him of her promotion to assistant controller and perhaps gain some insights into the prior year discount rate change. After a few minutes of pleasant conversation, she asks him about the increase in the discount rate. The former controller tells her that "top management requested the change." He also says that he is enjoying retirement and his part-time teaching position at the State University. At the end of the conversation he advises her to be diligent about her new position and to always remember what the "CPA" and "CIA" certifications stand for. Katie feels that she has been subtlety warned. Katie is uncertain about what she should do.

ASSIGNMENTS/QUESTIONS

1. SFAS 158 changed how liabilities for pensions and other postretirement benefits must be calculated; as a result, some entities- including Mottins - that did not have to recognize related liabilities on their balance sheets under SFAS 87and SFAS 106 must now do so under SFAS 158. What factor(s) account(s) for this difference?

2. How are underfunded pensions and other postretirement benefit obligations recognized on the balance sheet after adoption of SFAS 158? What was the effect on Mottins' balance sheet?

3 Why would increasing the discount rate assumptions affect the pension plan and health care plan liabilities recognized on the balance sheet? How would the planned increase in the rate of return on plan assets likely affect Mottins' financial statements? Do you believe that the changes in the rates requested by the controller and CFO are reasonable? Support your answers.

4. If Mottins company had not increased its discount rate during 2006, how would its financial statements have differed. How did the change affect the company's stakeholders?

5. Review the authoritative literature regarding accounting changes and relate it to the discount rate and rate of return changes for pensions and other postretirement benefits. Under what circumstances are changes in estimates justifiable? Does the situation in this case meet the criteria?

6. Evaluate the behavior of the individuals involved in this case from an ethical perspective. What are their ethical and professional responsibilities? What may be the motivation for their behavior?

7. What options does she have to address these issues and potentially solve her dilemma?

8. What would you do if you were in Katie's position? Justify your answer.

9. Identify a large company that has been affected significantly by the implementation of SFAS 158. Briefly summarize the effect on the company's balance sheet.

10. What changes are expected under phase two of FASB's pension and other postretirement benefit project? How would these potential changes affect entities' financial statements?

11. What types of disclosures have to be made by the company regarding its benefit plans. Do you believe that the disclosures enhance the usefulness of the financial statements?

References

REFERENCES

Byres N. & D. Welch. (2006, January 30). More Than Meets the Eye. Business Week, 3969, 84.

Financial Accounting Standards Board. (1978, November). Statement of Financial Accounting Concepts No. 1. Objectives of Financial Reporting of Business Enterprises. Stamford, CT.

Financial Accounting Standards Board (1985, December). Statement of Financial Accounting Standards No. 87. Employers' Accounting for Defined Benefit Pensions. Stamford, CT.

Financial Accounting Standards Board (1990, December). Statement of Financial Accounting Standards No. 106. Employers' Accounting for Postretirement Benefits Other Than Pensions. Norwalk, CT.

Financial Accounting Standards Board. (2006, September). Statement of Financial Accounting Standards No. 158. Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statement No. 87, 88, 106, and 132 R. Retrieved on October 12, 2006 from www.fasb.org.

U.S. Congress. (2002). One Hundred Seventh Congress of the United States of America at the second Session. Sarbanes-Oxley Act of 2002. H.R. 3763.

AuthorAffiliation

Marianne L. James, California State University, Los Angeles

mjames2@calstatela.edu

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 14

Issue: 2

Pages: 37-42

Number of pages: 6

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412030

Document URL: http://search.proquest.com/docview/192412030?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-16

Database: ABI/INFORM Complete

Document 17 of 100

RANDY DANDY: CHANGING AGENTS-WHO CAN YOU TRUST?

Author: Brown, Steve; Brewer, Peggy; Gakpo, Seth; Elbert, Norb

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Abstract:

Harold just got off the phone after talking to his son-in-law Randy. The news wasn't good. He was afraid they were going to lose their third real estate agent this year. Harold Butts and Randy Dandy had formed a partnership to sell houses 18 months ago. For the past two years, Harold and Randy had been looking for a business they would feel comfortable starting. Harold had always wanted to build houses, but he was working full time. A partnership with Randy to build new houses and/or renovate and flip older houses made sense. Harold was willing to handle the financial end of the partnership if Randy would take care on the construction end. Prior to forming the partnership with Harold, Randy had quit his job as plant manager of Tennsmith and formed a partnership with another general contractor to build homes in the middle Tennessee area. After building their first spec house, Randy felt he was assuming the lion's share of the work and dissolved that partnership.

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Headnote

ABSTRACT

The primary subject matter of this case centers on start-up issues of an independent contractor company. Secondary subject matter includes contracts, ethics, and family issues. The case has difficulty level of three (junior level). The case is designed to be taught in one class hour and is expected to require three hours of preparation.

CASE SYNOPSIS

Randy Dandy and his father-in-law, Harold Butts, formed a partnership in residential construction and flipping homes. They soon learned the perils of working in the real estate industry where the realty agents seemed to play by fast and easy rules.

SWITCHING AGENTS

Harold just got off the phone after talking to his son-in-law Randy. The news wasn't good. He was afraid they were going to lose their third real estate agent this year.

Harold Butts and Randy Dandy had formed a partnership to sell houses 18 months ago. For the past two years, Harold and Randy had been looking for a business they would feel comfortable starting. Harold had always wanted to build houses, but he was working full time. A partnership with Randy to build new houses and/or renovate and flip older houses made sense. Harold was willing to handle the financial end of the partnership if Randy would take care on the construction end. Prior to forming the partnership with Harold, Randy had quit his job as plant manager of Tennsmith and formed a partnership with another general contractor to build homes in the middle Tennessee area. After building their first spec house, Randy felt he was assuming the lion's share of the work and dissolved that partnership.

The First Agent

Randy contacted John White, a Bob Parks real estate agent who sold Randy's first spec house. John was eager to show them a piece of property located on a by-pass near a new shopping center and just a mile from Parks Realty ' s most exclusive subdivision containing million dollar plus homes. Harold was familiar with the area because it backed up to a subdivision he lived in about 20 years ago. The property was not on the market, and John assured them nobody else knew about it. He was sure they could get the property way below its market value. It had a house on it that was being sold separately. The house could be moved and several condominiums could be built on the five-acre piece of property if they could get approval from the city council. After several days, John called and said the land had a contract on it. Apparently, someone else had known about the property and made an offer.

Within a week, John contacted Randy about a home that he thought they might buy at a reasonable price, fix up, and flip for a nice profit. It was a smaller three-bedroom home on a cul-desac in a new neighborhood just a mile from Middle Tennessee State University. Randy and Harold looked at it and decided it was an ideal location and should sell quickly. If they did not get the price they would like to sell it for, they were sure they could always rent it to students because there were a lot of homes in the subdivision already rented to students. In fact, one of the houses on the cul-desac was being rented to students for $1,000 per month.

They arranged with a local bank to have their financing approved before they made an offer. They made an offer of $105,000 for the house. Randy estimated that they would have to spend another $5,000 before it would be ready to sell. At this price, they could rent it for more than their monthly mortgage payments.

John said two other offers had been made that were higher than theirs, and urged them to increase their offer. Randy and Harold, however, decided to stick with their initial offer. After the offer was made, John called and said that the sellers accepted their offer, explaining that the couple did not want to wait until the other potential buyers secured financing. Both Harold and Randy were never sure that the two other buyers actually existed. This worked out well for John. He got the commission for selling the property and his wife, who was working for the closing company, got a commission from the closing. In addition, John would get a new listing after renovation and wanted to use his wife's settlement company for the closing when the house sold.

The only unexpected repair cost was replacing the siding on the back of the house that had suffered hail damage. Within weeks, they had the house painted, added new carpet, fixed the siding and had it on the market. They asked their agent for help pricing the house, however, they received little. Their best estimate was a price of $135,000. They based this price on the sale of a similar but smaller home in the same subdivision. They began getting low-ball offers, and were urged by their agent, John, to accept them. They finally got an offer for $125,000, but were asked to pay the buyer's closing costs. Both Randy and Harold felt that the house should sell for more money.

Harold suggested that they go ahead and rent the house, rather than sell it because the mortgage interest payments were beginning to eat into any profit they were going to make. Harold also felt that they should be on the lookout for other homes around the University that they could buy, fix up, and rent to students. If they could get enough of them, their initial investment could be recouped, and Randy would have a stream of income when he got ready to retire as he did not currently have a retirement plan. They asked John to find them some more properties they could fix up and rent to students for a positive cash flow. However, John never followed up on the request.

As it turns out, Bob Parks Realty, the largest Realtor in middle Tennessee, was opening up a new section in one of its subdivisions near the Blackmon community. Randy called Harold and encouraged him to consider it. He had a friend that had bought a home near the subdivision just three years earlier and had sold the house for twice what she paid for it.

The subdivision had some distinct advantages. A new interchange was being built on 1-840 less than a quarter of mile from the entrance to the subdivision and was served by a new road that cut to the heart of Murfreesboro. It was also only a mile from an interchange on 1-24 and a new shopping center that was to become the largest in the state of Tennessee. It was also in the Blackmond school district, representing the second most sought after schools in the county, and the area had one of the highest real estate appreciation rates in the county. However, the lots were selling for $60,000 each, far more than either Harold or Randy had ever anticipated spending for a lot.

Parks Realty was having a drawing for the lots in the expansion area. All a contactor had to do was come up with $1,000 to get in the pool and then the rest of the money once the drawing was complete. John indicated that there was a great demand for the lots. There was a two-lot limit per contractor. All of the homes in the currently developed portions of the subdivision were sold, and many of them had sold even before the homes were finished. Randy and Harold looked at the lots, and they decided to enter the lottery. However, Harold said there were two or three lots that would not be acceptable if they happened to draw them. After the lots were drawn, the unacceptable lots were the ones they got.

Later they were told by a reliable source that the lottery was rigged. The contractors that had worked with Parks in the past got special treatment. John told them that they would get special treatment next time. They also found out that there were five lots left. John told them that the contractors that drew these lots could not come up with the money to close on them, but neither Randy nor Harold believed this. Three of the unsold lots were right beside theirs and the other two were directly across the street from theirs. John kept pressuring them to buy the last three lots on their side of the street.

Harold and Randy discussed these acquisitions with their banker. While their banker supported the idea, the loan committee would fund only one more house and lot. Their banker explained that the Bank got a lot less scrutiny from the bank regulators as long as they kept the total loan amount to an individual business under a million dollars. A new source of funding became available through a local finance brokerage firm that would finance ninety percent of the appraised value of the lot and home package at one percentage point above the prime interest rate. Harold and Randy decided to pursue the loan through the local brokerage firm and put down earnest money on the three lots. They quickly found out that obtaining a construction loan for the lots and houses through the brokerage firm would not be as simple as dealing with a local bank.

John continued to pressure Harold and Randy to complete the financing saying that soon the lots would go back on the market and they would lose their earnest money because the required time for closing was fast approaching. Both Harold and Randy offered to speak with Bob Parks directly to extend the closing date on the three lots, but their agent discouraged this. John said that it just complicated things and would not keep Parks from selling the lots to someone else. He kept telling them that he talked to Mr. Parks on a regular basis and gave him advice as a business confidant. Harold spoke with one of Mr. Park's other agents and was told that John did not talk to Bob Parks on a regular basis and, certainly, did not give him advice on how to run his business. The other agent said if Mr. Parks had other buyers for the lots he would have sold them already.

By the time Harold and Randy had received the financing for the other three lots, they had started the first two homes in the subdivision. The homes they were building were large and were being priced between $375,000 and $400,000. Homes within this price range were the best-selling homes in middle Tennessee. Most of them were being sold before they were finished and some before they were listed.

Because these were high-end houses, Harold asked John to show them similar houses so he could get some ideas on how to finish them so they would show and compete well in the market. After many delays and excuses from John, Harold was shown two houses: a model home and another one that John had listed. It was obvious to Harold that he could have done this on his own. John offered critiques of what he personally liked and disliked about the two houses, but did not offer any constructive pointers as to what would make Harold and Randy ' s homes more marketable. Harold had the distinct feeling that John thought this was a waste of his time. John told Harold not to sweat it. He would have them sold before the paint was dry.

Every time Harold and Randy met John, he was wearing flip flops and shorts. He said he liked a job that allowed him to dress this way. He had already earned a three-figure income for the year and liked a job that allowed him to stay at home and play golf unless he had a house to show. The one time they met him at Park's office, they met in the conference room. On the way to the meeting room, Harold commented on an office that was filled with selling awards. John told them he did not think too much of those agents that displayed those kinds of awards. They were just "show offs". Harold and Randy felt that John was slow in listing their homes. When they were listed, they were listed along with other homes in older parts of the subdivision and were not displayed well. They asked to have this corrected, but it was never done.

Changing Agents

Randy hired a former building contractor, Sam Fulks, who had built many of the homes in the earlier sections of the Blackmon subdivision, to paint his houses. He had thirty years building experience including developing an entire subdivision of his own. At the time, he was down on his luck. His wife had just passed away and his stepchildren had apparently swindled him out of most of his assets. He was grateful for the work, and was a great source of helpful information and advice for Harold and Randy. Sam's wife had been one of the more successful agents for Bob Parks. He told Randy and Harold that he looked at their flip house and that it should have already sold for between $140,000 and $145,000 easily and in a relatively short period of time if only John would have pushed it. However, John had not sold the house nor had he shown very often.

Sam also introduced them to one of Park's best selling agents, Carol Hamilton. Harold and Randy were beginning to lose confidence in John and decided to give the last three houses to Carol. Carol had made over $500,000 in commissions the previous year and was well on her way to surpassing that amount the current year. Harold ask her if she would be interested backing them financially on some additional new houses. Carol said that although she was not interested in speculating on new houses, she was investing her money in rental property whenever she ran across a good deal but did not indicated that she was seeking a partner.

Once the paint was dry, John still had not shown the houses and had raised the prices twice. He informed Harold and Randy that he was not going to show the house on the weekends the Titans played. He was going to let his father show them. That did not sit well with either Harold or Randy. The first time John's father showed the house, he sat in his car and made a weak effort to greet the couples looking at them, and did not accompany them into the house or spend time with them after they looked at the homes. Carol had been giving Randy advice on how to finish the house that John had listed, but asked Randy to keep it hushed because it was not considered proper and that she could get in trouble for doing it. She told Randy that she would reduce her fee or forego it just to sell a house. Randy approached her about taking the houses away from John and listing them with her. She said that she would hold open house every weekend, but she was not allowed to steal listings from Park's other agents. They could switch listing agents without a problem, but it would have to appear as though they made the decision to list with her on their own with no influence on her part.

Harold and Randy transferred the listings to Carol. The first weekend she was to show the houses, she was nowhere to be seen. Someone else was showing the homes for her. Harold and Randy found out that in order for Carol to cover all of her listings, she arranged with other agents to show her properties by offering to split the fees with them. When Randy's daughter, Eve, got her real estate license, Randy asked Carol to take her under her wing and let her start showing the houses. Eve not only held open houses every weekend, she stayed on the construction site all week long so she could show the houses whenever anyone came by. The one weekend that Carol did show the houses, she would be gone for long periods of time while the houses were open with nobody to show them. Carol told Randy that she was just doing them a favor because they did not get a lot of traffic in the fall.

As the fall season continued, Carol had less and less contact with Harold and Randy. Eve was still showing the houses, however, she had not had any offers. At end of November, Carol told Randy that she expected to have the first two homes sold by Christmas. She commented that said she had not sold anything but expected to close something by the end of the year. She was not used to such dry spells and was ashamed of herself. By the first of the New Year, neither Harold nor Randy had heard from Carol.

Harold called Carol and set up a meeting to ask her what had happened to two prospective buyers-both of whom had contacted her because of her reputation. She told him that one of the families was from Atlanta and when she was showing the house their son was back at the motel room with a severe stomach ache. As it turned out, the boy did not want to move and change schools so his parents decided not to move until the following summer. The other prospect was a pilot for Jet Blue. According to Carol, his wife had seen the house and made up her mind to buy it, but she needed to have her husband's approval. Unfortunately, the husband always had an excuse for missing a scheduled meeting. Harold and Randy never found out if Carol had continued to follow up with this couple.

Eve continued to be at the construction site every day to show the homes. However, there was no more contact with Carol until February, when Harold asked for another meeting. At that meeting, Carol showed Harold and Randy a listing of all the houses for sale in the subdivision and explained that there was now a year's supply of houses on the market in their price range when there should be only a six months' supply. She also said that some of the contractors in the subdivision would be giving their homes back to their lenders. Harold asked her to come up with a way to sell the homes because their interest payments were now up to $10,000 per month. Her first recommendation was to drop the prices on all the houses by $40,000. Harold spoke with another Realtor who said that dropping the prices by such a large amount all at once was not a good idea. Sam Fulks, their painter, told Harold he lost sleep all night when he learned about the recommended price reductions. Carol was apologetic for not staying in contact with them and suggested that they should meet at least once a month until all the homes were sold.

A month went by after dropping the prices, and Carol still did not contact Randy or Harold. Harold asked for another meeting in March. Carol informed them she had not shown the houses at all since their last meeting. Randy said he had heard that she had shown the house to a couple in December, but they bought another house she had listed across town. This brought a sharp response from Carol. She claimed that they wanted a bigger backyard and that the home builder was just there by coincidence to show them the house and negotiate any changes that they might want to make. After Carol left, Randy told Harold he did not believe in coincidences. Randy also suggested that maybe they should offer a commission to other agents if they were able to sell the houses.

As soon as the selling bonuses were offered they started getting calls from other agents to sell the houses. By the end of the month, they had sold two houses. These houses were sold by Eve. Carol did not show the houses again nor did she ever offer to hold an open house. She did not schedule any follow up meetings nor initiate any contact with Harold or Randy except to tell them she had a contract on one of the houses. Harold asked her to consider reducing her fee because they had taken a hit by reducing their price, paying a closing fee and a selling bonus to the real estate agent who brought in the buyer.

Harold did not expect her to do this. He was just testing her to see if she was "blowing smoke" when she told them that she would do what ever it took to help them out. Additionally, he had concerns about her getting rewarded when she was not the one making the effort to sell the houses. They had gotten word that she had a vested interest in one of their competitors and had managed to close deals on all of his houses in a different part of the subdivision. In fact, he was the same contractor who conveniently showed up to help sell the house that Randy had questioned her about during the March meeting. Carol said she was not comfortable with reducing her fee because she felt obligated to share her fee with Eve as well as with the other agent who held the original open houses. At this point Randy and Harold decided to list the houses with Eve.

Changing Once Again

The last two houses were only partially finished thereby giving an interested buyer the option to make changes such as the selection of flooring, paint, cabinets, and fixtures. Within weeks, Eve had sold one of the houses. Harold asked both Randy and Eve to document all the changes and requests that the buyer made and have them co-signed by Randy and the buyer. The buyer began making substantial changes over and above what was allowed on the contract. It became evident to Harold that the costs were escalating rapidly, and he found that these modifications to the original plan were not being documented. The changes became so time consuming that a revision of the original contact had to be made because time ran out before all of the changes could be made.

The buyer became more demanding as the closing time for the second contract approached. As an example, the doors were repainted twice at the buyer's insistence because he claimed that they had not been repainted even though he saw them being repainted. He also claimed that there was a hump in the driveway, however, it could be observed only at night when his car lights were shining on the driveway. Because of all the difficulties Randy and Harold were having with closing on the sale of the home, Harold asked Eve to check everything so there would not be a hitch when they got ready to close in two weeks.

The day of the closing, Eve called and said the buyer did not have the final approval for the loan because his mortgage company had not made a final appraisal. Eve said she was sorry that she had not made sure all the upgrade changes were signed by the buyer and most of the costs were going to have to be absorbed by Randy and Harold. However, she was adamant that it was not her responsibility to see to it that the final appraisal was completed and that the funding had been approved.

Just after re-listing the houses with Eve, there was a shake up in the management structure at Bob Parks. Eve's branch manager was being demoted as the vice president of Parks Realty and replaced by a younger, less experienced individual. Eve's boss had his own real estate agency before merging with Parks and decided that he could make more money by joining a smaller rival firm in Murfreesboro. Eve liked her manager and felt he got a raw deal. She had made up her mind to follow his lead and switch to this new company as well. Because Parks' agents had exclusive listings for the homes in the subdivision where Harold and Randy built, they were going to have to find yet another Parks' agent with whom to list their newly construction homes in the Blackmon subdivision.

AuthorAffiliation

Steve Brown, Eastern Kentucky University

Steve.brown@eku.edu

Peggy Brewer, Eastern Kentucky University

Peggy.brewer@eku.edu

Seth Gakpo, Eastern Kentucky University

Seth.gakpo@eku.edu

Norb Elbert, Eastern Kentucky University

Norb.elbert@eku.edu

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 14

Issue: 2

Pages: 75-81

Number of pages: 7

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411953

Document URL: http://search.proquest.com/docview/192411953?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-16

Database: ABI/INFORM Complete

Document 18 of 100

Process-Aware E-Government Services Management: Reconciling Citizen, Business and Technology Dynamics

Author: Taleb-Bendiab, A; Liu, K; Miseldine, P; Furlong, S; Rong, W

ProQuest document link

Abstract:

E-government is becoming a reality rather than a theoretical ambition; however, achieving the e-government anticipated benefits is still illusive, which is exacerbated by the continuous and ever changing business processes, IT, and user requirements. This article outlines the current state of e-government research and the challenges emerging from the need to integrate citizen, business, and technology into seamless e-government solutions and services. In addition, the article proposes a semiotics-informed framework for process-oriented e-government services, modeling, and management, which is used and tested on laboratory-based case studies. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: e-government; natural modelling; process management; separation of concerns; self-governance; semiotics

ORGANISATIONAL BACKGROUND

E-government is often seen as an instrument for public sector modernisation, including efficiency improvement and wider-access to national and regional public services via ICT (Liu et al., 2005b). Though, as reported in early studies (Adeshara et al., 2004; Cohen & Eimicke, 2002; Dittrich et al., 2002; Huang et al., 2005; UNEAS, 2003; Wagner et al., 2006), the level of adoption of e-government varies widely across regional and national boundaries, and is very much affected by economics and sociotechnical factors, with little to no citizen involvement in the design of e-government services. Such a participative approach is already provided in many e-commerce portals, and has been highlighted in the UK 7-point action plan (Prime Minister's Strategy Unit, 2005), setting a priority to implementation personalisation of eServices, as highlighted by Leadbeater (2004), 'By putting users at the heart of services, enabling them to become participants in the design and delivery, services will be more effective by mobilising millions of people as co-producers of the public goods they value.'

Much research and development is now underway focusing on many aspects of e-government ranging from e-citizen, e-services, to e-administration, with focus of many research concerns including risk management, data and knowledge management, and interoperation, information interchange standards and design frameworks for e-government systems such as: Yet, numerous recent reports are still reporting on the general 'software crisis' (Gibbs, 1994; RAE & BCS, 2004) within e-government; that is, e-government services are failing to deliver promised functionality (The Economist Reportage, 2000; Heeks, 2003), including on cost and on time delivery.

SETTING THE STAGE

Given year-on-year cost saving demands on the public sector to reduce operating costs through more efficient purchasing strategies (Gershon, 2004; Office of the Deputy Minister ODPM, 2003), e-Reverse Auctions (e-RAs) represent a viable strategy to support objectives. However, in spite of the perceived cost saving benefits, recent studies (e.g., B2B Research Centre, 2003; Beall, Carter, Carter, Germer, & Jap, 2003; Emiliani, 2006; Jap, 2002, 2003) suggest some deficiencies in the e-RAs process. Emiliani (2006), points out that 'poor sourcing decisions, higher costs, and less cooperative supplier relationships are a common result of e-RAs-the opposite of what buyers hoped to achieve from e-RAs' (p. 6). Lapiedra, Smithson, Alegre, and Chiva (2004), for instance, found that suppliers who had won an e-RA by bidding below their margins could quickly recover these initial losses in later negotiations, therefore questioning the predictive value of the bidding process. The consequence of this is that buyers may actually pay more in total cost of purchase than they would have done if they had chosen one of the more realistic supplier bids (Lapiedra et al., 2004). Kern and Willcocks (2002) found that most buyers and suppliers realise the importance of adequate communication and information exchange for efficient buyer-supplier interaction, but actually fail to address the criticality of this dimension in their relationships. The authors point out that 'to ensure good communication was not an easy process. It often needed through planning of an appropriate communication structure, which few [participants] actually had done' (Kern & Willcocks, 2002, p. 14). This is critical in relation to the generation of equitable buyer-supplier relationships within the Public Sector that has identified e-reverse auctioning as a potential cornerstone of its efficiency pursuits.

CASE DESCRIPTION

e-Reverse Auctions emulate closely and address specifically the stated intention for a European Action Plan towards an information society; the so called 2010 project as detailed in the Lisbon agreement. The nature and scope of these initiatives relate primarily to an evaluation of the eProcurment processes used within the public sector through the adoption and diffusion of e-RAs. However, the 2010 framework remains prescriptive and lacks description on how e-RAs should be embraced as realistic strategies and options to traditional tendering. In seeking to evaluate the scalability of e-RAs through developing appropriate criteria to support management decision making, e-RA seeks funding from EPSRC with the aim to "Develop a comprehensive set of business scenarios that are in acted through dynamic simulation models, which demonstrate the impact of different e-RA strategies in support of eGovernment."

The grounding associated with the facilitation of e-government will be through a framework encapsulated from systems evaluation factors that reflect the reasoning, motivations, and preferences of professionals engaged in buyer-supplier relationships. Consequently, e-RA will identify a set of effective attributes, including product type, key informants, market conditions, process issues, and supplier management for eRA efficiency gains to be achieved.

Williamson's (1981) transaction cost economics (TCE) appears to be the most commonly used theoretical background for the investigation of the efficiency of buyer supplier relationships (Olsen & Ellram, 1997). It combines both behavioural aspects and the economic theory of the firm (Cousins, 2002), thus explaining the circumstances for forming different buyer-supplier relationships by acknowledging both the role of information and the context, a trait which proves particularly useful for e-RA case research.

According to Williamson (1975, 1981), there are two basic governance structures for organisations, namely markets and hierarchies. As each governance structure is associated with certain transaction costs, the goal is to choose the most appropriate one, that is, most efficient structure/relationship. The decision of the right governance structure/buyer-supplier relationship, however, does not only depend on contextual factors (e.g., the level of competition; the level of uncertainty; the frequency of the transaction; the level of transaction-specificity) (Williamson, 1981). Behavioural factors such as bounded rationality of the decision-maker or opportunism, equally affect the decision by directly influencing the information available and that which is taken into account when making the decision. Consequently, the decision on the governance structure is never objective or complete, but rather to a certain extent biased and limited (Williamson, 1981). The basis of this argument, and indeed its relevance to e-RA, is the extent of subjectivity in buyer-supplier relationships. This situation is a result of the dynamics within business processes, which consequently requires significant formalisation through a scaleable methodology.

Within the literature, various classifications and models of buyer-supplier relationships have been suggested, with e-RA being the latest. These models are all based on various criteria, facets, influencing factors, and outcomes. A review of 38 articles reveals several recurrent intrinsic and extrinsic characteristics of buyer-supplier relationships (e.g., Lamming, Cousins, & Notman, 1996). Intrinsic characteristics (e.g., commitment) tend to be regarded as inherent in any relationship and describe the inner nature. Extrinsic characteristics (e.g., success), however, tend to represent certain outcomes or results of the relationship. The function of extrinsic characteristics is not merely descriptive, but directly judgmental in terms of indicating the general quality and efficiency of a relationship. However, Boddy, Cahill, Charles, Fraser-Kraus, and Macbeth (1998) point out that it is far from clear how the performance of a relationship can be evaluated. Following the studies of Gibbs (1998) and O'Toole and Donaldson (2002), reduced costs, delivery time, and the overall quality of the product are the most commonly used objective indicators for the effectiveness of buyer/supplier relationships. Lamming et al. (1996), however, stresses that relationship assessment is not a one-sided, objective affair. It always needs to take into account both the buyer and the supplier's view. O'Toole and Donaldson (2002) found that particularly intangible factors (such as satisfaction) play an important role for determining the actual performance of a relationship. Many authors (e.g., Jap & Ganesan, 2000; Mohr & Spekman, 1994) consider satisfaction as a crucial indicator for successful relationships. The level of conflict (e.g., Jap & Ganesan, 2000; Mohr & Spekman, 1994) appears to be another important indicator for successful buyer-supplier relationships. As the perception of the quality of a relationship is a very subjective affair (e.g., Lamming et al., 1996; Ambrose, 2005), the quality and appropriateness of a relationship in this research will mainly be assessed by relying on the subjective indicators of perceived success, the level of satisfaction, and the level of conflict (Al-Sebie & Irani, 2005).

It is argued that current development practice is mainly crisis driven, with little concern for the effect on the organisational structure or understanding of the benefits to citizens (Akman, Yazici, Mishra, & Arifoglu, 2005; Gronlund, 2000). E-RA is concerned with facilitating the management of change based upon systematic evaluations that reflect the reasoning and preferences of management professionals engaged in procurement auction activities, that is:

* The most suitable interventions for e-RAs

* The constraints and settings for buyer-supplier relationships

* The extent of efficiency gains associated with e-RA change

A primary objective of the case research will be to enable practitioners to relate specifically to their own organisational environments to conceptualise, consolidate, and gain a deeper understanding of knowledge for e-RA change. E-RA will provide guidance for problem solving involved in these difficult organisational governmental contexts. As the public sector strives for improved efficiency and effectiveness, it needs the management ability to monitor the effects of change and learn from existing practice. E-RAs consolidated framework and worksheets for accessing relevant e-RAs and evaluating cross-functional systems will provide an innovative methodology.

CURRENT CHALLENGES

An e-RA case analysis will demonstrate through the development of a visual toolset of dynamic simulation models that local authorities and other public sector organisations can make informed cost-effective procurement decisions at strategic, tactical, and operational levels. This is made possible through the identification and simulation of weighted criteria supportive of procurement transformation relative to policy change driven by a national mandate. The objectives that will support the achievement of e-RA are:

1. To formulate a taxonomy of organisational, human, and technical interventions for successful eReverse Auctions

2. To develop cause-effect models that relate to buyer-supplier relationships derived from the taxonomy developed in 1 and their effects (third, fourth, and higher or-der)

3. To generate a portfolio of cause-effect animation scenarios using system dynamic modelling together with supporting interfaces

4. To deliver and evaluate a simulation workbench that is populated by a library of simulation models that demonstrate the impact of different e-RA strategies in support of e-government

The EeRA research will be experimental with embedded evaluation resulting in good practice that can be disseminated; it will in effect promote inclusion by design.

Traditional e-RA processes comprise of four key stages; opportunity assessment, market making, transaction, and implementation, which are fully recordable for issues of traceability and transparency. E-RA can be quick to instigate, have a potentially low entry cost, and encourage good procurement practice. While e-RAs are not necessarily indications of procurement excellence, they can be a catalyst to support the introduction and continued operation of best practice and benchmarking. Arrowsmith (2002) argues that e-RA should take place in the context of good procurement practice and EU procurement rules, therefore harmonising practice across Europe. A reduction in the purchase price of goods and/or services is the main component of a business case for the use of e-RA, especially given the Best Value initiative used within the public sector. Such a reduction in cost can occur in real time through competitive bidding between suppliers, in a similar way to eBay through peer-to-peer models. This can be through improved pricing terms for spot purchase, or for the duration of the contract for longer term strategic agreements. It is not always, however, true that the cheapest price is the best deal. Factors other than price need to be considered, such as quality, delivery, product warranty, service, and specification.

While many e-RA are used as price reduction strategies, only such an approach can use a blended weight bidding format for combinations of these criteria, thus ensuring that the best value (as determined by the purchaser) is attained. Effectively, the e-RA process, which is clearly dynamic, provides reassurance that the organisation is buying at market rates rather than using traditional static tendering processes. Indeed, it has been argued by Beall et al. (2003), that e-RA should be centrally managed with strong leadership to ensure effective choice and to realise the maximum levels of benefits through effective management of the people and process challenges.

The investigators proposing e-RA have found from their previous research that the notion of 'success' or 'failure' within the context of IS project is primarily attributable to the extent to which services meet user expectations. This underlines the significance of both the technology and 'soft' human and organisational issues involved in IS evaluation (Irani, Ezingeard, Grieve, & Race, 1999; Remenyi et al., 2000). Consequently, there is a need for a research methodology that involves and enfranchises both the organisation and its senior staff. Simulation models develop deeper understanding of complex systems not simply by inspection of the results but through direct participation in the process of model construction and experimentation. The models provide an opportunity to explore and enhance the decision makers' understanding about decision options, identify relevant factors, and to establish how they affect strategic, tactical, or operational decisions. To achieve this, technology now supports visual toolsets that interface with the decision maker, not the simulation or software specialist, therefore increasing the accessibility of such decision aids. Therefore, there is a need to develop appropriate visualisation components and to provide a library of models or templates appropriate. Figure 1 below represents the methodology proposed by the investigative team, and mixes a combination of qualitative and quantitative approaches, set against phased research. These approached include research design, data collection and model building and, data analysis and evaluation.

The immediate beneficiaries of the e-RA project will be local governments. At present, their divisions are exposed to significant public and political pressures as the provision of ICT functions permeate services (West, 2004). Although the 100% accessibility target for 2005 appears at an end point, from other perspectives it is modest. Other central and political objectives will drive further changes within the local government sector (Evans, 2003). The evaluation tools from e-RA will assess and identify good practice to inform and improve the change process in the future.

CONCLUSION

The case research described in this article proposes a detailed, achievable, and valid approach to evaluating the complex issues associated with e-RAs. Additional authoritative research reports inherent adverse consequences through the electronic transactions involved. The EeRA investigation will analyse these situations in the context of local government, and propose a set of fundamental business scenarios to enable more effective decision making within the e-procurement process.

ACKNOWLEDGMENT

The collaboration and planning to develop this project proposal was undertaken within the Network for eGovernment Integration and Systems Evaluation (eGISE). This is a research network funded by the Engineering and Physical Sciences Research Council in the UK (grant GR/T27020/01)

References

REFERENCES

Akman, L., Yazici, A., Mishra, A., & Arifoglu, A. (2005). eGovernment: A global view and empirical evaluation of some attributes of citizens. Government Information Quarterly, 22, 239-257.

Al-Sebie, M., & Irani, Z. (2005). Technical and organizational challenges facing transactional eGovernment systems: An empirical study. Electronic Government, 29(3), 247-276.

Ambrose, E. (2005). An analysis of relationship perceptions within buyer-supplier dyads. In Proceedings of the 14th IPSERA Conference (pp. 341-354). Archamps, France.

Arrowsmith, S. (2002). Electronic reverse auctions under the EC public procurement rules. University of Nottingham, Public Procurement Research Group.

B2B Research Centre B. B. (2003). Analysis of Reverse Online Auction Survey. B2BRC

Barling, B. (2001) Creating sustainable value through B2B sourcing. AMR Research.

Beall, S., Carter, C., Carter, P. L., Germer, T. H., & Jap, S. (2003). The role of reverse auctions in strategic sourcing (CAPS Research). Retrieved February 17, 2007, from http://www.capsresearch.org/publications/pdfs-protected/beall2003.pdf

Boddy, D., Cahill, C., Charles, M., Fraser-Kraus, H., & Macbeth, D. (1998). Success and failure in implementing supply chain partnering: An empirical study. European Journal of Purchasing and Supply Management, 4, 143-151.

Cousins, P. D. (2002). A conceptual model for long-term inter-organisational relationships. European Journal of Purchasing and Supply Management, 8, 71-82.

De Boer, L., Harink, J., & Heijboer, G. (2002). A conceptual model for assessing the impact of electronic procurement. European Journal of Purchasing and Supply Management, 8(1), 25-33.

Emiliani, M.L. (2004). Sourcing in the global aerospace supply chain using online reverse auctions. Industrial Marketing Management, 33(1), 65-72.

Emiliani, M.L. (2006). Executive decision-making traps and B2B online reverse auctions. Supply Chain Management: An International Journal, 11(1), 6-9.

Emiliani, M.L., & Stec, D.J. (2004). Aerospace parts suppliers' reaction to online reverse auctions. Supply Chain Management: An International Journal, 9(2), 139-153.

Evans, G. (2003). Implementing eGovernment: An executive report for civil dervants and their advisors. Hampshire, UK: Gower Publishing.

Gershon, P. (2004). Independent review of public sector efficiency: Releasing resources to the front line. HM Treasury.

Gibbs, J.E. (1998). Effective relationships for supply: Attributes and definitions. European Journal of Purchasing and Supply Management, 4, 43-50.

Irani, Z., Ezingeard, J.N., Grieve, R.J., & Race, P. (1999). A case study strategy as part of an information systems research methodology: A critique. International Journal of Computer Applications in Technology, 12(2/3/4/5), 190-198.

Jap, S. (2002). Online reverse auctions: Issues, themes and prospects for the future. Journal of the Academy of Marketing Science, 30(4), 506-525.

Jap S. (2003). An exploratory study of the introduction of online reverse auctions. Journal of Marketing, 67(3), 96-107.

Jap, S. D., & Ganesan, S. (2000). Control mechanisms and the relationship life cycle: Implications for safeguarding specific investments and developing commitment. Journal of Marketing Research, 37(2), 227-245.

Kern, T., & Willcocks, L.P. (2002). Exploring relationships in information technology outsourc-ing: The interaction approach. European Journal of Information Systems, 11(1), 3-19.

Lamming, R.C., Cousins, P.D., & Notman, D.M. (1996). Beyond vendor assessment: Relationship assessment programmes. European Journal of Purchasing and Supply Management, 2(4), 173-181.

Lapiedra, R., Smithson, S., Alegre, J., & Chiva, R. (2004). Role of information systems in the business network formation process: An empirical analysis of the automotive sector. The Journal of Enterprise Information Management, 17(3), 219-228.

Mohr, J., & Spekman, R.E. (1994). Characteristics of partnership success: Partnership attributes, communication behavior, and conflict resolution techniques. Strategic Management Journal, 15, 135-152.

Office of the Deputy Minister (ODPM) (2003). One year on: The national strategy for e-Government. Retrieved February 17, 2007 from http://www.localegov.gov.uk/Nimoi/sites/ODMP/resources/local%20e-gov%201Year%20On%20Doc_21.pdf

Olsen, R.F., & Ellram, L.M. (1997). Buyer-supplier relationships: Alternative research approaches. European Journal of Purchasing and Supply Management, 3(4), 221-231.

O'Toole, T., & Donaldson, B. (2002). Relationship performance dimensions of buyer-supplier exchanges. European Journal of Purchasing and Supply Management, 8, 197-207.

Sashi, C.M., & O'Leary, B. (2002). The role of Internet auctions in the expansion of B2B markets. Industrial Marketing Management, 31(2), 103-110.

Smeltzer, L.R., & Karr, A. (2003). Electronic reverse auctions: Promises, risks and conditions for success. Industrial Marketing Management, 32(6), 481-488.

Wagner, S.M., & Schwab, A.P. (2004). Setting the stage for successful electronic reverse auctions. Journal of Purchasing and Supply Management, 10(1), 11-26.

West, D.M. (2004). eGovernment and the transformation of service delivery and citizen attitudes. Public Administration Review, 64(1), 15-27

Williamson, O.E. (1975). Markets and hierarchies. New York: Free Press.

Williamson, O.E. (1981). The economics of organizations: The transaction cost approach. American Journal of Sociology, 87, 548-577.

Essential Additional reading:

Arrowsmith, S. (2002) Electronic reverse auctions under the EC public procurement rules. University of Nottingham, Public Procurement Research Group.

AuthorAffiliation

A. Taleb-Bendiab, Liverpool John Moores University, UK

K. Liu, University of Reading, UK

P. Miseldine, University of Reading, UK

S. Furlong, University of Reading, UK

W. Rong, Liverpool John Moores University, UK

AuthorAffiliation

A. Taleb-Bendiab is professor of computer science and head of research at the School of Computing and Mathematical Sciences, Liverpool John Moores University, UK. He has over 15 years experience in conducting research and teaching in the areas of distributed software engineering, information systems and Web technology. He has published widely in the area of distributed information systems engineering, grid computing and autonomic computing, and has a number of awards including: the Best Innovative Paper at the IEEE International Conference on Self-Organising and Self-Adaptive Systems, 2005, and best paper at the IEEE International Conference of Autonomic Computing (ICAS), 2006.

Philip Miseldine is a PhD candidate studying the area of autonomic computing and language design under the supervision of Prof. Taleb-Bendiab at LJMU. He has had numerous publications regarding his research, and has developed several industrial projects in partnership with healthcare providers using the technologies introduced as part of his on-going research.

Shauneen Furlong is an independent consultant who lectures on e-government with the University of Toronto and around the world. Over the last two years, she has presented and worked in the Middle East, Europe, East Africa, and with the Conference Board of Canada and World Bank in Washington. Previously, she worked with the Government of Canada as executive director, Government On-Line. She is a project manager professional (PMP) and PhD candidate in computer science; and she has a bachelor's degree in philosophy; a master's degree in business administration economics, and a master's degree in project management.

Kecheng Liu (BSc, MSc, PhD, CEng, FBCS) is a professor of applied informatics and director of the Informatics Research Centre. His research work includes information systems analysis and design, information management, e-business systems design, and intelligent and pervasive working and living environments. He is a leading researcher in organisational semiotics, where one authored and four edited books by him can be found. He is visiting professor in a number of prestigious Chinese Universities such as Fudan, Beijing Institute of Technology, Dalian University of Technology, Graduate School of Chinese Academy of Sciences, and Beijing Jiaotong.

Wenge Rong, a PhD candidate, works in a research project of semiotic methods for service oriented information systems; and his area of research covers enterprise modelling, organisational semiotics, Semantic Web and service integration.

Subject: Electronic government; Semiotics; Decision making; Case studies

Location: United Kingdom--UK

Classification: 9175: Western Europe; 9130: Experiment/theoretical treatment; 5250: Telecommunications systems & Internet communications; 9550: Public sector

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 3

Pages: 45-50,52-54

Number of pages: 9

Publication year: 2007

Publication date: Jul-Sep 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Diagrams References

ProQuest document ID: 221243210

Document URL: http://search.proquest.com/docview/221243210?accountid=38610

Copyright: Copyright IGI Global Jul-Sep 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 19 of 100

Evaluating Citizen Attitudes towards Local E-Government and a Comparison of Engagement Methods in the UK

Author: Phippen, Andy

ProQuest document link

Abstract:

This case considers the issues facing local authorities in the UK regarding engaging their citizen's with online service delivery channels. While these issues are shared with all local authorities in the UK, the focus of the work is around the far South West of England, in a region where, given high levels of social and economic exclusion, low incomes, and low population density, local e-government services have great potential to benefit populations. Several datasets highlight the problem that the local authorities face in the region; a disengaged population and a lack of trust in both local and central government. However, we can also demonstrate that once engaged, citizens can appreciate the value of online services and will make use of them. Building upon this data, two approaches to engagement are examined; one a national mass media led campaign whose impact upon the study region is assessed, and another at the grass roots level of local communities, where trusted community volunteers are used as facilitators for engagement. We demonstrate failure with the mass media effort, and some significant success with the grass roots engagement. However, we must conclude that the key challenge facing local authorities is not in the generation of engagement efforts in the short term, but sustaining their impact in the long term. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMERY

Keywords: citizen engagement; diffusion of innovations; e-government; technology adoption

ORGANISATIONAL BACKGROUND

This study considers the issue of local e-government engagement within the UK. While the focus of the primary data presented here is drawn from the southwest of the country, the issues discussed affect local authorities across the country. In 1999, the UK government declared, 'The information age should increase the choice of how citizens and businesses receive services, not restrict it .... We will develop targeted strategies to ensure that all groups have proper access to information age government' (Cabinet Office, 1999).

The UK strategy fits within a European Union (EU) framework, most recently the 'Information Strategy i2010' which builds on its predecessor, the 'eEurope 2005 Action Plan' that was launched in 2002. The EU strategies and action plans ensure a common framework of e-government services across Europe. In March 2001, the council of the EU identified 12 key services for its citizens; each of the e-government services are intended to be 'standard' to all EU states.

Given that UK strategy works within an EU framework, in 2002, the National Audit Office produced a report, 'Better Public Services Through eGovernment' (NAO, 2002), which included identifying five key benefits of e-government:

* Greater choice: To provide users with a greater range of services and delivery channels

* Better accessibility: Giving citizens greater access to the range of services

* More convenience: Providing services in a way which suits citizens and businesses, for example 24 hours a day, 7 days a week

* Faster delivery: Providing faster more accurate service

* Improved efficiency: Replacing manual processing of routine high volume work with IT system

However, the NAO report also identified six key risks regarding the 'take-up' of e-government services:

* Familiarity: The Internet which has yet to become a normal established part of everyday life

* Expectation: Low expectations about IT and what it can deliver

* Ease of use: Unless new services are easy to use there is a risk take up will be low

* Benefits: The benefits for the public must be clear or take up will be low

* Social exclusion: Citizens will not take up services if they do not have access to a computer

* Cost: If the cost of accessing services on-line is expensive people will not want to use it

In order to achieve the goal of e-enablement, considerable investment has been made in central and local government e-government projects. Between 2001 and 2006, £7.4bn has been spent (£3bn-local government, £4.4bn-central government) (Rogers, 2003).

To prioritise and standardise the development of local government services, implementing electronic government (IEG) statements were developed, for example, corporate plans for the goal of 100% 'e-enablement' of particular local government services/information. The IEG statements logically fit within the EU framework, article 'local planning applications.'

The IEG statements have developed over time, for example IEG1 in 2001, to IEG6 in 2006. The result of the IEG programme has been to furnish a suite of services and information common to all local authorities. While the software or the method of delivery conceivably being different, the objective of delivering a service/information has been achieved. At the time of writing (November, 2006), each local authority had an implementation of local government e-services as defined in the IEG statements.

SETTING THE STAGE

While the potential of local e-government, if fully utilised by communities, is significant, the biggest concern for the local authorities and central government is the low number of citizens using online government services. An Accenture report (2003) provides the statistic of approximately 1 in 10 citizens using online government services. This is a very small percentage compared to countries such as Canada, where half of the population engage with government online. More recent reports by Guardian Online (2005) have show small increases in engagement, but other countries remain far ahead of the UK.

The publication of the e-citizenship research programme (eCitizen National Project, 2004) highlighted the potential for e-government services, presenting a very positive picture of UK citizen's view on e-government. Statistics, such as 42% of respondent stating they would be likely to use their local authority Web site, and 63% of respondents with Internet access stating they would be happy to use e-mail to communicate with their local authority, do demonstrate interest in the potential of 'e-channels' (e.g., the Web or e-mail) to engage with local authorities.

However, one of the most telling statistics from the report is that only 12% of adults in England have ever used an e-channel to communicate with their local authority. If we carry out a crude comparison with the Accenture (2003) study, we can see little growth in citizen engagement during a period when local e-government was very much at the forefront of local authority development. Given the level of expenditure that has occurred in that time, such limited growth is a cause for concern.

A subsequent study, 'The Oxford survey' (Dutton, di Gennaro & Hargrave, 2005), reported that only 24% of UK Internet users and 15% of the population have ever used any e-government service, whereas 70% of Internet users rate the Internet as either 'important' or 'very important' to their current way of life. The variance between usage of e-government services and perceived 'importance' of the Internet again raises concerns with respect to take-up and perceived value.

It has been suggested (e.g., Olphert & Damodaran, 2004) that the major issue with e-government adoption lies in the technical nature of the drive up to this point. If engagement is going to happen, there has to be more involvement at the grassroots level; talking with and promoting such services with the service consumers.

Gilbert and Balestrini's (2004) study into barriers and benefits to e-government adoption considered a number of adoption models to inform a quantitative evaluation of attitudes in the southeast of the UK. Among their conclusions were that the establishment of trust between the authority and the citizen was a key factor in engagement, as was the perceived benefit to the individual; if it could be demonstrated that citizens would save time and/or money when using an online service, they are likely to engage with it.

Our own investigations, in contrast to Gilbert and Belestrini, focus data collection in the far Southwest of the UK-namely the city of Plymouth and the county of Cornwall. In terms of demography, this is a very different region for examination-as summarised below.

The county of Cornwall has a population of 517,500 (as measured in 2004). It is a county with a low population density and few centres of employment (Truro is the only city in the county and there are a small number of market towns that act as employment centres). It has the smallest gross value added in the UK (£10,400), a high proportion of part time workers, and has one of the lowest average earnings rates in the UK It has also has a higher than average unemployment rate, and has a workforce highly dependent on seasonally work (Cornwall County Council, 2006a, 2006b).

Plymouth is a city located in the southwest of England a few miles east of Cornwall in the county of Devon. The population of the city is 241,000 and increasing. A brief review of the 2001 Census (Census, 2001) provides insight into the socioeconomic composition of Plymouth; although it is the 14th largest city in the UK, its retail ranking is only 29th.

We can conclude from this brief summary that this region provides an interesting setting to study the take-up and impact of local e-government services. The low population density means that unless a citizen lives in one of the cities or larger towns in the region, it is difficult to carry out face-to-face interaction with the local authority. Discussions with communities in the region suggest that there are many who feel unrepresented and isolated from the local democratic process. In addition, a region of relatively low income, high part time work and unemployment should have a lot to benefit from the potential of e-government (ODPM, 2005).

Our work collects data from a number of different studies. Early in 2005, a short survey piece (Phippen & Lacohee, 2006) aimed to obtain an initial measure of attitudes in the North Cornwall district. This study examined attitudes toward local e-government from both the service provision and consumption. In general, service providers had a positive attitude toward the concept of local e-government service delivery, but had concerns whether the consumers either wanted or were capable of exploiting its potential. Consumers demonstrated an animosity to the concept, with most feeling that it was more to do with cost savings than improving the interface with citizens.

This initial work presented a concerning indication regarding local authorities and their e-government implementation. There was a lack of understanding between service provision and service consumption, and there was clearly a lack of trust on the part of the citizens toward their service provider.

The concepts identified in our pilot study were reinforced through further study as part of the Trustguide project (Lacohee, Phippen, & Crane, 2006). The scope of the project was wider then e-government engagement; it was examining the trust relationship between service consumers and providers in general in order to further understand engagement for any ICT mediated service.

However, within the project there was an element that examined e-government engagement, and a number of the focus groups were run within our study region. In examining transcripts from focus groups within the region, it was apparent that a number of key issues were emerging from the discussions:

* Local e-government service provision online was considered confusing and disjointed

* Attitudes were often biased as a result of lack of trust of the government in general

* A single negative experience would result in complete disengagement with the services

* Citizens could not see the potential personal benefits of engaging with local e-government

The most positive discussion centred on isolated central services that contained a stand alone system. The services regularly mentioned as e-government successes were systems such as online tax returns and the vehicle licensing system. Both of these systems effectively encapsulate a single system and offered clear positive benefits to the user if they choose to use them (reduced time compared to alternative methods of use and convenience of payment systems). However, with local e-government systems there was generally confusion over what they did and why they should be used.

However, occasionally comments were made in a far more positive light:

We moved house recently, and we had no idea about when bins were collected, recycling, and so forth I went online to the local authority site and found it all. I wonder what we would have done prior to this information being online.

This short quote clearly demonstrates two interesting aspects regarding local e-government services:

* The use of grass roots services being at the core of local e-government success; and

* The positivity that results if a citizen can see the value of the services to improving their own life.

While work to this point, aside from the occasional positive piece of evidence, had demonstrated a low level of engagement and enthusiasm about local e-government, a subsequent study by a local authority in the region presented some more encouraging statistics which supported the more positive aspects of our research.

A local authority in the region had, in 2002, established a resident's panel comprising of approximately 1,600 residents randomly selected across the region. The panel was regularly surveyed on various aspects of local government services affecting citizens in the region. Surveys are typically circulated three times a year, and the scope of the surveys range from local authority strategy to National Health Service (NHS) service provision.

In the June 2006 survey, a number of questions were posed to the panel regarding their Internet usage and use of the local authority Web site. The questionnaire resulted in 933 responses, indicating a response rate of 58%. Although the gender is nearly 50:50, upon further analysis the age profile would appear skewed; however, there are no female respondents aged 35-44 and no male respondents over 54.

The percentage of respondents with Internet access at home was 71%, and the proportion of those respondents who had a broadband connection was 80%. Sixty-seven percent of those with Internet access said that they used the Internet daily, and 22% said they used it weekly. The remainder used the Internet less than weekly.

The questionnaire continued to examine that the number of respondents who had accessed the authority's Web site in the previous 12 months has increased markedly, from 22% in 2004 (the last time the panel were surveyed about Internet usage), to 40% in 2006. Both of these figures are significantly higher than the national statistics produced by studies such as eCitizen and Accenture.

When asked about the frequency of visiting the Web site, 3% of respondents replied at least daily, and 10% at least weekly; there were minimal variances with respect to gender or age.

A series of questions were then asked to assess usability of the Web site, to each question the users response would be on a scale (strongly agree, agree, neither agree nor disagree, disagree, strongly disagree).

The user assessment of the Web site was favourable:

* The Web site looks fresh and modern: only 9% "disagreed" or "strongly dis-agreed"

* The Web site is too cluttered: 31% "agreed" or "strongly agreed"

* It is difficult to navigate around the Web site: 28% "agreed" or "strongly agreed"

* Information on the Web site is current and up to date: 10% "disagreed" or "strongly disagreed"

* There is too much information on the Web site: 12% "agreed" or "strongly agreed"

* The Web site provides relevant information: 8% "disagreed" or "strongly dis-agreed"

* Overall, the Web site is good to use: 9% "disagreed" or "strongly disagreed"

The users were asked which online forms they had used, the intention being to identify the most widely used forms; see Table 3.

In reviewing all of the data drawn from these three studies, we can identify a number of key issues affecting the adoption of local e-government services:

* A clear barrier to engagement is the lack of trust that exists between local authority and its citizens.

* Areas of success within local e-government services exist at a 'grassroots' level; its is simple information and services easing day-to-day tasks that appeal the most.

* Citizens will not regularly visit their local authority Web site simply out of curiosity, there has to be an awareness of what is there in order for them to make a judgement regarding whether they should engage.

* The 'what's in it for me' factor-if a citizen can see the benefits to them in engaging with a service, they will use it. Citizens that do regularly use local e-government services are generally happy with them.

CASE DESCRIPTION

The cases presented in examining issues of local e-government engagement in the far Southwest of the UK are used to further explore the issues facing local authorities related to e-government. However, this exploration begins by examining a theory of technology adoption in order to better understand the successes and failures of the efforts.

Positioning Local E-government Against diffusion of Innovations

Diffusion of innovations (DoI) (Rogers, 1995) is a well-established theory that examines how innovations get adopted by their target audience through significant empirical study. While there are many other adoption theories that have been applied to the e-government domain (Gilbert and Balestrini (2004) provide an excellent study considering different theoretical viewpoints), DoI is particularly interesting because the language being used by central government in recent discussions regarding local e-government adoption (Civica, 2006) seems to have been heavily influenced by the theory.

There have been a number of studies (e.g., Fichman, 2000; Fichman & Kemerer, 1997; Zelkowitz, 1996) to understand ICT related innovations and their adoption, drawing from DoI theory. An interesting piece of work from a number of years ago (Fichman & Kemerer, 1993) identified a wider issue in DoI as the role of the community within which the innovation sits (e.g., a technology will not be adopted by an organisation if others are not also adopting).

In developing these ideas, the concept of a critical mass is introduced. This critical mass is needed so that the technology can achieve mainstream acceptance. If this critical mass is not achieved, the wider community will not adopt the technology. This concept is achieving far more widespread acceptance in more recent times, and can be seen anecdotally with technologies such as e-mail and mobile phones. A popular text that discusses this concept in more detail is Gladwell's Tipping Point (2000). Indeed, the Tipping Point concept is one that has been discussed by e-government stakeholders in the UK (Civica, 2006).

The DoI theory provides a sound starting point for considering an appropriate approach to engagement with local e-government. We can view 'local e-government' as the object for diffusion, even though it is, in essence, a collection of services delivered through a common interface (the Web); service delivery online is the central concept. This method of service delivery is the 'innovation' we wish to consider within the diffusion scenario.

The application of DoI theory generally relates to the business domain, where communication structures, change agents, and social interactions are well established; meaning that, with careful planning, diffusion theory can be applied with controlled boundaries. The first problem when considering engagement with the users of local e-government lies with the dispersed system in which it exists-the local district. Such a 'system' is actually comprised of a huge variety of different systems (local communities, social networks, organisations, etc.), existing within a geographical constraint. As such it is less clear when one tries to identify

* Communication channels: While mass media communication channels can be easily defined, interpersonal structures are less clear. How can interpersonal channels be used to communicate the benefits of local e-government?

* Nature of fit: If we are to accept that a district is not a single group of adopters, but a group of complex inter-related systems, all with different types of adopter, then we must conclude that each individual system may require a different approach.

* Social structure and norms: Similarly, within a local district, there could be a great variety of social structures and norms, and therefore communication within these structures can become very complex.

* Change agents: While business communities have established change agents (consultants, salesmen, management), how can one identify change agents within a local district? Such agents undoubtedly do exist within communities, but identification of such individuals is far more complex than within the business domain.

Initiatives to Engage with Local E-Government

If we consider the 'marketing' of local e-government, there has been little attempt to engage with the community through any channels aside from mass media. While there has been considerable publicity about e-government in general, the e-citizenship project demonstrates potential, rather than awareness and engagement. DoI theory states that mass media is a useful tool for raising awareness regarding an innovation, although it is less effective at changing attitudes and behaviour.

Within the UK, there is currently a growing concern regarding the perceived success of e-government efforts (discussed below). We can demonstrate from the data above that there is potential for local e-governments to be effective in fulfilling some of the original National Audit Office aims. However, we can also demonstrate that there is a lack of awareness, disengagement, and in some cases, animosity toward to initiatives. These are significant barriers to address as the potential is to be realised. We would argue that if the potential is to be realised effectively, understanding adoption theories could provide a strong foundation upon which to build.

The following presents two engagement efforts that have taken place over the last two years and considers their impact upon local communities within the far Southwest of the UK One initiative is a national campaign; the other is a local authority initiative. They are presented, along with data regarding their impact, to encourage further debate around local e-government engagement.

Local E-Government Take-Up Campaign

The Local E-government Take-Up Campaign is a £5million mass media marketing campaign (DCLG, 2006a) based upon two phases of media dissemination. This analysis considers the first phase of the campaign; the second phase is underway at the time of writing. Phase one of the campaign used a mix of mass media techniques to promote access to local e-government services through a central local government portal (local.direct.gov.UK/mycouncil). The campaign identified fifteen key services (e.g., school term dates, reporting an abandoned vehicle, renewing library books, reporting a problem with a street light, information on ways to pay council tax, and reporting a graffiti problem) and provided links from the central portal to locations on the relevant local authority Web site.

The campaign used a mix of media advertising (online, press, radio, and posters) to promote these services through visual images, promoting the URL for the central portal. The campaign also mixed national and regional channels in promoting awareness.

The first phase of the campaign ran from April to July 2006. While the national impact of the campaign is the subject of much speculation (e.g., DCLG, 2006b; Guardian On-line, 2006; PSF, 2006; SOCITM, 2006), the data presented below considers the impact within our study region.

The impact is measured through consideration of referral traffic to two local authority Web sites. For any given visit to a Web site, the server will record the URL from with the originating page view occurred. This is known as the site referrer-the entity that drove the visitor to the site. Our examination of local authority data considers referral per unique visit to the local authority Web site.

Table 4 presents analysis of traffic from two local authorities. It breaks referral data into monthly figures across the campaign period and presents the percentage of traffic generated from local.direct.gov.uk, google.co.uk or google.com, and direct access traffic (for example the URL for the local authority it typed into the browser).

While there is authority variation in terms of where traffic originates, what is clear is the traffic from local.direct.gov.uk is an extremely small proportion of traffic compared to both direct access and Google. We can certainly demonstrate campaign impact; in both authorities, once the campaign was underway the amount of traffic increased. However, that increase was still very small. Therefore, we can conclude within our study region that the campaign has had very little impact.

Community Information Line

The Community Information Line project was an attempt to move from passive engagement to identifying a method where engagement occurred at a grassroots level. It was funded through a scheme called E-innovations (ODPM, 2004), with a funding period of a year. The district in which the project took place was one of the least dense in terms of population in the whole region; it is approximately 1200 square kilometres with a population of 82,000. As one might expect from a region with such low population density, there are many isolated communities without easy access to face-to-face interaction with their local authority.

The concept of the project was simple. If volunteers within local communities can be made aware of the potential of local e-government, and then can engage with their area, the benefits of e-government can be communicated within a trusted, social network. It bypassed the overarching problem of engagement from a local authority perspective-trying to interact with many complex social systems at one time.

Volunteers were recruited from the region through advertising in the local press. From an initial advert, potential recruits were invited to submit a brief CV, detailing location, community involvement, and their thoughts on the potential of the project. At the outset of the project, there was no mention of technical or political jargon such as e-government or service delivery channels. Instead, it simply said that the local authority was looking at ways to engage communities with the Web for local benefit. Drawing from an initial group of around 30 people, an initial cohort of eight volunteers was selected. Selection was based upon what they had put in their application; in particular, ensuring recruits were involved within the local community and had established communication networks. The group was comprised of a mix semi or fully retired people and people that worked within the community. Most had some involvement within the local community through parish council, community groups, and so forth. One full time employed volunteer ran a local post office, providing an ideal central hub for community interaction.

Once recruited, the volunteers had relevant ICT equipment provided from the project budget. Generally this was a laptop, new monitor, a printer, and some type of connectivity (broadband where available, but other options were also necessary). For example, volunteers with laptops were given mobile data cards so they could connect from areas without wired Internet access.

The volunteers were encouraged to engage with their communities as they saw fit; it was not a prescriptive model beyond providing an access point for people within their communities wishing to access public services online. Volunteers were also encouraged to move beyond the local authority Web site to provide access to any area of interest for their 'customers,' such as community and voluntary sector groups.

Measuring the Success of Community Information Line

The evaluation of the first year of Community Information Line was carried out using a mix of enquiry logs and volunteer interviews. From this data we could see that by the end of the first year, five of the eight volunteers were engaged within their communities and delivering the Community Information Line 'vision' is some way. The method of engagement differed in each case; some volunteers took enquiries in their homes from people without their own equipment, whereas others dealt with enquiries at a face-to-face level in local community meeting places. Enquirers would then return to their homes and access the local authority Web site to fulfil their information need. The volunteers in the latter case simply acted as a trusted source of information about what is available from the local authority site, rather than being a hands on facilitator.

Given that five out of the eight original volunteers were regularly engaged with their communities and promoting awareness of local government services online, the local authority considered this engagement effort to be successful. What is more difficult though, is to quantify this success:

* Typical enquirer: There was no typical enquirer; they were wide ranging, from young people who are fully conversant with Internet technologies and needed information about what is available, to the elderly, with no Internet experience who need to be shown how to engage, and learn about the potential of such services.

* Typical enquiry: Again impossible to specify a typical enquiry; they were wide ranging and went far beyond the boundaries of the local authority Web site. The only thing that was 'typical' was that there was always a specific need to be addressed, rather than to satisfy curiosity.

* Number of enquiries: While the logging of some face-to-face enquiries enabled a small measurement to be taken (one of the volunteers had 50 face to face enquiries in a four month period), the majority of communication has existed as a means to promote awareness and encourage individuals to find information themselves. As such, a single enquiry to a volunteer could result in many uses of the local authority online services.

In addition, we can identify a number of different models used in the engagement process:

* Direct assistance: Volunteers either visit customers in their home, or invited them to a mutually agreed location, and uses their own ICT equipment to carry out the request for them. A customer can see the benefits of the technology without person ally having the required knowledge to carry out the service request.

* Promotion of awareness: Volunteers deal with the enquiry as a human-to-human interaction, informing customers about how they can locate the service or information they require. Customers then use their own knowledge/ICT equipment to locate and use it.

* Engagement through other information sources: In order to realise the benefits of local e-government, a customer has to have a specific need. Very few people will see the potential from simply browsing the services. The promotion of awareness model only works if people have the requisite knowledge and equipment to locate online resources themselves, and the direct assistance model only works if the customer has an information requirement. Therefore, for people who are not are not aware of, or have the knowledge of and equipment to exploit the potential of the Internet as an information resource, it is unlikely they would ever engage with local e-government. One volunteer used his/her equipment and connectivity to not only provide an information resource for the community, but as a demonstrator for Internet usage. Once people gained enthusiasm for the use of online resources (in this case resources of local historical significance), they started to become interested in its use for other things (e.g., local government).

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANISATION

The engagement efforts we have presented have highlighted some issues faced by local authorities who, having implemented the central Government's local eGovernment strategy, need to exploit the potential the local eGovernment has for engaging communities with local democratic process, supporting the excluded, etc.

While, given initial examination, it might be considered that we have presented one clear failure and one clear success with regard to engagement, further examination suggests that this may not be that straightforward.

In particular, while the Community Information Line project as a whole could be considered successful, it had 3 locales within the region where engagement failed, and the volunteers experienced little interest. Further investigation is need to consider why the project didn't engage with the community in these locations.

In one location a flood occurred around the same time as the start of the Community Information Line project. This resulted in a high council presence in the region for a long time afterward. People within the community were able to interact with their local authority face to face and had no need to interact online.

In the other two locations, the method of engagement was passive from the volunteers-while adverts were place in local newspapers and newsletters, there was little attempt to actively promote the project further. The analysis of the value of mass media in communicating an innovation has been highlighted through the analysis of the Take Up Campaign. Even within a local setting, our analysis shows that mass media (even if this is a local newspaper) is not effective in engaging citizens with local eGovernment services.

From both evaluations we have shown the lack of success using mass media in promoting local eGovernment. This is an area of concern as this is generally a favourite communication channel for local authorities and central government to use.

We have shown through our data that the local authority website will not be something that a citizen will visit regular for fun or curiosity. The citizen has to have a specific need that could potentially be addressed through the website. This is similar to face to face local authority interaction. The Local Government Association customer satisfaction survey (LGA 2000) showed that of its respondent, only 25% had visited their local authority in the past year.

If the need to interact with a local authority is a something that is only something that occurs to the citizen occasionally, a mass media approach will only work if the campaign coincides with the emergence of a need to interact. As there are only a finite number of occasions over a media campaign when the message will be disseminated, the chances of this overlap occurring are small.

With a face-to-face engagement method, the information resource (i.e., the volunteer) exists as a constant in the community social network and can therefore serve to engage the citizen with the service when the need arises. However, as we have demonstrated three out of eight failures within the Community Information Line project, we cannot simply state that in order to successfully engage communities with local eGovernment services, you need to identify a community champion and get them engaged.

However, the key challenge the local authorities in the region still face is that while they have experience both successes and failure in efforts to promote awareness and engage communities with local eGovernment, there is no clear method that will always be successful. Engagement generally happens on a human-to-human level, whether that is as an introduction to technical assistance, or simply as an information resource to direct a customer.

Additionally, sustaining the momentum of the first year for the Community Information Line project is also a challenge. The first year of the project was funded, and therefore the local authority had the means to provide administrative support. However, as with a lot of eGovernment projects, once the funding had run out, the authority lost the focus. Therefore, while the volunteers were still keen to continue (indeed there have been other volunteers who have approached the authority to ask to become a volunteer for their community), the local authority has struggled to maintain support.

As mentioned above, this issue of sustaining development is one that affects not just the Community Information Line, but eGovernment projects in general. While funded projects have a finite life, the need to engage and exploit eGovernment's potential will only result from long term effort. The majority of eGovernment initiatives up to now are financed externally to core local authority service funding. eGovernment will only realise long term potential if it is considered alongside other service delivery approaches (i.e., face to face, telephone interactions), rather than being a special case. The Community Information Line has demonstrated that when an effective trust relationship can be established between communities and local authority eChannels can empower and support the local democratic process, address exclusion, etc. The key challenge still has to be developing upon this potential to integrate into mainstream, and therefore, supportable service delivery.

CONCLUSION

This article has presented a number of data sets that consider the issue of citizen engagement within the UK, in particular in the South west. Engagement is central to the future success of e-government; while the underlying systems are now in place in the UK, without effective engagement, the potential for issues such as tackling social and democratic exclusion, grassroots involvement with local authorities, and so forth will be wasted. We have examined two engagement efforts and considered their impact in the Southwest of the UK Our conclusion must be that mass media efforts do not work in any significant measure. While there was some impact, this was brief and minimal. However, we can also demonstrate with grass roots engagement that community involvement has far greater potential. If community volunteers can be engaged, their reach can be used to further engage the regions and networks within which they exist. From a local authority perspective, the cost and resource requirements for such community volunteer networks are preferable to large-scale media campaigns. Even though the funding period for the establishment of the Community Information Line project expired at the end of 2005, five of the volunteers are still active and new volunteers are expressing an interest. The reason for this, as discussed with the volunteers, has nothing to do with government policy or doing a job for their local authority. It is because they can see a benefit of e government within their communities, and it is this that is important to them.

References

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AuthorAffiliation

Andy Phippen, University of Plymouth, UK

AuthorAffiliation

Andy Phippen is a senior lecturer at the University of Plymouth with research interests around the socio-technical aspects of web technologies. He specialises in public engagement of technologies and has been research active in the field for 10 years. His current work has involved methodical evaluation f technological impact in business and social context and using web technologies as a research tool. He is an editor of Methodological Innovations Online journal and is currently engaged in research on participant engagement with eGovernment, public perception of ICT security and the application of web analytics to understanding social online behaviour.

Subject: Electronic government; Citizens; Participation; Case studies

Location: United Kingdom--UK

Classification: 9175: Western Europe; 9130: Experiment/theoretical treatment; 5250: Telecommunications systems & Internet communications; 9550: Public sector

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 3

Pages: 55-71

Number of pages: 17

Publication year: 2007

Publication date: Jul-Sep 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References

ProQuest document ID: 221165936

Document URL: http://search.proquest.com/docview/221165936?accountid=38610

Copyright: Copyright IGI Global Jul-Sep 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 21 of 100

BLUEGRASS WEDDING CENTER

Author: Becherer, Richard C; J Howard Finch; Helms, Marilyn M

ProQuest document link

Abstract:

This case involves a couple's efforts to turn a home-based wedding planning business into a one-stop shopping center offering customers every aspect needed for a complete wedding event. The proposed center will include wedding planning services, dresses and formal wear, photography, florist and catering services, as well as a wedding chapel and reception facilities. By offering customers the opportunity for one-stop shopping for their wedding, the involved businesses should have a competitive advantage over established concerns that only offer individual components. The case provides a first-hand account of the excitement and frustrations involved in developing an entrepreneurial idea and obtaining financing to turn the dream into an actual business venture.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case is the formation of a comprehensive wedding center in Kentucky. The case is positioned to present the business formation process and the search for partners and financing for a new business venture. It also involves turning a number of fragmented product and service providers in the wedding industry into a one-stop center, representing a new product/service combination. More specifically, the case deals with the human issues and challenges in selecting among a number of disparate partners and determining their potential equity stake, investment, and obtaining funding for the business.

Secondary issues examined in the case include assessing the new venture idea based upon actual narrative among the potential founders and excerpts from their business plan. Students should be able to directly identify with the wedding industry and the young couple in the case. Family business challenges also emerge into the case and the owners struggle to make the decisions necessary to turn their business idea into a reality.

The case has a difficulty level of two or three, and is best utilized in a junior or senior-level entrepreneurs hip, small business, strategic management, marketing of services or product/service development course. This case is very appropriate for undergraduate courses as: 1) students can relate to this industry, 2) the human issues demonstrate the challenges involved in starting a business, 3) and the financial analysis is fundamental and straightforward. It is an excellent case for in-class discussion in a 50 to 75-minute class period and should include debate of alternative issues, particularly when parts B and C of the case (included) are used to follow-up on the main case decisions and actions in the following class meeting. It lends itself to role- playing of the key participants involved, particularly the discussion with the various potential partners over options for structuring the business. The case requires two hours of preparation.

CASE SYNOPSIS

Julie had long dreamed of starting a wedding center. In her business plan, she wrote: "Anchored by an attractive wedding chapel capable of seating 350 people, the complex will include retail shops that offer floral, catering, dresses and tuxes, photography and video, accessories and possibly even a travel agency, beauty salon and jeweler. To complete the offerings, a large expandable reception hall with a complete commercial kitchen and bar will allow the complex to provide every need associated with a complete wedding. Landscaping will be designed to accommodate outdoor weddings, as well as, create a garden setting to the surroundings. " With her husband's support and the help of his entrepreneurs hip professor and her wedding planning colleagues, her dream might become a reality.

This case involves a couple 's efforts to turn a home-based wedding planning business into a one-stop shopping center offering customers every aspect needed for a complete wedding event. It represents an effort by a recent business graduate to take a business plan developed in an entrepreneurship course from a class project to reality. The proposed center will include wedding planning services, dresses and formal wear, photography, florist and catering services, as well as a wedding chapel and reception facilities. By offering customers the opportunity for one-stop shopping for their wedding, the involved businesses should have a competitive advantage over established concerns that only offer individual components. The case provides a first-hand account of the excitement and frustrations involved in developing an entrepreneurial idea and obtaining financing to turn the dream into an actual business venture.

Careful discussion of the case should enable the business students to better understand (1) structuring the "deal" for a new venture, (2) weighing the pros and cons of both debt and equity financing, (3) vertically and horizontally integrating a fragmented industry, (4) searching for appropriate and acceptable venture partners, (5) personality challenges in running a family business, (6) the personal decisions involved in starting a business, (7) analyzing market potential and assessing a new business venture, and (8) understanding the consequences of poor credit and the importance of conducting due diligence on all potential acquisitions.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

This case is an actual experience that evolved in the graduate entrepreneurship class of the first author. The husband was enrolled in the class, and he used the class business plan requirement to develop his wife's idea of a one-stop wedding center that offers clients the entire range of products needed to conduct a full wedding event. The couple then met with the first author to seek advice based on his own entrepreneurial experience as to how to proceed turning the idea into a reality. They continued to rely on him for outside advice as they worked with the various parties detailed in the case to obtain financing for the venture. The second and third authors have also been involved as a sounding board when the first author wished to relate their problems and concerns throughout the process.

The focus of this case involves the trials and tribulations that the couple faces in trying to finance their business idea. The case highlights both qualitative and quantitative issues that arise as the search for funding unfolds. Qualitatively, the couple experiences both emotional and personal financial stress, as they grapple over the risk and return consequences associated with the various funding alternatives they consider. Quantitatively, they face the classic entrepreneur's dilemma of how much of the firm they should give up to outside financing interests. This conundrum of how much ownership and control to exchange for necessary start-up and working capital to turn the idea into a reality is one all those who use and study the case will appreciate.

Since the case involves the couple's actual experiences, the focus of the case was obvious. Nevertheless, all students of entrepreneurship should have to face the fact that the risk-reward trade-off includes having to decide how much of their firm they are willing to sell. In addition, the search for capital funding often involves having to consider going into business with outside, unfamiliar associates. The case shows the couple considering everything from using personal debt to conventional lenders, as well as seeking equity investment from both known business associates and an unfamiliar angel investor. The range of potential capital investors, together with the emotional toil that each source exacts on the couple, will provide users of the case with a realistic insight into their actual experience trying to make the business plan work.

Since Chad was a student of the first and second author, and sought the advice of the first author due to his extensive entrepreneurial experience, it was easy to obtain a first-person account. In addition to making notes and keeping records as the process unfolded, the couple agreed to provide an oral narrative of their experience at its conclusion. Thus, the case information was obtained directly through a series of oral interviews that were tape recorded and transcribed. The numerical data was standardized and adjusted to provide for cleaner financial analysis for students, and the names and entities were changed to provide anonymity.

This case is appropriate for the following courses: entrepreneurship, small business, strategic management, marketing of services, or product/service development. This case is appropriate for undergraduate courses as: 1) students can relate to this industry, 2) the human issues demonstrate the challenges involved in starting a business, 3) and the financial analysis is fundamental and straightforward.

It is an excellent case for in-class discussion and debate of alternative issues, particularly when parts B and C of the case are used to follow-up on the main case decisions and actions. It lends itself to role- playing of the key participants involved. For a marketing class and even a strategic management class, students may also be assigned the task of interviewing wedding planners, consultants, or other service providers in the local wedding planning market to update and augment the current industry situation.

With role playing or similar in depth discussion, the case (Part A) can be effectively covered in 45 to 60 minutes and parts (B) and (C) should require 15-30 minutes each. As a class quiz or part of a case exam, students canuse the financial information provided to perform for cash flow, breakeven, and ratio computations. The experience and interest level among students regarding this industry allows the case to be assigned as a presentation by student teams. The case can be used for a continuing education audience of potential entrepreneurs as they prepare the business plan and consider the various decision points in the early stages of a business venture. Speakers from the wedding planning and services industry can also be used as outside speakers to provide additional background and updates on the industry and the feasibility of such a on-stop-shop in various locations around the U.S. and internationally.

Since the case was originally an idea that developed from an entrepreneurship class, the case will be of interest to students working to develop their own business idea and drafting a feasibility study or business plan. Students should also identify with the varying personalities and pros and cons of the various financial arrangements that are presented.

The instructor can open the discussion by taking a poll regarding the decision to take money out of the couple's 401K to keep this business idea alive. Students are often divided on this question and it leads to a discussion of the opportunity presented by this business idea and the ability of this couple to be successful.

After exploring the dynamics of the couple's relationship and the decisions they have to make in order to go forward, the business plan and industry data provided in the case can lead to an assessment of the opportunity. Students often have strong opinions regarding this business concept and how well it meets the needs of prospective brides and grooms. Additionally, enough financial information is provided to evaluate a basic pro forma income statement and analyze the ability of the business to handle the debt associated with the SBA bank loan.

Generally, as discussion regarding issues in the main case begins to wane, or in a subsequent class session, the instructor can stimulate more discussion by passing out Cases B and C. Case B focuses discussion on partner issues, and how an entrepreneur reacts to set backs. Case C shifts the discussion to all aspects of negotiating a deal.

The following questions might be used to focus the class discussion.

1. How crazy is this idea? Does it make sense to involve these other "partners"?

2. Should Julie and Chad pull money out of their 401K to go through with this? What other sources of funds should be considered?

3. Should Julie continue to push and tap her resources?

4. Now that your partners have pulled the rug out from under you by structuring another deal, do you reject their offer or do you consider that now you can at least become an entrepreneur and own a piece of a business? Is a piece of a business better than nothing?

5. What kind of a deal would you structure? What would you ask for? How much equity stake would you give Mr. Baxter? Board representation? Is this the kind of person you want to get into a deal with? What are the risks and downsides of the new partner? What should you guard against as you structure the deal, particularly the equity stake and roles and responsibilities?

6. Using the pro-forma balance sheet, calculate the current ratio and the quick ratio for BWC, and comment on the firm's projected liquidity. What is the difference in these calculations, and which ratio is more useful for liquidity assessment?

7. Using the pro-forma balance sheet and income statement, calculate the long-term debt ratio , the debt to equity ratio, and the times interest earned ratio for BWC. Comment on the firm's leverage and ability to handle the debt service associated with the SBA loan.

The process of forming a business, searching for partners, and arranging financing is the subject of this entrepreneurial case of a young couple's dream to open a one-stop, full- service wedding center for today's busy bride and groom. The center will house a travel agent, bridal salon, chapel, area for receptions, and a host of other related services in one location. The couple begins the process by working with a number of businesses and service providers as they plan the business. Teaching objectives include: (1) explore the human aspect of entrepreneurship, working with business partners, investors, spouses, and friends and family members. How to balance ideas and input from others in leading an entrepreneurial effort, (2) provide an opportunity to perform a venture evaluation, with excerpts of the business plan integrated with dialogue between the founders and potential partners combined with information about the local market and the wedding industry, (3) To practice the skills of assessing a business plan, idea, and capital structure, (4) Understand various ways to structure and finance a new venture, and (5) Analyzing the profitability of a business using industry data, initial balance sheet information, and projected income statements for the initial start-up period (review cash flow, break-even, and ratio analysis of liquidity, leverage, profitability, and turnover).

DISCUSSION QUESTIONS FOR PART A

1. Assess the business plan. As an investor, what would you want to know before investing?

While the parts of the business plan included in the case include a good profile of the current industry and local market, potential investors would need additional information on who specifically is going to manage the operation and they need more information about their background. We are only given information on Julie and Chad. What will Chad's role be? Will he quit his job at GE and become involved in the business? If so, when? These questions need to be asked by potential investors. The opportunity side of the venture is good but more information on the team is required prior to investors providing financial resources.

Most inventors would want to get to know Julie to see if she has the experience and work ethic to make this concept work. In most businesses, the entrepreneurial team makes the biggest difference between success and failure, and while this business has a small team, it has a leader that can make a huge difference.

Additionally, investors will want to know more about how the Bridal Center will be marketed. Beyond the bridal shows, how do brides find out about this type of bridal alternative? Special promotions that generate publicity for the business will be a critical part of the marketing plan, as well as, the traditional advertising mediums.

2. How crazy is this idea? Does it make sense to involve these other "partners"?

While the market and industry seem promising and profitable with new emerging markets and services, this venture lends itself to discussion as to the fit for the couple involved. They will jeopardize their personal marital relationship, family finances - both current and possible retirement funds - and experience problems working with friends and family for financing. Should the venture fail, the couple will have a tarnished credit rating and no savings from which to rebuild. The stress of starting a business is also showing signs of being a real problem for the husband and children due to the initial time demands to plan the business while continuing to serve as a wedding consultant on weekends.

Julie is to be commended for attempting to put an entrepreneurial team together. This is critical in creating businesses that have a real chance for success and harvest potential. Unfortunately teams of entrepreneurs can have personality issues. The key thing to move toward in class discussion is that entrepreneurial teams only have to work together and respect one another through harvest. Julie may not have been careful enough in choosing people to join her in this new venture team. (For more information, see Reich, 1992).

3. Should Julie pull money out of their 401K to go thru with this? What other sources of funds should she consider?

While it is often difficult to find start-up funds, many are forced to exploit "friends, family or fools." When these three groups are not supportive or don't have financial means, principals are forced to use personal savings or credit card debt to start a business. When personal savings are largely 401K retirement monies targeted for future income needs post age 65, it is realistic to question the use of these funds. Should the business fail or if the funds are not enough to launch an effective start-up, the couple will be left will few current funds and be disadvantaged for retirement. In addition, with three small children, college savings funds are as equally important as are their retirement funds to the household. And yet, how do prospective entrepreneurs come up with the money they need to start a business if they do not take risks?

Entrepreneurs first source of funds are often friends and family. The advantage of this approach is that funds may be available more quickly with less documentation required. On the other hand, friends and family represent long-term relationships that could be compromised if the business does not perform as expected. A bankrupt business can dramatically impact on family gatherings far into the future. This type of venture will not generate enough return on investment to attract angels or venture capitalists.

Entrepreneurs often finance their venture by selling assets such as their classic car, boat, or vacation property. While the enjoyment of these things will be missed, the worst-case scenario does not interrupt long-term relationships. While second mortgages or credit card cash advances can also serve as a start up capital, the pay back may adversely affect the cash flow of a struggling business. (For more information see Timmons and Sander, 1997, or Stancill, 1992).

4. Should Julie continue to push and tap her resources?

While the business plan seems sound and the industry well researched, continuing to push has already alienated friends and family who seem to be refusing or dodging phone calls from Julie. In addition to the discussion in Question 3 above, continuing to tap all the family's resources is a risky short-term decision, which could jeopardize the business now, and in the future as well. Bankruptcies and tarnished credit ratings are hard to recover from, and make future business ventures very difficult. A wait-and-plan strategy is probably more feasible than tapping all family and financial resources at the current time. Chad's role as "devil's advocate" seems to bear this out and is a good sounding board to Julie's emotional responses to the business idea and formation process.

On the other hand, commitment, determination, and an "opportunity obsession" have all been cited as factors in entrepreneurial success. Pushing through problems is often part of the entrepreneurial process. It's important to recognize that Julie's enthusiasm is often one of the most important ingredients in a new business start-up.

5. Use the pro-forma financial statements; calculate the current ratio and the quick ratio for BWC, and comment on the firm's projected liquidity. Then calculate the long-term debt ratio, the debt to equity ratio, and the times interest earned ratios for BWC. Comment on the firm's leverage and ability to handle the debt service associated with the SBA loan.

Current ratio = current assets/current liabilities = 1,010,806/411,000 = 2.46.

Quick ratio = (current assets - inventory)/current liabilities = (1,010,806 - 616,000)/411,000 = .96.

The current ratio indicates the firm has a high ability to meet short-term liability obligations; however, when you deduct inventory, the picture changes dramatically. It appears the firm is planning to carry a rather high amount of illiquid inventory, and when this is taken into account in the quick ratio liquidity diminishes rapidly. This indicates the firm may need access to a bank line of credit, or additional working capital sources, to avoid a cash flow crisis.

Debt ratio = total debt/total assets = 1,411,000/1,805,806 = .78 for every $1 in assets, the firm expects to borrow $0.78 to finance them.

Debt/equity ratio = total debt/shareholders equity = 1,411,000/394,806 = 3.57.

The firm plans to borrow $3.57 for every $1 in shareholders equity invested.

TIE = EBIT/Interest expense (first year) = (263,544+110,000)/110,000 = 3.40.

During the first year of operations, the firm expects to earn $3.40 for each $1 of interest expense it must pay. BWC will be a heavily financed business. The firm expects to be over 75% debt financed; however, the first year P&L indicates the firm expects to easily be able to service the interest expense associated with the $1 million SBA loan.

QUESTION FOR PART B

6. Now your partners have pulled the rug out from under you by structuring another deal, do you reject their offer or do you consider that now you can at least become an entrepreneur and own a piece? Is a piece of a business better than nothing?

Julie is understandably angered by what seems like her friend's betrayal of her and her business idea. But upon reflection, this does represent a way for Julie to have her business and be the entrepreneur she dreams of being. Often entrepreneurs have to get started in a manner that is less desirable they had hoped. By getting additional experience, further developing their networks, and gaining a track record, however, the less than satisfying start-up can often lead to bigger and better things. One might question the values and integrity of the two sisters as potential business partners, however.

It is important for an entrepreneur to have enough motivation to overcome these types of problems, and creatively come up with new solutions. Often entrepreneurs are too emotional about setbacks or take it personally. Entrepreneurs need to stay focused and go to plan B before they lose too much momentum or miss their window of opportunity. (For more information see Kets de Vries, 1985).

QUESTION FOR PART C

7. What kind of a deal would you structure? What would you ask for? How much equity stake would you give him? Board representation? Is this the kind of person you want to get into a deal with? What are the risks and downsides of the new partner? What should you guard against as you structure the deal, particularly the equity stake and roles and responsibilities?

Students may have a number of suggestions about how to proceed and the percentage of ownership and equity in the business. The board needs to be composed of industry experts, if possible, as well as other entrepreneurs further along in the self-employment process to best guide the couple. As to the kind of person to work with, at this point the business most needs start-up funding. A silent or almost-silent partner with money is critical, particularly if the investor brings with them a network of business connections. While Chad and Julie need enough free rein to do what they know best, an investor can be valuable as a sage advisor.

One thing for Julie to remember is that entrepreneurship is not a solo event. She has not been able to pull the resources together on her own, and she might not be able to do it at all without giving up some equity. If this venture is successful, the rewards associated with half of the ownership will be well worth the effort and risk.

References

OUTSIDE OR SUPPLEMENTARY READINGS

Kets de Vries, M.F.R.,(1985). The Dark Side of Entrepreneurship, Harvard Business Review, November-December, 160-167.

Reich, Robert B. (1999). Entrepreneurship Reconsidered: The Team as Hero, in The Entrepreneurial Venture, W.H. Sahlman, H.H. Stevenson, M.J. Roberts & Amar Bhidé (Eds.), second edition, Harvard Business School Publications, Boston: 23-34.

Stancill, J.M. (1992). How Much Does Your New Venture Need?, in The Entrepreneurial Venture, W.H. Sahlman & H.H. Stevenson, (Eds.), Harvard Business School Publications, Boston: 179-195.

Timmons, Jeffrey A. & Dale A. Sander, (1997). Everything You (Don't) Want to Know about Raising Capital, Harvard Business Review, 147-160.

AuthorAffiliation

Richard C. Becherer, The University of Tennessee at Chattanooga

J. Howard Finch, Florida Gulf Coast University

Marilyn M. Helms, Dalton State College

AuthorAffiliation

NOTE

Note: for an updated Epilogue of the case, please e-mail either Dr. Richard Becherer (Richard-becherer@utc.edu), Dr. J. Howard Finch (ihfinch@fgcu.edu), or Dr. Marilyn Helms (Mhelms@daltonstate.edu).

Subject: Weddings; Startups; Business plans; One stop shopping; Entrepreneurial finance; Events planning; Case studies

Location: United States--US

Classification: 8300: Service industries not elsewhere classified; 3100: Capital & debt management; 2310: Planning; 9520: Small business; 9190: United States; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 4

Pages: 5-13

Number of pages: 9

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Equations References

ProQuest document ID: 216299137

Document URL: http://search.proquest.com/docview/216299137?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 22 of 100

E. M. MAPALAD AND THE MAPALAD BUS LINERS, INC.: THE BUSINESS ENDED DESPITE A TALENTED ENTREPRENEUR

Author: Ruane, Maria Claret M; Rummel, Amy

ProQuest document link

Abstract:

The case is about Eustacio Marino Mapalad, an entrepreneur, and the successful transportation business he created in the Philippines after World War II and operated for more than 50 years. The case traces through the history of his business, from its beginning as a surplus U.S. Army jeep that was leftover from the war to a fleet of thirty five full-sized buses at its peak in 1965-1972. In doing so, the case illustrates an example of how a highly motivated and very talented entrepreneur started his businesses from limited resources, and how his skillful management of these and additional resources and his ability to identify and pursue opportunities made him the number one bus operator in Manila twenty years after he started his business. The case also shows how a drastic change in the political environment adversely affected his businesses and drove this once motivated, dedicated and successful entrepreneur to give up on the business that he created. This case secondarily provides a glimpse of the transportation industry in the Philippines between 1945 and the 1980s for which no explicit study exists and for which data are generally not available. It also gives a personal account of the political, economic and cultural environments faced by the entrepreneur and how these environments affected a number of his major business decisions. [PUBLICATION ABSTRACT]

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case is entrepreneurship. Secondary issues examined in the case include strategies involved in family business startup, growth, and decline, including profit-maximizing strategies (revenue maximization in particular), as well as international business environments and their impact on businesses, in general, and family businesses, in particular. This case has a difficulty level of three and up, appropriate for junior level and beyond. The case is designed to be taught in two to three class hours in a management or an entrepreneurs hip or international business course, and is expected to require about three hours of outside preparation for students, consisting mainly of reading the case and familiarizing themselves with the business implications of a Martial Law regime.

CASE SYNOPSIS

This case secondarily provides a glimpse of the transportation industry in the Philippines between 1945 and the 1980s for which no explicit study exists and for which data are generally not available. It also gives a personal account of the political, economic and cultural environments faced by the entrepreneur and how these environments affected a number of his major business decisions.

INSTRUCTORS' NOTES

Discussion Questions and Guide

1. Conduct an environmental analysis of this case. Initially, what factors aided Mapalad in the growth and success of his business?

There are 5 "environments" which affect any business strategy. They are:

* Political and Legal

* Economic Environment

* Social and Cultural

* Technological

* Competitive

Political and Legal

Political and Legal environments are naturally intertwined because changes in the political environment most often lead to changes in the legal environment.

Initially, the political climate in the Philippines after WWII was extremely supportive to entrepreneurial activities. After independence in 1946 the Philippines had access to free trade with United States. Meanwhile import restriction facilitated manufacturing within the Philippines. These factors led to an entrepreneurial spirit in this country and growth in business sector. People like Mr. Mapalad to initiate his own business, dependent upon the business sector growth.

Economic Environment

As identified previously, due to changes in the political and legal environment, the economic environment proved itself beneficial for the growth of new businesses. Mr. Mapalad was well positioned. Initially, his ability to secure a route servicing a route catering to the U.S. Military was critical. As the Filipino market developed economically, Mapalad's business was able to thrive.

Social and Cultural

The key factor for success in this environment was the lack of a "car in every driveway" - a key cultural phenomenon in the American culture in 1950s. Filipinos were open to and therefore depend upon public transportation in the capital of Manila. For Mr. Mapalad this insured a demand for his services

Technological

Access to transportation post WWII was limited. As identified in the case, Mapalad' s first mode of transportation was a refurbished army jeep. Access to other forms of transportation was extremely limited at this time. In this case, it could be said that restrictions placed on technology provided a strategic opportunity. Lack of adequate infrastructure (road quality and maintenance) proved the "jeepney" to be the best form of transportation.

Competitive Environment

Lack of competition was a key factor for success for Mr. Mapalad. Initially, demand for Mapalad' s route to and from the U.S. military base was high enough to support multiple suppliers. He also was able to differentiate himself from his competitors based on his reputation and reliability.

When Mr. Mapalad moved his business to Manila and expanded to a fleet of 10 buses, he was able to secure a 25 -year franchise for the PUB routes in Manila. This was an extremely effective method of protecting his business from any competitor.

It could also be noted that Mr. Mapalad initiated certain marketing activities to protect him from his potential competitors. Through the use of branding (painting his buses and banding them with E. M.), he was able to build visually on his reputation to create brand equity.

2. What were Mr. Mapalad's key factors for success?

There were many key factors for success. Some that should be discussed are:

* Personal Expertise

* Human Resources

* Adaptability to change

* Financial Credibility

Personal Expertise

In the famous article "Stick to your knitting" Porter identifies that a key factor for success is as business personal expertise in their field. Mapalad build a solid business on his knowledge base- driving experience (ambulance services to and from battlefields) and mechanical. He came to build his financial success on his reputation which was due in large part to the reliability of his transportation services. This could only be achieved because he knew how to keep his vehicles operational: stocking parts for repair, installation of diesel engines to reduce costs were just some to the business activities employed.

Human Resource Management

Initially, Mapalad employed family members in the expansion of his business. This was a benefit to him because he was able to trust his employees because of his personal relationship with them. As his business grew, it was necessary to hire drivers outside his family. As with his family, he focused on fair compensation for his employees not only in terms of wages but in the number of hours he provided for each worker. Ethical treatment of his employees coupled with maximum reimbursement allowed him "to attract (and retain) the most talented personnel" (pg. 6).

Adaptability to Change

Throughout the evolution of Mapalad' s business, he adapted to environmental changes. From seizing the transportation opportunity initially, to expanding and moving his services to Manila, to finally franchising a 10 bus route, reflects Mapalad's ability to change with new opportunities. From 1963 to 1972, when he had 35 PUBs, Mapalad grew his business under positive economic and political conditions.

Financial Credibility

Another important factor in the success of this business was Mapalad' s financial stability and credibility. Starting with only his personal earnings, he was able to parlay his income into the eventual "Mapalad Liners" of 35 PUBs. For example, he used 300 Php of his personal savings to purchase his first surplus jeep, which he converted into a passenger jeepney. Also, from a combination of his savings and profit, he was able to purchase a lot, half of which he used as his home and office- garage for his 5 jeepneys while the other half was rented out to pay for his mortgage.

He also became very adept at building his business and personal assets to use as collateral for each new expansion of his business. Initially, as identified in the case, Mr. Mapalad used his profits to buy his own vehicle. On his profitability from this business he then was able to buy a lot, which he used both for his business and his home. Through combining his personal and business finances, he was able to reduce his overall costs, which increased his overall profitability and net worth. Hence, as his new businesses grew, so did his financial strength and credibility with his lenders.

3. In what ways did Mr. Mapalad display characteristics of an entrepreneur?

Bateman and Crant (1993) identified "proactive personalities" as being one of the defining personality characteristics that entrepreneurs have. They define this characteristic as the ability and proclivity to "scan for opportunities, show initiative, take action and persevere until they reach closure by bringing about change." (pg.105). Mr. Mapalad displayed such a personality characteristic throughout his business career. At each juncture he identified an opportunity and was able to develop a business venture to meet a unique or developing need in the market place. His ability to be flexible and "change in response to surrounding business conditions" (Kickul and Gundry, 2002, pg. 93) was entrepreneurial and critical in the business environment he was functioning in, that of a developing country post WW II. Additionally he was able to create value by combining resources to exploit an opportunity, another key factor in defining an entrepreneur (Christensen, Masden and Person, 1989; Koller, 1988; Kickul and Gundry ,2002). See Model of the Consequences of Proactive Personality)

Another characteristic identified in the entrepreneurship literature is a business owner's strategic orientation being that of a "prospector" (Miles and Stone, 1978). This orientation is the ability to continually scan the environment for new opportunities in terms of product, service and/or technology. Mr. Mapalad was able to look for creative ways of developing brand awareness (business signage), create efficiencies (bus scheduling, payment of debt, allocation of resources both physical and human resources) and target new markets (monopolistic ownership of bus routes) to name a few.

4. What factors led to the eventual downfall of Mapalad's business?

In spite of Mr. Mapalad' s efforts, his business failed. The largest contributing factor that led to his downfall was the changing political environment. With the establishment of the Marco's dictatorship, there was really no possibility for survival. Some analysts might even suggest that it was Mapalad' s success that made him prime for destruction. Under the political regime, Marcos was able to identify any business for state ownership. Those businesses that appeared to take money away (i.e., profitable) from the state were certain to become state owned. Mr. Mapalad' s business had no protection from these politics.

View Image - Final Model of the Consequences of Proactive Personality

References

REFERENCES

Bateman, T. S. & J.M. Crant (1993). "The Proactive Component of Organizational Behavior: A Measure and Correlates." Journal of Organizational Behaviors 14, 103-118.

Carpenter, M. & Wm. G. Sanders (2006), Strategic Management: A Dynamic Prospective. Pearson Prentice Hall

Bhave, M.P. (1994). "A Process Model of Entrepreneurial Venture Creation." Journal of Business Venturing 9(3), 223-242.

Christensen, P.S., O.O. Madsen & R. Peterson (1989). "Opportunity Identification: The Contribution of Entrepreneurship to Strategic Management." Denmark: Arabus University Institute of Management.

Kickel, J. & L. Giundry (2002). "Prospecting for Strategic Advantage: The Proactive Entrepreneurial Personality of Small Firm Innovation." Journal of Small Business Management 40 (2) 85-97

Koller, R.H. (1988). "On the Source of Entrepreneurial Ideas." Frontiers of Entrepreneurship Research. Wellesley, MA: Babson College.

AuthorAffiliation

Maria Claret M. Ruane, Alfred University

Amy Rummel, Alfred University

Subject: Buses; Business failures; Entrepreneurs; Success factors; Transportation services; Business conditions; Corporate histories; Case studies

Location: Philippines

Company / organization: Name: Mapalad Liners Inc; NAICS: 485210

Classification: 9130: Experimental/theoretical; 9520: Small business; 8350: Transportation & travel industry; 9179: Asia & the Pacific

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 4

Pages: 15-20

Number of pages: 6

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Diagrams References

ProQuest document ID: 216279233

Document URL: http://search.proquest.com/docview/216279233?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 23 of 100

CHICAGO FOOD AND BEVERAGE COMPANY: THE CHALLENGES OF MANAGING INTERNATIONAL ASSIGNMENTS

Author: Bodolica, Virginia; Marie-France Waxin

ProQuest document link

Abstract:

The Chicago Food and Beverage Company (CFB Co.) is an American multinational with subsidiaries in North America, Europe and Asia. The case is about the alignment of CFB Co. internationalization strategy and the orientation of the head office in regard to its international human resource management (IHRM) policy and management of international assignments, with an emphasis on expatriates' recruitment and compensation. The case describes the international development of the company and the subsequent expatriation of Paul Fierman, the head of the Vietnam subsidiary. Paul's three-year mandate includes the preparation and execution of the strategy to synergize the three Asian subsidiaries (Singapore, Hong Kong, Vietnam) with the collaboration of the head of the Pacific Rim, which should allow CFB Co. to conquer the Asian market. Six months after his arrival, Paul Fierman is disappointed by the financial conditions of his contract and by his relationships with local colleagues, not to mention the difficulties his wife has been having adapting to this new environment. The discussion of this case in class allows introducing and illustrating the theoretical concepts related to the following topics: 1) internationalization strategies and international human resource management policies; 2) strategic management of international postings; and 3) advantages and disadvantages of different international compensation methods. [PUBLICATION ABSTRACT]

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns the management of expatriate managers with a particular focus on their recruitment and compensation. Secondary issues examined include the internationalization strategies of a multinational company and particularly the alignment of international strategy and headquarters' orientation regarding the international human resource management policy. The case has the difficulty level of six (appropriate for second year graduate level). The case is designed to be taught in three class hours and is expected to require five hours of outside preparation by students.

CASE SYNOPSIS

INSTRUCTORS' NOTES

Teaching Objectives

This case allows the introduction and illustration of theoretical concepts which are related both to internationalization strategies and to the management of international staff.

This case can be studied under one or many angles: the internationalization strategies, the management of expatriate managers, their recruitment and compensation in particular. The case includes a lot of information and students must classify and use it in order of its relevance.

In Which Programs, in Which Types of Classes

This case was originally written for use in human resource management or international human resource management (IHRM) classes offered in MBA or M. Sc. programs.

We recommend distributing the case one week before the discussion session and asking the students to prepare the case at home, given its length. The discussion of the case in class could easily take three hours.

Sources and Methods of Data Collection

This case is fictitious, although inspired by true events. We based ourselves on observations in many companies, IHRM articles and the subjects broached during interviews with expatriates carried out during our doctoral studies. The data on the Vietnamese context are real and were gathered on different web sites available on the internet.

Links with Which Functions

This case is useful for examining the function of international human resources managers or the functions of expatriate managers in general.

USING THE CASE IN THE CLASSROOM

The professor can begin by indicating the problem of managing international employees in the context of a strategic joint venture of the type used by today's companies.

The professor can also divide the class up and ask each group to examine a different aspect of the problem.

Questions for the Preparation of Students' Discussion in Class

We propose the following themes for discussion:

1. The alignment of international strategy and the headquarters' orientation regarding the IHRM policy;

2. The strategic management of international postings with emphasis on two subjects:

2.1. The filling of international posts;

2.2. The compensation of international managers.

THEME1: ALIGNMENT OF INTERNATIONAL STRATEGY AND HEADQUARTERS' ORIENTATION REGARDING THE IHRM POLICY

1. Which internationalization strategies do you recognize in this case study?

View Image - Table 1: Types of international organization configurations (Bartlett & Ghoshal, 1989)

Bartlett & Ghoshal (1989) distinguish four types of strategies or international organizational configurations: multidomestic, international, global and transnational (see Table 1). In this case study, after the domestic expansion phase in the United States (1960-1985), we recognize the following internationalization strategies. From 1985 to 1998, each subsidiary maintains a specialized production destined for a domestic market, which corresponds to the multidomestic configuration. Then, in the new, more complex configuration (after 2000), we find multidomestic, global, and transnational elements. Here, we can also spot the characteristics of the global configuration: certain primary products will be standardized and produced by certain subsidiaries for all the other subsidiaries. Finally, all the subsidiaries will be interdependent and will depend on certain products coming from other subsidiaries, but at the same time they will continue to produce local specialties (we are therefore talking about an integrated structure): these are elements and characteristics of the transnational configuration.

The professor can insist on the fact that we never see a configuration in a pure state, but that we recognize certain tendencies and typical characteristics.

2. What is the HRM orientation adopted by the headquarters? What comments can you make concerning this choice? What can you recommend to the company's headquarters in this sense?

Perlmutter (1969) was the first to distinguish three ways to apprehend HRM in international corporations: ethnocentric, polycentric and geocentric. A fourth way of conceiving HRM policy was subsequently added to these: regiocentric (Dowling et al., 1999).

In this case, we recognize an ethnocentric orientation. HRM in an ethnocentric orientation does not give any decisional autonomy to the subsidiaries, the strategic decisions are taken at headquarters and the subsidiaries are managed by the expatriate employees from headquarters. Also, the head office makes all the important decisions about the management of international postings (recruitment, selection, training, etc.).

The professor can ask students to examine the pertinence of an ethnocentric orientation in the actual situation. In this case, we see that anew structure is being built; the leadership comes from the world headquarters. No regional leadership has yet been developed. However, in the medium and long term, the ethnocentric vision does not correspond with the vision of the integrated structure. The head office should examine the possibility of adopting a regiocentric vision. The American headquarters should begin building regional leadership by further implicating the Asian office in the management of the Asian subsidiaries. In reality, the change from the ethnocentric to the regiocentric perspective is long and hard. The markets in the United States, Europe and Asia are very different, as is the management.

In the context of the regiocentric approach, regional decisions are made in the regions, thereby reflecting the strategy and geographic structure of the multinational. The HRM practices are harmonized in the subsidiaries of a given region. The regional managers benefit from autonomy in decision-making relative to their respective regions. These managers can be promoted in the regional units, but rarely to a post at the world headquarters.

THEME 2: STRATEGIC MANAGEMENT OF INTERNATIONAL POSTINGS

1. Is Paul Fierman a good candidate for this expatriation position? Here we discuss Paul Fierman' s mission, from the description of his position, the profile of the ideal candidate and Paul Fierman's actual profile. Does Paul Fierman correspond with the ideal candidate? What is Paul Fierman's mission?

Three year mandate, to manage the subsidiary, implement the new organizational strategy (synergizing the three Asian subsidiaries).

What is the profile of the ideal candidate (define the competencies necessary to successfully carry out this mandate)? What is Paul Fierman's profile? (see Table 2).

2. What comments can you make on the expatriation management in general? And what comments can you make on the expatriate recruitment policy in particular?

The strategic management of expatriates includes at least six following steps:

1. Strategic planning of the positions

2. Staffing (job analysis, recruitment, selection, orientation)

3. Orientation/training for the post in relation to the culture of the host country

4. Adaptation to the position and the support policy for international employees

5. Management of performance

6. Management of the repatriation

1. Strategic planning: We will have the students note that CFB Co. does not seem to strategically plan its needs and resources in international managers. The replacement of Paul Fierman's predecessor had not been envisaged before it became necessary and no potential candidate had been identified.

2. Staffing: We orient the discussion towards the different steps of the process of filling the post: job analysis, recruitment, selection. It is important that the students note the absence of a reflection period by the company on its procedure for filling the post. The methods used to fill the post in the case are indeed quite questionable. The students can examine the three following aspects in detail:

Job analysis: The description of the position and the profile of the competencies sought do not seem to have been laid out professionally.

Recruitment: According to the information given in the case, the company did not formally publish or announce the opening up of the position and made no effort to generate candidacies internally or seek out qualified candidates. In this case, the company uses a close recruitment system (the opening up of new positions and the candidacies are confidential).

Selection: Many errors were made. Firstly, the selection criteria were not determined in a professional manner using a description of the position. Further, CFB Co. did not use any of the formal and valid selection methods (structured meeting, examination of previous evaluations, verification/tests of pertinent international competence and experience, evaluation centre). Finally, the question of the selection of the evaluators should come up. The head of the regional office that best knows the situation of the Haiphong subsidiary should have participated in the selection of the new head manager. The selection process took place in a totally informal manner.

3. Orientation/training. The headquarters is supposed to furnish the future expatriate with precise and useful information about the position to be filled (description of the tasks, the responsibilities, professional challenges), the characteristics of the regional office and its employees and the environment in the host country (local culture, logistical information, practical information on life in the new country). In our case, no useful information was given to Paul before he arrived on the scene. The American and regional offices should have organized a meeting between Paul and his predecessor and verified that Paul met regularly with his superior, who should also have had a role to play as a mentor, at the regional office. Finally, the professional and intercultural training were non-existent.

4. Adaptation to the position and the support policy for international employees. The adaptation of expatriates comprises three facets: the adaptation to the work, to the interaction and to local life (Black and Gregersen, 1991). Paul Fierman seems to be suffering in all three of these aspects. He seems to be caught up in the cultural shock phase, which is quite ordinary, six months after his arrival.

We then discuss the role of the international head office and the regional office in the support policy for international employees. CFB Co. offered Paul no social or professional support, either in relation to his new role as head manager or in relation to the culture of the country of his recent posting (Waxin, 2004 ; Waxin and Chandon, 2003). The fate of Paul's wife and daughter were simply ignored by the company.

5. Management of performance. The world headquarters is supposed to set the objectives of the mandate in collaboration with the expatriate manager, or at least clearly explain the methods used to evaluate performance, provide the professional and social support necessary for him to fulfill his mandate and finally to regularly follow the performance of the expatriate. None of these actions were taken in this case.

6. Repatriation. The head office is supposed to explain and predict, with the expatriate, the different options relative to the return to the home country. The competences acquired during the expatriation should be taken into account.

THEME 3: THE COMPENSATION OF INTERNATIONAL MANAGERS

The professor can begin by reminding students of the objectives of the compensation policy. For a compensation policy to be effective, it must meet the following objectives:

* Attract and retain employees who are qualified for work abroad;

* Establish and maintain internal equity between the employees of all the affiliates, whether in the home country or abroad;

* Maintain compensation which is reasonable and competitive in relation to the practices of its main competitors (external equity).

Then, the professor focuses on the question of the challenges related to international compensation policy. The context of the globalization of markets poses some important challenges in regards to the management of expatriates' compensation. For the multinational, one of these challenges is the control of the cost of international labour. It is thus crucial for the company to efficiently manage this investment and even more so if it employs a significant number of expatriates. Harvey (1993) cites the following four other challenges:

* The assurance that there is equity in the compensation of home country, host country and third country nationals;

* The adaptation of compensation solutions to the variations in the needs of the expatriates in accordance with the level reached in the family cycle;

* The management of the repatriation;

* The difficulty in changing an existing compensation system.

1. What are the different expatriate compensation methods you recognised in the text? What are the advantages and disadvantages of these different expatriate compensation methods?

The professor can propose that the students fill out the following table (see Table 3), indicating the advantages and disadvantages, for the company and the expatriates, of the different methods of compensation used by CFB Co.

View Image - Table 3: The advantages and disadvantages of these different expatriate compensation methods used by CFB Co.

This exercise in the comparison of methods will allow students to properly understand the differences between the methods of compensation of expatriates.

The negotiation approach was used by the company at the beginning of its international activities from 1985 to 1998. Because CFB Co. had little international experience, it tried to keep the management of expatriates flexible and justifiable. However, even if this approach is easy to manage and requires little data, there is a risk of creating inequities between the expatriates, and that the system will become costly when there are more expatriates. This method can also be time-consuming because the compensation contracts have to be renegotiated each time the country of the posting changes.

The balance sheet approach applies to Paul Fierman as a junior expatriate. Following this approach, the employer attempts to equalize the buying power in the host country with what the expatriate enjoyed in his host country, assuming the costs that exceed the expenses that the expatriate would normally have to make in his home country. This method presents many advantages: it allows the expatriate to maintain his lifestyle, it facilitates the adaptation of family members to the changes in daily life in a foreign country, it facilitates the repatriation and promotes internal equity in relation to peers in the host country. However, the balance sheet method generates little incentive to accept a posting abroad. To encourage geographic mobility of employees, certain companies offer expatriates particular incentives, like overseas mobility bonuses. In other cases, international experience is seen as a determining factor in career advancement, where the manager who successfully fills his expatriation mandate might receive a promotion in the multinational upon his return (this is the case for Paul Fierman). This approach can be expensive, difficult to manage and requires a lot of information about the cost of living index, salary comparisons and foreign tax legislation.

A poll carried out among Canadian multinationals in April and May 2003 by Mercer Consulting and WorldatWork revealed that more than 50 % of companies use the balance sheet approach. Only 10% of respondents use the method of host country compensation, which is basically the local compensation without any other form of indemnity.

The international method applies to senior expatriates at CFB Co. This method clearly favours the expatriates, because the compensation offers are attractive and include various mobility bonuses and the payment of various expenses abroad. This method is very costly for the company. It is therefore essentially reserved for expatriates who have proven themselves in the company, in terms of competence and potential. This approach encourages mobility and facilitates the management of the return because the expatriate continues to progress on the national scale upon his return to the home country.

The mixed method means that different expatriates in the same company can be compensated according to different methods. In the case of CFB Co., the balance sheet approach is applied to juniors and the international method is applied to seniors. For the multinational, this approach seems to be privileged as it lets it apply different methods of international compensation for different categories of expatriates (the differences can be based on international experience, seniority, functions, etc.) and save on costs. On the other hand, it complicates the management of compensation and there is a risk of creating a feeling of inequity between the different categories of expatriates.

2. What do you suggest to the U.S. headquarters' human resources manager in order to improve the expatriate satisfaction compensation?

Firstly, the international human resource manager must communicate and explain in detail the different types of expatriation, the different types of competencies required and the different compensation methods (balance sheet and international approaches) of international managers. Paul was not realistic in his expectations in relation to his compensation, in part because he was not properly informed about the compensation policy for international managers in the multinational. In Paul's case, it is important to note that his expatriation also played a training role. Paul's skills are different from those of the senior expatriates with whom he is comparing himself.

Students can propose the following changes in the compensation policy for expatriates. The professor must point out that there is no single correct method for managing the compensation of expatriates, but rather one optimal method according to the organizational culture and strategy of the multinational.

The generalization of the balance sheet approach to all expatriates. To achieve greater equity between international employees and better control labour costs, we could generalize the balance sheet approach, but the seniors would find it difficult to accept a reduction in their actual compensation. The reasons for the change must be explained and the international compensation policy must be communicated to the managers involved. The cafeteria approach. The salary is fixed as a function of the compensation scale in the home country. The company furnishes a total amount of indemnities and the expatriate chooses to spread out this amount per expense that he will make in accordance with his personal needs. This approach creates more flexibility for the expatriate and it can increase his satisfaction as it better meets his needs. However, when the number of options offered to expatriates is high, this option becomes very complex and costly to manage.

The modified balance sheet approach. Here the salary of the expatriate is related to the region of his expatriation, in the case of Paul Fierman, the Pacific Rim. Among the advantages of this approach we find the fact that is matches up well with the company's regiocentric approach, it preserves the link between the structure of compensation and advantages for the expatriate with what is practiced in the home country and thus facilitates repatriation to the country with the better salaries. This approach is quite simple to manage because it offers all expatriates in a given region the same amount of indemnities based on the index of the most expensive country of posting among all the possible destinations in the region. However, this method is more costly than the balance sheet approach and repatriation is more difficult if the salaries in the home country are lower than those of the country of the posting. Finally, this method creates a risk of generating inequities between expatriates posted in different host regions (regions where the cost of living is higher versus regions where it is lower). This method is particularly well-adapted with a regiocentric IHRM approach.

The host country method is traditionally adopted when the expatriate is remaining in the host country for a very long duration or when his return to the home country is not considered desirable by the head office. The expatriate's salary is determined in relation to the salaries offered in the host country for similar positions, the company providing certain allocations and advantages to expatriates and their family members if the lifestyle of the host country is inferior to that of the home country. This alternative does not seem efficient in our case because neither Paul Fierman nor the other senior expatriates seem to want to remain in their host countries for an extended period of time.

Time or Sequence Suggested for Each Point to Be Covered

The students can individually prepare this case study, which would have been handed out at the previous session. The case study can be the subject of a discussion in class lasting about three hours. For example, the professor can spend one hour on the alignment of a strategy and the strategic management of international postings, one hour on the filling of the position and one hour on the compensation of international managers.

References

ACCOMPANYING TEXTS, CONCEPTS AND THEORIES

The authors suggest that the students read a few of the following texts before they are asked to prepare the case study.

Black, J.S. & Gregersen, H.B. (1999). The right way to manage expatriates. Harvard Business Review, March-April, 52-62.

Bennett, R., Aaton, A., & Colquhoun, T. (2000). Cross-cultural training: a critical step in ensuring the success of international assignments. Human Resource Management, 39(2&3), 239-250.

Black, J. S. & Gregersen, H. B. (1991). Antecedents to cross-cultural adjustment for expatriates in pacific rim assignments. Human Relations, 44(5), 497-515.

Bonache, J., Brewster, C., & Suutari, V. (2001). Expatriation: a developing research agenda. Thunderbird International Business Review, 43(1), 3-20.

Burns, S. (2003). Flexible international assignee compensation plans. Compensation and Benefits Review, 35(3), 35-44.

Sims, R. & Schraeder, M. (2005). Expatriate compensation: An exploratory review of salient contextual factors and common practices. Career Development International, 10(2), 98-108.

St-Onge, S., Magnan, M., Prost, C. & Biouele, S.-P. (2002). Gérer la rémunération dans un contexte de mobilité internationale: l'art de jongler avec différentes perspectives. Gestion, 27(1), 41-55.

Suutari, V. & Tornikovski, C. (2000). The challenge of expatriate compensation: the sources of satisfaction and dissatisfaction among expatriates. The International Journal of Human Resource Management, 32(2), 54-66.

Waxin, M.-F. & Panaccio, AJ. (2005). Cross-cultural training to facilitate expatriate adjustment: it works! Personnel Review, January, Special Issue on Global Human Resource Management.

Waxin, M.-F. (2004). Expatriates' interaction adjustment: the direct and moderator effects of culture of origin. International Journal of Intercultural Relations, 28(1), 61-79.

Waxin, M.-F. & Chandon, J.-L. (2003). L'adaptation au travail des expatriés: ses déterminants et l'effet du pays d'origine. Revue de Gestion des Ressources Humaines, 47(1), 57-71.

Wentland, D.M. (2003). A new practical guide for determining expatriate compensation: the comprehensive model. Compensation and Benefits Review, 35(3), 45-50.

LINKS WITH CONCEPTS AND THEORIES

The professor has the choice to introduce these themes before the discussion of the case study or to use the case study to introduce these concepts and theories:

Different internationalization strategies for multinationals;

The filling of positions and compensation in an international context;

The management of international managers.

ADDITIONAL BIBLIOGRAPHY TO HELP THE PROFESSOR

Bonache, J. & Fernandez, Z. (1997). Expatriate compensation and its link to the subsidiary strategic role: a theoretical analysis. The International Journal of Human Resource Management, 8(4), 457-475.

Forster, N. (1997). The persistent myth of high expatriate failure rates: a reappraisal. The International Journal of Human Resource Management, 8(4), 415-433.

Harvey, M. (1993). Empirical evidence of recurring international compensation problems. Journal of International Business Studies, 24(4), 785-799.

Latta, G.W. (1999). Expatriate policy and practice: a ten-year comparison of trends. Compensation & Benefits Review, 31(4), 35-39.

Martocchio, J.J. (1998). Strategic compensation: a human resource management approach. Institute of Labor and Industrial Relations, 311-339.

Reynolds, C. (1997). Expatriate compensation in historical perspective. Journal of World Business, 32(2), 118-132.

Saba, T. (2001). LaGRH dans les entreprises internationales : une réalité complexe et des exigences nouvelles. Effectif, janvier-février-mars, 22-30.

Stroh, L.K. & Caliguiri, P.M. (1998). Increasing global effectiveness through effective people management. Journal of World Business, 33(1), 1-17.

Welch, D. (1994). Determinants of international human resource management approaches and activities: a suggested framework. Journal of Management Studies, 31(1), 139-163.

SELECTED QUESTIONS FOR CASE DISCUSSION

Topic 1: Alignment of International Strategy and Headquarters' Orientation Regarding the International Hrm Policy

1. Which internationalisation strategies do you recognise in this case study?

2. What is the HRM orientation adopted by the headquarters? What comments can you make concerning this choice? What can you recommend to the company's headquarters in this sense?

Topic 2: Expatriation Management

1. Is Paul Fierman a good candidate for this expatriation position?

2. What comments can you make on the expatriation management in general? And what comments can you make on the expatriate recruitment policy in particular?

Topic 3: Compensation of International Staff

1. What are the different expatriate compensation methods you recognised in the text? What are the advantages and disadvantages of these different expatriate compensation methods?

2. What do you suggest to the U.S. headquarters' human resources manager in order to improve the expatriate satisfaction/compensation?

AuthorAffiliation

Virginia Bodolica, University of Quebec in Outaouais

Marie-France Waxin, American University of Sharjah

Subject: Multinational corporations; Expatriate employees; Human resource management; Food processing industry; Business growth; Strategic management; Organizational structure; Case studies

Location: United States--US

Classification: 9130: Experimental/theoretical; 2310: Planning; 6100: Human resource planning; 8610: Food processing industry; 9510: Multinational corporations; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 4

Pages: 21-34

Number of pages: 14

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References

ProQuest document ID: 216310078

Document URL: http://search.proquest.com/docview/216310078?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 24 of 100

DEVELOPING A STRATEGIC NEGOTIATION PLAN: TOYOTA HIGHLANDER

Author: Luthy, Michael R; Ryan, Mike H; Desselle, Bettye R; Byrd, John T

ProQuest document link

Abstract:

Introducing students to the topic of sales negotiation is always challenging. While it is typically a significant part of business-to-business purchases and many higher-ticket priced consumer goods, negative word-of-mouth and uncomfortable personal experiences leave many students apprehensive. Presenting the topic in the context of purchasing an automobile, or in this case study, negotiating the purchase of two sport utility vehicles, students will draw on their own experiences, those of their friends and family members, and any assigned readings. The overall goals of the case are to defuse the anxiety many students associate with negotiation, underscore the importance of analysis and planning prior to face-to-face encounters, and better prepare students for future business and personal purchase situations where negotiation is a factor. Specifically, in this case students examine collected price and non-price information, and develop a negotiation plan. Through this task the instructor may explore various fundamental aspects of negotiation (e.g., agenda analysis, concession strategies) and the distributive bargaining model (e.g., aspiration targets, reservation points, buyer and seller surplus). [PUBLICATION ABSTRACT]

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns the evaluation of gathered information to develop a negotiation plan prior to a consumer's purchase of a sport utility vehicle. Secondary issues examined include the sales process and the increasing role of the Internet in consumers' information search activities. The case has a difficulty level of one (appropriate for freshman level courses) although it may be used through level five (appropriate for first year graduate level) depending on the amount and complexity of background reading assigned. The case is designed to be taught in as little as one class hour, but may be expanded to as many as three class hours depending on the amount of theoretical material discussed by the instructor, if role-play negotiations are carried out, and whether any out-of-class preparations are assigned. The case is expected to require from zero to approximately four hours of outside preparation by students.

CASE SYNOPSIS

INSTRUCTORS' NOTES

Pre-class Readings and Student Preparation

If the instructor wants to minimize student preparation for the case, either as a prelude to "off the cuff discussions of negotiation experiences and impressions of car buying, or to better fit the goals for this case with other course objectives, no formal readings need be required to discuss this case. Due to the issues the case raises and its flexibility of use with different student populations, depending on how the case fits with the instructor's goals for the session, selected readings may be assigned. Relevant readings and brief descriptions listed by student level are presented in Exhibit 3.

As part of the learning process instructors may also find it useful to discuss the case in the larger context of different sales situations. To that end there are resources available that present student role plays involving sales and/or negotiations. The professional selling skills workbook (1995), edited by Avila et al. contains numerous tools that can be used for this purpose. Role playing the selling side of the Toyota Highlander negotiation can be beneficial to students accustomed to only viewing these types of interactions from the buyer's vantage point.

Exhibit 3

Suggested Readings

Level One (Freshmen)

The Only Four-Page Guide to Negotiating You'll Ever Need, by Walter Kiechel. Description : Everyone engages in negotiating all the time, whether they realize it or not. Preparation is critical to the success of the process. You will need to prepare on two fronts: getting the right attitude, and gathering information on what your interests are and what the other party's might be. Looking at the overlapping interests of both parties is important; pay special attention to possible alternatives to negotiation. Once the two parties have explored their respective interests together, they may well be able to arrive at an outcome not contemplated in either's initial offer but that satisfies each far better than the result of a long haggle. You can't banish emotions from the proceedings. Rather, the point is to get feelings into the open, acknowledge them, and minimize them as obstacles. Some of the experts recommend that you resist making the first offer yourself, while one cited an example where the initial offer determined the eventual settlement. Measured progress is definitely better than hasty decisions. Harvard Management Update Article, product number U9609A, length 4 pages.

Ethics in Negotiation: Oil and Water or Good Lubrication?, by H. Joseph Reitz, James A. Wall, and Mary Sue Love. Description: Is ethical negotiating not only "the right thing to do," but also effective in achieving desired outcomes? Various ethical criteria (the Golden Rule, Universalism, Utilitarianism, Distributive Justice) are used to evaluate ten commonly used negotiation tactics (lies, puffery, deception, weakening the opponent, strengthening one's own position, nondisclosure, information exploitation, change of mind, distraction, and maximization). Some negotiating ploys are unqualifiedly unethical; some are inherently ethical; some are contingently ethical. Unethical bargaining can reap onetime benefits, but in the long run it damages relationships, sullies reputations, and actually closes the door on many potentially fruitful transactions. Business Horizons article, product number BH004, length 10 pages.

Levels Two through Four

Negotiation Analysis: An Introduction, by Michael A. Wheeler. Description: Provides an overview of the seven elements of negotiation analysis. These elements include BATNAs (nonagreement walk-aways), parties, interests, value-creation, barriers to agreements, power, and ethics. Illustrations are drawn from a range of contexts (from buying a car and the sale of a business to dispute resolution and international diplomacy). Harvard Business School Publication, product number 801156, length 14 pages.

Anchoring and First Offers in Negotiation by George Wu. Description:

Describes how first or opening offers can be used effectively in negotiation. Examines how opening offers serve as an anchor, changing one side's perception of the other side's bottom line and hence the set of possible outcomes. Harvard Business School Publication, product number 895070, length 3 pages.

Framing and Negotiation, by George Wu. Description: How can framing-alternative description of an object, event, or situation-can be used effectively in negotiation? A real estate dialog is used to illustrate three common varieties of framing: losses versus gains; short and long horizons; and aggregation and segregation. Harvard Business School Publication. Product Number 895023. Length 5 pages.

Expectations and Stereotypes: How Do They Affect the Deal? By Kathleen Valley. Description: Designed to provide students with a basic insight into recognizing the productive and destructive aspects of expectations and stereotypes, and their consequent effects on negotiation. Harvard Business School Publication, product number 396167, length 2 pages.

Level 5 (1st Year Graduate)

Two Psychological Traps in Negotiation by George Wu. Description: Two psychological traps, anchoring and framing, and their role in negotiation are described. The anchoring section describes how first or opening offers can be used effectively in negotiation. Examines how opening offers serve as an anchor, changing one side's perception of the other side's bottom line and hence the set of possible outcomes. The framing section describes how framing-alternative description of an object, event, or situation-can be used effectively in negotiation. Uses a real-estate dialogue to illustrate three common varieties of framing: losses versus gains, short and long horizons, and aggregation and segregation. Harvard Business School Publication, product number 897036, length: 8 pages.

Diagnosing and Overcoming Barriers to Agreement by Michael D. Watkins. Description: Synthesizes and extends work on barriers to negotiated agreement. Five key types of barriers are described-structural, strategic, psychological, institutional, and cultural. Approaches to overcoming these barriers are discussed. Harvard Business School Publication, product number 800333, length 20 pages.

Additionally, the instructor has the option of requiring students to prepare written answers and a negotiation plan before the class discussion and even conduct mock negotiations by giving select information to different students playing the roles of buyers and sellers.

GENERAL BACKGROUND

The bargaining in this case is typically categorized as a distribute bargaining (or win-lose) model where gains by one party (the buyer) are offset by the other party (the seller) and vice versa. A graphical representation of the model is presented in exhibit 4 (Walton and McKersie, 1965) while terms are defined in exhibit 5.

View Image - Exhibit 4: Distributive Bargaining Model

Exhibit 5

Distributive Bargaining Model Term Definitions

Target Price: The "best" price (typically a minimum for the buyer and a maximum for the seller) the negotiation party would like to pay for a given item.

Reservation Price: The price (the absolute maximum for the buyer and the absolute minimum for the seller) the negotiation party will accept. Beyond this point they would rather not reach agreement.

Negotiation Range: The area (or latitude) identified as lying between a party's target and reservation points

Buyer's Surplus: The amount that the buyer did not have to pay but was willing to in reaching an agreement.

Seller's Surplus: The amount that the seller did not have to forgo but was willing to in reaching an agreement.

BATNA: Best Alternative To a Negotiated Agreement; there can only be one best and it must be concrete.

Another possibly useful piece of information in leading the class discussion is the markup on the wholesale prices of the various components Michelle Tipton and the Lacey's are interested in. This information is presented in exhibit 6.

View Image - Exhibit 6 Toyota Highlander Base Vehicle Costs and Options with Mark-Up

RESPONSES/ISSUES SURROUNDING QUESTIONS TO ANSWER

1. What should Michelle and the Laceys' negotiation strategy be? (e.g. how much information to share concerning where they are in the buying process, that there is a vehicle trade-in, that they are looking at other dealerships as well, that they have wholesale price information from Internet sources, whether and how much deception is ethical/allowable, etc.)

Because the buyers in this case have more than one dealership from which to chose (Toyota of Louisville and Green Tree Toyota) and the possibility of representing to the sales staff of these dealerships that they have additional choices - Oxmoor Toyota and even dealerships in Cincinnati, Ohio and Indianapolis, Indiana (within a reasonable drive from Louisville given the high ticket price of the purchase), two extreme endpoint strategies are possible.

The first would be the so-called "full information sharing" option. This involves informing the salesperson at the outset that they plan to purchase two of nearly the identical model, have wholesale price information, have a trade-in, and are going to all area dealerships and asking for their best price for the package. This approach has the appeal of making the other bargaining party aware of the buyers' informational power and availability of alternative vendors. The principle chief limitation is that it amounts to a power play or ultimatum of sorts where if the seller doesn't give the lowest price they likely will lose the sale.

At the other end of the spectrum is the so-called "string out the process option." Under this scenario, the buyers go into each dealership and to all external appearances "play dumb." In reality, this approach draws on the increasing investment of time the salesperson spends with one or both potential buyers; answering questions, discovering needs, narrowing down the number of models under consideration, going along on a test drive of the vehicle, explaining and assisting with the buyers' selection of options, pricing, etc as a means of getting a better deal. While it is true the buyers as well tend to view increasing expenditures of time as more commitment to a purchase, in this case the buyers know a priori what they want. Through selective releasing of information they move toward their ultimate goal - the best price for the purchase of two vehicles. Revealing that they will be visiting other dealerships would come only after a written price quote is obtained. The same is true for the information that a trade-in vehicle will be involved.

Other points along the continuum marked by these two extremes are related to how much, and when, selected information is revealed. A separate but related issue is whether deceptive behavior or quasi-ethical behavior is allowable. For example, if the buyer decides to tell the seller they do not have a trade in or in response to the question says "no" when in fact they do and plan to introduce that aspect at a point later in the negotiations. These questions, in particular the determination of what constitutes acceptable or ethical behavior (for parties on both sides) is likely to elicit many different perspectives from students and fuel some interesting discussions.

2. What do you expect the behavior of the sales people to be when Michelle and the Lacey's visit the Toyota dealerships?

Drawing on the experiences of students and depending on their levels of expertise, expected behavior may run the gambit from a "hard sell" i.e. strong pressure to buy, and a pressure to buy from inventory currently featured or on the lot, a manifest desire on the part of the sales staff to reach an agreement before the potential buyers leave the showroom, and incremental investment efforts such as to take a test drive, to a discussion of the buyers needs, price range, etc. A discussion of this issue prior to the students/class developing a negotiation plan increases the likelihood that they will develop a more well thought out plan.

3. Develop a negotiation plan (i.e. characteristics of opening offer, reservation price, tactics, tradeoffs they should make, how to react if the seller brings up issues before you are ready to discuss them, e.g. whether you have a trade in vehicle, etc.). Do you have a Plan B if your original plan becomes untenable?

According to many negotiation sources related to automobile buying, unless there are extenuating circumstances such as a vehicle in high demand and limited availability (e.g. Dodge Viper), the buyer's reservation price should be the MSRP (Manufacturer's Suggested Retail Price). The wholesale price, the amount paid by the dealer for the vehicle, could be the target/aspiration price. More realistically however, the aspiration price should be several hundred dollars above the wholesale price. With the buyers' bargaining range determined, an opening offer closer to the aspiration price is typically called for. Given that the buyers already have determined the precise configuration they want and the fact that the markup on accessories is higher than for basic equipment, they can initially represent the configuration they want as one that has fewer options. By doing so, they allow room to "give in" and add other options, ones they want anyway and that have higher profit margins for the seller. A variant on this strategy is to initially represent the configuration they want and including more options than they really want to purchase. Then, in response to an offer of a price, they buyers can propose omitting unwanted options as a means of bringing the price down. Invariably students, particularly ones with limited experience, will develop a plan that is, for lack of a better term, linear. It may assume that the process will go from point A to point B and so on. Most will not have the foresight to plan for contingencies such as the seller jumping from point A to point G, mitigating whatever particular advantages or perspectives the buyer was hoping to introduce. From the seller's perspective they may want to determine whether the buyer is a potential sale as quickly as possible. The issue of when to take a test drive for example, may be introduced by the seller early on, or earlier than the buyer had planned. The presence of contingencies in the students' plans illustrates a richer understanding of how negotiations such as this occur in practice. If they have a secondary plan (or Plan B) if they determine that the original plan is fundamentally flawed and not appropriate, even with contingencies, for them to continue - they are indeed very prepared. A Plan B could be invoked if the buyers decide for whatever reason that they do not want to deal with the salesperson or dealership (e.g. determining that they are lying on some information, treated particularly badly) or some aspect underlying their original plan has changed (e.g. one of the two buyers pulls out of the agreement to purchase two vehicles at once).

4. What do you believe the salespersons' negotiation plan will be? How can you determine what their plan is?

For many younger students, in particular freshmen, they may have little to no experience in negotiations such as these. Consequently, they may have not considered the preparation of the other side; their goals, needs, trade-offs, etc. in a negotiation. It was Abraham Lincoln, reflecting on his careers as attorney, politician, and President that said when negotiating he spent 1/3 of his time thinking about what he wanted and 2/3 of the time thinking about what the other side wanted; and looking back on it he should have spent more time thinking about what the other side wanted. That perspective, attempting to more fully understand the other party to a negotiation, is one that will benefit students as they analyze and then formulate their own goals, strategies, and tactics.

Instructors may want to assign different students to different tasks - half developing the seller's negotiation plan and half the buyers' plan. These documents could then form the basis for in-class role play experiences or critiquing for the class as a whole.

References

REFERENCES

Avila, R. A. T.N. Ingram, R. W. LaForge & M.R. Williams, (1995). The professional selling skills workbook, Fort Worth, Texas: The Dryden Press.

Consumer Reports website (2002). Retrieved May 16, 2002 from www.consumerreports.org

Edmunds New & Used Car Prices website (2002). Retrieved May 16, 2002 from www.edmunds.com

Harvard Business Online website (2006). Retrieved July 8, 2006 from http://harvardbusinessonline.hbsp.harvard.edu

Kelley Blue Book website (2002). Retrieved May 20, 2002 from www.kbb.com

Toyota automobile website (2002). Retrieved May 2, 2002 from www.toyota.com

Walton, R. & R. McKersie (1965). A behavioral theory of labor negotiations.

AuthorAffiliation

Michael R. Luthy, Bellarmine University

Mike H. Ryan, Bellarmine University

Bettye R. Desselle, Prairie View A&M University

John T. Byrd, Bellarmine University

Subject: Sport utility vehicles; Negotiations; Bargaining; Equipment purchasing; Equipment acquisition planning

Location: United States--US

Classification: 2310: Planning; 5120: Purchasing; 9190: United States; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 4

Pages: 51-59

Number of pages: 9

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Diagrams Tables References

ProQuest document ID: 216281440

Document URL: http://search.proquest.com/docview/216281440?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 25 of 100

CONFLICT MANAGEMENT: THE TEAM NEW ZEALAND CASE

Author: Gilmour, Robert; Wise, Victoria

ProQuest document link

Abstract:

Team New Zealand (TNZ) is a syndicate that specialized in defending the title to a major international sporting event, the America's Cup Yacht Challenge (America's Cup). In early March 2000, TNZ successfully defended its title to the America's Cup. By the end of March the contracts of all TNZ team members had expired and the sailors and boat designers were facing an uncertain future. The yacht skipper, the tactician, and four other long-time sailors, all unbeaten in two America's Cup Yacht Challenges, joined a competitor syndicate, the Swiss challenger, Alinghi. This case focuses on some of the many challenges encountered by management of the TNZ syndicate in mounting their defense in a highly competitive environment, and their ability to choose the appropriate organizational structure and personnel necessary to meet those challenges.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case is the effectiveness of risk management strategies associated with the staging of a major international sporting event. A secondary issue examined in the case concerns the proprietary rights of employers to the intellectual capital and skills acquired by employees. The case requires an understanding of strategic risk management and good corporate governance principles.

This case has a difficulty level that makes it most suitable for senior level students in a Corporate Governance/Business Ethics course. The case is designed to be taught in three class hours and would require about eight hours of out-of-class time which includes reading the case material and the articles listed in the references.

CASE SYNOPSIS

Team New Zealand (TNZ) is a syndicate that specialised in defending the title to a major international sporting event, the America's Cup Yacht Challenge (America's Cup). The America's Cup is on a comparable level with Formula One motor racing. Title to the America's Cup is usually challenged and defended in the home waters of the title-holder nation. The implications for the title-holder's national economy are significant and positive, particularly for its tourism and boat-building industries. In early March 2000, TNZ successfully defended its title to the America's Cup. By the end of March the contracts of all TNZ team members had expired and the sailors and boat designers were facing an uncertain future. The yacht skipper, the tactician, and four other long-time sailors, all unbeaten in two America's Cup Yacht Challenges, joined a competitor syndicate, the Swiss challenger, Alinghi. As well as their considerable crewing ability, these ex-TNZ team members took with them considerable knowledge of the design of the 2000 America's Cup winning boat. TNZ was left without an overall leader responsible for balancing the needs of boat development and sailing. The TNZ syndicate failed in its defense of the America's Cup in the 2003 Challenge, losing all races in a series of five to Alinghi.

This case focuses on some of the many challenges encountered by management of the TNZ syndicate in mounting their defense in a highly competitive environment, and their ability to choose the appropriate organisational structure and personnel necessary to meet those challenges. The initial task for the student is to review the current organisational structure of the managing syndicate along with the challenges and opportunities it faces. Students can then use the details provided in the case information and references to develop risk management and corporate governance strategies for success in an environment characterised by uncertainty.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

The teaching proceeds by instruction in the principles and practice of good corporate governance and the nexus with the audit function and process. Case study analysis is used to demonstrate the principles and practice in a realistic setting. Case study analysis provides the student with an opportunity to critically analyse the weaknesses and opportunities within a contextual setting and to offer considered solutions. It also affords the student an opportunity to develop team skills by discussing the relevant issues with colleagues and peers within a classroom setting.

DISCUSSION QUESTIONS

These questions cover issues raised in the case study material and the references on the Team New Zealand Challenge for the America's Cup, and the principles and practice of good corporate governance.

1. List the reasons for the failure of the 2003 America's Cup defense by Team New Zealand. Use the following headings:

Reasons for the Team New Zealand failure to defend the America's Cup in 2003 include the following:

Preparation:

* Equipment failure on the test boat.

* The testing program for the race boat was not complete before the commencement of the matches.

* Insufficient time was spent practicing in the adverse weather conditions likely to be encountered during the race period.

Design

The race boat was a designers' boat (theoretically sound) rather than a sailors' boat (practical).

* The race boat was not designed to race in the conditions that it was subsequently raced in.

* The designers gambled on weather conditions (good breeze, calm conditions) that did not prevail.

* The radically new design consumed too much time and resources.

* Boat-builders' (expert) concerns were ignored.

* The management structure was design dominated with insufficient balance between design and sailing.

* The sailors lacked confidence in the boat design.

Conflict of interest:

* Beneficial ownership of the Team New Zealand Trust was unclear leading to distrust and speculation about management motives.

* Sailors and other team members were obliged to sacrifice loyalty to Team New Zealand when faced with economic uncertainty.

* Team New Zealand had an insufficient budget to allow it to fully test the training boat as it did not have the financial capacity to replace the training boat should it become damaged. If the training boat was not available, there was no other boat available against which the race boat could be tested.

Intellectual capital:

* The trustees of Team New Zealand did not have proprietary rights to intellectual capital acquired by the sailors and other team members.

* Team New Zealand lost the intellectual capital acquired by the sailors and other team members who had accumulated boat-performance and boat-handling experience to a competitor (the Swiss challenger, Alinghi).

* Team New Zealand lost design information from the previous (2000) America's Cup challenge.

* Team New Zealand lost substantially all of its key decision makers to a competitor (the Swiss challenger, Alinghi).

* Team New Zealand lost the synergistic intellectual capital associated with a 'unit' of sailors and team members who had cooperated together successfully in previous America's Cup challenges.

Corporate governance:

* Team New Zealand lacked a sound corporate governance structure.

* There was a lack of risk management systems.

* After the successful 2000 campaign, the TNZ management team failed to resolve the protracted conflict with its key personnel.

* Team New Zealand failed to secure the ongoing services of its sailors and * TeamNew Zealand failed to secure the ongoing services of its sailors and members who had accumulated successful America's Cup Challenge experience.

* TNZ management failed to assign overall responsibility and authority to a single director.

* TNZ management failed to assign overall operational responsibility to a single individual.

Other

* Another competitor (the successful challenger, Alinghi) was battle-hardened and fully prepared after adequate training.

* The designers failed to accept the advice and warnings of scientific academics and experienced boat-builders who warned against aspects of the new boat design.

2. Prepare an organization chart that demonstrates the system of corporate governance used by Team New Zealand for the 2003 defense campaign.

An example of an organisation chart demonstrating the system of corporate governance used by Team New Zealand for the 2003 defense of the America's Cup.

3. Consider the conflict between the existing Board of Trustees of Team New Zealand and two critical employees, Coutts and Butterworth, and discuss the behavioural influences on the decision making of both parties. Suggest strategies to manage and/or resolve such conflict.

The conflict between the two parties (the Team New Zealand trustees, and the employees Courts and Butterworth), resulted from the apparent reluctance of the trustees to relinquish control of the Team New Zealand syndicate to the employees and the frustration the employees experienced from lack of information and the apparent intransigence of the trustees. Both parties potentially viewed themselves as disadvantaged - the trustees if the proposed changes occurred, and the employees if the proposed changes did not occur. The negotiations between the parties continued for two years before abruptly ceasing. Commonly this situation is called escalating commitment; often managers let this situation overwhelm them and end the process by 'quitting'.

Effective strategies to manage and/or resolve such conflict are likely to include:

* Set advance limits on management involvement and commitment to a particular course of action, and stick to these limits.

* Individuals should make their own decisions; following the lead of others is prone to escalating commitment.

* Carefully determine why a course of action is being pursued; if there are insufficient reasons to continue, don't.

* Determine the cost of following a particular course of action; consider the cost savings as a reason to discontinue.

* Watch for escalation tendencies; be on guard against their influence on all parties involved in the conflict.

(Adapted from Schermerhorn etal, 2004 p. 80).

4. Discuss how the corporate governance structure may have contributed to the failure of the 2003 America's Cup defense.

The most critical weakness appeared to be that no single individual had a total overview or responsibility for decision-making in relation to the development and preparation of the 2003 America' s Cup challenge. The management structure was inadequate to deal with the sudden departure during March - May 2000 of a substantial portion of the experienced crew and other team members. The business structure lacked continuity of management. It was designed to handle one campaign at a time in an ad hoc fashion.

5. Identify the changes that would be required for the Team New Zealand management to comply with current corporate governance best practice.

The corporate governance structure at Team New Zealand during 2000 - 2003 can be criticised for not complying with best practice. In particular a risk management system had not been established. This meant that the preparation for the America's Cup defense was not monitored. There was no evidence that the preparation for the defense was reported to management or that remedial action occurred to correct deficiencies in the preparation. Changes that could be introduced to strengthen the corporate governance structure include:

* The appointment of a manager charged with overall authority and decision-making.

* The establishment of reporting lines flowing vertically from operational levels to executive levels.

* The implementation of a risk management process/system.

* The establishment of an audit committee and an internal audit function.

6. State two beneficial outcomes that a future Team New Zealand challenge is likely to enjoy as a result of establishing an audit committee.

Two beneficial outcomes that a future Team New Zealand might enjoy as a result of establishing an audit committee could include:

* The audit committee would review the process of assessing risk

* The audit committee would monitor operational and financial activities.

7. State two beneficial outcomes that a future Team New Zealand challenge could obtain from establishing an internal audit function.

In response to this question, students should be encouraged to discuss the following events or actions that are likely to lead to beneficial outcomes:

* Independent appraisal and reporting on operational, financial and riskiness of the defense campaign

* Examination and determination of the efficiency and effectiveness of corporate governance and risk management systems.

8. Prepare an organisational chart for a new Team New Zealand management structure that incorporates an audit committee and an internal audit function.

An example of an organisation chart for a new Team New Zealand management structure that incorporates an audit committee and an internal audit function appears below.

9. Discuss the limitations of the Report on the Team New Zealand failure prepared by a trustee of Team New Zealand and provide reasons why a report prepared by an internal auditor might have more credibility.

In dealing with this question students should be encouraged to discuss at least the following limitations:

* A report on the actions/achievements of a trust by a trustee who is associated with that same trust cannot be regarded as independent.

* A report that is not independent may be biased.

* A report that is not independent may have important omissions.

10. Prepare an audit findings schedule for the Board of Team New Zealand assuming that an internal audit has confirmed that the Team New Zealand failure was caused by noncompliance with corporate governance best practice and in particular the absence of a risk management system. Use the accompanying schedule and include it with your answer.

Audit findings schedule assuming the internal audit has confirmed that the failure to successfully defend the 2003 America's Cup was attributable to non-compliance with corporate governance best practice and in particular the absence of a risk management system.

References

REFERENCES

Dellaportas, S., Gibson, K., Alagiah, R., Hutchinson, M., Leung, P., & D. Van Homrigh (2003). Ethics, governance and accountability: A professional perspective. John Wiley & Sons Australia Ltd., Chapters 4, 5.

Jennings, M. M. (2004). Conflicts of Interest: They're not as Difficult as they seem. In L.P. Hartman (Ed), Perspectives in Business Ethics, (pp. 673 -676). McGraw-Hill Irwin, pp. 673- 676.

Schermerhorn, J., Campling, J., Poole, D. & R. Wiesner (2004). Management: An Asia-Pacific Perspective. John Wiley & Sons Australia, Ltd.

The National Business Review. (2003). Team New Zealand had it coming, March 7.

The New Zealand Herald. (2003). Decision on Team NZ bid just weeks away, March 8.

The New Zealand Herald. (2003). Cup holder happy to be free of 'lies', March 9.

The New Zealand Herald. (2003). Cup Report - Why we lost the cup, May 6.

The New Zealand Herald. (2003) Cup debacle worse than we thought, May 7.

Coutts speaks out on rift that led to TNZ breakup, Editorial January 31, 2003. Retrieved June 6, 2006, from http://www.sailingworld.com/article.jsp?ID=201459&typeID=399&catID=579&exclu

2007 Defense of the America's Cup: Site of the defense: The road to Valencia. Retrieved June 26, 2005 from http://www.cupinfo.com/en/venuehistory1.php

AuthorAffiliation

Robert Gilmour, Manukau Institute of Technology

Victoria Wise, University of Tasmania

Subject: Risk management; Boat racing; Corporate governance; Organizational structure; Conflict management; Case studies

Location: New Zealand

Company / organization: Name: Emirates Team New Zealand; NAICS: 711219

Classification: 9179: Asia & the Pacific; 8307: Arts, entertainment & recreation; 9130: Experimental/theoretical; 2110: Board of directors; 2320: Organizational structure

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 4

Pages: 61-69

Number of pages: 9

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References Diagrams

ProQuest document ID: 216279348

Document URL: http://search.proquest.com/docview/216279348?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 26 of 100

INTERNATIONAL MARKETING AND DELIVERY OF BANKCARD PROCESSING SERVICES (TSYS)

Author: Finley, John T

ProQuest document link

Abstract:

Service industry exportation entails a certain marketing-related complexity not similarly encountered with the export of manufactured goods. TSYS, a processor of bankcard transactions, boasts top notch sales, technical and project management expertise that has effected success in the services marketplace. Having thoroughly penetrated the United States bankcard services market, TSYS set out to explore new and international opportunities through a customized sales approach of bankcard processing service offerings. Just as regulations and other compliance issues vary from country to country, so do processing requirements, rules and other idiosyncrasies of the industry on an international level. The solution to ensure ultimate delivery is shaped by several elements "unique to a services solution that differentiate it from a [tangible] product solution" (Hill, 2003). Speed to market is greatly affected in comparison with that of tangible product offerings. Additionally, estimation and control of the timeliness of deliverables tend to be more elusive thus requiring increasingly skilled management of the process. TSYS' marketing with regards to crossborder service bankcard provision involved dealing with factors such as intangibility, customization requirements, lack of inventory, time sensitivity and change and quality management. The case is instructional in terms of the challenges such service firms may face and how to respond. [PUBLICATION ABSTRACT]

Full text:

Headnote

CASE DESCRIPTION

This case depicts a US-based firm that painstakingly but successfully markets its bankcard processing services to international prospects. The case intends to enable the student to assess how TSYS' success in the European market entry has taken place. Following this assessment, students will study strategic considerations related to the present market attained by TSYS in the United Kingdom and Ireland and the possibility of further expansion of operations internationally. The basic modes of supply are a combination of services supplied from one country to another, corporate subsidiary setup of operations and local personnel recruitment. Prior to the establishment of operations, an extensive discovery, sales and marketing process leading to contract negotiation takes place. The case describes the strategic challenges facing a services firm and the integration requirements necessary for successful market penetration. The case concludes with an overview of the successes enjoyed by TSYS as a result of these efforts and decisions to be made regarding subsequent actions. Although TSYS has developed operations in several regions internationally, the case concerns service delivery to the European market and the potential of further expansion in that market. A firm embarking on such exportation must be cognizant of and form entry strategies bearing in mind the longer sales cycle and a need for direct in-country representation to achieve product awareness. This case is designed for a junior level undergraduate course in International Business, International Marketing or International Strategy in which the above topics may be covered.

The exercise is designed to be taught in a one hour class and is expected to require two hours of outside preparation. The author endeavors to provide an enhanced understanding of bankcard services marketing and delivery with the corporate objective of long-term growth, increased revenue generation and improved market share. Study of the proliferation of services is notably important in light of the continuous augmentation of this type of business endeavor versus manufacturing. According to the 2004 World Investment Report published by the United Nations Conference on Trade and Development, future economic growth improvements will be patent particularly in "the case of services, which make up the largest economic sector in many countries, and which dominate foreign direct investment" (UNCTAD World Investment Report, 2004).

CASE SYNOPSIS

Service industry exportation entails a certain marketing-related complexity not similarly encountered with the export of manufactured goods. TSYS, a processor ofbankcard transactions, boasts top notch sales, technical and project management expertise that has effected success in the services marketplace. Having thoroughly penetrated the United States bankcard services market, TSYS set out to explore new and international opportunities through a customized sales approach ofbankcard processing service offerings. Just as regulations and other compliance issues vary from country to country, so do processing requirements, rules and other idiosyncrasies of the industry on an international level. The solution to ensure ultimate delivery is shaped by several elements "unique to a services solution that differentiate it from a [tangible] product solution " (Hill, 2003). Speed to market is greatly affected in comparison with that of tangible product offerings. Additionally, estimation and control of the timeliness of deliverables tend to be more elusive thus requiring increasingly skilled management of the process. TSYS' marketing with regards to crossborder service bankcard provision involved dealing with factors such as intangibility, customization requirements, lack of inventory, time sensitivity and change and quality management. The case is instructional in terms of the challenges such service firms may face and how to respond.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

As this case deals with a credit product that many students own, will own, may use internationally etc., the instructor should strategically segue into the case with a basic overview of the existence of the credit card processing industry and the basic activities taking place with the generation of transactions as portrayed in the case. The credit card processing realm can be presented as the backbone to a system that provides a payment infrastructure that allows for easier payments internationally (e.g. when the students travel be it via study abroad, on business or other form of personal travel). Within an international business course in which barriers to trade are discussed, the credit card and the credit card industry can arouse interest as a mechanism that lowers barriers to trade and commerce in ways as a payment option accepted on a global scale that does not require a multitude of slow processes such as those barriers that exist with the use of traveler's checks or the costs involved in time and fees when exchanging foreign currency. The case can also be a catalyst to a lively conversation about the existence and circulation of the euro in most of Europe but not in the United Kingdom.

It stands to reason that the average cardholder is vaguely familiar with some of the general occurrences associated with bankcard usage such as the need to swipe the card at certain terminals, receipt of a periodic statement, and the option of disputing transactions. The students are, in many cases, stakeholders with regard to the product itself and therefore curiosity may be piqued by the possibility of learning a bit more about related operations surrounding the piece of plastic found in many wallets. It is also crucial for undergraduate students to place adequate focus on service industries along side manufacturing industries as a large portion of the graduates may enter the job market in a service providing firm.

CASE QUESTIONS

1. Explain some of the factors and challenges TSYS met upon the launch of international expansion into the United Kingdom and Ireland. Discuss the strategies employed in facing the challenges and implications for a service industry manager of an internationally expanding corporation.

Inherent with bankcard processing is the sensitivity of data. The precision with which data is to be processed is essential in any market related to bankcard processing services. The due diligence required when exploring other markets entails the research of key channels, potential markets, and areas in which to benefit from economies of scale or strategically enhancing processing platforms to economically handle multiple smaller markets. In the case of TSYS as a third party processor (outsourced solution for banks), often has been the case that the larger customers would observe the results of the processing of smaller entities or portfolios and employ a "wait-and-see" approach. A successful observation phase implied higher possibility of signing on the bigger clients or the remaining portfolios of the larger banks.

The sales cycle deals with lengthy contractual discussions and agreements as well as highly coordinated turning over of clients known as the deconversion/conversion process. That is, when a bank changes processor, there is a deconversion (from in-house or other vendor) and a subsequent conversion (in this case, to TSYS) of the live cardholder accounts. The processing of these accounts cannot be placed on hold while outsourcing changes are underway thus the meticulous nature of this process. The longer sales cycle is an aspect of the third part processing environment. The initial discovery and contact with a prospective client until the actual implementation can be from two to five years. Therefore, a manifoldlike pipeline is an important strategy for TSYS because having multiple prospects in the pipeline enables TSYS a greater diversification in terms of time and size of the prospects that finally reach a decision.

2. How can TSYS determine the value of diversifying into multiple markets beyond the United Kingdom and Ireland? Is there a point at which further expansion becomes detrimental for an individual processing firm? If so, how? Consider the inflows and outflows incurred related to the United Kingdom/Ireland presence from table 10.

The pricing in the bankcard processing arena is rarely based on a standard worldwide price due to the factors in the negotiation process and the level of customization that each client requires. In the services industry, there are not necessarily price increases due to distance as may be the case when a physical product must be shipped or direct investment in assets within the target market is a factor. The objectives of a firm as well as market conditions have greatly affected prior pricing decisions. This case depicts a firm using, in certain initial phases of a particular market entry, a market-differentiated price-setting strategy based on client- specific demand and potential rather than actual cost of the sales process, establishment of operations and project management. This can imply different foreign and domestic pricing. Further expansion may become detrimental if the different platforms on which processing takes placed are not managed properly and either cause reduced economies of scale or data processing issues. The inflows and outflows illustrated in table 10 provide a general notion of what expansion and maintenance has entailed in terms of costs and cash flows.

3. Using the internet, explore the global reach of various credit card processors such as TSYS, Certegy, First Data, Nova, Global Payments, and Capital One and bankcard associations such as Master and Visa. What does the future for the outsourcing for bankcard processing portend? Consult the article: Simpson , Burney .(2004) A Powerful Group Of Processors. Credit Card Management. 17 (8), 30-35.

The bankcard processors continue to be greatly influenced by the merger and acquisition activity of the larger banks of the world. In many cases, this activity has resulted in changes in vendors for the processing service. There is presently a trend towards consolidation of the market share among the major processors. The problem for some processing firms, however, is the overall pieces of the pie are becoming larger as the banking industry consolidates under fewer and fewer roofs. Consider the merger and acquisition activities of JP Morgan Chase as well as Bank of America and Fleet Bank. Such consolidation among large banking corporations with sizeable bankcard portfolios implies that in the near future there will be some processing firms with greatly reduced market share and possibly some acquisitions or takeovers of the weakened firms.

References

REFERENCES

Certegy, Inc. (2005). "Certegy reports third quarter diluted EPS from continuing operations of $0.36, or $0.47 before direct merger and acquisition costs". Press Release 25 October 2005. St. Petersburg, FL.

Daly, James. (1992). International: the card boom beyond America's shores. Credit Card Management. 5(2), 46.

FirstData, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year ended December 31, 2004.

Frontline-Public Broadcasting Services . (2004). "Secret History of the Credit Card", program - http : //www.pbs. org/wgbh/pages/frontline/shows/credit/

Global Payments, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year to end December 31, 2005. Interactive web version.

Guido, Gianluigi. (1992). What U.S. marketers should consider in planning a pan-European approach. The Journal of Consumer Marketing. 9 (2), 29.

Hill, Paul. (2003). The Internationalisation Of Services Marketing. Retrieved October 20, 2004, from http : //globaledge.msu.edu/KnowledgeRoom/FeaturedInsights/0002.asp

King, Amanda Swift. (2004). "Untangling the Effects of Credit Cards on Money Demand: Convenience Usage vs. Borrowing". Quarterly Journal of Business and Economics. Lincoln: Winter 2004. 43(1/2); 57-80.

Lazarony, Lucy. (2005). "The higher the balance, the higher the late fee". Retrieved from http://www.bankrate.com/brm/news/cc/20020408a.asp on 12 April 2005

Magrath, A. J. (1986). "When Marketing Services, 4 Ps Are Not Enough" Business Horizons. Greenwich: May/Jun 1986.9(3);. 44.

Mandell, Lewis. (1972). Credit card use in the United States. Ann Arbor, Institute for Social Research, University of Michigan.

Nocera, Joseph. (1994). A Piece of the Action : How the Middle Class Joined the Money Class. New York: Simon & Schuster.

Peng, Mike. (2004) Global Strategy. Thomson South-western

Simpson , Burney . (2004) A Powerful Group Of Processors. Credit Card Management. 17 (8), 30-35.

TSYS, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year ended December 31, 2003. F11- F47.

TSYS, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year ended December 3 1 , 2002. F 1 0 - F4 1 .

TSYS, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year ended December 31, 2001. F8-F18.

TSYS, Inc. (2005). "TSYS To Acquire Full Ownership of Vital Processing Services: Offers End-to-End Processing Services for Merchant Acquirers and Issuers". Press Release 18 January 2005. Columbus, GA.

TSYS, Inc. (2004). "TSYS Builds European Data Center". Press Release 6 October 2004. Columbus, GA.

TSYS Global Operations . (n.d.) Retrieved on 8 February 2005, from http : //www.tsys . com/company/global_operations/index.htm

AuthorAffiliation

John T. Finley, Columbus State University

Subject: Market entry; International markets; Bank services; Expansion; Credit card processing; Case studies

Location: United States--US

Company / organization: Name: TSYS; NAICS: 518210, 522320

Classification: 9130: Experimental/theoretical; 9190: United States; 8120: Retail banking services; 7000: Marketing

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 4

Pages: 89-94

Number of pages: 6

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 216293323

Document URL: http://search.proquest.com/docview/216293323?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 27 of 100

AMERICAN RED CROSS: UNDER FIRE

Author: Hunsaker, Johanna

ProQuest document link

Abstract:

The case deals primarily with the governance of the San Diego Imperial County Chapter of the American Red Cross in the early part of this decade during, after the debilitating Viejas fire. The chapter's CEO, Dodie Rotherham, seemingly cared more for raising donations to better the chapter than caring for the people in need and the community. The organization had to change to survive. The key to its survival was the rebuilding of the trust of the community by removing all of the leaders and developing an organizational culture change that promoted openness, change and development. The purpose of this case is to demonstrate the effects of leadership on a non-profit organization. Discussion of this case brings about the understanding of the problems that can arise when leadership abandons the organization's mission and goals.

Full text:

Headnote

CASE DESCRIPTION

CASE SYNOPSIS

The case deals primarily with the governance of the San Diego Imperial County Chapter of the American Red Cross in the early part of this decade during, after the debilitating Viejas fire. The chapter's CEO, Dodie Rotherham, seemingly cared more for raising donations to better the chapter than caring for the people in need and the community. Rotherham ignored the internal conflicts of the organization preferring to be out in the public to raise donations. She lost sight of the principal core values of the organization; provide relief to victims and help people prevent, prepare for and respond to emergencies. Because Rotherham and the organization lost touch with the community, the community rose up against the organization when it was discovered that the organization used the donations for the fire victims inappropriately. The organization had to change to survive. The key to its survival was the rebuilding of the trust of the community by removing all of the leaders (CEO and Board of Directors) and developing an organizational culture change that promoted openness, change and development.

The purpose of this case is to demonstrate the effects of leadership on a non-profit organization. Discussion of this case brings about the understanding of the problems that can arise when leadership abandons the organization 's mission and goals. Students will have a better understanding of what can happen if management loses focus of the organization's goals and mission. Additionally, students will see that it is difficult to regain the confidence of community when the organization loses touch with the community. The student will learn the espoused values of the Red Cross, the values under Dodie Rotherham, and after Rotherham left the Red Cross, the values Jerry Sanders and Ronne Froman attempted to bring to the organization.

INSTRUCTORS' NOTES

Teaching Objectives

The puipose of this case is to demonstrate the effects of leadership on a non-profit organization. Discussion of this case brings about the understanding of the problems that can arise when leadership abandons the organization's mission and goals. Students will have a better understanding of what can happen if management loses focus of the organization's goals and mission. Additionally, students will see that it is difficult to regain the confidence of community when the organization loses touch with the community. The student will learn the espoused values of the Red Cross, the values under Dodie Rotherham, and after Rotherham left the Red Cross, the values Jerry Sanders and Ronne Froman attempted to bring to the organization.

Audience

This case is directed towards undergraduates and graduate students in management classes and classes in non-profit organizations. Depending on the focus of the class, different case questions can be emphasized for students in management classes, leadership classes and those enrolled in nonprofit classes. I believe that all questions can be addressed by these areas, but if you wish to specialize the questions listed below may be more relevant to certain areas.

Principles of Management: questions # 1 , 2, 3 and 8

Leadership: questions # 2, 4, 6, 7 and 9

NFP: questions # 1, 2, 3, 4, 5, 8 and 9.

Associated Readings and Material

The values in which the San Diego/Imperial Chapter of the Red Cross taken directly off the chapter's website (www.sdarc.org) are listed below:

* Humanitarianism - We exist in order to serve others in need, independently and without discrimination, providing relief for victims of disasters and helping people prevent, prepare for, and respond to emergencies.

* Stewardship - We act responsibly, effectively, and efficiently with resources entrusted to us, always seeking to improve.

* Helping Others -We are attentive and responsive to those we serve, always listening to their needs and looking for ways to serve through existing or new initiatives.

* Respect - We acknowledge, respect, and support the rights and diversity of each person in our organization and in the communities we serve.

* Voluntary Spirit - We, as a family of donors, volunteers, and staff, search for ways to provide hope to those we serve, while demonstrating compassion, generosity, and appreciation.

* Continuous Learning - We seek, collectively and individually, to identify, obtain, and maintain competencies and the awareness required for exceptional service.

* Integrity - We act with honesty, demonstrate courage and accountability under pressure and openly share ideas and information with each other.

Assignment Questions

Blanchard (2004) lists the following requirements for an organization to be successful in the article "Managing for Values":

Identify Core Values

Communicate Core Values

Align Values and Practices

1. When you think about the Red Cross, what values do you think they should identify with?

* To help people

* Be accountable

* Open book

* Providing relief for victims of disasters

* Help people prevent, prepare for, and respond to emergencies.

2. What were the values the local Red Cross adhered to under Dodie Rotherham?

The values of the chapter under the Rotherham administration were:

* The local chapter was a reflection of the inconsistencies, poor oversight and arrogance of large entity.

* Focused primarily on moving the organization ahead by raising large amounts of money in place of serving people

* Took care of the organization first (purchase of new vehicles for the chapter versus paying out only $7,000 to victims of the Viejas fire).

* Lack of respect for employees

* Lack of integrity (Fraud in Transportation Division)

* Privacy of Actions

* No accountability

Over the years, Dodie Rotherham had lost sight of the core values of the Red Cross. She became fixated on raising donations and having the San Diego/Imperial Chapter as the best fund raising chapter in California. In addition, she lost control of the organization. There was tension between the disaster relief and blood business components. Further trouble plagued the organization when it was revealed that the San Diego chapter was under investigation by the State Attorney General for potential fraud in the transportation services sector.

3. What are the effects of misalignment of stated core values of the organization by management?

A. Donations dropped way down - Required emergency loan

B. Public became angry

C. Resignation of the chairman of the board

D. Firing of Rotherham

E. Change of the board of directors

At the local San Diego chapter of the Red Cross, the interests of a "few" began to take precedence over the goals and the mission of the Red Cross. Rotherham was so focused on moving the organization ahead by raising large amounts of money. She used the money from the Vi ej as fire victim's fund to purchase new vehicles and communications equipment. She looked at taking care of the organization more than the victims. Volunteers and staff were discouraged because of the mishandling of donations and the apparent cover-ups that resulted.

4. What political mistakes do you think Rotherham made?

After 19 years as the CEO of the San Diego chapter, Rotherham had created a large power based for herself. She cultivated a Board of Directors that did not question her decisions or her actions. Rotherham failed to correctly read the political environment around her. She misjudged the level of anger and mistrust in the community and did not position herself well with the media of Supervisor Jacob, who banded their power together to bring her down.

5. What mistakes did the San Diego Red Cross Board of Directors make?

The local San Diego Board of Directors did not fulfill their duties as board members, and can be accused of "being asleep at the switch." Although it is true that the character of most nonprofit organizations is set by the chief executive, this board did not adequately evaluate Rotherham or provide policy making input, the board did not ensure that the provisions of the organization's charter was being followed .The board was not involved in the boundaries of the fiscal policy.

6. What values did Sanders and Froman bring to the Chapter after Rotherham left the organization? How did this change help the leadership transition and begin to restore credibility to the Red Cross?

Integrity, openness, cooperation and realignment of the organization to help people Sanders places ads to regain trust of the public by restating the chapter's mission and services New board of Directors to continue the investigations of the fraud and misappropriate of the funds Hired Froman to demonstrate to the community that integrity of the CEO was important to the Red Cross organization Froman was a friend of the national Red Cross CEO Sanders opens the local chapter's books to demonstrate the donations incoming and expenses Swinger (2004) in the article "The Perils of Doing the Right Thing" warns management that they must do the right thing for the organization and the customer. The four lessons for the manager to take into account are:

* Lesson 1: Make sure what you are doing is really leadership and not just selfadulation.

* Lesson 2: Be prepared to be attacked by virtue of your virtue

* Lesson 3 : Expect to have your motives questioned and your leadership credentials challenged

* Lesson 4: Circumstances beyond your control - including public hysteria - can undermine your position

7. Was Dodie Rotherham a good leader or was she promoting herself and her agenda?

Dodie Rotherham was not a good leader. There was in-fighting between units and fraud in the transportation division. She took pride in the accomplishment of the organization to raise money and loved to be around politicians and the wealthy. At the local San Diego chapter of the Red Cross, the interests of a "few" took precedence over the stated goals and mission of the Red Cross. Rotherham was focused on moving the organization ahead by raising large amounts of money. Rotherham enjoyed the recognition of being the CEO of the number one money raising chapter in California and did not wish to relinquish her power. She clung to power in front of growing community hysteria for her actions in regard to the Vi ej as fire. Part of the clinging to power included the cover up of the national audit of the donations and expenses of the Viejas fire, alteration of the results to suit her position, and denial that she did nothing wrong.

8. What was the result of the improper use of donations that were received from the community for the Viejas fire victims?

* Community hysteria brought on by the actions of Supervisor Diane Jacobs

* Donations Dropped - Emergency Loan Required to Meet Expenses

* Chairman of the Board, Duddles, resigned

* Rotherham was fired

* Entire remaining members of the board removed

* New Chairman, Jerry Sanders appointed

* New CEO, Ronne Froman was hired

9. What will the first task of Sanders be to bring back the confidence of the community?

The first task for Jerry Sanders was to gain the confidence of the community and the national Red Cross management. Blanchard (2004) reminds us that the organization to be successful must align its practices with its values. The hiring of a new board and responsibility and was there to serve them Ronne Froman serves as Chief Executive. Froman joined the American Red Cross in 2003 and through her leadership quickly and decisively developed. "The New American Red Cross in San Diego" by refocusing the organization on its core mission of disaster relief and emergency preparedness. From an is a retired Navy Rear Admiral and the former "Navy Mayor of San Diego". She brings a wealth of knowledge and experience to the American Red Cross of San Diego and Imperial Counties, with over 3 1 years of service as Naval Officer leading similar reform efforts.

Her expertise is reorganizing, saving money and improving services. Froman is a nononsense "efficiency expert" and whether she's helping the military, education or human service organizations, Froman is always ready to meet any challenge head-on. Froman has received the Defense Distinguished Service Medal, Navy Distinguished Service Medal (two awards), and various service and unit awards.

Teaching Plan

The teaching plan for this course is to inform the students of the case and to have the students understand that an organization must adhere to its stated goals and values. Without alignment of the organization to its known goals and values, the organization will lose touch on why it is inexistence and drift down a different path. When the organization undergoes a stressful event, there is chance that the organization will fail.

Discussion should be centered on the leadership of the organization by Rotherham followed by a discussion of the values that the Red Cross is known for and what the community saw during the aftermath of the Viejas fire. After the discussion of the values of the organization has been completed, a review of what Sanders and the national Red Cross did to right the organization should be undertaken. The professor should enhance the discussion by asking the following discussion questions.

Handouts should be used to direct the students towards learning of how important it is that the organization must maintain its image and stick to its core values.

The handouts for the class are:

1. Web page of the San Diego Chapter describing its core values (www.sdarc.org) (Attachment one)

2. Timeline of events (Attachment Two)

3. Values summary of the case (Attachment Three)

4. What is going on at the Chapter now (Attachment Four)

ATTACHMENT 1

San Diego /Imperial Counties American Red Cross

* Serving our communities for over 107 years

SAN DIEGO/IMPERIAL COUNTIES AMERICAN RED CROSS

Values

Affirming our commitment to the Fundamental Principles of the international Red Cross and Red Crescent Movement, we pledge ourselves to these values:

Humanitarianism

We exist in order to serve others in need, independently and without discrimination, providing relief for victims of disasters and helping people prevent, prepare for, and respond to emergencies.

Stewardship

We act responsibly, effectively, and efficiently with resources entrusted to us, always seeking to improve.

Helping Others

We are attentive and responsive to those we serve, always listening to their needs and looking for ways to serve through existing or new initiatives.

Respect

We acknowledge, respect, and support the rights and diversity of each person in our organization and in the communities we serve.

Voluntary Spirit

We, as a family of donors, volunteers, and staff, search for ways to provide hope to those we serve, while demonstrating compassion, generosity, and appreciation.

Continuous Learning

We seek, collectively and individually, to identify, obtain, and maintain competencies and the awareness required for exceptional service.

Integrity

We act with honesty, demonstrate courage and accountability under pressure and openly share ideas and information with each other.

ATTACHMENT 3

VALUES IMPORTANT TO THE CASE

Core Values of the Red Cross

Humanitarianism

Stewardship

Helping others

Respect and Integrity

Values of the San Diego Chapter (Under Rotherham)

The local chapter was a reflection of the inconsistencies, poor oversight and arrogance of large entity. The chapter had lost focus on its core Red Cross programs and was more interested in making money than serving people. Chapter focused primarily on moving the organization ahead by raising large amount of money . San Diego/Imperial County Chapter raised more money than any other chapter in California (ahead of Los Angeles Chapter).

Rotherham took care of the organization (purchase of new vehicles for the chapter versus paying out only $7,000 to victims of the Viejas fire. Employees that spoke up about fraud and misappropriation of funds let go. Militarization - Top down management organization - Power from above Few commonly understood performance measures was used in the organization No system of reward or consequences for employee behavior and performance In fighting and power struggles (chase of the money) - There was tension between the disaster relief and blood businesses

Values of San Diego (Sanders)

Places ads to regain trust of the public by restating the chapter's mission and services New board of Directors to continue the investigations of the fraud and misappropriate of the funds Hired Froman to demonstrate to the community that integrity of the CEO was important to the Red Cross organization

ATTACHMENT 4

SAN DIEGO/IMPERIAL COUNTIES AMERICAN RED CROSS

What's Going On At Our Chapter Now?

* Veronica "Ronne" Froman has been selected as Chief Executive Officer of the San Diego/Imperial Counties Chapter. Froman comes to the American Red Cross from the San Diego Unified School District, where she has served as Chief of Business Operations. As the CBO, she has been responsible for the modernization and automation of the district's finance, technology and logistics support operations and infrastructure. Froman will apply a wealth of knowledge and experience to the San Diego/Imperial Counties American Red Cross, having previously spent over 31 years serving her country as a Naval Officer leading similar reform efforts around the globe, retiring with the rank of Rear Admiral. She is a recognized leader in change management and business modernization and automation.

* Sixteen distinguished business and community leaders were installed as the Chapter's Board of Directors in December 2002. Former San Diego Police Chief Jerry Sanders was elected Board Chairman for 2002-2003.

* Disaster Action Teams have responded to over 250 disasters in San Diego and Imperial Counties since July 1, 2002.

* The "Together We Prepare" disaster preparedness campaign was launched to help San Diegans and Valleyites be prepared in the event of a natural or man-made disaster.

* A record 2,317 people learned CPR in just one day at the 2002 "CPR Saturday" event held at the San Diego Concourse. San Diego's CPR Saturday is the largest single CPR training event in the United States.

SAN DIEGO/IMPERIAL COUNTIES AMERICAN RED CROSS

* The Chapter's Armed Forces Emergency Services call center continues to process a record number of emergency messages for military families due to the conflict in Iraq. Over 1 3,000 calls per month pour into the call center from around the world, up from a monthly average of 4,000 prior to accelerated deployments.

* The State of California honored the Red Cross Women, Infants, and Children (WIC) Program with several awards for 2002, including Exceptional Breast-feeding Promotion and Support and Innovative Staff and Career Development.

* Reviews of every line of service within the Chapter were released to the media and the public.

* Twenty individuals in 12 categories were honored for lifesaving acts at the Chapter's first "Real Heroes" Breakfast on May 1, 2003.

References

REFERENCES

Blanchard, K. (2003). Managing by Values. In Richardson, R. (Ed), Business Ethics 03/04, (15* Ed.) (pp. 16-17). Guilford, Connecticut: Mc-Graw-Hill/Dushkin.

New York Times Magazine. "Who brought Bernadine Healy down?" Dec 23, 2001, 56.

North County Times. "Bad news for Red Cross." Commentary by J. Stryker Meyer. April 28, 2002, 21.

San Diego Magazine. "All Fired Up." JaimieReno. July 2002, 12.

San Diego Metropolitan. "How should non-profits spend your money?" Joan Gribble. June 2002, 9.

The San Diego Union-Tribune. "Alpine fire relief remains bitter issue." Norberto Santana, Jr. June 27, 2001, B1.

The San Diego Union-Tribune. "The Red Cross draws fire. Relief agency must account for donations after Alpine fire." Editorial by Supervisor Dianne Jacob. July 12, 2001, B 13.

The San Diego Union-Tribune. "Audit criticizes Red Cross response." Norberto Santana, Jr. October 2001, A1 .

The San Diego Union-Tribune. Red Cross chief's firing spotlights clout of chapters. N. Santana, October 2001, Al.

The San Diego Union- Tribune. "Red Cross chairman issues apology for Alpine fire missteps." Norberto Santana, Jr. November 9, 2001, Al.

The San Diego Union-Tribune. Moores, Sycuan ask Red Cross to redirect gifts. N. Santana, November 24, 2001, B2. 1 .6.

The San Diego Union-Tribune. "Dodie Rotherham and the Red Cross - Vision or Arrogance?" Norberto Santana, Jr. December 30, 2001, Al.

The San Diego Union-Tribune. "A sorry chapter." Staff Writer. June 1, 2002, Bl 2

The San Diego Union-Tribune. "National leaders fire local Red Cross board." Norberto Santana, Jr. June 7, 2002, A1

The San Diego Union-Tribune. "Red Cross loses transit job." JeffRistine. October 1 8, 2002, A1

The San Diego Union-Tribune. "Audits show local Red Cross strayed from core mission." Norberto Santana, Jr. November 14, 2002, B3 7 8

The San Diego Union-Tribune. "Retired admiral to command Red Cross. A 'brilliant' hire brings budget skills to the helm." Norberto Santana, Jr. April 17, 2003, B1

The San Diego Union-Tribune. National Red Cross will lead local effort. Norberto Santana, Jr. October 29, 2003, B1

The San Diego Union-Tribune. "Creating Trust." Editorial Board. October 29, 2003, BlO.

The San Diego Union-Tribune. Red Cross hits its local fundraising target. Norberto Santana, Jr. November 5, 2003, B10

The San Diego Union-Tribune. "Red Cross boss praises San Diego chapter's response." Norberto Santana, Jr. November 6, 2003, B1

Swinger, A. (2003). The Perils of Doing the Right Thing. In Richardson, R. (Ed), Business Ethics 03/04, (154Ed.) (pp. 148-152). Guilford, Connecticut: Mc-Graw-Hill/Dushkin.

www.cbsnews.com. "Disaster strikes in Red Cross backyard." S. Atkisson. 2002.

www.cbsnews.com. "The battle inside the Red Cross." S. Atkisson. 2002.

www.kgtv.com. "Supervisor questions Red Cross donations." Unit 10. August 14, 2001.

www.kgtv.com. "Jacob keeps pressure on Red Cross." Unit 10. November 1, 2001.

www.kgtv.com. "Investigation finds several flaws in Donita Rotherham' s story." Unit 10. November 6, 2001.

www.kgtv.com. "Committee: Get rid of local Red Cross head." Unit 10. April 24, 2002.

www.kgtv.com. "Red Cross: Dodie must quit or be fired." Unit 10. May 30, 2002.

www.redcross.org. Brief History, FAQ Sections.

www.sdarc.org. Values, Vision, Mission and Press Sections.

www.sdarc.org. "Cleaning up the Red Cross." Jerry Sanders. Editorial.

www.sdarc.org. "New leadership, classic mission." Newsletter feature on Veronica Froman. Summer 2003.

AuthorAffiliation

Johanna Hunsaker, University of San Diego

Subject: Organizational change; Corporate culture; Fund raising; Leadership; Nonprofit organizations; Chief executive officers; Case studies; Community service; Corporate objectives

Location: United States--US

People: Rotherham, Dodie

Company / organization: Name: American Red Cross; NAICS: 621991, 813212

Classification: 2410: Social responsibility; 9130: Experimental/theoretical; 9540: Non-profit institutions; 2120: Chief executive officers; 2310: Planning; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 4

Pages: 95-106

Number of pages: 12

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 216306249

Document URL: http://search.proquest.com/docview/216306249?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 28 of 100

A Comparative Account of Joined-Up Government Initiatives in Dutch and Belgian Social Security

Author: Homburg, Vincent M F

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Abstract:

In this article, organizational and policy aspects of two national clearing house concepts are compared and discussed. In social security, Belgium has witnessed the emergence of the so-called Cross Point Bank and the Netherlands have produced the RINIS initiative. Although both countries are rather comparable, they differ in terms of their politico-administrative structures. From the comparison of the antecedents of both initiatives and their form and shape, it is concluded that e-government is not a universal, necessarily converged concept and that institutions and institutional matter, not so much as to how e-government is talked about (rhetorical convergence), but especially for the ways in which e-government technologies are implemented in the real world of public administration. From the case study, there is little support for decisional and operational convergence of the e-government phenomenon. [PUBLICATION ABSTRACT]

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EXECUTIVE SUMMARY

Keywords: information architecture; issues in organizing IS; IT in public administration; public policy; national culture

ORGANIZATIONAL BACKGROUND

One of the goals for many governments throughout the world is the realization of an administrative apparatus that not only is digitally accessible, but also works seamlessly: it should not suffer from fragmentation and lack of responsiveness. In order to achieve this goal, insights from various disciplines are used and actually implemented.

In the public administration literature, it has been said repeatedly that improving coordination inside public administration is an eternal quest (Peters, 1996, 1998; Pressman & Wildavsky, 1973). In the Anglo-Saxon world (notably the United Kingdom), in the slipstream of new public management reforms, emphasis has been put on the phenomenon of joined-up government (Bogdanor, 2005; Ling, 2002). Joined-up government, in general, refers to consistency between organizational arrangements of policy programmes, policies, or agency strategies, which enables them to collaborate. Joined-up government is implemented by means of (among other measures) new (merged) organizations, new ways of working across traditional organizational boundaries (for example, joined teams, pooled budgets), new ways of service delivery (joint front offices), or new accountabilities and incentives (shared performance targets, regulation) (Ling, 2002).

In the e-government literature, in many cases, there is a focus on the design and implementation of technology that fosters integration of (primarily) service delivery. Through all kinds of measures, government-to-government (G2G) exchange of information is nurtured in order to coordinate activities and processes between formerly disparate governmental bodies.

Probably inspired by technological and managerial developments; politicians, commentators, and consultants have argued for a digitally accessible, seamlessly integrated administrative apparatus that is customer-oriented, and, moreover, is able to deliver public services efficiently, comprehensively, and fast. To some degree, this ideal is a digital sublime (Mosco, 2004); however, to a certain degree, a successful marriage seems to emerge from the combined trajectories of managerial (JUG) and technological (e-government) reform (Homburg & Bekkers, 2005). One can indeed witness actual e-government initiatives being rolled out in the United States (Fountain, 2001; Moon, 2002; Tat-Kei Ho, 2002), the United Kingdom (Chadwick & May, 2003), Continental-European countries (Kubicek & Hagen, 2000), Australia (Teichert & Dow, 2002) and the developing world (Heeks, 2003; Ndou, 2004). Apparently, the "wired" government does not only exist in the minds and rhetorics of politicians and consultants, but also at the shop floor of public sector organizations throughout the world.

When it comes to reforms, there is a compelling rhetoric of convergence (Pollitt, 2002). From case studies, best practices, talk, and so on, a picture emerges of how managerial and technological reforms spread over countries, produce similar results, and result in comparable practices. One common approach is to design Web-based packages of services around life events. The general aspiration is that front-office integration around life-events obviates coordination and integration through similar, comparable management practices.

In the practice of public management and public policy, however, styles of coordination (for example French centralism, the German decentralized approach, or the Dutch consensus style of coordination) appear to be rather resistant to the pressures of technological innovation as such (6, Leat, Seltzer, & Stoker, 2002). From the relatively few documented cases and surveys of international e-government practices (Accenture, 2004; Cap Gemini, 2006), it is often concluded that institutional factors constrain (in the sense that they limit courses of action and change) e-government practices. If one takes the point of view of the "social shaping of technology"-stream in the literature (MacKenzie & Wajcman, 1985; Williams & Edge, 1996), one might hypothesize that inversely, the eventual form and shape technology takes, including the level of integration and interoperability, is largely, although not exclusively, shaped by social and institutional factors. And indeed, in a large European study of back-office integration strategies, the authors conclude that "state structures, and institutional, legal, regulatory and cultural factors can be extremely important in determining the nature, cost and success of eGovernment (...). Progress often depends on whether or not there is a history of back office integration and cooperation, but not necessarily through centralized structures" (Millard, Iversen, Kubicek, Westholm, & Cimander, 2004, p. 61). Apparently, integration and interoperability, as well as means to achieve them, are far more contextually bound than is apparent at first sight, and appears from many e-government writings.

The empirical question, therefore, is whether there actually exists a globally converged ideal of integration and joined-up government beyond the level of fallible rhetoric, and if and how integration is actually achieved on decisional and operational levels of e-government (cf. Pollitt, 2002). From a comparative point of view, it is interesting to analyze if and how interoperability and integration are interpreted in disparate institutional contexts (Esping-Andersen, 1996; Pollitt & Bouckaert, 2004), for example, in a unitary-decentralized country like Norway and in a federal-coordinated country like Belgium. Furthermore, one can ask the question how similarities and differences in ways in which integration and interoperability are achieved, can be explained.

SETTING THE STAGE

The analysis of the interpretation and implementation of joined-up government and e-govern ment integration attempts in this paper takes place in the field of social security. Social security in OECD countries has a relatively long history, and due to the information-intensive character of claim processing and payment services, social insurance agencies (together with tax agencies, and, more recently, homeland security and intelligence services) have been leaders in the use of ICTs (Henman & Adler, 2001, p. 23). Therefore, social security is an interesting field of study if one attempts to study e-government initiatives beyond mere description and taking into account that technological and institutional reforms generally span several years if not decades.

Although the term social security is in many cases associated with the value of solidarity, the provision of services to compensate for temporary loss of income due to unemployment or illness, it must be stressed that initially, at the end of the 19th century, the provision of social services had less to do with welfare than with the maintenance of order in society: the delivery of services and beneficiaries was primarily aimed at the prevention of begging and regulation of almsgiving (Henman & Adler, 2003).

The systems of social security in most of the OECD countries have developed along various lines. In general, until the advent of the 20th century, social security was primarily aimed at the provision of social assistance to the poor. Social assistance was primarily administered locally, by officers representing voluntary sector organizations, with considerable discretion. In many western countries, the activities of the voluntary sector have been taken over by municipal government agencies. Officers generally have some discretion to determine the appropriate level of support on a case-by-case basis.

Another component of the system of social security is social insurance. Social insurance is to be distinguished from social assistance in the sense that people are entitled to receive benefits in cases of illness, involuntary unemployment, disabilities, and so forth, in recognition of contributions (premiums) to an insurance scheme. Social insurance schemes developed in Europe at the beginning of the 20th century through joined action by governments, trade unions, and employers' associations. After the Second World War, in the United States, the Anglo-Saxon countries and Continental European Countries, the Welfare State emerged and systems of social assistance and social insurances expanded. In general, national pension schemes, unemployment benefit schemes and schemes to compensate for loss of income due to illness and disability adopted bureaucratic models of organization, whereas social assistance was still predominantly administered locally. The general picture of these developments in OECD countries shows that private initiative was taken over by bureaucratic models of organization, and social services were increasingly delivered by civil servants. It must be noted that in Continental Europe, notably in corporatist countries, social partners (trade unions, employer associations) have been commissioned by central governments to deliver welfare services. This situation remained relatively undisturbed until about the 1980s, when fiscal crises and economic depressions fundamentally challenged the founding principles of social security. By then, the ever-expanding system of social security was curtailed throughout the OECD world, and fighting fraud was put on the political agenda. In order to do that, administrators had to be able to bring together all the relevant social security information on level of individual claimants (or households) that was held within specific institutions, as well as in related but disparate social security institutions.

It is in this period that information and communication technologies were first tried out to administer the complex interconnections in social security domains, and between social security and other policy domains (taxation, health care, study grants, to name a few examples) (Smith, 1985). It must be noted, though, that the application of ICTs has been notably different in emphasis in various national contexts. The history of the application of ICTs in the social security sector (Henman & Adler, 2001; Smith, 1985) shows that in Scandinavian countries, the emphasis was on empowerment of front-line social security officers (Andersen & Kraemer, 1995). In Anglo American countries, however, the automation of decision-making from application to benefit was given priority in order to improve the efficiency of the system (Henman & Adler, 2001).

From these observations, we can infer that ICT application takes various forms and shapes in various institutional contexts, be it the liberal politico-administrative regimes in the Anglo-Saxon countries, and the corporatist welfare regimes in Continental Europe (including Scandinavian countries). The empirical question, though, is whether this is also true for attempts to foster intergovernmental cooperation through electronic means (G2G interaction), and whether there are general models to implement joined-up government in social security. After all, governments worldwide are enthusiastically using "joined-up government" and "customer orientation" as famous administrative slogans (6 et al., 2002; Ling, 2002). In order to do that, in the remainder of this paper, we focus on strategies to foster integration in social security in two comparable countries, namely the Netherlands and Belgium, that nonetheless have two distinct politico-administrative regimes.

In general, the Netherlands can be classified as being a unitary, communitarian decentral -ized state (Adler & Henman, 2005). Its legal model resembles the Napoleonic model, with some influences from the Constitutional State model (Steen, van den Berg, van der Meer, Overeem, & Toonen, 2005). The political system is rather consensual: almost every sector of policy consists of a myriad of consultative and advisory councils, which are deeply intertwined with government and form an "iron ring" around ministerial departments (Pollitt & Bouckaert, 2004)

Belgium, on the other hand, can be typified as a federal, corporatist state. Its legal model is a combined Napoleonic/Latin model (encompassing a relatively strong central state, hierarchical structures and a civil service system that enjoys a high level of prestige) (Steen et al., 2005). In Belgium, in contrast to the Netherlands (see above), policy preparation is predominantly the domain of the ministerial cabinets (and not the civil service, in consultation with the "iron rings" of consultative councils). Belgium has a tradition of political appointments of senior civil servants (Steen et al., 2005).

In the case description below, we will analyze (1) general social security developments and antecedents of joined-up government, (2) political and technological agreements as the backbones of joined-up government, (3) architectural foundations and organizational models used. The research approach in general is a comparative study, employing research results from a case study of ICT use in the social security sector of the Netherlands (Homburg, 1999) and additionally, a study of written sources and a literature review of the Belgian situation.

CASE DESCRIPTIONS

Social Security Developments in the Netherlands

The Netherlands can be characterized as a unitary and decentralized welfare state (Steen et al., 2005). In general, the field of social security in the Netherlands can be characterized as a divergent system of execution (Homburg, 1999).

Child Allowances and State Pensions are administered by an independent administrative body Social Insurances Bank (Dutch: Sociale Verzekeringsbank). Social Assistance, on the other hand, has been carried out by public, municipal social assistance agencies on behalf of the Ministry of Social Affairs. Until about 1995, semi-autonomous Industrial Insurance Boards had executed insurance schemes on behalf of trade unions and associations of employers. The state only had a supervisory role (Fenger, 2006). The functioning of the rather heterogeneous system of social security severely criticized in the 1990s by the Netherlands Court of Audit, a subsequent Parliamentary Research Commission (that focused on the execution of Social Insurance Acts) and a Research Committee that scrutinized implementation practices of the Social Assistance Act (the Van der Zwan Committee).

As a result of these (and other) investigations, the execution of Acts in the fields of Social Security was reorganized. Discussions about privatization emerged (especially in the field of Social Insurances), but eventually, in 2002, the Industrial Insurance Boards merged into a independent administrative body known as the Uitvoeringsinstituut Werknemersverzekeringen (Executive Organization of Social Insurances). This marked a more prominent role of the state as principal in the field of social security; execution of schemes and Acts, however, still takes place in a rather divergent field of hundreds of municipal social assistance agencies, the Social Insurances bank, and the Executive Organization for Social Insurances.

RINIS: A Dutch Initiative from the Field

In 1996, representatives from various quasi-autonomous executive agencies teamed up and developed ideas and concepts to fight fraud and to foster interorganizational cooperation. Partly, these initiatives can be understood as a genuine concern to prevent and/or fight fraud. Partly, the initiatives can be understood as pre-emptive action that allowed executive organizations to preserve and defend their autonomy against initiatives that were at that time prepared by central levels of government (more precisely: the Ministry of Social Affairs and Employment). With these initiatives, the Ministry attempted to impose standards and practices for information exchange in the sector of social security, and this was seen by executive organizations as an unwanted breach of their (informational) autonomy (Homburg, 1999).

In various talks and meetings, the RINIS concept was developed. RINIS is an abbreviation of the Routeringsinstituut voor (Inter)nationale Informatie Stromen (Router Institution for International Information Flows). The term RINIS both refers to:

* a relatively small (seven members of staff) bureau, which is controlled by a Board. The Board consists of representatives of organizations that participate in (and finance) the RINIS bureau; and

* an infrastructure that enables information exchange across participating organizations.

The RINIS concept started from the core of the Social Security Sector, but throughout time it has expanded, and currently the following organizations are involved:

* the Executive Organization of Social Insurances (UWV);

* the Social Insurances Bank (SVB);

* the Organization for Collecting Alimonies (LBIO);

* the Office for Enquiries in the Social Assistance domain (IB; an umbrella organization of municipal social assistance agencies);

* The Office for Granting Student Loans (IB-Group);

* The Association of (Private) Care Insurance Companies (ZN);

* The Office for Judicial Institutions (DJI);

* The National Dutch Tax Agency (Belastingdienst) and

* The Association of Bailiffs (SGN).

Characteristic for the RINIS concept of cooperation is that each of the participating organizations is a so-called authentic source of data. An authentic source of data is an organization that is responsible for the operational maintenance, content, quality and verification of a data element. For example, an executive organization is always the authentic source for a data element that results from its executive process (for example, the Social Insurances Bank is the authentic source for decisions on the basis of the National Old Age Pensions Act). But organizations may also be regarded as authentic source for other data elements; for example, the citizens' registration office is an authentic source for a client's name, date of birth, and domicile. A study in 1995 revealed that most of the data elements (about sixty) are "claimed" by one organization. About thirteen are not claimed by any organization and one data element is claimed by more than one organization (see Homburg, 1999).

The RINIS infrastructure allows for mainly back-office communication and exchange of information between participating organizations. RINIS can be seen as a so-called reference index: it routes information requests and notification of changes in status of specific citizens (in XML, EDIFACT, or the IVP format that is being used by the Dutch Tax Agency) by participating organizations to the authentic source of data. Requesting organizations therefore are not required to have knowledge in advance which organization has specific information on particular clients or households, or in which specific information system information is stored. The RINIS organization itself does not store information in any way; it merely oversees compliance with agreements that have been made (see below), facilitates routing of messages, use of software (an InfoNet X400 mailserver application, a MaxWare Remote User Agent, a StaffWare Workflow Management package and UTIMACO encryption / decryption utilities), and hosts a helpdesk for the participating organizations.

At present (2006), about 55 million information requests are annually processed through the RINIS infrastructure.

Agreements

From the beginning, it was explicitly recognized that RINIS is about making a minimum level of agreements between participating organizations, and protecting the informational autonomy of participating organizations to a maximum degree. In order to make the RINIS concept work, the following agreements are being used:

* technological agreements that refer to the data interchange standards that are being used, the requirements of the RINIS server and the encryption/decryption methods used;

* information management agreements that refer to the establishment and recognition of authentic sources of data, and the responsibility each authentic source takes for the quality of information of that specific authentic source;

* interchange agreements, in which each and every type of exchange in the RINIS concept is formalized. The purpose of each exchange is explicitly stated, and procedures to resolve possible future disputes are explicitly stated. Interchange agreements require approval of each and every member of the RINIS Board.

The RINIS agreements focus on the exchange of information between organizations, and can be interpreted as expressions of voluntariness and self-regulation in the social security sector as a whole. Moreover, with the RINIS concept, the autonomy of the participating organization is firmly anchored.

Architectural Foundation and Organizational Model

The organizational model of RINIS and its architectural foundation strongly resembles an archetypical decentralized clearing house. Information is gathered and administered by participating organization, and ownership of information is explicitly attributed to the participating organizations. By means of interchange agreements, other organizations are in practice allowed to verify clients' characteristics (job seeking history, fiscal details, and so forth) through the RINIS infrastructure, but responsibility for information and handling is not handed over to the RINIS bureau. In fact, RINIS itself does not have any administrative tasks other than facilitating information exchange, it does not have any databases with information on citizens, and any attenuation of informational property rights requires the explicit approval of all organizations involved (through an explicit decision in the RINIS Board). Co-optation therefore plays an important role in the governance of RINIS. Moreover, RINIS is not a public body in the sense that it lacks a legal basis in Dutch administrative law.

Social Security Developments in Belgium

Until the second half of the 1980s, the Belgian National System for Social Security was heavily fragmented and supply-oriented. It has involved a mixture of public and private sector organizations, and, as had been the case in the Netherlands, both administratively as well as in terms of execution involved "tripartite" parties (state, labor unions, employers' associations). The Belgian Social Security System covers seven social risks (incapacity for work, industrial accident, occupational disease, unemployment, retirement, child care, and holiday pay - the so-called social security branches), and four social support systems (allowances for the disabled, guaranteed family allowance, minimum income and income guarantee for the elderly), which grant people specific minimum services after verifying their subsistence resources. The system covers 10,000,000 citizens and 200,000 employers (Deprest & Robben, 2003).

The following organizations can be discerned:

* National Illness and Disability Insurance Office (Rijksinstituut voor ziekte- en invaliditeitsverzekering);

* National Office of Social Security (Rijksdienst voor Sociale Zekerheid)

* National Old Age Pensions Office (Rijksdienst voor pensioenen);

* National Child Allowances Office (Rijksdienst voor kinderbijslag voor werknemers);

* National Fund for Work-related Disabilities (Fonds voor de beroepsziektes);

* National Fund for Work-related Accidents (Fonds voor arbeidsongevallen);

* National Employment Office (Rijksdienst voor arbeidsvoorziening) and

* National Holiday Premium Office (Rijksdienst voor jaarlijke vakantie).

A study conducted in 1986 (Viaene, Robben, Lahaye, & Van Steenberge, 1986) reported the following problems and shortcomings in the cooperation in the field of executive organizations:

* the existence of paper-based information flows;

* poor information requirements analyses by Offices (in the presence of changing legislation);

* repeated information request by various agencies regarding comparable or even similar topics; and

* in general, lack of focus on ways in which companies register data, and lack of citizen orientation.

Following the above analysis, and the recommendations of a National Committee on the Codification, Harmonization and Simplification of Legislation in the field of social security, an Act was drafted (15 January 1990) in which the so-called Cross Point Bank for Social Security (Kruispuntbank or Banque Carrefour de la Securité Sociale) was announced.

Cross Point Bank for Social Security: A National Initiative to Reduce Administrative Burden

In 1990, the Cross Point Bank for Social Security was established. Although the term "bank" might indicate that the organization has databases by itself, it primarily (but not exclusively) functions as a referral index that allows for information exchange between various organizations, based on the principle of authentic sources of information. There is one important difference with the Dutch connotation of authentic sources, though: if the participating organizations fail to reach agreement on the articulation of authenticity of specific sources or data, or if participating organizations are not able to meet information requirements by the sector as a whole, it is the responsibility of the Cross Point Bank to provide for that information by means of setting up dedicated databases.

The infrastructure of the Cross Point Bank connects public authorities that act as core participants (like the National Illness and Disability Insurance Office and the National Office of Social Security), and auxiliary members (like labor union's insurance companies) that connect through core participants.

Goals of the Cross Point Bank for Social Security can be stated as follows: reduction of administrative burden, increased focus on needs of citizens and corporations and stronger support for the social security policy in general (Snijkers, 2005). In order to do achieve this, harmonization of legislation and implementation practice is explicitly addressed. For instance, legislation allows for assistance from Cross Point Bank to executive organizations in the development and implementation of e-government strategies (art. 3bis Act on Establishment of the Cross Point Bank, 15 January 1990). Furthermore, although it is recognized that the Cross Point Bank should not interfere with existing tasks and responsibilities in the field of executive organizations, it is explicitly acknowledged that tasks that are not carried out by existing executive organizations can or should be performed by the Cross Point Bank.

Overall, the Cross Point Bank focuses heavily on the reduction of administrative burden of citizens and corporations through improvement of intergovernmental exchange of information. At present, the Cross Point Bank for Social Security processes hundred millions of exchanges every year (2004: 339,1 million messages). The communication takes place using the XML standard.

Agreements

Particular exchanges that use the infrastructure of the Cross Point Bank are referred to in specific Acts and Official Announcements (Koninklijk Besluit or Arrêté Royal). Therefore, exchanges are firmly anchored in legislation and are multilateral (instead of bilateral) in nature. Exchanges require approval of a dedicated Sectoral Committee of the Social Security that is installed in order to protect privacy of citizens. The Committee consists of independent members, among them experts in the fields of law, informatics and health.

Architectural Foundation and Organizational Model

In general, the architecture of the Cross Point Bank is based on the archetypical decentralized clearing house. By using a referral index and XML-based messages, the Cross Point Bank allows for the exchange of information in order to check citizens' income figures, job history, entitled benefits and so forth. It must be stated that the governance structure of the infrastructure is firmly anchored in Acts and legislation in general. The legal basis leaves room for so-called residual tasks: should central government decide that there is a need for specific information that can not be provided by individual executive organizations (or by cooperating executive organizations), the Cross Point Bank can be assigned to carry out additional tasks in order to comply with specific requests. Specific exchanges require legal status and approval by an inde pendent committee of experts. Overall, the Cross Point Bank is the institution that governs the infrastructure in Belgian social security, but it must be stressed that it also has characteristics of a so-called missionary organization: it is explicitly stated that the Bank should assist executive organization in the development and implementation of e-government strategies. This is probably best understood in the context of the frail condition of ICT use in Belgian Social Security at the end of the previous century (Henman & Adler, 2001).

CONCLUSIONS AND LESSONS LEARNED

In the international practice of e-government, concepts like integration and joined-up government almost have mythical proportions. In policy programs, but also in the actual implementation practice at the shop floor of public administration, various initiatives are announced and implemented in order to foster inter-governmental cooperation, reduce administrative burden for citizens and corporations, and so forth.

At a global level, there seems to be a rhetorical closure: governments throughout the world seem to be busy developing and implementing same sets of concepts, be it joined-up government or interoperability, or pan-governmental integration. To the observer, intuitively appealing concepts are swept over the OECD world, or even beyond that part of the globe.

In this comparative case study, it has been our intention to scrutinize to what degree the assumed convergence actually takes place beyond levels of fallible rhetoric. We have scrutinized organizational and political practices in a specific sector of governmental activity, namely social security policy. Social security policy is an interesting field of study as it has a long-standing tradition of ICT implementation and use (so it allows for intensive study). We have compared two rather comparable countries that nonetheless have rather different politico-administrative structures: Belgium and the Netherlands. Although the countries resemble one another in terms of size and geographical proximity, there are notable institutional changes. Belgium can be portrayed as a federal, corporatist state, the Netherlands is an example of a decentralized unitary state. These countries allow for a comparison of ways in which technologies are actually implemented, and if and how technologies are shaped and crafted in various institutional contexts.

From the case study it can be concluded that at a rhetorical level, there is considerable support for assuming convergence. In both contexts, there has been a clamor for joined-up-ness (6 et al., 2002), as an answer to felt needs to fight fraud and compartmentalization. At decisional and operational levels, there is less evidence for assuming convergence. It seems that in disparate institutional contexts, especially governance structures of ICTs are notably different.

In terms of organization and organizational architecture, a notable difference is the origination of the initiative. In the decentralized unitary state of the Netherlands, the RINIS initiative emerged out of the field of executive organizations. These organizations have traditionally nourished ICT competences and could use this knowledge and their relatively strong position to promote, gain support and actually implement the RINIS initiative. By demonstrating the usefulness and effectiveness of the RINIS architecture, executive organizations could defend their traditionally strong informational autonomy and keep central levels of government out. The governance structure of RINIS is characterized by co-opting by participating organizations. The RINIS organization itself is small and does not have any other tasks than merely supporting the information exchanges. Therefore, the Dutch approach is characterized by voluntariness, mutualism and self-regulation. Harmonizing, interorganizational standardization and legal bases for exchanges are kept to the minimum level, and responsibility for fighting fraud and promoting cooperation are mainly carried by executive organizations themselves. In corporatist Belgium, the executive organizations lagged behind in terms of ICT competences and as a reaction to the same alarming signals that had hit the Netherlands, central levels of government (Ministry of Social Affairs) took the initiative to promote intra- and intersectoral information exchange initiatives like the Cross Point Bank. The Cross Point Bank therefore is different in character (missionary activities, governance structure, harmonization and standardization as explicit targets).

It must be stressed that both countries do not differ that much in terms of performance or ranking on general e-government lists. The 2006 CapGemini study positions Belgium on position 18 and the Netherlands on position 16 of European states (Cap Gemini, 2006). Accenture, on the other hand, positions Belgium and the Netherlands on positions 11 and 9 of all countries in the worlds in terms of general e-government performance, respectively.

Overall, this case analysis supports the "social shaping of technology" stream in the literature. Institutions and institutional context matter for ways in which technologies are shaped, not only rhetorically but also in (policy) practice. Therefore, any claim of convergence with respect to e-government should be approached with great caution. Obviously, institutions and institutional context matter for e-government, not only in order to explain pace of implementation or difficulty in implementation, but, more importantly, in terms of organization, management and governance structures of the technologies-in-use.

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AuthorAffiliation

Vincent M.F. Homburg, Erasmus University Rotterdam, The Netherlands

AuthorAffiliation

Vincent Homburg (1970) is assistant professor in the Faculty of Social Sciences, Comparative Public Management group (Erasmus University, Rotterdam, the Netherlands). In 1999, he received his PhD in management and organization sciences from Groningen University, the Netherlands. Vincent Homburg has published book chapters, articles in Dutch public administration journals, articles in (among others) Knowledge, Technology and Policy, Information Polity and AI & Law, and has co-edited The Information Ecology of E-Government (IOS Press, 2005; with Victor Bekkers) and The New Public Management in Europe. Adaptations and Alternatives (Palgrave McMillan, to appear in 2007; with Christopher Pollitt and Sandra van Thiel).

Subject: Social security; International comparisons; Electronic government; Public administration; Intergovernmental relations; Comparative studies; Case studies

Location: Belgium, Netherlands

Classification: 9130: Experimental/theoretical; 5250: Telecommunications systems & Internet communications; 1200: Social policy; 9175: Western Europe

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 2

Pages: 1-12

Number of pages: 12

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 221167175

Document URL: http://search.proquest.com/docview/221167175?accountid=38610

Copyright: Copyright IGI Global Apr-Jun 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 29 of 100

Integration and Enterprise Architecture Challenges in E-Government: A European Perspective

Author: Weerakkody, Vishanth; Janssen, Marijn; Hjort-Madsen, Kristian

ProQuest document link

Abstract:

Traditionally, government agencies are organized vertically around functional structures and there are almost no processes spanning departments and agencies. In such an environment, the coordination of business processes and integration of underlying information systems presents a significant challenge. Using case studies in three European countries, this research explores process and systems integration challenges in the European public sector and highlight opportunities for service improvement in the context of e-government implementation. While cross-organizational process and information systems integration barriers are seen in the literature as presenting the main technical challenge for realizing fully integrated e-government services, this research found that a legacy of rigid bureaucracy, established illogical routine tasks and lack of coordination of different information systems in the public sector were preventing the respective governments from expediting their e-government initiatives in Europe. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: e-government; e-government services; enterprise architecture; process integration; systems integration

SETTING THE STAGE

As more and more citizens become internet savvy they demand faster delivery of public services and better insight into the status of their requests. While integrated service delivery requires the sharing of information among information systems of public agencies and harmonization of cross-organizational business processes, a debate that is facing many European governments' on-line agenda, at least in the short term, is how to precede best with this integration. Existing systems are typically build-using architectures that do not readily support enterprise-wide integration, thus requiring the development of new architectures to link on-line government (Allen, Juillet, Paquet, & Roy, 2001). The challenge is that many e-government initiatives require information exchange in networks across different governmental organizations. Most public institutions today manage technology in what is popularly described as "stove pipes" or "isolated islands of technology", with individual institutions implementing their own channels, Web page applications and supporting infrastructure. Traditionally, government agencies are organized vertically around departments. Cross-organizational processes can only be created by integrated information systems delivering timely and right information, and supporting cross-departmental processes. Current systems are often developed within the boundaries of departments without having in mind the "big picture" capturing the enterprise architecture of the whole organization. The existence of isolated, overlapping in function and content, highly fragmented, and unrelated computerized applications within the same public organization has resulted in a major interoperability problem and has led to "isolated islands of technology" (e.g. Peristera & Tarabanis, 2000).

E-government has evolved from the domain of e-business and as such needs business processes that can be continuously optimized and expanded outside the enterprise and outside internal enterprise systems (Fustes, 2003a; Champy, 2002). While the linking of these processes and IS require enterprise application integration (EAI) technologies, EAI has been an expensive and often problematic solution for many organizations engaged in e-business (Linthicum, 1999; Sutherland & Willem, 2002). These problems are multiplied in the public sector, where inefficient and bureaucratic business processes and disparate legacy IS/IT systems need to be integrated in an e-government environment (Weerakkody & Choudrie, 2005). In a resource limited environment such as government agencies, enterprise architectures should therefore not be merely about service delivery, but also about integrating and sharing resources and using common systems (Hanafin, 2004). Opportunities for joint-development, pooling of resources and coordination of efforts are often neglected due to the lack of overview. Although there a number of enterprise architectures available (e.g. Zachman, 1987; Bernard, 2004; Nora, 2006; Schekkerman, 2003; Office of the e-envoy, 2002; Danish Ministry of Science, White Paper on Enterprise Architecture, 2003) public managers find it difficult to translate the architecture to their specific situation, use these architectures to guide their decision-making and use these architectures as guidance for development from the existing situation. One of the reasons is that concepts are only vaguely defined, too abstract, or too technical defined (Kunda & Brook, 2000; Peristera & Tarabanis, 2000)

Given this context, the research question driving this article is what are the process integration and enterprise architecture challenges faced by government when implementing integrated e-government services?

To explore further the arguments set out above, this article is divided as follows. The next section describes the e-government development stages and examines the characteristics of Web services technology and enterprise architecture modeling, and how they could facilitate process and IS integration in e-government. This is followed by a summary of the methods used to carry out the research discussed in the article. The section afterwards then presents the results of an exploratory study in three different government agencies in the UK, Netherlands, and Denmark by examining key public service processes and related process and IS integration issues. The article concludes by summarizing the main research findings and discussing the enterprise architecture as well as process and IS redesign-requirements for delivering fully integrated e-government services.

To explore the arguments set out above in a deep and meaningful manner, a case study approach was considered to be suitable (Yin, 1994; Walsham, 1993). Case studies were conducted in a large local authority/council in the UK (Weerakkody, Baire, & Choudrie, 2006), Delft Municipality in the Netherlands (Janssen & Cresswell, 2005) and the Copenhagen hospital in Denmark (Hjort-Madsen, 2006). The detailed research approach of each case study is presented in the three referenced articles. As the main research instrument interviews were used, complemented with reports and minutes. In this article we aggregate the results of the case studies. The case studies were selected due to their variety in approaches and presenting typical issues. Moreover, the three countries are well comparable and are considered as innovative and frontrunners in different aspect. Consequently the case studies are complimentary and provide additional insights into various application and process integration challenges that the European public sector may face in the perspective of e-government.

RESEARCH CONTEXT: APPROACHES TO PROCESS IMPROVEMENT AND SYSTEMS INTEGRATION

The implementation of e-government implies different objectives and levels of transformation in public services in different countries. For instance, in the USA, the main objective is to automate and integrate different islands of information to simplify and maximize the benefits of technology (Navarra & Cornford, 2003), whereas in Europe the emphasis is to modernize public services and offer better services to citizens (Cuddy, 2003). For instance, the current program of e-government in the UK focuses on e-enabling local authorities in different regions in the UK with plans to implement a fully integrated service by 2008. In the national context of the UK, the direct.gov.uk Web portal provides a single point of contact for e-government, but is yet to function as a proper Web portal (that offers a gateway to local and national government Websites and provides a single point of contact for online service delivery) (Gant & Gant, 2001; Gant & Chen, 2001).

Given the above context, examining Layne and Lee's (2001) representation of the different stages and dimensions of e-government development is appropriate (see Figure 1). Figure 1 captures the process transformation and integration aspects and the scope needed for a one-stop e-government Web portal.

In the cataloging stage in Figure 1, governments focus on establishing an online presence by publishing index pages or a localized site where electronic documents offer the public information relating to government services (Layne & Lee, 2001). This is the simplest and least expensive form of Web presence and from the government's perspective it helps to save staff time spent on answering basic questions (Bonham, Seifert, & Thorson, 2003). In the transaction stage the focus is on connecting the internal government systems to online interfaces thus allowing citizens to electronically transact with government institutions. While the speed of which this sector has progressed is disappointing, the process of developing and maintaining services in this stage are more complex than the first stage (Vasilaki, Laskaridis, Lepouras, Rouvas, & Georgiadis, 2003). In the third stage, vertical integration, federal, state, and local governments are expected to connect to each other to offer a higher level of integrated service. The main challenge is to ensure compatibility and interoperability between various government databases (Layne & Lee, 2001). The most complex stage is horizontal integration where different services and functions within the same level of government are integrated to provide a one-stop-shop for all major services (Reffat, 2003). This according to Bonham et al., (2003) requires a transformation of how government functions are conceived, organized, and executed and is more difficult to realize than the first three stages.

Many stage models are focused on service provision to citizens and business, and not on helping to structure the architecture's maturity process, in other words, how the integration of front and back office systems should be arranged and evolve over time. Janssen and van Veenstra (2005) derived a five-stage growth model for the development of information architectures for local governmental agencies. The stage model consists of 1) no integration, 2) one-to-one messaging, 3) warehouse, 4) broker, and 5) orchestrated broker architecture. Starting with simple information architectures to more advanced process-based architectures able to deal with "spaghetti" of links and managing cross-organizational business processes. In the orchestrated broker architecture phase, an agency coordinates the provisioning of services and ensures process based integration.

The above framework is not only hypothetical but has been researched in real life. Gant and Chen (2001) state that different countries around the world have strived at different speeds to move from the cataloging to transaction stage. The three countries studied in this article have approached this challenge in different ways:

* The UK is no exception where the country has managed to realize transaction level services in key public service processes such e-billing, e-payments, e-voting, and e-forms. Some local council have transformed customer facing processes and improved back office systems integration through SOA-Web services driven EA programs (Weerakkody, Choudrie, & Currie, 2004).

* In the Netherlands almost all government agencies are online and most of them provide basic transaction services. The foundation of the government is a service-oriented architecture to enable reuse and easy integration. Some of the public agencies started with transformation of their back offices and a small number has realized integrated service provisioning and adopt an orchestrated broker architecture.

* Denmark has been a "trend setter" in e-government with its early emphasis on Enterprise Architecture and the establishment of an Interoperability Framework with specific OIO-XML integration standards and more than 600 status assessments, standards, specifications and technologies used in e-government solutions. Many agencies have established EA programs with SOA as an important ingredient. Like the other two countries, there are, however, also severe collaboration difficulties in Denmark.

Although the above mentioned cases are encouraging, it can be argued that the transfer of public administrative processes from a an organization around functional silos to an e-enabled real-time automated, process-based state would involve rethinking and redesign of processes at both local and national government levels. There are also many instances where information is clearly not available locally (within the organization) to execute processes and service specific customer demands. This adds a further complexity to the process, as information now may need to be obtained from sources outside the organizational boundaries of local government/councils. Organizations part of different hierarchies need to collaborate for ensuring integrated service provisioning. Given this context, it is fair to state that progressing from the cataloging stage to the horizontal integration stage (in Figure 1) will require significant process and systems harmonization, change and integration. The next two sections review two developments that influence this progression-from an organizational and technical perspective.

Enterprise Architecture

In order to manage process changes and ensure systems integration, many public agencies are introducing new IS management programs to help align their strategies with business processes and IS and facilitate the coordination of resources. Some of the most prominent trends are associated with enterprise architecture (EA) (Pulkkinen & Hirvonen, 2005; Schekkerman, 2004), Information Management (McNurlin & Sprague, 2002), and Information Technology Governance (Weill & Ross, 2004). While the two later approaches take the viewpoint of the Chief Information Officer (CIO), the EA approach stresses the planning and management of all IS assets and their architecture together with organizational structures and processes. The purpose of an EA program is to guide an enterprise's business processes and the associated IS towards a common goal and to integrate business, data, information, and technology (Bernard, 2004; Boar, 1999; Zachman, 1987). The strength of an EA is that it embraces both the front and back-office focus along with a governance model that guides the use of IS from a business perspective. Thus, many public practitioners believe that EA is the solution to the vertical and horizontal integration and interoperability challenges that the public sector is facing today.

The challenge is that the concept of EA and IT architecture does not have a universally ac cepted definition in either the research or industry context (Ross, 2003). In a recently published textbook (Bernard, 2004) defines EA as "the analysis and documentation of an enterprise in its current and future state from an integrated strategy, business and technology perspective". And according to Richardson, Jackson, and Dickson (1990), an enterprise architecture defines interrelated data, hardware, software, and communications resources, as well as the supporting organization required to maintain the overall physical structure requires by the architecture. Some top-down architecture initiatives have been founded for the public sector such as the Federal Enterprise Architecture Program Management Office in the USA (FEAPMO, 2003) and the e-Envoy Office Framework including the Government Common Information Model (GCIM) (Office of the e-envoy, 2003), the Electronic Architecture in The Netherlands (NORA, 2006), and the national enterprise architecture in Denmark. Peristera and Tarabanis (2000) provides an overview of enterprise architecture methods for the public sector based on what they tried to model on one axis (process and data aspects) and the scope of the models on another axis (meta frameworks/methodology, generic models, specific industry applications). Schekkerman (2004) provides an overview of and describes the differences and commonalties of enterprise architecture frameworks.

The enterprise framework formula, in general terms, specifies how information technology is related to the overall business processes and outcomes of organizations, describing relationships among technical, organizational, and institutional components of the enterprise (CIOC, 2001; Fayad, Hamu, & Brugali, 2000; Gable, 2002; NASCIO, 2003; Richardson et al., 1990). Little is known about how EA frameworks can best be implemented and used in government agencies. Enterprise frameworks and overall information architecture concepts are quite general in order to be relevant for a wide range of organizations. However, organizations must adapt EA frameworks to their specific circumstances and needs. How this adaptation can best occur has not been extensively studied, nor have results of such adaptations been widely investigated. Yet, it is clear that EA should be understandable by all stakeholders in order to make it work. The creation of a shared vision, communication among stakeholders, and evaluation of the impact seem to be crucial aspects. One way of managing the complexities involved is to start a process to create a shared understanding

The primary strength of the EA approach is that it has greatly defined its concepts and instruments to predict and control complex technological systems. While many of the current models and concepts for the planning and management in government are one-dimensional and e-contextual in scope, there seems to be no other approach that can match EA in this regard and it is therefore not surprising that it is being used in most large IS projects in the private and public sector. The emphasis on preplanned and well-defined procedures in EA has the clear advantage that it offers high understandability and provides a good basis for teaching and knowledge transfer. EA encompasses a holistic approach to IS planning that provides an overview of the entire enterprise-from business to technology (Bernard, 2004; Schekkerman, 2004). In this way, it is an easy approach to communicate for consultants and practitioners (as well as academics) and it gives users of IS the perception of control. Furthermore, EA is oriented towards efficiency and effectiveness in the management and implementation of IS which seeks to conserve valuable resources in government.

However, so far, little empirical evidence exists on the actual implementation and management of EA in government agencies. The current approach to EA in many public agencies is that EA is defined as the planning and management of IS in a single organization (Hjort-Madsen & Gotze, 2004). In reality, however, the management of e-government initiatives is only sparsely structured based on ad-hoc cooperation in many inter-organizational settings. The principal obstacle in government is the high fragmentation where many actors get involved when offering e-services, and this article therefore draws on institutional theory from political science to capture the dynamic interaction between individual agencies in government. However, before we turn to the three empirical cases one of the technological enablers of e-government interoperability is first introduced.

The Use of Web Services Technologies

As stated before, internal systems of government agencies will often need to request and interact with other organizations' information systems to extract the required information (Saxena & Wadhawa, 2004). In an e-business or e-government context this process needs to be done at electronic speed and therefore ideally needs an environment where integration and interoperability between disparate IS/IT systems is exemplary. However, it is fair to suggest that realizing this type of environment using traditional modes of EAI can be costly and inefficient given the nature of the diverse hardware and software systems that span government IT infrastructures. In this regard, the emerging concept of Web services cannot be ignored. Web services promises to offer a solution to the EAI problem through the use of business process management (BPM) and service oriented architectures (SOA) where large service providers such as IBM, Microsoft, Sun and SAP are working together to develop a common platform and standards for modern EAI (Fustes, 2003a).

Web services break down applications into reusable components or services and enable the linking of these services within and across the enterprise using standards based on extensible mark up language (XML) (Fustes, 2003a). It uses three XML based standards: SOAP (simple object access protocol) for transmitting XML-encoded data and remotely accessing services in a platform independent way; UDDI (universal description and discovery language) for registering and discovering services; and WSDL (Web services description language) to provide an XML grammar for describing available Web services (Monson-Haefel, 2004). Web services helps EAI by providing the tools needed to manage end-to-end extended processes independently of the execution platform (Masood, 2002; Monson-Haefel, 2004). This is enabled through the use of SOA's, where, when the business needs to automate a business function or process, it merely plugs into a service like logging onto a Website irrespective of whether this may be an internal application, or an external application that may be accessed over the Internet (Lawrence, 2004; Zhang,, 2004). In comparison to the most common traditional EAI method, EDI, XML is specifically designed to use the Internet as the data transfer mechanism whereby business documents and services can be freely exchanged electronically, whereas the latter needs point-to-point connection between each participating system (Thompson, 2002). These protocols are not sufficient to support complex business processes. Web service orchestration, often using defacto standard Business Process Execution Language for Web Services (BPEL4WS or BPEL), is an XML-based technology to enable the process-based aggregation of different Web services (e.g. Janssen et al., 2006).

When using Web service, the existing application in the enterprise remains, but instead of staying in relative isolation from each other, they are seamlessly joined to create new services that are more attuned to the needs of the business (Fustes, 2003a). Currently the two main application servers for distributed computing, Microsoft's.Net and SUN's J2EE both support Web services (Monson-Haefel, 2004; Information Age, 2004a). Although Web services are not a fully mature technology yet, increasing numbers of private sector organizations and some public sector agencies both in Europe and North America have successfully adopted the Web services-SOA model to integrate their supply chains (Information Age, 2004b; Maclver, 2002; Information Age, 2004b). Given this context, it is fair to suggest that Web services may prove to be a cost effective EAI concept for e-government both in the long and short term. Moreover, these successful cases of Web services adoption offer the opportunity for the e-government context to understand the strengths and weaknesses of the concept before adoption.

CASE DESCRIPTIONS: A EUROPEAN PERSPECTIVE OF PROCESS AND SYSTEMS INTEGRATION IN E-GOVERNMENT

While a review of literature in the previous section identified numerous challenges that governments may face when e-enabling public sector processes from a theoretical stance, in this section we explore the impact of these issues in real life using three cases of e-government implementation and integration in Europe.

Case Study 1: Council Y in the UK

The first case that was studied is in the UK. Here we investigate the execution of a key public service process and related process and systems integration issues in one of the largest local councils in the UK (identified as Y). Located in northwest London, Council Y employs over 7,800 staff and owns 79 buildings that are available to the public. The services provided by council Y include central service departments (finance, law, administration and benefits services), housing services, library and community services, environment services and education. Council Y's electronic government statement states that "for council Y, e-government is about using ICT's to support the delivery of community strategy targets by making services more accessible, improving efficiency and supporting strong commitment to social inclusion".

Since the aim of this research was to explore process and systems integration aspects in local government, the researchers chose to focus on a key service provided by the council, the student loan application process. This process relates to the loan applications made by prospective university students to pay their tuition fees and subsistence during the course of their university studies. Given this context, interviews were conducted primarily at council Y's Local Education Authority (LEA). These interviews identified a scenario where lack of harmonization and integration between business processes and underlying IS/IT systems has resulted in inefficient and ineffective process execution and service delivery in local government (LG). Interviews with council Y staff that were responsible for the student loan application process identified two key activities relating to the process, which primarily revolved around the handling of different documents. These include processing the different applications received from students for loans and tuition fees (identified as PN1 forms) and confirmation of benefits (identified as CB2 forms). The first form (PN1) contains general information on the student such as personal details, income, parent's income, and so forth, while the second form (CB2) contains information about any benefits the student or their parents claim.

Once the student has filled out the two forms (PN1 and CB2), an administrator manually enters the details onto the LEA Computer system. At the same time information provided on the CB2 form is checked against the benefits agency records. Using this information the systems generates a financial assessment on the student, which is sent manually (by post) to an organization known as the Students Loans Company (SLC). To complement the investigation conducted at the LEA, as mentioned in a previous section, interviews were conducted with staff at the SLC, council Y's Benefits Agency and a student applying for the loan. The respective roles of these different entities and the sequence of activities that are executed to administer the student loan are outlined below.

Council Y's Benefits Agency: Council Y's benefits agency is just one of the local functions at Y. Their role is to provide benefits to citizens who are unemployed and are unable to work (such as income support and job seekers allowance). The LEA regularly needs information from the benefits agency to aid them in the process of making financial assessments for students. This is done using the confirmation of benefits-CB2 form. However, interviews with the benefits agency staff indicated that the LEA does not directly contact the benefits agency to obtain this information. Instead, the student is responsible to get part of the CB2 form completed by the benefits agency, which is then sent to the LEA by the student.

The Students Loan Company (SLC): The SLC is an organization set up to pay the tuition fees to the student's university. The SLC also pays the student an installment of loans throughout the academic year. The SLC does this by using the assessment information from the LEA. As noted earlier, interviews with staff at the SLC showed that there is no harmonization of processes and integration of systems between the LEA and SLC with the assessment information for every student being sent by mail on a regular basis.

The Student: Interviews with a university student in possession of a student loan confirmed the ineffectiveness of the lengthy process involved in the loan application process. It was revealed that the student applying for a loan and tuition fee payments, has to go through the same process every academic year. The student needs to fill out the first form (PN1) and the first section of the CB2 form. The student is then in direct contact with all the entities in the process including the LEA, SLC and the benefits agency. The student interviewed reported, "this is a very time consuming and lengthy process".

Current Working Model at the LEA in Council Y

By collating and analyzing the information gathered from all the interviewees, the authors present in Figure 2 a composition of the current working model of the student loan application process at the LEA in council Y.

Figure 2 shows that the process begins with the student filling out two forms, which include the PN1, and CB2 form. The PN1 form goes to the college or university the student is currently attending. The CB2 form goes to the benefits agency, where one section of the form is filled out and given back to the student. Once the two forms are complete, these are handed over to the LEA. The LEA then uses this information to make an assessment on the student's eligibility for the loan using an IT system at council Y's office. Once the assessment is made, the LEA passes this information manually to the SLC.

With the financial assessment received from the LEA, the SLC then enters this information into their computer system and sends the student a loan request form and the assessment information made by LEA. The loan request form is used by the student to indicate how much money they want to borrow. Once the SLC has received the completed loan request form, they are then able to start with installment payments to the student along with the tuition fee payments made to the student's university.

THE STUDENT LOAN APPLICATION PROCESS: IDENTIFYING THE KEY PROBLEMS

The scenario above clearly contradicts council Y's vision for e-government and highlights a number of process and IS integration problems in a key public service process. The first problem lies in the student handing the CB2 form to the benefits agency for them to complete one section of the form. If the student delays this process, this also delays the financial assessment process at the LEA in council Y. This is further compounded by delays that occur when the benefits agency is slow to give back the CB2 form to the student.

A second problem occurs with the exchanging of information between the LEA and SLC. The LEA receives a large number of requests from students, in particular during the period leading up to a new academic year, where each student loan application can take between 2-3 weeks to assess. Once these assessments are made they are then sent to the SLC by post. One LEA worker stated during the interviews that, "using this method of communication can be sometimes troublesome when there are postal problems or delays". This can cause delays and financial difficulties to the students receiving the loan as well as the university enlisting the student. Furthermore, delays in obtaining the financial assessment information can result in delays in the student's enrollment process at the university/collage.

The last problem occurs with the "student loan request forms", which are sent to the students by the SLC. Delay can arise here again due to postal problems and lost or misplaced forms. This could mean that the student would need to contact the SLC and request a new form, which could take up to 1-2 weeks to arrive by post.

The Process Improvement Approach: A Web Services Based Solution

Given the above context, in order to reap the benefits of e-services and e-government, the student loan application process needs to be significantly improved. It was clear from our investigation that the lengthy cycle time and resulting process inefficiencies were caused mainly due to lack of harmonization and integration of process and supporting IS/IT systems (Champy, 2002) between various internal and external entities in the context of council Y. Hence, it can be argued that radical improvements (as in BPR: (Hammer & Champy, 1993) to the process can be made that would not only transform the student loan application process from manual to electronic, but reduce the cycle time by well over 50%. This would however require the integration and harmonization of processes and IS/IT systems between the LEA, SLC and Benefits Agency. With a new integrated system the following requirements need to be realized: a) the student should be able to hand both forms (PN1 and CB2) directly to the LEA; b) when the financial assessment has been made by LEA, the SLC should be able to access the information electronically through a direct link; c) the student should be able to access their financial assessment online, eliminating postal problems that can occur with hard copies; and d) the student should also be able to fill out the loan request form online.

In the context of e-government, the transfer of the student loan application process from a largely manual to an automated, e-enabled state would mean significant progress for council Y. Besides, empirical research in the UK strongly suggests that succeeding at the local (council) level is key for national level e-government success (Hackney & Jones, 2002; www.kable.com) whereby local best practices can be mirrored at national level. From an organizational perspective, the paradigm shift and change of culture that e-government would introduce to government institutions would certainly face resistance as seen in other forms of organizational change such as business process reengineering (Avgerou, 1993; Sahay & Walsham, 1997; Weerakkody & Hinton, 1999).

While this research has identified significant process inefficiencies in the student loan application process, yet we can argue that this is only one example of how a public sector process may be executed. However, previous research by the authors has also identified similar inefficiencies with various processes in other local government /councils (Weerakkody et al., 2004). As stated before, these process inefficiencies are caused largely due to the lack of integration and synergy between various internal departments and external government agencies. Although in the past rectifying these problems would have meant radical reengineering of business processes and changes to underlying legacy systems that may have also resulted in the implementation of expensive EAI solutions, we argue that in the present context Web services offer a realistic solution to this problem. The SOA - Web services concept offers the platform for processes and systems to communicate in well understood universally accepted protocols such as XML and HTTP thus rendering them completely independent to different technologies and software that may be used by various government agencies. In Figure 3 we outline a model based on Web services and SOA, which offers an integrated view of government processes and underlying systems in the context of e-government.

As outlined in Figure 3, the various applications used by government agencies expose themselves as services based on XML-SOAP protocols irrespective of hardware-platform or software. The model in Figure 3 is made up of three roles: service providers; user interface providers; and end-users (citizens in this case). Firstly, the government here has to assume the role of the service provider and needs to develop the infrastructure that enables them to expose their processes as Web services. Secondly, the user interface providers have to provide user-friendly interfaces or application software to access these Web services. Typical examples of interface providers may include google, msn, and yahoo. Their role here is to provide the channel for information to be passed between the user and the service provider. Finally, the users (citizens) can request for e-government information and services using various access mediums such as computers, PDA's, mobile phones and Kiosk. In an environment where there are disparate applications and hardware technologies (such as in the case of the public sector), the above model eliminates the need for major changes to software applications (legacy systems), which is both time consuming as well as costly. With tight budgets and project deadlines this is a luxury that many governments cannot afford.

CASE STUDY 2: MUNICIPALITY OF DELFT

The integration aim of the Dutch government is that constituents should provide data only once and all government agencies should reuse this data by 2007 (www.elektronischeoverheid.nl). This can only be accomplished when governmental agencies share data and reuse the data in their processes. The Dutch municipalities are free to design their enterprise architectures and to choose appropriate software vendors. Often there is no central management with a municipality and departments can buy their own applications for each process. As a result, municipalities have a highly fragmented ICT-architecture, consisting of legacy systems for each product they offer. Municipality of Delft is a medium-sized municipality with 3000 employees consisting of various departments. The municipality consists of a large number of departments, which have developed their own, often heterogeneous, information systems. There is no overview of all systems and there is a need to reduce development and maintenance costs as budgets are decreasing. Managers were complaining about the lack of insight into the application architecture and that they are not able to make decisions to prioritize development. They merely assign budgets to development projects, but do hardly know what kind of results can be expected. As such they want to improve their understanding by developing an enterprise architecture. We investigated this case study by conducting a number of interviews and reading reports, which would result in the identification of the key challenges to process and systems integration (Janssen & Cresswell, 2005).

In general, architecture is perceived as having an inherently technical nature. Architects are only found within the ICT departments. This prevents the use of architecture as a strategic planning instruments and building of relationship between business and ICT. Architecture can be described using the organization, process, application, and infrastructure layers, and the complex horizontal and vertical relationships and connections between the various elements in the layers as shown schematically in Figure 4. In the following subsections we discuss the various architecture levels.

Organization Architecture

The municipality provides about 300 products to citizens and another 50 products to business. All customers interact with a one-stop service center. The service center aims at fulfilling service request, answering exceptional request and routing request to the right department. As such it manages the dependencies among the back-office departments.

From our interviews it appeared that service provisioning is in reality centered around departments. If citizens and business are familiar with the situation, they go often directly to the departments when requesting a certain service, although some managers mistakenly consider the service-center as a one-stop shop. The business processes of these products and services were analyzed and described, including the supporting information systems.

A critical factor for customer-oriented service provisioning is the sharing of information across departments, but also with outside agencies. As such external stakeholders should also be included in the enterprise architecture. The municipal departments communicate with external organizations to collect information, such as the chamber of commerce who owns and controls a registry of businesses, the police, fire, and justice departments.

Another challenge is the allocation of responsibility for the quality of service provisioning. When the terms of a permit changes and the permit request involves multiple departments; who is responsible for updating the permit terms on the Internet? If a business process changes, which organization unit is responsible for implementing the change?

Process Architecture

1. There are more than 350 services. Most of then are structured and standardize and a small number is unstructured and not-described. Most of the services are permit request consisting of the following process phase. Information phase: In this step information is collected by the citizens and business to gain an understanding of the services needed.

2. Intake phase: In this phase the customers request information and the data is filled out.

3. Execution phase: In this phase the service request is processed, often by various back offices. A service request is often split up in multiple sub processes that are executed by different departments using all kinds of systems.

4. Services provisioning phase: the results of the process are presented to the customers. This can result in granting or rejecting a permit

5. Complaint handling phase: A customer can file a complaint if he or she does not agree with the outcome.

6. Enforcement phase: Governmental agencies cooperate to ensure that people live to the terms and conditions of the permits. The information systems supporting enforcement are not connected to the system used in the preceding phases.

The current focus of the architecture was on the intake, execution, and service delivery processes. This is a too narrow focus can be concluded when viewing the process phases.

Application Architecture

Delft municipality application architecture is based on a plethora of different software standards, exchange formats, computing languages, platform, and operating systems. They have packages as well as custom-made software and open source and proprietary software in the front and back-office. Available applications include financial, human resource, and various workflow and document management systems. Many of the systems have fixed and rigid structures and some of them are not well or not documented.

The most advanced system is the Web-based applications based on a modular design available in the front office. A number of components have been developed that can be reused using scripting languages. Product information can be found on the Internet and some of the products can be ordered online. There is not systematic approach or strategy for making products online. Managers are very afraid that their Web-development department might turn gradually into a maintenance department. The updating of existing products might become more time-consuming that developing new components and scripts.

A small number of the applications have been integrated using a permutation of application integration technology. Delft has initially pursued a point-to-point approach in integrating new systems into its existing IS architecture. Based on request of public managers an ad-hoc connection between front and back office application was made without considering maintenance efforts. This results in a spaghetti-kind of integration as all systems will be connected with all other systems in the end.

The current services provision over the Internet can be positioned in the cataloging and transaction phase of Layne and Lee's (2001) e-government development framework outlined in Figure 1. Delft has a Web presence containing product information, there are downloadable forms for a limited number of products and for some products it is possible to conduct online transactions. In the latter case, most transactions are performed without any direct integration of front- and back-office applications. The stages of horizontal and vertical integration (Layne & Lee, 2001), characterized by integration of information systems across different functions and departments (Gable, 2002) therefore, are still far away.

THE PROCESS IMPROVEMENT APPROACH: ARCHITECTURE MODELING AND VISUALIZING

The aims of the enterprise architecture development process is to create a shared understanding of the environment where the municipality is currently in and to create a vision that is shared by and agreed on managers, technical experts and administrative staff. The involvement of staff of various departments to ensure that their view was included and commitment was created, was found to be of crucial importance for the initiating of this project. The vision in this context therefore was to develop a usable enterprise reference model for managing the development of information technology projects.

The architecture efforts resulted in a shared vision on the architectures that need to be developed. A architecture started with high-level standardization as interfaces, business rules, and protocols used need to be standardized for re-use. The vision on the architecture was based on a service-oriented architecture and the processes are managed using Web service orchestration technology, in other words, BPEL. Web service orchestration contains the business logic for managing the sequence of service invocations and requests. Service-oriented architectures enable the on-demand composition of new business processes using already existing Web services. Web services can be provided both internally or externally provided. Internal services might be used to request information, such as citizens' information, criminal records, and so on, or access functionality from these systems, like generating documents, storing documents, or processing payments. The orchestrator also guides the business process or workflow of users, in other words, which screen will appear in the Web browser of a user and which functional components and information sources need to be accessed. This provides benefits, such as the re-use of systems and components, the easy construction of new business processes out of existing building blocks, and even the re-use of complete processes by other public organizations.

Apart from the problems discussed in the preceding section the main challenges can be summarized as:

* Overlap systems: All kind of information systems having overlapping functionality exist;

* Avoid creation of a spaghetti of integration: Making products online available and the one-to-one integration of applications might lead to a spaghetti;

* Multi-channel coordination. There is a lack of coordination of customer channels such as Internet, call center and physical office;

* Integral customer views. Customer data and interactions are not stored at some central place. Instead they are in the head of the people. When on employee does not grant a permit, the customer might try to get the permit from another employee;

* Creation of shared vision: it is important the persons have the same understanding of the problems and a shared vision on the future. Therefore a shared vision was developed and a reference architecture was used to guide this shared vision.

As can be seen from this list of problems, few of them have a purely technological nature and most of them can only be solved by a complex interaction on various architecture levels. In the opinion of the people who were involved in the action research, a reference architecture was appropriate to address these problems.

CASE STUDY 3: COPENHAGEN UNIVERSITY HOSPITAL

Copenhagen University Hospital (CUH) is Denmark's largest and leading hospital for patients needing highly specialized treatment and care. The IT department currently employs 110 IT professionals, supporting more than 300 applications besides the central Electronic Patient Record (EPR) system. The IS spans laboratory analysis applications, X-ray systems, and content management systems. These systems have been developed in almost every programming language in use over the last 20 years and the same level of heterogeneity applies for Application Programming Interfaces (API's) and databases (Hjort-Madsen, 2006).

Since 1995, CUH has been part of the Copenhagen Hospital Corporation (CHC) where six hospitals in the Copenhagen area are working together in a loosely coupled structure. As the largest hospital in CHC, the hospital not only plays a prominent role when it comes to patient treatment but also as the primary hub for many shared IT-services within CHC. This development is likely to continue because the CHC is expected to grow within 2-3 years as part of a large structural reform in Denmark.

Since 2002, CHC had been working on an Enterprise Architecture and early in 2004 they delivered a descriptive EA blueprint for EPR-systems-called "The reference architecture for EPR"-based on the national EPR process model (G-EPR) for clinical data. This architecture describes the semantic and technical requirements for the six hospitals in the Copenhagen region. The CHC architecture does not focus on other relating applications besides the core modules of the EPR-system and CUH therefore decided that they needed their own EA.

The process of implementing an EA program at CUH started in the summer of 2004. The CUH CIO and his chief architect initiated the work, while other parts of the IT-organization and an external IT architect acted as reviewers. The first version of the reference architecture was completed in the first quarter of 2005.

PROCESS IMPROVEMENT APPROACH: THE CASE FOR AN ENTERPRISE ARCHITECTURE PROGRAM

Identifying the benefits and effects of having an EA program at CUH was difficult to envision at the outset of the program. While the IT-management wanted a set of descriptive EA blueprints describing CUH's technical and organizational requirements for every employee to use in their daily work, the system owners interviewed at the initiation of the EA program did not believe that the program would have any impact on their work. As one system owner interviewee said, "To me the enterprise architecture will probably not mean much for my choice of application, or how the application will fit into the overall architecture".

At first, the most obvious reason for implementing the EA program at CUH seemed to be the technical interoperability challenges inferred by the new EPR systems. But when analyzing the empirical data it becomes clear that economic, political, and institutional arguments for implementing the program were just as important.

The most obvious argument for implementing the EA program was an increased demand for interoperability and integration. Over time, several layers of historically separate IT-artifacts have accumulated internally. With the EA program CUH hopes to tie the existing applications, data, and infrastructure technologies together to increase the technical interoperability internally. Externally, the need for interoperability has grown due to increased environmental complexity and instability surrounding CUH. The structural reforms in Denmark will influence the Copenhagen hospital region, resulting in reorganizations and an increasing need for data to be exchanged in a network of private and public hospitals, medical practitioners, and specialists all over Denmark. This increases the demands for external interoperability and requires a high level of agility in the way that IS in the health sector are organized. Thus, the EA program is aimed at improving both the internal integration and the horizontal interoperability that enables an agile external collaboration.

The analysis showed that trends from the NPM tradition like strategic planning, incentive pay, performance appraisal and contracting out were high on the CUH CIOs agenda. The EA program was seen as a tool that could consolidate the IS infrastructure. The long-term goal of this consolidation is to limit both the heterogeneity of technological platforms and the diversity in products to reduce IT-costs. As the CIO said in one of the interviews:

this project is not only about technology and further integration. We want to save money by making our IT simpler with fewer vendors, less diverse applications and reduced maintenance costs in general; we must think about the future and this [EA] is a good tool for doing that.

With regards to the coming expansion of the Copenhagen health region, and the on-going process of pulling the hospitals in the existing region closer together, it was important that specific systems were assimilated along with their knowledge into the new hospital region and/or allowed to co-exist alongside until they can be replaced without destroying valuable knowledge. The current heterogeneity amongst the systems makes it impossible to migrate or rebuild systems at once, therefore leaving CUH no choice but to create interoperable services that are available to the healthcare region hospitals. The EA defines such common services needed and guides the acquiring, outsourcing, integrating, operating, and retiring of the IT-infrastructure.

Also, interviews with the IT-management revealed that the national EA work and CHC's EA blueprint for EPR-systems played a role for implementing an independent EA program at CUH. As the largest hospital in Denmark, CUH has always been very independent. And with the structural reforms underway in the Danish health sector, CUH again needs to position itself in a new organizational setting. The overall analysis clearly illustrates that there is little coordination between the different levels and functions of the Danish health sector. The implementation and management of IS has been decentralized as part of the NPM reforms, and while CUH is a part of CHC and the national health sector at large, in reality the individual hospitals work as independent actors that can manage IS the way they want - across the different levels and types of interoperability.

Defining how interoperability was to be governed across the organizational levels in CUH's EA programs was a difficult and time-consuming task. Both the CIO and the chief architect at CUH were aware of the EA work conducted by CHC and the national health sector with regard to EPR. In executing the EA work, the chief architect therefore found it challenging to define where the two EA program domains supplemented each other and where CUH needed its own architecture. CUH is part of CHC and the national health sector, but it makes many independent IS-decisions.

In the practical implementation of the EA program at CUH, many of the principles from the Copenhagen Hospital Corporation reference architecture could be reused. But to secure the local long-term consolidation of the 300 in-house applications, the CUH EA needed to be broad enough to engulf the functional heterogeneity of the systems. Because of this need and the institutional structure, CUH decided to focus its EA program primarily on technical aspects in its EA, namely applications and data.

Figure 5 illustrates how government has decentralized technical interoperability issues in the health sector and how the institutional setting determines the focus of EA programs in government. Based on the framework provided by Hjort-Madsen & Gøtze (2004), the figure makes a theoretical distinction between organizational interoperability (alignment of business processes that span intra- and inter-organizational boundaries), semantic interoperability (ensuring the precise meaning of exchanged information), and technical interoperability (technical issues of connecting information systems). The data analysis showed that the interviewees at CUH and CHC also perceived interoperability more broadly than as common standards for data sharing.

As outlined in Figure 5 at the government level, the processes that enable specific health care "life-events" (Leben & Bohanec, 2003) (e.g., cancer treatment) to span organizational boundaries are key, while technical aspects of actually implementing these "events" are left to the hospital corporations and/or the individual hospitals. The high-level semantic interoperability requirements are outlined in the national EPR process model (G-EPR) for clinical data, but the practical implementation of the semantic guidelines is left to the hospital corporations and individual hospitals.

For CUH, creating interoperability internally and externally was important. But the economic and political arguments for implementing the program proved to be just as important in a situation with large structural changes around the corner creates an uncertain environment where it is difficult for the hospital to justify investments that are not directly related to the day to day business. Because there is no overall coordination of the different e-government initiatives in the health sector there are no direct economic and/or immediate political incentives for CUH to share data and business functionality with other health care organizations. Hence, the EA program at CUH can be viewed as an attempt to keeping up with the national recommendations and the EA work at CHC and other hospitals as much as "rational" motives such as increasing interoperability, consolidation, and value preservation.

One could ask why there is no overall coordination of this kind of e-government initiatives in the Danish health sector. One answer could be that EA is not the right tool for creating interoperability in government at large. The EA frameworks and models that we use in the public sector (e.g. Zachman, 1987) were built for private companies and have a limited organizational focus, while e-government is about seeing the "big picture". The interviews revealed that some of the system owners at CUH did not believe that EA would have any impact on their daily business, and we must therefore question the value of EA programs at this point because of this ambiguous governance setup in the Danish health sector.

CURRENT CHALLENGES: A CROSS-EUROPEAN E-GOVERNMENT PERSPECTIVE

From the background literature and the case studies presented in previous sections it is clear that the effective delivery of on-line public services will require the harmonization and integration of business processes and supporting IS/IT systems between various stakeholders such as government agencies, business partners, employees, and citizens. In this context, this research has identified significant process inefficiencies and IS integration issues in three different government agencies in three European countries. In the first case of council Y in London, it was clear that lack of coordination and integration between processes and IS systems in disparate organizations that needed to work in synergy was effecting the cycle time of the student loan application process. Although in the past rectifying these problems would have meant radical reengineering of business processes and underlying systems as well as implementation of expensive EAI solutions, in the present context we argued that Web services offers a realistic solution to this problem. The SOA-Web Services concept offers a platform for business processes and systems to communicate in well understood, universally accepted protocols such as XML and HTTP thus rendering them completely independent to different technologies and software that may be used by various government agencies. In Figure 3 we proposed a model based on Web services and SOA which offers an integrated view of government processes and underlying systems in the context of e-government.

In the second case, a reference enterprise architecture was developed for the Municipality of Delft using action research. This architecture is developed in collaboration with all stakeholders and represents a shared vision on the future. The aims in this case were to create a shared understanding of the situation where the municipality is right now and to create a vision that is shared and agreed on by managers, technical experts and administrative staff. The development of a reference architecture can be viewed as a kind of negotiation process between departments. At the beginning of the development process all departments had various ideas at different levels of details. During this process they shared their ideas, and the ideas became understood and diverged into shared ideas. The capturing of interdependencies among and within architecture layers, the visualization, and the development process of creating a shared model are probably the crucial elements contributing to an accepted and understandable architecture.

The reference architecture developed for the Municipality of Delft took into account overlap of functionality of applications within departments and is based on SOA and Web service orchestration. A similar architecture study can be performed across municipalities (councils in the case of UK), or even across more heterogeneous public agencies. Not only application functionality, but also complete services might be shared and bundled in some kind of centralized agency. Therefore, further research can focus on drafting an overall public administration architecture.

In the third case (Copenhagen Hospital) an Enterprise Architecture was implemented. The primary strength of the EA approach is that it has greatly defined its concepts and instruments to predict and control complex technical systems. But, EA programs might demand so much rigor and organizational coherence that it impairs organizational agility. The question is whether EA is the right medicine for public organizations. Rigorous EA frameworks, vague definitions and organizational adoption are some of the largest challenges. Tomorrow's EA programs in government must therefore encompass public sector dynamics (and limitations) as well as being agile in the application of interoperable e-government services. The reality in most e-government settings is that there is a complex goal structure and strict legal norms, while interoperable services must still be delivered in a secure and transparent way. Narrowly defined, EA is about implementing IS architectures and interfaces, and this might not be sufficient to capture the complex dynamics in e-government systems development and management. Governments cannot be seen as one enterprise and the three case studies presented here therefore calls for a broader definition of interoperability in networks of cooperation where information and business processes are governed more rigorously across different levels (vertical) and functions (horizontal) of government. These arguments are further highlighted in Table 1 where we summarize the key drivers for change, characteristics of the current process and IS environment, and type of approach that was suggested for improved integration in the three cases examined in this article.

The three case studies also revealed different interoperability concerns at different levels of government and we therefore need to expand the traditional understanding of interoperability in public sector EA programs to embrace wider organizational, semantic, and technical issues. Many of the interoperability challenges arise because the management of IS has been decentralized in the public sector. The question is whether our traditional EA frameworks or EAI solutions can overcome this challenge when we strive to develop interoperability in networks of cooperation where information and business processes are governed across autonomous organizational levels and functions in government.

In conclusion, this research has attempted to offer a better understanding of some of the technological and organizational challenges that influence the realization of a fully integrated e-government service using literature and empirical research. It has also examined the capacity of two approaches, Web services technology and enterprise architecture, for understanding and improving process and systems integration in e-government. Although the empirical research relates to only three different pubic agencies in the UK, the Netherlands and Denmark, the diverse nature, size, location, and importance of the three agencies in the public agenda for e-government in the respective countries make our findings valid and relevant to the wider European context. The challenges can be used as starting points for further research.

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AuthorAffiliation

Vishanth Weerakkody, Brunel University, UK

Marijn Janssen, Delft University of Technology, The Netherlands

Kristian Hjort-Madsen, Ministry of Science, Technology, and Innovation and The University of Copenhagen, Denmark

AuthorAffiliation

Vishanth Weerakkody is a lecturer in Information Systems at the School of Information Systems, Computing and Mathematics at Brunel University in the UK. He holds an MSc in 'Business Systems Analysis and Design' from City University in London and a PhD in 'Business Process and Information Systems Reengineering' from the University of Hertfordshire. Dr. Weerakkody currently teaches Information Systems Strategy and Management at Brunel University and has been involved in project managing a number of research assignments on e-business, application outsourcing and web services. His current research interests include e-government, cross-organisational process redesign (X-engineering) and web services, and he has guest-edited special issues of leading journals on these themes. Dr Weerakkody has also held various IT positions in multinational organizations and his final appointment in industry was as a 'methods and process analyst' at IBM UK.

Marijn Janssen is an assistant professor in the field of information systems and e-government at the Information and Communication Technology group of the Faculty of Technology, Policy and Management at Delft University of Technology. He specializes in the ICT-enabled service engineering of intermediaries coordinating networks of organizations. He has been a consultant for the Ministry of Justice and received a PhD in information systems (2001). His research is published in a large number of conference proceedings, book chapters, and international journals.

Kristian Hjort-Madsen is a strategic enterprise architect with Denmark's Ministry of Science, Technology and Innovation. He is currently writing an industrial PhD at the IT-University of Copenhagen in combination with his work in a public-private partnership between the Ministry, IBM Denmark and KMD. His works and research focus on the implementation and management of enterprise architectures and service-oriented architectures in public agencies and he is widely used as a guest lecturer and strategic advisor on organizational and technically related matters in government.

Subject: Government agencies; Intergovernmental relations; Systems integration; Electronic government; Computer architecture; Case studies

Location: Europe

Classification: 9130: Experiment/theoretical treatment; 5250: Telecommunications systems & Internet communications; 9550: Public sector; 9175: Western Europe

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 2

Pages: 13-35

Number of pages: 23

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Diagrams Tables References

ProQuest document ID: 221240811

Document URL: http://search.proquest.com/docview/221240811?accountid=38610

Copyright: Copyright IGI Global Apr-Jun 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 30 of 100

Managing E-Government Application Evolution: A State Government Case

Author: Kung, Hsiang-Jui; Hui-Lien, Tung; Case, Thomas

ProQuest document link

Abstract:

The State Technology Agency (STA) is accountable for delivering e-government services for a state in the United States. One of its major responsibilities is to develop and maintain the state portal. As the result of challenges that it has encountered, the STA has developed a holistic view of state portal applications evolution and management. The case examines the three perspectives of Web application evolution - applications, processes, and services - and illustrates how application evolution dynamics are impacted by their interplay. The STA case also reinforces the importance of defining and applying processes to manage application evolution; it is the execution of application evolution processes that determines whether the services delivered fulfill customers' expectations, and it is only through monitoring the outcomes of application evolution processes and quality of delivered services that opportunities for improved/enhanced applications are identified. The case also illustrates the importance of integrating tools with evolution processes to deliver/monitor better services and portal applications. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: e-government; evolutionary design; IS evolution; system development process; systems maintenance; user support; Web-based applications; Web site development

ORGANIZATIONAL BACKGROUND

The context for this case is a state government in the United States. On May 24, 2001, the Governor of the state signed an Executive Order, effective July 1, 2001, officially transferring information technology (IT) and telecommunications services from the state's Department of Administrative Services (DOAS) to the State Technology Agency (STA). The STA was created to bring state agencies together to achieve the vision of a digital government and its creation formally represented a major shift in how the executive branch of the state government viewed IT. Approving the transfer of IT and telecommunications services from the DOAS effectively placed the STA on equal footing with other major state agencies and formally signaled the governor's recognition of the importance of IT to the evolution of state government. This is reflected in a statement featured on the agency's Web site that the STA works to bring the state "the benefits of technology: greater efficiency, security safeguards, expanded access to information and services, and economic development throughout the state."

The organization structure created for the STA took into account both the reality of the state's IT infrastructure and human resources in 2001 and what the governor and the STA architect wanted the new agency to become. The creation of the STA required the transfer of IT personnel from the DOAS and other state agencies in order to staff this new state agency. The transfer of personnel was accompanied by the migration of responsibilities for infrastructure and application development and maintenance to the STA. Needless to say, this movement of people and responsibilities represented a major re-organization of the state government that required buy-in from multiple stakeholders. There was no pretense that the STA's organizational structure was optimal for the role it was intended to play in the state. Compromises had to be made with agency heads to ensure that their agencies maintained sufficient IT staffing and funding to keep their systems working until the STA was established and could take over.

The STA organization includes four divisions and eight offices (see Figure 1). The organization structure was deemed to be sufficient to help it embark on a number of major initiatives. These included:

* State portal refining. While a semblance of a portal existed in 2001, it was just a little more than a state homepage with links to Web sites created by major agencies. The quality of content, sophistication, and navigation varied from one agency Web site to another without a consistent look and feel. Overhauling the state portal and enhancing its functionality was viewed as one of the most important steps to take in order to demonstrate the state's interest in driving private section e-commerce by leading by example.

* Interagency data sharing. This became a hot-button issue largely because of negative publicity focused on the state's Department of Family and Children's Services (DFACS). In early 2001, journalists blasted this state agency after uncovering that its agents had placed children in the care of foster parents who were appeared on the state's list of sex offenders or who had been convicted of child abuse and/or felony drug offenses. DFACS's response to media was that state computer systems made it virtually impossible to do thorough background checks on foster parents. The negative publicity surrounding a handful of bad foster care placement decisions by DFACS elevated service-centered interagency data to being one of the state's high-priority IT initiatives.

* E-commerce capabilities. Cost savings from e-commerce-oriented e-government applications was another strong argument that convinced the executive and legislative branches of the state government to get behind the creation of the STA. In 2001, the state was already beginning to reap the benefits of accepting state tax filing electronically. However, it was another round of negative publicity that piqued the state's interest in e-commerce. One of the most widely read state political columnists recounted a multi-day saga of his personal attempt to renew his driver's license. He bemoaned having to drive more than an hour to get to a hopelessly overcrowded state patrol office which was unable to serve him (and many others) despite waiting in line for more than eight hours. His personal vent unleashed a flood of similar stories from frustrated citizens who criticized the state as having too few license renewal offices, too little staffing in the offices that it did have, and a first-come, first-serve queuing system that failed to differentiate between license renewals and teenagers who had shown up to apply for a learner's permit or a driver's test. The media eventually began to ask why the state could not be like California and have online driver license renewal as well as other licenses (such as business licenses). Because of the negative publicity, making online renewals became one of the STA's high-priority projects as soon as the agency was created.

* Human resources. The STA's architect and first CIO also outlined the need for the state to be able to compete with the private sector for IT talent. He was convinced that the state must be able to attract, develop, and retain high-quality IT professionals in order for the state to become a leader in e-government applications. In his view, the state must be willing to revamp salary and compensation packages and offer opportunities for the state's IT workers to acquire state-of-the-art skills via access to cutting-edge technologies.

It didn't take long before the STA started to receive its first accolades. In 2002, the state portal received the Sustained Leadership Award (Digital State Survey Sustained Leadership Award, 1997-2002). The remarkable changes that the portal underwent in 2001 and 2002 positioned the state to receive this award.

The STA case provides an interesting opportunity to consider factors that motivate a state to embrace e-government applications. It also provides an opportunity to examine how one state re-organized its IT resources and personnel to position it to pursue, develop, and maintain e-government applications. In addition, the case provides an opportunity to critically evaluate the procedures used by the technology agency to manage the evolution of its e-government applications because in many states, including this one, e-government applications that began as relatively simple, static HTML documents have progressed through a series of stages to become much more complex.

At the STA, e-government evolution and management has emerged to encompass three major perspectives: application, service, and process. This case is primarily focused on the following issues: (1) E-government application evolution and management processes at the STA; (2) The classification of Web application at the STA; (3) How different types of STA Web applications require different resources for their evolution and management; (4) How the STA manages the delivery of its services. The STA's approaches for managing, maintaining and evolving its e-government applications provide insights that both e-government practitioners and researchers may find to be valuable. This case is largely based on data collected between April 2002 and August 2005 from multiple sources including brochures, newsletters, policies, standards, and interviews with active employees from various offices and divisions at the STA.

The major research questions addressed in this case include:

1. What factors contribute to the composition of e-government application portfolios?

2. How should agencies responsible for e-government application evolution and management be structured and what processes/procedures should they have in place?

3. What human resource issues must be addressed by agencies charged with e-government application evolution and management to ensure that they are positioned to carry out their responsibilities?

SETTING THE STAGE

E-government may be described as the general use of information and communication technology and the specific use of e-commerce to carry out government operations. It includes providing citizens and organizations with more convenient access to government information and services, and delivering state agency services to citizens, business partners and suppliers, or other government agencies (UN & ASPA, 2002).

E-Government Evolution

As observed by Schelin (2003), e-government evolves in stages: from developing a Web page to integrating government systems behind the Web interface. Each stage of the e-government evolution is characterized by different levels of technological sophistication, citizen orientation, and administrative change (Moon 2002; Holden, Norris, & Fletcher 2003). Multiple e-government evolution stage-models have been developed (e.g., Hiller & Bélanger 2001; Layne & Lee 2001; UN & ASPA 2002). When viewed at an aggregate level, it is evident that each stage-model recognizes that technological sophistication has been continuously added to e-government applications. Seven different stages for e-government evolution emerge from the aggregation of the different stage-models: Initial Presence, Extended Presence, Interactive Presence, Transaction Presence, Vertical Integration, Horizontal Integration, and Total Integration. The growth stages of this (traditional) approach are determined by the service provision/functionality (sophistication) of the e-government applications.

* Initial Presence. This refers to providing access to static information about government agency services, applications, or data through the same user interface (e.g., Web site or portal).

* Extended Presence. This refers to establishing common data standards and architecture that enable the exchange of data between applications without changing semantics. Some government agencies might start using e-mail or search engines to interact with citizens, businesses, and/or other government agencies.

* Interactive Presence. At this stage, the government/agency portal provides both static and dynamic/interactive content and includes technologies that enable increasing interaction between citizens and different government agencies. Citizens and businesses can access information according to their different interests.

* Transactional Presence. At this stage, the government/agency portal becomes customized for citizens and businesses. The portal communicates either synchronously or asynchronously with various enterprise application (back-end) environments. It also provides secure electronic payments services to facilitate transactions such as tax, fine, license, and services payments.

* Vertical Integration. This refers to the integration of "silos" between different levels of government and/or within government agencies. This stage changes and reconstructs the processes and/or governmental structures among the various agency/government levels.

* Horizontal Integration. Layne and Lee (2001) report that the integration between different government agencies must exist to provide efficient services for citizens and other stakeholders. In this stage, governments develop an integral vision of the government as a whole to fully utilize the potential of information technologies. At the state level, a single state-wide government portal through which citizens and other stakeholders can access information, data, and online transactional services may begin to emerge at this time.

* Total Integration. This refers to the fully integration (vertically and horizontally) of government services. Citizens and business have access to a variety of services through a single portal. Governments must often undertake institutional and administrative reforms to reach this stage.

Janssen and Veenstra (2005) propose an architectural approach to model e-Government growth stages. The architectural stage model consists of five stages: no integration, one-to-one messaging, warehouse, broker, and orchestrated broker architectures. The architectural stages are classified by the number and the types of connections between back and front office applications.

* No Integration. In this stage, there's no connection between back and front office applications.

* One-to-one Messaging. In this stage, one-to-one messaging architecture is created to connect back and front office applications. Usually it starts on a small scale.

* Warehouse Architecture. When the number of connections between the applications has increased, organizations use a data warehouse to provide a single point-of-access for all data sharing.

* Broker Architecture. When real-time data exchange between systems is demanded, organizations develop a message broker to translate messages and route them to their destinations.

* Orchestrated Broker Architecture. In this stage, organizations use standardized interfaces, business rules, and protocols to integrate all the systems between the back and front office applications. This architecture provides many benefits: the re-use of components as services, the easy construction of new processes, and the integration of inter-organizational systems.

The traditional and architectural growth stage approaches complement with each other. The traditional growth stage model focuses on the outcomes of e-government applications. The architectural growth stage model ponders the connectivity between and within e-government applications. In the final stage of both approaches, applications, processes, and services are fully integrated to deliver better services at lower costs.

e-Government Application Development and the SDLC

The system development life cycle (SDLC) is a well-known software development methodology featuring five phases: planning, analysis, design, implementation, and maintenance (Hoffer, George, & Valacich, 2005; Satzinger, Jackson, & Burd, 2006). Although both software development and software maintenance can produce significant advances in software functionality, researchers often treat maintenance as a distinct process. Some researchers now use the term software evolution in place of software maintenance because software does not deteriorate but evolves via maintenance activities to sustain stakeholder satisfaction in general and user satisfaction in particular (Bennett & Rajlich, 2000; Lehman, 2005; Smith & Ramil, 2002). Application software does not change itself and triggers of software evolution include business evolution processes, organizational inertia, and competitive dynamics. These factors also affect the evolution of business Web sites and contribute both directly and indirectly to the evolution of e-government applications.

Taylor, McWilliam, Sheehan, and Mulhaney (2002) examine maintenance issues in Website development process in seven UK organizations from different industries over two years. Their findings point out that major Web application maintenance challenges include: the difference between static and dynamic Web applications, diversified user groups and maintenance requests, lack of Website documentation, no Web site development/maintenance standards, and need for Website maintenance strategy/policy. These issues are also likely to be important challenges in e-government application maintenance/evolution. Lavery, Boldyreff, Ling, and Allison (2004) report that large organizations tend to renovate their legacy systems with Web interfaces instead of developing new applications to replace them. Numerous government agencies at both federal and state levels are likewise tempted to refurbish legacy applications with Web interfaces.

No matter what distinctions are made between development and maintenance processes, the portfolio of projects being developed, managed, and maintained by state governments is not immune to external influences. As noted previously, intra-agency data sharing and online driver license renewals became priority projects at the inception of the STA because of negative publicity. External influences also come into play as e-government applications move toward the integration of services. Total integration may encompass government services at both state and federal levels. For example, while changes in Social Security and Social Security Disability Insurance benefit levels are specified at the federal level by the Social Security Administration, the mechanisms that must be changed to ensure proper electronic distribution of these benefits reside in state and municipal level systems.

Another example of federal/state/local e-governance integration can be seen when U.S. congressional districts are redrawn after each census. In 2002, STA systems that allowed citizens to determine their congressional district by entering their zip code and street address had to be modified to accommodate a new congressional district (resulting from population growth measured by the U.S. Census Bureau). The new district triggered changes to the congressional district boundaries throughout most of the state and affected more than a million citizens.

CASE DESCRIPTION

The description of the STA's e-government application evolution and management processes has three major parts. The first part describes how Web applications are classified by the STA for application portfolio management purposes; it also identifies the STA units that are responsible for maintaining the various types of Web applications. The second part describes each of the major Web application evolution processes at the STA and delineates each process's sequence of activities. The third part of the case description highlights the configuration of STA Web application evolution services delivery mechanisms and provides insights how the delivery of these services operates on a day-to-day basis.

Web Applications Classification

The STA utilizes four categories to classify the Web applications that it oversees: static applications, Web-enabled form applications, custom Web applications, and Enterprise Application Integration (EAI) Web applications. Key STA units involved in the Web application evolution include Traffic (which receives, classifies and records user maintenance requests and monitors the status of their resolution), Creative Services (which delivers graphical design work to accommodate the look and feel of Web applications), and e-Development (which is responsible for state Web portal maintenance). The STA uses "Full Time Equivalent" (FTE) to determine the number of full time positions needed to carry out the activities associated with maintaining the state Web portal. The FTE values assigned to different types of Web applications are based on the historical data collected from the past STA projects.

Static Web Applications

Static Web applications, sometimes called "brochureware", provide a snapshot of information about an organization or activity. Such sites consist primarily of content files that require no runtime compilation, interpretation, or execution. Content in these sites is generally limited to html, image, pdf, and office (such as word processing documents, spreadsheets, and presentation software) files.

The Office of Account Management's Traffic unit provides initial triage for static Website change requests and technical designers perform most of the maintenance on static Websites. Graphic artists may be required to update images. STA estimates that 1.5 FTEs are needed for each of the static applications.

Web-Enabled Form Application

Web-enabled forms provide limited interactivity by automating simple business processes that were traditionally paper-based. A Web-based survey that generates either e-mail or a flat-file data extract for a Web site visitor is an example of a Web-enabled form application. Common modules in such applications provide limited dynamic Web content by reusing existing application modules. Press release applications are examples of common modules in Web-enabled form applications. Development and maintenance of both static content and a modest amount of interactive/dynamic content that requires runtime compilation, interpretation, or execution is required for these applications.

The Traffic unit provides initial triage for Web-enabled forms. Technical designers may be required for modifications and graphic artists may be required to update images. Developers are responsible for performing most of the work for requested maintenance modifications on Web-enabled form applications. STA estimates that 2.25 FTEs are needed for each of the Web-enabled form applications.

Custom Web Applications

Custom Web applications generally provide both static and dynamic/interactive content. Such applications may augment a static Web site or may constitute a Web site on its own. While custom Web applications may include simple Web-enabled forms or common software modules, most provide additional business level processing such as automated workflows (including scheduling and calendaring), custom search applications, and on-line reporting.

The Traffic unit provides initial triage and requirements discovery for maintenance requests for custom Web applications. Changes in the underlying business process may require formal project management by a project manager or team supervisor as well as detailed requirements gathering by a requirements engineer, or developer. Graphic artists may be required to update images and technical designers may resolve user interface (UI) design issues. Developers are responsible for making coding changes to accommodate new business requirements and a requirements and testing engineer may be required for unit, integration, or user acceptance testing. STA estimates that 4.75 FTEs are needed for each of the custom Web applications.

EAI Web Applications

EAI Web applications exhibit the same characteristics as custom Web applications but add an additional level of complexity because they communicate either synchronously or asynchronously with various enterprise application environments that are autonomous of the state portal. Examples of existing enterprise application environments include applications that reside on mainframe-based systems and applications that leverage COTS (commercial off-the-shelf software) or agency data stores.

The Traffic unit provides initial triage and requirements discovery for EAI Web applications maintenance request. Changes in the underlying business process may require formal project management by a project manager or team supervisor as well as detailed requirements gathering by a requirements engineer, or developer. Graphic artists may be required to update images. Technical designers may resolve UI design issues. Developers, including EAI developers, must make program changes to accommodate new business requirements associated with maintenance requests and testing engineers may be used to perform unit, integration, and user acceptance testing. STA estimates that 6 FTEs are needed for each of the EAI Web applications.

The four Web application types provide insight into the time and effort that STA personnel devote to typical requests in each maintenance category. The STA has provided its classified application portfolio on the state portal since 2001. A recently reported STA Web application portfolio included 26 static Web applications, 10 Web-enabled form applications, 57 custom Web applications, and 55 EAI Web applications. The STA indicates that application portfolio management is an ongoing priority at the agency and that the mix of Web applications on the state portal is likely to change/evolve over time.

Processes

Four major processes are directly related to Web application evolution and management at the STA. These processes are: request initiation, maintenance/support and work order execution, project and consulting service planning, and project and consulting service execution.

Request Initiation Process

The process is triggered by customers when they contact the STA's portal contact center (PCC) and the Traffic unit is a key player in the majority of the steps in this process. Service Center (SC) is the application used by the Traffic unit to manage work related service requests, and problems or changes that impact the products and services this unit manages. The Request Initiation process (Figure 2) has six steps:

1. Receive service request. This is the entry point for all service requests and the Traffic unit is the owner of this step.

2. Analyze and log request. The Traffic unit logs every service request and classifies the type of service requested as a maintenance/support request, work order request, project type request, or consulting service request.

a. Maintenance/support request. A request requires content changes, graphic changes, and/or production fixes.

b. Work order request. A request asks for minor programming changes (new functional-ity) to the existing applications that can be completed within 80 man-hours.

c. Project request. A request estimated effort for adding new functionality to existing applications exceeds 80 man-hours.

d. Consulting service request. A request cannot be fulfilled by making changes to existing applications. This refers to a new development project.

3. Review for outsourcing. In this step, on-hold requests are reviewed by the Request Review Board (RRB) which issues outsourcing recommendations. Final outsourcing decisions are made by the requestor (not STA).

4. Report recommendation. An Account Manager is designated to handle the service request and the requestor learns who will be responsible for handling the request.

5. Acknowledge request receipt. The requestor receives a service tracking number that the service request has been received and is being acted on.

6. Determine correct process. The Traffic unit determines the next process based on request classification.

a. Maintenance/support and work order requests are passed to the maintenance/support and work order execution process.

b. Project and consulting service requests are passed to the project and consulting service planning process.

Maintenance/Support and Work Order Execution Process

The e-development unit of STA's SNet is responsible for completing all in-house production fixes, work orders, and approved development projects. As noted above, maintenance/support and work order requests classified in Request Initiation Process trigger this process. The maintenance/support and work order execution process (Figure 3) has nine steps:

1. Ensure the deliverables agreement. The Traffic unit negotiates an agreement of the deliverables for the service request with the requestor.

2. Assign e-Development resources. The Traffic unit assigns the request to e-Development staff capable of resolving the request.

3. Perform the requested service. The e-Development staff assigned to the request investigates the request and contacts the requestor for additional information if the request is not clear.

4. Complete the request. The e-Development staff completes the request.

a. If the request is for a content or graphic change, moves to Step 8.

b. Otherwise moves to Step 5.

5. Perform a quality review. The Quality Management (QM) unit of Program Management Office reviews the quality of negotiated request solution.

a. If the quality of the solution is acceptable, moves to Step 6.

b. Otherwise reverts back to Step 4.

6. Request user testing. Traffic unit e-mails the requestor for a user acceptance test (UAT).

7. Process user testing results. The Traffic unit examines the requestor's acceptance test.

a. If the requestor is satisfied with the solution after testing it, moves to Step 8.

b. Otherwise reverts back to Step 4.

8. Move change into production. The e-Development staff moves the change into production.

9. Close request. The Traffic unit records the request solution and the closing date into SC and logs the request as closed.

Project and Consulting Service Planning Process

The project and consulting service planning process (Figure 4) has nine steps:

1. Negotiate start date. The first activity is to determine whether a project manager (PM) is available to handle the request. Requestors are given the option of delaying the start of the project until a PM can be assigned or outsourcing the request.

2. Assign PM. The Traffic unit assigns an available PM to handle the project or consulting service request.

3. Gather request-relevant information. PM and STA's QM unit work with the requestor to gather project requirements; once aggregated, the project requirements are submitted to the RRB for approval.

4. Determine SNet's role and priority. The RRB reviews the project requirements to determine SNet's role and priority for the request.

a. If the RRB decides that SNet resources are capable of addressing the project requirements, progresses to Step 5.

b. Otherwise the RRB may recommend outsourcing the work.

5. Complete statement of work (SOW). The PM completes an SOW for the project that specifies cost, deliverables, and schedule.

6. Perform quality review of SOW. The QM unit reviews the quality of the SOW.

7. Review commitment. The RRB reviews the resource requirements identified in the SOW.

a. If the resources specified in the SOW are acceptable, moves to Step 8.

b. Otherwise the RRB recommends outsourcing of the project.

8. Present SOW. The PM presents the SOW to the requestor and requests approval to execute the project.

a. If the requestor accepts the SOW and agrees to pay project costs, the request is passed to the project and consulting service execution process.

b. Otherwise moves to Step 9.

9. Cancel request. Cancel the request if SOW is not accepted by the requestor.

Project and Consulting Service Execution Process

The completion of project and consulting service planning process triggers this process. The project and consulting service execution process (Figure 5) has seven steps:

1. Assign resources. The PM assigned to the project during the project and consulting service planning process assigns the resources needed to complete the enhancement project or consulting service request.

a. If the request is for an enhancement, progresses to Step 4.

b. Otherwise moves to Step 2.

2. Complete the project management plan. The PM completes a draft project management plan for the consulting service.

a. If the estimate for the new application is less than $50,000, moves to Step 4.

b. Otherwise moves to Step 3.

3. Work with project management office (PMO). The PM and PMO finalize the project management plan before progressing to Step 4.

4. Execute the project management plan. The project management plan for the project or consulting service request is executed.

5. Perform quality review. The QM unit performs a quality review of the project.

a. If the project does not pass the quality review, reverts back to Step 4 to address project execution errors or omissions.

b. Otherwise move to Step 6.

6. Perform user acceptance testing. The requestor tests the deliverable.

a. If the requestor is satisfied with the deliverable as tested, moves on to Step 7.

b. Otherwise reverts to Step 4.

7. Close the project. The PM completes the STA's required project closure activities. During this step, the PM changes the project status from open to closed and records the closing date in SC.

Services

The STA's Inter-Agency Agreement (IAA) documents the characteristics of PCC services that are available to state agencies. The IAA was created to ensure that agencies understand the services that are provided by the PCC and the procedures that are in place to access those services. The IAA indicates that the state portal is managed by the SNet division of STA and it provides insight into the PCC's scope of service to the state portal's content and applications. IAA guidelines are embedded in the portal support model (Figure 6). The PCC uses SC to monitor service quality. All the service requests are owned and monitored by the Office of Account Management's Traffic unit.

Anyone who requests information or services through the state portal is considered a constituent. Services activities are initiated when a constituent phones or emails the PCC Tier 1 or an Agency Contact Center (ACC) Tier 1 with business or technical problems, comments, complaints, or suggestions. The PCC Tier 1 is the constituent's point of contact with state portal services when the constituent calls or emails the PCC, or when a constituent's call or e-mail is transferred to the PCC from an ACC Tier 1.

The PCC Tier 1 responds to the constituent's call or email contact without transferring the contact if the constituent's problem is in the PCC Tier 1 resolution domain. Examples of constituent requests in the PCC Tier 1 resolution domain include request for information, navigational instructions, "how to" instructions, comments, suggestions, and problems/complaints about SNet supported applications/components and content.

The ACC Tier 1 is the point of contact when the constituent calls or emails the ACC, or when the PCC Tier 1 transfers a constituent service contact call or email to the ACC Tier 1. The ACC receives constituent contacts for Agency specific information, problems, comments, com plaints, or suggestions about Agency supported applications/components or content. The ACC Tier 1 handles all calls or emails within its resolution domain. It forwards constituent technical issues to the ACC Tier 2 for resolution. The ACC Tier 1 transfers calls and emails concerning portal operations or SNet supported applications/components or content to the PCC Tier 1.

The PCC Tier 2 Manager receives email notifications from the PCC Tier 1 when problems within the Tier 2 resolution domain have been identified and assigned to the PCC Tier 2 Assignment Group. The PCC Tier 2 Manager performs triage on the problem and either resolves and closes the problem in SC or reassigns it to the appropriate group for resolution (such as SNet or Telecommunications). When reassigning a problem, the manager enters a comment in the SC's problem action/resolution tab to explain why the problem was reassigned. In some instances, the resolution of the constituent's problem may require collaboration with a PCC Tier 3 Vendor. If the initial assignee/assignment group subsequently determines that the constituent's problem needs to be reassigned, then the current assignee reassigns the problem within the PCC Tier 2 or the ACC Tier 2.

Problems with SNet supported applications/components or content are assigned to a SNet assignment group that has been previously identified to support the specific application/component or content. Problems with Agency supported applications/components or content are assigned to an ACC Tier 2 assignment group identified to support the Agency specific application/component or content. Problems with hardware, operating systems, or the state's network are assigned to the Command Center Duty Manager at the STA Network Command Center (NCC); the NCC operates 24/7.

Reassigning a problem causes the assignee/assignment group to be notified by SC about the problem assignment. The problem's assignee/assignment group must either resolve/close or reassign the problem. If responsibility for problem resolution is not clear or results in finger pointing, the PCC Tier 2 Manager takes ownership of the problem. If the PCC Tier 2 Manager is unable to resolve the problem within PCC Tier 2 and PCC Tier 3 (via Vendors), the PCC Tier 2 Manager will escalated it to the Traffic Manager.

The ACC Tier 2 receives problems from ACC Tier 1 or from the PCC Tier 2 Manager who determines that the problem resides in agency supported applications/components or content. The ACC Tier 2 works to resolve and close the problems assigned to it or reassign them. If the ACC Tier 2 identifies a technical issue relating to portal operations, the ACC Tier 2 logs the problem in SC and assigns it (or reassigns it) to the PCC Tier 2.

The PCC Tier 3 is composed of the hardware, software and network vendors that support the state portal. The STA has formal support agreements with PCC Tier 3 Vendors. Each Vendor has its own reporting and escalation procedures which the PCC Tier 2 (SNet, Data Center and Telecom) monitors for constituents. The PCC Tier 2 makes contact with the PCC Tier 3 vendors by following the vendors' contact procedures. The PCC Tier 3 reports vendor problem resolution status to the SNet, Data Center, or Telecom staff member that requested the PCC Tier 3 contact. The PCC Tier 2 staff member documents the problem resolution and closes the problem in SC or reassigns the problem, if necessary.

If the NCC, Data Center, Telecom, or an ACC identifies a problem condition which could impact portal operations, an email is sent to the PCC Tier 2 Manager explaining the problem condition. The PCC Tier 2 Manager decides if this problem condition needs to be broadcasted to all PCC Tier 2 units via the Portal Listserv. Examples of possible problem conditions likely to be broadcasted via the listserv are: notifications that part of the state network is down, an application is degrading response time for all applications on the mainframe, or that a database used by a portal service is not operational.

CURRENT CHALLENGES FACING THE STA

For the STA, e-government application evolution is a never-ending process that involves both the delivery of services and the enhancement/improvement of Web applications. Although the STA has established processes and is delivering services and enhancing products, it cannot rest on its laurels. The state's e-government portal continues to evolve and Web application evolution management must be seen as opportunities for continuous improvement and enhancing the lives of the state's citizens.

The STA's numerous challenges are:

* Project Management: With growing responsibilities and limited funds, staffing agencies must prioritize IT projects and practice proper project management to ensure that they are completed on time and within budget. According to a 10-year study of major industries conducted by the Standish Group (2001), only 28 percent of application software development projects are successful (are completed within budget, on time, and meet business needs). Ensuring that state dollars invested in the STA continues to yield business results requires increased competency in project management. The STA's project review process links IT expenditure requests with budget and program priorities; it strives to identify "critical" projects and to enhance the success of projects of strategic interest to state government. The ability to clearly and accurately identify project requirements also puts the state on firmer footing to assess vendor performance and to add teeth to service level agreements and outsourcing contracts with vendors. The success of both the STA's project and consulting service planning process and its project and consulting service execution process are dependent on the availability of project managers who are well-grounded in fundamental project management knowledge and practices as well as in STA project management/execution procedures. The effective delivery of PCC services is also partially dependent on project management knowledge and skills. Attracting, developing, and retaining an appropriate number of project managers with requisite project management knowledge will continue to be an ongoing challenge for the STA.

* IT Workforce: Today, approximately four out of every 10 state employees have been working for the state for less than five years. Almost two-thirds leave within 10 years. While employee retention has always been a problem for state agencies, the problem is magnified for IT workers. To be able to attract, develop, and maintain a high-quality IT workforce, the STA feels that it needs to better define career paths and establish effective employee recognition and reward programs. In addition, the STA hopes that focusing on leading-edge technology and adopting industry best practices will help it attract high-quality employees and help retain its current staff. To be positioned to continue to add value to the state, the STA must continue to be very serious about human capital management or run the risk of having recurring turnover problems as it competes with the private sector for IT talent.

* Outsourcing: Outsourcing will continue to be controversial, but state agencies and the STA must consider this alternative if an IT function can be done better or more efficiently elsewhere. In addition to assessing each outsourcing decision's workforce impacts, state agencies (including the STA) must determine whether the outsourcer can meet security and quality of service (QoS) standards. Agencies must also establish a good foundation for communication and collaboration with each outsourcing service provider and ensure that the state has the ability to provide solid oversight over the work or services that it provides.

* Web Services: Programming languages are constantly evolving; as computers become more powerful and users demand more features, programming languages and the tools that support them become more complex. Over the last few years the market has moved from languages that are compiled to a specific processor, such as C and C++, to managed languages such as Java or the languages that support the .NET framework (such as C#). Movement toward Service-Oriented Architecture (SOA) is evident by the growing popularity of SOAP (Simple Object Access Protocol) and BPEL (Business Process Execution Language). Currently, the state's Department of Motor Vehicle Safety and the Department of Human Resources both run applications that utilize Web Services to communicate with legacy systems. Web Services is becoming a standard tool in the application developer's toolbox, but using it across organizational boundaries is still challenging. The potential exists for online applications that use Web Services to share, collect and disseminate data from various sources across agency lines. This can prevent constituents from having to go to several different Web sites for services and has the potential to save taxpayer dollars by reducing STA service and problem resolution costs.

These ongoing challenges reveal the dynamic nature of the evolution of Web applications that is occurring among state governments. This evolution is the result of numerous factors surrounding the interplay of Web applications, organization structures, technological changes, and the external environment. E-government applications enable state governments to step back and take a critical look at the interoperation of their branches and agencies. For the first time, states are beginning to explore how they might break out of traditional siloed approaches to planning and executing projects and spending IT dollars. However, as e-government application evolution and management becomes more complicated and increasingly risky, steps must be taken to mitigate the risk. STA leaders believe that standardizing on common Web application development platforms can mitigate risk because of its potential to increase overall expertise in the application development environment. They also believe that well-articulated and structured processes for e-government application evolution and management mitigate risk by enabling professionals throughout the state of to support and advise each other in making corrections and enhancements to e-governance applications.

References

REFERENCES

Bennett, K.H., & Rajlich, V.T. (2000). Software maintenance and evolution: A roadmap. In Proceedings for International Conference on the Future of Software Engineering (pp. 73-87). Limerick, Ireland: ACM Press.

Digital State Survey Sustained Leadership Award. (1997-2002). Retrieved May 30, 2006, from http://www.centerdigitalgov.com/center/02sustanined.php

Hiller, J.S., & Bélanger, F. (2001). Privacy strategies for electronic government. EGovernment 2001. Lanham, MD: Rowman & Littlefield Publishers.

Hoffer, J.A., George, J.F., & Valacich, J.S. (2005). Modern Systems Analysis and Design, (4th Ed.). Upper Saddle River, NJ: Prentice Hall.

Holden, S.H., Norris, D.F., & Fletcher, P.D. (2003). Electronic government at the local level: Progress to date and future issues, Public Performance and Management Review, 26(3), 1-20.

Janssen, M., & van Veenstra, A.F. (2005). Stages of growth in e-Government: An architectural approach, Electronic Journal of e-Government, 3(4), 193-200.

Lavery, J., Boldyreff, C., Ling, B., & Allison, C. (2004). Modeling the evolution of legacy systems to Web-based systems. Journal of Software Maintenance and Evolution: Research and Practice, 16(1-2), 5-30.

Layne, K., & Lee, J. (2001). Developing fully functional e-government: A four stage model. Government Information Quarterly, 18(2), 122-136.

Lehman, M.M. (2005). The role and impact of assumptions in software development, maintenance and evolution. International Workshop on Software Evolvability (pp. 3-11). Lisbon, Portugal: IEEE Computer Society.

Moon, M.J. (2002). The evolution of e-government among municipalities: Rhetoric or reality? Public Administration Review, 62(4), 424-433.

Satzinger, J.W., Jackson, R.B., & Burd, S.D. (2006). Systems Analysis and Design in a Changing World, (4th Ed.). Boston, MA: Course Technology.

Schelin, S.H. (2003). E-Government: An overview. Public Information Technology: Policy and Management Issues. Hershey, PA: Idea Group Publishing.

Smith, N., & Ramil, J.F. (2002). Qualitative simulation of software evolution processes. In Proceedings of Workshop on Empirical Studies of Software Maintenance (pp. 41-47). Montreal, Canada, 41-47.

Standish Group (2001). Extreme chaos, Retrieved May 30, 2006, from http://www.standishgroup.com/sampl_research?PDFpages/extreme_chaos.pdf

Taylor, M., McWilliam, J., Sheehan, J., & Mulhaney, A. (2002). Maintenance issues in the Web site development process, Journal of Software Maintenance and Evolution: Research and Practice. 14(2), 109-122.

UN & ASPA (2002). Bench-marking e-government: A global perspective. Retrieved May 30, 2006, from http://unpan1.un.org/intradoc/groups/public/documents/UN/UNPAN021547.pdf

AuthorAffiliation

Hsiang-Jui Kung, Georgia Southern University, USA

Hui-Lien Tung, Paine College, USA

Thomas Case, Georgia Southern University, USA

AuthorAffiliation

Hsiang-Jui Kung is an assistant professor of information systems at Georgia Southern University. He received his PhD in management from Rensselaer Polytechnic Institute in 1997. He joined the Georgia Southern University full time in 2001. He teaches systems analysis and design, database, and management information systems courses. Prior to entering academe full time, he served in the Ministry of Defense, Republic of China (Taiwan) as a senior systems analyst. His research interests include systems analysis and design, database, e-business, and software evolution.

Hui-Lien Tung is an assistant professor of management information systems at Paine College. She teaches data communication, management information systems, and database management courses. Her research interests include IS education, e-commerce, and database. She holds a master's of science in information science from University at Albany, USA, and a Master of Education from National Louis University, USA.

Thomas Case is a professor of information systems at Georgia Southern University. He primarily teaches courses in data communication, digital commerce and information systems strategy and policy. His main research interests include consumer online commerce, technology adoption/diffusion and information systems pedagogy. Dr. Case has held a number of leadership roles in AIS SIGED: IAIM and Southern AIS. He has authored three textbooks and was the 2004 recipient of the Georgia Southern University's Excellence in Contributions to Instruction award.

Subject: State government; Electronic government; Web portals; Government agencies; Systems integration; Case studies

Location: United States--US

Classification: 9130: Experiment/theoretical treatment; 5250: Telecommunications systems & Internet communications; 9550: Public sector; 9190: United States

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 2

Pages: 36-53

Number of pages: 18

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Diagrams References

ProQuest document ID: 221243287

Document URL: http://search.proquest.com/docview/221243287?accountid=38610

Copyright: Copyright IGI Global Apr-Jun 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 31 of 100

E-Mexico: Collaborative Structures in Mexican Public Administration

Author: Luna-Reyes, Luis F; J Ramon Gil-Garcia; Cinthia Betiny Cruz

ProQuest document link

Abstract:

After six years of challenges and learning pushing forward the e-Government agenda in Mexico, the Presidential succession brought an opportunity for assessing the current progress, recognizing the main unsolved problems, and planning the vision for the future of e-Government in Mexico. This case provides a rich description of the e-Mexico system, including its main objectives and goals, governance structures, IT infrastructure, collaboration processes, main results, and current challenges. Some background information about Mexico is also provided at the beginning of the case. Playing the role of a consultant working for the new Mexican CIO, the reader is asked to evaluate the current situation and help in the design of a work plan, including a proposal for organizing the ICT function, the main strategic objectives, and some specific lines of action for the next six years. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: case study; collaboration; computing in developing countries; digital divide; digital government; e-government integration; electronic government; governance structure; information architecture; information policy; IS integration; IT in developing countries; IT in public administration; Mexico; national IT infrastructure; political perspective; public policy; strategy and policy

INTRODUCTION

Three years of presidential election campaign finally came to an end on July 2, 2006. Aspi rants from the three main political parties worked hard to attract voters' preferences since 2003, but everything got resolved in a single election day. Results were so close that the Federal Elections Institute decided not to pronounce any winner on the basis of their "fast count" program, but to wait for the complete counting of votes. For the first time since 1929, the Institutional Revolutionary Party (PRI) was not the first force in both the House of Representatives and the Senate. Actually, PRI became the third political force with about 21% of the legislators in the House of Representatives. The National Action Party (PAN) became the first political force with about 42%, and the Party of the Democratic Revolution (PRD) became the second force with about 25%.

Just a couple of weeks after the election, Pedro Torres,1 who was going to be appointed by the elected President to organize the Information and Communication Technologies (ICT) function in the Federal Government for the next six years, was gathering information about the current state of digital government in Mexico. He needed to prepare an assessment of the current progress and needs, and to present a work plan, including a proposal for organizing the Information and Communication Technologies (ICT) function, the main strategic objectives and some specific lines of action. He asked for your advice as a consultant in this process. The following sections in the document constitute a summary of the information Pedro had gathered and shared with you to work in this assessing and planning process.

BACKGROUND

The official name of Mexico is the United Mexican States and is a federal republic formed by 31 states and a Federal District, which is Mexico City. There are three levels of government: federal, state, and municipal. Each level has certain degree of political and administrative autonomy. Municipalities have an elected council chaired by the municipal president. This council-called "cabildo"-has both executive and legislative functions. At the state level, there is a Governor, representing the executive branch, a state legislature, and a state judicial branch headed by the state supreme court of justice. Finally, at the federal level the president is the head of the Executive branch; she is elected by democratic direct voting for a six-year period without possibility of reelection. The legislative branch is conformed by the Senate and the House of Representatives, 128 senators and 500 representatives. The judicial branch is represented by the Supreme Court with 11 Justices. Supreme Court Justices are elected by the House of Representatives every 15 years. The legal system is a combination of the Roman and French systems (Lowe, Armstrong, & Mathias, 2002). Politically, Mexico was governed by the same political party (PRI) from 1929 to 2000 in a quasi-single-party system.

The country's borders are with the United States of America to the north and with Guatemala and Belize to the south. The Mexican territory spans 1,964,375 square kilometers.

Mexico's politico-administrative regime includes characteristics similar to the United States, Canada, and France, among others. Table 1 summarizes the main characteristics using the framework developed by Pollitt and Bouckaert (2000). Regarding the basic structure of the state, as mentioned before, Mexico is a federal system by constitution and the autonomy of state and local governments is clearly established. However, for more than 60 years a single political party dominated the three levels of government and there was a de facto centralization of power around the federal government. A decentralization process started in 2000, but there are still examples of this quasi-federal regime. Regarding the horizontal co-ordination at the federal level, two ministries have historically "called the shots" as far as administrative reform is concerned: the Ministry of Finance and the Ministry of Public Administration (former Office of the Federal Comptroller).

Regarding the nature of executive government, Mexico is in a transition period from a mostly majoritarian regime to a more consensual one (probably intermediate). For many years, Mexican presidents had a significant majority of the legislature from the same political party. They rarely included people from other parties as heads of a ministry or agency. Starting in the late 90's, this situation is changing and the different between the party winning the election and the second force has become very small. In fact, in 2000 President Fox included in his cabinet individuals identified with another political party (PRI).

The relationship between executive politicians (ministers) and senior civil servants is very interesting in Mexico. The Mexican Civil Service is very new and before it was established only very low hierarchical levels were not political appointees (they were union members). With the creation of the civil service, some political appointees decided to change their career paths to senior civil servants. Therefore, public servants are separate from political appointees but their careers are already fairly politicized.

Similarly to France and Germany, the philosophy and culture of governance in Mexico follow what has been called a Rechtsstaat perspective. That is, the state is conceptualized as a central legal and administrative force that integrates society around it. In these cases, civil servants are trained in specific laws that have been developed specifically to guide the functioning of government. This conception is slowly changing following New Public Management trends, at least at the level of political discourse, but it is still predominant.

Finally, regarding the diversity of sources of policy advice, specifically administrative reform issues, political appointees, and recently civil servants, have been the main sources of reform initial ideas for a long time. However, other groups such as management consultants, academics, and corporations are increasingly taking the role of sources of policy advice. This trend has become more evident since 2000, when President Fox (with a long private corporation background) was elected.

Mexico's total population was 103.1 million inhabitants in 2005 (INEGI, 2006b). About 53 million are female and 50.1 million are male. About 25% of the population lives in rural areas, 14 % in semi-urban localities, and 61% in urban cities. One quarter of the population resides in cities of 500,000 inhabitants or larger, with the biggest human concentration in the Federal District (Palacios, Lara, & Kraemer, 2003). The Metropolitan area of Mexico City, including population officially living in the Federal District and the State of Mexico, is home of nearly 21 million people.

Gross National Product (GNP) for 2005 was 8,374,348.5 million pesos (about $800 billion US dollars), which represented a 3% increase from 2004 (INEGI, 2006a). The Mexican Economy shifted from an imports' substitution model between the 30s and the 70s to trade liberalization in the 80s and 90s. In the last few years, there has been an important focus on the Small and Medium Enterprises (SMEs), which account for most of the business establishments in the country (Palacios Lara & Kraemer, 2003). Main economic activities in the country are commerce, personal services, and manufacturing. These three activities account for about 75% of the GNP.

Although the World Bank classifies Mexico as a Middle income country (World Bank, 2005), the country faces several problems. According to the World Policy Institute (2000), Mexico had an underfunded educational system, and an even poorer healthcare system, resulting in low educational levels and a high infant mortality index. Also in 2000, the country had one of the lowest levels of rural development in Latin America, and it was below average in attracting foreign investment, and also in its tourism industry. When compared with other Latin American countries in its same income level, Mexico is the lowest in number of telephones per capita, yet has some of the most expensive rates for domestic calls. In addition, there existed a restrictive environment for new business creation. Finally, Mexico was considered one of the nations in the world with high levels of corruption (World Policy Institute, 2000).

In 2000, the first president from an opposition political party -Vicente Fox from PAN-was elected. Given the country problems, some of the main challenges faced by the Fox administration were to boost economic growth, reduce poverty, and improve Mexico's international competitiveness. To respond to these and other challenges, President Fox main strategy has focused on a plan to upgrade infrastructure, modernize the tax and labor systems, and reform the energy sector. Proposals on these topics have been discussed in the House of Representatives in previous years without reaching consensus in any of them. Therefore, the new elected president, who will take office at the end of 2006, will face very similar challenges.

SETTING THE STAGE

The National Institute of Informatics, Geography and Statistics (INEGI) played a leadership role in Information Policy from the 80s to 2002. One of the main objectives of the Institute was to promote and regulate ICT development in the Federal Government. According to one of the current program managers, INEGI attempted to centralize control over ICT-related purchases and contracts. Other Federal agencies opposed this attempt, and as a result, INEGI decided to follow a "no-policy" strategy. President Fox started in 2000 a very ambitious program to promote the Mexican Digital Society and the use of ICT to improve government services. One important component of the program oriented mainly to promote a digital society was called the e-Mexico system, and was housed at the Ministry of Communications and Transportation. The program component related to the use of ICT in government was lead initially by the President's Office for Innovation. As a result of some policy and process changes described in the following sections, the Office of the Federal Comptroller (SECODAM) became the Ministry of Public Administration in 2002. The new ministry took responsibility of important aspects of Information Policy in Mexico. Actually, program managers working in this direction in the President's Office for Innovation moved to the Ministry of Public Administration to give continuity to the programs. INEGI kept policy responsibility only for geographical and statistical systems (i.e., national census), but ICT applications to government became a responsibility of the newly created Ministry of Public Administration (see the Appendix for a brief description of these and other agencies involved in e-Mexico).

The e-Mexico system is an "umbrella" initiative at the center of the Mexican strategy to develop government services and applications for all society. The mission of e-Mexico is to "be an agent of change in the country, integrating efforts from diverse public and private actors in the elimination of the digital divide and other socio-economic differences among Mexicans, through a system with technical and social components to offer basic services on education, health, commercial interchange, and government services, being at the same time leaders in Mexican technological development" (e-México, 2003b).

President Fox administration assumed as one of its main objectives the promotion of ICT use among Mexicans. The e-Mexico system was conceived as a way to provide universal access to information, knowledge and government services as a strategy to create a more democratic and participative society where economic and social benefits were better distributed (e-México, 2003b).

The project started as a direct initiative of President Fox, who in his initial address to the Nation on December 1st, 2000 instructed the Minister of Communications and Transportation to start the initiative:

I instruct the Minister of Communications and Transportation, Pedro Cerisola, to start as soon as possible the e-Mexico project, so the information and communications revolution acquires a truly national character, reducing the digital divide among governments, private organizations, households and individuals, reaching up to the last corner of our country.

The main rationale of e-Mexico was the widely accepted belief that ICT offer national economies with opportunities to grow, to develop, and to create sustainable competitive advantages. Moreover, ICT use in government is associated with benefits such as cost savings, better programs, more transparency and accountability, and improved democracy (6, 2001; Dawes, 1996; OECD, 2003). In this way, the e-Mexico initiative was driven by several problems and challenges faced by President's Fox administration, and it was looking to coordinate government actions to promote economic development, improve transparency and democracy through the use of ICT. Other important driver of the project was also the global trend of ICT applications in government as a tool to promote the "new public management" (Arellano-Gault, 2000).

E-Mexico objectives were developed on the basis of information collected from three main sources. First, a diagnosis of the ICT situation in Federal Government agencies was conducted, finding what a project participant described as a "fifteen year lag in infrastructure compared to Mexican private organizations." Second, current practices research looking for e-gov experiences in Latin America and the rest of the world were conducted. For instance, the initial team took into consideration experiences from Singapore, Korea, Canada, Brazil, Cuba, and England. Finally, they conducted during 2001 a public forum involving more than 900 participants from academia, public administration, private sector, and non-profit organizations. The forum produced more than 140 different documents and proposals, which were considered together with the current practices and the given status of ICT in the Mexican government to develop the e-Mexico strategy. Table 2 lists the main e-Mexico project objectives (e-México, 2003a).

The e-Mexico project is closely related with other presidential initiatives associated with the President's Office for Innovation and the Ministry of Public Administration, who are in charge more specifically of ICT use in government. One such initiative is the Good Government Agenda -created in 2002-which has created synergy with e-Mexico in facilitating government reform. Synergies were generated particularly because one of the main objectives of the Good Government Agenda was to create a digital government to facilitate access to government information and services anytime and anywhere (INNOVA, 2002).

DESCRIPTION OF THE CASE

The proposed goals were ambitious. Actually, project leaders in e-Mexico and other federal government agencies believe that ICT use in government is an instrument to create a more democratic society by giving access to information and services to the entire population, including those small and remote sites regularly difficult to access. The goal was not only to reduce the digital divide, but to create social and economic impacts through the access to information and public services. Moreover, the project was intended to contribute to knowledge creation through the creation of a main portal and several sub-portals based upon particular interests of diverse Mexican communities, reaching 80% of the Mexican population through the 20% higher-impact services (e-México, 2003a).

However, to reach the vision, project participants faced important challenges. One of the main challenges resulted from the initial explorations was related to starting a project with a clear vision for the long run, but allowing concrete results also in the short run. As one of the interviewees commented,

...to truly take the country to the information society is a change that took Korea 40 years, so Mexico made the bet to make this change in at least 25 years, currently [after the first five years] we have the technology that will allow us to make a faster progress. We know that what we are doing in this period is only setting the foundations to build faster upon the things that we have created and did not exist when we started.

Other important challenges were related to the digital divide. In Mexico, as in many other countries, there is a high correlation between the digital divide, and other social "divides" that exist in the whole country (e-México, 2003b). Developing countries lack the appropriate technological and human infrastructures, as well as relevant content in the local language to create a significant social impact. As mentioned above, one of the interviewees commented that through the initial assessment, they found a 15-year lag in Federal Ministries and government agencies' computer infrastructures. Just to mention a couple of examples, more than 50% of PC computers in Mexican government had a Pentium II processor or older in 2001 (INEGI, 2001), and there are only 3.6 million Internet connections for 93.9 million people older than six years (AMIPCI, 2005). Moreover, the problem of government innovation not only resides in building technical capabilities, but also in public services redesign and modernization (e-México, 2003b).

The General Strategy

E-Mexico strategy was organized around three main "axes" or lines of action, and with a value-oriented and collaboration focus. The three main axes were (1) to create infrastructure that allows citizens to connecting to the Internet, (2) to produce relevant content, and (3) to develop a technical architecture for government. The focus on value creation and collaboration is reflected in the coordination nature of e-Mexico. The following sections include a description of each of the three action streams, and the collaborations in the process.

Connectivity

The first line of work of e-Mexico was related to the creation of a connectivity infrastructure to cover most of the country. E-Mexico representatives have been working together with telecommunication companies to promote investment in the communications infrastructure in the country, increasing in this way the number of phone lines in Mexico.

Additionally, the e-Mexico system has worked in the deployment of 7,200 Digital Community Centers (DCC), following models that they found operational from experiences in Brazil and Peru, but also following previous successful experiences in the country with educational programs using satellite communications. Although the country geography posed interesting technical challenges, the group has been also highly interested in the social and community component, as one of the participants commented,

...the most impressive were the results from efforts in Cuba. I went there for a meeting about the Information Society, and they presented all their work models. Their digital community centers had an impact even with all their financial restrictions, there were only three computers, one for the center manager and two for other users, but they were taking advantage of that. We considered that the important part was their social network model. We liked the idea to have it installed in some sort of library. France was declaring little success in their model of community centers, Peru had a similar model but in very early stages, but Cuba had a big success. We thought that part of the success was that they were placing the center in an established organization with somebody taking care of it.

In this way, and taking advantage of the opportunity of using the PANAMSAT satellite system, the group worked together with several government agencies to deploy the DCC based on a satellite network, and locating them in already-established community centers such as public libraries, centers for adult education, but mainly in elementary and medium-high schools (about 6,000 out of the 7,200 DCC are located in schools). According to one of the project participants, about 8,000 well-collocated DCC would be enough to serve most communities with more than 1,000 habitants. However, the same participant commented "we have to think very well about the location of the centers, although our goal is 10,000 community centers, there are more than 200,000 towns along the country, about 150,000 of them with less than 1,000 habitants."

Given the important proportion of DCC established in schools, e-Mexico program collaborated closely with the Ministry of Education during the process. Main challenges during the early stages were technical and logistic, how to place a satellite plate in a donkey or how to install it in a cardboard roof, or how to make the satellite network work in not-state-of-the-art computers. Currently, the challenges are more associated with the sustainability of the DCC, getting people to use them, and to find ways to help communities to generate applications that create wealth and community development. These activities require collaboration with the Ministry of Education, individual schools, citizens, private companies, and non-profit organizations.

Contents

One known problem about information on the Internet is the fact that an important proportion of it is in English. In this way, the second main line of work in e-Mexico involved the creation of relevant contents for people to access. Initially, they worked in the development of the main e-Mexico Portal, and four sub-portals, e-learning, e-health, e-economy, and e-government. The portal project involved a collaboration process with the State Ministries associated to each of the four main "pillars," as people in e-Mexico calls each content area. In fact, there is a contact person in each one of the related Ministries that works together with e-Mexico in the Ministry of Communications and Transportation to coordinate content creation or the integration of currently existing content into the portals.

The four portals were designed to support the main objectives of the e-Mexico System (see Table 2). The e-learning portal has the objective to offer new options to access education and training, promoting education for everyone as a way to personal development. E-health portal intends to increase public health by eliminating barriers to access to wellbeing information and services such as social security. The e-economy portal has the goal to promote the development of the digital economy in Mexico, particularly oriented to the micro, small, and medium enterprises (mSMEs), as well as to promote a digital culture among consumers. Finally, the e-government portal is a medium to offer government information and services (e-México, 2003b).

Following the same spirit of the DCC, e-Mexico staff collaborated with government agencies in content creation and integration, leaving the final responsibility of content management to the Ministry of Education, Health, Economy, or Public Administration, who are actually the content owners. However, although there is one main content owner, many organizations are involved in each sub-portal. As one of the participants commented,

...of course learning is coordinated by the Ministry of Education, but e-Learning goes beyond schools... education, training and culture. You have to include the Ministry of Education, you have to include the state education authorities, the National Council for Science and Technology (CONACYT), the National Council for Culture and Arts (CONACULTA), public and private universities, the poet associations, the National Council for Educational Promotion (CONAFE)... This is important, it is very important to understand that the Ministry of Education only provides services to towns with a population greater than 500. Unfortunately, most of the 200,000+ towns in the country have less than 500 habitants. In those places operates a strategy from the National Council for Educational Promotion (CONAFE). They do not have any school, they are not organized in grades... They use a model for literacy based on a multi-grade approach.

Although the initial plan involved the creation of these four portals, the e-Mexico system has created 12 different content portals, all involving participation of many organizations. For example, the e-Migrant portal was created with the collaboration of 27 different agencies inside and outside government. The experience in content integration has lead to a standard process that has been called "the portal factory." A key player in the creation of portals has been INFOTEC, an applied research center, which has developed as part of its activities tools to design content portals based upon group processes and semantic networks.

Systems

The last main strategy from e-Mexico was the creation of valuable systems. The first and more visible system was the e-Mexico portal itself. One of the interesting design features of the portal was its orientation to the Mexican citizen, and how it was organized around people's life, home, family, taxes, education, health, etc.

The less visible, but not less important, system is conformed by an architecture to facilitate government interoperability and services development. Initially, the group got involved in the definition of requirements and the development of a neural access point, and a data center (eMéxico, 2003b). During the last year, the group has been involved in requirements definition and the acquisition of a Virtual Private Network for all federal agencies, and an e-services infrastructure based upon the two main technologies in the market,.NET and J2EE. As expressed by another project participant, "the number of convergent (interoperable) systems is still low, and all this architectures are oriented to support true convergence among government agencies."

An important element related to the technical infrastructure is that most of it is outsourced. The DCC monitoring system, the data center, the VPN, and other hardware and communications systems are all outsourced. This situation required collaboration and coordination between the e-Mexico group and a great number of public and private organizations. It is important to mention that e-Mexico systems and infrastructure are not mandatory to other ministries and agencies at the Federal level. They are currently used only by those agencies, which choose to do so.

Collaboration and Value Creation2

E-Mexico has been since the beginning a collaborative process, and it is reflected in the network of agencies involved in the digital government project in Mexico (see Figure 1). E-Mexico Coordination, which resides in the Ministry of Communications and Transportation, works closely with the Ministries of Economy, Education, Health, and Public Administration. In the last couple of years, many other agencies and organizations had shown interest in developing specialized content portals for communities such as the native Mexicans, the community of emigrants to the US, women or people with disabilities.

The Digital Government and IT Unit (Ministry of Public Administration) worked in close coordination with the agency-wide IT units at the federal level. Much of the coordination work has been done with the participation of Ministries and CIOs in an e-government network, which last December was formalized into an e-government Inter-ministerial Committee. The main objectives of the committee, as well as all subcommittees around it, are to share experiences, and to develop policy to be applied to all the Public Administration. As mentioned in previous sections, INFOTEC has given technical support in content creation. INFOTEC has also collaborated through research on current practices and technological trends, functioning as a consultant of both e-Mexico and the Ministry of Public Administration, and as a partner in the development of Internet applications.

An interesting result that this horizontal coordination effort has brought is the change in focus from a vertical, hierarchical approach to a value model. One of the participants mentioned that one of their main lessons from the initial public forum was about working together horizontally,

"The first thing we found out was the need to work together. It could not be done piece by piece, but we had to do something strange. That is, instead of creating a new Ministry or a new National Institute, we had to align the process horizontally with the people in charge of doing it... and we thought that to do it, we had to focus in three great areas [..] So, e-Mexico could have been born as a new entity, but the idea was to do it with the existing structures, asking people to do the things they had to do, and coordinating and aligning efforts from organizations and agencies working the same topic."

Another important characteristic of the value model was that any interested agency could approach with project ideas, increasing the probability of project success. Other participant commented

The advantage of a value-based model is that people looks for us when they are interested in doing something, and then things get done. I am not in the hierarchy above them, and that's perfect, because we are understanding for the first time in Mexico, the meaning of collaboration among powers.

As one other participant commented

the beauty of this is that we can do a lot with 13 people in the structure of middle- and high-level managers, and about 25 unionized personnel. So, the ratio of the administrative cost compared to the total budget was just 3.6% last year.

The coordination, planning, and implementation of any project follow a four-step process: Digital Participation, Strategic Planning, Project Management, and Operation. Digital Participation involves the inter-institutional relationships with ministries, agencies and other organizations. It is in this first stage where new project ideas are generated. During the Strategic Planning stage, ideas start to be developed, assessing social impacts, costs, benefits, and alignment with the general e-Mexico Strategy, building a plan. When an idea passes these initial filters, the technical committee of the e-Mexico endowment reviews the project and makes a funding decision. Once funds are available, the idea becomes a project, and moves to the Project Management stage, where following Project Management Institute standards, the group of agencies deploys and implements the project. The last stage involves the operation of the new system or content portal. Most of this operation is external, that is, they are managed by other ministries or agencies. The four stages are organized in a loop of continuous improvement. One of the participants commented, "we deliver, and then we go back to the inter-institutional relationships... to close the loop and start a continuous process of improvement" (see Figure 2).

Governance

According to one of the program managers, e-Mexico and the Good Government Agenda promoted the creation of the Digital Government Network, an informal group with the participation of the CIOs from federal ministries, other agencies, and the e-Mexico coordinator. This group interpreted Digital Government as an axis to support other guiding principles for good government such as transparency, accountability, professionalization, service quality or cost efficiency, starting a series of projects under the leadership of the President's Office for Innovation. When the Ministry of Public Administration was created in 2002, this Ministry's Digital Government and IT Unit kept leadership of this group (actually, the responsible of the strategy at the Office for Innovation took charge of the Digital Government and IT unit).

The main projects of the Network were initially oriented to promote savings, to facilitate interoperability, and to re-define the IT function at the government level. For example, they promoted a unique licensing agreement between Microsoft and all Federal agencies creating important savings for all of them. On the other hand, conversations inside the network made participants realize that about 90% of the IT budget was devoted to control applications, maybe because agency CIOs reported directly to the internal agency comptroller. Moreover, they found out that the decentralization of the IT function in several agencies had promoted the lack of a clear overall IT strategy inside each of them.

Positive experiences and savings with the Digital Government Network, together with research on best practices, lead the group to the creation of an E-government Interministerial Committee, which became a formal body last December (see Figure 3). Committee members are all federal ministers plus the directors of other important institutions such as the Mexican Oil Company (PEMEX), the Mexican Institute for Social Security (IMSS), the Internal Revenue Service (SAT), the National Council for Science and Technology (CONACYT), the President's Office for Innovation, and the Federal Commission for Electricity (CFE). The committee president is the Minister of Public Administration, and the executive secretary of the Committee is the Director of the Digital Government and IT Unit from the same ministry. The Committee develops general policy and strategy (Becerra, 2006).

The Digital Government Network, became the Executive Council of the Committee. Besides the Plenary Sessions, the Executive Council is organized in several technical councils in charge of creating recommendations on important themes such as IT function organization, Security, IT Procurement, Privacy or Interoperability. The Interministerial Committee also supports its functions in two sub-committees in charge of two key IT topics, electronic signatures and Control and Managerial Systems. The first sub-committee members are the representatives from the Ministry of Public Administration, the Ministry of Economy, and the Internal Revenue Service. The Control and Managerial Systems Sub-committee members are representatives from the Ministry of Finance and the Ministry of Public Administration. Finally, the Consultant group will be conformed by members from academia, the private sector, and other members of the civil society.

Although the Interministerial Committee may have an important impact on the Federal Government IT strategy and policy, each Ministry or Agency currently develops its own strategic plan and negotiates its IT budget directly with the President's Office. Some political actors are concerned about the survival of the Committee after the presidential succession, arguing that it had not enough time to consolidate as an institution, and that most members from both the Committee and the Executive Council will change when the elected president brings his own Cabinet.

Main Results, Lessons Learned and Challenges

The e-Mexico project and other associated initiatives have been successful in several ways and to a different extent in several areas of work. According to participants in the project, they have accomplished about 95% of the objectives at the beginning of President Fox Administration (see Table 2). Several of these objectives are closely related with the creation of a "portal of portals" with information and services in four related areas: e-government, e-economy, e-health, and e-learning. The current e-Mexico portal (www.emexico.gob.mx) was not only successful creating these four content areas, but in the creation of many others related to specific interest groups (see Figure 4). The portal contains more than 7,000 Web pages organized in about 15 content portals, with a monthly traffic of about 1.5 million hits. About 1,000 government services can be done in some extent through the Internet. These services constitute alternative communication channels with citizens. The portal has been the main place where synergies among public and private partners have been created through the "portal factory," where public and private organizations, as well as non-profits, have joined efforts to provide valuable content and services to Mexicans. The portal has been also the main tool to develop a showcase of Mexican culture offering contents in English and French, as well as in some Mexican Indian languages such as Mayan and Mazahua.

In order to incorporate isolated communities to social development using ICT, e-Mexico has started the deployment of a network of 7,200 DCC with an estimated number of 5.5 million visitors per month. According to surveys about Internet use, and the expert opinion of some of the marketing companies developing the surveys, e-Mexico has had an important impact on Internet penetration in Mexico. Four out of the 17 million people connected to the Internet does so through a DCC.

The level of success has been different in each of the four main e-Mexico areas. The area of e-health, for example, has had a limited impact because of the lack of resources. However, they have managed to create some important relationships with universities and research centers piloting technologies for telemedicine. Through these initial tests, they have figured out that the same technologies can be used for training and administration of medical centers in rural areas.

The area of e-learning has been closely related to the DCC deployment. Current challenges in the area are less related to the technical aspects of the installation of DCC, and more associated with the sustainability of each Center, and the challenge of creating programs to promote the DCC as a wealth and development factor in each community.

The area of e-economy has been working in the promotion of the supply and demand in the software and IT industry to promote economic development. The work stimulating the supply side has promoted the creation of 19 IT clusters in 19 Mexican States. On the demand side, the group has coordinated projects to show the benefits of using IT in traditional business models. Most of these projects are still in a prototype stage, and it is difficult to assess their impact.

The area of e-government has made important progress in terms of creating and formalizing an initial governance structure based on the Inter-ministerial Committee for Digital Government, and in terms of the development of an initial e-services architecture to support interoperability. The basic architecture includes a government services framework with guidelines for service development, interoperability and security standards, the organization of content using semantic Web technology, the use of Identity Federation and Liberty Project standards for authentication, and a dual technology platform supporting J2EE and .NET standards. However, as of October 2006, all existing services are offered by single agencies and there is almost no sharing of ICT resources among agencies.

The evaluation of the ICT strategy is an area that can be improved. Given that the emphasis during the last six years has been on developing the basic infrastructure for e-government, most indicators of progress are focusing on project deliverables and complying with project timelines. Assessment of accomplishing 95% of initial objectives is based upon this kind of indicators. However, e-government impact measures are missing in this evaluation scheme, and should be included to support sustainable development of the Mexican ICT strategy.

Finally, there are also other important challenges for the future. Many public managers recognize the need of a much better regulatory environment. Although some important regulations have been created, such as the Law regulating the Access to Government Information, some of the participants commented that "legislators are not in complete 'synchrony' with digital government," making the process slow, or even creating new legislation that makes digital government implementation more complicated. Another challenge recognized by some participants is posed by different institutional arrangements inside Ministries, or assumptions that made collaboration complicated. For example, the centralized structure of the Ministry of Communications and Transportation has to coordinate with the decentralized education system, which some times make the coordination difficult.

ACKNOWLEDGMENT

The research reported here is supported by the Consejo Nacional de Ciencia y Tecnología (CONACYT-Mexico) grant SEP-2004-C01-46507. The views and conclusions expressed in this paper are those of the authors alone and do not necessarily reflect the views or policies of CONACYT.

Sidebar

Table 2. Main project objectives of e-Mexico

e-Mexico: Main Project Objectives

* To generate value alternatives through a technological system with social content, offering opportunities made feasible by ICT to improve the quality of life of all Mexicans.

* To be a communication channel to integrate and harmonize in a one-stop window services in four initial areas (e-Learning, e-Health, e-Economy, and e-Government).

* To create synergies among public and private agents, allowing content and services integration to create public value.

* To provide to citizens knowledge, opportunities and services in Education, Health, Economy and Government, resulting in personal development inside their own communities, and promoting a closer relationship with government.

* To offer alternative and more flexible communication channels with the citizen using modern ICT.

* To reduce intermediaries, opening direct communication channels with the entity responsible of service offering.

* To develop a technical system with social content, promoting an integral social development.

* To incorporate isolated communities to social development using modern ICT to deliver basic education, health, economic and government services.

* To develop a showcase of Mexican culture and values for interested persons abroad.

* To become the place to connect citizens with public administration, public and private organisms as well as non-profits.

* To promote an IT-enabled government, allowing the creation of opportunities, breaking down barriers, and promoting efficiency.

* To provide experience in Internet-projects implementation, developing a unique "portal for internet portals" containing links to information and services.

* To provide advice based upon world best practices on Internet government services to promote the offering of basic government services through the Internet.

* To provide the technological infrastructure to develop Internet services in a fast, easy and safe way, allowing the evolution of government presence from informational to transactional and combining open standards for interoperability among government entities.

Footnote

ENDNOTES

1 This case is based on the findings from 15 semi-structured interviews to e-Mexico program managers. Interviewees include project managers and CIOs from the ministries of Communications and Transportation (3), Public Administration (3), Economy (1), Health (1), Education (1), Finance (2), the President's Internet System (1), the Institute for Access to Information (2), and staff from INFOTEC (1), a public center for innovation involved in the development and implementation of the Mexican Digital Government Strategy. Inter viewees were asked about the characteristics of their projects, projects' cost and benefits, their perceptions of project success, collaboration, and networking. Documentation analysis was used to enrich the contextual description and triangulate findings from the interviews. However, the names used for prospective program managers are fictional.

2 The Collaboration approach described in this section has been described in the literature using terms such as governance (Janssen & Joha, 2006; Klijn & Koppenjan, 2000; Klijn, Koppenjan, & Termeer, 1995) or joined-up government (Bogdanor, 2005). Those literatures can help to better understand that e-Mexico initiative is an instance of a larger trend to collaborate in government to solve "wicked" problems. Moreover, these ideas can be used as a framework to analyze the Mexican experience. However, the authors preferred to use the term "value creation" because it was the term used by the project participants to describe their efforts.

References

REFERENCES

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Becerra, J. L. (2006). Comisión Intersecretarial para el Desarrollo del Gobierno Electrónico ¿Cómo Funcionará este Modelo Normativo? Política Digital, 5, 12-14.

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AuthorAffiliation

Luis F. Luna-Reyes, Universidad de las Américas-Puebla, México

J. Ramon Gil-Garcia, University at Albany, USA

Cinthia Betiny Cruz, Universidad de las Américas-Puebla, México

AuthorAffiliation

Luis Felipe Luna-Reyes is a professor of Business at the Universidad de las Américas in México. He holds a PhD in Information Science from the University at Albany. Luna-Reyes is also a member of the Mexican National Research System. His research focuses on electronic government and on modeling collaboration processes in the development of information technologies across functional and organizational boundaries.

J. Ramon Gil-Garcia is a post-doctoral fellow at the Center for Technology in Government and is also on the faculty of the Rockefeller College of Public Affairs and Policy at the University at Albany, State University of New York. Dr. Gil-Garcia is the author or co-author of articles in various journals including European Journal of Information Systems, The International Public Management Journal, Government Information Quarterly, Journal of Government Information, and Public Finance and Management. His research interests include electronic government, inter-organizational information systems, quantitative and multi-method research approaches, information technology in organizations, and public management.

Cinthia Betiny Cruz holds a BA in business administration, and currently works towards her MBA at the Universidad de las Americas Business School. She currently collaborates as a research assistant at the Business School.

Appendix

APPENDIX. A BRIEF DESCRIPTION OF THE MAIN AGENCIES INVOLVED IN E-MEXICO

E-Mexico Coordination: The e-Mexico Coordination is the office in the Ministry of Communications and Transportation in charge of implementing the main objectives of the e-Mexico program, which is considered as the national information society project. The 13 professional staff members employed in the Coordination work closely with representatives from the Ministries of Education, Health, Economy, and Public Administration to create content for the e-Mexico portal. They have received support and professional advice from INFOTEC. The Coordinator is perceived as the Mexican CIO by some international agencies.

President's Office for Innovation: An office in charge of developing policy and programs to promote innovation in government. This office was in charge of ICT use in the Federal agencies and ministries in 2000, but this responsibility was given to the Digital Government and IT Unit in the Ministry of Public Administration. Currently, the office motivates innovation through documenting and recognizing best practices as well as promoting President Fox's Agenda for Good Government.

Digital Government and IT Unit: Is the Unit in the Ministry of Public Administration promoting ICT use and development in federal government agencies. The Unit director is the Executive Secretary of the E-Government Interministerial Committee, and coordinates the development of information systems to improve government productivity, transparency, and services. The director is perceived as the Mexican CIO by some international agencies.

President's Internet System: Is an office in charge of opening communication channels between the President's office and the citizens through Internet applications such as e-mail and the World Wide Web. They actively promote the use of Open Source Standards, develop Web services and components, and share these components with any agency that approaches to them.

Infotec: INFOTEC is the technology center that serves the Government of Mexico and other organizations to foster the Information Society in Mexico through a program of applied research.

Ministry of Economy: The Ministry of Economy is responsible for the e-economy pillar of e-Mexico. The ministry interpretation of its participation in e-Mexico consists of content creation and the promotion of the development of the IT industry in Mexico as an important element for economic development.

Ministry of Health: The Ministry of Health works with the e-Mexico Coordination to create health-related content in collaboration with other health-related public agencies. They are also exploring the application of ICT to telemedicine, which would make possible for people in isolated communities to obtain better medical services.

Ministry of Education: The Ministry of Education has collaborated in the deployment of the Digital Community Centers, and the development of educational materials for the e-Mexico portal, and others to be used only in schools.

Subject: Public administration; Electronic government; Information technology; Projects; Intergovernmental relations; Case studies

Location: Mexico

Classification: 5250: Telecommunications systems & Internet communications; 9550: Public sector; 9173: Latin America

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 2

Pages: 54-70

Number of pages: 17

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables Diagrams Illustrations References

ProQuest document ID: 221166485

Document URL: http://search.proquest.com/docview/221166485?accountid=38610

Copyright: Copyright IGI Global Apr-Jun 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 32 of 100

The E-Government Development, IT Strategies, and Portals of the Hong Kong SAR Government

Author: Ho, Kevin K W

ProQuest document link

Abstract:

This case describes the development of information technology (IT) and electronic government (e-Government) projects of the Hong Kong Special Administrative Region Government (the HKSARG) from the late 1990s to 2005. During this period, the HKSARG launched its first IT Strategic Plan, Digital 21 IT Strategy, which provides the roadmap for the IT development for the city. In this eight-year period, the HKSARG committed about US$1,100M on various types of e-government projects. New e-Government applications and portals, such as Electronic Service Delivery (ESD) and Central Cyber Government Office (CCGO), were developed and rolled out from 2000 onwards to facilitate electronic transactions between the HKSARG and its external (business firms and citizens) and internal (government departments and employees) customers. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: Government-to-Business (G2B) electronic commerce; Government-to-Citizen (G2C) electronic commerce; Government-to-Employee (G2E) electronic commerce; Government-to-Government (G2G) electronic commerce; Hong Kong Special Administrative Government (the HKSARG)

ORGANIZATION BACKGROUND

Hong Kong was a British colony between 1842 and June 1997 and was reunified with Mainland China on July 1, 1997. Table 1 summarizes the key economic and social indicators in Hong Kong in 1997 and in 2005. After Hong Kong was handed back, several mishaps occurred in the following years, which made the newly established Hong Kong Special Administrative Region Government (the HKSARG) face severe problems. First, the outbreak of H5N1 avian influenza at local farms and wet markets, which subsequently evolved to the first batch of human inflection cases, in 1997 (WHO, 2005) had shaken the public's confidence in the administration. Members of the public criticized the slow response of the government in handling this crisis. Afterwards, the Asian Financial Crisis and the bursting of the property asset bubble in the city between 1997 and 1998 put extra pressure on the local economy and triggered an economic recession, which was the first major recession since the Energy Crisis in the 1970s. Five years later, the outbreak of Severe Acute Respiratory Syndrome (SARS) in the first half of 2003 (WHO, 2003) further hampered the local economy. From 1999 to 2003, the unemployment rate of Hong Kong rose from around 2% in the early 1990s to nearly 8% in 2003, and the city suffered from deflation during this period. Figure 1 shows the unemployment rate and Consumer Price Index (A) of Hong Kong from 1998 to 2005.

"It was the best of times; it was the worst of times". Hon. Mr. Anthony Leung, the then Financial Secretary of Hong Kong, used the famous opening of Charles Dicken's A Tale of Two Cities to describe the severe economic position of Hong Kong when he delivered his budget speech in early 2003, which was just before the first wave of SARS outbreaks in Hong Kong (FSTB, 2003). While Hon. Mr. Leung acknowledged that Hong Kong was facing its worst of times, he was confident that the dawn was coming: His prediction was partially fulfilled as the unemployment rate started to drop from 2003, and deflation was eventually gone two years later.

Obviously, Hong Kong faced a lot of changes and challenges from the late 1990s to the early 21st Century. During this critical moment, the formulation of information technology (IT) policy and the development of electronic government (e-Government) of the HKSARG played an important role in the re-engineering of the public sector. Through examining the development of e-Government of Hong Kong during the captioned period, we can gain insight on how the government of this Far-eastern metropolis tried to employ IT to enhance its operational efficiency and achieve the saving targets.

SETTING THE STAGE

The first wave of impact of IT on public administrations occurred in the late 1970s when personal computers became office equipment and were being used for handling routine business tasks of both business and public organizations. At that time, people were interested in whether the use of personal computers could enhance the efficiency of public sectors (Kraemer, 1977; Danziger, Kraemer, & King, 1978). Thirty years later, Internet technology became the most recent wave of impact of IT on the public sector. The transfer of Internet technology from the military and defense sector to members of the public stimulated traditional businesses to adopt this new technology, and to develop new business paradigms likes Business-to-Business (B2B) and Business-to-Consumer (B2C) electronic commerce. Similarly, the public sector also adopted this new technology and developed new operation formats, such as Government-to-Citizen (G2C) and Government-to-Business (G2B) electronic commerce for members of the public (Devadoss, Pan, & Huang, 2002, Golden, Hughes, & Scott, 2003), and Government-to-Employee (G2E) and Government-to-Government (G2G) electronic commerce for the internal users of public sectors (Ho & Ho, 2006).

Following the worldwide trend, the HKSARG began adopting Internet technology in their daily business by developing its e-mail network, in other words, Government Office Automation (GOA) project, and IT infrastructure, otherwise known as Government Communication Network (GCN) project, in the mid-1990s. The momentum of developing and designing these new programs increased when it faced a series of challenges starting from 1998.

After the Asian Financial Crisis in late 1997 and the subsequent bursting of the property asset bubble in 1998, various forecasts predicted that Hong Kong would face a recession. As stated in the 1999/2000 budget, the HKSARG forecasted that it would have a budget deficit from 1998/1999 to 2002/2003 (FB, 1999a). In reality, this prediction was optimistic as the budget deficit lasted for seven years (i.e. from 1998/1999 to 2004/2005, with a small recovery in 1999/2000, see Figure 2). To relieve the impact of budget deficits and to help Hong Kong to re-establish its competitive advantage within the region, the HKSARG launched the Enhanced Productivity Programme in April 1999 and announced the Digital 21 Information Technology (IT) Strategy in November 1998, which set the stage for the development of the various e-government initiatives in the subsequent years. Both EPP and Digital 21 IT Strategy are initiated from a top-down approach and are set as a directive from top management, in which the government departments and bureaus have to follow these policies and implement these initiatives.

Enhanced Productivity Programme (EPP)

Enhanced Productivity Programme (EPP) is a three-year business process re-engineering (BPR) program launched in April 1999 to relieve the financial burden of the HKSARG. The original target of EPP was to achieve 5% net savings for all government departments (FB, 1999b). It was a target, which was difficult for most government departments to meet because over 80% of government budgets were allocated to salaries and related expenses. Therefore, a 5% cut of budget is equivalent to a 6% (i.e. 5/80) cut of headcount, a 25% (i.e. 5/20) cut of operating expenses, or a combination of both types of budget reduction. To achieve this target, most government departments had to review their existing procedures and to rely on IT in enhancing their office efficiencies or to simplify their office procedures, which provided a drive for government departments to consider putting both their internal and external services onto the Internet. Eventually, EPP brought a total of US$540M savings and helped to partially relieve the financial burden of the administration (see Table 2), and kicked off the first wave of putting the local government services online.

Digital 21 Information Technology (IT) Strategy

A few months before the implementation of EPP, the HKSARG announced its first 5-year IT strategic plan, in other words, Digital 21 Information Technology (IT) Strategy in November 1998. The HKSARG started to develop this strategic plan after the Asian Financial Crisis, and hoped it could help the city to evolve from a financial and service industries center into a hi-tech business center. It was believed that this evolution could help Hong Kong to sustain its favorable and competitive position in the Asia Pacific region. The strategic plan included four major initiatives, namely "developing a high capacity communications infrastructure, establishing an open and secure common interface for electronic transactions, empowering the citizens with the know-how to use IT, and nurturing a culture which stimulates creativity and welcomes advances in the use of IT" (ITBB, 1998). Based on these incentives, the HKSARG would focus on making "Hong Kong a leading digital city in a globally connected world" (ITBB, 1998).

Also, the HKSARG announced various areas in which it would focus and develop IT-related projects to leverage their benefits to be generated to sustain the competitive advantage of Hong Kong. It called these areas "enabling factors". Digital 21 IT Strategy was complementing the EPP and provided the guideline for government departments to develop their own BPR and IT enhancement plans. Subsequently, the HKSARG updated Digital 21 IT Strategy on 2001 (ITBB, 2001) and 2004 (CITB, 2004). The focuses of the Digital 21 IT Strategy from 1998 to 2004 are summarized at Table 3 and the details of each of the version of the Strategy are summarized at Tables 4 to 6.

CASE DESCRIPTION

IT Budget Allocation in Hong Kong

While Digital 21 IT Strategy paved the way for Hong Kong to evolve from an ordinary city into an IT-driven city, EPP promoted the use of IT within government departments and encouraged these departments to implement IT initiatives to facilitate electronic transactions. From 1999/2000 onwards, the HKSARG allocated an average of 0.5% of its overall budget to IT projects (See Figure 3).

While the amount of expenditure reflected the actual amount of investment, which the HKSARG spent in a certain fiscal year, the approval of IT commitment showed the amount of IT investment that the HKSARG will undertake in future years. Normally, an IT project would need one to three years for development and implementation, and maybe five years to harvest. Therefore, through analyzing the commitments from 1999 onwards, we will understand the long term planning of the e-government planning of the HKSARG.

The HKSARG classifies its IT investments into two categories. For IT project commitments of more than HK$150,000 (or US$19,230) but less than HK$10 million (or US$1.28M), the HKSARG classifies them as "Block Vote Projects" and the administration has the authority to approve these projects. For IT projects with commitments of more than HK$10 million, which are classified as "Major Projects", the administration has to seek approvals from the Legislative Council (LegCo, Web site: http://www.legco.gov.hk), for committing into the projects.

Generally, we can classify IT commitments of the HKSARG into three groups, in other words, G2B and G2C projects, which are projects mainly for external users (i.e. citizens and business sector), G2E and G2G projects, which are projects mainly for internal users (i.e. government employees and inter-departmental users), and Other projects which are general purpose projects (i.e. systems serve both external and internal users). Table 7 presents the descriptive statistics of commitments made by the HKSARG on major IT projects. In the past seven years, there have been only 43 major projects, with a total commitment of around US$670M approved by LegCo. The average project commitment is US$15.6M. Plus, on average, there are around 6 major projects, with US$96M commitment, per year.

The descriptive statistics of block vote IT projects is at Table 8. During the same period, the administration had approved 1,160 block vote projects of US$427.5M commitment, which is equivalent to US$0.37M commitment per project. On average, there are around 166 block vote projects and US$61M commitment per year.

The total IT investment of the HKSARG is reported at Table 9. As shown in the Table, as well as Tables 7 and 8, the HKSARG doubled its investment on G2E and G2G projects compared with G2C and G2B projects. This reflected that the focus of the IT investment and commitment of the HKSARG is on projects designed for its internal users. The major groups of IT commitments of the HKSARG are Information Systems Strategy Studies (ISSS) (US$244.1M), Government Office Automation and Government Communication Network (GOA/GCN) (US$173.2M) and Smart Identity (ID) Card Project (US$101.5M). While ISSS are studies which focus on improving the use of IT of selected government departments, GOA/GCN projects are projects which provide funding to build and to enhance the IT infrastructure and IT equipment of government departments, and the Smart ID Card Project is one of the earliest attempts in the world in applying smart card technology in issuing ID cards for citizens. This reflects that the HKSARG acknowledges the importance of figuring out the IS Strategy in various government departments, and understands the importance of providing the best infrastructure and equipment for its employees, which both aim to improve the efficiency of the administration.

Development G2E and G2G E-Commerce and the G2E/G2G Portal of the HKSARG

With the huge commitment on G2E and G2G e-commerce projects, one can anticipate that there should be plenty of new systems developed during this period. Since the mid-1990s, the HKSARG had developed its network infrastructure to cope with the need to provide fast and prompt electronic services for its employees. At the early phase of its development, the HKSARG developed programs like Government Office Automation (GOA), which provided terminals and other computer peripherals, for civil servants and public officers, and Government Communication Network (GCN), provided the network backbone of the government network to facilitate the electronic transfer of information. The original plan of the HKSARG in the mid-90s was to provide terminals and e-mail facilities for senior managers and branch heads in government offices. It was because IT equipment and facilities were relatively expensive and were treated as a scarce resource at that time. Due to the rapid decrease in hardware prices and the rapid advancement of the power of CPUs, at least one third of officers now have their own desktop or laptop computers which can connect to the government network, the Internet, via traditional or wireless networks, and the remaining two third of officers can access to the Internet and Intranet via common terminals.

The next wave of the G2E and G2G e-commerce development involved the establishment of an internal portal for sharing of information amongst different government departments. This G2E and G2G portal, which launched in 2000 and currently has over 100,000 users and is called the Central Cyber Government Office (CCGO) (OGCIO, 2006). Apart from acting as an information portal site, CCGO facilitates G2E and G2G electronic transactions. It also serves as a frontline knowledge management portal and provides a repository for the most updated information, like circulars, instructions, etc. for all civil servants. It also has the capacity to provide CRM functions. The vision of CCGO is to provide an intra-governmental information sharing center, a live video broadcasting station for internal users, and a platform for conducting electronic transactions within, and between, government departments (OCGIO, 2001). The current version of CCGO also includes a Bulletin Board and Discussion Forum for civil servants to post their views and to have discussions on issues related to their work, etc. Plus, it also provides hyperlinks to various government Intranet and Internet Web sites.

A recent study conducted by Ho and Ho (2006) has evaluated the information quality satisfaction of CCGO. The study reflects that users of CCGO acknowledged that the portal has high information quality in output accuracy. However, the same group of users also commented that CCGO has a relatively inferior presentation format and information content relevance. It is also interesting to note that users of CCGO also dislike the information timeliness of CCGO. Ho and Ho suggest that civil servants may have an adaptation problem on adapting to the paperless office environment and the Web-surfing culture and hence they dislike the frequent updating of the information posted in the Web site, which is actually one of the benefits that people think Internet can bring to the organization. It is amazing to note that even though the HKSARG has invested plenty of money in developing CCGO, the comments from its users are not so positive. This reflected that the government may not put enough effort into handling the development of the Enterprise Architectures for CCGO (Janssen & Cresswell, 2005a, 2005b), as well as the top-down approach of the development of CCGO having not taken the views of the users into account and thus, makes users have an inferior impression of the system.

From 2003 onwards, the HKSARG planned to develop more applications for G2E and G2G electronic commerce, mostly through the CCGO platform. For example, the HKSARG is developing the Departmental Portal Program, which aims to develop secure and user-friendly Web sites for internal communication with individual government departments. E-learning Web sites are also implemented to promote a self-learning culture within the government (HKG, 2004d). Plus, more applications using the approval paths, such as e-Leave, the electronic leave application system, are either developed or developing. This indicates that the HKSARG would like to fully utilize the benefit of Internet technology to collect and disseminate information to her employees and to facilitate communication between users in different government departments.

Development of G2B and G2C E-Commerce and the G2B/G2C Portals of the HKSARG

Apart from developing G2E and G2G e-Commerce systems, the HKSARG also develops new systems for G2B and G2C e-Commerce, also grounded by the initiative announced in EPP and Digital 21 IT Strategy. These new e-government applications enjoy a high reputation in various worldwide surveys. In the early 21st Century, both Accenture and TNS had conducted surveys on e-Government in worldwide bases. While Accenture (2003) ranked Hong Kong third in the Asia Pacific Region and eighth in worldwide "Overall Maturity in e-Government" in 2002, TNS (2003) ranked Hong Kong second in the Asia Pacific and eleventh in the world on the percentage of population who used government online services (43%), twelfth in the percentage of population who were Internet users (54%), tenth in the percentage of government online users based on internet use (70%), and third worldwide with 40% of total adult population perceived that it was safe to use the e-government service. Another study conducted by Meliski, Holzer, Kim, Kim, and Rho (2005) shows that Hong Kong ranked second in overall digital governance among 84 cities. Plus, Hong Kong ranked first in privacy and security, and usability, second in service delivery, and fifth in content in the study. However, Hong Kong has a relatively low score in citizen participation. Table 10 summarizes the major results of these studies.

Other local studies also show that G2B and G2C e-government deliverables are welcomed by the local citizens. A survey conducted by Census and Statistics Department (http;//www.censtatd.gov.hk) in 2004 shows that 47.8% of persons aged 10 or above in Hong Kong had used Internet services via a non-mobile Web device to browse government Web sites or for downloading government information, online (C&SD, 2004). Another study conducted in 2003 by AC Nilesen on behalf of the HKSARG also shows that 70% of Internet users had used e-government services in 2003, of which more than 60% rated the HKSARG's e-government services as "very good" or "quite good" (HKG, 2004a).

Amongst all the e-government initiatives developed for members of the public by the HKSARG, the most successful system is the electronic service delivery (ESD) (http://www.esd.gov.hk), which is the milestone of the development of G2C electronic commerce in Hong Kong, and an initiative mentioned in the 1998 Digital 21 IT Strategy.

So far, the HKSARG has committed US$19M on ESD and it serves as a portal providing one-stop services for citizens and businesses and provides services ranging from the booking of government facilities, filing of tax returns, to booking of a marriage appointment. The launching of the ESD Web site has been generally welcomed by members of the public as reflected by the usage statistics. In 2003, over 80% of couples have made their marriage booking online on the first day of the notice giving period. Plus, over 20% of bookings of sports facilities and leisure activities were conducted online and 37% of payments of government bills were processed by electronic means (HKG, 2004a). ESD also won several international awards, including Stockholm Challenge Awards in 2001 and is the winner of the Asia Best Practice Award in e-government at the World Summit Award in 2003 (HKG, 2004b). The latest version of ESD now provides Internet short-cuts to various government services, such as booking of leisure facilities, etc., and general information about Hong Kong and the HKSARG, e-Shopping facilities for purchasing both products from the government departments or other business partners of ESD and the government, as well as weather and transport information.

Recently, with the help of further advancement in Internet technology, the HKSARG decided to further improve its services provided to members of the public. To help the local and overseas business companies to gain a better understanding of Hong Kong and the Mainland China markets, and various trade arrangements between Hong Kong and her business partners, such as the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) and WTO arrangements, a G2B portal, in other words, Business.gov.hk( http://www.business.gov.hk) is established. This portal aims to provide useful information related to establishing a business firm in Hong Kong and the Mainland China, as well as information to help Hong Kong business to start-up their overseas offices, information for financing the firm and the other useful information for the local and overseas businessmen. It is anticipated that this Web site will further strengthen the G2B services of the HKSARG.

Another niche G2B Web site has also developed for handling tenders to be submitted to the government, the electronic tendering system (ETS) (http://www.ets.com.hk), is established. ETS is hosted by the Government Logistics Department (GLD) (http://www.gld.gov.hk) and maintained by a business firm. It is mainly for handling government tenders of services and equipment required with an expected price of more than HK$1.3M (or US$0.17M) and for the listing of used items to be auctioned by the government departments. This Web site helps to disseminate the tender information to the public and business firms in a more efficient way than before.

To improve the usability of government Web sites, the HKSARG has adopted the "Common Look and Feel" (CLF) scheme to standardize the design of all government departmental Web sites since 2003 (HKG, 2004c). Plus, all the government Web sites now have three versions, i.e. English version for non-Chinese users, Traditional Chinese Character version for local citizens as well as Chinese users from other part of the world, and the Simplified Chinese Character version for the Mainland Chinese users. With the help of CLF and the development of the three versions of Web sites, users from all over the world can obtain information and enjoy the e-government services of the HKSARG without language barriers.

CURRENT CHALLENGES

Hong Kong faced recession during 1999 to 2004. To help Hong Kong to sustain its competitiveness and to prepare the economy and the community to transform from traditional business to e-business, the HKSARG launched Digital 21 IT Strategy and began to commit heavily to IT. In the past eight years, the HKSARG committed around US$1,100M to more than 1,200 IT projects. Most of these commitments are related to the development or enhancement of IT infrastructure and networks, and to the development of IT strategic plans. At the same time, the HKSARG also committed to develop e-commerce applications on various types of e-Government formats.

Nowadays, members of the public and employees are expecting the HKSARG to provide smooth electronic transactions for various kinds of e-government transactions. While we notice that ESD and CCGO probably set the foundation and examples for developing portals for citizens and public officers respectively, there are lots of challenges to be faced by the HKSARG. For example, even though ESD can act as a portal for G2B and G2C transactions, it can only serve those citizens who have Internet access. At the moment, citizens who do not have Internet access cannot enjoy these services. Even though some convenient places, like the Starbucks Coffee shops have a free Internet connection, users cannot obtain printouts from computers or make secure Internet transactions using the PKI technology. As reported by Meliski et al. (2005), citizen participation in e-government in Hong Kong is not very high. Therefore, the coming challenge for the HKSARG in G2C electronic commerce is how the HKSARG can help people to have convenient Internet connections in public places and to boost the level of use of e-government by citizens. This will become a major problem as the HKSARG is now migrating from five-anda half-day work to a five-day work system, and thus, citizens and business firms are suggested to make better use of the e-Government systems.

The same problem also occurs for G2E electronic commerce. Even though 78% of government employees have Internet or Intranet connections in their workplace and can connect to G2E and G2G applications (HKG 2004d), they cannot access these networks after work as most of these networks are secured networks, which are either physically separated from the Internet, or have firewalls to refuse connections from terminals outside the government network. It is understandable that most G2G applications are tailor-made for office use. G2E applications are mainly for handling personal matters, such as filing of leave applications or to obtain some internal application forms, and so forth. Hence, the current arrangement limits the usability of G2E applications and the HKSARG should find a way to improve the accessibility of G2E applications to its employees after work. Furthermore, as shown by the study conducted by Ho and Ho (2006), some of the internal systems developed may not be welcomed by users. With the huge investment committed by the government to the development of these G2E and G2G applications, does the HKSARG get sufficient return from its investment? Also, how can the return be measured and quantified?

References

REFERENCES

Accenture (2003). E-government leadership - Realizing the vision. Retrieved May 31, 2006, from http://www.accenture.com/global/reasrch_and_insights/by_industry/government/egovvision.htm.

Census and Statistics Department (C&SD) (2004). Summary of survey findings extracted from "Thematic Household Survey Report No. 20". Retrieved May 31, 2006, from http://www.censtatd.gov.hk/filemanaager/en/content_631/ths20-it.pdf.

Commerce, Industry and Technology Bureau (CITB) (2004). Digital 21: Sustainability and Opportunities. Retrieved May 31, 2006, from http://www.info/gov.hk/digital21/eng/srategy2004DG21Stategyeng_full.pdf.

Danziger, J.N., Kraemer, K.L., & King, J.L. (1978). An assessment of computer technology in U.S. local government. Urban Systems, 3(1), pp. 21-37.

Devadoss, P.R., Pan, S.L., & Huang, J.C. (2002). Structural analysis of e-government initiatives: A case study of SCO. Decision Support Systems, 34(3), 253-269.

Finance Bureau (FB) (1999a). The 1999-2000 Budget. Retrieved May 31, 2006, from http://www. budget.gov.hk/1999/index.htm.

Finance Bureau (FB) (1999b). Enhanced Productivity Programme 1999-2000. Retrieved May 31, 2006, from http://www.budget.gov.hk/1999/booklet/english/eepp1.htm.

Finance Bureau (FB) (2000). Enhanced Productivity Programme 2000-01. Retrieved May 31, 2006, from http://www.fstb.gov.hk//tb/epp/booklet/2000-01/english/epp_content.htm.

Finance Bureau (FB) (2001). The 2001-02 Budget Enhanced Productivity Programme. Retrieved May 31, 2006, from http://www.budget.gov.hk/2001/eppf.html.

Financial Service and the Treasury Bureau (FSTB) (2003). The 2003-04 Budget Speech. Retrieved May 31, 2006, from http://www.budget.gov.hk/2003/eng/speech.htm.

Golden, W., Hughes, M., & Scott, M. (2003). The role of process evolution in achieving Citizen Centered e-government. Ninth Americas Conference on Information Systems. Tampa, Florida.

Ho, S.Y., & Ho, K.K.W. (2006). A study on the information quality satisfaction of communication portals in the Hong Kong government. In Proceedings of 2006 IRMA International Conference, pp. 90-93.

Hong Kong Government (HKG) (2004a). E-government success stories. Retrieved May 31, 2006, from http://www.info.gov.hk/digital21/e-gov/eng/milestones/succ_stories.htm.

Hong Kong Government (HKG) (2004b). International Recognition. Retrieved May 31, 2006, from http://www.info.gov.hk/digital21/e-gov/eng/milestones/itl_recog.htm.

Hong Kong Government (HKG) (2004c). Common Look and Feel. Retrieved May 31, 2006, from http://www.info.gov.hk/digital21/e-gov/eng/init/clf.htm.

Hong Kong Government (HKG) (2004d). G2G and G2E Applications. Retrieved May 31, 2006, from http://www.info.gov.hk/digital21/e-gov/eng/init/g2e.htm.

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AuthorAffiliation

Kevin K.W. HO, Hong Kong University of Science and Technology, Hong Kong

AuthorAffiliation

Kevin K.W. HO is working on his doctorate in information systems at the School of Business and Management of the Hong Kong University of Science and Technology (HKUST). He obtained his BSc(Hons.) and MPhil in chemistry and MSc in information systems management from local universities and an MA in Economics from the University of Oklahoma. Kevin is now working in the Hong Kong Police Force as an executive officer. His research interests include electronic auction, information systems strategy and electronic government. He has published in the Journal of E-Government and the International Journal of Cases on Electronic Commerce.

Appendix

APPENDIX A. LIST OF ABBREVIATIONS

B2B: Business-to-Business

B2C: Business-to-Consumer

BPR: Business Process Re-engineering

CCGO: Central Cyber Government Office

CEPA: The Mainland and Hong Kong Closer Economic Partnership Arrangement

CITB: Commerce, Industry and Technology Bureau

CLF: Common Look and Feel

CPI: Consumer Price Index

C&SD: Census and Statistics Department

DMS: Document Management System

e-Government: Electronic Government

EPP: Enhanced Productivity Program

ESD: Electronic Service Delivery

ETS: Electronic Tendering System

FB: Finance Bureau, which is amalgamated with the Financial Services Bureau and renamed as the Financial Services and the Treasury Bureau (FSTB) in 2002.

FSTB: Financial Services and the Treasury Bureau

G2B: Government-to-Business

G2C: Government-to-Citizen

G2E: Government-to-Employee

G2G: Government-to-Government

GCN: Government Communication Network

GLD: Government Logistics Department (http://www.gld.gov.hk)

GOA: Government Office Automation

HKG: Hong Kong Government

The HKSARG: The Hong Kong Special Administrative Region Government

ID: Identity

ISSS: Information Systems Strategy Studies

IT: Information Technology

ITBB: Information Technology and Broadcasting Bureau, which is amalgamated with the Commerce and Industry Bureau in 2002 and renamed as the Commerce, Industry and Technology Bureau (CITB).

KRA: Key Result Areas

LegCo: Legislative Council (http://www.legco.gov.hk)

OCGIO: Office of the Government Chief Information Officer

PKI: Public Key Infrastructure

SARS: Severe Acute Respiratory Syndrome

WHO: World Health Organization

WTO: World Trade Organization

Subject: Information technology; Electronic government; Cities; Web portals; Public administration; Case studies

Location: Hong Kong

Classification: 9550: Public sector; 5250: Telecommunications systems & Internet communications; 9179: Asia & the Pacific

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 2

Pages: 71-73,75,79,83-89

Number of pages: 12

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables Graphs References

ProQuest document ID: 221262373

Document URL: http://search.proquest.com/docview/221262373?accountid=38610

Copyright: Copyright IGI Global Apr-Jun 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 33 of 100

E-Learning Quality: A Look Towards The Demands of its Good Practices

Author: Mena, Marta

ProQuest document link

Abstract:

The evaluation issue has acquired a significant importance in the last years and has increased the concern about the analysis of the educational practices' quality. This article deals with the concept of quality and asks about the different aspects that define it. It develops certain criteria that allow assessing a good e-learning practice. The first aspects that are necessary to define are: (a) the pursued purpose and (b) the Institution's structural configuration. Good practice evidences are: a direct relation between the program proposal and the intervention context; coherence between theory and practice; presence of interactive and multimedia materials together with permanent interaction; strategies and devices especially designed to support learning; appropriate technology; permanent evaluating research; and a clear human resources policy [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: distance learning; e-learning; evaluation; online course; required course

INTRODUCTION

The far-reaching importance that the issue of evaluation has acquired in the last years has not only impregnated our discourses with its vocabulary but also has increased the interest in the analysis of the quality of the educational practices.

Evaluation and quality are two issues always related. In general, when we evaluate, we do it with reference to a model we consider ideal, desirable, and representative of our idea of quality. That conception of quality is what will orientate and will base our judgements of value in relation to the evaluated practice. Here lays the significance of a previous definition of the concept of quality, since this is a polysemous and multidimensional concept, it requires previous considerations that consider the ideological differences, the diverse meanings, and the multiple aspects that are entangled at the moment of defining its meaning, components, and characteristics.

Every day we hear about many of the uses of this concept that range from the simple instrumental reason to the most utopian conceptions. Therefore, we find quality criteria defined from an organizational reality that considers the institution to be responsible for the action immersed in a structure of power that result questionable to us. In addition, the receptor of that action is considered from a passive perspective, "as a receptacle of a service or product" where quality exists independently from the participant subjects, unconnected with the collective experience (CINDA, 1990).

Other models aimed at the people's quality of life improvement, based on respect toward diversity and on a renouncement to transform individuals into instruments (Nirenberg, Brawerman, & Ruiz, 2000), are opposed to that economic rationality mentioned before.

Brunner (1994) affirms that there are those who assess superior education quality from the input, the products, and the processes' point of view. Consequently, they elaborate criteria, standards, or measures for its amelioration, completely opposite to them, and often contradictory.

Thus, if the importance of the input is emphasized to determine the quality of an institution or educative programme, the stress will be set in the expenses per student, in the availability of technological equipment, in the technical and academic qualification of the hired equipment, in the bibliographic resources, etc.

On the contrary, if the results are the main concern, the products linked with teaching, research, or production especially highlighting the good chances of job placement for graduates, the number of papers produced by their researchers, the awards received, etc., will be watched predominantly.

This third dimension in Brunner's classification is constituted by the emphasis on the processes, underlining all the aspects referring to organization and administration of the different stages of development of the educational programmes. This is a way of appreciating the selected methods, the designed procedures, the learning environment built, the communication upheld, the promoted interaction and interactivity, etc.

It is completely possible to recognize these frames of assessment in the presentation of some institutions and/or e-learning programmes, especially in the corporate field, which marketing campaigns reflect visions based either on the important input that fed the proposals with the often millionaire budgets, or on results obtained from some important bidding. In all the cases, the institutional home page is an eloquent witness of these framings.

On the other hand, other organizations relate the concept of quality with innovation, considering the search for change and the institutional dynamism an evidence of concern towards quality. "The improvement of quality is deeply linked with the permanent innovation both in the academic field and in management processes" (ANUIES, 2001).

Many other classifications can be considered at the time of setting the concept of quality. This fact is what makes it impossible to establish an aseptic definition. What we could do instead is to establish our theoretical position facing the need to assess the quality of a virtual education experience.

With this purpose, I prefer to withdraw from the criteria and/or indicators listings, which supposedly allow an "objective" analysis of the virtual programmes or proposals. On the other hand, I will focus on the search for quality "evidences" found in technologically mediatised educative practices. For that reason, we will develop the concept of "good practice."

We constantly notice that some concepts or expressions enter our work field, our practices, and vocabulary without a previous analysis of their meaning. This is the case of the good practices.

In fact, we were used to talking about "good teaching" in Fenstermacher's (1986) philosophical sense, in other words, the conscious activity of teaching rationally justifiable contents. In short, issues worth knowing, believing, and understanding for the student.

In a wider sense, we talk about good education when we find in the educational proposal updated and relevant contents, good teaching staff, methodologies, and resources that adequately accompany student's learning in a permanent interaction context.

Biggs (2003) states that good teaching is achieved "when the majority of the students use the superior cognitive levels processes, which spontaneously use the more academic ones." The teachers will be responsible for the design of adequate strategies to succeed it.

In my opinion, although the reference to good practices is logically related to good teaching, its meaning is wider and concerns apart from the educational intention, the institutional context, and the results obtained.

References to this concept are found basically in agencies and institutions concerned about the establishment of broad parameters that allow both to guide the development of virtual education programmes and a suitable reference to the evaluators. This is the aim of general outline documents such as the "Best practices for electronically offered degree and certificate programs" of the U.S. Accreditation State Agency (http://www.msache.org).

In other cases, we find programs regarded as quality like the Benvic Project (Benchmarking of Virtual Campuses) from de European Union.

The fact of permanent change in these realms is what makes it difficult to establish parameters to recognize good practices. For that reason, a periodical dynamics of adjustment and revision.

In general, the emphasis is set in the analysis of the five basic components of e-learning experiences such as the institutional context programme, the curriculum and the study programme, the support system, the support system to the student, the academic staff, and the evaluation system (Flores & Becerra, 2002).

In all of these cases, the attempt is to get certain criteria unification and a global validation. However, more and more it is considered appropriate to revise and adapt the projects to the region characteristics in the light of the different theoretic lines that give fundament to the development of outlines or frames of reference that allow recognizing good practices.

In my opinion, as well as it happens with the concept of quality, when we want to identify good practices, there is a need to establish a guiding frame prior to the analysis of the perspective or rationality that emerges.

In all, the main question is that the concept deeply involved in the maintained theoretical framework is neither neutral nor universal. In this sense, I consider that understanding a practice, its configuration, and development means to understand its implicit rationality. It is not the same to determine a good practice from an instrumental rationality that will underline means/aims and an efficient and efficacious action, than to state it from a communicative rationality that always conceives practices as social, located, and intersubjective. In addition, each of these perspectives, apart from meaning different positioning in relation to definitions, decisions, and actions taken in the programme, equally shape the roles of the actors involved in different ways (Mena, Rodriguez, & Diez, 2004).

Therefore, this first consideration regarding the implicit rationality of the educational practices is vital to determine the lens through which these practices are analysed.

The perspective from which I will raise the analysis of good e-learning practices is closer to a communicative rationality with its senses of participation and negotiation, than other approaches that consider educational practices as a means/aims equation.

Furthermore, a practice considered good or acceptable, apart from having a clear previous theoretical positioning, depends on other aspects such as the pursued purpose and the structural configuration.

The Pursued Purpose

When we observe any educational perspective, it will be very important to assess its quality in terms of the last purpose pursued. We know that the design of a distance-learning programme is born in a problem that needs to be solved. The kind of situation that the educational intervention will manage will guide the achievement of certain objectives. Toward this aim, a set of strategies will be unfolded and should be related to the purposes pursued and its quality will be assessed insofar they match with them.

Among other things, this implies that even today, not all the mediatised educational solutions must be either organized around virtuality or to deal with the latest technologies.

Nipper (1989) explains this issue by showing that if our aim is, for example, to reach a lot of students, the second-generation distance education systems will be the more effective ones since they will cover a great geographical scoop, being learning an individual process achieved preferably by interacting with the material.

On the other hand, if the last objective is to built a teaching and learning community, the more effective systems will be those of third generation that require a greater interaction among the different actors. Here, the educational process stops being individual basically based on a certain material to start being permanently created by the teaching and learning community.

Barberà, Badia, and Mominó (2001) take Nipper's example and highlight that one system or another will be more effective in relation to the outlines and with the pursued results, but wonder if its effectiveness is a quality indicator. I believe that at this point we have to insist on the polysemous character of the concept of quality. This fact prevents us from tackling this issue of quality in absolute terms; it is also difficult to reach a sole conclusion, often preconceived, without taking into account the institution's last objectives when planning and developing their educational processes.

Even so, determining in these cases, the good practice will have to do with not only the characteristics of the developed processes and the technological input, but also with the institutional purpose pursued in relation to the context needs.

Nevertheless, we should take into consideration that on certain occasions, genuine institutional purposes crash against naïve promises or false expectations. We well know that a lot of emphasis has been set on the universal validity of certain e-learning development models to expand education benefits and to democratize access to University for the general public. However, Latin America educational reality clearly shows that there are social sectors that were not able to benefit from these proposals for different reasons, generally related with the different gaps (social, economic, cultural, generational, and educational ones) that segregate population.

In the Latin American and the Caribbean Higher Education development report (2004), for instance, the Brazilian Virtual University shows a paradoxical result: "(...) but Distance Education through new technologies in this period constitutes an evidence in itself: the performance of higher education institutions is not being able to confirm the prediction that Virtual University was going to be an instrument to promote and democratize the access to education." Later the report clarifies: "Regarding the question of the paradox of the Virtual University in Brazil, the researches that accompany the Internet access growth in the country clearly show that the expansion occurs mainly in the upper and middle classes strata of society, in relation with the domestic users, as well as in the most important business corporations, and in state, federal, and municipal services. And it concludes: "At the beginning of the 90s, the massive arrival of the NTICs to education, the appearance of the third generation of distance education and associated consequently with this, the development of the concept of virtual education, announced benefits in technology, pedagogy, mediation, and social inclusion. This benefit was soon properly applied to e-learning in the corporative realm and in the modernization of on campus teaching, but was not developed in distance education. The NTICs did not contribute in Brazil to break the boundaries among universities; populations were not complemented with access to higher education. The long distances from the university centres, unfavourable financial conditions, and high costs of teaching in higher education were, in the end, aspects that could not be resolved.

The conclusions of this brave and well-based report on Virtual University achievements can be differently assessed according to global criteria and to the place assigned to the institutional purposes.

The Structural Configuration

Apart from the pursued purposes, it is important to take into account the type of institution's structural configuration when we want to identify a good practice.

It is necessary to make clear that there are differences between what can be considered a good practice in different contexts: Open or Virtual University, a bimodal or a corporate institution, a human resources department at a government agency, or a private company. Each of these institutions has distinguishing features: its objective, target population, structure, etc, and will have, consequently, different reference points, and quality parameters, both related to the features mentioned.

In general, the quality of a training proposal in a government organization is regarded in relation to its potential to produce a social impact and to enable and strengthen the development of democratic processes in knowledge management (Fontdevila, 2004; Fontela, Hellers, Mann, Podlesker, & Subotovsky, 2003). Therefore, the main concern will be set on the development of resources that allow spreading and enlarging a continuous debate and participation.

On the other hand, in the corporate field, what business men greatly value in an e-learning programme is the capacity to reduce costs, so they underline the immediate benefits that represent the travel expenses and the possibility to keep employees at work for a longer time (Fernández, 2004).

Open Universities unlike Virtual Universities have a hierarchic structural configuration and a second-generation methodological definition; they value the development of virtual proposals inside them in different ways. First, they appreciate the possibility of renewal, so they permanently consider these initiatives as a chance of being an educational innovation even today. They also particularly value the digital proposals flexibility that allow them to make transitions from second to third generation without the need of traumatic global changes (Martín Rodriguez & Ahijado Quintillán, 1999; Mena, 2004).

Other factors like the ones previously mentioned establish differences at the time of positioning as to good practices such as the consideration of the role of technology or the value assigned to the learning contents vs. the competences or to the fact of "learn to learn." However, I would rather develop what in my opinion is necessary to take into account when recognizing a good practice in third generation distance education.

How Do I Recognize a Good Practice?

The great number of studies and classifications that, within decades, we have made to arrive to a unanimous accepted concept of quality and the subsequent efforts to translate them in standards to assess distance programmes, together with more contemporary attempts to delimit criteria or characteristics which identify good practices in virtual education, is what makes the difference between good programmes and other offers of bad or nil quality, especially the ones that are considered a fraud to society.

The apparent fragility of these offers is based on how easy it is to create institutions or virtual programmes using smart designers who can build a façade on the Internet with technically correct interfaces and attractive structures, but without fulfilling the requirements that any good institution is obliged to: giving education of quality, generating functional spaces that guarantee the processes of generation, conservation and transference, typical of knowledge management. As Silvio (2000) states, "I am referring in this case to the virtual lecture room, the virtual lab, the virtual extension space, and the virtual office to the management in general."

Potemkin's virtual village metaphor is often presented as an example of untruthful façade to illustrate this concern:

Gregory Alekandrovich Potemkin was one of Queen Catherine's great favourites, Russian empress in the XVIII century. Among other favours, the queen gave him vast inhabited lands and significant sums of money to develop them. When Catherine planned a great tour throughout Crimea in 1787 to see by herself the results of her generosity, Potemkin got in serious troubles because he obviously had squandered all the money the queen had given him. The skilful Potemkin convinced Catherine to travel by boat, so he could control a show to deceive her. He built along the river façades of the villages he had promised and hired peasants to work in the fields and to fill with laughter and virtual commerce the non-existent villages. At night, everything was packed up and taken to the next place where the flotilla was going to pass and the show was on again. Catherine was fascinated with what she saw and kept on favouring Potemkin.

Like the skilful Potemkin when he deceived the empress Catherine the Great, competent Web designers can create on the Internet institutions and programmes that work as "virtual villages" but they do not resist a closer inspection behind the façade.

Here lies the importance of studying in depth the technical, academic, pedagogic, and ethic requirements of these developments, not only in terms of control and regulation of the educational agents responsible at different levels, but also as a way of guiding the more important decisions that designers must take when they generate programmes with a virtual modality.

A way of satisfying both needs could be what I call "good practices evidence," that is, characteristics or facts that can be verified in the development of the different e-learning practices processes and proposals.

So, the answer to the question, how do I recognize a good practice could be: when I find the following evidences.

When there is a Direct Relation between the Context and the Educational Intervention Proposal, that is, when we Can Talk About a Contextualised Practice

To begin with, I will clarify the concept of context. I do not conceive it as a recipient where one is settled or the place where a practice is determined; I take Mc Dermott's (1980) view, which defines the context as a behavioural order from which one takes part in. From this perspective, each distance programme component is not only deeply linked with the rest of them, but they also acquire sense solely as relations not being able to separate the context in which they emerge. As a result of this, a good practice cannot be conceived separately from the global context in which it is developed. From this point of view, a practice not situated in a context would be unintelligible so any experience, no matter how successful it appears, should be neither transplanted to other realities, nor be designed without considering the context's features and implications.

The study REUNA Virtual University (2004) made for the IESALC about higher virtual education in Chile, suggests improving distance education by the introduction and use of NTIC and its articulation with the existing educational means. It also highlights the need of:

Research and development: End with the endemic adoption of developed countries' models and technology and its direct translation to our realities. Carefully verify the information origin; today, any "expert" can recreate, without a previous reflection, experiences that belong not only to educational contexts, but mainly to other national realities. We should destiny resources to find and adapt really adequate and pertinent alternatives to our cultural, technological, social and economic contexts, in order to generate our own knowledge which let us make progress in a sustained way.

Another example of the importance of putting in context the design and the development of virtual proposals can be found in the particular situation of Peru regarding connectivity.

In Valdiviezo, Patiño and Azabache's (2004) report on distance education in Peru, they say: Until 2001, the number of computers every 100 inhabitants was 4.78 (Source UIT 2001), We are in eighth place in a list of nine South American countries. However, the number of Internet users is quite high; this is basically because a high number of users are connected through public Internet or telephone booths that have been opened by private initiatives.

Public Internet or telephone booths are a particular issue in Peru, not considered enough by specialists. This Peruvian reality is not always correctly interpreted by traditional indicators frequently based on the number of subscriptions, PCs, or telephone lines. Later we'll see that Peru is one of the less developed countries in terms of equipment ownership and information and communication technologies in general, but this is mainly compensated with the use of community facilities like the cyber cafés. In fact, the study previously mentioned shows that 89% of the Metropolitan Lima Internet users have connected to the net through Internet booths in cyber cafés and 70% habitually use them. Analysing this information we can dramatically prove how ignoring the context situation may lead to gross errors in virtual project planning that require intensive technological equipment use.

A deep analysis such as the one mentioned shows the need to investigate further away from the first piece of information. This is a good way to really "see" and understand the context requirements and conditions.

When Coherence Between Theory And Practice Can Be Established

The design of any educational intervention activity implies to start from a certain implicit or explicit theoretical position. No matter what frame is adopted to make that design, it is relevant that the project keeps a necessary watchfulness to ensure coherence in several senses: between decisions and actions taken in each step; among purpose pursued, problems likely to be solved and the perspective to accomplish them; between that perspective and the context in which the experience is developed; and among the different components of that experience. However, note that it is not always possible to find experiences aligned in one theory once and for all. Reality does not allow being trapped in a theoretical script, it is often unpredictable, with subtle variations that cannot surpass the constructions that they try to interpret and explain. Nevertheless, a good practice, apart from basing its decisions theoretically, must avoid building an amalgam among different perspectives. It can predictably result contradictory and find difficulties in the development of a coherent distance programme.

In Barberà's et al. (2001) work, they study the effects of TICS on education, they alert on this circumstance describing it as a "technology effect." The authors describe the technological developments' consequences in educational programs when there is no investigation and relation to the psycho-pedagogical theories that could have guided and supported those programmes.

The result is almost an absent investigation about teaching and learning processes in technological environments and a chaotic proliferation of computing or multimedia applications. They lack a firm and coherent theoretic fundament that could be maintained throughout the application. The focus on the media (the TICS) exceeds the attention on the final aim (education) and the resulting effects are attractive products of a dark conceptual inspiration. In short, what technology is able to offer us is may be not what we want or does not exactly coincide with our needs.

We should take into account that we are getting through a moment of deep changes in the distance modality developments. While the classic theories that based them, like that of autonomy and independence were not completely exceeded, they have to be conceptualized again in the light of the new tools and developments.

García Aretio (2003) proposes, among the quality conditions of learning in virtual environments:

* It is precise that all the actors implied in the project start from a sufficient knowledge of the pedagogic principles and the theoretical basis that are absolutely necessary to assure quality practices, especially in unconventional contexts in which we are obviously less prepared. Any learning process could fail as a result of two questions: ignoring the theoretical foundations of either education in general or distance education in particular and not considering the permanent or emergent pedagogic principles that surge around the net.

* It is not serious to put learning programmes into action based on up-to-date technologies without starting research processes that reinforce change proposals, consolidate already existing good practices, and guarantee well articulated future designs and proposals.

When the Teaching Proposal is Integrally Carried Out Through Interactive and Multimedia Materials, Naturally Accompanied by a Permanent Interaction of all the Actors Involved

The present third generation distance education developments emphasize both pedagogic interactivity and social integration. In these contexts, the design of proper learning environments is particularly significant. According to this, an integral virtual teaching proposal should focus on two main aspects. On one hand, a careful design of the materials that allow a high level of interactivity, inviting the student to actively participate, defying his thoughtfulness, and permanently suggesting being co-protagonist in the construction of the experience. On the other hand, multidimensional interactivity should be encouraged by the design of suitable situations toward this aim. In this sense, Chickering and Ehrmann (1996) developed seven general principles about "good practices" in third generation programmes, highlighting the features previously mentioned:

1. Stimulate student-teacher contact.

2. Stimulate cooperation among students.

3. Stimulate active learning.

4. Offer a fast feedback with students.

5. Highlight the time invested in the assignment.

6. Transmit high expectations.

7. Respect the different learning abilities and styles.

When a Group of Strategies and Devices Especially Designed as a Learning Support to the Student Can Be Found

E-learning proposals have a great amount of resources to help students. However, it is necessary to corroborate that those tools not only appear in the offered technological devices inventory or they represent an inactive icon in the e-learning platform, but also apart from "working," they have been incorporated into the teaching proposal. On many occasions, we have all recognized these façades on the Internet, which show an attractive interface but do not resist a closer look on the different functionalities that they offer. Moreover, virtual libraries both have to be developed and really be furnished to solve information problems that any student could face in a virtual programme. The administrative services should bring, besides the orientation, the possibility of really making distance arrangements. Forum discussions should not be a "no mans land," on the contrary, they should be places where the students interact and exchange learning skills and collaborative tasks conveniently orientated by the teacher valuable for the assessment.

When the Selected Technology is Naturally Integrated to the Distance Programme and it Contributes to the Targeted Objective, Considering its Characteristics and the Ones of the Receptors

In educational modalities as the ones described with a technological turn, prior to the choice of the technological equipment, it is crucial to make an analysis of the programme objectives and context situation in which it is developed. The aim is adequate in its characteristics to the educational intervention's requirements and to produce an effective improvement on its performance and results. Bates (1999) adds in this way: "the technology choice must be guided by student's needs and the work context, not by the latest market news." Britain and Liber (1999) define two main aspects that every good practice in virtual platforms should not lack:

1. E-learning platforms must collaborate improving on variety and quality teaching not obtained from traditional teaching.

2. Virtual platforms must lower teacher's administrative load, allowing an efficient work organization, qualifying them to respond to individual student educational needs.

When the Experience Goes Permanently Together With an Assessed Research That Allows Getting Information on its Performance

This process in which the distance programmes management, through an adequate design and application of evaluation tools, develops its own permanent assessment process, feeds the decision-making, and improves both the whole process and the experience results. Of course, to achieve this, the educational practice should not be, to achieve this, not be considered as a formality to fulfil in a delimited time. Instead, the educational practice should have to be transformed in a permanent healthy exercise of analysis and reflection in each and every virtual programme's basic tools and components. The resulting input will be valuable to the following decision making and to the permanent renewal and adjustment of the experience. Achieving this, indicates good practice.

When the Distance Programme has a Policy in Relation to the Teachers Involved, This Means Taking Actions to their Selection, Training, and Assessment

The human resource is always a strategic factor in any educational experience. A good elearning practice must have a concrete policy that could account for the assigned value to each of the roles that compose the teacher staff. The selection, training, and assessment triad could be taken as a good example of the concern on the programme's human resources quality. In addition, the selection of the staff should be carefully made according to a previous project ad-hoc profile. In the same way, permanent training actions should be planned to improve on trainer training according to the demands of its developments. The triad is completed with the teacher's performance permanent assessment process, which can inform about the marks obtained. This is undoubtedly a key indicator of a good practice.

When a Critic Attitude Against the Hegemonic Theoretical Practices Has Been Raised

Finally, the most difficult condition to evaluate a distance programme quality is that of the attitude that it has been raised against the hegemonic theoretical practices. That is, if the temptation of a non-critic reception has been overcome. This is the real challenge nowadays that so many fashions go through our professional practice, struggling to be adopted. Today it seems to be compulsory to assume certain theoretical behaviours to cross certain roads to get a passport straight to cutting-edge generation.

CONCLUSION

In all, this is just an attempt to build criteria for the analysis of distance education experiences that allow us to identify good practices. The goal is to continue in this search of new tools to a better understanding of the nature of the practices developed in this field. This understanding is the one that will allow unfolding new ideas, innovate in our institutions, and improve on the quality of our interventions in e-learning programmes.

However, there are voices who speak against such practices. In Quito Declaration (http://infolac.ucol.mx/observatorio/declaracion-quitol.html), about the universities role in the information society, it is suggested in point 4 that: "Since the identification of innovation and reform processes on the educational models that include the application and development of NTIC, they have to contribute to virtual and distance education, making research actions heading to a critical apprehension and application of NTIC to international education and to the development of the information society, among others."

Freenberg (1991) opposes the technological imperative saying that "the stupid exaggeration of technology merits discredits all the field of online teaching. As teachers, we should transcend the defensive disdain facing this important educational innovation and take care of the designs that legitimate the pedagogic objectives that we think of."

References

REFERENCES

ANUIES. (2001). Diagnóstico de la Educación Superior a Distancia. Mexico.

Barberà, E., Badia, A., & Mominó, J. M. (2001). La incógnita de la educación a distancia. Barcelona: Editorial Horsori.

Bates, T. (1999). Managing technological change: Strategies for academic leaders. San Francisco: Jossey Bass.

Biggs, J. (2003). Teaching for quality at university. UK: Open University Press.

Britain, S., & Liber, O. (1999). A framework for pedagogical evaluation of virtual learning environments. Report to JISC Technology Applications Programme.

Brunner, J. (1994). Educación Superior en América Latina: Coordinación, Financiamiento y Evaluación. In Evaluación Universitaria en el Mercosur. Ministerio de Cultura y Educación de Argentina.

Chickering, A., & Ehrmann, S. (1996). Implementing the seven principles: Technology as lever. American Association for Higher Education Bulletin, 49(2), 3-6.

CINDA. (1990). Calidad de la Docencia Universitaria en América Latina y el Caribe. Políticas, Gestión y Recursos. Estudio de casos. Centro Interuniversitario de Desarrollo, Santiago de Chile.

Fenstermacher, G. (1986). Philosophy of research on teaching: Three aspects. In M. C. Wittrock (Ed.), Handbook of research on teaching (3rd ed.) (pp. 37-49). New York: Macmillan.

Fernández, E. (2004). Implementación de proyectos de formación online. Madrid: Alfaomega.

Flores, J., & Becerra M. (2002). La educación superior en entornos virtuales. Buenos Aires: Edic. Universidad Nacional de Quilmas.

Fontdevila, P. (2004). La crisis del estado y la formación de recursos humanos calificados. Proceedings of the 4th Conferencia Internacional de la Educación y la Formación basada en la Tecnologías, ONLINE EDUCA MADRID.

Fontela, M., Hellers, N., Mann, A., Podlesker, C., & Subotovsky, S. (2003). E-learning. Buenos Aires: Tecnonexo.

Freenberg, A. (1991). Critical theory of technology. Oxford: Oxford University Press.

Garcia Aretio, L. (2003). Calidad en los entornos virtuales de aprendizaje. In M. Barajas & B. Álvarez. La tecnología educativa en la enseñanza superior. Entornos virtuales de aprendizaje. Madrid: McGraw Hill, IX-XVIII.

Martín Rodríguez, E., & Ahijado Quintillán, M. (1999). La educación a distancia en tiempos de cambios: Nuevas generaciones, viejos conflictos. Madrid: Ediciones de la Torre.

Mc Dermott, R. (1980). Profile: Ray L. Birdwhistel. Kinesis Report. Cited by Chicklin & Lave. (1996). Understanding practice: Perspectives on activity and context. England: CUP.

Mena, M. (2004). La educación a distancia en América Latina. Modelos, tecnologías y realidades. ICDE-UNESCO, Buenos Aires: La Crujía.

Mena, M., Rodríguez, L., & Diez, M. L. (2005). El diseño de proyectos de educación a distancia. Páginas en Construcción. Buenos Aires: La Crujía.

Nipper, S. (1989). Third generation distance learning and computer conferencing. In R. Mason & A. Kaye (Eds.), Mindweave: Communication, computers, and distance education (pp. 63-73). Oxford: Pergamon.

Nirenberg, O., Brawerman, J., & Ruiz, V. (2000). Evaluar para la transformación. Buenos Aires: Paidós.

REUNA Virtual University. (2004). La educación superior virtual en Chile. In J. Silvio et al. (Eds.), La educación superior virtual en América Latina y el Caribe. México, D. F.: Unión de Universidades de América Latina; Comités Interinstitucionales para la Evaluación de la Educación Superior; UNESCO/IESALC.

Silvio, J. (2000). La virtualización de la universidad. Caracas: Ediciones IESALC-UNESCO.

Valdiviezo, E., Patino, A., & Azabache, H. (2004). Educación superior virtual y a distancia en Perú. In J. Silvio et al. (Eds.), La educación superior virtual en América Latina y el Caribe. México, D. F.: Unión de Universidades de América Latina; Comités Interinstitucionales para la Evaluación de la Educación Superior; UNESCO/IESALC.

AuthorAffiliation

Marta Mena, Open and Distance Education International Counsel for Latin America and the Caribbean, Argentina

AuthorAffiliation

Marta MENA, PhD, is the vice-president for Latin America and the Caribbean of the Open and Distance Education International Counsel (ICDE). She is also the director of the Electronic Training Program at the National Presidency of Argentina. She held the Pedagogy Undersecretary Office and also the director-in-chief of the Distance Program at Faculty of Economy Sciences (University of Buenos Aires) until March-2006. She is international organizations consultant in the area of distance education and new technologies: UNESCO, OEA, BID, FAO, CLAD (Latin American Centre for Development Administration), PNUD. She is the president of the Scientific Committee of UNIVERSIA. Finally, she is member of the editorial staff of several international journals, and she is the author of innumerable articles and books on the field of distance education.

Subject: Quality of education; Online instruction; Educational evaluation; Distance learning; Technological change

Location: Latin America

Classification: 9173: Latin America; 8306: Schools and educational services; 5250: Telecommunications systems & Internet communications

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 2

Pages: 1-11

Number of pages: 11

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: References

ProQuest document ID: 198737749

Document URL: http://search.proquest.com/docview/198737749?accountid=38610

Copyright: Copyright Idea Group Inc. Apr-Jun 2007

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 34 of 100

E-Learning University Networks: An Approach to a Quality Open Education

Author: Elena Verdú Pérez; María Jesús Verdú Pérez

ProQuest document link

Abstract:

The achievement of coordination activities and the creation of university networks are considered to be fundamental mechanisms to bring together the different higher education systems as well as to promote synergies between less developed regions and more developed ones. ODISEAME (Open Distance Inter-University Synergies between Europe, Africa, and Middle East) is an interdisciplinary and intercultural e-learning project whose main goal is to create a Euro-Mediterranean network of universities for the cooperation in the design and development of tele-learning experiences. This four-year project ended in June of 2006 with its final phase when several multilingual and multicultural learning experiences were carried out in an efficient way. These experiences were developed in all the official languages of the participant countries, as well as in English, using a Web-based multilingual virtual space. This article describes the ODISEAME project and the e-learning experiences derived from it and presents some conclusions from their evaluation. It finally shows the importance of university networks in the process of establishing the European higher education area. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: distance learning; electronic learning (e-learning); telelearning; technologyenhanced learning; university/community partnership; virtual university

INTRODUCTION

The phenomenon of globalization is generating important changes. On one hand, it creates new markets, it fosters progress and economic growth, it makes greater scientific development possible, and permits universal access to culture and science. However, it is also believed that this phenomenon can bring the disappearance of cultural diversity, as well as economic imbalances and an increase in the existing gap between different countries in terms of development. The European Commission maintains that, in order to build a common future, it is necessary to cooperate in the construction of a way toward change. However, the social and cultural identity of each agent should be kept. In fact, one of the main objectives established in the Barcelona declaration, which was adopted at the Euro-Mediterranean Conference in 1995, was to bring people of different cultures closer by means of partnerships in social, cultural, and human affairs with the aim of developing human resources, promoting understanding between cultures, and exchanges between civil societies.

EUMEDIS (Euro MEDiterranean Information Society) is one of the initiatives of the European Commission for the development of the information society in the Euro-Mediterranean region. It was designed specifically to bridge the digital gap that exists between the European countries and our Mediterranean neighbours. The group of priority sectors tackled by this initiative includes education.

Globalization has an influence, not only on the economic field, but also on the transfer of knowledge and higher education. The universal nature of higher education institutions will increase due to the use of information and communication technologies (ICTs) and distance learning, as well as the increasing mobility of teachers, researchers, and students. In this respect, and taking the idea of the context of the European Higher Education Area, the collaboration networks among European Universities play a decisive role, just as the Spanish Ministry of Education states in the corresponding framework document (2003).

Consequently, the achievement of coordination activities and the creation of networks are considered to be fundamental mechanisms to bring together different higher education systems as well as to promote synergies between less developed regions and more developed ones (Commission of the European Communities, 2001; Spain, Ministry of Education, Culture and Sport, 2003). Furthermore, it is widely believed that all this process should be carried out with the maximum respect to cultural diversity.

The ODISEAME project, which was coordinated by CEDETEL, was framed within the EUMEDIS initiative previously described and sought to contribute to the improvement of higher education in the participant countries, applying new technologies to the educational process. Thereby, the project offered Web-based courses corresponding to education programmes of 12 Universities from Europe and the Mediterranean border. Specifically, the countries that participated in the project are Germany, Cyprus, Spain, Jordan, Malta, Morocco, the Palestinian Authority, and Turkey.

The base of the ODISEAME project was an interdisciplinary research on the application of ICTs to different aspects of the learning process, including the design of educational contents, their delivery, and the interaction among students and teachers. Students, teachers, content providers, service providers, teaching experts, technicians, etc., participated in this research project, which also involved important aspects such as intercultural and multilingual ones, especially in the development of the virtual learning experiences that were carried out with the participation of students and teachers from the different participant countries (Verdú, Verdú, Regueras & De Castro, 2005). These experiences were developed in a virtual environment in the language of every partner as well as in English.

The development of the ODISEAME project is described next and the results obtained during the e-learning experiences are analysed.

DEVELOPMENT Of THE PROJECT

The ODISEAME project underwent different phases from its onset in September 2002 until its end in June 2006. The final objective of the achieved tasks was the carrying out of intercultural tele-learning experiences through the Internet. The description of the preliminary tasks developed during the first phases can help us gain a better understanding of the complexity of the development of such types of experiences, which counted with the participation of teachers and students from countries with different languages, cultures, and technological levels.

Analysis of the Existing Resources and Needs in the Partnership

During the first year of the project, the current situation of the participants was analyzed taking into account the available network infrastructures as well as general aspects of the curriculums and learning needs of the participating institutions. The objective was to have a clear picture of the actual framework in the different partner regions in order to define and design suitable contents and find possible areas for cooperation in the virtual learning experiences.

After the analysis of the network infrastructure and equipment available in all participating institutions, these were classified according to three scenarios depending on criteria like multimedia capacities of the users' equipment, the availability of a broadband Internet access from the institution, or the connection speed within its network. Table 1 summarises the characteristics and possibilities of the three scenarios.

Each partner, according to its scenario, received a number of recommendations regarding the development of the distance learning experiences, the type of communication to be held among students and teachers (synchronous, such as videoconference, or only asynchronous, such as electronic mails), and the kind of contents to be offered during the virtual courses (text, voice, image, video, etc).

Several case studies indicate the primary importance of organisational cultures or norms together with an administrative structure, when an organisation implements or plans to implement distance learning (Cho & Berge, 2002).

Accordingly, during the first year of the ODISEAME project, a study of the educational programmes and general aspects such as organization, was also made for all partner universities. The aim was to find common needs and interests and analyze the possibilities with regard to student and teacher exchanges, collaboration in courses or other research areas, etc. Taking this study as a base, the didactic units to be designed and developed by each partner institution were selected.

Finally, the overall result was that the majority of courses were technical or engineering courses, since these were the areas where more synergies among the participants were found. There were also courses about language learning and transversal subjects like scientific research methodology and project evaluation.

Design and Development of the Courses

During the second year of the project, the teachers of the partner institutions designed and implemented the selected courses. They were assisted by an interdisciplinary workgroup of different specialists belonging to the participant institutions and with expertise in tele-learning issues. The design involved giving a detailed description of the courses, not only in terms of objectives, timing, assessment, contents, language, etc., but also in terms of educational design with the view of their implementation for virtual learning and taking into account the constraints imposed by the network infrastructure and the equipment available in the target institutions.

It is interesting to analyze briefly some of the training modules designed such as the ones given by the University of Valladolid, which correspond to three technical courses related to computer networks. The development of these training modules can be summarized as follows (Verdú, Regueras, De Castro, & Verdú, 2004):

* The theoretical contents of each unit would be offered in hypermedia format with additional and complementary information in PDF format.

* Some lessons would be delivered as recorded video presentations by means of the "Conference Room" tool of the ODISEAME platform, which is described in the next section.

* Practical exercises would be proposed to the students in order to be discussed by means of a news group.

* Some interactive activities would be proposed too, as well as optional laboratory exercises; since several studies indicate that students' comprehension of problems is considerably improved and some misconceptions are resolved when interactivity is applied (Bolliger & Martindale, 2004; Ioannidou, Paraskevopoulos & Tzionas, 2006; Khalifa & Lam, 2002).

* Students would be able to follow their own progress by means of the execution of feedback tests.

* Teachers would answer all students' doubts through a mailbox. In addition, the most interesting questions would be presented by teachers in order to be discussed at discussion forums.

The design of the training modules was followed by an evaluation process, which consisted of a study of the initial design as well as the implementation of the modules, and a beta-test training experience with a small group of teachers and students. Following the example of the courses of the University of Valladolid, some of the more noteworthy conclusions obtained from the beta-test process were the following:

* The courses were well structured and designed. So, we could conclude that the methodology used was suitable for this kind of learning.

* Users valued interactivity as one of the most positive points. Interactivity was not only an instrument to motivate students, but also a quality element. The high quality of the interactive activities designed by the teachers facilitated the learning process a lot. Figure 1 shows one of these interactive activities in which students had to complete some data about network diagrams or routing tables and were able to check immediately whether their results were correct. Owing to the complexity of some of these activities, two ways of solving them were offered: a "guided mode" (with information regarding how to solve the exercise step by step) and a "non-guided-mode." This characteristic was very much valued by students as well.

Design and Development of the multilingual Virtual Learning Space

During the second year of the project, the multilingual virtual learning space was also designed, implemented, and evaluated. The training modules were then integrated into the virtual space to allow the performance of the online courses.

The ODISEAME virtual space integrates a series of communication services as well as content developing and management services in order to offer telematic support to the learning process. Therefore, the main different services of the e-learning platform are as follows:

* Content generator: It enables teachers to generate their own didactic units from a list of resources previously entered in their resource database. A resource can be an image, a document in a certain format, an audio file, a video file, a slide presentation including an explanatory video file, etc.

* Content area: This area includes the courses, interactive activities, laboratory exercises, live and recorded conferences, and self-assessments to be done by the enrolled students. All these contents are previously generated by the teacher with the aid of the content generator.

* Notebook: This is an agenda for students to plan their work. The teacher can use this application to give them advice regarding working timetables.

* Activities: This is a collaborative work area, which consists of a series of workspaces shared by teachers and students. In these spaces, a student is able to hand in the practices requested by the teacher or to work within a work-group.

* Communications: There are synchronous communication tools such as the videoconference and asynchronous communication tools such as the question box or discussion forums.

* Conference room: Teachers are able to deliver a live or recorded conference based on a PowerPoint file and a video through the Internet. The application synchronizes all the slide changes and transitions with the lecturer's video and audio.

* Tools designed for the assessment and monitoring of students enable teachers to create assessments and auto-assessments based on a database with previously created items, including multiple-choice questions, paired questions and even open text questions to be evaluated by the teacher. The teacher can check the evolution of each student (results and time employed by the student), as well as compare students within a same group.

It is noteworthy that the ODISEAME platform is multilingual and multi-skin. This means that it has been designed to be used in different languages and with different appearances according to users' preferences. Figure 2 shows the main screen of the virtual learning space.

The platform was assessed taking into account both technical and pedagogical aspects, by means of stress tests and surveys filled in by target users and focus groups. The objective of this assessment was to detect any weak points in the platform in order to improve it prior to the learning experiences (De Castro & Verdú, 2006).

Regarding the technical assessment, the trial phase consisted of stress tests performed against the server in which the platform is installed. With the stress tests, we aimed at measuring the performance of the platform when there are multiple users using the platform at the same time. We used the Web Application Stress (WAS) tool by Microsoft. Then, we were able to identify the pages with poor performance and found that the increase in the response time was related to the interaction with the database, not with the size of the pages. Therefore, the interaction with the database was analysed and the necessary improvements were undertaken to minimize the delay. We managed to reduce the response time of the pages with worst performance by 10%.

The pedagogical aspects of the virtual learning space were checked by the partnership and a reduced group of students who joined some beta-test training experiences. Doing an overall assessment that involved the use of the mentioned tools, 75% of those surveyed described the tools as "good" and only 4% of those surveyed considered their use as inadequate, either because they found them difficult to use or because they were not adequate for a University course. The most valued tool with regard to achieving the objectives of the teaching/learning was the Contents tool, with 92 points out of 100, followed by the Discussion Forum with 80 out of 100.

Finally, we collected contributions and comments from the partners through discussion forums, as well as the suggestions derived from the surveys, and we made some improvements to the platform in terms of its design, its user-friendliness, and its navigability.

THE E-LEARNING PILOT EXPERIENCES

The International Nature of the Experiences

Distance educators view computer-mediated education as an excellent format to encourage a variety of adult learning styles while serving an ethnically diverse student population (Muirhead, 1999). In fact, one of the challenges facing instructional designers is in producing e-learning systems that take account of individual differences such as nationality, gender, and, more importantly, from an educational perspective, cognitive learning style (Graff, Davies & McNorton, 2004). In the ODISEAME project, the cultural, social, and educational diversity was clear and was thus taken into account from the outset.

Before and during the pilot experiences, the offered courses were advertised in all participant countries placing posters in different university buildings as well as including advertisements in Web pages, mailings, and newsletters. Thanks to these electronic means, students from countries, which were not participating in the project, such as Latin American countries had the chance to join these e-learning experiences.

It was pleasing to find that higher education students were very interested in e-learning. In fact, a large number of course applications were received by the ODISEAME staff within just a few days. We received applications for joining the ODISEAME courses by people from 51 different countries. As Figure 3 shows, 28.4% of the applicants were Spanish, 27.4% were Palestinian, and 14.7% were Turkish. These are data, which should be highlighted as the Internet penetration in Spain in March 2006 was 38.7%, according to data of Internet World Stats (www. internetworldstats.com), whereas few people have a PC and connection to the Internet in Palestine, with 4.9% of Internet penetration, or in Turkey, where the Internet penetration is 13.7%, much lower than the average in Europe. However, we only received 0.38% of applications from Germany where the Internet penetration is 59%.

When the virtual learning experiences were just starting, the disparity in participation of students from different countries was discussed during a project meeting held in Granada in May 2005. Up to that moment, most students who had requested to join the ODISEAME courses were Spanish, so we discussed why students from other countries had not applied for the courses. The following possible reasons of this fact were discussed:

* Many courses are in English and the knowledge of the English language can be a restriction for students.

* Lack of infrastructure and equipment available for students at home.

* Lack of dissemination of the courses in other countries.

It is true that one of the most obvious obstacles for universal access to the Internet in the Arab world is the fact that the Internet has always been an English-dominated medium which reinforces the opinion that it is not designed by or for Arabic-speaking cultures, whereas, from a technical standpoint, the use of Arabic presents no major impediment (Verdú et al., 2005). While many Arabs use English or French as their preferred language on the Internet, the majority of Arabs use Arabic, according to Jean Louis Cardahi, Minister of Telecommunication of Lebanon in 2003 (Cardahi, 2003).

However, the first reason regarding the language of the courses seemed not to be applicable in our case as the attendants of that meeting expressed that they usually gave their courses in English at their Universities, especially when the courses are related to technical topics. Most courses in our project are related to technical topics so this reason had to be dismissed as the main reason.

On the other hand, the second reason related to the lack of infrastructure and equipment available for students at home did not solve the question either since, as previously mentioned, few applications were received from countries with higher PC and Internet penetration such as Germany. In conclusion, although the lack of equipment limited the number of students from some countries who would have liked to join the courses, we finally agreed that in some cases the courses had not been disseminated sufficiently. In fact, after this meeting, there was a high response of Turkish students as the partners in Turkey strengthened their dissemination actions.

Even though students and teachers from different partner countries were expected to participate in these experiences, finally, when the courses were delivered in the mother tongue of the partner countries, most of the students usually came from the partner country that delivered the course. This is the case of the courses given in Arabic and Greek, in which only Jordanian and Cypriot students participated respectively. However, we must highlight that there was an important participation of Latin American students (Argentinian, Colombian, Mexican...) in those courses delivered in Spanish.

We can conclude that the courses developed in English attracted a larger variety in the nationalities of their participants due to the fact that knowledge of the English language is widespread. However, in the case of those courses developed in Spanish, there was also a great variety of nationalities because of the participation of many students from Latin America where the dissemination of the project was very successful.

According to the results of the surveys described next, in general, those people who joined the ODISEAME courses had a good command of English, and only 10% of students showed a low written and reading level of English. When people specified knowledge of a second language, they usually indicated a low level in writing, reading, and speaking. This explains why the courses delivered in the mother language of the partners, instead of in English, did not have a great variety of nationalities participating except, as said before, for the case of the courses delivered in Spanish.

ANALYSIS AND STUDY OF THE RESULTS

As well as the students' nationality, other important aspects were analysed from the results of certain surveys. When the courses came to an end, students had to fill in a questionnaire that included the following question areas:

* Personal details: Nationality, age, sex, education level, computer skills, etc.

* Quality of the course: Scheduling, structure, methodology, contents, tutorship, etc.

* Tele-learning service: Assessment of the usefulness and easiness of each tool, availability, and speed of the platform, etc.

* Other observations regarding the most positive aspects of the online course, aspects that could be improved, tools missing in the platform, etc.

Since one of the main advantages of e-learning is spatial flexibility, enabling participants to follow a course from home, we considered it interesting to ask students about the place from which they had accessed the online courses. As was to be expected, we found that most of the students (74%) accessed the online courses from home. However, 19% of students accessed them from a university and a small percentage did so from the office or from an Internet café, probably because they did not have a PC or an Internet connection at home.

These data show that, although the number of students joining this kind of virtual international exchanges depends on the Internet penetration in the participant countries, it is not determinant as students who are interested in taking online courses offered by universities of other countries go to the computer rooms of their university in order to be able to participate in these kinds of courses.

In Figure 4, we show the age groups of the participants. As it was expected, dealing with university courses the majority of students were between 18 and 25 years old, a typical age range for university students. Twenty percent of the students were between 26 and 30 years old and within this group, almost half of them were also university students. However, important percentages of students, more than 30%, were not university students and were working. Within this group of workers, all of them had a degree. This is natural since the courses require a high level of knowledge. In the current knowledge society, lifelong education seems to be necessary to be competitive in the labour market and workers must constantly update their knowledge and skills. E-learning arises as a good solution to fulfil this educational need since it provides workers with the flexibility they need to be able to do their chosen courses.

Most students were male (71%) while only 29% were female. One of the main reasons of this disparity in gender may be the technical component of most of the courses offered in the ODISEAME project. In general, technical degrees are studied by men, although recently, there are many women joining these university technical degrees. On the other hand, nursing schools for example, are full of women although this situation is starting to change. Habits and traditions are key factors when choosing university degrees (Verdú & De la Torre, 2006).

In Figure 5 we show the answers to the questions "has the level of learning been satisfactory?" and "has the level of motivation been kept high throughout the course?" Most of the students polled answered that the level of learning had been high or very high. Also, a majority indicated that the level of motivation was kept high or very high.

In the courses carried out through the Internet, it is known that the students' familiarity with computers has a considerable impact on motivation. Thereby, the probability of a decrease in the motivation during the course can be much higher, even causing the student to give up the course, when low computer skills join the common risks of giving up online courses such as the feeling of isolation or the lack of student-teacher interaction. As many of the offered courses were related to engineering or technical subjects, only 7% of students had low computer skills while 69% and 24% had medium and high computer skills, respectively.

In Figure 6 we show the answers to the questions: "is the design of the contents attractive and does it motivate you to study?" and "have the proposed exercises and practices facilitated the learning process?" Sixty-seven percent of students considered that the design of the contents had motivated them to study and had been attractive and 76% of the students considered that the proposed exercises and practices had made the learning process easier. The most noteworthy aspect in these results is that, in the courses with interactive activities or animations, practically all students had positively evaluated the previous issues. Therefore, the results validate and reinforce the hypothesis of the importance of interactivity in order to motivate students and improve comprehension. However, since the particular statistics of other courses without interactive activities also received positive assessment, it can be concluded that the teachers' job, for example in dynamizing the course by means of discussion forums, is fundamental in order to keep the motivation level of students.

In online learning, it is very important for the teacher to dynamize the virtual course to motivate students and avoid the isolation feeling that they suffer on many occasions during these types of experiences. According to the results of the survey, the teacher did a good job in that sense, as the majority of students considered that the tutor had promoted students' participation very much (27%) or much (32%) by means of the different tools of the platform (forums, question box, etc.). Besides, most students (73%) thought that the tutor had promptly answered students' questions.

One of the difficulties of tele-learning is distance assessment. Nearly 70% of the students polled considered that the assessment was totally or mostly in line with the aims of the course. The achieved assessments were different for the different courses, although in general teachers assessed students taking into account their participation in discussion forums and the tasks done. The ODISEAME tele-learning platform allows the creation of assessments, which can be answered in a limited period of time. This characteristic makes doing distance assessments feasible, but always running the risk of not being able to identify the student who is really being assessed.

Regarding the design of the virtual learning space, nearly 80% of the students polled thought that it was appropriate to offer higher education courses as well as to reach the learning objectives. Students appreciated the usefulness and easiness of the different tools and revealed a preference for content delivery and discussion forum tools. Besides, a lot of students mentioned that they missed a chat.

The last section of the questionnaire allowed students to give their opinion about the advantages and disadvantages of tele-learning. A lot of those polled agreed that the great advantage of tele-learning is its flexibility with respect to the place from which the course is accessed and the time when it is followed. Other advantages that were mentioned by students are the following:

* Students learn at their own pace. Therefore, a lot of them study in a more relaxed way.

* Forums provide a great discussion area, allowing students to share their answers, ideas, and references.

* Tele-learning is very useful for those students who are physically unable to access the campus.

* The contents of the course are always accessible.

* Asking the teacher many questions is less embarrassing in distance education than in face-to-face lessons.

* It promotes the active role of the student in the learning process instead the traditional passive role.

* It allows users to meet people from other countries and cultures and, therefore, to know very different opinions, which enriches the learning process.

However, students mentioned also some disadvantages of tele-learning against traditional learning:

* Difficulty when working in groups.

* Passiveness of some participants.

* Little interaction between the teacher and the student.

* The experiences are a little impersonal.

* It is easy to lose motivation.

* Students' questions are not instantly answered.

* Need to have up-to-date equipment.

* In language courses, students missed conversation activities.

Finally, in order to learn students' opinion about this intercultural virtual learning experience in general, we included a question in the survey directly asking about the degree of satisfaction with the virtual learning experience and most students (71%) answered that they were very satis- fied or satisfied with the experience. We consider that these are good results, taking into account that most participant teachers did not have previous experience in this type of teaching.

Moreover, we indicate two very interesting details: the vast majority of students (95%) stated that they would recommend these online courses to other students and, also, the vast majority (94%) would enrol in online courses if they could get credits from their University.

CONCLUSION

The ODISEAME project shows that e-learning makes the removal of frontiers in education possible, allowing the exchange of students and promoting the equality of opportunities, as those who cannot travel for economic or other reasons can attend courses given by foreign institutions without moving from their countries.

Besides, we have proved that higher education students are interested in this type of learning, which provides them with spatial and time flexibility.

Internet penetration in a country is influential when it comes to attracting students to the online courses, but it is not determinant. If students are greatly motivated, they go to the computer rooms of their universities or to Internet cafés in order to be able to participate in the online courses.

On the other hand, we have found one drawback. There are some differences regarding network infrastructures and users' equipment. This fact generates inequality when accessing educational resources. In that sense, the EUMEDIS initiative is a good example of international transfer of technology from the European Union to the MEDA countries.

The access infrastructure available determines whether the interactive activities, which are very effective in this type of learning, can be done in a suitable way. We have demonstrated that interactive activities are very recommendable, since they motivate students and improve their comprehension. However, a lot of the ODISEAME courses do not have this type of activities and the reasons are not only infrastructure constraints. The design and the implementation of interactive activities demand high technical knowledge. Unfortunately, many of the participant teachers lacked it. In spite of these differences, the project has contributed to bring different disciplines closer, which is a need in this type of learning and the first step in order to enable teachers without technical knowledge to design quality interactive activities inside interdisciplinary workgroups.

After analysing the results of this project, we can conclude that it is possible to build good international and intercultural e-learning projects through intensive collaboration and to transfer technology and knowledge. Although many teachers were used to traditional methods of teaching and had no experience in e-learning at the beginning of the project, ODISEAME has allowed them to participate in an e-learning programme by means of remote but close collaboration among partners.

The ODISEAME consortium is proud to have created a network of teachers and researchers participating remotely in a collaborative e-learning project given the added difficulty of its multicultural and multilingual nature. Anyway, many teachers have stated that they did not notice any difference in behaviour and participation between European and MEDA students. Taking the nationality of the students into account, the results of our surveys did not show relevant differences. Thus, different cultures can collaborate in a university education process without significant difficulties. Therefore, countries as economically, culturally, and socially different as Palestine and Spain reacted in a similar way when faced with an e-learning proposal.

Finally, with the creation of this cooperation network of universities in the Euro-Mediterranean area, the project has contributed to the process of European convergence and has given response to one of the objectives established in the Ministers Conference of the countries participating in this process celebrated in Bergen in 2005: to disseminate and make understand the Bologna process in other continents, interchanging and sharing experiences with neighbour regions, and reinforcing the importance of respect to interculturality (Conference of European Ministers Responsible for Higher Education, 2005).

References

REFERENCES

Bolliger, D., & Martindale, T. (2004). Key factors for determining student satisfaction in online courses. International Journal on E-Learning, 3(1), 61-67.

Cardahi, J. L. (2003, December). Language in support of integration and regional information strategies-The role of telecommunications. Speech of the first phase of the World Summit on the Information Society (WSIS). Geneva: ITU. Retrieved August 20, 2006, from http://www.uneca.org/aisi/wsis2003/Jean%20Louis%20Cardahi%20-%20Lebanon.htm

Cho, S. K., & Berge, Z. (2002). Overcoming barriers to distance training and education. USDLA Journal, 16(1). Retrieved August 31, 2005, from http://ww.usdla.org/html/journal/JAN02_Issue/article01.html

Commission of the European Communities. (2001, October 10). La dimensión regional del Espacio Europeo de la Investigación (The regional dimension of the European Higher Education Area). Bruselas: Author.

Conference of European Ministers Responsible for Higher Education. (2005). The European higher education area-Achieving the goals. Bergen: Author.

De Castro, J. P., & Verdú, E. (2006). The e-learning platform as a key to success: Evaluation of the ODISEAME e-learning platform. In E. En Verdú, M J. Verdú, J. Carrasco, & R. López (Eds.), Best practices in e-learning: Towards a technology-based and quality education (pp. 85-99). Valladolid, Spain: Boecillo Editorial Multimedia.

Graff, M., Davies, J., & McNorton, M. (2004). Cognitive style and cross cultural differences in Internet use and computer attitudes. European Journal of Open, Distance, and E-Learning (EURODL), 2004/II. Retrieved January 23, 2005, from http://www.eurodl.org/materials/contrib/2004/Graff_Davies_McNorton.html

Ioannidou, I. A., Paraskevopoulos, S., & Tzionas, P. (2006). An interactive computer graphics interface for the introduction of fuzzy inference in environmental education. Interacting with Computers, 18(4), 683-708.

Khalifa, M., & Lam, R. (2002). Web-based learning: Effects on learning process and outcome. IEEE Transactions on Education, 45(4), 350-356.

Muirhead, B. (1999). Attitudes toward interactivity in a graduate distance education program: A qualitative analysis. Parkland, FL: Dissertation.com.

Spain, Ministry of Education, Culture, and Sport. (2003). La integración del sistema universitario español en el Espacio Europeo de Enseñanza Superior (documento marco) (The integration of the Spanish higher education system into the European Higher Education Area (framework document)). Madrid: Author.

Verdú, E., & De la Torre, I. (2006). The social and cultural dimension of e-learning: Analysing the results of a multicultural and multilingual e-learning project. In E. En Verdú, M. J. Verdú, J. Carrasco, & R. López (Eds.), Best practices in e-learning: Towards a tecnology-based and quality education. (pp. 157-171). Valladolid, Spain: Boecillo Editorial Multimedia.

Verdú, M. J., Regueras, L. M., de Castro, J. P., & Verdú, E. (2004). ODISEAME project: An approach to a Web-based multilingual and collaborative learning. In L. En Cantoni, & C. McLoughlin (Eds.), Proceedings of ED-MEDIA 2004, World Conference on Educational Multimedia, Hypermedia & Telecommunications (pp. 4857-4862). Norfolk, VA: AACE.

Verdú, E., Verdú, M. J., Regueras, L. M., & de Castro, J. P. (2005). Intercultural and multilingual e-learning to bridge the digital divide. Lecture Notes in Computer Sciences, 3597, 260-269.

AuthorAffiliation

Elena Verdú Pérez, CEDETEL, Spain

María Jesús Verdú Pérez, Universidad de Valladolid, Spain

AuthorAffiliation

Elena Verdú Pérez, telecommunication engineer, has been project manager at CEDETEL (Centre for the Development of Telecommunications of Castilla y León) since December 2000, coordinating research projects in the fields of new telematic applications for the Information Society, communication networks and software engineering, at different levels (regional, national, and international). She is also an associate lecturer at the "Escuela Técnica Superior de Ingenieros de Telecomunicación" (the School of Telecommunication Engineering), at the University of Valladolid, Spain.

Dr. María Jesús Verdú was awarded her master's degree in telecommunication engineering in 1996 and her PhD in 1999. She has been working as a lecturer at the University of Valladolid since November 1996. She has experience in coordinating projects in the fields of new telematic applications for the Information Society and telecommunication networks, especially related to e-learning. She has published papers in international journals and in relevant conference proceedings related to these fields.

Subject: International; Higher education; Distance learning; Online instruction; Multilingualism; Partnering

Classification: 9180: International; 8306: Schools and educational services

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 2

Pages: 12-25

Number of pages: 14

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Tables Illustrations Graphs Charts References

ProQuest document ID: 198718351

Document URL: http://search.proquest.com/docview/198718351?accountid=38610

Copyright: Copyright Idea Group Inc. Apr-Jun 2007

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 35 of 100

E-Learning at the Polytechnic University of Valencia: A Bet for Quality

Author: Susana Martínez Naharro; Mónica Alagón Labarta

ProQuest document link

Abstract:

Full text:

Headnote

EXECUTIVE SUMMARY

Since 2000, the Open Polytechnic University has been working at e-learning methods as a commitment to introduction of Communication Technologies into training process. The development of grade and postgraduate subjects was a specific way of putting it into practice. The figures support our work; 200 courses have been developed at the moment and more than 10,000 students are using our e-learning platform. The future looks brilliant for e-learning when the development course process is a quality procedure and the contents are designed for online training purposes. Teachers must consider the online training materials differently from other training materials as there are distinct and specific pedagogical aspects to bear in mind; this is the reason why they follow the pedagogical modules structure designed by the Open Polytechnic University. On the other hand, teachers from the Polytechnic University of Valencia can take advice from the Open Polytechnic University in order to apply new technologies to their courses. The Open Polytechnic University offers training to teachers in e-learning and give them resources to improve their skills in order to teach their subjects by means of an e-learning platform. The courses development process at the Open Polytechnic University is a process called "stages and experts," because several expert agents are involved. They work together in a multidisciplinary model that gives quality to the courses-a quality that is proven by the Open Polytechnic University stamp. All this process is based on our own author tool, e-learning platform, and pedagogical methodology.

Keywords: active learning; constructivism; educational technology implementation; elearning; higher education; online courses; pedagogy; strategic planning in education; teacher improvement; virtual learning

INTRODUCTION

In the last six years, the Polytechnic University of Valencia has been betting for providing its academic staff with a technical and pedagogical structure that brings the use of new Technologies closer to the learning process. For this purpose, in the year 2000, the project Open Polytechnic University (UPA) was started, offering UPV teachers the possibility of creating and managing different formative on-line products through an e-learning platform, as well as being able to technologically support presential education, by incorporating IT to education.

UPA Methodology

First of all, an autonomous integrated service was created, with a unified corporative image for all courses to be taught in the UPV through the UPA e-learning platform. Therefore, all courses were created with the same author's tool, in html code, and were taught through the UPV e-learning platform.

This generated the definition and setting-up of a structured working system, whose basis comes from the definition of a methodology characteristic of an on-line system.

Since every e-learning process entails a multidisciplinary task, an accurate planning was to carry it out. Thus, a working pattern called "Phases and Experts", distinguished by ensuring quality by means of an accurate care throughout the whole process and the participation of the different expert agents involved.

In this way, the UPA model service was not limited to the use of the author's tool and the platform, but its own pedagogic methodology was created, adapted to the specific characteristics of a means like Internet. Such methodology is applied to the creation of all the formative products managed by UPA.

HISTORICAL DATA

UPA has consolidated as a service increasingly used by the teaching community in the Polytechnic University of Valencia. Since the year 2000, a total of 276 courses have been given. Please see Figure 1.

Nowadays, 24 departments in the UPV and two institutes have used the UPA platform to carry out their e-learning courses.

The exploitation of these 276 courses throughout the five years of life of UPA has resulted in a total of 17.779 registrations. To the evolution of the increase of created courses corresponds an increase of the students using the UPA platform.

We must add to these figures 4.667 students who have used the UPV e-learning platform to do their practical exercises and receive assessments for all types of subjects and courses.

Another service offered by UPA to the university community is the creation of interactive books; since its foundation UPA has made 57 interactive books. Please see Figure 2.

On its side, the formation UPA is offering can be grouped into two large categories: Undergraduate education and postgraduate studies.

Undergraduate education: During the academic year 2004/2005, 24 new courses were offered, which has meant an increase of 47% with respect to 2003/2004.

Postgraduate Formation: The total number of new postgraduate courses offered by UPA is 16 in the academic year 2004/2005, which accounts for an increase of 19% over the previous year.

In the beginning, the formation provided by UPA was specialised in postgraduate studies. At present, this type of studies does not stop increasing, but is Undergraduate education the one undergoing a higher increase, being the current distribution percentages of both types the following: 61% for postgraduate courses and 39% Undergraduate education.

Even though it is true that, whereas in postgraduate courses the platform holds completely on-line courses, in undergraduate education it is mainly used as support tool in face-to-face teaching, or as a medium in blended learning formation.

STAGES IN THE METHODOLOGY FOR CREATING AN "ONLINE" COURSE.

In the case of the Open Polytechnic University, when creating a course, the procedure is as follows (Martínez Naharro, Hervás Jorge, & Tarazona Tornero, 2003):

Starting from an already existing interactive environment characteristic of the UPV, which possesses certain specific features, like:

* The design of the e-learning Platform, framework of the course, whose presentation is accurately studied.

* The structure of pedagogic units, predefined by UPV as recommended in pedagogic terms.

* Area of assessment of the course (both in feedback questions and in self-assessment) (Esteve Domingo, Hervás Jorge, Del Blanco Orobitg, Tarazona Tornero, Villanueva Micó, 2002)

First Contact

A first contact between the expert in content and the service of the Open Polytechnic University Area is established, giving rise to a proposal of on-line course. At this first moment, the teacher fills in a form (at the Permanent Training Centre) in which academic data of the course to be taught are fully detailed (Title of the course, duration in hours, learning objectives, contents to be developed, assessment, etc.). The working method is established as well.

Familiarisation and Training Stage

At this stage, already at the Open Polytechnic University Area, a seminar for initial training is offered for the eventual teachers of the course, where they will be orientated about the design of the materials to be developed.

In this formative action three main points are dealt with:

* The UPV e-learning platform: first approach.

* The author's tool: structure and basic operation.

* Creation of Pedagogic Units: pedagogic criteria to be taken into account in the elaboration of pedagogic units for an on-line course. A constructivist view of learning is assumed, whose principal objective is that the student reaches a significant learning of the subject. In turn, the teacher is a guide in the process, whereas the learner plays an active role, as builder of his or her own learning.

Creation of the Contents of a Course

The teachers, experts in the discipline, design and create the materials of the course itself, taking into account the structure to be followed, and adjusting a material pedagogically suitable for this type of courses.

At this stage the introduction of the contents into the platform and the management of possible multimedia needs are carried out, setting a coordinated and multidisciplinary task, where a direct relationship between the teacher and the technical and pedagogical side of the area takes place.

Revision and adaptation.

After the creation of the first unit of the course by the teacher and its introduction into the author's tool, the unit is revised by the pedagogic expert, who checks whether the material really fulfils the appropriate requirements for a training course via Internet. The results will be shown in a revision card given to the teacher. Once the first unit has been approved, the creation and latter revision of the rest of units composing the course carries on.

In that revision, diverse aspects are considered, like:

* Adequate structure of the pedagogic unit

* Use of multimedia elements and objects

* Inclusion of feedback questions and suitable assessment

* Use of typographic elements

* Openness and extension to other materials (those being either "off line" documents or materials available through web)

* Quality of images, tables, graphs, etc.

* Inclusion of such sections like: bibliography, interesting links, glossaries...

Teaching and Explotation of the Course

Only when the elaborated material is approved in all the stages of the process, it is considered as a quality material. In this way we ensure that all courses taught through the UPV e-learning platform fulfil the quality requirements demanded.

After a course becomes guaranteed by the Open Polytechnic University, it is put available in the e-learning Platform for its latter teaching.

It is in that moment when we offer a second seminar to teachers, with the main objective of the acquisition of the necessary command and skills for handling a training course through an e-learning platform.

Evaluation Stage

Lastly, once the course has been taught, an evaluation of both the satisfaction of students and development of the course is made, in order to be able to establish in this way a continuous improvement of the process and our courses in general.

With this stage we obtain a continuous feedback of the process, thus ensuring its quality.

PHILOSOPHY PROVIDING THE SETTING FOR THE PROCESS

So far, the process described in the previous section has shown the following structure (Martínez Naharro, et al., 2003), please see Diagram 1.

The idea underlying such structure is that of a multidisciplinary task, in which at every moment one or several experts are working. So, each of the agents envolved provides his or her view, generating all together a piece of work as complete as possible and with the best quality.

In this way, from the Open Polytechnic University the requirement considered is that a quality e-learning program will be one showing accuracy, not only in the technical aspects, but also taking into account, to a larger extent if possible, the pedagogic aspects underlying this type of training.

All this entails that when structuring and preparing the didactic material of a course, different pedagogic aspects are considered , such as:

1. Materials will possess a clear and organised structure, with different sections unified through all units. Thus, a likely structure of a pedagogically correct unit from the point of view of e-learning would be (Del Blanco Orobitg, Esteve Domingo, & Tarazona Tornero, 2003):

* Introduction

* Outline

* Objectives

* Contents segments

* Case/article

* Workshop

* Remember...

* Common errors

* Glossary

* Bibliography and interesting links

2. In turn, the contents writing will follow a series of pedagogic instructions based on a constructivist view of learning, which will make it accessible and suitable for this type of training. Thus, among other issues, the following will be taken into account:

* The units will be suitably divided into modules, so that the student progresses at little steps of learning.

* The information shown to the learner adapt various formats (images, text, links, videos...) in order to continuously avoid such factors as monotony and/or boredom of students.

* Aspects having to do with the easy accessibility of materials will be cared for (not to insert heavy documents that the learner cannot download)

* When writing contents, a light writing will be intended to be offered, thus guiding the student towards learning.

* Contents, in turn, will be related to the learning objectives proposed in every unit, and these will take us directly to the evaluation criteria.

* The use of new Technologies will be exploited to offer the learner a quality course, open to varied information (connection to web sites related to the topic studied), regularly updated and innovating.

To sum up, an integration of Technology with Training is searched for, so that the former makes the Training Processes easier and, finally, will take us to the achievement of a series of learning objectives previously formulated.

IN ALL THIS PROCESS: THE TEACHER

Throughout the whole process the role of the teacher is essentially cared for, as he or she is one of the principal agents involved in the training project. For this purpose, several factors are contemplated:

* The teacher is an expert in the discipline; he or she does not have to possess technologic command. This implies that in this case he or she does not have to know html language, or how to operate the platform. For this reason, resources (human and/or technical) must be available so that this does not come out as a handicap to the quality of the course.

* The teacher must have a positive inclination towards New Technologies. In many cases, the ignorance of the platform generates a lower use of it and a scarce exploitation of its possibilities, resulting in a linear, passive and lacking of interactivity course. This can derive into a negative attitude towards this type of training, mainly generated by a lack o command of the means through with the training is offered.

These considerations imply, in turn, the application of diverse actions, such as:

* Asissting the teacher in the elaboration of contents and their introduction into the tool.

* Information and formation in New Technologies in order to generate in the teacher knowledge and confidence in the handling of this type of courses.

* Teacher training based on experience: the whole training of the teacher is based on experiences already implemented through the platform, good practice exercises developed by colleagues, examples of UPV courses developed through the platform, didactic strategies employed, different uses of the diverse tools in the platform... The objective of this type of training is that the teacher can see the on-line training project as something feasible and applicable.

UPA ADDED VALUE SERVICES

The Open Polytechnic University Area (AUPA) is the organism from the Polytechnic University of Valencia in charge of promoting and encouraging the application of New Technologies in the teaching systems on the educational community within the functional structure of the UPV. AUPA depends on the University Structure Vice-rectorship.

The experience accumulated in these six years of life of the UPA has brought about a catalogue of services responding to the needs of the UPV teachers who have used the e-learning platform.

The service philosophy of UPA is that of assisting teachers in the creation of training products on-line. Inside this category are included, not only strictly on-line courses o semipresential, but also any other application of the technology and methodology of UPA to teaching.

So, among the functions of AUPA are the following ones:

* Encouraging the use of IT in the teaching and learning processes.

* Promoting the use of the teaching platform "PoliformaT".

* Responding the demands coming from specific curricular or educational needs.

* Cooperating in the training of teachers about the use of IT in the UPV.

* Detecting needs in the teaching community regarding the use of new technologies in their teaching tasks.

But all this work is not carried out in an isolated way, but in coordination with different areas of the University, again being a multidisciplinary process. Thus, in all the processes developed, the following areas participate in an interrelated and coordinated way:

* Information and communication systems area (ASIC): In charge of the development of systems and applications.

* Permanent Training Centre (CFP): In charge of the management of the postgraduate training in the UPV.

* Institute of Educational Science (ICE): In charge of pedagogic teacher and student training.

* Open Polytechnic University Area (AUPA): In charge of the advice, assistance and training for teachers in terms of New Technologies applied to formation.

All of them have made an effort to unify criteria and coordinate functions, granting the Polytechnic University of Valencia a formative result provided with quality and innovation.

IN SEARCH FOR CONTINUOUS IMPROVEMENT NEW PROJECTS

Framed in a process of continuous improvement, the UPV is at present immerse in a process of transition and implantation of a new platform of e-learning, which is going to give an answer to many needs arisen in the course of these years.

On the one hand, different areas of the University were provided with technological solutions responding to their specific needs. In turn, the demand of technologic training has progressively increased. All this generated a diversity of accesses, keys and technologic spaces, in some cases producing a differentiated image within the same organisation.

Besides, together with this we can find other factors such as:

* The European convergence process, which demands a more autonomous work from the students side, favouring the use of New Technologies and, in some cases, even semipresentiality

* Increase in both the number of on-line courses and technologic support in the undergraduate subjects.

All these factors generated the arise of the need to adopt an appropriate technological solution, more precisely a new training platform.

Thus, after the study of several platforms, the decision was made to implant Sakai, e-learning open source tool showing advantages in its setup, even having some disadvantages.

A summary of the various evaluated platforms and the results obtained are displayed in Figure 3. In this way, the conclusions obtained from the studies carried out, as regards Sakai were as follows:

Positive aspects:

* It permits an implementation of all subjects, users and groups in campus, since it is a highly robust tool.

* It fits in the University infrastructure (Java, Oracle), allowing a relatively simple integration.

* Possibility of cooperation in eventual developments. Currently, the UPV is actively working on different developments.

* Used and developed by important organisations and American universities (MIT, Stanford, Michigan, Berkeley...)

* Reuse of contents from other systems (content standardisation...)

Negative aspects:

* It was not translated into Spanish. In this sense, the UPV leads at present the internationalisation and translation of the Spanish version, being a future reference for Latin America.

* It is a monolingual platform. Valencia is a bilingual region and, for this reason, the UPV has developed the multilingual version.

In any case, provided that all the studied systems required some important adaptation, Sakai was considered an important and quite safe bet regarding the success of its implantation.

After the first decision, multiple actions have followed, requiring a multidisciplinary and coordinated task. Therefore, the actions taken have been mainly:

* Personalisation of Sakai for the UPV environment. Sakai tool, personalised for the UPV has been called PoliformaT.

* Integration with UPV applications and communications, including student authentication and registration.

* Integration of Telde tool (e-learning for development), video recording system with synchronised power point presentation.

* Platform tools (author's, exams, surveys, assessment)

* Integration with EEES (Studies Guide, PACE)

* Internationalisation

* Teacher Guides for platform users.

IMPLANTATION AND ADOPTION Of A NEW TECHNOLOGIC SOLUTION

Once agreed the implantation of Sakai as technological solution for the UPV, its immediate setup and adoption started.

As initial objectives, we considered:

* Adopting a solution guaranteeing the quality of face-to-face teaching.

* Offering unified technological support both in presential and non presential education.

Besides, the factors participating in all change processes were taken into account, resulting in reactions in front of change, such processes as: Resistance to change, Negation, Confusion and Uneasiness, negative attitude towards the change itself.

In order to avoid this, different actions were programmed:

* Offering support and assistance to the user: An on-line course called HELP AREA is created, where the user has access to the different cases of use of the tool that can be arise when facing PoliformaT.

* Detailed and precise information about change: information session are programmed by the different colleges and faculties, at various times.

* Formation Plan: an initial training about the use and applications of the platform, immediate to the informative sessions is established, as well as a diverse and innovative formation plan comprising a longer period of time.

* Diffusion: different informative and diffusion actions about the new UPV platform are programmed.

* Continuous support and advice: user care service. A user aid centre is established, both via e-mail and phone, in order to offer help and support to the user.

* Evaluation and feedback: diverse evaluation and feedback actions are programmed in order to allow a process of continuous improvement through surveys, assessments, forums, etc.

In turn, a Setting-up and Maintenance Plan is clearly stablished, permitting a detailed schedule of the short, medium and long term actions to be taken. Thus, different periods are set:

* September 2006:

* Undergraduate 1st and 2nd cycle subjects.

* Microweb migration (Web spaces for the different undergraduate subjects which all teachers possesed so far) and associated documents.

* Default configurations: Three configuration levels are established, from which the teacher can choose, depending on the areas to appear for the subject inside the platform:

* Minimum

* Recommended

* Full

* Incidences communication system: by means of a form through the platform, or by phone.

* Migration and implantation in non presential courses and presential education

* Migration and implantation in CFP courses

* Migration and implantation in UPA courses

In the whole process, the Setting-up and Maintenance Plan has to be born in mind, established in the following way:

* Teacher Training

* Courses for teachers: initial and continuous formation throughout the different academic years.

* Continuous feedback from teachers towards continuous improvement

* Information Diffusion

* Through the Web Site, sessions in the different colleges and faculties, etc.

* Promotion among teachers

* Flyers

* Banners

* External promotion

* Sakai community

* Promotion with Latin America

* Mirror Spanish

Finally, an Evaluation Plan comprising the different methodologies for information collection has been carried out:

* Measuring and evaluation

* Surveys and studies

* Pilot studies

* Continuous feedback of the different experiences.

* Results and experiences exposition

* Continuous process improvement and optimisation.

References

REFERENCES

Del Blanco Orobitg, D., Illana i Carbonell, X., & Villanueva Micó, R.J. (Octubre 2003)La Plataforma de Teleformación de la Universidad Politécnica Abierta, más allá de los Contenidos. III Congreso de aplicación de las nuevas tecnologías en la presential education y e-learning, Universidad Cardenal Herrera.

Martínez Naharro, S., Hervás Jorge A., & Tarazona Tornero, A.C. (Octubre 2003) La Calidad en el proceso de formación vía Internet: El planteamiento de la Universidad Politécnica Abierta. III Congreso de aplicación de las nuevas tecnologías en la presential education y e-learning, Universidad Cardenal Herrera.

Del Blanco Orobitg, D., Esteve Domingo, M., & Tarazona Tornero, A.C. (Octubre 2003) Generación on-line de contenidos específicos para teleformación mediante H.A.U.P.A. III Congreso de aplicación de las nuevas tecnologías en la presential education y e-learning, Universidad Cardenal Herrera.

Hervás Jorge, A., De Miguel Fernandez, E., Tarazona Tornero, A.C., & Villanueva Micó, R.J. (Julio 2003) Training Teachers for a Experience in University Mixed-Distance Learning. International Conference on Engineering Education.

Esteve Domingo, M., Hervás Jorge, A., Del Blanco Orobitg, D., & Tarazona Tornero, A.C. (Septiembre 2002) Villanueva Micó, R.J. El sistema de teleevaluación del VUPA (Terceres Jornades d'innovación docent, Universidad Politécnica de Valencia.

Busquets Mataix, J., Roldán Martínez, D., Del Blanco Orobitg, D., & Martínez Naharro, S. (Junio 2006) PoliformaT: una estrategia para la formación on line en la Educación Superior. Virtualeduca 2006.

AuthorAffiliation

Susana Martínez Naharro, Universidad Politécnica de Valencia, Spain

Mónica Alagón Labarta, Universidad Politécnica de Valencia, Spain

AuthorAffiliation

Susana Martínez Naharro graduated from the University of Valencia with a bachelor's degree in psychology, and is an expert at IT integration into organizations and institutions. Today, she is a pedagogy technician of the UPV e-learning group, at the Open University Area. She has published several articles about IT and papers into international conference of acknowledged prestige. She is researching adoption of an e-learning platform at the university. She offers training and assessment to the teachers in pedagogical questions in e-learning.

Monica Alagón Labarta, graduated from University of Zaragoza with a bachelor's of law. Today, she is a dissemination thecnician of the UPV e-learning group, at the Open University Area. She is working on the setting- up plan at the UPV, offering information and diffusion to the teachers about the adoption of PoliformaT at the University, and promotion among teachers.

Subject: Online instruction; Colleges & universities; Teaching methods; Quality of education

Location: Spain

Company / organization: Name: Polytechnic University of Valencia-Spain; NAICS: 611310

Classification: 9175: Western Europe; 6200: Training & development; 8306: Schools and educational services

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 2

Pages: 26-36

Number of pages: 11

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Diagrams Tables References

ProQuest document ID: 198718470

Document URL: http://search.proquest.com/docview/198718470?accountid=38610

Copyright: Copyright Idea Group Inc. Apr-Jun 2007

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 36 of 100

The UAB Virtual Campus: An Essential Platform for a European Higher Education Environment

Author: Yábar, José Manuel; Hernández, Jesús; Pedro López Roldán; Castellà, Joaquim

ProQuest document link

Abstract:

The university is currently involved-within Europe-in a process of coordinating higher education for adaptation to the new ECTS European credits, which implies changing from a teacher-centred model (teacher conveys knowledge) to a learner-centred model, a real challenge. Since 1996, the Universitat Autònoma de Barcelona (UAB) has been carrying out the "Campus Virtual de la UAB" project. This platform fulfils several roles that aim at providing an answer to this challenge. This article will focus on how to use the communication and discussion functionalities between teachers and students, between students themselves, and on monitoring of the students' learning process. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: collaborative learning; e-learning; EHEA (European Higher Education Area); student-centred learning; virtual campus

INTRODUCTION

Teaching research, innovation, and technological advances bring about changes and constant needs in the learning process. Society itself raises new training needs that imply new teaching-learning models. These models need to be adapted to the binomial time (synchronous/asynchronous) space (face-to-face/virtual).

The university is currently involved, within Europe, in a process of coordinating higher education (i.e., years of study, kinds of degrees, quality systems, more widely consensuated assessment criteria, and so on) alongside the adaptation to the new ECTS European credits, which implies changing from a teacher-centred model (teacher conveys knowledge) to a learner-centred model. In this model, the teacher's tutorials, interrelation and communication between teacher and student, and between students themselves, have a fundamental role. The university should provide an answer to this challenge.

In this article we will present the UAB virtual campus as a platform that may contribute instruments to provide an answer to this challenge. We will focus especially on how teachers use environments that promote tutorials, communication, and interaction between the teacher and students, and between students themselves, and monitoring of the students' learning process.

The Campus Virtual

Since 1996, the Universidad Autónoma de Barcelona (UAB), having an interest in the application of information technologies in all academic fields, has promoted a bimodal teaching system by means of the creation of its Campus Virtual, which has developed remarkably in the 10 years since it started.

We define the bimodal model as a flexible educational model in which ICT resources and traditional training activities such as master classes or specific practical tasks, harmoniously combine with the aim of adapting education to target group needs and to the content to be learned. This model allows us to adapt the face-to-face/virtuality binomial to training needs. That is why we need to eliminate the limitations caused by the time/space coordinates, which may be liberated by the ICT. The bimodal model also promotes quality teaching design by making the most of teacher-student intercommunication possibilities and by giving greater relevance to individual tutorials, to student-student relationships, and to the interaction between students themselves by means of collaborative work, discussion, and contrasting ideas (Marques, 2005; Yabar & Barbara, 2000; Yabar & Barbara, 1999; Yabar, Barbara, Añaños, Recoder & Hernandez, 2001).

The virtual campus (Figure 1) is the tool that enables this bimodal model. This platform has several different roles:

* It provides support for face-to-face teaching, as we cannot forget that the UAB is a face-to-face university, by establishing channels of information, communication, and access to teaching materials online.

* It encourages teaching innovation as it offers/provides a set of possibilities that favour the interrelation between teacher and student, and between students themselves by means of the forum, group discussions, work submission, tutorials, and collaborative work.

* It promotes the creation of learning materials and provides the opportunity of uploading them to the net, which allows students to acquire new training skills by means of digital materials and multimedia, electronic resources of all kinds, and so on (see Figure 2).

* It fosters communication between the various different agents involved in the learning process, namely the teacher, students, and workgroups, by means of tutorials, discussion forums, wiki, and so forth.

* It favours monitoring of the student's learning process. The teacher monitors students, and students even monitor themselves, by means of features such as work submission.

* It favours self-learning and self-assessment by means of a feature that allows the teacher to create databases with questions and answers, the students to take self-assessment tests sorted by theme, to get the results immediately, and to revise specific themes by checking their answers against the comments made by the teacher.

* It enables blended teaching experiences with different degrees of virtuality (blended or completely online) such as "Geografía en Xarxa" (Geography Online) or those projects in which several universities exchange their offer of online subjects.

The usage of the virtual campus is reflected in the figures involved in this teaching platform. During the year 2005-2006, more than 3,000 subjects/groups, which belong to 16 centres (Faculties and Schools), are registered in the virtual campus in order to carry on bimodal teaching, basically as a support to face-to-face learning. This implies that more than 1,800 teachers and more than 32,000 students are taking part in the virtual campus.

The distribution of subjects/groups per faculty and the percentage with respect to the total sum of subjects is shown in Table 1.

The Figures 3 through 5 show, first of all, the number of logs from different users between September 2005 and April 2006, and an extension of this same chart showing the number of logs from February 13 to February 27, 2006 (see Figures 3 and 4). Figure 5 shows the number of concurrent users in a single day (20/02/1906) from one of the two computers (CV01 and CV02) serving the virtual campus by distributing logs. Therefore we can state that there were about 600/700 concurrent users from 10:00 to 22:00, reaching peaks of 1,000 concurrent users.

We are becoming more aware that technology and, in this case, the different models of virtual campuses (both commercial and non-commercial) include a set of functionalities that bridge the differences between them. What is really new and different is how the functionalities from these virtual campuses are used and what the dynamics promoted are, taking into account that the student is the real author of the learning process. This innovating approach should start from three key points: the student, the teacher, and the virtual environment that supports the learning process.

ENVIRONMENTS THAT PROMOTE TUTORIALS, COMMUNICATION, AND INTERACTION BETWEEN TEACHER AND STUDENTS, AND BETWEEN STUDENTS THEMSELVES

The virtual campus has three features that promote interaction and communication between the learning agents, students, and teachers. In any kind of blended teaching, and even more if it is not face-to-face at all, communication tools are essential. It is the way knowledge is exchanged, the student's progress is monitored, opinions are given, discussions take place, suggestions are made, and so on. In a nutshell, the way to build up knowledge. Communication between teachers and students must be individualised, as well as communication between students themselves in a workgroup or in the classroom.

Communication between those who take part in the training act is always fundamental. We are trying to change a model, which is teacher-centred into one, which is student-centred, in which the student is the main actor of the learning process. And in this new approach, communication and interaction between all participants in the training act is basic and essential (Marques,Dorado, Bosco&Santiveri, 2005; Yabar,Barbara,Añaños,Recoder&Hernandez,2001).

E-mail

Within the framework of tutorials, communication between teachers and students by means of a virtual platform is undertaken by means of the electronic mail feature in the subject (see Figure 6).

This methodology is neither new nor innovative. However, it makes communication between the teacher and students easier, especially by using this system, so that, for instance, if the teacher thinks it is convenient to have a personal interview with a student, he or she only has to ask the student. This process obviously breaks down the reluctance that some students show when communication is face-to-face. It is the teacher who asks the students to go into his or her office, not the other way around. Besides, a written question helps to solve questions more concretely, to specify better what the students is trying to ask, and moreover, can be sent when the student is sure about what he or she is sending. It is obvious that it favours breaking down many barriers. This feature is focused on the subject, so it works apart from their personal email addresses, and the content we can find in it has a very specific aim: to improve the learning process (Curell,2001; Mora, 2004).

The use of this feature within the virtual campus is the following: it is used in more than 2,240 subjects (72%).

Forum

We consider that this communication feature is one of the most useful for a new approach in our teaching and in giving tutorials to groups (see Figures 7 and 8). The forum is used as an asynchronous discussion space for those subjects suggested by the teacher and in which students take part when they think convenient.

The teachers are usually those responsible for guiding the forum, although sometimes a student or group of students may take on this role. The teacher creates the forum as only they can do so, but they set the rules that will regulate the forum. The teacher, as the tutor, promotes participation, guides the discussion, and, if necessary, gives information or provides documents that contribute to the progress and consolidation of learning planned. Therefore, this feature is very interesting for case studies, for the creation of workgroups, or for making suggestions of collaborative work.

It should be highlighted too that this feature makes students feel more confident when participating as they do not have pressure and can take the time they need to think, write their contribution, and send it when they think convenient (Curell,2001; Mora, 2004).

The forum is a feature that facilitates relationship strategies between the student and the aim of knowledge. These strategies are carried out both by the student and by the teacher in his or her tutorial, of which we would like to highlight the following:

* Asking exploratory questions to make sure concepts are understood.

* Thinking about and getting feedback on the records in the forum, thus promoting synthesis.

* Asking for clarification with the aim of regulating and controlling meanings. (Trujillo, 2003)

The forum may generate two important aspects in the process of building up knowledge, namely writing, which requires more solid thinking than speaking, and the fact that writing implies elaborating statements, which should be more reasoned.

The forum may be used to reinterpret information by comparing ideas that are added, it increases the degree of complexity as it guides the concretion and synthesising processes, and fosters collective build-up.

The use of this feature in the Campus Virtual is shown in Figures 7 and 8. More than 650 subjects (20%) use it and there are more than 2,500 discussion forums.

Paper Submission. Toward the Teaching Portfolio or the Personal Progress Dossier

Both the teachers and students need to have an organized and systematized dossier of the learning process that is being carried out (Gimeno,2004; Entenza & Bouza,2005).

The virtual campus does not yet have a feature especially designed for this purpose, but we are working on it so that it can become a reality. We currently have a feature-work submission-that could become a virtual dossier with the work of each student, depending on the use we would like to give to this feature. This feature allows the teacher to manage the process of submitting a piece of work and the subsequent correction and assessment with feedback if necessary.

The teacher uploads the guidelines for the work to be done and those documents he or she thinks convenient (see Figure 9).

Both the student and the teacher will monitor the work submission and correction process. The student writes a paper and submits it to the teacher. Both the student and the teacher have proof that it has been sent (see Figure 10).

Once the paper has been corrected, the teacher's response may be take various different forms such as a number or a text, with or without comments, and it may include a file that could be the piece of work corrected with comments. In this last case, comments to the document may be added by means of existing programmes such as Acrobat, thus allowing the original file submitted by the student to be kept intact. The student receives the corrected paper with the corresponding notes and some brief comments including the mark obtained (see Figure 11).

Both the student and the teacher have proof of the whole process by means of the platform: the file that has been sent, the teacher's assessment, and the file that the teacher may have sent back with notes added. The teacher may repeat this process with a specific student when the work submitted is not valid at his or her convenience. This dynamic enables interaction between teacher and students, which is basic in the learning process.

If we pay attention to the whole process and the information that both the student and the teacher gather with the following pieces of work, we can state that we are coming close to what we understand as the student's virtual portfolio in a subject. The aim of the student's teaching portfolio is to enable the monitoring of the student's learning process in a continuous and personalised way. This feature enables us to manage this process easily and efficiently. The students have access to their own space and the teacher has access to a space where he or she can find all the information concerning all the students in that subject. The teacher also has access to all the students' results, either in numbers or text or by means of a chart that can be transferred to a spreadsheet.

The use of this feature in the Campus Virtual is the following: it is used in more than 450 subjects (15%), and there are more than 2,500 work submissions programmed.

CONCLUSION

The UAB Campus Virtual is an environment offering a set of features to develop teaching methodologies that foster the teaching-learning model suggested in the EHEA and the ECTS.

Those teaching innovation proposals in which interaction between the various different learning agents is promoted to the maximum are necessary in a European Higher Education environment, to which all universities should be oriented.

The appropriate use of features that promote communication between teacher and student, and between students themselves, favours autonomous work and learning at their own pace. We should promote to the maximum interaction and communication between the various different agents involved in the training process.

The features that enable a continuous and personalised monitoring of students may favour their learning process.

The several different possibilities provided by teaching platforms based on ITC are becoming more necessary in order to manage our teaching efficiently, but we should be aware of the fact that it implies complementary work. However, the improvements we may achieve are fundamental.

References

REFERENCES

Bates, T (2001) Cómo gestionar el cambio tecnológico. Estrategias para los responsibles de centros universitarios - Ediuoc-Gedisa

Curell, H (2004) La tutoria integrada a través del campus virtual. Departament de Filologia Anglesa. Universitat Autònoma de Barcelona I Jornades d'Innovació Docent - IDES Universitat Autònoma de Barcelona. http://magno.uab.es/ides/jornades/arxius/tutoria_cv.pdf

Entenza, A.I.; Martinez Bouza, J.M. (2005) Experiencia del porfoli com a instrument docent - II Jornades d'Innovació Docent - IDES Universitat Autònoma de Barcelona . http://magno.uab.es/ides/jornades/arxius/carpetadocent.pdf

Gimeno,X. (2004) La carpeta d'aprenentatge com instrument de formació i avaluació. Departament de Pedagogia Aplicada. UAB. I Jornades d'Innovació Docent - IDES Universitat Autònoma de Barcelona. http://magno.uab.es/ides/jornades/arxius/carpeta_aprenentatge.pdf

Marquès, P (2005) Impacto de las TIC en la enseñanza universitaria Departamento de Pedagogía Aplicada. Universitat Autònoma de Barcelona http://dewey.uab.es/pmarques/ticuniv.htm

Marquès, P; Dorado,C; Bosco,A; Santiveri, N; integrantes de los seminarios ECTS-TIC (2005) Las TIC como intrumentos de apoyo a las actividades de los docentes universitarios y de sus alumnos en el marco de la implantación de los créditos ECTS. Las claves del éxito. Departamento de Pedagogía Aplicada Universitat Autònoma de Barcelona http://dewey.uab.es/pmarques/ectstic2.htm

Mora, R (2004) Campus Virtual: Otras vías de enseñanza universitaria http://www.ucm.es/info/arqueoweb/numero5_1/articulo5_1_mora.html

Schneckenberg, D (2004), El e-learning transforma la educación superior Educar 33, 2004 143-156.

Trujillo J.A. (2003) Características de la actividad generada en un escenario informático tipo foro. Tesis Doctoral Universidad Autónoma de Barcelona

Yábar,JM; Barbara PL (2000) La Universidad Autónoma de Barcelona: el camino hacia una universidad bimodal en el marco de las tecnologías de la información y de la comunicación. Revista: Educa Vol 25 pàg 113-118. Barcelona

Yábar,JM; Barbara PL (1999) La universidad de la sociedad de la infomación Retos y respuestas. Multimedia Educativo 99. Instituto de Ciencias de la Educación Universidad de Barcelona 1999

Yábar, J.M.; Barbarà, P.L; Añaños, E.; Recoder, M°J.; Hernandez, J (2001) La Universidad Autónoma de Barcelona: una universidad para el siglo XXI. VirtualEduca 2001 http://www. virtualeduca.org/virtualeduca/virtual/actas2001/1.htm

AuthorAffiliation

José Manuel Yábar, Universidad Autónoma de Barcelona, Spain

Jesús Hernández, Universidad Autónoma de Barcelona, Spain

Pedro López Roldán, Universidad Autónoma de Barcelona, Spain

Joaquim Castellà, Universidad Autónoma de Barcelona, Spain

AuthorAffiliation

Dr. José Manuel Yábar, bachelor's degree in mathematics, PhD in pedagogy and didactics, professor in teaching of mathematics at the Universitat Autònoma de Barcelona - Spain. He is the rector's delegate in charge of the Oficina de l'Autònoma Interactiva Docent, the department responsible for the Campus Virtual since 1996. He has several books, articles and communications published in the field of teaching of mathematics and in the field of the use of ICT in teaching, especially in the application of the bimodal model in university studies. He has directed several research projects in Spain and Europe on the application of ICT in training different target groups.

Dr. Jesús Hernández, PhD philosophy UAB, 1987, professor of philosophy, department of philosophy. Head of e-learning docents projects (OAID). Research interests: The genesis Greek of the contemporary pationality.

Dr. Pedro López, BA in economics and business and PhD in sociology by the Universitat Autònoma of Barcelona. Diplôme d' Études Approfondies, special branch of mathematics, computing and applications on human's sciences by the École des Hautes Études en Sciences Social of Paris. Tenured professor of the Department of Sociology of the UAB, he gives subjects of methodology, techniques on social investigation and statistics, in addition to coordinating the TISA Master (Master of Techniques on Applied Social Research). Member of the QUIT (Sociological Research Group of Everyday Life and Work), he is currently involved in researches related to sociology of labour, every day life and gender. Moreover he has taken part in the methodological management of several surveys and has published some articles and books about social research methodology, data analysis and social networks. E-learning coordinator at the Universitat Autònoma of Barcelona, responsible for developing and leading e-learning courses. General coordinator of "Intercampus", a programme of administration and teaching shared between Catalan universities trough the Internet.

Dr. Joaquim Castellà, BA in veterinary medicine by the Universidad de Zaragoza in 1987, PhD in veterinary medicine by the Universitat Autònoma de Barcelona in 1992. Professor of the animal health area since 1994. He focuses his teaching and research curriculum on the study of parasitic diseases in pets. He has taken part in several projects to improve the teaching quality at the UAB and he is currently a member of the Oficina de l'Autònoma Interactiva Docent.

Subject: Colleges & universities; Higher education; Online instruction; Technological change

Location: Spain

Company / organization: Name: Universitat Autonoma de Barcelona-Spain; NAICS: 611310

Classification: 9175: Western Europe; 8306: Schools and educational services

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 2

Pages: 37-39,42-48

Number of pages: 10

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Illustrations Tables Graphs References

ProQuest document ID: 198650264

Document URL: http://search.proquest.com/docview/198650264?accountid=38610

Copyright: Copyright Idea Group Inc. Apr-Jun 2007

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 37 of 100

EVAINU Research: New Virtual Learning Environments for Educational Innovation at University

Author: Bosco, Alejandra

ProQuest document link

Abstract:

New virtual learning environments for educational innovation at the university of the presentfuture-EVAINU-is a research project financed by the Autonomous University of Barcelona as part of its support for emerging research groups. The project came about as a result of the growing presence of the ICTs in the higher education system and has focused on identifying typical cases, which use these media at the Autonomous University of Barcelona (UAB) involving some form of curricular innovation or improvement in accordance with the European convergence processes, which the Spanish university system is currently undergoing. As a result, three case studies of different qualifications were carried out in order to investigate their potential for improving university education. One of these cases-Virtual Veterinary Science-is described in this study. Among the preliminary results of this research so far, of particular interest is the fact that while the ICTs are clearly an important opportunity to make a qualitative leap and to go beyond teaching outlooks based on exposition, passive reception, and memorising, more institutional support is necessary in terms of working strategies, which promote new ways of organising teaching, the development of ICT skills among teaching staff and students, and the creation of incentives for teacher training, among other initiatives. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: active learning; case study; education research; higher education; instructional materials; student-centred learning; teaching strategies; Web based curriculum

ABOUT EVAINU

New virtual learning environments for educational innovation at the university of the present-future-EVAINU-is a research project financed by the Autonomous University of Barcelona as part of its support for emerging research groups1. The problem considered in the project arises from the increasing and sustained presence of information and communication technologies (ICTs2) in the higher education system where they play an increasingly major role in teaching. The problem also arises as a result of the opportunities, which these technologies give to the European convergence processes that are now being implemented, as they may favour teaching methodologies that are less centred on the teacher and content, and more centred on students and on carrying out activities or projects. At university, the ICTs may involve the entire teaching process as they do at the Open University of Catalonia, or just a part of it, covering specific aspects of education. This is the case at various universities in Spain, which complement traditional face-to-face teaching with the use of various electronic environments such as the Autónoma Interactiva (at the Autonomous University of Barcelona) or the UB-Virtual (at the University of Barcelona). These two schemes enable both subjects and training courses of various types to be taught either partially or completely by means of distance learning, using an electronic medium based mainly on WWW (World Wide Web) applications.

The purpose of this research project is therefore to identify new methods of training at a university involving the use of ICTs in order to investigate their potential for improving university education (i.e., for becoming educational innovations beyond the limits of the technological innovation that these tools already represent).

The initial hypothesis is based on the conception that integration of the ICTs and possibly the change involved in non-attendance of regular classes or the means of gaining access to information does not necessarily entail innovation and an improvement in teaching and learning processes. Any educational innovation starts with the inclusion of a new item in the curriculum, but it is still difficult to change the way teaching staff and students see teaching and learning processes, and the organisational and symbolic structure of the institution (Bosco, 2002; Hargreaves, Earl, & Ryan, 1998; Sancho et al., 1998; Stoll & Fink, 1999, 2000). In general, approaches to learning remain more centred on teachers than on students. Knowledge continues to be seen as something that is given and which is external to the students, and not as a construction, which takes place and, which the student must understand. Assessment is still synonymous with examinations and testing and relationships with the community as a factor encouraging learning that is more significant are still scarce (Hargreaves et al., 1998; Sancho & Hernández, 2001).

The specific objectives of the research in its exploratory phase are:

* To identify, describe, and interpret some of the typical educational approaches that have been completely or partially implemented using the various services made possible by the ICTs at the Autonomous University of Barcelona.

* To identify, describe, and interpret the potential of these approaches for educational improvement and change, emphasising the role of teachers and students in the process, ways of representing knowledge, the type of assessment they lead to, and the relationship they establish with the wider community of which they form a part.

Methodology

The study is carried out from the qualitative perspective of educational research, as it aims to find a significance and an interpretation, taking into account the context of the various activities, which teachers and students carry out using these new learning environments. These studies have a curricular or theoretical-contextual focus in terms of research into methods (Area, 1991). The object is thus investigated in an interactive, continuous, and flexible manner in its "natural" context, accepting the complex scenario in which it is located. The inductive route, based on evidence, is used to construct its conceptions and theories.

As a result, case studies have been selected as the methodological strategy as they enable in-depth study of one or more units, which represent the subject being researched (Stake, 1999). In fact, this is a design with many cases in which each case is an example in action, and it therefore allows us to "illustrate" the problem for which it is the focus of examination and study (MacDonald & Walker, 1977). For this reason, three typical cases have been selected based on previously established criteria (Goetz & LeCompte, 1988). The main methods for gathering information were exploratory interviews, observation, and analysis of documents and devices, and in some cases, the survey and questionnaire (see Figure 1).

The Three Typical Cases

The first step in the research was to identify the teaching approaches, which used ICTs and which also considered themselves to be innovative (i.e., they thought of themselves as an improvement compared to the methods without ICTs). To do so, we identified teaching approaches that had presented "teaching innovation projects" to the selection processes for teaching support grants (with financial endowments) of the UAB Higher Education Teaching Innovation Unit, or which had been accepted as communications at the Innovation Day Sessions organised by the unit. Another requirement for selection was that they had to include more or less all the ways of using ICTs in teaching, which are used at the university.

We thereby identified three cases: (a) The repository of virtual materials in the faculty of veterinary science, "Virtual Veterinary Science," (b) the geography degree through the "Geography on the Net" programme, and (c) a group of three subjects in different degree courses, which complement face-to-face teaching with the use of digital materials and the virtual campus of the university (the Autónoma Interactiva). Due to limitations of space, we will only look at one of these in this study, Virtual Veterinary Science (VVS), and give a description and analysis of the method of teaching in these studies, based on carrying out "study cases"3 (Wassermann, 1999), which by means of ICTs contributes extensively to these processes of change promoted by European convergence.

It should be made clear that our study of Virtual Veterinary Science consists of three subjects from the Veterinary Science Degree Course, which are analysed in depth. These are representative of the process that takes place in terms of the structure and use of the repository and other possibilities with ICTs-the first year of Anatomy I, the second year of Parasitology, and the fourth year of Pathological Anatomy. Using subjects from different courses enabled us to check the data more extensively.

The three subjects organise their teaching in theoretical and practical credits. While the theoretical part is generally covered by classes organised in the traditional way as exposition of content, the practical classes have particular characteristics that are specific to each subject. In Anatomy I, the practical classes consist of anatomical dissections coordinated by the subject's teaching staff, while in Parasitology, specialist equipment is used to observe microscopic organic material (parasites). Finally, in Special Pathological Anatomy, students participate in an autopsy in the practical classes. Based on this, they have to ascertain the cause of death of an animal.

Virtual Veterinary Science

Virtual Veterinary Science is a study case because it is a significant example of the contribution that can be made by ICTs to educational processes in higher education institutions. Another reason is that it is one of the few initiatives including ICTs in the teaching and learning processes, which involve an entire qualification-the Veterinary Science Degree Course.

These studies, like many other qualifications at the university, are undergoing a transformation in their teaching and learning process, which is related to the European convergence process4 in university education in which they consider that the ICTs may have a beneficial role. This is especially true in terms of the implementation of curricular innovation processes in which the organisation of teaching would be more closely related to carrying out a series of activities than to mere class attendance, where knowledge should be built up based on these activities, and where assessment would be nothing more than a means of recording these activities in a clear way, and something which would not necessarily mean in practice that an examination would be sat.

Virtual Veterinary Science (hereinafter VVS) is a repository for learning materials, which is also called a learning objects library by some authors (Pedreño, 2004). This is a collection of digital materials stored, collected, and controlled by a university or higher education institution, regardless of their purpose or origin. Some authors (Crow, 2002) feel that this type of resource should have two complementary objectives: (1) to promote the restructuring of the means of publishing in academia, and (2) to make up a tangible body demonstrating institutional scientific productivity. A repository is thus a digital archive, which brings together a faculty's intellectual output, its academic staff and students, and is accessible to both members of that institution and other institutions in an open manner. Some of the main characteristics attributed to the contents of an institutional repository are:

1. It is institutionally defined (i.e., it is not oriented toward the collection of materials in a specific discipline or subject), but it is instead a collection of original material produced or selected by one or several institutions with similar aims (for example, several universities).

2. Academic: Depending on the objectives established by each institution, an institutional repository may contain any product generated by the students, teaching staff, researchers, and/or other staff. It could therefore include electronic assessment portfolios from the students, instructional materials, institutional video recordings, software, databases, photographs, virtual works of art, and any digital material, which the institution wishes to preserve. Flexibility and control of what is published must also be strictly regulated. There must be established mechanisms, which evaluate the material published, which should be part of the policy of each participating institution or institutions.

3. Cumulative and perpetual: The contents must be of a long-lasting nature, and although they need not be included on a permanent basis, the system must be powerful enough to accumulate several million objects with the passing of time, and many terabytes of data as a result.

In VVS, the repository is exclusively composed of teaching resources, and in this respect, it does not meet all the requirements or all the characteristics for this type of resource mentioned above, although it does meet some of them. It is in fact a learning objects library, which is collected by a faculty in order to support teaching, and is therefore institutionally defined. Although it is linked to specific knowledge areas, it is academic, cumulative, and perpetual.

The Repository Materials

The three subjects analysed in these studies have produced materials specifically for teaching (all in Virtual Veterinary Science), and in all of them, these materials present the development of their basic contents in a more or less schematic manner, depending on the subject. This is especially true of the inclusion of images, some of which are even microscopic, which provide a meaningful illustration of the subject in question. The word meaningful is used here because some of the subjects dealt with require an image to at least begin to understand them. For example, if the aim is for students to identify an inflammatory process caused by a disease, bacteria, etc., in a specific organ, it is highly likely that they will need to see what this inflamed organ looks like, including at microscopic level. The same is true if they need to recognise a type of parasite or the muscles or nerves in a specific part of the body. It is highly advisable to look at their appearance, shape, etc. This is at least one of the steps to be followed in order to be able to recognise it later, and attach the appropriate significance to it. In fact, it would be ideal to see this material in reality. Examples where this is possible are in Anatomy I and in Parasitology in practical classes, although there are some difficulties due to the number of students, as well as in Special Pathological Anatomy, but in a different way. The material observed depends on what is available in the autopsies room on a given day, and only a small group of students can have access to it at the same time.

In Special Pathological Anatomy and in Parasitology, there is also a type of more application- based material for acquiring knowledge, which is therefore more interactive in the sense that an understanding of it requires more work in intellectual terms. Examples of these types of materials are the autopsy of the week (which is left in Virtual Veterinary Science each week) and/or the self-directed learning cases, which the students have to resolve (which are created based on the most common diseases of organs and animals) and Parasitology tests. This means that it is no longer a question of "presenting" content but instead the content requires a different type of interaction from students. It requires solutions to a problem, and they have to use knowledge that is related to the problem but not developed as part of it. In short, they have to use knowledge, which is assumed to be acquired or which this material can help to produce.

WHY DO WE SAY THAT VIRTUAL VETERINARY SCIENCE COULD FACILITATE LESS TRADITIONAL AND MORE INNOVATIVE TEACHING?

At first sight, it could be said that the materials that facilitate less traditional student-centred learning to the greatest extent are connected with those that stress the selection and management of information for solving a problem rather than the presentation of information. They also lead to types of actions that are complex from an intellectual point of view, such as producing and checking hypotheses. However, having access to material where most of the content is dealt with can also facilitate teaching based less on exposition or "information transfer." If the students can consult the material by means of Virtual Veterinary Science, some students suggest that it is then not necessary for the same material to be presented in class, unless it is decided that it is highly complex, which could be possible in some cases. On this subject, a first year student said:

The virtual material is very helpful because it enables you to see anatomical aspects, which we do not have time to study, or are very difficult to identify in a dissection (referring to the practical classes in Anatomy I). The negative aspect is perhaps that the teacher often only shows the image and does not explain it in detail.

As can be seen in Anatomy I, for example, the material complements the practical dissection classes in which it is difficult to identify some anatomical aspects for various reasons. However, in some cases, the material makes theoretical classes into a mere "presentation of material," which is not especially useful. This is firstly because when the material is easy to understand, it does not need a theoretical class for presentation. The practical class complemented by the material is sufficient. Secondly, when the anatomical structures are sufficiently complex, a new class (the theoretical one), in which they are studied in some depth, becomes necessary, as well as the practical class and the material.

In any event, the material facilitates processes of understanding while it complements practical classes. However, it would seem that the class (theoretical) should become something other than what it is. In fact, the various types of materials in the repository could help to innovate in the sense of making the class less "expositional." This could be because occasional activities are carried out in order to help with dealing with the material in an independent manner, or because they are not necessary, as they have been replaced by the material. This means that as a whole, Virtual Veterinary Science could help to promote a type of less traditional/expositional teaching, at least as a first step, which should be complemented with other types of activities, which are more like those promoted by learning based on problems or projects or carrying out activities such as case studies. Learning is based on the formulation of one or more problems in these methodological approaches, and the learning processes are directed by the participants (i.e., it is the students who formulate their own problems based on their experiences and previous baggage). The activity or activities are a central part of these approaches, and are carried out using searching, decision-making, and writing processes, and work is generally done in groups with advice from the teacher.

Some students give various ideas on the type of activities, which could help them toward a better understanding of the concepts and could even bring them closer to working in their future profession. They talk about not completely eliminating classes, but instead making them different and more geared toward understanding, more focused on learning than on teaching (i.e., where what the student does goes beyond understanding a text or memorising names and requires the establishment of more complex relationships), and less toward exposition and lectures. In fact, the degree course could be divided between independent study and autonomous learning, as well as the important practical work that is impossible to replace in these studies. We consider autonomous learning to be learning, which encourages students to work with some degree of independence, setting their objectives and study plan in accordance with their needs and interests. The teacher's task is to facilitate this learning by providing the best conditions and the resources and the materials necessary to achieve the objectives set. As can be seen, this involves an active type of learning, which is committed, not managed or directed from outside, and is meaningful and student-centred. Virtual Veterinary Science may be deemed a resource, which facilitates this type of learning.

Study Cases in Special Pathological Anatomy

One of the subjects making up the case, Special Pathological Anatomy, already carries out part of its teaching by a methodological approach, which encourages autonomous learning-study cases.

As its name suggests, an obvious feature of this way of teaching is that it takes place using an educational tool called a case. A case is a narrative, which includes information and data on a specific subject. However, although the focus is on specific subjects such as history, paediatrics, government, law, business, education, psychology, child development, nursing, etc., they are by their nature interdisciplinary. In fact, good cases are based around problems or broad-based ideas-important points in a subject or knowledge area-although the narratives are based on real-life problems, which present real people:

A good case is a vehicle by which a piece of reality is taken into the classroom in order for the students and teacher to examine it in minute detail. A good case keeps the discussion focused on some of the stubborn facts which one has to face in some situations in real life ... it is the anchor for academic speculation; it is the record of complex situations which must literally be dismantled and reassembled for the expression of attitudes and ways of thinking that are set out in the classroom. (Lawrence5, 1953, p. 215)

These cases are also solved in group work, which is guided by the teacher thanks to a series of procedures such as critical questions, examination of the case, and follow-up activities. Critical questions are usually asked at the end of the process forcing the students to review important ideas related to the case. They are not questions with a single closed answer such as a name, date, or description of a phenomenon or event. Their objective is instead to promote understanding in such a way that they require students to apply what they know (they even require them first to ascertain what they do not know) when they analyse data or suggest solutions. This means that they have to prepare hypotheses for solving or understanding the case, and therefore bring superior cognitive skills to bear. This examination of the case is crucial in helping students to carry out a more acute analysis of various problems, and encourages them to make an effort to obtain a deeper understanding.

After these critical questions, basic ideas play the central role in the discussion. Trivial issues disappear and problems are not necessarily solved, which is tangible proof that complex questions do not have faultless solutions. It is often necessary to suspend one's judgement and tolerate ambiguity and uncertainty.

Finally, the follow-up activities are put forward in order to give improved responses to the case. They may be very varied and whatever they are, their value increases when further discussions take place leading to a wide-ranging examination of the problems with the introduction of new perspectives.

In the subject dealt with here, the objective of this work is twofold. Firstly, cases help in developing content for the programme of the subject (i.e., various pathologies in different species of animals. Secondly, the aim is to create an activity similar to the professional work that the students will have to do when they have completed their studies.

The "case" is made up of the autopsies carried out in the subject's practical classes-"a piece of reality, which is brought to the classroom" to which a solution is be found using a degree of "academic speculation" achieved by consulting bibliographies, the teaching staff, and by means of group work with partners. This is a tool bringing together important points in the syllabus to be dealt with, which warrants in-depth examination. The objective is to find out which pathology caused the death of a real animal, and whether the diagnosis and treatment received were correct. To that end, all the necessary background is available wherever possible, and is the basis for the beginning of a cooperative research process. One of the teachers in charge says:

(...) the student who attends an autopsy... looks at a case under the supervision of the teacher, and the teacher tells him or her why it is unusual: why it is a species that is seen rarely, because of certain reasons, and that there are between 2 and 4 students who are assigned this case, and then they work on it (...) The students can search for information wherever they want, on the Internet, in libraries, coming to see me here, with class notes, using whatever they want....

The case exactly as it (...) happened. (...) you receive it, you do autopsies in the autopsy room, you take the macroscopic and microscopic photographs, they discuss them, they give differential diagnoses, they look for reasons, what we call the 'pathogeny', i.e. 'this organ has this because this has happened to it...', 'the cause-effect relationship is this, and this is also related to the symptom that the animal had of convulsions, etc....

The information about the case is organised with guidance from the teacher and mostly follows the same structure: presentation of the animal, clinical history, macroscopic findings, microscopic findings, diagnosis, pathogeny, differential diagnosis, and synopsis. This same structure is followed for its presentation in public after it has been "resolved" or at least once the most plausible hypotheses have been presented (see Figure 2).

It can be seen that resolution of the case leads to a series of activities involving a search for and analysis of information, consultation of experts, interviews with those involved, etc., which is indeed a practice that is very similar to what they will do as future professionals, in which the teacher is a tutor and when assessing the resolution of the case, an expert.

As mentioned previously, this working approach is a small part of a subject. We are therefore a long way from removing the exposition-based class, which continues to have an important role. However, for the purposes of this study, we are interested in the contribution of the ICTs to this type of development, to the extent that permanently and in itself, and the methodology used is an approach for autonomous learning, which is more in line with the processes of change taking place in higher education institutions in Spain.

What Do the ICTs Contribute to This Way Of Working?

In order to be able to answer the question posed in the title of this section, it is necessary to reconstruct the production process of Special Pathological Anatomy cases. Firstly, the ICTs enable the relevant information related to the case to be gathered quickly. Both the macroscopic and microscopic photographs are mainly taken on the day the autopsy is carried out. These are an important basis for the research process, which has begun. The condition of the various organs involved in the disease and presumed death of the animal can be seen in them. They are digital photographs, which can be shared and managed from the outset with major savings in effort and can also be touched up, enlarged, etc. for all conjectures that can be made during the process of producing hypotheses and resolving the case. They therefore become an important intellectual tool in the sense that they "expand" the ability to transform reality for the purposes of thinking about it.

These photographs are also available to each member of the group and even to the rest of the "group class" as they are placed in a shared disk unit. They therefore facilitate independent work at the same time as reinforcing group work as each person can make progress to the extent that their time allows, and quickly share their findings and their progress within the process, by e-mail, for example.

As far as the case resolution process is concerned, the ICTs are present in both the process of searching for information and in the location of and communication with experts, contacts with associations of interest, and even with the owners of the animal. They also improve it by making communication and consultation with the teaching staff permanent.

Another feature of this experience is also the availability of hypermedia materials from Virtual Veterinary Science produced by the subject's teaching staff where all the possible pathologies of the various organs in the different species are available (as if it was an encyclopaedia). These materials are undoubtedly the initial reference point in the search for information and subsequent resolution of the case.

During the case development process, the ICTs expand communication opportunities extending them beyond the spaces of the classroom, office, and the campus itself. The discussion can be extended as much as is necessary. A "real" meeting is not always necessary, even between members of the group.

Having reached the case presentation phase, making multimedia presentations (diagrams, audiovisual material, etc.) will help with conceptualisation and reasoning of the main hypotheses to be shared in the defence. Their multimedia and interactive nature facilitates representation of information in a type of reasoning in which images have a key role. The digital nature of the presentation also enables flexible management of information allowing partial products to always be recovered. These show various points in the process without having to start again. Finally, they allow access to the material by the rest of the class (in a shared disk unit) so that everyone can find out the main hypotheses for debate before exposition of the case.

We therefore have tools for gathering information in a flexible and simple way, which are crucial for the development of the case, tools which enable us to represent information in a very significant interactive multimedia way to support the type of arguments being used, and all types of tools for online communication and cooperation. These all support and expand the scope of an approach which in itself already encourages autonomous learning, but which the ICTs undoubtedly improve by multiplying its benefits.

By Way of a Conclusion and Perspectives

As a conclusion to the arguments set out in this article and the data presented with regard to the research in progress, it can be emphasised that the ICTs offer significant opportunities for improvement and for a qualitative leap from traditional teaching to other types.

In the case presented here, it can be seen that the Virtual Veterinary Science repository could help the configuration of a "class" that is much more focused on the needs of the student than the "exposition of information" every time the student has had a practical class plus a consultation of multimedia material online. The class could therefore focus on supplementary questions or support for the understanding of more complex ideas. This improvement is made possible by the ICTs, although it cannot be truly updated without the desire to organise teaching in another way.

Tools such as e-mail, tools for collaborative work, all those enabling multimedia materials to be created, etc. expand the scope of autonomous learning within the approach of work by study cases even further, increasing the possibilities at every point in the process.

It can therefore be said that the ICTs provide a range of opportunities for the implementation of improvements-in accordance with European convergence-such as the following:

* They facilitate the gathering, access (faster), and management of information (hypermedia material).

* They improve the organisation of information (better logical structuring).

* They promote understanding of contents based on multimedia materials (they reinforce retention-recognition and synthesis processes).

* They stimulate independent study and decrease the dependence of the "class" on the "exposition of content."

* They widen the scope of approaches based on autonomous learning, such as work by study cases or other approaches such as continuous tutoring, collaborative work, etc.

* They improve communication between teaching staff and students and other members of the community, and increase participation by the wider social community.

* They promote the development of ICT skills among the teaching staff and the students.

* They make attention for various learning styles and rhythms possible.

The main limitation is to believe that in themselves they are able to transform teaching, and that they can only do it in a single specific way. Some of the measures that could counteract these beliefs are:

* Regular institutional support for all improvement initiatives, which by including the ICTs are able to organisers teaching in alternative ways, moving the "class" from the centre of the approach.

* The supply of resources for the development of digital materials adapted to the possibilities of the interactive multimedia, which in some cases can contribute to the processes of understanding.

* The establishment of incentives for teacher training in order to cooperate with the production of interactive multimedia materials and the development of new methodological strategies which make use of the ICTs and are able to create new ways of organising teaching.

Sidebar

Figure 2. Case study presentation diagram

CASE PRESENTATION STRUCTURE

Presentation of the animal: Species, breed, age...(i.e., everything concerned with the details of the animal).

Clinical history: The evolution of the disease which caused the animal's death: Its general state when it arrived at the hospital, symptoms, laboratory data, radiology, and all the practices and everything done to diagnose the disease in question.

Macroscopic findings: All the pathologies the animal suffered from and which were readily apparent during medical examination (e.g., lesions on the skin, state of the fur...).

Microscopic findings: The data that are found concerning the disease when the material is analysed with a microscope, and the findings that can thus be made about what was affecting the animal, which can corroborate the diagnosis of the vet who treated it or show new results, which explain the disease.

Diagnosis:

a) Lesional: Concerning the anatomopathological lesions observed.

b) Etiological: Concerning the origin and the specific cause of the disease.

c) Disease: This is the optimum diagnostic level, including lesional diagnosis, etiology, and symptomology.

Pathogeny: Establishment of the cause-effect relationships between all the lesions observed during the autopsy, and between these lesions and the signs and symptoms of the disease recorded in the clinical history.

Differential diagnosis: Carried out in accordance with the initial clinical diagnosis recorded in the clinical history. This involves the production of a diagnostic algorithm allowing the probabilities that the final diagnosis will be the most correct one possible to be increased.

Synopsis: A synthetic integration of all the above.

Footnote

ENDNOTES

1 The purpose of the grants is to finance the costs of performing research of an exploratory nature, which will be carried out in full after it has taken part in an official public competition process for grants. The members of the research group that carried out this study are Pere Marquès, Carlos Dorado, Noemí Santiveri, David Rodríguez Gómez, Gemma Carreras, and Laura Chaito, who are all part of the Applied Pedagogy Department of the UAB. We are especially grateful to David Rodríguez Gómez for his co-operation with this article.

2 By ICTs, in this study we refer to the various digital devices that enable us to present, manage, store and disseminate information.

3 By "study cases," we mean a teaching strategy, which should not be confused with a case study, which in this paper means a methodological research strategy.

4 The term "European convergence" includes various policies aimed at making the characteristics of higher education in the European context more uniform. These policies affect both the structure of the qualifications (comparable grading systems, graduate and postgraduate cycles, etc.) and the way teaching is organised.

5 Quoted by Wassermann (1999).

References

REFERENCES

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Bosco, Ma A. (2002). Los recursos informáticos en la escuela de la sociedad de la información: deseo y realidad. Educar, 29, 123-144.

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Goetz, J. P., & Lecompte, M. D. (1988). Ethnography and qualitative design in educational research. Madrid: Morata.

Hargreaves, A., Earl, L., & Ryan, J. (1998). Schooling for change. Barcelona: Octaedro.

Lawrence, P. R. (1953). The preparation of case material. In K. R. Andrews (Ed.), The case method of teaching human relations and administration (pp. 215-224). Cambridge, MA: Harvard University Press.

Macdonald, B., & Walker R. (1977). Case-study and the social philosophy of educational research. In D. Hamilton et al. (Eds.), Beyond the numbers game. London: Macmillan.

Pedreño, A. (2004). La cooperación y las TIC para la mejora de la calidad en la universidad. In A. Sangrà & M. González Sanmamed (Eds.), La transformación de las universidades a través de las TIC: Discursos y prácticas (pp. 53-72). Barcelona: Editorial UOC.

Sancho, J., & Hernández, F. (2001). Perspectivas de cambio sobre la enseñanza y el aprendizaje. Simposi itineraris de canvi en l'educació. Barcelona: Parc científic de Barcelona.

Sancho, J., Hernández, F., Carbonell, J., Tort, T., Simó, N., & Sánchez-Cortés, E. (1998). Aprendiendo de las innovaciones en los centros. Barcelona: Octaedro.

Stake, R. E. (1999). Art of case study research. Madrid: Morata.

Stoll, L., & Fink, D. (1999). Changing our schools. Barcelona: Octaedro.

Stoll, L., & Fink, D. (2000). Promover y mantener el cambio. Cuadernos de Pedagogía, 290, 78-81.

Wassermann, S. (1999). Case studies as a teaching method. Buenos Aires: Amorrortu Editores.

AuthorAffiliation

Alejandra Bosco, Autonomous University of Barcelona, Barcelona

AuthorAffiliation

Alejandra Bosco holds a PhD in philosophy and education sciences from the University of Barcelona, and since the beginning of his professional career he has worked mainly in the field of educational technology and open and distance education, combining the design and development of instructional materials with research and teaching at university. He currently works as a reader in applied teacher training in the teaching and educational organisation area of the Applied Pedagogy Department at the Autonomous University of Barcelona. He complements this work with training teaching staff and acting as an advisor on the development of curricular innovations such as the integration of digital environments and other technologies at various educational levels. He is also the academic co-ordinator of the master degree in new technologies applied to education at the Postgraduate University Institute. His main research work has been based on the innovative potential of computer resources, and digital teaching and learning environments as part of the curriculum. Most of his publications have been in this field.

Subject: Online instruction; Colleges & universities; Technological change; Curricula; Studies

Location: Spain

Company / organization: Name: Universitat Autonoma de Barcelona-Spain; NAICS: 611310

Classification: 9175: Western Europe; 8306: Schools and educational services; 9130: Experiment/theoretical treatment

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 2

Pages: 49-60

Number of pages: 12

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Tables References

ProQuest document ID: 198718547

Document URL: http://search.proquest.com/docview/198718547?accountid=38610

Copyright: Copyright Idea Group Inc. Apr-Jun 2007

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 38 of 100

Excellence in Virtual Education: The Tutor Online Approach

Author: Ángeles Bosom; Fernández, Elisa; Hernández, María José; García, Francisco José; Seoane, Antonio

ProQuest document link

Abstract:

It is a fact that the notion of education has been changing over the last years, mainly because of information and communication technologies (ICTs). In this globalized world, we are swamped by information, and the key issue is to surf it and choose the appropriate bit. This wealth of information and the need of constantly updating knowledge in order to carry out our work in the way we are demanded to by society, turn learning into lifelong self-training. This article aims to present the experience of collaborative work in a virtual learning scenario held by the University of Salamanca, Clay Formación Internacional, and Asociación Logo in the continuing education and specialist course Technologies and networked training methodologies: Tutor online. Being former students, now we belong to the tutor and scientific team. The Tutor online project (TOL) is an instance of how to widespread quality continuing education and smooth away the access to it. Its asynchronous nature allows each individual to adapt it to their own particular time and space needs. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: collaborative learning; competency-based education; e-learning; Internetbased instruction; networked learning; online teaching; student-centered learning

INTRODUCTION

Information and communication technologies (ICTs) are having an increasing influence on the working, occupational, and business worlds as they create and generate new occupations and professions, and strengthen other ways of dealing with continuing education.

The development and introduction of ICTs in distance learning systems has been bringing about changes in the teaching-learning processes for years, and therefore, changes in the profiles of students and teachers who see a series of alternatives to classroom attendance in these methods, and which allow them to gain access to continuing education (The European Union New Generation of Programmes consists of a series of planned interventions for the Sectorial Programmes-Comenius, Leonardo da Vinci, and Grundtvig-aimed at continuing education (http://europa.eu.int/comm/education/programmes/newprog/index_es.html), with a total budget of 13,270 million euros).

The interest and appreciation regarding these initiatives stem from personal and social needs. Adaptability, flexibility, cooperation, overcoming barriers, etc., are all concepts related to this type of learning. However, there is a risk that multiple sectors (politics, business, learning institutions, professionals, and users) will come up with theoretical concepts of no practical application whatsoever. That is why debating and searching for realistic and efficient solutions is still a priority so that it does not all end up being a mere declaration of intent. This type of training is acquiring considerable presence in sectors such as occupational and business training, but according to the latest Estudio General de Internet (http://www.egi.es), only 56.5% of the Spanish Internet users who received online training said they were satisfied with it.

The continuing education and specialist course, Technologies and networked training methodologies: Tutor online (TOL) (http://www.tutoron-line.info), aims to overcome the inconvenience created by the lack of interaction between teachers and students and, which affected first-generation distance education. It is assumed that we are all protagonists (students, tutors, authors, etc.) in an online training space and we can all contribute to the construction of knowledge by sharing our personal and professional experience and playing different roles (student-tutors, expert-beginners, and so on).

In doing so, we have the possibility of becoming active participants in a teaching and learning community in a virtual environment, taking advantage of the possibilities it presents, pointing them out and identifying and collecting ways of improving the course after each edition in a constant pursuit of quality. This initiative, which started in September 2004, has already gone through four editions (TOL I-TOL IV) and is a constantly evolving experience, which intends to continue developing itself during following editions. We can trace its evolution throughout its history.

OBJECTIVES

The main objective of the TOL course is to provide participants with a high-level professional course regarding networked training, whether for academia, business, or the working world.

Quality training for a new kind of professional is offered: the tutor online, key to the development of all high-level eLearning, whose function and profile had not been clearly defined up to now. Specifically, this objective can be summed up with the following specific targets:

* To develop the abilities, techniques, strategies, and potentialities required for the training of a professional tutor online.

* To dominate the main psychological, communicative, and methodological abilities used in eLearning.

* To know the quality indicators in online training experiences.

* To learn about and efficiently use the specifications, standards, and technological elements, which come into play in the eLearning processes, especially platforms, as well as collaborative and authoring tools.

* To design and monitor high-level eLearning projects.

* To evaluate the teaching and learning processes in eLearning initiatives.

THE TUTOR ONLINE INITIATIVE

A tutor online can be defined as

the teacher and professional figure who accompanies a group of students during a part of their training; guaranteeing the efficiency of all aspects of the teaching-learning process; working towards achieving goals; acquiring content, competences, and skills, which will be needed during the training interventions he or she is responsible for, in a context of collaborative and active learning; and evaluating the level of achievement of these objectives on the part of the students as well as by the training initiative itself (quality management). (Seoane, 2005)

The key to the initiative is to learn by doing. This will only be accomplished if it is supported by a neutral, trustworthy, and efficient environment. As well as quality content, there are a bunch of people (tutors, authors, scientific team) who manage the learning process to an even greater extent than in a classroom-based initiative.

By means of an educational plan, the student acquires all the skills necessary for him or her to manage his or her own online activities, in an area where he or she was previously competent.

The main competences, skills, and methods that this professional must learn during his or her training, in order to be passed on in turn to the students during his or her professional activities in a specific field are:

* Disciplinary competences in a given field.

* Technological competences and skills.

* Psychopedagogic competences and skills.

* Communicative competences and skills.

* Basic knowledge management competences and skills.

* Basic competences and skills in the design of training projects.

* Basic competences and skills in the design of educational contents.

* Competences in the evaluation of teaching and learning processes.

* Basic competences in the evaluation of training interventions.

* Basic quality management competences.

* Methodological skills for teamwork.

* Use of a methodology of collaborative work.

METHODOLOGY

In the tutor online course, a constructivist methodology is put into play. Constructivism in education, strengthened by the use of ICTs, justifies that for learning to take place, it is necessary for the learner to participate actively, which shows interest and motivation, with a display of both analytical and reflexive skills. This way, the students become the protagonists of their own learning process (Jonassen, 1999).

Our methodology also implies a collaborative learning approach, which allows us to talk about actual significant learning in an environment of high-quality continuing education. Such an atmosphere makes it easier for the students to become involved in the common project by sharing their own previous experience, knowledge, and assets in order to achieve common as well as individual objectives.

The following are the essential aspects of the TOL course:

* It allows students to work according to their rhythm and personal learning style. Flexibility is one the most appreciated aspects of this type is learning, as it allows for a balance to be struck between family and professional life, and continuing education.

* Closeness to the student. The creation of informal forums where students and teachers can interact in a relaxed environment is very important and creates personal involvement. It allows for the creation of a relational, affective, and emotional setting based on trust, security, and mutual adaptation.

* Communication by means of asynchronous tools, forums basically, allows users to connect to the platform regardless of spatial and time barriers, and it favours:

* The student's personal organization.

* The necessary reflection to communicate what he or she wants with his or her own contributions.

* Communication with fellow students and tutors.

* The contribution with interesting materials and links to the common space.

* The retrieval of information and past conversations in each of the open forums, as a library of educational content.

* Communication by means of synchronous tools (basically instant messaging, chats, and videoconferencing) allows for real-time communication, which can work in favour of finding the solution to specific and immediate doubts between participants, be they students or tutors.

* When working in groups is required, these will never exceed 15 people, occasionally breaking down into subgroups of five or six people. This way of grouping creates interdependence between members. So, each of them is responsible not only for his or her learning, but also for his or her partners' It also requires them to develop communicative and negotiation skills along with the rest of the group members.

* The groups of students created in the TOL course are interdisciplinary as the people who sign up have different academic and/or professional backgrounds. This fact is considered an added value of this type to learning, since students interpret the materials at their disposal according to their own previous experience and knowledge. They start sharing it with the rest of their colleagues in different forums and according to different methodological strategies. This sharing can lead to a restructuring and recreation of the schemes already set in place, and that is when we can talk about the significant learning, which is desirable during training.

* The basis to acquire the competences, skills, and knowledge necessary to carry out tasks is a balance between theoretical contents and practical activities, which simulate real situations.

* In order to look after the participants' specific needs and personal interests, contents and activities are diversified and adapted under the careful supervision of a team of teachers who guarantee the pertinence of this educational itinerary. Personalized and adapted monitoring takes place.

* The teamwork, which is necessary among the teaching staff, is carried over to the students since during the different modules, which make up the course they need to fulfil different roles (tutors, librarians, etc.). Collaborative group work comes into play once again: individuals become involved in the final collective result.

* The teaching team coordinates each and every one of its interventions so that each unit is seen to belong to a coherent evolutionary line of learning management.

* Answering to the fact that "a great part of the evaluation initiatives which are being implemented have gone beyond mere scoring and seek strategies capable of contemplating the action of educating as a whole, where it is impossible to evaluate without taking the interrelations between the different elements of the training process into account" (Zangrando, 2004), the following evaluations take place:

* Initial evaluation (diagnostic function), whose purpose is to evaluate each participant's determining factors when it comes to training, at the following levels:

* Motivation and expectations for participation in the activity.

* Previous knowledge and skills.

* Knowledge and availability of the technical equipment necessary to achieve the activity's optimum results.

* Continuing evaluation (resulting function). The objectives must be established during each learning unit or module.

* It favours personalized monitoring, adapted to each participant.

* It allows the diversification of learning itineraries.

* final evaluation: (integrative function). It must include all the training components: objectives, platforms, methodology, material, and professionals.

Knowledge is built through experience, therefore the participants' significant learning will shine through when they are capable of re-elaborating their knowledge and are able to build and develop a practical and contextualized application of all they have learned during the training period.

EDUCATIONAL PROGRAMME MODEL

The educational programme has been progressively modified, from the benefit of the experience we have acquired, in order to completely train the student in all aspects that must be dominated by a Tutor Online, from the pedagogical to the technological ones. Contents are divided into modules, themselves divided into units. Each module is directed by a team of two tutors working together.

Preparation of the final project is not a module per se. Each tutor takes care of directing several projects, by working with each student in order to define the theme, and then to coherently build each of its parts, before finally implementing them on one of the studied platforms or tools.

As an example, Table 1 offers the TOL IV educational programme.

SOME DATA ABOUT THE TOL EDITION HISTORY

In Table 2, we sum up the number of participants in the different editions of Tol, as well as the number of people who dropped out and their home country.

The following are some of the most appreciated Tol features by the participants of the different editions:

* The use of an important amount of business elements in learning management, so that the student perceives a strong relation between the academic training he or she is receiving and the needs of the labour market he or she will have to join.

* The structuring of work into small groups formed after the first week, once the students are introduced to and become familiar with the initial platform.

* Synchronous and asynchronous communication is based on forums, and in a lesser way, on instant messaging within the different platforms. Chat and e-mail use outside the platforms is reduced as much as possible. The forum is the TOL project soul and most important space. It is the key spot, where all those involved in the initiative come together, and where the real process of significant and collaborative learning takes place. The participants deal with and generate a great amount of information and updated contents, and they are also responsible for the construction of new knowledge. The potential of this asynchronous tool is maximized as much as possible, and the result is a valuable experience, in the securing of the final objectives as much as in the process itself. This can be seen in the following fragment of a message sent by one the participants in the third edition of the course, four weeks after it started:

[...] This morning it occurred to me that in this course we learn a lot "while" we do things, whereas up till now I had studied the theory first, and when I knew it well I started with the practical applications. We will have to get used to this new method. In any case, we must not forget what the tutor tells us, that the final result is not as important as what we learn by trying to reach it. I.S. [...] (Forum El Mus, 2/2/2006)

* The average is about three significant messages (a significant message is a forum post of great value, and it is part of the teaching-learning process) per student per day. In some courses there have been up to 120-150 significant messages (20-30 messages for a 2-week module). There are about three times more significant interventions by the tutors than by the students.

* The answering time to any consultation made by a participant is guaranteed to be less than 24 hours, the average being five to eight hours.

* The total dropout rate has been 8.8% for the 80 participants in the four editions of the course.

* Individual and group activities are of very high quality, and the final projects presented by the participants, supervised by a designated tutor, are real online teaching projects, some of which are already being put into place in businesses and institutions.

* The average passing grade is higher than 7.5 out of 10.

* The number of students who do not obtain the final certificate is very low, as the course content is adapted for students with difficulties, and the modules which have not been passed can be studied once again free of charge.

MODIFICATIONS IMPLEMENTED IN TOL III (JANUARY-APRIL 2006)

Another aspect of the tutor online course is the possibility of carrying out the necessary modifications to guarantee a quality continuing and specialized training.

Considering the constant evolution seen in ICTs and the continuous generation of literature about the different contents included in the programme, permanent change, and evolution are a must. The specific evaluation of each edition brings forth the collection and analysis of relevant records, which allows us to introduce the necessary modifications and updates. It is thus used as tool for continuous improvement. To that extent, the TOL course carries out periodic supervisions to detect elements, which are liable to being modified and updated.

Therefore, from the third edition onwards, a series of restructurings have taken place, which cover design, methodology, contents, material, and evaluation.

Regarding its international projection:

* The Diploma provided has been adapted to the ESHE (European Space for Higher Education).

* It has become one of the first courses to be certified under the ECTS (European Credit Transfer System). This certifies the contents in English and homologates it with the directives being used in the Space for Higher Education. It thus meets the European Union objective (2007-2013) of focusing on the qualification and homologation of continuing and vocational training.

* Since then, the certification has come with a Diploma Supplement, an experimental and pioneering advance in continuing education at the European level, in accordance with the instructions of the Europass Diploma Supplement (the Europass was created by Decision 2241/2004/CE of the European Parliament and the Council meeting of December 15, 2004, relative to a single common framework for transparency in qualifications and competences. http://europass.cedefop.eu.int/).

Regarding the general initiative:

* It is included in a broader investigation project, which will be a part of other initiatives. A research group is being created, the research GRoup in InterAction and eLearning (GRIAL-http://grial.usal.es), attached to the University of Salamanca, for continuing and postgraduate education.

* Institutional links with the business world have been created; half of the participants in the latest editions have come from the business sector.

Regarding the content:

* The education is no longer based on modules, but on units. A module has become a block of content, and thus exportable and reusable.

* The training begins with the introduction to eLearning module and the standards and learning objects (LOs) one. This change is due to the nature of an LO-the minimum significant unit in eLearning. The rules of the game must be known in order to understand that learning objects are not the end point of the training, but the beginning.

Regarding the material:

* Its presentation has been restructured. It has been updated and made more varied.

* Student projects are considered as potential future educational materials.

* The didactic units have been developed by the tutors.

Regarding the students:

* Curricular adaptations are introduced, aiming at each student's needs and interests.

* The educational itineraries are made more diverse.

* By means of collaboration agreements with entities and organizations, all the course participants automatically gained access to the labour and business internship exchange.

Regarding the tutors:

* Their work is coordinated between small teams, which managed the teaching-learning process in the assigned modules.

* They can elaborate content, thus becoming authors of the materials.

* Three types of tutors were established: academic, psychopedagogic, and personal. Their roles are as follows (Seoane, García, Bosom, Fernández, & Hernández, 2006):

* The academic tutor: He or she elaborates the didactic unit to his or her module and organizes the student's activities, as well as guiding, motivating, and accompanying them. This figure comes into an environment of autonomous learning, demands more of the student, and turns the teacher into someone who answers questions, helps with academic problems, asks questions, which the student must answer, and sets a personal learning rhythm in accordance with his or her initial level and the final level, which the student wants to achieve. A crucial role of the tutor online is evaluating the students' participation, as well as their work and learning process. All this to favour a learning process, which is autonomous and active, collaborative, involved with the rest of the group, but also close, individualized and personal.

* The psychopedagogic tutor: His or her work consists of adapting the task of acquiring competences, skills, and content in a given subject to the students' different learning styles. Some students require heuristic learning, whereas others prefer to learn by rote before they manage a problem-solving process, and different problems need to be explained with different didactic strategies. The psychopedagogic tutor needs to adapt the learning process to the available content and strategies, and adapt them to each student's learning style. Thus, if it is a different person than the academic tutor, he or she can provide advice to the teacher (in a general way or regarding specific requirements), to the student (idem) or provide guidance and intervene in cases where there is a learning difficulty concerning a specific subject in a particular group.

* The personal tutor: He or she provides council, support, and guidance during the learning process by using what he or she learns about the students, and by studying how certain contents will be adequate for a student's academic background, interests, and vocation. It is a context, which is greatly linked to American Humanistic Psychology, which is why the tutor online, in this sense is typical of the Anglo-Saxon University systems, especially of the more elitist systems. It is mentoring, counselling, monitoring of an individual student, so that he or she can reach the general goals foreseen in the learning process. Here the tutor is a counsellor, a guide, a source of security, which the student sometimes seeks, and which can be a cause of failure, precisely when he or she does not have someone to approve (or ratify) the decisions he or she takes. This indecision may sometimes be more harmful than a bad decision.

MODIFICATIONS IMPLEMENTED IN TOL IV (MAY-JULY 2006)

TOL IV has been fairly similar to TOL III, which is where numerous changes took place. Although we would like to point out some of the modifications that have been implemented.

Regarding its international projection:

* In TOL IV, the Diploma Supplement has been modified and extended in order to ensure a better adaptation to the European format with reference to the competences acquired by the student after the training process.

Regarding the general initiative:

* The TOL pedagogic team is now part of the GRIAL research group. This presentation is one of his research initiatives.

Regarding the content:

* Each module pedagogic guide includes a table of competences and skills, which the student must acquire before moving onwards.

* A student's guide has been prepared and is handed out during the first module and provides all the necessary information about the course, as well as about the rules, which must be followed in order to get the most out the educational forums.

* Cross-curricular technological knowledge has been included, which is taught throughout the course, without being included in any of the modules.

* A final module has been included in order to elaborate the final mandatory design and implementation project of an online course. This module partly overlaps with module D (Management and design of eLearning activities), as the students need to start the projects in time. Each student is assigned a tutor for his project, and all academic tutors participate in this module, with an average of three students each.

Regarding the material:

* Some of the materials used in the course, including multimedia, were elaborated by the TOL III students. This provides continuity for the training project throughout the different editions and turns the previous students into material creators.

Regarding the evaluation:

* The student's evaluative role has been increased; they now provide an appreciation of their own work, as well as the tutor's, and about the whole TOL educational process. They evaluate each unit after finishing it, taking into account the content as well as the tutor's role. This type of evaluation had already been carried out in the previous editions, but it was only done at the end of the course. A self-evaluation by the students has also been included at the end of each unit, where each student is encouraged to reflect on his or her work, the acquired knowledge, and his or her own learning process. We expect to gain information about the student, which will allow us to improve the process during the course itself, by studying each student's learning style and therefore, this will let us make the appropriate changes. It is also expected to be useful as a tool for the continuing improvement of the TOL, as these students' evaluations provide very useful information for the pedagogic team.

* The evaluation of the students, carried out by the pedagogic tutors, has been perfected. It now includes more items, which allow us to grade the student's participation with greater precision.

Regarding the students:

* Four TOL III students, who had not passed some of the modules, and therefore had not got the Diploma, were allowed to repeat them during TOL IV. This experience ended up as not particularly positive, as the students had problems unrelated to the course in TOL III, and they arose again in TOL IV. This resulted in their failure to pass some of the modules again this time, and they were also distorting elements for the rest of the group. For new editions this should be reconsidered, maybe by providing them with special contents or offering them the possibility to repeat the whole course, but by no means integrate them into a pre-existing group of students that is already forming the necessary interrelations for collaborative work.

MODIFICATIONS TO BE IMPLEMENTED IN FUTURE EDITIONS

Following the analysis of the last edition of TOL (May-July 2006), the following modifications are being considered.

Regarding the course itself:

* Creating tailor-made TOL courses for businesses or academic institutions. The organizations involved in eLearning need to train their own tutors if they want to provide quality education. However, these tutors, who already have a certain profile, need to acquire some particular skills, but not all those included in the Technologies and networked training methodologies: Tutor online course, either because they already have them or because they are not necessary in their line of work. That is why we are contemplating the creation of made-to-measure courses where we can adapt contents to the needs of a specific group of students.

* Besides this continuing education initiative, the TOL pedagogic team and the GRIAL research group will take part in an eLearning study programme, which will be one of the University of Salamanca's own degrees, and, which will be called eLearning: Networked technologies and teaching methods, starting in 2007. This programme will try to satisfy the increasing demand for continuing education in eLearning for graduates, and will present a double itinerary, the University Expert (http://www3.usal.es/~webtcicl/web-tp/tp06web/titulos_ 06/38_experto_elearning.doc), covering 30 ECTS credits, and the University Master (http://www3.usal.es/~webtcicl/web-tp/tp06web/titulos_06/37_master_elearning.doc), covering 60 ECTS credits. This creates a progressive Postgraduate Diploma, since once the necessary credits for the first academic year (30 ECTS) have been acquired, participants will have a University Expert in eLearning Postgraduate Diploma. After the second year and another 30 ECTS credits (60 ECTS in all), they will obtain the University Master in eLearning Diploma. This new initiative will make us modify the Technologies and networked training methodologies: Tutor online course, since its contents cannot overlap those being taught in the previous postgraduate programme.

Regarding the content:

* The students must base the mandatory final design and application project of an online course on the knowledge they have acquired during the course. It has always been this way, but perhaps we have not managed to make it clear enough. In TOL IV, we realized that several students had been using more or less original eLearning activities for their final project, which were already working or being prepared in their respective compa- nies. We believe that the point of creating a project is to display the knowledge, skills, and competences mastered during the TOL course, and therefore it must derive from the course itself developing the student's own idea.

Regarding the students:

* The psychopedagogic tutor, in collaboration with the academic tutor, must create a special adaptation of the contents so as to allow the students who have not passed the course to pass the failed modules. Following the TOL IV experience (the only edition with students repeating modules), they should not be integrated into future editions unless they are willing to repeat the whole course.

Regarding the tutors:

* The psychopedagogic tutor's task is mainly aimed at the academic tutors, striving to achieve uniformity between the different didactic units and providing them with information about the students as an outsider viewer of the learning process. The experience we had during the third edition, when this independent academic tutor was first used, is that students prefer to solve their learning problems with him or her, and therefore that the psychopedagogic tutor must support the academic tutor, rather than helping the student directly. After the fourth edition, we consider that one of the psychopedagogic tutor's functions must be to collect information about the students: professional profiles, evaluations and self-evaluations, satisfaction surveys. All this data is a relevant source for investigation and analysis in order to improve TOL.

CONCLUSION

The knowledge construction process, which takes place during the TOL course, makes for a unique educational experience each time, with different results, and this reality enriches greatly the project's learning process.

Forums appear to be the main interaction tools in the development of collaborative work, and without them, the learning itinerary as it currently exists, could not take place. The activities projected are varied and contextualized. Content is presented in different formats and the organization in units in the different modules and its later adaptation are a sign of flexibility and customization. The evaluation of the participant is part of a more complex process, which is revealed at the beginning of each module. Finally, the fact that all the related agents involved (designers, coordinators, tutors, and above all, students) is essential for the significant learning to take place.

All of which leads to conclude that the course held by the University of Salamanca, Technologies and networked training methodologies: Tutor online, is part of an ambitious continuing education project, which is constantly being improved and transformed, and which is a source for other new initiatives. The high standard of satisfaction among students, its practical applications in business and academic, and the research, which is being carried out based on this initiative, all allow us to support quality as an engine for growth in eLearning training in the 21st century.

ACKNOWLEDGMENTS

We would like to thank the research GRoup in InterAction and eLearning (GRIAL) of the University of Salamanca for their support and contributions to the writing of this article. In addition, we want to thank to the Education and Science Ministry of Spain, National Program in Technologies and Services for the Information Society, Ref.: TSI2005-00960.

References

REFERENCES

Jonassen, D. H. (1999). Designing constructivist learning environments. In C. M. Reigeluth (Ed.), Instructional-design theories and models (Vol II, pp. 215-239). Mahway, NJ: Lawrence Erlbaum Associates.

Seoane, A. (2005). El tutor online como factor de éxito en una experiencia de eLearning. The 6th Practical Conference on Current Topics in eLearning. Seville, November 24, 2005.

Seoane, A., García, F. J., Bosom, Á., Fernández, E., & Hernández, M. J. (2006). Tutoring on-line as quality guarantee on elearning-based lifelong learning. Definition, modalities, methodology, competences, and skills. In F. J. García, J. Lozano, & F. Lamamie de Clairac (Eds.), Virtual Campus 2006 Post-Proceedings. Selected and Extended Papers-VC'2006, CEUR Workshop Proceedings.

Zangrando, V. (2004). Introducción a los instrumentos de evaluación. Tutor Online, Material from the first edition.

AuthorAffiliation

Ángeles Bosom, University of Salamanca, Spain

Elisa Fernández, University of Salamanca, Spain

María José Hernández, University of Salamanca, Spain

Francisco José García, University of Salamanca, Spain

Antonio Seoane, University of Salamanca, Spain

AuthorAffiliation

Ángeles Bosom has a BA in Hispanic philology (linguistics) and documentalist master by the Madrid Complutense University, and also has a diploma in online training technologies and methods: tutor online from the University of Salamanca. She is member of the Salamanca University research GRoup in InterAction and eLearning (GRIAL). Bosom is currently working as a documentalist in a Madrid public television network and is a tutor online at the University of Salamanca where she is part of the scientific team of the specialization and continuing education training diploma in online training technologies and methods: tutor online. She actively takes part in several activities related to educational issues.

Elisa Fernández has a degree in social education (Universitat de Barcelona), a postgraduate in computerized language treatment (Universitat Pompeu Fabra), and also a diploma in online training technologies and methods: tutor online" (Universidad de Salamanca). She is a GRIAL research group member. She is currently working as a teacher of Spanish as a foreign language (E/LE) and assistant pedagogical coordinator in an international language school. Fernández is combining these works with tutor online at the University of Salamanca where she is part of the scientific team of the specialization and continuing education diploma in technologies and methods in networked learning: tutor online (TOL). She has experience in trainer training and she has written several educational papers about E/LE and eLearning.

Francisco J. García-Peñalvo received a PhD in computer science (2000) from the University of Salamanca, Spain. He works as a teacher in the Computer Science Department of the University of Salamanca. García- Peñalvo is the director of the GRIAL research group. His main research interests are eLearning systems, Web engineering, semantic Web, human-computer interaction, and software reuse.

María José Hernández has an English philology degree from the University of Valencia and also a diploma in online training technologies and methods: tutor online from the University of Salamanca. She has increased her curriculum with English Didactics studies at Cambridge and Leeds universities and also at the London British Council. She is member GRIAL research group. Hernández has been an English teacher since 1991, but combines this activity with tutor online at the University of Salamanca where she is part of the scientific team of the specialization and continuing education diploma in "technologies and methods in networked learning: tutor online (TOL)."

Antonio Miguel Seoane has a degree in philosophy from University of Salamanca. He is the coordinator of the specialization and continuing education diploma in technologies and methods in networked learning: tutor online (TOL) at Salamanca University. He is a member of the GRIAL research group and a PhD candidate researching in online tutoring activities. He works as high school teacher of philosophy.

Subject: Excellence; Online instruction; Continuing education; Tutoring; Quality of education

Location: Spain

Classification: 9175: Western Europe; 8306: Schools and educational services; 5250: Telecommunications systems & Internet communications

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 2

Pages: 61-74

Number of pages: 14

Publication year: 2007

Publication date: Apr-Jun 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Tables References

ProQuest document ID: 198737844

Document URL: http://search.proquest.com/docview/198737844?accountid=38610

Copyright: Copyright Idea Group Inc. Apr-Jun 2007

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 40 of 100

INTERLANDDATA WEB HOSTING: STRUCTURING THE ORGANIZATION FOR GROWTH

Author: Kargar, Javad

ProQuest document link

Abstract:

During the summer of 2004, the owners of InterlandData, Mark and Susan Hamidi, began to assess their current position within the Web hosting industry and their alternatives for expansion. After nine years in operation, the company had achieved a reasonably stable, yet not highly profitable financial footing. Both owners are experiencing considerable pressure to expand their organization. They believe that opportunities exist to franchise the operation, or grow by expansion. The case ends with the co-owners faced with making a strategic decision about the best way to expand and how to find both the managerial and financial resources to do so. An implicit question in the case involves the long-term viability of the business. [PUBLICATION ABSTRACT]

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter in this case is formulating strategic decisions that need to be made regarding a small entrepreneurial firm's future direction. The owners are a couple who are faced with the decision of whether or not to expand as well as with the challenges of obtaining the necessary financing, structuring the organization for growth, and allocating management time. This raises several issues and illustrates several lessons. In particular, management proposes potential changes, offering students the opportunity to critique their plans. Evaluated carefully, students should identify the critical success factors and whether and how these elements can be leveraged as they implement their expansion plans. The purpose of this case is to provide students with enough information about the business situation to be able to chart what course of action the company should take at a given point in time. This case has a difficulty level of four, appropriate for senior level. It is designed to be taught in two class hours and is expected to require four hours of outside preparation by students.

CASE SYNOPSIS

INSTRUCTORS' NOTES

Case Methodology and Data Sources

This case is a field research study. Information about the company was gathered from interviews with the owners/managers and their employees. Background information on the industry was drawn primarily from publicly available information.

Case Objectives and Use

This case is intended for an undergraduate or graduate course in Business Strategy or Entrepreneurship. The case is positioned to discuss the profitability and potential growth issues facing a small company in a broad market.

A major theme of the case is the market potential for expansion. The case can serve as a basis for discussion about:

The competitive forces in the Web hosting industry.

1. Strategic positioning within an industry.

2. The role of the owners/managers in a small business.

3. The opportunities for growth; in particular opportunities and problems presented by franchising.

The case should lend itself to lively discussion of the problems and potential of a small business in a dynamic industry. Students should see how commitment from the entrepreneur is essential to the success of such a venture. In addition, they can assess the potential for growth and expansion.

It is a good case for relatively early in the semester when students have learned to identify strategy, have been introduced to the competitive environment, and are ready to be forced to make strategic choices. It provides a good opportunity to deal with the strategic alternative of franchising, and its pros and cons. There are two ways to approach this case: (1) as a "straight" case, asking students to first detail the current strategy and then focusing on strategic problems facing the firm, evaluating the alternatives, and making a decision; (2) as an out of class group exercise asking students to determine the appropriate long-term strategy InterladData should follow. Each group should evaluate the alternatives, financially as well as organizationally and managerially, and then come to class prepared to present and defend their choices.

DISCUSSION QUESTIONS AND ANSWERS

1. What are the competitive forces in the Web hosting industry and for the InterlandData Web Host?

Porter's Five-Forces can be used to show the competitive forces that impact the InterlandData Web Host.

Potential Entrants. Although Web hosting industry is less regulated industry, it is not an easy industry to enter, as evidenced by the heavy capital investment in equipment, network connectivity and physical plant. However, this barrier can be overcome by entering into the business as a reseller or an information technology (IT) consultant. The likely entrants are new entrepreneurs who believe that they can reach a more specialized market as a consultant or reseller. Excess supply of Web hosting services over demand is also a big barrier, which has created a very competitive environment for existing Web hosting firms. There is a threat from big Web hosting firms by expanding their market share. Because Web hosting margins are thin, and because the InterlandData is one of the first movers in the industry, the threat of new entrants into the local market is weak.

Substitutes. Mark and Susan clearly see a broad range of substitute products competing for small business advertising dollars. Since many Web sites are established for advertising purposes, there are many establishments that vie for their customers such as newspaper and magazine advertising, radio and television marketing, the Yellow pages, flyers, and brochures. However, the cost of Web hosting services is significantly cheaper than any of the substitutes and its reach is global. Students may also mention that free Web hosting services for businesses, may encourage some potential customers to spend their money on advertising other than Web sites. However, this is a weak substitute since use of a customer's domain name as the Web-site address is not available with this type of free Web space. Some other companies are offering their ready-made Websites for rent. It seems that these emergent competitors pose little competitive threat to InterlandData. In the Web design market, there are currently very few threatening substitutes. Some companies offer do-it-yourself software and books for Website design.

Suppliers. The supply of software packages and data centers is also a problematic issue. Constantly upgrading software packages is critical to the success of this type of business. Web hosting firms have to be able to adapt to these changes in order to meet their customers' needs. Mark claims to have good relationships with software companies and data centers, but it is likely that the big Web hosting firms have an edge in price discounts and contract terms. In addition, the supply of technical support staff is critical to Web hosting business operations. Technical staff should have the ability to analyze a current problem, and posses the ability to respond and correct the problem in a timely and efficient manner. There appears to be an adequate availability of competent employees.

Customers. The InterlandData caters specifically to two main customer groups: resellers, and any individual or organization that needs a website. Resellers are individual small companies who purchase dedicated server space and resell the space to individuals or businesses. Resellers tend to go to Web hosting providers that offer better volume discount, better technical support, fast connection, and better security. It is also likely that small businesses will check Internet for Web hosting services before contacting InterlandData. It seems that attracting and maintaining small business customers is the most problematic issue since customer service is critical to the success of this type of organization. Because InterlandData does not advertise in main search engines, customers can obtain their purchases elsewhere. The company may have some competitive advantage because of its well-developed customer network coupled with its customer service which takes time to develop. However, these do not pose barriers if other organizations choose to compete. Clearly, customers have considerable power in this industry.

Competition. Competition in the Web hosting industry is fierce, due to the highly saturated market, and a high degree of fragmentation. The existing players in the market in addition to thousands of pure Web hosting companies include application server providers (ASP), Internet service providers (ISP), telecommunications companies, computer hardware suppliers and large information technology firms. Although there are some big players in the industry, there are no big profits. The competition became fiercer when Yahoo! and AOL offered small-business hosting services. In addition, Web hosting products are becoming a commodity product. Competing factors across the Web hosting industry include prices, reliability (reduced down time), quality technical support, technology (having the necessary software and platform), strategic alliances, search engine tools and Web design portfolios. While it is unlikely that the large Web hosting companies feel much competition from small Web hosting companies like InterlanData, small Web hosting firms have little to offer that the big ones do not.

Describe InterlandData's marketing strategy. How do you think it has worked so far?

The company's marketing strategy is mainly focused on referral system. Susan believes that Internet advertising is very expensive and most paid advertisements do not bring in new customers. Mark and Susan position their business as a customer service oriented.

Susan also places ads in local yellow pages, and make presentations at professional association meetings. It seems that the company is not visible in both the local community and in the greater global community. The fact that the company gets new customers through referral, presentations and the fact that its revenues have been increasing are evidence that this strategy has been effective in the past. However, the changing competitive environment may warrant a change in marketing strategy. Students may want to discuss options for increased advertising to increase the company's customer base.

3. What are the key success factors in this industry?

Because price discounting is becoming common, volume is a key to success in the Web hosting industry. Since Power Web Host's market is unlimited, it needs to focus on increasing number of customers by better advertising. Because the product is becoming more a commodity product, Web hosting companies are trying to differentiate themselves on the basis of customer services.

4. What is the current strategy of InterlandData? How would you define the business in which the company is engaged?

The case suggests that Mark and Susan are pursuing basic Web design and Web hosting businesses for individuals and small to medium sized firms, globally by relying on word-ofmouth to get their name out. In a sense, the company is following a broader market with no advertising and no differentiation of product. Both owners define the Web hosting as the core business and the foundation of the firm. It is the business they know the best.

It seems that there are a variety of elements that have contributed to the survival of InterlandData. The management team knew their perspective business and complemented each other. They were able to delineate areas of responsibility where each could maximize their strengths and experience. The partners shared the same vision and their good chemistry radiated throughout the organization. They focused on profitability and cash flow, and have emphasized quality in their concept above all else. The partners, following the Internet boom in 1992, identified a market opportunity where there was little competition. They have moved slowly, ensuring they had the success formula, before expanding.

5. What are the major problems facing InterlandData in 2003? What are its major opportunities and threats?

Undoubtedly, the most important problem facing InterandData in 2004 relates to its weak financial position. However, to address this particular problem it becomes necessary to analyze the underlying reasons why this situation has occurred. These reasons/ problems are discussed below.

( 1 ) InterlandData' s current strategy is inconsistent with both its resources and the needs and motives of customers in the marketplace. InterlandData has long considered itself as a full-line Web hosting provider and built its clientele over the years based on this perception. Unfortunately, InterlandData was never in position to compete across-the-board in the Web hosting industry due to its limited size. The full-line strategy prohibited the development of any economies of scale in operations or any expertise in serving the needs of a specific customer group. Furthermore, InterlandData assumed that customers were more interested in quality service than price and that they were able to differentiate its products from competitors in this regard. In fact, the customers of Web hosting products were more likely to be motivated by price and acceptable quality as well as their familiarity with the brand name.

(2) In accordance with its full-line strategy, InterlandData had attempted to serve a broad range of customers. Part of the company's problems lie in its reluctance or inability to define who its customers were, and more importantly, who they should be. Mark and Susan know that competition in Web hosting is fierce, yet they have failed to pinpoint where best their company fits into the marketplace. They have not, for example, clearly defined what business they are in. Which markets should they serve? Which markets offer the greatest payoff? What is the best strategy to sell them? What image should they project to prospective clients?

(3) There are some indications in the case that InterlandData was inefficient in its operations function. In its latest full year, the company's operating efficiency, as measured by the return on sales revenues, was 0.15 percent, calculated as follows:

Return on sales = (Operating Profit/Sales Revenues) x 100

= ($1,078/$719,345) x 100

= 0.15%

The return on sales of 0.15 percent means that the management has not done a good job of controlling the company's operating costs in relation to its sales. It seems that controlling cost is difficult to carry out in fast-growing companies like InterlandData. It is important for management to achieve stability as well as growth.

Another measure of InterlandData's managerial skills is return on investment. Over the past three years, the company reported negative equity. In 2003, the company made only $ 1,078 profit with negative equity. One might argue that the management is doing a good job by earning profit without any equity. If we look at the company's latest balance sheet, it is obvious that there is a heavy debt noted as deferred revenue. In fact, customers really own 100 percent of the venture.

(4) InerlandData is lacking adequate personnel necessary to handle its operating and strategic problems. Both Mark and Susan were forced to wear several hats, not all of which seemed to fit. In addition, serving the global market, the company does not have any local representative in any country.

(5) Since InterlandData seemed to be trying to emphasize small businesses, it is surprising that the firm had done so little in the way of promotional support for its products. The firm's failure to invest in its marketing function is inconsistent with its full-line, quality strategy since the customers need to be informed and convinced that this quality exists and that it is worth the higher prices changed for the company's products.

(6) As the case indicated, sales of Web hosting had actually declined over the last three years. This means it would be extremely difficult for the company to expand its market share without capturing sales from rivals. Considering the company's high prices and lack of promotional support this seems an unlikely occurrence.

Besides these problems, InterlandData was faced with several threats that could well affect the firm in the future. These threats included: ( 1 ) the Web hosting business is highly competitive, (2) demand is very price sensitive, and (3) industry margin is low.

Finally, on the bright side, there were several emerging trends that offered InterlandData some opportunities in the future. ( 1 ) Web hosting market is expected to grow, and (2) there are good growth opportunities in vertical markets.

6. Should InterlandData grow by franchising? Why/why not? What requirements would the company need to meet to successfully franchise? How well does the current operation meet those requirements?

One decision issue in the case relates to whether Mark and Susan should pursue franchising their business. In order to successfully franchise a business, the owners/managers must be completely involved in the development and start-up of the franchise systems. In addition, ongoing attention and management to both the original organization and to franchises is necessary. In this case, Mark and Susan are still extremely involved in the day-to-day activities of their current operations. Building a franchise would require one or both of them to devote most of their time to the franchise which would then lead to the need for at least one additional staff member to manage InterlandData's present operations. The initial time requirement would be utilized in developing complete and transferable systems. The franchise would also require managerial time as franchisees would need training and support throughout the relationship.

The franchise alternative can be evaluated by using operating requirements, financial projections as well as capital requirements.

Operating Requirements

A franchise operation requires:

a) Legal contracts, including a prospectus and a franchise agreement

A prospectus and franchise agreement must be developed prior to discussing the franchise with any prospective franchisees. The prospectus would discuss the past and future performance of InterlandData. The franchise agreement would detail the relationship between the franchisor and the franchisee, including the control mechanisms and reporting requirements. The franchise fee and royalties are also established in the franchise agreement.

b) Training programs for franchisees

As part of the obligation to the franchisee, the franchisor must provide initial and ongoing training to the franchisees. The start-up training shows the franchisee how to run the franchise through observation of the existing business. This is usually a one- to two-week intensive course where the franchisee learns everything there is to know about the business.

c) Operations manuals, including guides and performance measurements

Included in the initial training would be thorough instruction on the use of the operations manual, which would later be used as a reference for the franchise. The operations manual should also include explicit forms for reporting operating performance to the franchisor. Training for the franchisees should be ongoing so that they always have the most updated information on the business and its functions. This type of two-way communication during the relationship is part of the franchise agreement.

d) Marketing tools for soliciting franchisees

Marketing programs aimed at soliciting qualified franchisees must be developed. These programs could be print advertisements in publications for small businesses or trade journals.

e) Marketing support, including advertising and promotion for franchises

With franchising, advertising and promotion must also be designed for the entire franchise organization. This benefits all the franchises and the parent company. By providing this support, the parent company would incur all advertising expenses as a necessary service to the franchisees.

Financial Projections

In analyzing the franchise option, first a franchisor needs to do financial proj ections

to examine the company's financial results from operations. One of the criteria for a successful franchisor is a strong financial picture of the current operations. The franchisor must be able to demonstrate to prospective franchisees that the company's operation is successful and the success is likely to continue, and will be profitable to them as well.

In order to develop a five-year financial plan, the franchisor must make assumptions about the operating environment. Based on the industry trends and the owners' knowledge of their business, the most likely scenario for InterlandData is 25 percent growth in revenues per year. Expenses for the most part are projected to increase 25 percent per year. Based on these assumptions, the most likely scenario shows positive income over the next five years. Total profit for the five years is $1,229 (see Exhibit 1). Since InterlandData uses a cash basis accounting system, profit is the best approximation of cash flow. (Note that students may make different assumptions with correspondingly different results.)

In analyzing financial results, a sensitivity analysis can be conducted to develop a best and worst case scenario using different growth rates. The best case, based on 28 percent growth in revenues shows much improved financial performance with a five-year total pro fit of $641,990. The worst case assumes only 19 percent growth in revenues of all products. Under these conditions, profits and cash flow will be negative in each of the next five years. These projections serve to illustrate the importance of continuing to grow revenues because expenses will continue to increase regardless of revenues.

Capital Requirements

Any franchise operation requires capital for legal fees, inventory, and start-up costs unless the primary business generates enough cash by itself to support the new system. The capital requirements to initiate a franchising strategy are significant for InterlandData in light of their cash flow. InterlandData franchises could require anywhere from $50,000 to $150,000 in start-up capital, which would be spread out over the number of franchises offered. Because the company is a service organization that does not require inventory, the bulk of the capital would be needed for legal fees to develop the franchise agreement. A good estimate of legal fees is $110,000 in the first two years of the plan to get the project started. Other expenses attributed to franchising include advertising expenditures to solicit franchises, travel costs to monitor franchise start-up, developing and printing training and operating manuals and printing administrative forms.

These expenses would be partially offset by a franchising fee estimated at $10,000, and franchise royalties at 10 percent of the franchisees' gross revenues for a local license. These figures are in line with other franchise fees and royalties based on the nature of the company's business.

With these additional assumptions for capital requirements, financial performance will be much different than under the most likely scenario discussed above. In the first two years of the franchising program, the company would need about $55,000 a year because of the expected negative cash flow. From this point forward, profit and cash flow should improve much faster than they would without the franchising plan. The result is dependent on the financial success of the franchisees.

From the standpoint of financial projections alone, InterlandData could franchise its business if the necessary start-up capital could be obtained. The long-term financial picture is much stronger under the franchising option than under the present conditions. However the operational changes and managerial requirements necessary to implement a successful franchise system make franchising much more risky than a simple financial analysis suggests. The company's owners need to evaluate its operations in light of all the criteria for a successful franchise and not merely the financial criteria.

First, InterlandData has been moderately successful to date. The owners have taken relatively modest salaries. Although the business can be considered moderately successful with its current profit, it would be difficult to take on the financial burden and sell franchises with its current operating history. Both owners are highly committed to making InterlandData work. It is not clear that franchisees would have the same level of commitment or the same willingness to take only a modest salary and profit out of the business as the founders have. To the extent that franchisees are in the business for profits, their chances of perceiving the operation to be successful are much less.

Second, the operating environment that has made InterlandData successful may be duplicated in another location with different personnel. In examining the entire business, it appears that the location and the market environment have been critical to the success of the company. Major forces that created Web hosting opportunity are fundamentally changed. There are far more competitors, the price umbrella is gone, and the window of opportunity has been closed. Things have changed and the opportunity is not nearly as attractive. Market conditions are no longer as positive: the shortage situation has disappeared and buyer's power has substantially increased.

Another critical issue for duplication of the business is the owners' involvement in and influence on the organization. Although the owners may be willing to teach their business to franchisees, relating to the technical people on the one hand, and to clients on the other, may be difficult to learn. Therefore, duplication of the business may be more difficult than it would appear at first glance.

Third, InterlandData does not have a well-documented operating system for administrating its business. This could easily be developed into a standardized operating manual because routine aspects of the business are easy to copy and learn. This could help in developing standard operating procedures for franchises.

Fourth, the company does not have strong name recognition in the market. In order to develop the economies of scale needed to develop and sustain a strong franchise system, InterlandData will need more capital and managerial resources for marketing as well as organizational development. At this point, the owners do not seem willing to take on this financial or administrative burden, nor do they necessarily have the managerial skills or financial resources to do so.

On the basis of the foregoing analysis, it would be reasonable to conclude that franchising may not be the best growth device at the present time. In order for franchising to flourish at InerlandData, they must have a success story to tell prospective franchisees - a story they do not now have. Note from the company's latest balance sheet in 2003, although the company's retained earnings show a positive number, it has anegative equity. Such financial performance would hardly inspire an informed prospect to buy the company's franchise. In addition, neither Mark nor Susan has any experience in franchising.

In any case, the owners must first perfect their business concept before attempting to sell franchises. Their goal would be to design a model office reproducible almost anywhere. Otherwise, deceived and disgruntled franchisees may sue the company for selling franchises in order to collect franchise fees.

Mark and Susan might consider launching one or two offices in other locations with new partners to develop some expertise. Once they have achieved financial success, and have a designed office model, they are ready to sell franchises intelligently and aggressively. Doing so, however, would be complex. Many reputable law firms and management consulting firms have experts who can help entrepreneurs franchise their businesses. Mark and Susan should enlist their help, although their fees are high. While it is an obvious opportunity to leverage the company's image, new offices require a strong marketing effort. We will also suggest that Mark and Susan re-examine their goals. Do they really want to manage a large organization?

7. What are other possible strategic alternatives? What recommendations would you suggest for Mark and Susan at this time? Is InterlandData a viable business?

InterlandData is not resistant to change and is open to strategic choices. Strategic planning takes place in an informal manner and the process is creative rather than structured. Being creative allows the organization the flexibility to move in several different directions but poses the risk of diffused energy or lack of strategic focus.

Growth by licensing does not seem to be a viable alternative. From the licensee's perspective, a licensee is seeking a company with unique and highly marketable products and services. InterlandData's product offering is not distinguishable from others in the industry. Even though the company gets high marks for service levels from clients, it has not been able to build a brand that would attract the volume of potential licensees necessary for licensing to become an effective growth strategy. In addition, as industry analysis revealed, the Web hosting is not an attractive industry. Furthermore, it seems that a person deciding to go into the business of Web hosting can easily do so without entering into a licensing arrangement. In the future, if the company finds that the industry is becoming attractive and the company has some unique products to offer, then it can evaluate to determine whether or not licensing might be a viable growth strategy for them.

Some students may suggest that one option for expansion is targeting a specific industry. Such niche strategy might narrow the gap between what Web hosting companies say their software will do and what a business actually needs it to do. Growth by niche strategy might also put less strain on the organization and still permit the owners to maintain close controls over operations. Students think one obvious target of special promise might be the restaurant market.

Few other students think that another option for expansion is to focus mainly on Web design market. However, there is not enough information contained in the case to examine the feasibility of focusing on Web design market.

More risk-prone students may desire to either diversify into the complete information technology (IT) solution or other types of services quite rapidly. Although diversifying outside of its core business can bring additional revenue for the company, it could be a major risk since owner/managers know little about the areas.

Now that the company is on its feet, they need to think about the future, especially about ways to create more customers. They need to research their markets thoroughly, define their target market very carefully, forecast their sales, and prepare a marketing strategy. They need to perform some experiments in order to test whether the business concept works. They have to find out which markets, the competitors in his area are ignoring, and which competitors are aggressively serving the market. As part of their market research, they have to look at how strong his competitors are. They also need to find out what complaints the customers register most.

Whatever alternative is considered, it is important that students be forced to address the implications regarding ( 1) revenue proj ection; (2) initial costs; (3) managerial resources; (4) organizational change and design; (5) systems and support; (6) marketing; (7) staffing; and (8) return on investment.

It is clear that money is a major problem for this company. While Mark and the company have a good reputation among existing customers, the profitability is limited. Students need to examine Mark and Susan's goals. What business are they in? What business do they want to be in? What do they want for themselves?

Another major obstacle to growth for IterlandData is the owners' unwillingness to relinquish the day-to-day operations of the business. They have determined that it will be necessary to expand the business in order to reach their long-term profit objectives. It is not clear that they have made the commitment to become managers as opposed to entrepreneurs. Hence they face the same issue that many small entrepreneurial organizations face: growth into a large entity that requires professional management more than entrepreneurship. Some students suggest that, if Mark and Susan are truly serious about reaching higher profit goals, they should go back to the drawing board and prepare a business plan. Such a plan would focus on (1) expanding both sales and profits at the existing operations, (2) expanding operations justified by marketing research, (3) attracting new investors, although Mark and Susan may be reluctant to share ownership with others, and (4) forming their board of directors, which they now seem to ignore entirely.

In addition, there are serious questions about the long-term viability of the company given its profitability levels to date. It has made only $15,182 in profit in the first eight years of its existence and the owners have taken very modest salaries, in part because they are committed to the success of the business. Certainly others not so committed might not be as willing to work as hard do Mark and Susan for so little reward.

8. Comment on Mark's and Susan's entrepreneurial and managerial qualities.

At the time of the case, InterlandData had only two managers: Mark and Susan. Mark seems to be more entrepreneurial than managerial. His strongest entrepreneurial trait seems to be self-confidence. After all, he majored in computer science in university and earned high marks as an early Internet service provider with IBM. It was this selfconfidence that led him to believe he could strike off on his own and do better both financially and technically. Mark seems to be a take-charge, responsible, highly motivated entrepreneur. After nine years in business for himself, Mark reflects many of the qualities that distinguish successful entrepreneurs. He works hard, takes reasonable risks, and enjoys innovations and problem solving. Yet he really hasn't done well, at least not financially. In any single year he has yet to make as much money as he would otherwise have earned working for a large company. Why?

One answer may be that Mark seems to be a poor manager. True, he believes in a marketing plan concept, but he seems to fall short in one vital respect: execution. It seems doubtful that he faithfully carried out any marketing plan. Is he going after the right clients? In marketing their Web hosting services, what are other firms doing that InterlandData should be doing. Students generally admire Mark's determination to succeed. After nine years of just getting by, he is not about to give up. Unless he mends his managerial ways, however, he is unlikely to do much better.

Although Mark is a successful entrepreneur, he is less comfortable managing people and organization. He is more inclined toward creative development and technical problem solving. At the same time, however, he is reluctant to surrender responsibility or control of the company. Mark lacks in experience and perhaps in skill in the management of a dynamic company.

Susan is president of the company, and vice president of marketing. She is relatively experienced in management. The marketing position is one that is critical to the company's success. Susan's lack of the level of marketing experience required may impede her ability to meet the challenges of her position.

They need to bring experienced management into the company. But will Susan allow him/her to be the CEO?

9. If you were a venture capitalist, would you invest in the company? Why?

Despite the shaky financial condition of InterlandData, most students conclude that, they would invest in the firm. They are especially impressed with Mark's talents as a technical person and with his depth of concern about the quality of his work. He demands from himself the finest work of technical support, so that he guarantees his clients full satisfaction. He needs only to become a much better manager to succeed. There is some doubt whether the company would appeal to venture capital firms. For one thing, the company has not yet proved that it had a competent management team. For another, InterladData does not have anyone serving as board of directors. For still another, the company's projections of sales revenues and profits seem optimistic. These projections are all the more suspect in view of their strong intent to franchise the company before building a sound financial base. For that reason, perhaps more than any other, venture capital firms are not likely to finance their ambitious plans.

10. Can Mark and Susan afford to take the time to formulate a business plan themselves?

We may reasonably speculate that both founders have their hands full-Susan on the administrative side and Mark on the client relations and technical side. No other existing employees seem capable of taking over these responsibilities at this time. Moreover, the company cannot afford the risk of higher costs that might result if one founder took off to work on a business plan. Being so closely involved in the day-to-day operations of the business, they cannot take much time off, even to investigate related business opportunities. What was easy to launch becomes difficult to transform into a self-sustaining operation. Without capable employees, it may be impossible.

11. To what extent is this business delivering to Mark and Susan what they want in life?

While an analysis of a strategy for the company cannot exclude an analysis of its owners, this question is posed last so that students will analyze the economic factors impacting the business before examining the role of its managers. The instructor may ask, "Why isn't Mark rich?" or "Why does he continue to spend so much energy in the Web hosting business when he could probably make more money with less effort somewhere else?" Clearly Mark derives satisfaction and status from his position as business owner.

The main question that students should ask when conducting their final analysis is, "What is Mark's mission?" Here the instructor can merge the discussion of Mark's personal goals (status, respect, etc.) with his goal of having a profitable business.

AuthorAffiliation

Javad Kargar, North Carolina Central University

Subject: Web hosting; Case studies; Strategic planning; Business growth; Franchising

Location: United States--US

Company / organization: Name: Interland Inc; NAICS: 518210

Classification: 9520: Small business; 2310: Planning; 9130: Experimental/theoretical; 8331: Internet services industry; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 2

Pages: 7-21

Number of pages: 15

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Equations

ProQuest document ID: 216300169

Document URL: http://search.proquest.com/docview/216300169?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 41 of 100

DISNEY'S RESPONSE TO THE NEW GOVERNANCE LANDSCAPE

Author: Downes, Meredith; Russ, Gail S; Ryan, Patricia A

ProQuest document link

Abstract:

This case discusses the corporate governance practices at The Walt Disney Company. It discusses the company's governance issues and mechanisms prior to the breakout of scandalous activity in corporate America, which began with the crisis at Enron in 2001. We discuss the years that immediately followed, with particular attention to the changes in the governance landscape - that is, the new expectations imposed on US businesses, either voluntarily or by federal legislation or stock exchange regulation. Among the topics discussed are board independence and board size, fees for services, succession planning, diversity, entrenchment, and CEO duality. We then address the steps that The Walt Disney Company has taken towards complying with these new rules, not only to highlight how far the company has come but also to show how much more needs to be done in order to restore investor confidence and corporate reputation. In a separate case in this issue, we discuss the conflicts that arose among the company's CEO and two of its board members, which may have contributed significantly to negative perceptions regarding Disney's governance practices. [PUBLICATION ABSTRACT]

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case is corporate governance, and The Walt Disney Company is used as an example of the strengths and weaknesses that can be found in governance systems. Secondary issues examined include CEO role duality, board independence, entrenchment, and succession planning. The case has a difficulty level of four and is most appropriate for undergraduate or graduate-level business education, either in strategic management or leadership. It is designed to be taught in 1 1⁄2 class hours and is expected to require 1-2 hours of outside preparation. Specifically, students should first become familiar with the federally-legislated Sarbanes-Oxley Act of 2002 and would be well-served to read the case titled Michael Eisner and his Reign at Disney, which can be found in this issue. The case here seeks to demonstrate that what appears to be strong governance may in fact be a facade, by elucidating the subtle components of corporate governance that can slip under the radar but which are crucial if governance is to be effective. When is meeting the letter of the law enough, and how is that determined by shareholders?

CASE SYNOPSIS

INSTRUCTORS' NOTES

ASSIGNED QUESTIONS

1. Review The Walt Disney Company's definition of board independence, which can be found on the company's website. Are there any inconsistencies in the way "insider" and "independent" are defined? Which directors could be seen as taking advantage of those loopholes?

(Disney's definition of board independence appears below the response). The case stated that director Robert A.M. Stern did not qualify as independent, since he provided professional services to the company. Interestingly, George Mitchell, the other fees-for-services recipient and former US senator, was deemed independent and was subsequently appointed to the outsider position of presiding director. This has critics questioning the consistency with which the "independence" standards are enforced. Neither did Stanley Gold qualify as an independent director, although he did not receive fees for services rendered to Disney. His connection was to a Disney family member - Gold was President and CEO of a company owned by Roy Disney. Yet, as a result, Gold was no longer eligible to chair the Governance and Nominating Committee of the board.

Additional Instructor Information: According to the 2003 Proxy Statement, none of the members of the Compensation Committee have been officers or employees of the Company, but it makes reference to what might be considered possible exceptions. Committee member John Bryson's wife is an executive at Lifetime Entertainment Television, which is half-owned by Disney. Director Raymond Watson, whose son is employed at the Disney Channel, served on the Compensation Committee in 2002, as did Director Thomas Murphy, former Chairman and CEO of Capital Cities/ABC prior to its acquisition by the company in 1996. These relationships are disclosed in the company's proxy statements under "Relationships and Certain Transactions. " It is reassuring; however, that Disney's governance overhaul included the removal of Watson and Murphy from the Compensation Committee.

2. Using the Internet,research the events that led up to Congress enacting the Sarbanes-Oxley Act in 2002. In addition to the citations you find in your general search, explore the SEC website for information (www.sec.gov).

Students should have no trouble using Google or AskJeeves for Internet searches of the events leading up to the Sarbanes-Oxley Act (e.g., typing "What events led up to Sarbanes-Oxley?" at www.askjeeves.com led to numerous links, some of which are summarized below). Students are probably familiar with the Enron scandal, but probably less familiar with some of the others that contributed to passing the Sarbanes-Oxley Act, such as WorldCom and Global Crossing.

* From the SEC (http://www.sec.gov/about/laws.shtml) website:

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which he characterized as "the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt." The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession. The full text of the Act is available at: http://www.sec.gov/about/laws/ soa2002.pdf. You can find links to all Commission rulemaking and reports issued under the Sarbanes-Oxley Act at http://www.sec.gov/ spotlight/sarbanes-oxley.htm.

Students may find it helpful to look at the Sarbanes-Oxley 101.com website (http://www.sar0 banes0 -oxley0 -101.com/?gg=us&kw=sar0 banes%20oxley%20act%20of%2 02002), which provides in-depth compliance information for corporations, as well as the following summary:

The Sarbanes-Oxley Act of 2002, sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley, represents the biggest change to federal securities laws in a long time. It came as a result of the large corporate financial scandals involving Enron, WorldCom, Global Crossing and Arthur Andersen. Effective in 2004, all publicly-traded companies are required to submit an annual report of the effectiveness of their internal accounting controls to the securities and Exchange Commission (SEC).

The major provisions of the Sarbanes Oxley Act (SOX) include criminal and civil penalties for noncompliance violations, certification of internal auditing by external auditors, and increased disclosure regarding all financial statements. It affects many public U.S. companies as well as non-U.S. companies with a presence in the U.S.

Senator Sarbanes, co-author of the Sarbanes-Oxley Act, addressed the American Law Institute on May 18, 2004. The following is a summary of his comments (http://www.ali.org/ali/R2604-04-Speakers.htm):

Senator Sarbanes recollected that, in response to the "crisis in investor confidence" resulting from the Enron and WorldCom business scandals, the Senate Banking Committee, of which he was Chair, held hearings for six weeks in early 2002 and identified various problems, including "inadequate oversight of accountants; lack of auditor independence; weak corporate-governance procedures; stock analysts' conflicts of interest," "inadequate disclosure provisions," and "grossly inadequate funding" of the securities and Exchange Commission. He then explained how the Sarbanes-Oxley Act, which was signed into law in July 2002, addresses these problems by establishing effective oversight of accountants, assigning regulatory responsibility to a newly created Public Company Accounting Oversight Board, mandating auditor independence, setting corporate-governance standards, and requiring a broad range of disclosures.

Especially insightful are comments from an sec commissioner who was involved in the historic legislation. The following is from a speech before the SIEPR Economic Summit: Assessment of the Sarbanes-Oxley Act Critical Issue Session by Cynthia A. Glassman, Commissioner, U.S. securities and Exchange Commission in Stanford, CA on February 11, 2005 (http://www.sec.gov/news/speech/spch021105cag.htm):

Since the title of this panel is an "Assessment of Sarbanes-Oxley," I would like to set the stage with a brief overview of the climate and events that produced one of the most sweeping corporate governance reforms in history and led to the Sarbanes-Oxley legislation. What many may not realize is that certain of the core corporate governance reforms ultimately included in Sarbanes-Oxley were recommended by the sec and President Bush's Ten-Point Plan to Improve Corporate Responsibility prior to the July 2002 enactment of SOx. While I believe certain of these reforms likely would have been implemented by the sec even without SOx, it is undeniable that the scandals and climate focused Congressional attention on the problems and broadened the scope and certainly accelerated the timing of adoption of the reforms the administration and Commission had been advocating and proposing.

I am not going to dwell on the background, as you know it all too well. Starting in the mid-90s, we experienced the period Alan Greenspan referred to as "irrational exuberance," fueled in large part by investor interest in the entrepreneurs and dot.corns right here in the Silicon Valley. We saw retail investors participating in the markets as never before, each trying to get a piece of that next hot IPO. Unfortunately, beginning in the second quarter of 2000, the bubble burst, IPOs dried up, companies were being delisted left and right, and a new round of class action suits began.

It was in this period of shock and loss that we began to learn that some of the most successful companies, so we thought, were no more than a house of cards built upon a free-wheeling, "do whatever it takes" mentality to beat, or even just meet, the street's forecast of earnings per share for the quarter. The names Enron, WorldCom, HealthSouth and others became synonymous with fraud. In the end, we were left with investors filled with distrust and anger, and securities markets that resembled tires with the air let out of them - a state of affairs completely contrary to the secs mission and goal of protecting investors and maintaining the integrity of the markets.

It was in this environment that I joined the Commission in January 2002. Very soon afterward, I became swept up in a flurry of proposed reforms expressed in the President's Ten-Point Plan, announced in March 2002 and in which the Commission was actively involved, as well as the numerous initiatives put forth by the Commission itself. I have put together a chart (see the Exhibit), distributed to each of you today, detailing these regulatory initiatives and proposals, many of which arguably served as a basis for, and were ultimately codified in, Sarbanes-Oxley. As you can see, five general themes or goals of needed reforms developed. I will discuss each in turn.

First was restoring confidence in the accounting profession. In June 2002, the sec proposed a new, independent regulatory board which would require registration of any auditor of a public company. Inherent in the secs proposal was a recognition that certain deficiencies in the then-existing system of oversight of auditors, including peer review, contributed to the decline of investor confidence in financial information and the integrity of audits. At the time, the Commission called this new body a "Public Accountability Board." As codified by SOx, it became the Public Company Accounting Oversight Board, an organization that, as we originally proposed, is overseen by the sec.

A second theme was improving the "tone at the top" of public companies. I have heard repeatedly of the collective looks of disbelief that occurred when, during the Congressional investigation of Enron, Jeff Skilling stated that he was 'simply1 the CEO and not responsible for Enron's financial statements. Statements like this were a catalyst for the officer certifications required pursuant to SOx, a reform previously recommended by the President's Ten-Point Plan that called for CEOs to personally vouch for the veracity of their companies' financial statements. In June 2002, the sec proposed that the principal executive and financial officers certify, on a going-forward basis, as to the accuracy of the information included in a company's annual and quarterly reports. Also in June 2002, prompted in part by the WorldCom announcement of its pending restatement due to the fraudulent inflation of its earnings by several billion dollars, 1 the sec ordered the principal executive and financial officers of the largest 947 public companies to certify, on a one-time basis, the completeness and accuracy of their companies' most recent financials. The certification requirement was then incorporated into the Sarbanes-Oxley legislation.

Third, we focused on improving disclosure and financial reporting. Beginning in December 2001, the sec issued a series of statements regarding the use and disclosure of pro forma financial information, off-balance sheet arrangements and the effects of transactions with related parties. In June 2002, the SEC proposed amendments to Form 8-K to increase the number of "presumptively material" events requiring the filing of the form, as well as shortening the time period for filing. These initiatives were further codified in SOx under its provisions relating to off-balance sheet arrangements and non-GAAP measures, as well as requirements for disclosure, on a "rapid and current basis," of material changes in a company's financial condition or operations.

A fourth goal was improving the performance of gatekeepers. In addition to the sec recommendation to establish an independent regulatory board to oversee the auditing profession, beginning in March 2002 the sec commenced studies into the activities and effects of rating agencies in the capital markets, as well as the practices of analysts and the conflicts that can arise in the securities industry. These studies provided the basis from which we conducted a SOx-mandated study on credit rating agencies as well as sec approval of new rules relating to analyst conflicts of interests proposed by the exchanges and Nasdaq.

And finally, enforcement tools were enhanced. The Ten-Point Plan, with the backing of the sec, clearly called for an expanded focus on removing corporate officers who proved their unfitness to serve in leadership positions. Through the Corporate Fraud Task Force, established by the President in July 2002, the sec began working with the Department of Justice and other governmental agencies in ways unprecedented to investigate and charge fraud. Congress responded to inter-agency requests for assistance in this initiative, with numerous provisions under SOX intended to enhance enforcement capabilities, including lowering the standard for imposing officer and director bars and increasing criminal penalties. ____________________ (The initial June 25, 2002 announcement by WorldCom stated that it intended to restate its financial statements by approximately $4 billion. The ultimate restatement, however, was approximately $11 billion.)

Evaluate the Disney board against the following governance components: age and diversity, and the number of other boards on which the directors serve.

Age: As of 2003 (or, for those no longer serving on the board, in their last year as a director), six are in their 70s, seven are in their 60s, five are in their 50s, and only two directors are under the age of 50, and those two are in their late 40s.

Diversity: The 2003 13-member Disney board has only two females (Judith Estrin and Monica Lo/ano), and has had only a total of five female directors since 1999. Only two directors since 1999 have been African-American (the actor Sidney Poitier, and the elementary school principal Reveta Bowers), and only two Hispanics have served on the board in that time (Igancio Lo/ano, Jr. and Monica Lo/ano). The information given in the case on the various directors does indicate, however, a greater level of diversity in terms of occupation and career experience. Students should note that some directors not only have business experience, but also considerable political connections, as well as contacts with educational institutions (however, Ms. Bowers was the principal of the elementary school formerly attended by the Eisner children, and Father O'Donovan is President Emeritus of Georgetown University, the alma mater of one of Eisner's sons and which was the recipient of over one million dollars from Eisner). Disney is also recognizing the need to equip the board with financial experience and fresh viewpoints, and to ensure that board members have adequate time to devote to their board responsibilities. Matschullat, the new appointee to the board and previous CFO of Seagram Company, Ltd., has the requisite experience in finance as well as in strategic planning, tax, accounting and risk management.

Number of other directorships: As illustrated in Exhibit 3, Disney directors have often had numerous other board memberships. Recently, however, Disney has decided to limit directors with full-time jobs elsewhere to serving on three public boards at a time, and directors who are retired from active employment are limited to six.

4. Select two or three of Disney's key competitors, such as Viacom, AOL Time Warner, and/or GE. Other competitors can be found in annual listings of the Fortune 500 companies, among other places.

a. Since 1996, Business Week has surveyed industry experts four times to create lists of the best and worst boards (the four issues were published in Nov. 25, 1996; Dec. 8, 1997; Jan. 24, 2000; and Oct. 7, 2002). How did Disney's rankings change over time? How did they rank compared to the key competitors you identified?

TIP: Although Disney has numerous competitors, Viacom and AOL Time Warner are especially powerful competitors. GE, as owner of NBC network, can also be considered a competitor in the broadcasting sector. The instructor may wish to simply assign these as the competitors to investigate, thus ensuring comparability across students. The instructor might also want to specify that the students compare these firms' 2002 and 2003 proxies.

In the 1996 Business Week ranking, Disney was ranked as the 14th worst board (score = 29.8 out of a possible 100 points), with the following stated under "Details": "Board too cozy, with 5 of 11 insiders, including two who draw fees from company." Time Warner was ranked as the 22nd worst board (score = 36.8 out of 100): "Investors unhappy with lagging performance; 1 director on 16 boards"). Viacom did not appear on either the best or worst list. In sharp contrast, GE was ranked as the second best board, with a score of 79.6: "CEO sits on one board: his. Each outside director owns more than $450K of GE stock."

In the 1997 list, Disney was ranked as the number one worst board, with a score of only 10.3 out of a possible 100 points! The table summarized their problems as "Investors decry board for conflicts; many directors own little if any stock," and the accompanying article goes into considerable detail. Time Warner was ranked as the 15th worst board (also moving in the wrong direction in the rankings, with a score of 33.5), and Business Week noted, "Many directors sit on too many boards; investors unhappy with performance." Viacom was not listed. GE was again the second best board (score = 74.7; "Won most votes in poll for best board; outside directors own lots of GE stock").

In the 2000 list, Disney was named worst board for the second time (score = 14.0; "Board reforms viewed as token gestures as Disney performance lags"). In this listing, Time Warner does not appear and, interestingly, the two AOL stars (Bob Pittman and Steve case) of the newly formed AOL Time Warner are on the cover as "Men of the Century." Viacom was again not listed. GE was the now ranked as the number one best board (score =81.1; "Outside directors average $6.6million in GE stock. New recruits diversify a board of heavyweights").

In the October 7, 2002 list, actual scores on the rankings were not provided; however, Disney was named to the newly-created Most Improved list. Business Week noted, "Finally taking steps to improve a reputation for lousy governance. Under pressure from director Stanley P. Gold, manager of the Disney family fortune, and other shareholders, the company has severed business relationships with two directors. Tightened board's definition of independence. Recruited governance expert Ira Millstein to advise board" (p. 110). AOL Time Warner and Viacom are not included in the lists. GE was on the Best Boards list for the fourth time (and it is listed fourth in the listing this time; no score provided) with the following noted: "This talent-packed board, with an unrivaled record of creating shareholder value, remains a favorite with governance experts, although there have been recent revelations of lavish retirement perks for former CEO Jack Welch. The company is improving board independence; it recently added Ralph Larsen, former CEO of Johnson & Johnson and a longtime champion of good governance. The board recently moved to expense options" (p. 106).

b. Consider the issue of board independence. How do the criteria used by Disney's competitors compare to that used by Disney? When did board independence begin to be an issue for these companies? You will need to review proxy statements (especially the 2002 and 2003 proxy statements) which can be accessed from the sec website (www.sec.gov).

TIP: The instructor might want to give the students a brief tutorial in using the EDGAR database on the sec website (www.sec.gov). Students will find that this source is generally more historically complete than a company's website, which often only has the most current proxy statement. This exercise can also lead to a discussion of the various filings that a public firm has to make with the sec, including proxy statements, 10-Ks, 10-Qs, and so forth.

Viacom. The student should find that Viacom's 2002 proxy statement does not even consider the topic of director independence. Apparently this was not a topic of concern until after the New York Stock Exchange began developing guidelines for board independence. Viacom's 2003 proxy statement describes the independence requirements for their directors as follows:

INDEPENDENCE OF DIRECTORS

In January 2003, the Board of Directors adopted Corporate Governance Guidelines (the "Guidelines"), addressing, among other things, guidelines to assist the Board in determining the independence of the Company's directors. The full text of the Guidelines can be viewed in the Corporate Governance section of the Company's website at www.viacom.com/shareholder.tin and a copy of the Guidelines can be obtained by sending a written request to Viacom Inc., 1515 Broadway, New York, NY 10036-5794, Attention: Investor Relations.

Pursuant to the Guidelines, the Board and the Corporate Governance Advisory Panel reviewed the independence of the director nominees in March 2003. During this review, transactions and relationships between each director nominee or any member of his or her immediate family and the Company were considered, including, among others, those reported below under "Compensation Committee Interlocks and Insider Participation" and "Related Transactions". The purpose of this review was to determine whether each director nominee met the applicable criteria for independence under the NYSE rules and the Guidelines.

As a result of this review, a determination was made that eleven of the seventeen directors nominated for election at the annual meeting are independent of the Company and its management. The eleven independent director nominees are: Messrs. Califano, Cohen, Gray, Greenberg, Leschly, McLaughlin, Salerno, Schwartz, Seidenberg and Walter and Ms. Stonesifer.

If the students try to follow the link given in the 2003 Proxy statement, they will find that that particular citation is no longer valid. Examination of Viacom's website as of September 2005 could only reveal the firm's current policy on board member independence (given below). By having the independence criteria only available online (as opposed to being clearly stated in the Proxy) limits our ability to monitor how (or if) this definition may have changed since originally developed in 2003. This should lead students to the realization that there are serious limitations to the Internet as a research tool.

As an additional assignment or in-class exercise, the students can examine the biographical information given in the proxy to try to determine why six of the Viacom directors were deemed as non-independent.

From Viacom's corporate governance guidelines on their website as of September 2005 (the site reveals that the guidelines were last revised as of June 14, 2005):

BOARD MEMBERSHIP CRITERIA

Directors of Viacom should be individuals with substantial accomplishments in their professional backgrounds, and should be current or former leaders in the important companies or institutions with which they are or have been affiliated. They should be able to make independent, analytical inquiries and should exhibit practical wisdom and mature judgment. Directors of Viacom are expected to possess the highest personal and professional ethics, integrity and values, and should be committed to promoting the long-term interests of Viacom's stockholders.

Independence. A majority of Viacom's directors will meet the criteria for independence established by the New York Stock Exchange (NYSE) corporate governance listing standards. Whether directors meet the criteria for independence will be reviewed annually prior to their standing for election to the Board and at such other times as the Board deems appropriate. The independent directors will be identified in Viacom's annual proxy statement. In accordance with the NYSE listing standards, a Viacom director will not be independent if any of the following relationships exist:

(i) the director is, or has been within the last three years, an employee of Viacom; (ii) an immediate family member of the director is, or has been within the last three years, an executive officer of Viacom; (iii) the director has received, or an immediate family member of the director has received for service as an executive officer, during any twelve-month period within the last three years, more than $ 100,000 in direct compensation from Viacom, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); (iv) (A) the director or an immediate family member of the director is a current partner of a firm that is Viacom's internal or external auditor; (B) the director is a current employee of such a firm; (C) an immediate family member of the director is a current employee of such firm and participates in such firm's audit, assurance or tax compliance (but not tax planning) practice; or (D) the director or an immediate family member of the director was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on Viacom's audit within that time; (v) a Viacom executive officer is, or has been within the last three years, on the compensation committee of a company which at the same time employed the Viacom director or an immediate family member of the director as an executive officer; or (vi) the director is an employee, or an immediate family member of the director is an executive officer, of a company that has made payments to, or received payments from, Viacom for property or services in an amount which, in any of the last three fiscal years, exceeded the greater of $ 1 million or 2% of such other company's consolidated gross revenues.

In addition, for a director to be considered independent under the NYSE listing standards, the Board must determine that the director does not have a material relationship with Viacom. The Board has established the following standards to assist it in determining what constitutes a material relationship:

If the types of relationships identified by the NYSE as set forth above that have a look-back period of three years occurred more than three but less than five years ago, the Board will consider whether a material relationship exists; if the relationship occurred more than five years ago, it will not be considered a material relationship that would impair a director's independence. In addition, if a relationship of the type described in (iii) above exists and the amount involved is less than $100,000, it will not be considered a material relationship that would impair a director's independence.

The following relationships will not be considered material relationships that would impair a director's independence: (i) the director is an executive officer or employee, or an immediate family member of the director is an executive officer, of a company that made payments to, or received payments from, Viacom for property or services in an amount which, in any of the last three fiscal years, is less than 1% of the annual consolidated gross revenues of such other company; (ii) the director is an executive officer or employee, or an immediate family member of the director is an executive officer, of a company which is indebted to Viacom, or to which Viacom is indebted, and the total amount of either company's indebtedness to the other is less than 1% of the total consolidated assets of such other company; and (iii) the director is an executive officer or employee, or an immediate family member of the director is an executive officer, of a tax exempt organization, and Viacom's contributions to the organization in the prior fiscal year are less than the greater of $500,000 or 1% of that organization's consolidated gross revenues.

For relationships that exceed the thresholds set forth above, the determination of whether the relationship is material or not, and therefore whether the director would be independent or not, shall be made by the directors who are independent. For example, if a director is the CEO of a company that is indebted to Viacom in an amount in excess of 1% of that company's total consolidated assets, the independent directors could determine, after considering all of the relevant circumstances, that such a relationship was immaterial, and that director would therefore be considered independent for purposes of the NYSE listing standards. Generally, types of relationships not addressed by the NYSE listing standards or otherwise described above will not cause an otherwise independent director to be considered not independent. However, the Board may determine that a director is not independent for any reason it deems appropriate. To the extent required by law or the NYSE listing standards, Viacom would explain in the next proxy statement the basis for any Board determination that a director was independent despite the fact that he or she did not meet or fit within the categorical standards for a material relationship set forth above. For purposes of this section, references to "Viacom" mean Viacom Inc. and its consolidated subsidiaries.

AOL Time Warner. Unlike Viacom, AOL Time Warner actually established the standard of having the majority of directors to be independent prior to the requirements imposed by the New York Stock Exchange. Unfortunately, the exact specifications for independence are not obtainable online, as they are included by being referenced (i.e., the firm's by-laws lay out the specifics of board independence).

From the 2002 Proxy statement:

The Company believes that, in the best interest of its stockholders, a majority of the members of its Board of Directors should, in the Board's judgment, be classified as "independent" pursuant to the Company's By-laws, which generally require the absence of any direct or indirect material economic relationship with the Company other than as a result of customary directors' compensation or stock ownership (such directors, the "Independent Directors" and all other directors, the "Affiliated Directors"). Under the Company's By-laws, when the Board sets the slate of director nominees for election at an annual meeting of stockholders, it must determine that a majority of its members will be Independent Directors, assuming the election of such slate. Assuming the election of these nominees, of the 15 directors, the Board of Directors has determined that 9 will be Independent Directors and 6 will be Affiliated Directors. The Company also has a policy limiting the eligibility for nomination by the Board of Directors as a director to those under 72 years old.

From the 2003 Proxy statement:

Independence. Under the Company's By-laws, a majority of the Board must be independent under the criteria set forth in the By-laws, and the Board has established as a goal that a substantial majority of the Board should be independent. The percentage of independent directors has increased since the consummation of the AOL-TW Merger (as defined below). In addition, the Board's policy requires that all of the members of the Nominating and Governance, Compensation, and Audit and Finance Committees must be independent.

As of September 2005, AOL Time Warner's website states the following: Originally adopted by the Board of Directors in January 2002 and most recently revised in February 2005, the Corporate Governance Policy describes the principles and practices that guide the Board of Directors in carrying out its responsibilities. The Policy addresses subjects including the Board's composition, responsibilities, meetings and structure.

Mix of Inside and Independent Directors. Under the Company's By-laws, a majority of directors must be independent. It is the Board's objective, however, that a substantial majority of the directors shall be independent. On at least an annual basis (and whenever an individual is considered by the Nominating and Governance Committee for election as a director), management will collect information from the Company's records and, as appropriate, from the individual directors, to conduct an analysis of each current or prospective director's eligibility to be classified as "independent" under the Company's By-laws, Corporate Governance Policy, and applicable statutes and regulations (including applicable listing standards set forth by the New York Stock Exchange and rules and regulations issued by the securities and Exchange Commission and Internal Revenue Service). This analysis shall address each individual's eligibility to be classified as "independent" for purposes of serving on the Board and on each of the Board's committees. This analysis shall be submitted to the Nominating and Governance Committee, which shall make a recommendation regarding each individual's independence to the full Board of Directors, which in turn shall make the final determination of each individual's independence.

As set forth in the Company's By-laws, the Board may establish categorical standards to guide it in determining whether an individual has a "material relationship" with the Company. The Board has adopted the following categorical standards, in addition to the standards for independence established under applicable statutes and regulations, which it may amend or supplement from time to time: Transactions (such as advertising, the purchase of goods and services, financing, and the purchase or sale of assets) between the Company and another entity with which a director or a member of a director's family is affiliated shall generally be deemed not to create a material relationship (i) if they occurred more than three years prior to determination of materiality or (ii) if they occur in the ordinary course of business and are consistent with other transactions in which the Company has engaged with third parties, unless (a) the director serves as an executive officer, employee, or substantial owner, or an immediate family member (as defined in the New York Stock Exchange's rules) is an executive officer, of the other entity and (b) such transactions represent more than 5% of the Company's consolidated gross revenues for the prior fiscal year or 2% of the other entity's gross revenues for the prior fiscal year.

Discretionary charitable contributions by the Company to established non-profit entities with which a director or a member of the director's family is affiliated shall generally be deemed not to create a material relationship (i) if they occurred more than three years prior to determination of materiality or (ii) if they are consistent with the Company's philanthropic practices, unless (a) the director or spouse is a executive officer or director of the organization and (b) the Company's contributions represent more than the greater of $100,000 or 10% of any individual organization's annual gross revenues (orthe greater of $1 million or 2% of all such organizations' annual gross revenues in the aggregate).

The employment by the Corporation or any of its consolidated subsidiaries of a member of a director's family shall generally be deemed not to create a material relationship, other than employment at an annual salary of more than $50,000 per year of a director's current spouse, domestic partner, or child. Vested and non-forfeitable equity-based benefits and retirement benefits under qualified plans as a result of prior employment shall generally be deemed not to create a material relationship.

5. Entrenchment refers to the unchanging composition of the board, which can lead to stagnation and apathetic board performance, as opposed to the stimulation of ideas and diverse perspectives. Evaluate the extent to which the board and its committees are entrenched.

The description of board members indicates the extent to which directors remained on the board. Roy Disney has had the greatest longevity, with 36 years of service. His relationship to the family as Walt Disney's nephew is likely to have contributed to his initial nomination to the board. Michael Eisner has served on the board as its Chairman since he joined the company 19 years ago. This indicates longevity as well as CEO duality, which some say is a case of the "fox watching the henhouse", in that it may difficult to be objective in controlling managerial opportunism if he is both the head of the governing body and the top manager of the company. Bowers, Gold, I. Lozano, Russell, Stern, Watson, and Wilson have also served in the double digits, while it has been recommended that directors serve for no longer than 10 years. Of these, Gold, Watson, and Wilson still remained on the board following the company's annual meeting and re-elections in 2003. We can also discuss the extent to which the various committees may be entrenched. As shown in Exhibit 2, The Executive Performance Subcommittee and the Capital Stock Committee were not standing committees, as they only existed for two or three years. The Executive Committee has perhaps been the most entrenched over the past five years. Each of its five members has served on the committee for the entire period, which the exception of Irwin E. Russell, who retired from the board in 2001. Further, Watson remained Chairman for those five years. There appears to have been more rotation on the Compensation Committee, and the chair rotated in the last of the five years as well. It should be noted, however, that Thomas Murphy's chairmanship from 1999 to 2002 is in violation of the standards for complete committee independence on this committee, which the NYSE requires. However, the change in leadership here may have been due to the new regulations, or perhaps in anticipation of them. Similarly, the Audit Committee has not been entrenched. Twelve separate directors have served on this committee over the past five years, with rotating chairmanship as well. Again, Murphy was the only insider to serve, and again only until 2002. In looking at the Nominating Committee, we can see that Stanley P. Gold was its Chairman from 1999-2002. He may have served longer, had the board not excluded him from independence based on his connection to Roy Disney and to Shamrock Holdings, where his daughter is employed. Recall that the NYSE, where Disney is listed, requires a fully independent Nominating Committee.

6. Briefly examine investor confidence in Disney at the end of 2003. Compare Disney to the market-has it suffered in the past few years? What might be expected in the next 2-3 years given the corporate governance issues facing the company?

Disney is not the only company to endure the backlash of substandard governance. It has been in good company, alongside Apple Computer, HJ. Heinz and AT&T in the Business Week rankings of corporate boards. Thanks to companies such as Enron, Tyco, and Worldcom, governance scrutiny has tightened. Disney has made many changes to its governance structure, some even before the Enron implosion, and many more after. But at the close of 2003, the question remains as to whether or not Disney has made enough change in its governance structure. The sudden resignation of Roy Disney and Stanley Gold has created a dramatic stage for future Disney actions. Obviously Disney has been underperforming for a number of years. Eisner's future probably will be closely tied to the success of Disney - much more so than in the last six years. With a stronger (if not perfect) board, he is less likely to retain his unassailable position unless Disney soon returns to its glory days. Disney has had poor governance in the past, but even being named to Business Week's worst board lists in 1996 and 1997 had little real fallout for Eisner - it was only when Disney's share prices began to drop that there was serious investor unrest.

References

REFERENCES

Byrne, J.A. (1996, November 25). The best and worst boards. Business Week, 82-98.

Byrne, J.A. (1997, December 8). The best and worst boards. Business Week, 90-98.

Byrne, J.A. (2000, January). The best and worst corporate boards. Retrieved from http://www.businessweek.eom/@@V2J3c4QQolT3@BMA/archives/2000/b3665022.

Company Annual Reports.

Company 8-K Filings.

Company 10-K Filings.

Company Proxy Statements.

Company Web Sites.

Grover, R. (2002). Eisner stays in the picture. Business Week, December 2, 2002. On-Line. Available: http://www.businessweek.com:/print/magazine/content/02_48/b3810102.htm?mz.

Lieberman, D. (2003, March). Disney tries to work magic with new board lineup. USA Today, pp. 1B-2B.

NASDAQ, http://www.nasdaq.com/Newsroom/news/pr2002/ne_section02_l21.html.

New York Stock Exchange, http://www.nyse.eom/about/listed/l 101074746736.html.

Orwall, B. (2003, December). Roy Disney quits company board and calls on Eisner to resign, too. Wall Street Journal, p. Al, A3.

Sarbanes-Oxley Act of 2002, http://news.findlaw.com/hdocs/docs/gwbush/sarbanesoxley072302.pdf.

AuthorAffiliation

Meredith Downes, Illinois State University

Gail S. Russ, Illinois State University

Patricia A. Ryan, Colorado State University

Subject: Entertainment industry; Case studies; Corporate governance; Corporate image; Public Company Accounting Reform & Investor Protection Act 2002-US; Compliance

Location: United States--US

Company / organization: Name: Walt Disney Co; NAICS: 512110, 515120, 711211, 713110

Classification: 4320: Legislation; 2110: Board of directors; 9130: Experimental/theoretical; 8307: Arts, entertainment & recreation; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 2

Pages: 23-38

Number of pages: 16

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: References

ProQuest document ID: 216275675

Document URL: http://search.proquest.com/docview/216275675?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 42 of 100

ALZA CORPORATION: A CASE STUDY CONCERNING R&D ACCOUNTING PRACTICES IN THE PHARMACEUTICAL INDUSTRY

Author: McCoy, Tim; Hoskins, Margaret

ProQuest document link

Abstract:

This case illustrates the innovative off-balance sheet financing techniques used by ALZA Pharmaceuticals Corporation in the 1990s to fund its R&D activities. The case shows that, although ALZA technically adhered to generally accepted accounting principles (GAAP) in effect at the time, its financial statements failed to reflect economic reality by overstating revenues and net income. The case is a prime example of how accounting for VIEs prior to current GAAP failed to capture economic reality. The case details two of ALZA's R&D funding arrangements, illustrates the accounting practices used to capture them, and evaluates the manner in which their results were reported in the financial statements. Furthermore, the accounting and reporting procedures used will be compared to those required by ARB No. 51, Consolidated Financial Statements, FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities-an Interpretation of ARB No. 51, and EITF 99-16, Accounting for Transactions with Elements of Research and Development Arrangements. This comparison will help students understand the relevance and need for the new pronouncements. [PUBLICATION ABSTRACT]

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns variable interest entities (VIEs), accounting for research and development (R&D) arrangements, and consolidated financial statements. The case has a difficulty level of four for five, appropriate for senior or first-year graduate level. The case is designed to be taught in one class hour and is expected to require three hours of outside preparation by students.

CASE SYNOPSIS

INSTRUCTORS' NOTES

In a strategy decision to become a fully-integrated pharmaceutical company, ALZA Pharmaceutical Corporation devised two off-balance sheet R&D arrangements. The first was Therapeutic Discovery Corporation (TDC), which operated from mid-1993 through 1997. The second was Crescendo Corporation, which operated from 1997 through 2000. In both arrangements, ALZA invested cash in the corporations, issued stock in the new corporations to ALZA stockholders, and performed R&D activities for the new corporations. Amounts invested in the new corporations flowed back to ALZA and were recorded as R&D revenue. Since ALZA was recording both the revenue received from TDC and Crescendo and its own expense, the company claimed that the impact on income was not significant.

This case reviews the j ournal entries made to record the investments in TDC and Crescendo and leads students through an evaluation of ALZA's claim that the arrangements had an insignificant impact on its reported net income. This case illustrates that ALZA's assertion is not an accurate assessment of the impact of the arrangement. Without the R&D arrangements, ALZA would simply be recording R&D expense as it was incurred, thereby reducing net income by the amount of R&D expense. Using TDC & Crescendo arrangements, ALZA recorded both revenue and expense, thereby eliminating the reduction of net income for its R&D expense. Students are asked to evaluate ALZA's accounting and reporting procedures in light of ARB No. 51, Consolidated Financial Statements, FASB Interpretation No. 46 (R) Consolidation of Variable Interest Entities-an Interpretation ofARBNo. 51, and EITF 99-16, Accounting for Transactions with Elements of Research and Development Arrangements.

The following pages explain and provide details about the suggested answer to each question asked in the case.

DISCUSSION QUESTIONS

1. What effect did the TDC and Crescendo arrangements have on ALZA's R&D reported on the income statement? What were the balance sheet effects?

Table 1 provided in the case and reproduced below shows the Product Development Revenue recorded on the books of ALZA and the R&D Expense recorded on the books of TDC during the years 1993 through 1997. As shown, the total revenue recorded by ALZA was $275.1 million while the total expense recorded by TDC was $254 million. When preparing its consolidated financial statements, ALZA did not include the assets, liabilities, equity, revenue, or expense accounts of TDC; therefore, the financial results reported in TDC's financial statements were not reflected in ALZA's consolidated financial statements.

View Image - Table 1: Comparison of ALZA R&D Revenue and TDC R&D Expense (in millions)

Table 2 provided in the case and reproduced below shows the product development revenue recorded on the books of ALZA and the R&D expense recorded on the books of Crescendo. At first glance, the numbers seem to be confusing since Crescendo's expense exceeds ALZA's revenue in all but the final year. Apparently there were some timing issues regarding ALZA's recording of product development revenue and Crescendo's recording of R&D expense. Over the term of the agreement, ALZA recorded total product development revenue of $283.5 million, and Crescendo's recorded total R&D expense of $278.2 million. As with TDC, ALZA did not incorporate the assets, liabilities, equity, revenue, or expense accounts of Crescendo in its consolidated financial statements.

View Image - Table 2: Comparison of ALZA R&D Revenue and Crescendo R&D Expense (in millions)

Over the life of both TDC and Crescendo, ALZA recorded total Product Development Revenue from the two companies of $558.6 million ($275.1 + $283.5). TDC and Crescendo reported total R&D expense of $532.2 million ($254.0 + $278.2). Since, however, ALZA did not consolidate TDC 's and Crescendo's operating results with its own, ALZA increased its revenue by $558.6 million and recorded its own R&D expense on its own books. The R&D expense recorded by TDC and Crescendo was not reported in ALZA's financial statements. The effect was to overstate revenues and net income. The overstatement of income by these transactions was mitigated by the one-time charge to ALZA's earnings of $247 million recorded in the Crescendo transaction.

2. Do you agree with the claim in ALZA's financial statement footnotes that there was no income effect of the transactions with TDC and Crescendo? Why or why not?

Table 3 reproduced below shows students the amount of R&D revenue, the amount of R&D expense, the one-time charge to income for the creation of Crescendo, and net income reported in ALZA's financial reports for the years 1993 through 2000. In addition, the amount of revenue received from TDC and Crescendo is shown.

View Image - Table 3: Items Included in ALZA's Financial Reports (in millions)

ALZA's financial reports also stated, however, that when the revenue the company recorded from TDC and Crescendo was netted against its own R&D expense, the activities did not contribute significantly to operating results. This is not an accurate assessment as demonstrated in Table 4 (not provided to students).

View Image - Table 4: ALZA Net Income After Eliminating Effects of TDC & Crescendo Transactions (in millions)

Table 4 shows the amount of ALZA's reported net income as reported for each of the eight years 1993 through 2000. Then, the R&D revenue received from TDC and Crescendo is subtracted to show the actual net income for those years. Notice that the onetime charge against ALZA's net income in the year Crescendo was formed has been added back to 1997 when computing revised net income. Eliminating intercompany revenue significantly reduced ALZA's net income in the years affected. In fact, rather than cumulative earnings of $430.1 million over the eight years, the company actually had cumulative earnings of $118.5 million.

Table 4 shows that the TDC and Crescendo arrangements effectively allowed ALZA to avoid recognizing the impact on net income of the R&D expense associated with the TDC and Crescendo development projects. In addition, ALZA overstated revenue by $558.6 million, the amount received from TDC and Crescendo. Net income was overstated by a total of $311.6 million ($430.1 - $118.5) over a period of eight years. ALZA's accounting for its R&D arrangements allowed the company to take funds off its balance sheet, place them in controlled investment vehicles, and then bring them back into the company recognizing them as revenues to offset current R&D expenses.

Clearly, failing to consolidate the operations of TDC and Crescendo caused ALZA's revenue and net income to be overstated by a significant amount. The consolidation procedure would have offset the R&D revenue recorded on the books of ALZA against the R&D expense recorded on the books of TDC and Crescendo. In other words, ALZA's product development revenue should not have been offset against its own R&D expense; rather, it should have been offset against TDC's and Crescendo's R&D expense leaving a net effect equal to the R&D expense incurred by ALZA. Stated yet another way, ALZA included TDC and Crescendo revenue in its financial statements, while failing to include TDC and Crescendo expense.

3 What is earnings management? Do you believe ALZA used TDC and Crescendo to manage its earnings? Explain.

Several definitions of earnings management exist. Schipper (1989, p. 92) defines it as a "purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain (as opposed to say, merely facilitating the neutral operation of the process)." Healy and Whalen (1999, p. 368) define it as "when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company, or to influence contractual outcomes that depend on reported accounting numbers." Earnings management negatively impacts the quality of earnings if it occurs to such an extent as to impair the usefulness income statement to predict future earnings. It must be stated that ALZA did not technically violate GAAP (although it did circumvent the intent of GAAP), and ALZA, TDC, and Crescendo all received clean audit opinions. The fact still remains, however, that the manner in which ALZA reported its R&D activities in its financial statements eliminated the reduction in income that its R&D expense should have caused. ALZA used TDC and Crescendo to manipulate income by overstating revenues.

Table 4 illustrates that the TDC and Crescendo arrangements effectively allowed ALZA to avoid recognizing the impact of R&D expense on net income. In addition, ALZA overstated revenue by the total revenue by $558.6 million, the amount received from TDC and Crescendo. Net income was overstated by a total of $311.6 million over a period of eight years. ALZA's accounting for its R&D arrangements allowed the company to take funds off its balance sheet, place them in controlled investment vehicles, and then bring them back into the company recognizing them as revenues to offset current R&D expenses.

Since the sec allowed the TDC dividend to be charged to paid-in capital and retained earnings, the arrangement essentially turned cash into retained earnings by overstating income for 1993 through 1997. The effect of R&D expense for certain projects was erased from earnings. Not only did ALZA's bottom line remain intact (as opposed to decreasing it for R&D expense), its top line actually improved because of its own cash flowing back as revenue.

The SEC required the Crescendo agreement to be recorded as a one-time charge to income (Sellers 2000). Therefore, ALZA was forced to record a large earnings reduction in the year of Crescendo's creation, but that reduction was recovered through overstated earnings from 1997-2000. To the extent analysts tend to disregard one-time charges, the 1997 charge may not have been a severe penalty for ALZA. dayman (1995) suggests that companies with infrequent one-time charges are not necessarily penalized in the market and, depending on the nature of the charge, may outperform the broad index.

4. What is meant by the term "off-balance-sheet financing"? Would the TDC and Crescendo arrangements constitute off-balance-sheet financing? Why or why not?

Off-balance-sheet financing is an attempt to borrow money in such a way that obligations are not recorded on a company's balance sheet (Kieso, Weygandt, and Kimmel 2004, p. 689). The TDC and Crescendo arrangements do not represent off-balance-sheet financing in that ALZA was not excluding debt from its balance sheet. They are off-balance-sheet arrangements, however, that did allow ALZA to remove the effects of R&D expense from its income statement.

The primary reasons for off-balance sheet financing are to make the financial statements more attractive and to manage income tax positions (Gamble 1997). The financial community is divided on whether off-balance sheet arrangements mislead financial statement users. Many creditors prepare adjustments for common off-balance sheet arrangements such as leasing. However, the TDC and Crescendo arrangements are much more sophisticated and certainly much less transparent.

The creation of TDC and Crescendo did not change ALZA's fundamental R&D activities. The R&D could have been conducted by ALZA with or without the two spun off entities. Why then were the two entities created? One reason not mentioned in the case is that ALZA received a tax benefit by sheltering royalty income on its tax return by using TDC losses (Moukheiber 1999). Another reason is that the TDC and Crescendo arrangements significantly enhanced ALZA's revenues and net income.

5 Refer to ARB No. 51, Consolidated Financial Statements. According to that statement, when should consolidated financial statements be presented? Do you think those requirements were met with the TDC and Crescendo arrangements? Why or why not?

According to Accounting Research Bulletin (ARB) No. 51 (AICPA 1959), Consolidated Financial Statements, the purpose of consolidated financial statements is to present the results of operations and the financial position of aparent and subsidiary as if they were one entity (paragraph 1). Doing so benefits shareholders and creditors. ARB No. 51 states that, usually, controlling interest is evidenced when one company owns a majority voting interest in the other (paragraph 2). In addition, the Bulletin states that consolidated financial statements should be presented when one company directly or indirectly (emphasis added) owns a controlling interest in the other (paragraph 1). Therefore, even though ALZA did not have controlling interests as evidenced by a majority voting interest, the company clearly controlled the operations of TDC and Crescendo. ALZA directed the projects that were to be researched, possessed the power to block any impairment of its rights regarding TDC and Crescendo, and maintained the right to purchase the TDC and Crescendo shares upon dissolution of the two organizations. Therefore, ALZA may have met the letter of prescribed GAAP, but did not adhere to the intent of ARB No. 51. According to the intent of ARB No. 51, both Crescendo and TDC should have been included in ALZA's consolidated financial statements.

6 Refer to FASB issued Interpretation No. 46(R) Consolidation of Variable Interest Entities-an Interpretation of ARB No. 51. What is the definition of the term variable interest entity? Would TDC and Crescendo be classified as variable interest entities? Why or why not?

In recent years, more and more companies have circumvented the intention of ARB No. 51 by using special purpose entities (SPEs) to provide off-balance sheet financing. These SPEs are structured to avoid giving the controlling company voting rights; rather, financial interest is achieved through arrangements not involving voting interests.

The increasing prevalence of unconsoIidated SPEs has resulted in many cases of misleading financial statements. To address the problem, the FASB issued Interpretation No. 46(R) (FASB 2003) Consolidation of Variable Interest Entities-an Interpretation of ARB No. 51. Interpretation No. 46(R) uses the term variable interest entity (VIE) instead of SPE to more clearly define and include all entities that are subject to the intent of the Interpretation. Regardless of whether the entity is a corporation, partnership, or trust (paragraph 3), it qualifies as a VIE and is subject to consolidation if the equity of the VIE is not sufficient to permit it to finance its activities without subordinated financial support from other parties or if equity investors lack the ability to make decisions about the VIE's activities, are not obligated to absorb VIE losses, or will not receive residual VIE returns (paragraph 5). Stated another way, if an enterprise will absorb a majority of a VIE's expected losses or receive a majority of a VIE's residual returns, that enterprise must consolidate the VIE. A strong indication that an enterprise possesses one or both of these characteristics is present if the enterprise has the direct or indirect ability to make decisions that significantly affect the results of the activities of a VIE.

Therefore, had FASB Interpretation No. 46(R) been in effect during the operation of TDC and Crescendo, both would have been classified as VIEs. ALZA clearly controlled TDC and Crescendo. ALZA selected the projects for research and development, maintained the right to patent resulting products, and prohibited TDC and Crescendo from patenting rejected products. ALZA shared employees with TDC and Crescendo. Both companies owned no facilities, leased corporate offices from ALZA, received administrative services from ALZA, and were dependent on ALZA for its operating and accounting systems. TDC and Crescendo were prohibited from licensing its products to any company other than ALZA. Finally, as sole owner of Class B Common Stock, ALZA could block any action that might impair ALZA's rights or increase TDC's or Crescendo's authorized capitalization without ALZA's permission. Finally, ALZA held an option to purchase all of TDC's and Crescendo's Class A Common Stock, the holders of that stock had nothing invested since it was distributed to them in a property dividend. Therefore, they bore no risk of loss of their investment since they had no investment.

7. Summarize the content and purpose of EITF 99-16, Accounting for Transactions with Elements of Research and Development Arrangements. Has this standard effectively shut down the off-balance sheet strategy used by ALZA in this case?

The Issue prescribes the accounting for arrangements such as those ALZA made with TDC and Crescendo. The Issue specifically addresses transactions where a sponsor capitalizes a new company with cash and technology rights in exchange for Class A and Class B stock. The Class A stock is distributed to the sponsor's shareholders subj ect to a purchase option, while the Class B stock is retained which carries no voting rights but does carry certain blocking rights. The sponsor subsequently performs research and development activities for the new company. The Task Force noted that the accounting prescribed has the essentially the same effect as requiring consolidation of the new company by the sponsor.

The Task Force concluded that the sponsor should treat the cash paid for the new company Class A stock as restricted cash and recognize research and development expense as they perform the research and development activities. The distribution of the new company Class A stock should be treated as a dividend to common stockholders of the sponsor based on the fair value of the stock at the time of distribution. Furthermore, the new company Class A common stock should be presented on the sponsor's balance sheet in a similar manner as minority interest.

Had EITF 99-16 been in effect at the time of the formation of TDC and Crescendo, ALZA would have debited restricted cash for $250 million and $300 million respectively. At the same time, the company would have debited dividends and credited an account similar to minority interests in the amount of each stock's fair market value ($44.9 million for TDC and $57.7 million for Crescendo).

EITF 99-16 requires that, as R&D activities are performed by the sponsor, R&D expense is recognized. Rather that recognizing revenue from the new company, however, the sponsor credits restricted cash. If this EITF had been in effect, therefore, ALZA would not have credited R&D revenue, and the overstatement of revenue would have been avoided. The Task Force noted that the accounting prescribed has the essentially the same effect as requiring consolidation of the new company by the sponsor.

During the last year of Crescendo's existence the FASB's Emerging Issues Task Force completed discussion on EITF 99-16. The conclusions of the EITF applied to research and development arrangements consummated after May 18, 2000, and to existing research and development arrangements in which a commitment to provide funding is made after May 18, 2000. It has effectively shut down the off-balance sheet strategy used by ALZA in this case.

8. Refer to Statement of Financial Accounting Standard No. 1419Business Combinations. How might the enactment of this standard have influenced the timing of Johnson & Johnson's acquisition of ALZA?

In 2001, about a year after Crescendo was dissolved, ALZA merged with the Johnson and Johnson family of companies in a tax-free reorganization treated as a pooling of interests for financial reporting purposes. A pooling of interests avoids revaluing the investee's assets to fair market value on the date of combination. In addition, goodwill is not recognized, and all revenues and expenses of the investee are combined with those of the investor regardless of the date on which the combination was effected.

FASB 141 did away with the pooling method of recording business combinations. Effective for all business combinations initiated after June 30, 2001, all business combinations must be recorded using the purchase method. Under the purchase method assets (including goodwill and other intangibles) and liabilities of the investee are reported at their fair market value on the date of purchase. In addition, the only income consolidated with the parent's is the income earned after consolidation.

Whether the enactment of SFAS No. 141 influenced the timing of Johnson and Johnson's acquisition is speculative, of course. The pooling method, however, was used, and the combination was effected shortly before SFAS No. 141 became effective.

References

REFERENCES

American Institute of Certified Public Accountants (AICP A) Committee on Accounting Practices (1959). Consolidated Financial Statements. Accounting Research Bulletin No. 51. New York, NY: AICPA.

Clayman, M. (1995). One-time charges: never having to say you're sorry. Financial Analysts Journal, 51(5), 57-60.

Financial Accounting Standards Board (1999). Accounting for Transactions with Elements of Research and Development Arrangements, EITF 99-16. Norwalk, CT: FASB.

Financial Accounting Standards Board (2001 ). Business Combinations. Statement of Financial Accounting Standards No. 141. Norwalk, CT: FASB.

Financial Accounting Standards Board (2003). Consolidation of Variable Interest Entities-an Interpretation of ARB No. 57. FASB Interpretation No. 46(R). Norwalk, CT: FASB.

Gamble, R. H. (1997, October). Shrewd (and ethical) tactics in off-balance-sheet financing. Controller Magazine, 3034.

Healy, P.M. and J.M. Whalen (1999). A review of earnings management literature and its implications for standard setting. Accounting Horizons 13(4), 365-383.

Kieso, J., D. Weygandt, and P. Kimmel (2004). Intermediate Accounting (11th edition). Hoboken, NJ: John Wiley & Sons, Inc.

Moukheiber, Z. (1999). Putting a spin on R&D. Forbes 163(3), 111.

Schipper, K. (1989). Commentary on earnings management. Accounting Horizons 3(4). 91-102.

Securities and Exchange Commission (SEC) (1994-2001). ALZA Pharmaceuticals Corporation. sec Forms 10-K.

SEC (1998-2001). Crescendo Pharmaceuticals Corporation. SEC Forms 10-K and 10-Q.

SEC (1994-1998). Therapeutic Discovery Corporation. SEC Forms 10-K.

Sellers, LJ. (2000, November). Alza delivers: Ernest Mario takes the company to a new level. Pharmaceutical Executive, 44-56.

AuthorAffiliation

Tim McCoy, Lamar University

Margaret Hoskins, Henderson State University

Subject: Case studies; Pharmaceutical industry; Accounting procedures; Research & development--R & D; Balance sheets

Location: United States--US

Company / organization: Name: ALZA Corp; NAICS: 325412, 424210, 541710

Classification: 5400: Research & development; 4120: Accounting policies & procedures; 8641: Pharmaceuticals industry; 9130: Experimental/theoretical; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 2

Pages: 39-49

Number of pages: 11

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables References

ProQuest document ID: 216275444

Document URL: http://search.proquest.com/docview/216275444?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 43 of 100

KOMBAR REX: ADVENTURE FILM PRODUCERS

Author: Bell, Janice; Williams, Melanie Stallings

ProQuest document link

Abstract:

In this case study, students must examine a film distribution agreement to determine its validity, scope and consequences. Adventure Film Producers entered a movie distribution agreement with a large movie theatre chain, Mammoth Theatres, Inc. One of Adventure's "hit" movies was bundled with four "filler" films, each requiring a certain number of screenings. Consideration for the contract was based partly on lump sum payments and partly on the number of screenings. In exchange, the distributor was given exclusive screening rights. After the distributor discovered that the films were being shown in Canada (where Mammoth had no theaters) they alleged that Adventure breached the agreement and demanded a return of all monies paid. Students must examine whether Adventure breached the exclusivity provision of the contract by allowing showings in Canada and must then perform the financial analyses to determine revenues. In order to analyze revenue, students must prepare a budget of expected minimum revenues, apply established revenue recognition criteria, and calculate the reportable revenue using GAAP principles. Students then prepare a schedule showing cashflow and distinguish that number from revenue. [PUBLICATION ABSTRACT]

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns the interpretation of contracts and the calculation of revenue. Secondary issues examined include distinguishing cashflow vs. GAAP (Generally Accepted Accounting Principles) income, understanding the timing of revenue recognition and understanding how to budget revenue. The case has a difficulty level of three (appropriate for junior level). The case is designed to be taught in 1-1.5 class hours and is expected to require 3-5 hours of outside preparation by students.

CASE SYNOPSIS

INSTRUCTORS' NOTES

SUGGESTED CASE QUESTIONS

Please note that answers to these suggested case questions contain material from secondary sources not provided in the case. Students should be instructed to perform secondary research on the topics raised in each case question.

1. Explain how terms like embezzlement, forgery, and the RICO act might apply to this case.

The purpose of this question is to determine whether students understand the basic precepts of embezzlement, fraud and conspiracy; the underlying legal issues surrounding this case. Since this question solicits definitions from secondary sources, apoor answer to this question would be either a partial answer to this question (does not address all of the crimes listed in the question and/or describe the application to the case) or does not provide proper footnoting which would designate the sources of information.

Afair answer to this question would provide solely the definitions. "Embezzlement is defined as the misappropriation of items with which a person has been entrusted. Embezzlement differs from larceny in that the perpetrator of embezzlement comes into possession of property legally, but fraudulently assumes rights to it. Charges of embezzlement can even be levied if the embezzler intended to return the property later."23

Forgery is "the act of criminally making or altering a written instrument for the purpose of fraud or deceit; for example, signing another person's name to a check. To write payee's endorsement or signature on a check without the payee's permission or authority. The 'payee' of a check is the true owner or person to whom the check was payable."24

The RICO act refers to the conspiracy to commit a crime. "The RICO Act was passed by the United States Congress to enable persons financially injured by a pattern of criminal activity to seek redress through the state or federal courts. The RICO Act applies to a wide variety of crimes. Originally, the breadth of the RICO Act was intended to give law enforcement, and private persons, broad power to fight organized crime, whether "organized crime" was traditional mobsters, members of a drug ring, or gangsters. The RICO Act has over time, however, resulted in unforeseen applications."25

A good answer to this question would along with the definitions include examples from the case. For example, embezzlement would refer to any items purchased by Alan Thompson using the corporate credit card (the purchase is legal) but then bought either for his own use (i.e. Christmas tree, gasoline) or in order to be resold (i.e. tools). An act of forgery would have occurred if the signatures on some of the credit card receipts were definitely not Alan's although they were signed in his name. RICO would apply if Alan had conspired with his wife Wilma to embezzle these goods as well as planned with his wife for her to forge his name on credit card purchases.

An excellent answer might go beyond merely defining embezzlement, forgery, and RICO by providing more details. For example, "One of the most common instances of embezzlement in today's society is employee theft. Employees of many companies have access to company properly, creating the potential for embezzlement. Examples include such small crimes as theft of retail items, discounted sale of retail items, and theft from cash registers, but can also include the theft of millions by employees of large firms.

There are a number of warning signs of employee embezzlement. Some general indicators may include:

* Missing documents

* Delayed bank deposits

* Holes in accounting records

* A large drop in profits

* A jump in business with one particular customer

* Customers complaining about double billing

* Repeated duplicate payments

* Numerous outstanding checks or bills

* Disparity between accounts payable and receivable

* Disappearance of petty cash."26

In terms of forgery, "there are many kinds of forgery, especially subjected to punishment by statutes enacted by the national and state legislatures. ... The making of a whole written instrument in the name of another with a fraudulent intent is undoubtedly a sufficient making but a fraudulent insertion, alteration or erasure, even of a letter, in any material part of the instrument, whereby a new operation is given to it, will amount to a forgery; and this, although it be afterwards executed by a person ignorant of the deceit.

The fraudulent application of a true signature to a false instrument for which it was not intended or vice versa, will also be a forgery. For example, it is forgery in an individual who is requested to draw a will for a sick person in a particular way, instead of doing so, to insert legacies of his own head and then procuring the signature of such sick person to be affixed to the paper without revealing to him the legacies thus fraudulently inserted.

It has even been intimated that a party who makes a copy of a receipt and adds to such copy material words not in the original and then offers it in evidence on the ground that the original has been lost, may be prosecuted for forgery."27

Additional information on RICO may include the fact that "corporations have been sued under the RICO Act for allegedly distributing false advertisements; lawyers, bankers, accountants, and other professionals, have been sued under the RICO Act for allegedly assisting clients in organizing, or assisting in the organization of, schemes to defraud; spouses have been sued for allegedly concealing the value of marital assets in divorce proceedings; and, civil protest groups have been sued for intimidating and extorting the customers of the industries that the protest aimed to disrupt. Although Congress may not have intended these more unusual applications of the RICO Act, they can be legitimate uses of the RICO Act. If you have been injured by a violation of the RICO Act, you may sue the person who allegedly violated the Act and, if successful, recover a monetary award equivalent to three times the value of the properly you lost or that was stolen from you, plus the legal costs and fees you incurred to bring the lawsuit."28

An excellent answer may also describe additional laws that may have been violated by Alan Thompson. For example, if Alan found out about his wife's forgery and did nothing he would be an accessory to a crime after the fact. An accessory is one "who is not the chief actor in the perpetration of the offence, nor present at its performance, but is some way concerned therein, either before or after the fact committed. ... An accessory after the fact, is one who knowing a felony to have been committed, receives, relieves, comforts, or assists the felon."29 "Accessories after the fact are in general punishable with imprisonment (with or without hard labor) for a period not exceeding two years, but in the case of murder punishable by penal servitude for life, or not less than three years, or by imprisonment (with or without hard labor) to the extent of two years."30 Three points need to be met under this law:

a. Must have knowledge that a felony has been committed.

b. Must aid or assist the felon in some way.

c. The purpose of the aid must be to help the felon escape from the authorities.31

2. What are the rights, responsibilities, and obligations for each of the parties involved in this case?

Corporations and individuals alike are empowered by our constitution and our federal laws to own property and to maximize their own wealth (or the wealth of their stockholders). With those rights are attached responsibilities and obligations; both individuals and corporations must be held accountable for their actions.32 The purpose of this question is twofold: a) for students to be able to discern all of the stakeholders involved in the case; b) for students to determine what are the rights, responsibilities, and obligations of each of the stakeholders and how each of these rights, responsibilities, and obligations of each stakeholder impact one another.

A poor answer to this question would either leave out at last one of the two key stakeholder groups in this case (either the members of DHR Patio Homes or Alan and Wilma Thompson) and/or would omit at least one of the three factors (rights, responsibilities, and obligations) in the discussion of each party.

A fair answer will take a legalistic approach to this question, be overly general, and only focus on the two major parties in question. This answer might first start with a definition of the major three factors described in the question (rights, responsibilities, and obligations). A person's basic rights are those rights shared by all people and are spelled out in 'the law of the land' ; for the United States those rights would be described in the Bill of Rights and the United States Constitution. The 10th amendment to the constitution indicated that rights not delegated to the federal government would then be delegated to the state or the people (local government).33 A corporation's rights were not directly defined in the U.S. Constitution until after the Civil War. "Corporations were chartered for a specific limited purpose (for example, building a toll road or canal) and for a specific, limited period of time (usually 20 or 30 years). ... Congress had written the 14th Amendment to protect the rights of freed slaves, but in an 1886 decision (Santa Clara County v. Southern Pacific Railroad) this was expanded when the courts declared that no state shall deprive a corporation '. . . of life, liberty or property without due process of law'."34 The corporation, therefore, was awarded the same rights as any U.S. citizen. Since rights are defined by the law, responsibilities and obligations are based upon the law. "Civil law focuses on legal relationships between people and the protection of a person's rights. Criminal law focuses on wrongs against a person, property, or society."35

Based upon these definitions, the following answer may be presented in Table Form:

View Image - Table 1: A Fair Answer: Legal Rights, Responsibilities, and Obligations

A good answer will have the student first realize that the situation has several complications, although the student may still employ a legalistic approach. First, Alan and Wilma Thompson may be accused of committing different crimes (Alan embezzlement, Wilma forgery) by DHR Patio Homes and there is still a question as to whether collusion is involved or if Alan may be an accessory to a crime after the fact. A good answer by a student may go beyond the legalistic framework with the student noting that Alan and Wilma have the right and obligation to protect themselves, their family (if they have one), and their business and should seek out legal counsel even before any charges are brought against them.

Secondly, DHR Patio Homes may claim a breach of contract with Alan and Wilma's A&W Construction LLC and not only terminate their services but also sue for damages relative to the embezzled amounts. A good answer by a student may indicate that DHR Patio Homes has the right and obligation to protect the interests of its stockholders (Richard, Adrienne, and Stephen) by pursuing the recovery of the stolen funds. DHR Patio Homes should also consult legal counsel and determine whether or not it is in the corporation's best interest to press legal charges along with seeking compensation for their lost funds.

Third, a good answer will denote that the accountant in this case has rights, responsibilities, and obligations relative to his client (DHR Patio Homes) and include student research on the AICPA code of conduct for accountants. The accountant certainly had the right to request and receive 'the books' from DHR's bookkeeper and to then familiarize himself with those books. Once the accountant suspected that non-business related charges were billed as expenses to Davis and Hodgetts' corporations, he had a responsibility and an obligation to his clients to:

* act professionally. "The quest for excellence is the essence of due care. Due care requires a member to discharge professional responsibilities with competence and diligence. It imposes the obligation to perform professional services to the best of a member's ability with concern for the best interest of those for whom the services are performed and consistent with the profession's responsibility to the public."36

* inform the client but to keep the information confidential. "Rule 301-Confidential client information. A member in public practice shall not disclose any confidential client information without the specific consent of the client."37

* act with integrity. "Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. "3S

The accountant, however, also has a responsibility to his profession and the public at large. For example, if the accountant does find erroneous reporting and/or illegal acts by his clients he is expected to act in the interest of the public, an act that may be in conflict with his clients' interests. "In discharging their professional responsibilities, members may encounter conflicting pressures from among each of those groups. In resolving those conflicts, members should act with integrity, guided by the precept that when members fulfill their responsibility to the public, clients' and employers' interests are best served."39 "Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle."40 In this case, the accountant is obligated to continue his audit of the firm's expenses in order to determine whether the expenses were incorrectly charged to the firm or if there was possible embezzlement.

A very good answer by a student will include the aforementioned analysis but go beyond a legalistic framework when dealing with parties' rights, responsibilities, and obligations. The student providing this answer will note that there may be ethical and moral rights and obligations of each of the parties in this case.41 Generally speaking, when someone says of an act that it is a 'moral obligation, ' they refer to a belief that the act is one prescribed by their set of values."42 The real question underlying this answer will be what values are driving these obligations and actions.

For example, this student might observe that Alan Thompson may have a moral and ethical responsibility to his employer that goes beyond mere contract obligations, especially since he was treated as one of the family. It was Davis and Hodgetts who gave Alan Thompson his start so to speak in the business and students might believe that there is a personal obligation attached to the relationship. This same student might also note that the reverse is true, without Alan Thompson, Davis and Hodgetts would probably not have developed their second and third businesses. This student would be trying to determine how loyalty as a value impacts this case.

Yet what of Alan's loyalty to his wife in this case? Assuming that Alan did not know of the forgeries, what is his ethical obligation to his wife? In the basic marriage vows, obligations are set forth for husband and wife. "I take you for my lawful husband (or wife) to have and to hold from this day forward, for better, for worse, for richer, for poorer, in sickness and in health, until death do us part."43 For example, the Ohio Legislators defined marriage as having "mutual obligations. Husband and wife contract towards each other obligations of mutual respect, fidelity, and support."44

The question that this student then might raise is, how far does this ethical 'support' for husband and wife go? From a legal standpoint, certainly Alan and Wilma have spousal privilege and privileged communications. These rights granted to married couples include the right of a person to refuse to testify against their spouse in the court of law and the right that any communication between spouses not be entered into evidence against them.45 The ethical question then is, should Alan either try to cover up his wife's illegal actions, or worse, take the blame for the all of the criminal actions? What are his values relative to his wife and relative to upholding the law?

An excellent answer to this question by a student will first expand the impacted parties in the case into a broader, stakeholder framework. Besides the parties immediately impacted by this case and the accountant who dug up the potentially incriminating evidence, there are other stakeholders also impacted by this case including, but not limited to: Alan and Wilma's immediate family (his brother working with him on the job as well as any children they may have), DHR's other subcontractors (who will they now report to, what message does this send them), Davis' and Hodgetts' family (given their socializing with the Thompsons'), suppliers who were doing business with Alan (less sales, perhaps some even assisting Alan in the alleged embezzlement), the local community where the alleged crimes were committed, and the local legal system (where both civil and criminal charges may be brought).

Secondly, in an excellent answer the student will acknowledge that many of the parties in this case may have to deal with conflicting values. Going back to the earlier example, Alan may be dealing with conflicting values of loyalty (his wife, his business associates and friends, and the legal system) brought on by differing responsibilities and obligations. This conflict of values and obligations may create cognitive dissonance. "In brief, the theory of cognitive dissonance holds that contradicting cognitions serve as a driving force that compel the human mind to acquire or invent new thoughts or beliefs, or to modify existing beliefs, so as to minimize the amount of dissonance (conflict) between cognitions."46 In the above situation, for example, Alan may decide that 'blood is thicker than water' therein reducing the importance of loyalty to friends and business associates as compared to family.

For the Davis' and Hodgetts, the student might note multiple conflicts. They certainly want to recover their embezzled funds but are they willing to prosecute Alan and Wilma in order to obtain those funds? secondly, they may also want to claim that Alan and Wilma's actions are a breach of contract but how can they recover their funds from them if Alan longer has a paying job? Third, how would keeping Alan on the job so he can pay off the embezzled funds and pay rent on his house affect the other subcontractors as well as the quality of Alan's work? Furthermore, Alan and Wilma are currently renting a home that they were supposed to buy from the firm - how would this whole incident affect the sale? If Alan is released from his contract how can he pay for the house, or even the rent? What retaliatory actions might Wilma and Alan taken in terms of the house (damage) once Alan is accussed of embezzlement?

In summary, an excellent answer by a student will signify the complexities associated with identifying who is directly and indirectly affected by this case and the difficulties in determine which responsibilities and obligations (given the conflicted nature of the underlying values) will drive the parties in question.

3. Develop an action plan for Davis and Hodgetts that will resolve this situation.

This question directly addresses the issue of what Davis and Hodgetts should do in terms of dealing with the discovered embezzlement and forgery. Clearly there are numerous options available to Davis and Hodgetts (including doing nothing) and students answering this question will have to determine what are Davis and Hodgetts' goals and the priority of those goals relative to developing a solution strategy.

A fundamental attribute of any answer to this question is that, regardless of the solution strategy posed, that there be a general description of the problem being addressed by Davis and Hodgetts. Apoor answer by a student will then be quite terse (will not be a plan as such) and deal directly with the problem without either describing the problem or dealing with the nuances and associated impacts of the proposed decision. For example, the student in this answer may suggest firing Alan Thompson and then not deal with the associated outcomes: i.e. who is going to replace him on the job, how are the embezzled funds to be recovered, how can DHR protect their rented home from damage, etc.... Regardless of the decision made by the student, there will be no stated goal for the decisionmakers. The focus will be upon the immediacy of the problem and a quick and clear solution that promptly deals with the problem.

A student with a, fair answer will first describe the problem simplistically. At this level of analysis the student may focus either on the legal ramifications of the act (should Alan and his wife be prosecuted for committing these offenses?) or the business ramifications (how do we recover the lost funds? should we fire Alan and who should replace him?), but not both. This student would also note that any decision that is discussed should first be run past legal counsel. Legal counsel will then determine if there are any potential gains and liabilities that the corporation and/or its individual owners might accrue before actually enacting the solution strategy.

For example, if Davis and Hodgetts decided to break their contract with Alan Thompson's corporation (under contract law - an illegal activity by one party of a contact makes the contract null and void),47 what compensatory and punitive damages (punitive damages must involve malicious conduct - an intentional tort)48 would they be entitled to? Would Thompson have a good case to counterclaim? Furthermore, the student in this answer might suggest that the lawyer recommend some sort of compromise; i.e. Alan Thompson agrees to pay back the embezzled funds over a 24 month period at $ 1000/month and agrees to terminate his contract with DHR Patio Homes.49

There are numerous possible problem definitions and solution strategies. Some more likely problem definitions and answers are listed in Table 2 below.

View Image - Table 2: Likely case Problem Definitions and Associated Solution Strategies*

A good answer will certainly include the first two elements of the answers described above (a specific recommendation which should first be run past the company's lawyer) and will deal with both the legal and business ramifications of the case. Furthermore, the student developing a good answer will ask a more fundamental question, that is, what is it that the owners want to accomplish given the circumstances? Until the owners of the company have a goal in mind as to how they want to resolve this problem, it will be difficult for legal counsel to recommend action beyond the most cursory cost/benefit analysis. For example, if Davis and Hodgetts just want to get rid of Alan as quickly as possible, the lawyer might suggest actions that will support a breach of contract and an injunction50 but will not support recovery of the embezzled funds, protection of the rented properly from damage, defending society from this "law breaker", nor collecting damages caused by a potential work slowdown (replacement costs).

A very good answer by a student will also indicate that the owners might have multiple objectives in mind and that these objectives might operate synergistically (they support one another) or are at cross purposes (operate against one another). In the above plan, where Davis and Hodgetts want to break their contract with Alan Thompson, complimentary objectives might be to seek both civil and legal remedies to their problem with the goal of legally breaking the contract while having Alan convicted of embezzlement.51 Crossed purpose goals, on the other hand, would be a desire for the repayment of the embezzled funds through legal action while seeking to break the work contract (assuming that Alan has no real assets to attach and no immediate employment elsewhere). The courts may in fact order Alan to repay the funds but he would have no clear way in which to pay them back.

An excellent answer would have the student require that Davis and Hodgetts first prioritize their goals (i.e. recover of funds, protecting their business assets, getting rid of Alan, protecting society, revenge, etc...) and then develop several scenarios for achieving those objectives. Going back to our earlier example, if Davis and Hodgetts' primary goal is to retrieve the stolen funds then they will have to develop several plans that aim at obtaining that goal while perhaps meeting secondary objectives. For example, if Davis and Hodgetts wanted to recuperate the allegedly stolen funds while extracting some form of revenge they could:

a. threaten to go to the police if Alan does not pay them back (develop a payment schedule that would not exceed the statute of limitations)52

b. go to the police and file a report alleging embezzlement and/or forgery and threaten to push ahead with their claim if Alan does pay them back

c. not only extract the embezzled funds from Alan but threaten to go to the police if Alan doesn't provide them with a very low bid on future services rendered. (Please note that we are in no way advocating these actions, especially since they involve blackmail.)53

Note: The instructor may also want students to use a particular format or rubric for developing these action plans and should feel free to do so. These approaches could include a SWOT, cost/benefit, or a stakeholder approach. See below two examples of stakeholder analysis.

View Image - Table 3: Evaluating a Stakeholder Based Upon Influence and Importance54 Table 4: The Stakeholder Analysis Matrix55

4. Assume that the above plan includes confronting Alan Thompson with these accusations, what would be the most effective way for Davis and Hodgetts to do this?

This question forces students to deal with one of the most difficult solutions to this problem, and the one most usually recommended for dealing with conflict resolution, confrontation.56 The student is asked to deal with the delicacies of the situation (accusing someone of embezzlement and his wife of forgery is a very serious charge) and specifically must address how Davis and Hodgetts can best protect their legal rights and business interests, as well as perhaps their personal safety. The students must also be very cognizant of Alan Thompson's rights as well and his potential reaction to the accusations.

All students in their answers should indicate that "unless there is some urgency arising from the circumstances surrounding the employee theft, it is generally better to map out a plan and discuss the matter with an attorney before confronting the employee. Once confronted, employees are likely to cover their tracks, hide assets or flee with assets. Nonetheless, an employee should be confronted as soon as possible after the thefts are discovered."57

A poor answer to this question would suggest either avoiding the confrontation, if at all possible, or suggest having a third party (i.e. the accountant, the firm's attorney) meet with Alan to discuss the issue. Although third party consultation is recommended for resolving strong conflicts, it is not recommended that the accusing party be absent from the meeting.58 From a legal standpoint, Alan (as the accused) has the right to confront his accuser(s) as well the witnesses that may testify against him.59

A fair answer by a student would discuss the procedures that Davis and Hodgetts should follow during the confrontation, they include:

a) communicating care - confrontations that occur out of revenge, spite and anger are typically not effective.

b) identifying the specific actions that they are questioning - rather than making an accusation, discuss the specific findings of the accountant.

c) sharing true feelings - by sharing their feelings with Alan about the situation, Alan will have a greater appreciation of Davis and Hodgetts' position.

d) communicating future expectations - based upon the conversation, Davis and Hodgetts need to clearly lay out what steps they will take and what steps Alan needs to take in order to resolve this situation.

e) maintaining control of the conversation and be prepared to be accused as well Alan may want to put Davis and Hodgetts on the defensive by accusing them of erroneous and/or illegal behavior. Davis and Hodgetts need to allow Alan to air his grievances but bring the conversation back the to problem of the inappropriate expenses and the forged signature.60

A good answer would include the above guidelines but also include details dealing with the structure of the confrontation; specifically, having a neutral site for the meeting, the formality of the setting, and the timeboundedness of the meeting.61 Given the seriousness of the meeting, a good student's answer would recommend that the meeting take place in a formal meeting area that is not affiliated with either DHR or any of their hired professionals (lawyer, accountant, banker, broker, etc...), perhaps a small meeting room at a hotel or restaurant, and that only beverages be available (a meal would indicate less formality). Secondly, the meeting should take place at a time convenient to both parties and allot enough time (say at least one hour) to go over the accusation as well as a discussion of solution strategies. One or both parties might feel threatened as the meeting progresses and certainly should be allowed to request a second meeting where third parties may be present to represent the interest of both parties in question.

A very good answer will go beyond the above answers by having Davis and Hodgetts prepare for the worst case scenario, a threat of violence. Once violence is threatened, Davis and Hodgetts should:

* "Remain calm and try to be professional. Do not reflect the confrontational person's behavior.

* Empathize with the individual and actively listen to that person's concerns and issues.

* Allow the person to vent. Sometimes a person will verbally act out if an audience is present. Removing the person to a more private area (if it's safe to do so) to discuss the problem is ideal.

* Use the team approach. If a disruptive person is more responsive to another employee, let that staff member handle the transaction.

* Comply with the request if the disruptive person wants to speak with a [third party] supervisor. Never deny an individual the opportunity to take a matter to a higher authority.

* Tell the individual that his/her behavior is unacceptable if the individual starts to become confrontational. Let the person know that you will discontinue service if he or she continues to act that way.

* Call a supervisor, other staff members or security personnel to assist you if the situation escalates and you feel threatened.

* Always be aware of your surroundings especially if you know you are dealing with a person with behavioral problems. Make sure to leave yourself an avenue of escape.

* Call 911 immediately if you observe a coworker or individual being subjected to disruptive behavior where the activity becomes life threatening."62

An excellent answer will include the above material but most importantly recognize that no matter how much Davis and Hodgetts put into their preparation and planning for this meeting that the unexpected may happen. Nonetheless, a student presenting an excellent answer will also make sure to at least have Davis and Hodgetts develop some possible responses Alan may have to their accusations and what their reaction might be to that response. See Table 5 below for examples.

View Image - Table 5: Alan's Possible Responses and Davis and Hodgetts' Possible Reactions*

5. Assume that you were Alan Thompson and accused of these crimes. How would you react if you were innocent of the charges? How would you react if you were innocent of these charges but your wife was guilty of forging your signature? How would you react if both you and your wife were guilty?

Questions three and four looked at this case from the viewpoint of Davis and Hodgetts. The purpose of this question is to have the students put themselves in Alan Thompson's place (a place we hope they never have to be in but certainly may find themselves in), that of the suspected perpetrator of a crime that may not only lead to a loss of income but also a loss of freedom. They also must address the issue of what are the rights of the accused in this case, regardless of innocence or guilt.

A poor answer by a student will overlook the issue of the rights of the accused and directly answer the question based upon his or her own personal values or the student's perception of Alan's values. For example, the student might indicate that an innocent person has nothing to hide and therefore if Alan were innocent he should fully cooperate with Davis and Hodgetts while denying the charges. If Alan was innocent, but his wife was not, the student might have Alan either deny her guilt or admit her guilt and then determine whether or not Alan was willing to cooperate with Davis and Hodgetts in order to protect his wife. If both parties were guilty, the student might have Alan deny his and his wife's guilt, have Alan "scapegoat" his wife, or admit that they were both guilty and willing to work things out with Davis and Hodgetts.

A fair answer by a student will first recognize the seriousness of the situation, regardless of Alan and his wife's guilt or innocence. "They say that a man who represents himself [in court] has a fool for a client. And with God as my witness, I am that fool!"63 In other words, individuals proceeding without any attorney when accused of a crime take a high stakes gamble with their freedom, their money, or both.64 The student in this answer would therefore strongly suggest that Alan and his wife consult with an attorney so that Alan and his wife will both understand what their guilt and/or innocence would mean in this situation and to develop a legal strategy for dealing with this accusation. This student would then cover the possible options described in the poor answer for each set of circumstances (guilty or not guilty) except that these options would be discussed with their attorney.

A good answer would start off by acknowledging Alan's rights as someone who is accused of a crime and then certainly suggest that Alan seek legal counsel regardless of his guilt or innocence. The rights of the accused include, but are not limited to: the presumption of innocence, the right to counsel, the right against self-incrimination, the right to information (i.e. charges, witnesses), the right to a speedy and public trial, the right to put on a defense, and the right to appeal.65 These rights are derived from the Bill of Rights and are as follows:

Fourth Amendment. The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Fifth Amendment. No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury . .. nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall he be compelled in any criminal case to be a witness against himself, nor deprived of life, liberty, or properly, without due process of law. . ..

Sixth Amendment. In all criminal prosecutions, the accused shall enj oy the right to a speedy and public trial by an impartial jury... and to be informed of the nature and cause of the accusation; to be confronted with the witness against him; to have compulsory process for obtaining Witnesses in his favor, and to have the Assistance of Counsel for his defense.

Fourteenth Amendment. Nor shall any State deprive any person of life, liberty, or properly, without due process of law.66

This answer would include the material in the poor and fair answers but also would likely suggest that the attorney, not Alan, be the one to contact Davis and Hodgetts re: the accusation. The attorney might request, for example, to meet with the accountant to make sure that the inappropriate and duplicate expenses were accurate and that the forgery was just not a 'lazy' signature. From a procedural standpoint in dealing with Davis and Hodgetts, the lawyer's actions (regardless of Alan's guilt or innocence) may be quite similar; try to discredit the evidence and the expert while developing plausible alternative explanations for the alleged inappropriate, duplicate expenses, and the forgery. If Alan's lawyer believes that Davis and Hodgetts have solid evidence, the lawyer might then try to broker a deal with Davis and Hodgetts that keeps this whole affair away from the courts (regardless of Alan's admittance of innocence or guilt). The lawyer may also suggest a deal to Alan and Wilma, (regardless of their innocence or guilt) if the lawyer believes that the reached agreement would cost less than his or her attorney fees and possible court charges.

A very good answer would include all of the prior material but also point out that Alan and Wilma in all probability do not have a personal attorney nor be able to afford one. The likelihood that Alan would consult an attorney therefore would be quite low and the student providing this very good answer might suggest that perhaps at best Alan might retain the services of a public defender. More importantly, the student would point out in this answer that in all probability Davis and Hodgetts do have a lawyer and certainly are in a better position to afford an attorney than Alan and Wilma. This would put Alan in a very poor power position in his dealings with Davis and Hodgetts67 (regardless of his guilt or innocence) and certainly allow Davis and Hodgetts to use conflict resolution tactics of forcing and coercion.68 This student might conclude that even if Alan were blameless, it would make no sense for him to insist on his innocence since Davis and Hodgetts were in a position to presume his guilt and require proof to the contrary. Immediately settling the matter with Davis and Hodgetts in this situation would presumably be the best approach (regardless of actual guilt or virtuousness) since Alan seemed to have little ammunition to prove his innocence.

An excellent answer would include the above information but also to discuss attorney-client interaction in more detail. "The relationship of client and attorney is one of trust, binding an attorney to the utmost good faith in dealing with his client. In the discharge of that trust, an attorney must act with complete fairness, honor, honesty, loyalty, and fidelity in all his dealings with his client. An attorney is held to strict accountability for the performance and observance of those professional duties and for a breach or violation thereof, the client may hold the attorney liable or accountable. Beal v. Mars Larsen Ranch Corp., Inc., 99 Idaho 662, 667-668, 586 P.2d 1378, 1383-1384 (1978) (citation omitted)."69

Given this relationship, this student might question how an attorney could represent Alan and Wilma if they were actually guilty. "The easy answer to this is that the defense attorney should never ask the client that question or allow the client to confess to him/her. It is not for the defense attorney to determine whether a crime was committed. To do so is a substitution of the values of the defense attorney in the place of the jury's determination of a legal conclusion and undermines the search for justice within the system. The more difficult answer is that the defense attorney should not concern him/herself with overtaking the job of the jury and passing judgment on the client. That not only is contrary to the role of the defense attorney, but interferes with the role that is expected of him/her. The most zealous advocacy of a client's position cannot be attained when the defense attorney is morally troubled in an attempt to judge a client. In this situation, justice is served by ignorance."70 More specifically, Alan's attorney, when interacting with Davis and Hodgetts (or their representatives), should always assume the position that his client is innocent until proven in court otherwise.

The student might also ask what the attorney should do if one of the two parties (Alan and Wilma) is innocent, the other guilty, or, more importantly, the interests of Alan and Wilma seem at odds with one another. For example, "as guaranteed by section 15 of article I of the California Constitution, the right to effective assistance of counsel "... means more than mere competence. Lawyering may be deficient when conflict of interest deprives the client of undivided loyalty and effort." (Maxwell v. Superior Court (1982) 30 Cal.3d 606, 612 [180 Cal.Rptr. 177, 639 P.2d 248, 18 A.L.R.4th 333]. ... Conflicts of interest broadly embrace all situations in which an attorney's loyalty to, or efforts on behalf of, a client are threatened by his responsibilities to another client or a third person or by his own interests.)"71

In this situation, if the attorney felt that Alan would be better off by 'bargaining off his wife' so to speak in order to achieve the best deal possible with Davis and Hodgetts, the lawyer should immediately inform the couple that he can not represent both of them in this matter. This student would probably conclude that regardless of the situation, it would be better if Alan and Wilma had separate attorneys.

EPILOGUE

After a discussion with their lawyer, Hodgetts and the Davis' agreed to confront Alan with their accountant's findings. It turned into a very uncomfortable meeting. Evidence was presented as to the inappropriate credit card charges, the multiple purchases of gas and tools, and the felonious signature on certain credit card charges. Further evidence was presented to Alan that matched his wife's signature to some of the credit card charges. Alan neither agreed to nor denied the charges. That being the case, Richard took the keys to the company truck and tool shed and then described to Alan what their continued working relationship would be. Rather than being fired, Alan would be working for his brother (who would form his own company) and his brother's monthly check would be docked approximately $4000/month to recover all the losses. Furthermore, Alan would now have to find a way to get a mortgage for his house or vacate the premises within 30 days. Alan still made no comments and left the meeting.

The next day Adrienne filed apoIice report detailing both Alan's and Wilma's actions while Alan and Wilma packed in order to vacate the rented house. When Adrienne went to submit the police report she found out there was already a warrant for Wilma's arrest for passing checks with insufficient funds. It was issued two years ago, and they couldn't find her. However, they weren't actively looking. Adrienne supplied the police with Wilma's current address yet no actions were taken and Adrienne did not press charges.

Alan, Wilma, and their family vacated the home they were renting within the 30 day time period. A foreman was hired to supervise all of the subcontractors' work (including Alan and his brother) and discharged Alan and his brother for poor workmanship about a month after. Approximately $ 9,000 was recovered from Alan although the cost of redoing his and his brother's poor workmanship exceeded the compensated funds.

Footnote

ENDNOTES

1 Anonymous. (1995). "Steal this stapler?" The Journal of Business Strategy.(Nov/Dec) 16(6), 6.

2 Formby, William A. & Vergil L. Williams (1982). "Enhancing profits through reduction of internal theft" American Journal of Small Business (Summer), .7( 1), 43.

3 Kurlantzick, Joshua. (2003). "Liar, Liar" Entrepreneur (October), 68, 69.

4 Ibid, p. 71.

5 Doud, Jr., Ernest A., (2003). "Strong family relationships can be a help to firms." San Fernando Valley Business Journal (October)http://findarticles.com/p/articles/mi_hb274/is_200310/ai_hibmlGl 110312806, June 16, 2005.

6 Hernandez, Ruben. (2004) "Embezzler forces successful Valley hat manufacturer out of business." The Business Journal (March 19) 24(26), 3.

7 Dennis, Anita. (2000). "The downside of good times" Journal of Accountancy (Nov.) 190(. 5), 53.

8 See J. Stacey Adams (1965) "Inequity in Social Exchange" in L. Berkowitz (Ed.) Advances in Experimental Psychology New York: Academic Press for further discussion.

9 ibid.

10 Cheeseman, H. R. (2004). Business Law. 5th Edition. Upper Saddle River, N.J.: Prentice-Hall, 128, 122 and 129; http://www.federalcrimes.com/flashSite/index.cfm?page=typescases#anchorl, September 23, 2003.

11 Lawrence, Anne T., James Weber & James Post (2005). Business and Society: Stakeholders, Ethics, Public Policy. 111h Edition. New York: McGraw-Hill Higher Education, Chapter 18; George A. Steiner and John F. Steiner (2006). Business, Government and Society: A Managerial Perspective. 11th Edition. New York: McGraw-Hill Higher Education, Chapter 17.

12 Megginson, Leon C., Mary J. Byrd & William L. Megginson (2006). Small Business Management: An Etrepreneur's Guidebook. 5th Edition. New York: McGraw-Hill Higher Education, Chapters 10, 16, 17; Norman M. Scarborough and Thomas W. Zimmer (2006). Effective Small Business Management. 8th Edition. Upper Saddle River, N.J.: Pearson Prentice-Hall, Chapters 19, 21, 22.

13 Reed, O. Lee, et. al., (2005). Legal and Regulatory Environment of Business. 13th Edition. New York: McGraw-Hill Higher Education; Chapters 2, 8-11 ; Nancy K. Kubasek, Hartley A. Brennan, and Neil Browne (2006). Legal Environment of Business: A Critical Thinking Approach. 4th Edition. Upper Saddle River, N.J.: Pearson Prentice-Hall; Chapters 5, 7, 8, and 10.

14 Cheeseman, 2004; Chapters 3, 6, 7, 10, & 11; A. James Barnes, Terry M. Dworkin, and Eric L. Richards (2006). Law for Business. 9* Edition. New York: McGraw-Hill Higher Education; Chapters 3 - 5,11, & 17.

15 Cheesemen, 2004.

16 Anonymous (1993). "Guidance note: Employees' criminal acts" Industrial Relations Review and Report (June) Issue 537, SSS2-11.

17 Pearce, J. A. II & R. B. Robinson, Jr. (2005). Strategic Management Formulation, Implementation, and Control. 9th Edition. New York: McGraw-Hill Irwin.

18 Nicastro, M. L. & D. C. Jones (1994). Cooperative Learning Guide for Marketing Teaching Tips for Marketing Instructors. Englewood Cliffs, N.J.: Prentice-Hall, Inc..

19 Naumes, W. & M. J. Naumes (1999). The Art & Craft of Case Writing. Thousand Oaks, Ca.: Sage Publications, p.86.

20 Lynn, L. E. Jr. (1999). Teaching & Learning with Cases: A Guidebook. New York: Seven Bridges Press.

21 Lundberg, C. C., P. Rainsford, J. P. Shay & C.A. Young (2001). "Case writing reconsidered" Journal of Management Education (August) 25( 4), 450-463.

22 David, F. R. (2003). "Strategic management case writing: Suggestions after 20 years of experience" S.A.M. Advanced Management Journal (Summer) 68, 3, 36-38.

23 http://www.whitecollarcrimefyi.com/embezzlement.html, September 29, 2003.

24 http://www.lectlaw.com/def/f056.htm, June 17, 2005.

25 http://www.ricoact.com/ricofaq.htm, September 29, 2003.

26 http://www.whitecollarcrimefyi.com/embezzlement.html, September 29, 2003.

27 http://www.lectlaw.com/def/f056.htm, June 17, 2005.

28 http://www.ricoact.com/ricofaq.htm, September 29, 2003.

29 http://www.lectlaw.com/def/al42.htm, September 29, 2003.

30 http://www.1911ency.org/A/AC/ACCESSORY.htm, September 29, 2003.

31 http://www.lawnerds.com/testyourself/criminal_rules.html#Accessory, September 29, 2003.

32 Marx, Thomas G. (1985). Business & Society: Economic, Moral, and Political Foundations. Englewood Cliffs, N.J.: Prentice-Hall, Inc.

33 http://www.usconstitution.com/, June 20, 2005.

34 http://dieoff.org/page3.htm, June 20, 2005.

35 http://www.hopperinstitute.com/emt_legal.html, June 20, 2005.

36 http://www.aicpa.org/about/code/et_56.html, June 20, 2005.

37 http://www.aicpa.org/about/code/et_300.html#et_301_interpretations, June 20, 2005.

38 http://www.aicpa.org/about/code/et_54.html, June 20, 2005.

39 http://www.aicpa.org/about/code/et_section_53_article_ii_the_public_interest.html, June 20, 2005.

40 http://www.aicpa.org/about/code/et_54.html, June 20, 2005.

41 We are not employing the legal definition of moral rights - for a further discussion on artists' property rights gotohttp://www.nolo.com/defmition.cfnVterm/D4718204-99(M-42DF-8A5C84A64827173D/alpha/M, June 20, 2005.

42 http://en.wikipedia.org/wiki/Moral_obligation, June 20, 2005.

43 http://www.marysadvocates.org/bindingcontract.html, June 20, 2005.

44 Ibid.

45 http://www.lectlaw.com/def2/p084.htm, June 20, 2005.

46 http://en.wikipedia.org/wiki/Cognitive_dissonance, June 21, 2005.

47 known as "subsequent illegality" - see Richard A. Mann and Barry S. Roberts (2006). Smith & Roberson 's Business Law. 13th Edition. Mason, Ohio: Thompson/South-Western.

48 punitive damages punish the wrongdoer - see Ibid.

49 known as mutual rescission - see Ibid.

50 "A court order that orders a party to do or refrain from doing a certain act (or acts) as opposed to a money judgment." http://www.lectlaw.com/def/i046.htm, June 21, 2005

51 Under New York State Law, these embezzlement of over $ 1000 would be Grand Larceny in the 4th Degree, a class E felon. NY CLS Penal § 155.30 (2005) For a class E felony, the term shall be fixed by the court, and shall not exceed four years. NY CLS Penal § 70.00 (2005)

52 "A law which sets the maximum period which one can wait before filing a lawsuit, depending on the type of case or claim. The periods vary by state. ... There are [also] statutes of limitations on bringing criminal charges, but homicide generally has no time limitation on prosecution. The limitations (depending on the state) generally range from 1 to 6 years except for in Rhode Island, which uses 10 years for several causes of action." http://dictionary.law.com/definition2.asp?selected=2012&bold=||||, June 21, 2005.

53 "To extort money, etc illegally from someone by threatening to reveal harmful information about them. To try to influence someone by using unfair pressure or threats." http://www.allwords. com/query. php?SearchType = 3& Keyword=blackmail&goquery=Find+it!&Language=ENG, June 21, 2005.

54 modified from http://www.worldbank.org/participation/tn5.htm, June 21, 2005.

55 http://erc.msh.org/quality/ittools/itstkan.cfm, June 21, 2005.

56 French, Wendell L. & Cecil H. Bell, Jr. (1999). Organizational Development: Behavioral Science Interventions for Organization Improvement. 61h Edition. Upper Saddle River, N.J.: Prentice-Hall.

57 http://www.dgslaw.com/articles/392736.pdf, June 22, 2005.

58 Walton, Richard E. (1969). Interpersonal Peacemaking: Confrontations and Third Party Consultation. Reading, Mass.: Addison-Wesley Publishing Company.

59 http://www.aceproject.org/main/english/ei/eih03a.htm, June 22, 2005.

60 http://www.mgnitlibrary.com/Archive/Discipline/How_to_Confront_Problem_Employ/how_to_confront_ problem _employ.htm, June 22, 2005.

61 Richard E Walton, (1969).

62 http://www.safeatworkfl.org/workplace_confront.shtml, June 22, 2005.

63 http://www.moviequotes.com/fullquote.cgi?qnum=8190, June 22, 2005.

64 http://www.marylandelderlaw.com/CM/Articles/Articles21.asp, June 22, 2005.

65 http://www.aceproject.org/main/english/ei/eih03a.htm, October 3, 2005.

66 http://usinfo.state.gov/products/pubs/rightsofaccused.htm, June 24, 2005.

67 See Pfeffer, J. (1982). Organizations and Organization Theory. Boston, Mass.: Pitman for a thorough discussion on power and access to resources.

68 L. David Brown, (1983).

69 http://www.lectlaw.com/def/all3.htm, June 24, 2005.

70 http://www.geocities.com/CapitolHill/Congress/5975/defend_guilty.html, June 24, 2005.

71 http://www.eve-lynne.com/Writing%20Research%20Final.html, June 24, 2005.

AuthorAffiliation

Herbert Sherman, Southampton College - Long Island University

Daniel J. Rowley, University of Northern Colorado

Appendix

APPENDIX A

EMBEZZLEMENT (http://www.whitecollarcrimefyi.com/embe/zlement.html)

What is embezzlement? Embezzlement is defined as the misappropriation of items with which a person has been entrusted. Embezzlement differs from larceny in that the perpetrator of embezzlement comes into possession of property legally, but fraudulently assumes rights to it. Charges of embezzlement can even be levied if the embezzler intended to return the property later.

Four points must be proven to support the case for embezzlement:

1. The relationship between the defendant and the aggrieved party was a fiduciary one

2. The lost properly came into the defendant's possession through that relationship

3. The defendant fraudulently assumed ownership of the properly or transferred it into the ownership of another

4. The defendant's misappropriation of the properly was intentional

How does embezzlement relate to employee theft?One of the most common instances of embezzlement in today's society is employee theft. Employees of many companies have access to company properly, creating the potential for embezzlement. Examples include such small crimes as theft of retail items, discounted sale of retail items, and theft from cash registers, but can also include the theft of millions by employees of large firms.

How can employee embezzlement be detected? There are a number of warning signs of employee embezzlement. Some general indicators may include: Missing documents, delayed bank deposits, holes in accounting records, a large drop in profits, a jump in business with one particular customer, customers complaining about double billing, repeated duplicate payments, numerous outstanding checks or bills, disparity between accounts payable and receivable, and disappearance of petty cash.

A particular employee may be embezzling money if he or she: goes out of his or her way to work overtime, begins spending more lavishly than salary might indicate, and has the same address as a vendor

What steps can an employer take to investigate and resolve possible embezzlement? Since embezzlement is usually discovered by way of circumstantial evidence, an active approach by the employer is required to uncover the perpetrators of the crime. An investigation should be conducted quickly but subtly. Company officials should compile a list of employees who may have had the opportunity to commit the suspected embezzlement. These employees should be interviewed, more than once if necessary. The employer should try to recover as many records as possible to find accounting discrepancies or other evidence. If the crime appears to exist on a large scale, the employer may need to contact outside advisors - including attorneys, insurance agents, and investigative specialists - to assist with the inquiry.

If guilt can be assigned to one or more individuals, the employer will have to determine what action to take against them within the company. Termination is not out of the question if there is strong evidence indicating guilt. Then, the employer must decide whether or not a civil suit will be filed and whether or not to turn the evidence over to public authorities for a criminal trial.

How are embezzlers punished? The penalty for an embezzlement violation typically depends on the value of the property that is misappropriated. A perpetrator is usually fined an amount on the same order of the value of the property, and may receive a prison sentence as well.

Subject: White collar crime; Family owned businesses; Home building; Case studies

Location: United States--US

Company / organization: Name: DHR Construction LLC; NAICS: 236115

Classification: 9130: Experimental/theoretical; 8370: Construction & engineering industry; 5140: Security management; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 2

Pages: 79-110

Number of pages: 32

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables References

ProQuest document ID: 216277654

Document URL: http://search.proquest.com/docview/216277654?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 49 of 100

MANULIFE FINANCIAL AND THE JOHN HANCOCK ACQUISITION

Author: Lento, Camillo; Grégoire, Philippe; Poulin, Bryan

ProQuest document link

Abstract:

In 2003 Dominic D'Alessandro is facing his most challenging time since becoming CEO of Manulife almost ten years prior. D'Alessandro must not only decide where to invest Manulife's large cash reserve now that a competitor, Great West Life, became the successful bidder for Canada Life Financial, he must also look at the strategic direction he is to set as consolidation in the financial services industry comes to a close. There are many investment alternatives, including the relatively safe bond market; but, more risky and rewarding options may be required if D'Alessandro wants to continue Manulife's legacy of exceptional financial performance. Aside from the investment and related strategic decisions, D'Alessandro must contend with an appreciating Canadian dollar, the increased re-insurance risk made evident by the events of September 11th, 2001 and the emergence of the Sudden Acute Respiratory Syndrome (SARS) in the Asian continent. In short, D'Alessandro must pursue an investment course that is strategic, and formulate and implement a plan that will ensure the future profitability and viability of Manulife Financial in the short and long run. [PUBLICATION ABSTRACT]

Full text:

Headnote

CASE DESCRIPTION

This case mainly deals with the opportunity for Manulife Financial to acquire the legendary John Hancock Financial Services, Inc. Students must consider both financial and non-financial aspects of the acquisition decision. Secondary aspects include a host of other financial and strategic issues facing Manulife Financial. The case would be relevant for either a senior undergraduate or graduate course in strategy or financial management as it requires analysis and support drawing from both disciplines. The case is designed to be taught in one to two class hours and is expected to require approximately five hours of outside preparation time. Students need to be familiar with financial management concepts and strategic analysis and formulation.

CASE SYNOPSIS

Aside from the investment and related strategic decisions, D'Alessandro must contend with an appreciating Canadian dollar, the increased re-insurance risk made evident by the events of September 11th, 2001 and the emergence of the Sudden Acute Respiratory Syndrome (SARS) in the Asian continent. In short, D'Alessandro must pursue an investment course that is strategic, and formulate and implement a plan that will ensure the future profitability and viability of Manulife Financial in the short and long run.

INSTRUCTORS' NOTES

Teaching Focus and Goals

This case is written in a manner such that the students assume the role of a Chief Executive Office of a large, public company. In this particular case, students assume the role of Dominic D'Alessandro, the CEO of Manulife Financial, a large financial institution with global operations. It should be noted at this point that while there is no 'correct' solution to this case, some recommendations are better than others taking into account the information provided in the case. This is an exercise in analysis and judgment that will allow students to develop alternatives and provide support for what they believe is the best strategy, decision and course of action.

Although this case deals with a financial institution it is not a pure finance case. The case deals with strategic issues as much as financial. Detailed financial information is not provided and advanced statistical valuation techniques are not required to develop an adequate solution. As outlined below, the investment decision is more geared towards an analysis of organizational fit, post-acquisition implementation plan and goal congruency rather than detailed financial analysis. Specifically, the teaching goals are for students who take on the top management role to:

1. understand the business model of the industry and the firm;

2. learn how industry and larger social forces, as well as internal strengths and competencies shape top management decision-making;

3. examine feasible options facing the decision-maker in the case, and how the chosen option fits or can be made to fit with both a firm's external (i.e., social and industry) and internal (i.e., functional, cultural and strategic) environments.

Life Insurance and the Manulife Business Model

It is vital to understand the basic business model of Manulife in the context of the insurance business to fully understand this case. Essentially, an insurance company collects a premium from a client in return for providing financial assistance in the case of a catastrophe. For example, a company will collect $100 per year to provide financial assistance of $100,000 in the case of a death. A property and casualty insurance company will collect $ 1,000 per year to provide payments for third party liability or to repair damage from collision in the case of an accident. If the catastrophe does not incur over the period of coverage (i.e. the term on the insurance) then no payments are made by the insurance company and the proceeds are retained. However, the law of large numbers dictates that a certain proportion of all insurance policies will make a claim.

Determining the price of the premium is a complex process performed by actuaries. Essentially, the price of the premium is set to equal the present value of the probable future cash outflow plus the administration costs including an amount for profit. The mathematical principal of expected value is used to calculate the premium whereby the probability of each future scenario is multiplied by the total cash payout under each scenario. For example, Table 1 shows the pricing calculation for insurance coverage for a one-year term.

View Image - Table 1 - Calculation of Premium Price (one year term)

The calculation is more complex when the term of the coverage is more than one year. In this case, there will be a timing difference between the premiums collected and the cash settlement. Since there is a timing difference between when the premium is collected (present day) and when the potential cash payment occurs (future date), the time-value of money must be taken into account when calculating the price of a premium. As such, actuaries must make assumptions on the rates of return on the invested premiums.

A simple example will help illustrate the pricing of a premium that is longer than one period. For simplicity, assume that the term of the insurance policy is two years (although this solution will apply to more than two years). The insurance company assumes that it will be able to generate a rate of return on invested premiums of 10 percent per annum. Based on life expectancy rates (mortality tables) the following probabilities of cash payments are calculated as noted in Table 1. Therefore, the probability of a cash payment in year 1 and in year two is $ 1,115 (assume for simplicity; however, the expected payout normally increases as an individual ages).

The nature of the insurance industry makes it evident that returns realized on the premiums investment is critical to the financial success of company. If the expected return used to calculate the price of the premium is greater than the return actually realized, the insurance company will likely not be profitable. However, the company should experience high levels of profitability if the return realized is greater than that expected return.

The opposite is true if the actual realized returns on the investments are higher than what was expected and used to calculate the contract price. In this case, the company would realize an excess profit on each contract. For this reason, investment returns are vital to the profitability of an insurance company. The higher the investment return earned, the greater the profitability that accrue to the shareholders after each contract is settled.

Insurance companies tend to invest their premiums in a balanced portfolio of stocks, bonds, and long-term investments in subsidiaries. Risk management is essential during the investment process because large losses resulting from excess risk would eventually lead to insolvency as future liabilities will exceed assets.

External and Internal Analysis

The students should approach the solutions by taking into consideration the information provided regarding the history, vision and strategies of Manulife Financial. Furthermore, when assuming the role of Dominic D'Alessandro, students should make decisions that are consistent with the biography presented in the case. The recommendations and implementation plan should be congruent with the company's vision and renewed strategy. The vision presented in the case.

The existing vision seems appropriate and consistent with the 'PRIDE" values, expressed as goals that resonate with major stakeholders of Manulife (explicitly customer and employees and implicitly shareholders). The PRIDE values are stated in terms these four attributes (refer to Manulife case, pp.3, for a description of the PRIDE values).

The main SWOT (strengths, weaknesses, opportunities, threats) may be derived from the analysis of the internal functions and structure of Manulife, beginning with financial position and also including analysis of the marketing, operations and human resources functions, and analysis of the industry in the context of the more macro or social environment.

The industry may be characterized as a favorable four out of five stars, using Porter's ( 1980) '5 forces' model of industry analysis (forces that have little power over strong incumbents such as Manulife are suppliers, individual buyers, substitutes and competitors, the latter becoming fewer as the industry consolidates). The only unfavorable force is new entrants, namely banks which are increasingly packaging insurance offerings with their other services, especially loans. Looking to social factors, all seem favorable. The political landscape appears to keep insurance separate from banking, both in terms of services and ownership; however, this is changing, evidenced in the near mergers in the recent past.

The strengths of Manulife include financial acumen, efficient systems, investment savvy and, although only implied in the case, a productive and employee workforce, all of which contribute to superior performance. Further to these valuable and difficult to imitate resources (Barney 1991), Manulife also seems to have deep rooted competencies (Prahalad and Hamel, 1990) that allow for integrating with merger partners. This is possible with the coherent vision and PRIDE values. Such an approach to strategic analysis as outlined here can be found in any good strategic management text, e.g., Hill and Jones (2004, p. C2).

One challenge is to craft a renewed strategy that is consistent with the vision as "the most professional life insurance company in the world: providing the very best financial protection and investment management services." In Porter's (1980) terms this must mean an increasingly differentiated provider. Since there are undoubtedly learning and scale effects that favor large players, Manulife's determination to become one of the larger players seems entirely appropriate.

All that remains is to know when to acquire suitable partners that already share or have the potential to adopt Manulife's values, vision and strategy. After the scale and scope of service is secured, then it will be a matter of continually renewing the strategy to keep Manulife moving in the direction to becoming the preferred financial institution, worldwide. This takes us to the specifics of the decision of where next to invest.

Feasible Investment Options

At this point in time, feasible options revolve around where to place the resources of Manulife and some basic questions need answering, starting with:

1. Where should the large cash reserves be invested? What is the feasibility of Manulife acquiring John Hancock Financial, or merging with the Canadian Imperial Bank of Commerce? Would the safer bond market be the best place to invest the money?

This is main issues of the case. Manulife Financial has a large cash reserve left over from an unsuccessful bid for Canada Life Financial. A large cash balance is not effective investment management as cash tends to have very low returns. The cash must be invested to earn larger returns. The following is a discussion of the potential pros and cons that students should identify and analyze while reaching a conclusion on where to invest the large cash reserves.

John Hancock Financial Acquisition

Advantages

The acquisition of John Hancock will give Manulife increased presence in the United States and will complement its service offerings. Manulife has experience in the U.S., with their U.S. Division, and is familiar with the market, regulations and customs.

* The fact that the Canadian dollar has been steadily appreciating recently has made a potential acquisition of a U.S. company less expensive. Manulife Financial will need less Canadian dollars to purchase the firm in U.S. dollars as the currency appreciates.

* John Hancock management fully expects cross-border purchases and is open to the idea of Manulife Financial acquiring John Hancock financial. The case also mentions that the CEO John Hancock indirectly confirmed that Manulife would be a suitable merger. This is in stark contrast to the Canada Life Financial attempted take-over, whereby management did not want Manulife to become their parent company. This is a crucial point that should be identified.

* Manulife Financial has a long history of acquiring other companies as an engine of growth. Shareholders and management are familiar and accustomed to acquisitions. It is safe to assume that the current management has the experience with acquisitions.

Disadvantages

* This may seem to be a relatively risky option when compared to the more stable and secure bond market, though the risk of the John Handcock acquisition is mitigated by its consistency with the direction the industry is heading (consolidation for reasons of scope and scale) and the apparent fit between the two companies.

Canadian Imperial Bank of Commerce Merger

Advantages

* A merger with CIBC would allow Manulife to increase the breadth and reach of their products and service by cross-selling products through the CIBC bank branches. Insurance can be combined with other banking services and sold in bundles.

* There are a host of potential cost savings and synergies that could arise from the merger. Branches or service outlets of CIBC and Manulife can be merged, thus reducing the total number of branches and employees required.

* A merger of this caliber will also create the largest financial institution in Canada, thus allowing for certain economies of scale and for increased competition against some of the larger, global institutions.

* CIBC's business should also benefit from the merger for the same reason that sales of the Manulife products would increase. CIBC would be able to promote and sell their banking services to the large number of client dealing with Manulife.

* The share price of CIBC is currently below what would be its fair market value because of some losses (Amicus bank and Enron) that are not expected to recur. The currently suppressed share price makes it an attractive target to attempt a merger/acquisitions.

Disadvantages

* This option is currently not feasible. A cross-pillar merger is not allowed by the Canadian Government at this time for fear of a monopoly and decreased competition, which is against the public's general interest. Therefore, taking the role of Dominic D'Alessandro, the student should identify a lobbying strategy as part of their recommendation.

* This is a very risky, and time consuming proposition.

* A merger with another institution of this caliber may be difficult if the organization's cultures are very different: i.e. between banks and insurance companies.

* It is not currently possible to identify who would have control of the corporations after the merger. CIBC and Manulife are both larger Canadian financial institutions and their maybe a risk that Manulife may lose control of the corporation after a merger.

Bond Market

Advantages

* The primary advantage of the bond market is that there is very little risk involved in this option.

Disadvantages

* The primary disadvantage of the bond market is that there is no potential for large excess returns that will help Manulife achieve its financial goals.

* The current yields on bond markets are low compared to the historical averages.

Students can make a case for all three possible investments. There is no correct investment choice, although the case does give some hints to the students that should lead them to conclude that purchasing John Hancock Financial is the most appealing strategic option. However, the fact that Manulife subsequently did purchase John Hancock does not necessarily corroborate the notion that this purchase was the best course of action. Some of the hints in the case are as follows:

* Manulife has a history of using acquisitions as a vehicle of growth.

* The case hints that D'Alessandro may have to take on a risky strategy, compared to the bond market, to ensure that the financial targets are met.

* The CEO of John Hancock is open to Manulife purchasing the firm. This is in stark contrast to the past acquisition attempt.

* The case outlines that business researchers have identified the fact that acquisition in the same line of business are most successful than when a company purchase a company in another line of business (i.e. a bank - CIBC vs. an insurance company - John Hancock).

The advantages and disadvantages outlined above is by no means an exhaustive list. Students may identify other advantages and disadvantages that were not discussed thus far. The purpose of this case is to help students walk through the more qualitative aspects of a large scale investment decision.

2. Furthermore, if an acquisition was the best investment option, how would Manulife Financial handle the post-acquisition strategy to ensure that Manulife adds value in its offerings in different markets over the long term?

If students recommend an acquisition or merger, an analysis of the post acquisition strategy should be included as part of the implementation plan. The case provides hints at what would be required as part of the strategy.

The case has a specific paragraph that should prompt students to consider the post purchase plan. Business literature presents some conclusions regarding mergers and acquisitions. There are many difficulties of implementing a successful value added acquisition strategy, as post-acquisition difficulties arise because managers of the acquiring company did not deeply understand the target company at the time of acquisition, or that the acquirer imposed an inappropriate organizational design on the target as part of the post-acquisition process. Also, inappropriate management incentives that exist at both the top management and divisional level led to unsuccessful mergers. Acquiring returns are greater in acquisitions in which the acquirer and the target are in the same line of business. The acquirer should have a deep understanding of the targets business and industry before negotiations.

There is a wide variety of studies conducted on post merger acquisition strategies. The research provides some insight into the activities that create a successful strategy. There is a host of research conducted on the factors that help in achieving success in an acquisition/merger. Pautler (2003) prepared a summary and analysis (quasi meta-analysis) of the research. The resulting factors of success vary depending upon the type of transaction, but there are some commonalities amongst the findings that apply to a wide range of circumstances:

* Acquisitions that preserve the original focus of the firm tend to result in superior outcomes.

* Equal-sized firms that merge work less often than others. This is a caveat against the merger with CIBC, although students are not expected to be aware of this fact.

* The chances of success are greatly improved if planning for the integration of the new physical and human assets begins at an early stage.

* Quick integrations and early pursuit of available cost savings improves outcomes.

* Managers must be aware of cultural differences between the two organizations. Management must create tailored communication with employees, customers, and stakeholders to avoid conflicts.

* Successful integration requires managers to retain the talent that resides in the acquired firm, particularly in mergers involving technology and human capital.

* Minimizing the attrition of both customers and sales force.

While the overall financial outcome of mergers is clearly of interest in many of the consulting firm studies, the studies also focus on why mergers might have performed as they did, and whether performance could be improved by better implementation of mergerrelated changes. These factors are discussed below as identified by Pautler 2003.

Sometimes problems with the integration occur because the acquired assets did not fit into a broad strategy of the acquiring firm. Other times the broad strategy includes the intention to move the firm beyond its traditional area of competence and the firm is simply unable to effectively integrate the assets in this new area. The first case is a mistake in matching; the second case is a mistake in over-reaching.

Both bad ideas and implementation are less likely to occur if the acquiring firm has experience with the type of assets it is acquiring. A factor that has been found to make deals work more frequently is a close relationship between the acquired assets and the core expertise of the acquiring firm. Geographic market extension and capacity expansion deals are thus more likely to be successful than are cross-border transactions aimed at corporate diversification.

Other factors that are revealed include the importance of maintaining pre-merger revenue growth rates, the importance of clearly delimiting responsibility for merger implementation, and the need to communicate to all the parties involved in the transition.

A number of other financial and organizational aspects of post-merger integration are found to be important. Early integration planning is almost universally recognized as a way to increase the probability of success in a merger. Similarly, many studies emphasize the need to define corporate goals and clearly transmit these goals from the management team to the new merged entity, while simultaneously addressing differences in the corporate cultures of merging businesses. The importance of retaining customers and key staff during the initial transition period is another highlighted factor, as is timely handling of regulatory issues. In terms of enhancing shareholder value, authors lay varying amounts of stress on maintaining or expanding revenue growth after the merger, and identifying and achieving cost synergies.

The speed of a post-merger transition is frequently said to be a key factor in improving merger performance, but in mergers such as those done to acquire new skills or technology, this factor may not be of primary importance. Several consulting firms focus on gains from traditional synergy sources such as scale and scope economies, while others focus more on cross-selling, bundling, and various revenue-side effects of mergers. In addition, some disagreement exists regarding whether experience in merger activity is an important determinant of success.

An article written by Chanmugam, Anslinger and Park (2004) outlines the most common myths and realities regarding post acquisition implementation strategies. Students may fall into the belief of these myths. A brief summary of the most common myths and realities is as follows:

Myth: The post-merger integration process begins when the deal is closed.

Reality: The probability of deal success increases when the key elements of post-merger integration are not only started before closing, but when the likely risks and challenges of the integration are considered at the very beginning of the acquisition process. All of the elements that affect post-merger integration success, especially the culture of the companies, must be assessed and rolled into the synergy value (and price to pay) calculation.

Myth: There is one best way to conduct post-merger integration.

Reality: Using the logic that any deal can be made to work if an exact approach is used, some companies follow by-the-book approaches to integration. Instead of using a one size fits all approach; the integration process must instead be customized to the specific transaction's particular complexities and idiosyncrasies.

Myth: During the integration, make as few changes as possible to cultures.

Reality: Not making changes during the integration phase misses a tremendous opportunity to take advantage of a ripe environment for change. Change is always disruptive-but during integration, change is not only necessary, but expected. The integration period is an excellent time to rethink old ways of doing business and to create a clean sheet of cost structures, cultures, operational processes, and resource and technology requirements.

Booz-Alien and Hamilton (2001) developed a set of principals that the student, taking the role of Dominic D'Alessandro, can use to create a successful integration process. The principals:

1. Communicate the shared vision for value creation. The shared vision should include fundamental questions that drive the integration process: how will we create value, how will we approach this merger, how will this merger be led, and what people strategy is required?

2. Seize defining moments to make explicit choices and trade-offs. There are a host of trade-offs that arise. There are four key areas that require explicit trade-offs:

a. How will we create value (sources of synergy)?

b. How will we approach the merger (integration vs. new entity)?

c. How will this merger be led (CEO role, decision-making involvement)?

d. What people strategy is required (desired culture, retention, leadership)?

3. Simultaneously execute against competing critical imperatives. The imperatives for successful integration include translating the shared vision, building stakeholder enthusiasm, creating one unified company, capture value through synergies, maintaining stable operations, and closing the deal in an appropriate manner.

4. Employ a rigorous integration planning process.

There is no One size fits all' formula for different situations. However, there are specific issues that must be addressed by the students as part of their implementation.

* Define and make the John Hancock Financial employees aware of Manulife's corporate goals and the PRIDE values to ensure future actions are congruent with Manulife's corporate identity.

* Make organizational cultures compatible.

* Cross-selling through John Hancock Financial distribution channel.

* Identify the need to keep key employees and talent currently at John Hancock Financial within the combined entity.

* Identify potential synergies, cost savings, and economies of scale.

3. What, if anything, should be done with respect to the appreciation Canadian dollar?

Students may be inclined to assess the movements of the Canadian dollar subsequent to June 2003. The Canadian dollar subsequently rose much higher that the 74 cents identified in the case. As of early 2006, the CAD/US dollar exchange rate was approximately 85 cents.

Manulife discloses its foreign currency risk strategies. The Manulife Financial 2003 Annual Report states that "the Company's foreign currency risk management program incorporates a policy of matching the currency of its assets with the currency of the liabilities these assets support. The program also incorporates a policy of generally matching the currency of its equity, up to its target MCCSR ratio, with the currency of its liabilities, to limit the impact of changes in foreign exchange rates on the Company's MCCSR ratio. The Company holds equity in excess of its target MCCSR ratio predominantly in Canadian dollars to mitigate the impact of changes in foreign exchange rates on shareholders ' equity. The program also delineates the currencies in which the Company is authorized to transact."

The MCCSR ratio measures the Minimum Continuing Capital and Surplus Requirements of a financial institution. In Canada, risk-based capital requirements that federally licensed insurers must meet in order to be considered solvent. The MCCSR are similar to the National Association of Insurance Commissioners (NAIC) risk-based capital (RBC) ratio requirements in the United States. The ratio is defined by the Office of Superintendent of Financial Institutions in Canada and is to complex to be considered by students.

The Canadian dollar's appreciation is a problem outlined in the case; although it may also be an opportunity. As the Canadian dollar appreciates, the potential acquisition of John Hancock Financial will be less expensive. Furthermore, since Manulife re-invests all of their earnings from the U.S. Division back into the United States, there is no real loss of purchasing power. The translation losses are therefore mostly a paper/accounting loss and may be offset the decreased purchase price of John Hancock Financial. Therefore, regardless of the case information, student may suggest that the appreciating Canadian dollar is not a real economic threat.

Students may also suggest the use of financial derivatives/instruments to hedge the effects of the Canadian Dollar. The futures or forward market, or options can be suggested to reduce the effects a rising Canadian Dollar into the future. All of these potential hedging instruments are viable options; however, students should be caution that U.S. Dollars are only converted into Canadian Dollars for accounting translation purposes. Since returns are re-invested in the U.S., there is no actual foreign currency translation that takes place. If a hedge is suggested, student should be aware of the fact that the Manulife must actually take delivery of the foreign currency regardless of the flow of cash from their operations.

4. As the profits from the reinsurance divisions decreased to abnormally low levels, what can be done to manage or mitigate the increased risk of man-made catastrophes?

Before presenting some of the possible solutions of the risk of terrorism, it is vital to understand the effects that the acts of September 11, 2001 had on the reinsurance operations of insurance companies. Tight market conditions were already in place before the September 11th terrorist attacks. Climbing combined ratios, after several years in a soft market, had led to double-digit price increases in policies. The North American economy was spiraling downward; low interest rates prevailed. There was the rout of technology stocks, weak stock markets, low investment returns. Furthermore, the insurance industry was being faced with the potential losses from asbestos and mold claims.

The terrorist attacks forced reinsurers to rethink their approach to business, to develop new rating models, and to revise underwriting philosophy. The affordability of reinsurance was severely impaired and most reinsurers no longer covered terrorism risks. Some reinsurers ceased operations (i.e. Scandinavian Re, Fortress Re, & Copenhagen Re), while the ratings of other reinsurers have suffered severely. The four major effects of September 11th include:

* Contraction in global reinsurance capacity: Insurers have become more cautious in their underwriting of risks. Reinsurers may find their arrangements inadequate to cope with the future size of claims. Primary insurers may wish to seek greater reinsurance protection but reinsurers may instead wish to reduce their capacity on offer.

* Hardening of Premium Rates: Price for reinsurance protection has risen dramatically, leading to a rise in price for direct insurance. This is a function of many factors other than contraction in capacity and the need for reinsurance companies to rebuild their reserves. The tragic events have introduced new types of risks and larger potential losses. The amount of capital required for insurance risks is greater than formerly understood.

* More Coverage Restriction: Some reinsurers may find specific sectors to be of such high risk that they are not prepared to provide cover. Underwriting standards will tighten and catastrophe reinsurance can become too expensive to acquire.

* Financial Strain on Certain Insurers: Given the uncertainties surrounding the cost of the terrorist attacks, some less capitalized insurers may not be able to weather the storm.

Reinsurers now analyze risk differently, by placing greater focus on the bottom line. Historical business relationships have a lower priority, as reinsurers are taking a more hard-nosed approach. They ask: Will this business generate the type of return needed on my capital to justify writing it?

Pricing methodologies are also being revisited because reinsurers are aware of the fact that there can be a correlation between losses of different lines of business. Most reinsurers believe Terrorism is a non-insurable peril (without a Government backstop). Terrorism is a man-made event, unpredictable, and impossible to price and assets of reinsurers are finite. Reinsurers can supply a limited amount of capacity, as overall exposure is too large for the industry to assume.

Insurers have typically hedged the risk they assume to insure property, reducing their exposure to acceptable levels by purchasing coverage from reinsurers. The perception was that the U.S. was effectively immune to terrorist attack, so that insurance companies did not need to demand additional premiums for such coverage. This changed on September 11. Immediately following the September attacks, the reinsurance industry informed insurance companies that they would no longer include coverage for terrorism in their policies without an extra cost.

The impact of the terrorist attacks has been immense on Manulife. "As a result of the terrorist events of September 11, 2001, exposure to loss is estimated at $360 million before catastrophe coverage, reserves and taxes. Accident reinsurance exposures accounted for 80 per cent of this amount with Property & Casualty and Life risks accounting for the balance. These exposures were reduced by $120 million of catastrophe coverage, $60 million of expected tax deductions and $80 million of existing net reserves. Actual Reinsurance Division claims will not be known for several years; therefore, the Company established additional net reserves of $50 million during the third quarter of 2001" (Manulife 2001).

The profits from the reinsurance division have decreased to an abnormally low level because of these acts of terror. However, the financial losses resulting from the events of September 11th, 2001 are not controllable any-longer. They are historic costs that have already been incurred. Students should identify that these events have made evident the real risk in the insurance market and offer possible actions plans to deal with these risks into the future. Some of the possible recommendations regarding the increased risk of terror include, but are not limited to:

* Increase Premiums: The most obvious solution to the terrorism risk is to redevelop the pricing formula used to calculate the premium prices. The price has already increased since 2001 as a result of the increased risk of future payouts. By including the probability of large scale man-made catastrophes in the pricing formula, the risk of these actions will essentially become a mute point similar to any other risk.

* Avoid Insuring These Acts: Students may also suggest that Manulife should stipulate that property and casualty insurance contracts do not cover these actions. Therefore, the risk of these actions will be essentially eliminated.

* Separate Insurance Contract: Furthermore, it may be possible for Manulife to offer a separate insurance contract for these specific acts. The contracts will be priced separately from other types of catastrophes and will offer coverage for these specific acts.

5. Although contingency planning has commenced for the Canadian divisions and changes have been made to financial operations of Taiwan, was this enough to handle the SARS risk?

Life insurance companies have a variety of ways to avoid or mitigate the risk of catastrophes, the most common of which is transferring the risk of multiple deaths to reinsurers (although the cost has increased dramatically since the recent terrorists attacks).

However, Manulife has been much more proactive in dealing with the SARS situation and has already implemented many procedures to deal with the SARS situation and maintain goodwill (as opposed to dodging the risks). These actions are consistent with the PRIDE values. Manulife has already undertaken the following actions, as outlined in the case:

1. The daily hospital income benefit from Manulife medical riders will be doubled for hospital confinement as a result of SARS related case.

2. When a policyholder recovers from SARS and quarantined at home, 50 per cent of the daily hospital income will continue to be payable during the 10 day quarantine period.

3. For death within 30 days after the confirmation of SARS, an extra death benefit of 100 per cent of the sum assured under the life policies, subject to a maximum additional benefit of $100,000, will become payable.

4. Manulife Taiwan confirmed that all health insurance policies include statutory infectious diseases. If a policyholder has the misfortune of contracting SARS, they will be eligible to claim for medical expenses as per the standard provisions.

SUMMARY, POST-CASE EVENTS AND OTHER CONSIDERATIONS

This is an exciting time. It is clear that Manulife is a superior performer in the financial services industry and in the insurance industry in particular and the Manulife CEO has the vision and the strategy to make this possible by taking advantage of opportunities such as the John Hancock acquisition. The question then becomes how Manulife will fare once the consolidation in the industry is complete. The CEO will certainly have to guard against complacency and keep Manulife abreast of the risks and rewards of a world that is growing increasingly global and interdependent, as the recent scares with September 11, 2001 and more recently over SARS and other potential pandemics and disasters have amply shown. This is what happened.

On April 28th, 2004 Manulife acquired John Handcock and became North America's second-largest life insurance company and the fifth largest worldwide. Manulife's 2004 Annual Report provides insight on how the acquisition of John Hancock was handled:

"Throughout 2004, the integration of the John Hancock businesses was a primary focus of the Company's management and employees. We made good progress on integrating our operations and expect that we will be substantialIy finished with this endeavor by the end of 2005. It is an enormous task that has significantly effected each of our divisions....

The John Hancock merger, as would be expected, had its most dramatic effect on our U.S. Operations where the transaction added tremendous diversity and scale. Within both our U.S. Protection and Wealth Management Divisions, we broadened product lines, expanded the breadth and reach of our distribution channels, added to the depth and expertise of our management team and finally, added the well recognized John Hancock brand. In 2005, across all our U.S. businesses, our products will be marketed using the well established John Hancock brand...

Successfully integrating two large and prestigious organizations such as Manulife and John Hancock is a difficult task that would be impossible without a constant focus on providing real value to customers and attracting and retaining the best and most talented teams in the industry" (p. 6).

References

REFERENCES

Booz-Allen & Hamilton. (2001). Merger Integration: Delivering on a Promise Retrieved at: http://www.boozallen. de/content/downloads/viewpoints/5K_merg er_integration.pdf

Barney, J. (1991). Firm Resources and Sustained Competitive Advantage, Journal of Management, 17, 99-120.

Chanmugam, R., Anslinger, P. & Park, M. (2004). Post Merger Integration myths versus high-performance realities. Outlook P oint of View, July. Retrieved at: http://www.accenture.com/NR/rdonlyres/OBB9A876-CE12-4E91872F-FFD72F6E27E/0/postmerger_a4.pdf

Hamel, G. & Prahalad, C.K. (1990). Competing for the Future, Boston: Harvard Business School.

Hill, C. & Jones, G. (2004). Strategic Management Theory: An Integrated Approach (61h ed.) New York: Houghton Mifflin.

Manulife Financial. 2001. Manulife Financial Annual Report.

Manulife Financial. 2004. Manulife Financial Annual Report.

Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: Free Press.

Pautler, P.A. (2003). The Effects of Mergers and Post-Merger Intergration: A Review of Business Consulting Literature. Bureau of Economics, Federal Trade Commission.

AuthorAffiliation

Camille Lento, Lakehead University

Philippe Grégoire, Lakehead University

Bryan Poulin, Lakehead University

Subject: Financial services; Acquisitions & mergers; Case studies; Decision making; Business growth

Location: Canada

Company / organization: Name: Manulife Financial Corp; NAICS: 523920, 524113; Name: John Hancock Financial Services Inc; NAICS: 523120, 523920, 524113

Classification: 9130: Experimental/theoretical; 2330: Acquisitions & mergers; 8100: Financial services industry; 9172: Canada

Publication title: Journal of the International Academy for Case Studies

Volume: 13

Issue: 2

Pages: 123-139

Number of pages: 17

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables Equations References

ProQuest document ID: 216306377

Document URL: http://search.proquest.com/docview/216306377?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-12

Database: ABI/INFORM Complete

Document 52 of 100

FOREIGN DIRECT INVESTMENT IN THE SOUTHERN US: A CASE STUDY OF THE ALABAMA AND THE AUTOMOTIVE SECTOR

Author: Borstorff, Patricia C; Collum, Taleah H; Newton, Stan

ProQuest document link

Abstract:

In today's global marketplace, governments increasingly must compete aggressively to attract multinational companies. Companies engage in foreign direct investment (FDI) for the purpose of actively controlling property, assets, or companies located in a host country. International business competition among multinational companies frequently involves fiscal incentives. FDI patterns have changed and the level of activity, when considered to GDP, has tripled in the past 20 years.

Countries vary in the importance of issues that affect their FDI. In comparison to the U.S., Japanese investors are more influenced by factors such as infrastructure, wage inflation, elementary school enrollment, and country risk, described as economic and social uncertainty of the host country. The United States is the largest foreign direct investor country with 1953 foreign direct investment projects since 2002 and is also hosts the world's largest inflow of FDI. During the 1990's, the U.S. experienced a sharp growth in FDI generated by the booming economy. During 2004, FDI capital investments reached $13.90 Billion U.S. dollars. The United Kingdom, Netherlands, Japan, Germany and Canada provided the largest amounts of direct investment in the U.S. and these countries also received large amounts of investment from the U.S.

Many foreign countries choose the southern section of the U.S. as a desirable location for their FDI. Despite the escalating costs of incentives packages, southern states continue to invite large industrial employers in order to continue the evolution from an agricultural economy to a manufacturing economy. In the first quarter of 2004, "Relocate America" named the top five places to live in the U.S. and they were all located in the South. The southern states tax policies have changed within recent years to impact FDI decisions. Infrastructure improvements, business incentives, and job training programs are part of the incentives offered to foreign investors as competition among states takes place.

The southern U.S. has been very aggressive in recruiting international companies. Economic development is one of the first job priorities of southern politicians. Tennessee, Alabama, Georgia, Kentucky, South Carolina and Texas have been eager to grow their manufacturing bases and have welcomed foreign automakers with numerous incentives, many industrial sites, a skilled work force and a non-union environment. Each state has adopted a unique strategy to attract FDI because they realize they are competing for the same limited investments. The following section discusses what Texas, South Carolina, Mississippi, and Alabama have been willing to offer in their pursuit of international investment.

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Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns foreign direct investment (FDI) in the southern U.S., specifically automobile FDI in Alabama. Secondary issues concern the aggressive competition, using incentives and state-specific features, of southern states in recruiting foreign investment and the employment opportunities that FDI brings. This case has a difficulty level of three, is suitable for a junior level course, and can be taught in a 90 minute class with two hours of outside preparation by students. It is also applicable for use in a senior-level international management class to illustrate the reach of globalization into local corners of the world. It may further be used as a template for professors in other states in illustrating the proximity and consequences of FDI. We propose that there is international activity in the form of FDI here or abroad as well as exporting and importing in virtually all states and the case provides a template for that scenario as well. Students should relate to the importance of international business as they see its relevance to their lives.

CASE SYNOPSIS

This case is designed to illustrate the concepts of foreign direction investment, job creation, state incentives as a factor in FDI, and the unique features that a foreign investor wants from a state. The case can be used in its entirety or in part as appropriate. For example, one could investigate recruiting methods used by U.S. states in the pursuit of FDI and the results of that pursuit.

Countries are faced with numerous challenges as they compete for the same Foreign Direct Investment dollars. FDI is increasing as the world evolves into a global marketplace for industry. The U.S. government continually adjusts its policies and tax procedures in order to be a viable player in the world market. Many southern states, including Alabama, have been successful in improving their economies and providing new employment opportunities by offering the incentives required to attract FDI and industries to the area.

INTRODUCTION

TEXAS, FDI AND INCENTIVES

Texas Governor Rick Perry has made job creation and economic development a foundation of his administration. The Governor and the legislature established a $295 million dollar Texas Enterprise Fund to allow the state to respond quickly and aggressively to opportunities to bring jobs and employers to Texas. This enables the governor's office to tailor incentive packages to best meet the needs of local communities and businesses. The fund focuses on ways to attract new business to the state or assist with a substantial expansion of an existing business as part of a competitive recruitment situation. The Governor's and legislature's reform of the state's workers' compensation system is also an example of the state's commitment to successful partnership.

SOUTH CAROLINA, FDI AND INCENTIVES

South Carolina started its modern Foreign Direct Investment (FDI) program in 1988, which resulted in the securing of Fujifilm Medical in Greenwood and the BMW Plant in Greer (1992). Since this program started, South Carolina has continued to reap success in the development of jobs through in-sourcing or FDI. According to the Organization for International Investment, South Carolina ranks first in the nation in the share of its private sector workforce supported by U. S. subsidiaries of companies headquartered abroad.

The 1992 BMW package, thought to be the most costly state supported economic initiative ventured at the time, offered incentives totally $155 million in return for the promise of 1900 jobs for a ratio of $81,479 per employee (adjusted to 2001 dollars). These dollars came in the form of property tax abatements, labor training, income tax credits, revenue bonds, a 900 acre plant site, road and airport improvements, and a $6 million dollar local county contribution. While raising dire doubts among politicians and some economist concerning government's direct support of foreign owned private business, the economic impact has been beyond even the most aggressive projections.

MISSISSIPPI, FDI AND INCENTIVES

Mississippi was slow in realizing the worth of recruiting foreign capital. However, it launched a serious effort the late 1990's, which resulted in a major catch; Nissan came to Canton in 2000. Mississippi held special secessions of the state legislature which resulted in cutting the time frame for incentive decisions from the normal 18 months to five. The package included $295 million of direct incentives in return for a promise of 4000 jobs paying an average of $23/hour. In addition to the state's effort, Mississippi went one step further when its United States Senator sponsored special federal tax reduction legislation for the Canton area. It is ironic, in light of the state's lethargy in getting into the game, that the facility was expanded by 40 percent a full year before it was scheduled to open. As in South Carolina for BMW, many of the dollars in the incentive package were devoted to infrastructure improvements, employee training, and tax credits. Nissan Vice-Président, Emil Hassan, reflected in his statement, "The partnership between local firms and Tier 1 automotive suppliers demonstrate a win-win scenario that will be good for the smaller firms, for Nissan, and for Mississippi."

ALABAMA, FDI, AND INCENTIVES

Alabama has been at the forefront in offering incentives packages and deriving a considerable benefit from the industries relocating in the state. For example, Alabama's auto industry has generated 30, 1 80 direct jobs, creating another 53,530 indirect jobs, for a total of 83,7 1 0. These job totals translate to $1.4 billion in direct payroll and $1.62 billion for indirect payroll as of the end of 2002. It is estimated that 5 to 6.2 spin off jobs are associated for every single assembly job. Alabama possesses many natural resources that make it attractive to foreign multinational corporations. Other areas that Alabama emphasized in their quest for automotive FDI were tax incentives, anti-union sentiment, education development activities, and state training programs.

Due to Alabama's commitment to the promotion and maintenance of a competitive business climate, the state has developed one of the most aggressive tax incentive programs in the nation for new and expanding industry. Since the Alabama tax incentives have a statutory basis, industries in the state have a stable framework for long-term investment.

Competition for FDI is influenced by government policies. While offering tax incentives is often effective in attracting foreign investors, improving the quality of a country's infrastructure, to include human capital enrichment, appears to have a longer lasting impact. Alabama offers unique training programs. Alabama Industrial Development Training (AIDT) is among the most highly rated workforce-training program in the U.S.

FINANCIAL INCENTIVES AND RETURN ON INVESTMENT IN ALABAMA

Currently, more than 300 foreign-based manufacturers from more than 30 nations operate in Alabama. Of these foreign-based companies, three are major automobile manufacturers; Honda, Hyundai, and Mercedes. Another foreign-based automobile manufacturer, Isuzu, just announced that it will be expanding its operations into Alabama in the near future.

In 1993, when Mercedes announced that it would be moving the assembly of the M-Class outside of Germany, Alabama was not anywhere near the top of the list of possible locations. However, Alabama ended up being the state of choice because of its generous incentives package. Based on the incentives offered, those 1,500 jobs cost Alabama taxpayers $168,000 per job. After its $600 million expansion in 2005, Mercedes total capital investment in the plant increased to $1 billion with 4,000 employees. Although it cost a substantial amount of money to get Mercedes to locate in Alabama, it put Alabama on the automotive map which led to future investments from other foreign auto makers.

In 1 999, the state was not as generous to Honda as it was to Mercedes in 1 993 , butHonda still received $102 million in direct incentives that included site preparation grants, preparation for the construction site, free employee training programs, industrial access programs, and the biggest thing of all: enough affordable land to accommodate its 3.25 million square foot manufacturing facility.

In 2002, Alabama gave Hyundai an incentive package worth $252.8 million to locate in Montgomery. This package included $76.7 million in tax breaks; $61.8 million in training grants; and $34 million in land purchase assistance, road and bridge development, and water and sewer improvements. Hyundai has invested $1 billion in its 2 million square foot plant and has created an additional 5,500 jobs through its 34 suppliers in Alabama.

CONCLUSIONS

Alabama has invested millions of dollars into the automotive industry. As a result, their existing automakers, Mercedes, Honda, Hyundai, and Toyota have demonstrated that they can operate efficiently and profitably in Alabama. With deals like these, its no wonder foreign automakers have stepped up production in the U.S. States continue to offer attractive incentives, hoping that these will solve some of the problems facing them at home. For example, in early 2007, Louisiana and Alabama are in a bidding war for a German steel company. It is reported that the incentive package offered by both has exceeded $1 billion.

This case focuses student interest by posing questions in the fields of: FDFs economic impact, enhanced employment opportunities, tax initiatives, effects of unionization, the influence of sound infrastructure, and the importance of state government's aggressive participation.

References

REFERENCES

An Alabama Industry Profile, Economic Development Partnership of Alabama, May 2006. Retrieved February 23, 2007 from http://www.edpa.ors/pdfs/Automotive%20Industrv%20Profile.pdf

BMW's Economic Impact of South Carolina 'Enormous. ' South Carolina Business Journal, June 2002.

Economic Development Partnership of Alabama, Retrieved February 21, 2007 from www.edpa.org

Governor Musgraove: Mississippi won 't stop with Nissan (May 2003). Retrieved February 2007 from www.siteselection.com

Honda Manufacturing of Alabama, LLC. Retrieved February 23, 2007 from http://hondaalamaba. com/index. php?submenu=Facts&src=gendocs&link=Quick%20Fact s&category=Main

Incentives Deal of the Month (October 2002). Retrieved February 2007 from www.siteselection.com

Mercedes Benz U.S. International. Retrieved February 23, 2007 from http://www.mbusi.com/pages/corporate facts.asp

Morrisset, J & Pirnia, N. (2001). How tax policy and incentives affect foreign direct investment a review. Data & Research. 1, 2001-20

Nissan Driving $950 Million, 4000-Employee Plant to Mississippi Delta (November 2000). Retrieved February 2007 from www.siteselection.com.

The Impact of BMW on South Carolina: Moore School of Business . University of South Carolina, May 2000.

www.governor.state.tx.us

AuthorAffiliation

Patricia C. Borstorff, Jacksonville State University

Taleah H. Collum, Jacksonville State University

Stan Newton, Jacksonville State University

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 14

Issue: 1

Pages: 3-7

Number of pages: 5

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412403

Document URL: http://search.proquest.com/docview/192412403?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-16

Database: ABI/INFORM Complete

Document 55 of 100

LECTRODRYER: ITS BUYOUT AND STRATEGIC DIRECTION

Author: Brown, Steve; Davig, Bill

ProQuest document link

Abstract:

John McPhearson, the company's new president and CEO, called a meeting of his partners to discuss the future of Lectrodryer. He and his partners were highly pleased that the company was performing above their best expectations. However, he knew that they were not out of the woods yet. He believed that if they could not grow the company rapidly they would face stiff competition from much larger firms in the industry. He was especially concerned about the growing competition from China.

John and his partners acquired Lectrodryer in a leveraged buyout from Ajax Magnathermic. Lectrodryer is the oldest and most experienced manufacturer of adsorption dryers in the world. It designs and manufactures desiccation and purification equipment for the removal of water vapor and trace contaminants from air, gasses and fluids. Its reach is international in scope and includes most U.S. companies in need of dehydration, purification, and dehumidification equipment.

The company is a principal supplier to chemical processing plants, pharmaceutical companies, and oil refineries. It is also a major supplier to electrical utility companies. Among their customers are such large companies as AT&T, Dupont, First Energy, General Electric, and the Tennessee Valley Author

Full text:

Headnote

ABSTRACT

The primary subject matter of this case concerns a leveraged buyout. Secondary subject matter includes exploring growth strategies to maintain their competitive position. The case has difficulty level of three (junior level). The case is designed to be taught in one class hour and is expected to require three hours of preparation.

CASE SYNOPSIS

Several employees of Ajax Magnethermic Corporation acquire one of its divisions, Electrodryer in a leverage buyout. Lectrodryer is the oldest and most experience manufacture of absorption dryers in the world. It is also a very small company that operates in an industry filled with large competitors. The buyout process and terms are outlined. Even though the new owners are able to negotiate very favorable terms in the buyout, they are very concerned about Lectrodryers 's ability to cope with challenges taking place in the operating environment. They are convinced they will have to grow in order to ensure long-term survival of the company. The new mangers begin to explore and evaluate a number of generic strategic growth alternatives.

INTRODUCTION

COMPANY HISTORY

Lectrodryer was created in 1932 by the W. E. Moore Company as a sister plant to the Pittsburgh Lectromelt Furnace Corporation. The first unit was constructed to dry a controlled atmosphere gas furnace at the Thomas Steel Company. In 1956, the McGraw Edison Electric Company purchased the company. In 1 972 it was acquired by Ajax Magnethermic Corporation and moved to Richmond, Kentucky, as part of the Ajax plant. Ajax manufactured industrial gas furnaces, and Lectrodryer's dryers fit well with the Ajax product line. In the mid-eighties, Ajax Magnathermic was acquired by the BBA Corporation, a large holding company, and in 1998 sold Ajax, along with some other businesses, to a group of investors in a leveraged buyout. The Lectrodryer division of Ajax was included in the sale.

The new owners found out very quickly they had undercapitalized the company and were facing a serious and possibly fatal cash flow problem. They were having difficulty meeting the interest payments on the debt. The lenders brought in a management consultant firm to try to turn the company around and to increase short-term cash flows. At this time, John worked as a sales engineer in Lectrodryer's marketing department where he was responsible for a key product line. He had worked for the company for 12 years.

THE BUYOUT

Five months after the Ajax buyout John was getting ready to leave for a trade show. His immediate boss said that he would like to accompany John on the trip, along with a management consultant who was currently working for the company. Although John was curious about the motivation for the request, he agreed. As the show was winding down and they were having lunch, the management consultant asked John if he would be willing to sign a management contract with Lectrodryer. John already suspected that Ajax planned to sell Lectrodyer in order to generate needed cash for Ajax. His in-depth knowledge of the major product line and his good relations with Lectrodryer's key customers would be extremely valuable if the company was sold, and the consultant knew this. John told him that he appreciated his confidence, but he and his family liked Richmond and would like to stay in the area. Then the consultant asked if he had thought about buying Lectrodryer. John said he had seriously thought about it. They asked him to make an offer.

When John got home he went to the Web to search for business plans. He found two sites that he liked and began preparing a plan. The operational costs were easy to project but the sales forecast was problematic. He believed he could cut costs by moving into a much smaller facility and keep 25 to 30 % of Lectrodyer's current employees. Based on current customer contracts, John felt they could have the company paid for in a relatively short time. Lectrodryer sales had been fluctuating around $4 million to $6 million annually. John felt that he had firm orders with customers for the next several months, and he felt that if he took over the company these customers would honor their commitment and take delivery of these orders. Based on this knowledge he was confident that he could maintain current sales level first year and could probably increase it significantly the following year.

John presented his proposal to a couple of banks in Lexington, Kentucky. The initial response from the banks was positive. They asked him to rework the proposal and resubmit it. Ted Warren, an engineering manager at Lectrodryer would be a managing partner. In addition, five investors were included as non-voting partners. Ownership was divided 34%, 34% and 32% to the non-voting partners.

The firm would be very highly leveraged, with a loan from the Lexington bank for $ 1 million at 9% and $1 million mezzanine level financing (22% interest). John estimated that if the market held up as he expected, they would be able to repay the loan within four years.

THE NEW LECTRODRYER

John and his partners took over Lectrodryer the first week of May, 2002, and were soon well on their way to cutting the planned payback period in half. They reduced the number of employees to 1 4 from approximately 50. Operating profit in the first year was $1.1 million on sales of $5 . 1 million. They were able to retire the mezzanine loan by the end of the first year of operation. Yet, with everything going so well, he was uneasy about the future. Although they dominated their market, it was a small niche, and there was a distinct possibility that competitors would try to penetrate it.

They did not have any long-term plans. They had been offered an opportunity and moved on it. John felt that in order to protect their market share, it would be necessary to grow the company. John's background was in sales, and he had no experience in long range planning. Nevertheless, he believed there were three major growth opportunities for the company: develop new products for existing markets, expand their dryer repair business, and expand globally. A fourth option would be to merge with another company in the industry or be acquired by one of the industry leaders, which, in turn, would provide Lectrodryer with the resources needed to grow

LECTRODRYER'S BUSINESS MODEL

Lectodryer designs and manufactures products that are very customer-specific. Their current line of equipment is built to specifications that are provided by their customers. The basic function of a Lectrodryer unit is to remove water and other trace elements from air gases and liquids. The company prides itself in its ability to design and manufacture a unit to meet nearly every need, from compressed air to the most complex elements and chemical processes. The most common product is a dryer, i.e., adsorption system that generally involves a dual-tower, fixed bed, cyclic operation. Because their products are designed according to the customer' s needs, orders taken from customers all have the potential for significant product innovation and involve state of the art improvements in design. The average price range of a standard dryer is $35-38,000. Delivery time is 6 to 8 weeks.

Lectrodryer 's edge over the competition derives from this continual development of technology and the high level of expertise and broad experience of their engineers and production personnel. Although competitors attempt to match Lectrodryer's products, they have difficulty in producing at the required technical level at a competitive price.

Lectrodryer has an established national distribution system, and over the years has built a national reputation for technical excellence. However, there is a potential threat from large competitors that may be able to compete head to head with Lectrodryer on the basis of a standardized product line with lower costs.

COMPETITORS

Lectrodryer's major competitors are small independent companies or divisions of larger firms specializing in specific industrial sectors and/or specific product lines. For example, Environment 1 is a small firm that specializes in instrumentation in the utilities industry. Another competitor, Pneumatic Products, was recently acquired by SPX, a $100 million corporation. They make a wide range of products, primarily for the utilities industry. There are numerous competitors that produce standard stock equipment such as desiccators and air dryers. These are produced in volume and sold off-the-shelf, rather than made-to-order items for customers. These firms are not major threats to Lectrodryer's business.

STRATEGIC OPTIONS FOR LECTRODRYER

Although Lectrodryer's initial success has been very satisfying, John believes that if they are going to continue to be successful they are going to have to grow substantially, and not remain tied to a single market niche. He knows that other larger firms are interested in penetrating his market. It is only a matter of time, and he feels that he must grow in size and expand his markets in order to be able to protect himself from challenges by rival firms.

The question is "how to grow?" given their current resource limitations. Expansion of production capacity to meet increased demand would not present a major problem. Simply removing a wall at one end of the building can easily expand the plant. In addition, Lectrodryer prides itself in having some of the most modern equipment and engineering staff in the industry. Because many of the people who were released during the buyout are still living in the area, it should also be relatively easy to expand their production capacity by adding a second shift.

SERVICE AND REPAIR OPTION

Over time, Lectrodryer 's service business has become a profit center for the firm. Contaminants found in their customers' operations damage the dryers, thus creating a constant need for repairs or replacement parts. Although there are many small companies throughout the country competing with Lectrdryer for this business, Lectrodryer has a distinct advantage in this segment because of their knowledge of the product, the skills of their employees, modern facilities, and their long-term relations with their customers.

They are considering developing long-term service contacts with customers, but such a move will require extensive marketing and promotion. Even so, this option would be less costly to implement than expansion of the existing product line and developing international markets. Currently, the service and repair business makes up about 10-15% of sales, including sales of spare parts.

EXPAND SALES IN CURRENT MARKETS

Lectrodryer currently has relatively limited advertising and promotional activities. Their promotional efforts have been limited to primarily to advertising in trade magazines related to the electric power industry, at industry specific trade shows, and through their web site. Lectrodryer places ads in trade magazines about three or four times a year, and they participate in trade shows three or four times per year. Their annual expenditure on promotion and advertising runs about $80,000. They are highly reliant on manufacturer representatives to market their products. Overall, they feel that these marketing channels have not been very effective. Some of the sales representatives have been much more productive than others.

NEW PRODUCT DEVELOPMENT

As mentioned previously, their products are designed according to constantly changing needs of their customers. Because of this, Lectrodryer personnel have no shortage of ideas for significant product innovation that involve state of the art improvements in design. Lectrodryer has a new 12,500 square foot facility. The plant has the capability of complete in-house engineering and fabrication. It can produce standard as well as custom design units

INTERNATIONAL MARKETS

There appears to be substantial growth opportunities in international markets. Although there is limited opportunity for growth in the domestic electric utility market due increased competition, this is not the case in international. Countries where the company sees potential include Germany, Japan, South Africa, Mexico and Australia. Utilities and refineries in these countries are upgrading their operations and expanding. Many have obsolete equipment that must be replaced. In addition, some U.S. electric power companies are making significant investments in foreign nations, often in collaboration with foreign partners. This growth is projected to continue at an increasing rate because the energy demand in foreign countries is expanding faster than it is in the U.S. Currently, about 30% of Lectrodryer's business is international. This could rise to 60% or more in a few years if this option were chosen.

MERGER OR ACQUISTION

A merger with another company in the industry or a related industry might be a way to acquire the necessary resources to achive the desired growth. Lectrodryer has considered taking a hard look at companies that would be a good fit with their current product lines and market strategy. At this point, they have concerns how a merger or acquisition might negatively affect their long-run performance.

AuthorAffiliation

Steve Brown, Eastern Kentucky University

Steve.brown@eku.edu

Bill Davig, Eastern Kentucky University

Bill.davigh@eku.edu

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 14

Issue: 1

Pages: 15-19

Number of pages: 5

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412358

Document URL: http://search.proquest.com/docview/192412358?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-16

Database: ABI/INFORM Complete

Document 59 of 100

GEOGRAPHIC INDICATIONS AND BEER: THE BUDWEISER CASE

Author: Forsythe, Lynn M; Kemp, Deborah J

ProQuest document link

Abstract:

Anheuser-Busch is an American brewery founded in 1852 by Eberhard Anheuser and his son-in-law Adolphus Busch. They were German immigrants. Originally it was called George Schneider's Bavarian Brewery (Anheuser-Busch web site, The Evolution of Anheuser-Busch web page). Bavaria is an area in southern Germany internationally recognized for its fine beer making tradition. A third member of the company, Carl Conrad, developed the Budweiser brand beer from a recipe he obtained in Bohemia, an area in southeastern Germany and now part of the Czech Republic. It is called Bohemia, very near Bavaria, also in southeastern Germany. He named the beer Budweiser intending to remind people of the old country with its fine beer-producing heritage (Zylberg, 2002/2003). In 1876, Anheuser-Busch began producing Budweiser, America's first national beer brand. It registered the brand two years later, 19 years before Budejovicky Budvar opened. Anheuser-Busch claims that it took the name Budweiser because its German founders used the name from their homeland (Hungarian Tribunal, 2002). A century later the company's loyalty to and nostalgia for that region of the globe would cause problems with new intellectual property laws developed to protect producers of food and spirits who have named their products after the geographic place from where the products derive.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of the case is the recognition and protection of geographic indications. Secondary issues examined include U.S. and international trademark law and international treaties. The case provides a platform for discussing and comparing domestic and international trademark law. The dispute illustrates the various nations' conflicting positions concerning protection for geographic indications. The case is appropriate for juniors, seniors, and graduate students. If the case is used as a vehicle for class discussion, it can be taught in one class hour and is expected to require two hours of outside preparation by students. It can also by used for class debates, particularly on the legal and cultural issues, which effectively pit old world countries against new world countries. Depending on the structure, this will also require one class hour and two hours of outside preparation. If it used as a mock negotiation between Anheuser-Busch and Budejovicky Budvar, it would take two to three class hours and four hours of outside preparation by students.

CASE SYNOPSIS

This case is about the long standing dispute between two beer producers, Anheuser-Busch and Budejovicky Budvar. This dispute began in 1906. It is an international dispute because Anheuser-Busch is a U.S. company and Budejovicky Budvar is a company owned and operated by the Czech Republic. Both beer producers contend that they have the exclusive right to use the Budweiser and Bud trademarks in their own countries and internationally. This dispute has escalated as both breweries increase their exports into the international marketplace. Anheuser-Busch manufactures and exports Budweiser and Bud in over 90 countries.

The parties have engaged in 40 lawsuits and 40 administrative worldwide. Much of the litigation centers on the conflicting positions of trademark and geographic indication law.

FACTUAL BACKGROUND

Anheuser-Busch - "The King of Beers"

Anheuser-Busch claims that it took the name Budweiser because its German founders used the name from their homeland (Hungarian Tribunal, 2002). A century later the company's loyalty to and nostalgia for that region of the globe would cause problems with new intellectual property laws developed to protect producers of food and spirits who have named their products after the geographic place from where the products derive.

The Anheuser-Busch web site is located at http://www.anheuser-busch.com/. As is typical of publicly traded companies in the U.S., the web site contains detailed financial data. The officiai web site for Budweiser beer is http://www.budweiser.com/. The second site is restricted to viewers who are over 21. It is primarily a promotional piece.

Anheuser-Busch is the world's largest brewer. In 2006, it was ranked 146 in the Fortune 500 Largest U.S. Corporations. Anheuser-Busch also ranked 3rd in its industry (Beverages) (Fortune 500 2006). Anheuser-Busch brews beer in 10 countries and sells its beer in over 80 additional countries ("Anheuser-Busch Cos. Reports Improved Sales," 2005). Anheuser-Busch's flagship beer, Budweiser, is widely known.

Anheuser-Busch posted a strong fourth quarter for 2006: its net income was $190.7 million (Anheuser-Busch 4th-qtr Profit Up, 2007). This equals 25 cents per share. This compares to $145.6 million or 19 cents per share for the fourth quarter of 2005. Anheuser-Busch has reported that its target is to increase profits by 7 to 10 percent per year.

Budejovicky Budvar -"The Beer of Kings"

Budejovicky Budvar is a state-owned Czech beer producer. Czech privileged brewers, who owned the local brewing rights, and Czech businessmen, established the brewery in 1895 (Budejovicky Budvar web site, History page). This occurred in the town of Ceské Budejovice, which was called Budweis by the German-speaking people living in the area at the time. Sometimes the town has been under Czech control and other times it has been under German control.

While Budejovicky Budvar is a newer company, it upholds an historic tradition of beer production in Ceské Budejovice that dates back to the 13th century (Budejovicky Budvar web site, History page). The Czechs say "Budweiser" refers to "Budweis," the name of the city. They argue that this name commonly referred to beer brewed in the area hundreds of years before AnheuserBusch started brewing Budweiser. Sometimes they contend that the use of the name began in the Middle Ages (Hungarian Tribunal Finds for Anheuser-Busch).

The brewery began conquering "markets on all continents from the 1920s. In line with this expansion, it registered the trademarks 'Ceský budejovický gran ́t' (Czech Budejovice Garnet), 'Budweiser bier' and 'Budbräu' (Budbrew). 'Budvar' followed in 1930 ... The brewery actually renamed itself Budvar ... in 1936" (Budejovicky Budvar web site, History page). (Museum Online has historic beer labels from Budvar.)

The brewery was managed by the Nazis during World War II, and was nationalized soon after the war. Budejovicky Budvar was to be privatized after the fall of communism in Czechoslovakia in 1989. So far, this has not occurred. A spokesman for the Czech Ministry of Agriculture has said that privatization "is not on the agenda." Some attribute this to a fear that Anheuser-Busch would acquire the brewery.

The Budejovicky Budvar web site is located at http://www.budvar.cz/. It is available in three languages, including English. Since April, 2005, the web site has been renamed. It is now called Budweiser Budvar.

Beer is a major export of the Czech Republic. Budvar makes up one-fourth of the beer exported from the Czech Republic. "Some of its largest markets are in Germany, Great Britain, Slovak Republic, Austria, Italy, Russia, France, Spain, Hungary and Poland." Budvar has created business entities in other countries to facilitate sales. One example is Budweiser Budvar UK in Great Britain. (Budweiser Budvar web site, Distribution Abroad page). Budvar exports its beer to more than 50 countries "Some of its largest markets are in Germany, Great Britain, Slovak Republic, Austria, Italy, Russia, France, Spain, Hungary and Poland." Budvar has created business entities in other countries to facilitate sales. One example is Budweiser Budvar UK in Great Britain. (Budweiser Budvar web site, Distribution Abroad page). In 2002, Budvar had a profit of $10.3 million. Anticipated profits for 2003 are $13.3 million (Janicek, 2004). Its annual output has increased to 1,213,000 hectoliters (Budejovicky Budvar web site, History page). In the U.S., Budvar must sell its beer under the name of Czechvar (Cancelada, 2003; Budweiser Budvar web site, Distribution Abroad page).

THE LEGAL DISPUTE

Budejovicky Budvar claims that the name Budweiser is a geographic indication that a beer originates in the Budweis region of the Czech Republic. Geographic indications may be protected in a manner similar to trademark. Many countries recognize protection when the quality, reputation, and characteristics of the product (beer) are attributable to the region. Beer is made of at least 94 percent water. The water in Budvar comes from Ceské Budejovice. Budvar is made from Moravian malt from the Olmouc region. The recipe also uses Prerov and Zatec hops (Zylberg, 2002/2003). Arguably the Budweis water, malt, and hops give Budvar the exclusive right to designate its beer Budweiser.

Trademark, similar to geographic indication, gives the owner of the mark or name an exclusive right to use the trademark to market a product. If another marketer uses the same trademark and if the use causes consumers likelihood of confusion, the owner of the trademark can prevent the other's use of it. Anheuser-Busch claims it has a trademark in the term Budweiser. The trademark dispute between the two breweries began in 1906 (Janicek, 2004). In 1939, the breweries entered into an agreement giving Anheuser-Busch exclusive rights to the name Budweiser in all American territories north of Panama (Janicek, 2004).

Beer has become a common export item, and the agreement was insufficient to protect Anheuser-Busch in overseas markets. Conflict was inevitable as both breweries expanded their exports. The breweries attempted to negotiate a resolution in the mid-1990s. When the negotiation failed, Anheuser-Busch initiated legal action. There have been various court cases between Anheuser-Busch and the Czech beer producer Budejovicky Budvar. The U.S. and the Czech Republic interpret the laws differently: They also argue that different laws apply to the dispute. Budvar is registering its trademark and prosecuting Anheuser-Busch in various countries. The U.S. stands steadfastly beside its trademark doctrine and the generally recognized likelihood of confusion test.

The older European countries give much deference to the geographic indication of a product. Many do not require that consumers actually be confused to enable a producer to prohibit others from using a geographic indication in their names. Some permit the invalidation of previously registered and recognized trademarks if the European court finds the term is indeed a geographic indication (For example, Portugal's Supreme Court of Justice refused Anheuser-Busch's trademark registration of Budweiser, but allowed registration of Bud. See Zylberg, 2002/2003.)

These two beer producers have taken their dispute to courts in 24 countries around the world (Janicek, 2004). Anheuser-Busch won exclusive rights to use the name Bud in Argentina, Australia, Brazil, Denmark, Finland, Hungary, Italy, and New Zealand (Report: Budvar Challenges A-B's Bud Trademark, 2004). In Britain, it shares the right to use Bud with Budvar.

SUMMARY OF U.S. TRADEMARK LAW

Trademark protects the exclusive right to use an identifying mark that consumers come to associate with a product. Budweiser is a trademark for a very popular beer produced by AnheuserBusch, a business located in the U.S. In the U.S., a trademark can be recognized in two ways. First, statutory trademark is protected under federal law upon registration of a unique and fanciful mark or word. Second, common law trademark automatically protects a mark or word associated with a product in the minds of consumers. Its existence is a factual determination. International law recognizes the right to register trademarks. It might permit, but does not embrace, the common law trademark. It explicitly recognizes registration for trademark protection.

The U.S. stance on trademark is consistent with traditional protection afforded by most developed nations' laws, except for one major difference. The U.S. is use based, while most of the world is registration based. The U.S. recognizes both common law and statutory trademark protection. Most countries require registration in order to find protection for a name or mark. While registration is preferable it is not required by the U.S., which recognizes use of the mark and reputation of the producer as significant in determining trademark protection.

SUMMARY OF INTERNATIONAL TRADEMARK LAW

The international law on geographic indications is included in treaties and conventions addressing trademarks. The international agreements include the Paris Convention, Trade Related Aspects of Intellectual Property (TRIPs), the Madrid Agreement, the Madrid Protocol, and the Lisbon Agreement. These agreements provide guidelines for trademark protection and for geographic indication protection. Some are widely adopted and others are less recognized. Summaries can be made available for student use. (See Burgunder, 2007, for a summary of the significant points of the international agreements).

DISCUSSION QUESTIONS

Are U.S. consumers willing to pay more to be assured that the origin of products is "guaranteed?" Why or why not? What about the consumers in other countries? Why?

Do you think members of the public are confused between the two beers? Do they order or buy one when they really want the other?

Why do you think the negotiation between Anheuser-Busch and Budejovicky Budvar failed?

What are the differences between private and state ownership of companies?

Is the dispute influenced by the fact that Budejovicky Budvar is owned by the Czech government and Anheuser-Busch is privately owned? How?

Who benefits from the string of court cases? Does either company benefit? Is the answer dependent on who "wins" the lawsuit?

What are the economic impacts of the dispute and the decisions on Anheuser-Busch and Budejovicky Budvar? What are their impacts on the economies of the U.S. and the Czech Republic?

Who benefits from the publicity surrounding the dispute? Why?

What public policies are fostered by the E.U. approach? What policies are fostered by the U.S. approach?

Which of these two approaches do you favor and why?

This dispute illustrates a clash of values. What values are inherent in the E.U. approach and the U.S. approach? How are these values represented in each culture?

AuthorAffiliation

Lynn M. Forsythe, California State University Fresno

lynn_forsythe@csufresno.edu

Deborah J. Kemp, California State University Fresno

deborahk@csufresno.edu

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 14

Issue: 1

Pages: 29-33

Number of pages: 5

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412475

Document URL: http://search.proquest.com/docview/192412475?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-16

Database: ABI/INFORM Complete

Document 62 of 100

EMPLOYMENT AT WILL: THE EMPLOYEE HANDBOOK EXCEPTION

Author: Hoft, John; Thomson, Neal F

ProQuest document link

Abstract:

In general, employment relationships are governed by a doctrine called employment at will. Essentially, this means that an indefinite employment relationship with no specified duration may be ended by either party at any time for good reason, bad reason, or no reason at all unless prohibited by law or public policy (Monaco v. American General Assurance Company, 2004). The rationale for the rule is that it permits either the employee or employer to terminate the employment relationship for any reason without liability to the other (Mizell v. Sara Lee Corporation, 2005). Thus an at-will employee may resign at any time and an employer may discharge an employee at any time. Neither act is a breach of contract (Jimenez v. Colorado Interstate Gas Company, 1988).

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case is the employment at will doctrine and how it may be modified by an employee handbook. This case has a difficulty level of three intended for an upper division undergraduate course. This case is designed to be taught in one class hour, and is expected to require two to three hours of outside preparation by students.

CASE SYNOPSIS

This case begins by discussion of the employment at will doctrine, which governs most employment relationships in the U.S. The "at will" rule provides that where an employment relationship is of an indefinite duration either party may terminate the relationship at any time for any reason or for no reason at all. This usually bright line doctrine, however, is subject to three general exceptions: (1) the public policy exception; (2) the employee handbook contract exception; and (3) an implied covenant of "good faith and fair dealing" exception. This case will focus on the employment handbook contract exception. The case presents several vignettes in involving employment discharge and discipline and the effect of an employee handbook, if any, upon the right of the employer to terminate an employee "at will". The student is asked to examine the details of each situation, and determine whether employment at will applies or whether the handbook will be deemed to modify the "at will" nature of the relationship.

INTRODUCTION

The rationale for the rule is that it permits either the employee or employer to terminate the employment relationship for any reason without liability to the other (Mizell v. Sara Lee Corporation, 2005). Thus an at-will employee may resign at any time and an employer may discharge an employee at any time. Neither act is a breach of contract (Jimenez v. Colorado Interstate Gas Company, 1988).

EXCEPTIONS

In defining when the employment at will doctrine will apply, the first, and most obvious exception, is the presence of a formal employment contract that specifies a definite term of employment or definite discharge procedures. This may be either in the form of a two party contract between the employer and employee (Niznik, 2007a), or a collective bargaining agreement between a union and the employer (Niznik, 2007b). In either case, the "at will" rule is modified per the contract terms. Moreover, a contract is not always necessary for limitations to employment at will. Law and public policy often limit the ability of an employer to terminate employees, for example, terminations that violate equal employment laws.

A more vexing, and less clear exception, is the implied contract. This usually manifests itself through an employee handbook, or company policy manual. Over the past two decades many courts have modified the traditional "at will" employment rule when an employer's handbook or policy manual contains language that provides that discharge will occur for cause or only after certain conditions have been met (Meier v. Family Dollar Services, Inc., 2006). Under such circumstances the employee handbook does not change the fundamental nature of the "at will" doctrine but requires that the employer follow the handbook's disciplinary and discharge procedures or face litigation for damages (Deutsch v. Chesapeake Center, 1998).

DISCLAIMERS

The good news for employers, however, is that there is a way to avoid an implied contract when issuing a policy manual or employee handbook. An employer may offer a disclaimer, specifically stating that the handbook or policy manual is not a contract. A typical disclaimer may state: "This manual is not a contract. Nothing in this manual constitutes an expressed or implied contract of employment or warranty of any benefits. Your continued employment with _____ is based upon mutual consent. The employment relationship is voluntary and either the employee or the Company may terminate it at any time. It is our hope to have a mutually beneficial and rewarding relationship with you" (Mizell v. Sara Lee Corporation, 2005).

Courts have ruled that a clear and forthright disclaimer, in general, will prevent the handbook's terms from being an enforceable contract and will afford an employer a complete defense to a suit for breach of contract based on a handbook (Workman v. United Parcel Service, Inc., 2000). Nevertheless, the presence of a disclaimer in the company handbook will not always prevent the handbook from modifying the "at will" employment doctrine or prevent the handbook from being deemed an enforceable contract. The courts have required that disclaimers meet certain requirements in order to be effective.

INEFFECTIVE DISCLAIMERS.

Disclaimers have failed to achieve the desired result in cases where the disclaimers were ambiguous; or, where the disclaimers were not apparent and were essentially "hidden"; or, where the disclaimers were not reasonably conspicuous; or where the disclaimers were not communicated to the employee.

Ambiguity.

Ambiguity arises when the employer uses a multitude of documents to communicate company policy. In such cases, the courts have held that while the handbook did contain a disclaimer the employer created ambiguity by providing employees with other policy documents without a disclaimer. In short, disclaimers must be clear and unambiguous in order to negate the contractual effect of an employee handbook (Johnson v. Nasca, 1990).

Placement.

Faulty placement can occur and defeat the intent of the disclaimer when the disclaimer is not placed in a prominent place in the handbook and could easily be overlooked by a reasonable employee (Perman v. Arcventures, Inc., 1 990). The courts have found a disclaimer to be ineffective when it was not distinctly set out separate and apart from the handbook text and is effectively hidden (Long v. Tazewell/Pekin Consolidated Communications Center, 1991).

Conspicuity.

Lack of conspicuity occurs when the disclaimer is of insufficient size or appearance that an ordinary reasonable employee would not see and note its contents. Where a handbook disclaimer was not set off in any way, was placed under a general subheading, was not capitalized and was of the same type size as another provision on the same page it was held to be not adequately conspicuous (McDonald v. Mobil Coal Producing, Inc., 1991).

Notice.

Failure to show that the disclaimer was communicated to the employee may be fatal to its enforcement. An employer must bring its handbook disclaimer to the personal attention of its employees (Morriss v. Coleman Company, Inc., 1987).

CASES TO EXAMINE

You have recently been hired into an HR department at a major corporation. In order to teach you about employment at will, your company has given you five cases, each describing a situation involving an employee being terminated under what the company in each case deemed to be employment at will. Examine the following five cases, and answer the questions that follow for each case.

Case 1 - The Pharmaceutical Manager.

In November, 1989, Mr. Norton, an indefinite term employee, was discharged by his employer. Before his termination, Norton had been general manager of a Minneapolis pharmaceutical services company. In Minnesota, employment for an indefinite term is considered "at will" and terminable by either party for no reason. During the course of Norton's employment, Caremark supplied Norton with a document entitled Disciplinary Action Guidelines and explained the Guidelines to him. The company stated that the Guidelines' termination procedure and policy "must be adhered to strictly" when an employee "deviates below an acceptable level of performance". The Guidelines proceeded to provide for progressive discipline with a process that was to involve four steps: (1) a verbal warning; (2) a written warning; (3) a final corrective performance upgrade program; and (4) termination. Mr. Norton's vice-president said Norton was fired for poor performance but he did not bother to follow the Guidelines beforehand. The vicepresident felt justified in firing Norton because Norton was an "at will" employee.

Case 2 - Peek-A-Boo

Patricia was employed as a telecommunications dispatcher and was a permanent employee. Her company furnished her with an employee handbook entitled "Rules and Regulations Manual" that stated its contents were "designed to clarify your rights and duties". The handbook provided that termination "cannot occur without proper notice and investigation" and advised that permanent employees "are never dismissed without prior written admonitions and/or an investigation that has been properly documented". Contained in the section describing the duties of a telecommunications dispatcher in the same type, font, style and size as the job description text were the words: "the employer may discharge the employee at any time". Patricia received two letters from her employer on one day in September. The first letter set forth five complaints about her job performance. The second letter terminated her employment effective immediately. The employer felt justified in the discharge because Patricia was an "at will" employee and the manual contained a disclaimer which applied to Patricia's situation.

Case 3 - The Mortgage Company

Mark Wojcik was an employee at Commonwealth Mortgage Corporation. Mr. Wojcik was terminated by Commonwealth, for "poor performance and poor attitude" Commonwealth Mortgage does have an employee handbook, a policy manual, as well as a set of "disciplinary guidelines" that are at issue in this case. The employee handbook states the following: "The language of this handbook is not intended to create a contract between the company and any of its employees. Furthermore, the policy manual states "In no event will the hiring of an employee be considered as creating a contractual relationship between the employee and the company. Their relationship is defined as 'employment at will' where either party, with appropriate notice, may dissolve the relationship. However, the company also has a "disciplinary guideline," in a document called HR 510, that states: "Appropriate measures for correcting performance problems are coaching, memoranda outlining specific steps for improvement and probation. Termination for performance issues occurs only after the employee has been given the opportunity and support necessary for improvement. The company alleges that the statements in the employee handbook and policy manual make clear that the conditions of employment are "at will". Mr. Wojcik alleges that HR 510 creates an implied contract, which requires remediation prior to termination.

Case 4 - Monkey Business

Bonnie Eckhart and Bridget Mueller were employed without a contract by the Yerkes Regional Primate Center in Atlanta, Georgia. They complained to their superiors about transfer procedures that the company used in shipping of Macaque monkeys to research institutions. They indicated that there was a significant health risk to the public if the monkeys infected with the deadly Herpes B virus happened to escape into public places. The employees were subsequently terminated. They complained that the discharge was unfair and against public policy because they were attempting to perform a public safety measure. The company did not have a policy or handbook that dealt with whistleblowing. Georgia does not have a whistleblower statute.

QUESTIONS

Answer the following questions, for each of the above cases:

1) Was this a pure employment-at-will situation, or did one of the exemptions apply? If an exemption was applicable, which one?

2) Did the employee handbook, or other document exist, that included language that could have been deemed to create an implied contract?

3) If the answer to question 2 is yes, did the employer also include a disclaimer? Was the disclaimer adequate, or was it ineffective?

4) What would you have done differently, if anything, if you were the manager in charge at each of these companies?

References

BIBILIOGRAPHY

Deutsch v. Chesapeake Center, 27 F.Supp.2d 642 (D.C. Md. 1998.

Eckhardt v. Yerkes Regional Primate Center, 561 S.E.2d 164 (Ga.App. 2002).

Jimenz v. Colorado Interstate Gas Company, 690 F.Supp. 977 (D.C.Wyo. 1988).

Johnson v. Nasca, 802 P.2d 1294 (Okla. App. 1990).

Levy, R.L. (2005). Judicial Interpretation of Employee Handbooks: The Creation of a Common Law Information-Eliciting Penalty Default Rule. The University of Chicago Law Review; Spring 72, 2, 695-727).

Long v. Tazewell/Pekin Consolidated Communication Center, 574 N.E.2d 1191 (Ill.App. 1991).

McDonald v. Mobil Coal Producing, Inc., 820 P.2d 986 (Wyo. 1991).

Meier v. Family Dollar Services, Inc., 443 F.Supp.2d 1036 (N.D. Iowa 2006).

Mizell v. Sara Lee Corporation, 2005 U.S. Dist. LEXIS 36988 (E.D. Va. 2005).

Monaco v. American General Assurance Company, 359 F.3d 296 (3rd Cir. 2004).

Morriss v. Coleman Company, Inc., 738 P.2d 841 (Kan. 1987).

AuthorAffiliation

John Hoft, Columbus State University

Hoft_John@colstate.edu

Neal F. Thomson, Columbus State University

Thomson_Neal@Colstate.edu

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 14

Issue: 1

Pages: 43-47

Number of pages: 5

Publication year: 2007

Publication date: 2007

Year: 2007

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412466

Document URL: http://search.proquest.com/docview/192412466?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2007

Last updated: 2013-09-16

Database: ABI/INFORM Complete

Document 74 of 100

The Client-Supplier E-Relationship Management: A Case Study In The European B2B Office Furniture Industry

Author: Tagliavini, Marco; Ghiringhelli, Elisa

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Abstract:

The case study presents an overview of e-business activities within the European B2B office furniture segment, analyzing the scenarios faced by one of the top companies in this segment, hereafter fictitiously referred to as "Cadiac." Focus is on challenges and issues faced by this company in the last five years within the client-supplier e-relationship management: from the use of Internet-based technology to improve the information exchange with clients and dealers to the development of customer relationship management applications. The present overview explores:market peculiarities and their impact on e-business strategy, challenges, and issues, the different technical solutions adopted through real client case studies, future challenges and opportunities. Of course, the e-business channel is leveraged by Cadiac as an additional channel to the traditional face-to-face negotiation, and in any case is replacing it. The purpose, on the contrary, is to reinforce the business model (sales are driven through a dealer network) by offering a way to reduce complexity and facilitate order management. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: B2B e-commerce; e-commerce models; electronic marketplaces; extranet platforms; e-procurement; office furniture; client-supplier relationship

INTRODUCTION

For the past several years, information technology (IT) has had a growing impact on companies everywhere. Today the influence of IT not only on operating activities but also on the redefinition and pursuit of the business strategy is widely accepted (Boynton & Zmud, 1994; Drucker, 1988).

The domain of electronic business (e-business) is characterized by rapid change (Daniel & Wilson, 2003), and many researchers have been focusing their attention on the assessment of the value of e-business applications (Zhu, Kraemer, Xu, & Dedrick, 2004).

Current research and development in the field of business to business electronic commerce is focusing on solutions that enable enterprises to reengineer their structures and become flexible organizations that are able to cooperate with their clients, suppliers, and partners. These solutions aim at creating value along the entire supply chain by improving collaboration, work specialization, information sharing, and responsiveness. An area to which IT is adding tangible value is the clients-suppliers relationship management (Ash & Burn, 2003; Phan, 2003).

This work describes the experience of the international division of Cadiac, one of the worldwide top companies in the office furniture industry, implementing e-procurement applications for its customers in order to support the relationships and information exchanges with them. Current e-procurement technologies are in their developmental infancy and a dominant design, as well as a clear understanding of the actual costs and benefits, is still unclear (Davila, Gupta, & Palmer, 2002; Subramaniam & Shaw, 2004; Kauffman & Mohtadi, 2004; Johnson & Klassen, 2005).

Pavlou and El Sawy (2002) synthesize several theories about interfirm relations and suggest the use of the reach of relations to examine them. The reach of relations measures the number of potential partners to which a firm has access, that is, potential trading partners in a business-to-business exchange. The cross-analysis of the reach of relations of both buyers and suppliers gives a two-dimensional classification scheme as a result (Figure 1), in which four typologies of interfirm relations are identified:

1. Many to many, where many customers and many suppliers are able to interact;

2. Many to few, where many suppliers are involved in the procurement process of one or few enterprises;

3. Few to many, where many customers buy through a sales channel of one or few enterprises;

4. Few to few, where a small group of buyers and suppliers share tight and strong strategic and collaborative relations.

Each interfirm relation can be electronically supported by a specific e-procurement application (Ravarini, Tagliavini, Zanaboni, Faverio, Moro, 2003):

5. E-marketplace (many to many): a virtual place where multiple buyers and suppliers are able to transact, buying or selling goods or services, asking for costs estimates, offering, and stipulating commercial relationships. Emarketplaces make it possible to match demand with offer, so that buyers can reduce procurement costs and suppliers can improve the visibility of their companies and products (Neef, 2001; Phillips & Meeker, 2000). On the other hand, the number of firms involved in this type of exchange precludes strong interfirm relations;

6. E-procurement (many to few): a solution that allows traditional powerful buyers to capture benefits by leveraging their existing physical into online B2B exchanges (Pavlou & Sawy, 2002). There are two forms of e-procurement: the Web-based one that allows many suppliers to participate, and the close one that may involve only few selected suppliers;

7. E-sell (few to many): a virtual sales channel through which a few big suppliers put their products and catalogues at many buyers' disposal, a mechanism that closely follows the primary model for business-to-consumer e-commerce. There are two forms of e-sell: the Web-based one that allows many buyers to participate, and the close one that may involve only few selected buyers;

8. Supply chain management systems (few to few): Internet-based applications supporting close and strategic relationships between a small number of firms.

In the late 1990s, Cadiac's clients pushed the company to be involved in an e-procurement scenario (many to few). The organizational background, business model, and strategy led it to invest in the supply chain management system described above instead, thus moving to a few to few scenario.

The following sections will describe the issues faced by Cadiac and the strategy and e-solutions adopted in order to respond to market solicitations by implementing this change.

ORGANIZATION BACKGROUND

Cadiac began its activities in the United States at the beginning of the twentieth century and became a publicly held company in the late 1990s. Cadiac has been the world's leading designer and manufacturer of office furniture for the past 25 years. It has manufacturing facilities in over 35 locations worldwide and an extensive distribution system that enables it to serve markets locally. In fact, its products and services are available in over 800 locations around the world, in more than 100 countries, by means of a network of independent authorized dealers. It currently employs over 14,000 people.

Cadiac is today composed of two separate entities: The first one includes the US, Canada, and Mexico, and the second one includes all the other countries in the world (in Europe, Africa, South and Central America, and Asia Pacific). These entities share of course the same vision and strategy, but are separate and independent in terms of sales and organization.

The global headquarters are located in the United States. The international division is headquartered in Europe, where corporate resources like marketing and communication, research and development, finance, and human resources are based, whereas its sales organization is decentralized in several local subsidiaries. Today it employs more than 3,000 people and represents about a quarter of Cadiac's total turnover.

The office furniture market is generally characterized by a very high number of players, most of which are small companies competing at a local level. Larger companies usually have an international reach-although their position is typically stronger in one country-and only a few companies are present on a really global scale.

These companies operate mostly through commercial partners-subsidiaries and networks of independent dealers-whereas only a few of them sell their products directly to their business end users; finally, some companies put in place a mixed strategy. While the direct sales model allows a better control of the supply chain, the dealer network model makes it possible to increase local capillarity and to extend the office furniture offer with bottom line activities such as carpeting, moving services, lighting, and so forth.

From the client's point of view, office furniture can be perceived as a commodity, and therefore the customer's focus is typically on price.

This is one of the most significant segmentation factors within the office furniture market. Many companies base their strategy on low prices and therefore sell products that meet the basic needs of their potential customers, which means providing an acceptable level of real and perceived quality, variety of the offer, and pre- and after-sales services, while at the same time focusing particularly on keeping costs down. Their offer is addressed to the widest possible target within the low and middle market segments.

On the contrary, other, mainly large and global, companies tend to adopt a more sophisticated approach to the market, for example by using a "design/image" driver where the main focus is on image and product aesthetic, by founding the product strategy on ergonomic principles, or by leveraging space as a strategic asset that can significantly influence the employees' performance. These companies, which include Cadiac, boast a higher positioning and represent the top segment of the office furniture market, with the highest price positioning but also the highest added value for the client; their offering is therefore addressed to a narrower but still relevant target represented mainly by large global and international companies, for which this added value is fundamental and definitely more significant than price. Within this segment, differentiation is basically determined by the above-mentioned drivers and by the nature and quality of consulting services and of pre- and after-sales services, rather than by price.

Cadiac's strategy is centered on the concept of workspace as a strategic asset that enables people to achieve higher performance levels; indeed, a thorough knowledge of people at work is translated into products and services that actually help them work more efficiently and effectively. Research and development activities consequently play a fundamental role and are meant to achieve continuous improvements in order to fulfill the promise of a better work experience.

The head of corporate communication of the international division said:

Our strategy is to unlock the potential of people at work and to inspire them to higher levels of achievement. So we are driven by two central ideas: On the one hand, to innovate by identifying unmet needs and new market opportunities and developing new, user-centered products, solutions, and services through research and observation of people at work; on the other hand, to achieve enterprise perfection in terms of right level of costs, quality, and speed throughout manufacturing and distribution and across the supply chain and office operations. Our primary clients are companies that want to use space as a strategic asset, in order to support their strategy and achieve their objectives. We are definitely passionate about work!

Cadiac boasts a wide product portfolio including desks, furniture systems, tables, seating, storage, worktools, textiles, interior architecture products, lighting, technology appliances, and technology infrastructure products, and a full range of services, from consulting services to furniture and asset management services, financial services and, last but not least, e-business.

SETTING THE STAGE

For a long time, companies have been focusing on purchasing as the major source of cost reduction for the organization. Today, three relevant trends with significant impact on the business environment have to be faced: The client base and operations are increasingly globalized, bundling of products and services are becoming increasingly important, and the manufacturing sector is affected by a rapid evolution of technology. These are leading to four major changes within clients' purchasing policies:

* Identification of a limited number of preferred suppliers worldwide;

* Selection of negotiated, worldwide, or regional product standards by client's corporate offices;

* Implementation of standard procedures for purchasing policies;

* Implementation of e-business technology integrated with the company's applications.

In a client's words,

Clients are looking for partners, rather than suppliers, able to allow them to become more competitive and win more business.

Many companies consider the streamlining of day-to-day purchasing activity and the globalization of their processes as the most important benefits coming from the adoption of e-business. In fact, the e-business activities:

* Determine a decrease in transaction costs because of the automation of administrative processes and the efficiency increase of the approval processes;

* Allow the purchasing department to be more effective (more user control within set approval processes, simple and reliable statistical reports, realtime monitoring of pending orders and more effective asset management) and therefore to focus on more strategic activities;

* Enable a systematic use of corporate agreements, resulting in fewer "maverick" purchases, strengthened partnerships with the selected suppliers, and faster updating of the available product range.

From the supplier's perspective, some companies-namely those belonging to the low and middle market segments-produce a very limited number of products in few options; for example, a desk can be rectangular or waved, available in two lengths and in two colors. The advantage for the client is that the product has a fixed price and that the delivery time is narrower (in fact, stock can be easily managed); on the other hand, this implies that a very limited number of options is allowed and no customization is possible-the level of services is typically rather basic and the client-supplier relationship is generally managed on a nonpersonal base.

For these companies, making their offer available on the Internet represented a natural and coherent evolution of their sales model: a defined product range, with fixed prices and delivery terms, available for all clients with limited differentiation or no differentiation at all.

On the contrary, Cadiac's product portfolio includes around 50 different product ranges, each of them available in several typologies (e.g., rectangular desks, waved desks, etc.) that can be further configured with up to nine options (e.g., color of the top, type of legs, color of the structure, etc.), which means that a total of hundreds of combinations is possible. Besides this "standard" offer, Cadiac is also able to produce tailor-made products based on existing models but specially customized to meet specific client needs in terms, for example, of dimensions, materials, and finishes or to fit into peculiar layouts. The clientsupplier relationship, as a consequence, has to be managed on a personal base by the salespeople and the dealerships and, for example for the so-called "key accounts," dedicated teams are put in place.

For companies that adopt this kind of approach to the market, e-procurement represented a real challenge: How is it possible to maintain customer focus, but avoid adopting the commodity perspective and therefore lose all added value and, as a consequence, competitive differentiation?

The international e-business project manager at Cadiac explained:

In the late 1990s some large, international companies started asking their European suppliers to provide product catalogues in an electronic format, so as to be able to upload them on their e-procurement platforms. It was still a many to few scenario, in which buyers were managing purchasing relationships with all their suppliers through one e-procurement system. Most of the companies that first asked us to provide e-catalogues were companies with whom we already had a commercial relationship; they were large, international companies that had started to upload e-catalogues for commodity products such as toiletries and stationeries and that were at that time turning their attention to the office furniture segment. Since satisfying our customers has always been extremely important for us, we started to provide simple e-catalogues on request (this is what we call "passive e-procurement"), but we also wanted to increase customer loyalty and to drive our added value through an electronic transaction as well. In short, we wanted to differentiate ourselves and to move from a many to few to a few to few e-relationship with our clients.

In 2001, the international division of Cadiac decided to develop its own e-business solutions. Its strategy was focused on a wider implementation of negotiated agreements and local personalization in terms of product range, pricing, services, currencies, and languages. This initiative was seen as a company-wide effort, embraced by the various functions of the organization.

A team dedicated to e-business was put into place, comprising representatives from key geographies as well as IT experts and reporting to the corporate sales support team. The e-business team was composed of four people, each of them covering a specific region, and had the objective of "leveraging e-business in order to provide e-solutions and tools everywhere, and to strengthen the partnership with customers and dealers."

The role of the e-business team still is, on the one hand, to develop e-business expertise and share it with the members of the sales network through specific trainings and sales tools, and on the other hand, to manage e-business projects: Cadiac's sales representative and the dealer are responsible for the relationship with the client, whereas the e-business project manager simply guides them through the implementation and maintenance of the e-business project, without overlapping/conflicting with the sales strategy but rather making sure this strategy is supported by the most appropriate e-solution.

One of the e-business-enabled changes is definitely the transformation of the relationship with intermediaries. Many authors refer to e-business as the cause of important changes in the company value chain. Reynolds (1997) asserts that relationships with customers will become increasingly remote and impersonal. Other authors (Wigand, Picot, & Reichwald, 1997) uphold the theory that the complete disintermediation is unfeasible, because it would jeopardize the existence of the market itself.

At Cadiac e-business solutions are complementary to the existing dealer channel,

continued the International e-business project manager;

in fact, orders managed through eProcurement are primarily fill-in orders, while large projects still require a face-to-face approach. Both our dealers and customers can increase the efficiency of the order management if some aspects of it are managed electronically; our objective is to make the whole process easier but never to substitute our current business model with an electronic one: Esolutions are a possibility that, if properly used, can significantly contribute to strengthening the partnership with clients and dealers.

Many large companies adopt e-business solutions to improve the relationship with clients and dealers. As a matter of fact, many of Cadiac's competitors adopt e-solutions as well, that are meant for both clients and suppliers.

She concluded:

E-business is still in a growth phase, though, and more tailor-made e-solutions are bound to be implemented in the near future. Generally speaking, clients ask for user-friendly e-solutions, but each of them is related to a specific company reality and wants to implement e-business in a different way. As a consequence, an accurate analysis of the client's needs has to be made beforehand, so that we are able to offer them the most appropriate e-solution.

TECHNICAL SCENARIOS

E-services use the Internet as the conduit for accessing and processing information in a secured, personalized way. E-services address a range of business needs within the client facilities management process, from publishing commercial information ("inform"), to supporting economic transactions electronically ("procure") using some of the best-known procurement applications available on the market.

We gave a high level of corporate commitment and priority to e-business in order to better meet our customers' needs and to provide clients with efficient and suitable e-solutions,

said the international e-business project manager,

our offering is very extensive and complex; hence, one key goal was to make access to this offering very easy through the e-business platform.

Continued the CRM team leader at Cadiac's corporate IT department:

We normally identify e-business needs into two categories: online information and online procurement.

Inform

Many companies have a strong demand for better communication both at an internal level and between buyers and suppliers. In this case the objective is to communicate and inform, but not to order or pay online.

Information covers a variety of needs: informing employees about furniture standards, contract terms and services, showing products, promoting contacts through e-mails and/or contact reference lists, and sharing knowledge on issues of importance to both parties.

In this case," said the International e-business project manager, "a possible solution is to create and design an information Web site for the client in which information about our products and services is provided through dynamic pages directly linked to the company's databases.

From the organizational point of view, a critical requirement when publishing a Web site is information updating: It is therefore necessary to define procedures that are aimed at establishing formalized relationships between the staff managing commercial information and the Web site manager.

She continued:

This is the very first need our clients express: Managing information is a key issue for all kinds of organizations, from the smallest ones to the largest ones. A dedicated Web site is often the first step towards an e-relationship between a client and its preferred suppliers. Of course, for our company this does not only represent a step towards a more efficient relationship, but also a way to increase client loyalty and to demonstrate clients how our company can provide a real added value while making their life easier.

An effective information Web site may promote the company image by showing its dynamism and innovative spirit, which may be important in order to create brand loyalty; it provides customers with a timely support and an improved quality of service, which may increase the perception of a differentiation strategy; it can consequently reduce on-site assistance and its related costs; finally, an extended use of this medium can generate a profit center through the selling of additional services and it allows to carry out market researches based on customers' needs, thus leading to the improvement of existing products and/or the creation of new ones.

The first dedicated Web sites were built by the international division of Cadiac in Europe in 1997, and today information Web sites represent more than 30% of about 65 currently active e-business projects. It is interesting to note that even within more mature markets (e.g., North America) dedicated client Web sites still represent a very important part of all the implemented e-solutions: Again, this confirms how an effective management of information is a key issue.

Procure

In other cases, the objective is not only to communicate and inform but also to order online. Through the company's e-procurement system, buyers are able to access a customized, configurable catalog of products and services, as well as to buy products that are not included in this catalog.

Consequently, it is essential to implement procedures that guarantee secure economic transactions, so as to correctly manage online payments:

Online procurement implies a much greater effort on our side than a simple Web site," explained the international e-business project manager, "E-procurement is the process where one of our customers buys an e-procurement software that enables online purchasing and asks us to provide an e-catalog. Some of the most common e-procurement applications are adopted by our clients because they allow the e-management of purchasing activities: They allow a complete transparency on who buys what, from whom and at which price, and therefore a better control on spending. This implies, though, a cultural change on the part of the users and a strong commitment of the organization to set clear processes. It also means that all suppliers' e-catalogs have to meet specific interface requirements and follow specific rules and process guidelines.

"For us," added the CRM team leader,

the challenge is to follow such strict guidelines whilst maintaining at the same time a high level of differentiation in the way we present our products to the users. Also, since it is impossible to include our entire product portfolio into an e-catalog, another important focus area is to carefully analyze the sales patterns with our client, in order to define a specific, limited product range.

In short, the potential benefits deriving from the implementation of e-procurement systems are mainly related to costs control: In fact, unlike traditional paper-based systems, e-procurement systems allow automatically transmission of orders collected from the Internet to the business information system and therefore to process them more quickly.

From the supplier's point of view, an effective use of e-procurement systems may represent a competitive advantage (the reduction of waiting times is usually considered very important by clients) and can increase customer satisfaction by making it possible to conclude economic transactions without any additional costs. Moreover, e-procurement optimizes business resources on both sides thanks to the electronic support to the whole transaction-ordering, shipping, invoicing, and payment.

The international e-business project manager explained:

This need on the client's side was real, tangible, and consistent: We were therefore interested in taking the challenge and performing at our best, thus transforming this scenario into a new added value our company could provide its customers with.

The CRM team leader added:

We focus on four key e-procurement scenarios: a local catalog, also called integrated technology-which is the most common one-a marketplace, an extranet, and last but not least, a punchout or round trip solution. Our international division implemented its first e-procurement project in Europe in 1999-today we have more than 40 active e-procurement sites, around 50% of which are local catalogs, 2% are marketplaces, 2% are extranet, and 15% are punchout; in particular, punchout sites generate about half of the e-turnover and this figure is bound to further increase in the near future.

Integrated Technology

This scenario implies that a local electronic catalog is uploaded on the client's e-procurement system (Figure 2).

The client can choose to invest in people and technology by hiring dedicated resources and by buying its own e-procurement software application. The client sends orders to the dealership through the e-procurement software and receives back order confirmations. The dealer could also send invoices to the client and receive back invoices payment.

The manufacturer will define the product range together with the client and the dealer, build the electronic catalog and upload it on the Client's system-that's why it is called a local catalog.

The International e-business project manager explained:

From the client's perspective, buying such a software is a very significant investment, both in terms of economic resources and of impact on the organization: Processes must be rethought, people must be trained so as to adapt to this change, objectives and results must be properly measured. We often had cases of clients engaging the company in this cultural change without ensuring that the organization was ready to put up with it: The result was a complete disaster.

E-procurement requires a long-term approach on the client's side, a clear definition of organizational processes, dedicated resources, and corporate commitment. From the dealer/supplier's point of view, instead, the implications of a local catalog do not really impact on the traditional ordering process: The dealer/ supplier will still receive an e-mail from the customer, although this e-mail is automatically generated in consequence of a specific ordering process; once the e-catalog is generated and uploaded, the real advantage is that errors in codes or prices are minimized and that client's loyalty is increased.

Marketplaces

Sometimes companies believe in the importance of e-procurement, but do not have the resources (money, time, and people) or the internal commitment to adopt an integrated technology solution. These companies may therefore decide to outsource the management of the e-procurement platform to a third party, called a marketplace (MP) (Figure 3).

A MP is an independent company that manages the electronic transactions on behalf of a company by hosting the electronic transactions on its platform, which means that it receives orders from the client and transmits them to the dealer and it receives invoices from the dealership and finally transmits them to the client.

The main benefits of this approach are related to the fact that no technology investment is required, either from the client or from the supplier, and that fewer implementation and management resources are needed, compared to other solutions, since the e-procurement application is hosted and managed by the MP.

The main drawback is instead represented by the fact that most MPs typically charge both the client and the supplier for the structure.

In short, the MP approach can be a long-term strategy, in the case of large companies acting in a very concentrated market that decide to create a vertical private MP for their own segment, whereas it is a short-term strategy for medium-size companies that want to get familiar with e-procurement before deciding in favor of more substantial investments-marketplaces offer, in fact, more flexibility.

Within the office furniture segment, such a scenario can be interesting for companies that offer a limited product range and that do not address a specific client target group: These companies are positioned in the commodity segment and low prices and rapid delivery are key issues for them, whereas the level of services they offer is rather basic.

For Cadiac and for its competitors within the same segment, this is not a preferred scenario. The international e-business project manager explained:

In most cases, an MP is an independent entity that generates its own profit by offering, on one side, a panel of potential customers to suppliers and, on the other side, a panel of potential suppliers to customers. The larger these panels are, the more both clients and suppliers will be asked to pay in order to be part of the MP and to access the online offer. Generally speaking, competition within MPs is based on prices and delivery times; being focused on one-to-one dedicated relationships with our clients, our company is consequently not strategically interested in offering the same selected product range to a wide number of potential clients. Instead of adopting a commodity approach, we focus on the analysis of the client's needs and then develop a dedicated space layout, for which we suggest the most appropriate furniture to fit in. Furthermore, since an MP is not generally linked to customers by any long-term agreement (the same cannot be said for suppliers, though), the company's relationship with the client is not reinforced.

This opinion is confirmed by the fact that in public market places-public meaning that they are opened to anyone and any company that would like to buy online-you can typically find office furniture companies that do not belong to the same top segment as Cadiac, but to a lower one, in which their strategy is to offer a defined set of products to the largest possible public. The MP enables all potential suppliers to access a wide panel of potential customers, and that's what suppliers are interested in and are ready to pay for.

Extranet

A third scenario is the case of a company that believes in the creation of value through the implementation of e-procurement solutions, but is not ready to invest either in an e-procurement application (scenario 1) or in a marketplace service (scenario 2). Cadiac thus developed a solution that allows companies to carry out e-procurement activities without implementing any of the previous scenarios: an extranet.

Cadiac creates and hosts a private e-catalog for a specific client on its servers. The client connects (through username and password) to the supplier's server and accesses its own site, creates its shopping basket, and sends orders to the dealer (Figure 4). This solution can typically be the first step that is taken before moving ahead with an expanded e-procurement solution. Invoicing is still made in the traditional way.

In the international e-business project manager's words:

This is another example of our efforts in order to move from a many to few relationship to a few to few relationship: We provide our customers with a real benefit, something that other suppliers might not offer; it is a strategic investment for us and a clear choice we make to serve our customers in a way that differentiate us from our competitors. The client's dedicated extranet site is completely different from both a simple Internet site-because we provide not only information but also the possibility to order online-and a local catalog-because the client does not need to have any specific e-procurement software. On the other hand, it is clear that, although this solution provides an easy order management, it does not offer the client all the benefits that an e-procurement software can bring.

She continued:

First of all, before an extranet is offered to a client an agreement has to be signed and the product range, including finishes, and the corresponding prices identified. Once we have defined the product range that better suits our customer's needs, we can evaluate the best way for them to purchase our products. If (and only if) e-procurement is the most efficient solution, then we start to implement the proper e-solution.

The main challenge for Cadiac was to manage its wide product offer; the problem was solved in 2002, when a product database including a product configurator was developed thanks to a state-of-the-art technology.

The CRM team leader explained:

The product configurator we developed allows users to configure the products they wish to buy online, selecting all finishes and options they prefer in a userfriendly way. The product selection is then put together in a "shopping basket" and all information sent to the proper dealer for order submission. The order will be then confirmed by the dealer, together with the final amount and delivery time. At the moment, invoicing is still done in a traditional way (through paper documents).

Punchout/Round Trip

The product configurator technology can also be used in synergy with a simple, local e-catalog thanks to a technology based on connectivity that uses industry-standard platforms.

The CRM team leader said:

Imagine that a client has purchased a specific technology to manage its e-procurement activities. The added value we provide is an industry-standard compliant technology that connects to its infrastructure and allows users to configure and purchase products easily, in any language or currency, across the world. This is our key value promise and very few companies can match that today.

In such a scenario, the client works in his/her own e-procurement environment. When selecting Cadiac's catalog, he/she is "punched out" automatically to a Web site hosted on Cadiac's servers. There, the client accesses a customized catalog showing specific product ranges, pictures, prices, dealer's contact information, and any other useful information. This site is managed by a product configurator system that controls all product options and pricing rules, ensuring accuracy of the shopping cart configurations. Once the product selection is made, the client is sent back to its purchasing software to initiate the validation and ordering process.

From the client's perspective, a punchout solution allows a choice within a wider product range: In fact, the configurator makes it easier to manage the various options and the whole online offer.

Besides ease of use, key benefits also include configurable environment in terms of pictures, layout, navigation-as opposed to the non-configurable integrated e-catalogs-and the possibility to add useful information such as agreement's conditions, standard workstations, and electronic links with Cadiac's representatives.

Data exchanges between the client's e-procurement platform and the punchout site are authenticated and encrypted. Furthermore, by using a punchout solution Cadiac keeps control on how products are presented (brand image integrity), which does not happen with marketplaces or integrated e-catalogs, where the supplier loses some control over this area.

In short, there are different e-solutions for different needs. Instead of defining a single e-business strategy and solution, Cadiac chose to be ready to work with its clients through different e-business scenarios, deciding with them, case by case, what the best e-solution would be for their relationship management among a series of available options. This approach is coherent with its commercial strategy and also with the fact that the corporate e-business is in charge of customer relationship management as well.

The following examples concretely illustrate how two of the scenarios described above were put into practice; information concerning the implemented solutions is given in Appendix A.

Example #1: Client A

Client A is an internationally known company, a leader in the automotive sector.

Its sales model is based on a worldwide network of dealers in more than 150 countries; since dealers are independent, a series of guidelines must be imposed on them by Client A concerning the management of its image.

In 2001, Client A had to redefine the global agreement with its dealers, which included redefining brand image guidelines and rules that had to be respected in order to be accredited as a Client A's dealership. Rules would include architectural certifications and layout guidelines but also refer to accredited suppliers, internal and external communication, use of logo, colors, and materials to be used in the showroom, and, of course, front office furniture standards.

In spring 2001, Client A contacted the Italian subsidiary of Cadiac asking to help them communicate the office furniture standards to their dealer network in an efficient way and within a reduced timeframe.

The sales manager for Client A in Italy explained:

We have had a global agreement with Client A since 2000, according to which a unique product range for the front desk of all dealerships and a unique pricing for all countries (in Euros and in GBP for the UK) were defined. We are one of the two global office furniture suppliers serving Client A. Our agreement is a multi-year contract: Pricing and products are reviewed once a year for slight adjustments.

The international e-business project manager added:

When the need was raised up in Italy, I received the request from the sales manager to accompany her on a client visit, in order to better understand Client A's requirements. After the first discussions we realized that the same requirements were present not only at a national level, but on a global scale! So we quickly explored the various markets-together with our international network of sales representative around the world-in order to find out which ones would share the same needs and would therefore be interested in developing an e-solution. It took us about two weeks to detect the markets and the information need, and then about a month to collect the information to be delivered to the client.

One of the main issues was represented by the fact that since Client A's dealers were present worldwide, information had to be provided in local languages-six languages, spoken in more than 80 countries that were interested in adopting this solution. Moreover, the most demanding countries were also the most remote ones, for which information was less accessible and where Cadiac had a less extensive presence (e.g., Eastern European countries, the Middle East).

All countries needed the same information: available products, pricing, terms and conditions, contact information. There was at that time no need for specific and/or confidential information for the different countries: Everyone could access any information, which was the same for all countries.

Also, given the high number of information to be shared with all Client A's dealerships, Client A's corporate offices were looking for a way to communicate with their dealers across the world, that's to say to provide a large number of persons with the right information (effectiveness) in the easiest/quickest way (efficiency). From the technology point of view, both Client A's dealers and Cadiac's dealers had Internet access.

Details of the implemented solution are available in Appendix A.

Example #2: Client B

Client B is a large American company specializing in worldwide deliveries and transportation, with front offices spanning the globe. A great importance is given to the company image, and that has to be reflected in all of Client B's front and back offices.

Consequently, Client B selected a limited number of suppliers worldwide and rationalized the product range-including not only products, but also finishes and options-and all purchasing procedures. In 2000, Cadiac was selected as one of the preferred suppliers, and a defined product range, with specific products and options, was set. In 2003, Client B implemented an e-procurement solution with Cadiac. This solution was based on the same application Client B had already been using for some years in order to reduce operating costs, empower the end user, and streamline internal and external supply chain processes, thus turning the efficient management of operating resources into a strategic tool. E-procurement had for them the ultimate purpose of saving money, creating new efficiencies, and further enhancing the company's dynamic, fast-paced, Internet-oriented corporate culture.

The international sales manager for Client B explained:

We had been one of Client B's suppliers for some years and we defined a product range for front and back offices that was the same across all countries, reflecting the company's profile. Client B's main objective was to increase costs transparency and costs control by simplifying internal ordering processes, reducing time dedicated to order processing, implementing international agreements in order to have a "critical mass" while negotiating with its suppliers, obtaining reliable reports and statistics, and having an easier maintenance of price and product information: We offered them an e-solution that could help them reach this goal.

A cultural change within the organization was required though, as buyers had to move from a 100% personal relationship and autonomy with suppliers to a more formal and structured approach. Both Client B's buyers and Cadiac's dealers were afraid to lose the personal relationship that is still the heart of every commercial negotiation.

The chosen e-procurement application was gradually implemented on a country- by-country basis, from the European country where Client B is headquartered to all the other countries. The product categories included were at the beginning basic goods such as stationery, IT consumable or cleaning products-for which no product configuration was needed-before gradually evolving toward more complex goods such as office furniture. Today, neither services nor intangible goods are managed through the e-procurement system.

From Cadiac's point of view, the selected product range was really limited: Fewer than 100 items and the same ones with the same pricing (in Euros) across all geographies. As a matter of fact, great pressure was put on prices, thus leaving a very small margin for Cadiac's dealers.

Details of the implemented solution are available in Appendix A.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

Over the past 3 years, Cadiac had to understand the trends and needs connected to the different e-business scenarios listed above in order to better integrate them into the company's strategy. In fact, in 2000/2001, there was a lot of excitement around "e-business potential," strengthened by the enthusiasm of top managers and the news on the market; in some cases, however, e-business was disconnected from real business needs. Today, e-business is much more linked to business and must bring real value to the partnership between clients and suppliers in order to be effective and therefore worth adopting.

Cadiac chose to maintain the maximum level of flexibility in terms of types of solutions that could be implemented, focusing once again on the analysis of customers and detection of their needs rather than on a prepackaged e-solution, and at the same time allowing access to its product offering despite the inherent complexity and diversity of products. It therefore had to create a unique product database accessible through a product configurator, and make it available by means of a solution that could connect to the main market-standard e-procurement platforms.

At the moment, this configurator is undergoing further developments in order to accommodate not only e-transactions but also a wide range of information: In the near future a single technical platform will be able to support information, quotations, transactions, and so forth, according to each client's needs and being customized for each user case by case.

Current challenges also include the streamlining of the process of e-catalogs' production, so as to encourage new e-procurement clients to get on board: In fact, more and more e-catalogues are requested but they are at present managed manually both in the creation and in the maintenance phase. It is essential, instead, to automate this process in order to make it more efficient.

The ultimate objective is to enlarge the e-offering while maintaining strong implementation guidelines and processes:

We have to learn from our experience and use those key lessons in order to make our offer more efficient without reducing that flexibility and customer's orientation that has represented our main force in the last few years,

commented the International e-business project manager.

It is clear, however, that the economic downturn of the last 4 years has strongly affected all aspects of the commercial relationship:

Our customers are much more focused on costs and all investments have been reduced or carefully monitored. Of course this is valid for e-business/e-procurement investments as well,

she said,

this has made it more difficult for us to fully capture the proper return on investments, as plans had to be continuously revised. Today, the most reliable data remain the number of projects in a country, whereas it is difficult to extract the impact of the e-solutions on the customer's total sales.

Last but not least, e-business requires a specific knowledge that has to be constantly cultivated: Given the typically high turnover of the sales force, a big investment is needed from e-business leaders in Europe to train all sales representatives and make them sensitive to e-business and its benefits.

FUTURE DEVELOPMENTS

Future developments will mainly focus on extending the automation process to various aspects of the commercial relationship between clients and suppliers.

Explained the CRM team leader:

At the moment, our international division is working on the development of a new kind of e-service, allowing access to reporting data such as market-by-market purchase history (volume, products, dates, etc.), inventory levels available at dealerships, or order delivery status. Electronic stock management is definitely a key issue: If we can track orders, we can track our clients' stock as well, including where this is based/moved and how old it is. Our customers are more and more aware of how important an efficient management of offices can be-both in terms of space and office furniture-for costs reduction: If we can provide them with this kind of information in real time, this would represent a real benefit for them. We would expect this to become reality within the next 2-3 years.

As a matter of fact, because of the need to increase the efficiency of the business process and to improve the quality of customer service, the attention toward the characteristics and the evolution of the business logistics is continuously growing. Consequently, many companies have been working on projects that involve their partners within the supply chain, with a particular focus on projects aiming to support procurement activities. Examples of collaboration tools supporting the supply chain management (SCM) and procurement are methods and tools working on both strategic and operating information shared with the company partners and collaboration tools supporting the management of this material.

It is IT that, by definition, enables these kinds of activities (SCM and procurement) requiring information management and sharing: While the benefits provided by Internet-based technology are widely recognized and well-established, a new technology has been recently developed that is showing a great potential in this field, Radio-Frequency Identification (RFID).

The use of RFID technology increases the effectiveness of product tracking and tracing, allowing each supply chain actor to share real-time information about products. Thus, the use of this technology may reduce risks such as stock-out or wrong market forecast by providing more precise information about the return on sales. Moreover, the availability of real-time information about the products allows the supply chain actors to better tackle market changes, to react more promptly against exceptions, to limit and better control forgery.

In the future it would be interesting to explore research topics such as the actual diffusion of methods and tools supporting SCM and procurement activities; the identification of costs and benefits regarding the actors involved (in order to define a SCM business plan or the return on investment of interorganizational projects); and the analysis of the impacts of emerging technology on business processes (both internal and external), as well as on the company's information system.

An innovative approach will also affect the ultimate phases of the purchasing process, namely invoicing. The international e-business project manager commented:

We are already carrying on some small projects on e-invoicing with few customers, but they do not constitute a representative sample yet. This is due, I think, to two main reasons: First of all, companies tend to start implementing e-business for the order management-which is much easier-and only a few of them are so mature to move to the next step, that's to say e-invoicing; secondly, e-invoicing has several legal implications. The legislation about e-transactions is not 100% clear at the moment: Does an electronic document have the same legal/fiscal value of a paper one? How can we stock them and measure them for fiscal purposes? Is it the same for all countries? The scenario is therefore still under development. What is clear, though, is that e-orders could be linked to e-invoices with an immediate and huge benefit in terms of time saving and process improvement, which means, again, costs reduction. As a consequence, sooner or later e-invoicing will become a widely accepted practice.

CONCLUSION

Cadiac's experience shows that when dealing with e-supply chain management issues, the choice of both the target customers and the most suitable e-business application strictly depends on the company strategy. Contrary to most of its competitors (focused on price minimization), Cadiac's strategy is focused on customer service, product quality, and client image, and is addressed to companies that "want to use space as a strategic asset, in order to support their strategy and achieve their objectives."

The target customers of companies with such a strategy are mostly large companies, with branch offices spread around the world, that need to standardize the procurement process by adopting a more formal and structured approach for purchasing activities.

From the client's point of view, the standardization of the procurement process as well as the reduction of the suppliers' number, allows a better control on spending (who buys what, from whom and at which price) and leads to a meaningful reduction of the procurement costs, which is the objective that today most customers want to achieve.

The technical choice of the e-business application also depends on the company strategy. On the one hand, if the target is represented by companies that are not particularly interested in customizing the product catalog but want to purchase standard products at the lowest possible price, then the outsourcing of the e-procurement platform, for example to a marketplace, would probably be the best solution. On the other hand, if a company has a wide product offer (like Cadiac), the development of a customized catalog on a dedicated Web site (one-to-one marketing) allows it to establish a closer relationship with customers and to increase their loyalty.

References

REFERENCES

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Zhu, K., Kraemer, K. L., Xu, S., & Dedrick, J. (2004). Information technology payoff in e-business environments: An international perspective on value creation of e-business in the financial services industry. Journal of Management Information Systems, 21(1), 17-54.

AuthorAffiliation

Marco Tagliavini, Università Carlo Cattaneo, Italy

Elisa Ghiringhelli, Università Carlo Cattaneo, Italy

AuthorAffiliation

Marco Tagliavini is assistant professor of information systems at the Carlo Cattaneo University of Castellanza, Italy. In 1992 he got his degree in computer science at the University of Milan. In the same year he obtained a Master in Information Technology at the CEFRIEL Research Center in Milan. He has been teaching computer science and information systems for two universities: the Cattaneo University in Castellanza (since 1993) and the Catholic University in Milan (since 1998). His research work concerns the management of business information systems and Internet-based technologies. The research focuses on the technological, organizational, and strategic impacts of the use of IT in business, and it aims to identify check-up tools and management practices to better support the company strategy through the use of IT.

Elisa Ghiringhelli graduated in foreign languages and literature specializing in information & communication technology from the Catholic University in Milan in 2005. She's currently attending a Master's Degree in business German at the Catholic University in Milan and assisting Professor Tagliavini in his research work on the use of IT in business.

Appendix

APPENDIX A

Implemented solutions for the examples described in the section "Technical Scenarios"

Example #1: Client A Implemented Solution

Cadiac suggested creating a dedicated Web site for all Client A's dealers across the world, available in different languages and accessible on the Internet through user name and password.

Client A meanwhile implemented its own extranet Web site, where all information directed to its dealers was collected and systematized; the extranet was also linked to the selected suppliers' Web sites, including Cadiac's dedicated Web site.

This dedicated Web site, available in six languages (French, English, German, Italian, Spanish, and Dutch) in 80 countries provided unique customized information such as:

* Product range, including 3-dimensional pictures, finishes, dimensions, Product codes and prices;

* Terms and conditions, including delivery times, warranties, installation fees, and so forth;

* Cadiac's presentation and contact information;

* Online quotation.

It was developed in 3 months and has now been live for more than a year. Accesses to Client A's extranet site in the first 6 months were 542; accesses to Cadiac's section were 26% of them, which can be considered a good result since on Client A's extranet a huge amount of information is available, ranging from architectural guidelines, to the use of logo, branding, colors, structure of the showroom, and so forth.

Cadiac's investment was a bit less than 5,000 Euros, mainly due to the development of specific product images and to the outsourcing of various Web development activities to an external Web agency.

Thanks to this Web site, Cadiac received the first orders from countries where there were previously no contacts with Client A, such as Eastern Europe and Asia.

Example #2: Client B Implemented Solution

Cadiac and Client B selected a defined product range to be available for online purchasing, which included all the items most frequently purchased from Cadiac by Client B (in 60-80% of the orders historically placed).

The objective was to manage fill-in orders electronically, but to keep the management of new projects still at a face-to-face level.

In short, the e-procurement system allowed Client B to:

* Transmit fill-in orders electronically to Cadiac, managing the internal approval process and keeping track of who was spending what and how much;

* Link all e-orders to the related invoices, simplifying internal reconciliation procedures.

From the client's point of view, the acceptance of the new system within the company was made easier thanks to its gradual implementation (country by country, product by product); nevertheless, this implementation was rather quick: 2 years were necessary to implement Cadiac's eCatalogue in 18 countries. Thanks to this e-solution, Client B estimated a reduction in time of about 30% per transaction.

From Cadiac's point of view, the creation of the e-catalog-which included around 130 items-was very quick: In fact, 3 weeks and a very low investment were necessary for this project. Client B's loyalty towards Cadiac increased and the solution implemented worked as an entry barrier to competitors.

Subject: Business to business commerce; Electronic commerce; Business models; Electronic procurement; Office furniture; Vendor supplier relations; Case studies

Classification: 5250: Telecommunications systems & Internet communications; 2310: Planning; 5120: Purchasing; 9130: Experiment/theoretical treatment

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 1

Pages: 1-27

Number of pages: 27

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Diagrams References

ProQuest document ID: 221167243

Document URL: http://search.proquest.com/docview/221167243?accountid=38610

Copyright: Copyright IGI Global Jan-Mar 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 75 of 100

E-Commerce Opportunities in the Nonprofit Sector: The Case of New York Theatre Group

Author: Abuhamdieh, Ayman; Kendall, Julie E

ProQuest document link

Abstract:

To what extent does having a Web presence reflect on an organization's e-commerce operations? Will a mere brick-and-mortar organizational Web site guarantee online success? This case presents the experience of the New York Theatre Group (NYTG), a nonprofit performing arts organization, in integrating e-commerce in its business practices. The case begins with a very broad overview of the nonprofit sector, the performing arts industry, its delivery channels, and the theatrical production process in general. Then attention turns to NYTG itself in terms of its history, organizational structure, its market segmentation, market trends, and forecasted growth. The strategic planning at NYTG, and the programs put in place to help it achieve its objectives and mission, are detailed. A survey that maps the demographic attributes of NYTG's patrons and subscribers is discussed. The case concludes with the current e-commerce challenges facing NYTG in particular and the nonprofit performing arts organizations in general. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: organizational Web presence; e-commerce evaluation; e-commerce problems; e-commerce opportunities

ORGANIZATION BACKGROUND

Sam Jones works at the renowned New York Theatre Group (NYTG), a large nonprofit theatre organization that has been in operation since 1970. He started working there in early 1996 as a marketing associate/Web site manager. At that time, the Internet was burgeoning into an unprecedented scale, and he thought, "This is a great, new way to reach our audience. It's fun, too. How hard can it be to set up a Web site? I already have my own home page." But things didn't materialize the way he had envisioned. "Shouldn't people be rushing to get on the Web site? Why aren't more audience members using it? What should we do to get more of them to the Web site? Provide tickets online? Let them donate to us online?" he asked.

To answers some of these questions, he set out to do a small research project examining the industry he works in, and the Web presence operations he is responsible for at NYTG. He gathered some data about the nonprofit sector and its contribution to the economy, and then he learned about the current state of the theatre industry in the US in terms of the players, owners, and operations. Since he is working in the marketing area, he needed to know more about the theatre production process and the delivery channels used to present the works developed in the theatre. He distributed a survey to a small sample of the theatre subscribers to know more about their demographics, since he is aiming at attracting more of them to the theatre's Web site. He also did a market analysis of the area serviced by the theatre. He will submit a report summarizing his findings to his manager, Don Anderson.

What makes Sam's job interesting is the fact that he works in a nonprofit organization, which is part of a large nonprofit sector that has many players, including relief organizations such as the International Committee of the Red Cross (www.icrc.org/), environmental organizations such as the World Wildlife Fund (www.worldwildlife.org/), and social services organizations like the Robin Hood Foundation (www.robinhood.org/). Sam reviewed some studies that examined the role e-commerce plays in nonprofit organizations and found that competence in organizational e-commerce operations through their Web presence reflects positively on their performance, and helps customers in prepurchase decisions because they can access the information they need online before they buy (Saeed, Grover, & Hwang, 2005). Despite this established relationship, many nonprofit organizations have lagged behind in adopting e-commerce. Some of this reticence is due to the lack of IT expertise, uncertain and fluctuating funding, lack of clear benefits for the establishment of a Web presence, and the views of some managers who consider organizational Web presence frivolous and unnecessary. There are about 1.4 million nonprofit organizations of all types and sizes in the US, 60,239 of which belong to the arts, culture, and humanity category (NCCS, 2005). The nonprofit theatre industry occupies a small niche of a billion-dollar field of 1,477 theaters (Voss & Voss, 2004).

Sam learned that nonprofit organizations use the Web in many different facets, such as research, fund-raising, volunteerism, e-commerce, and career development (Oehler, 2000). Fundraising is one of the most sought-after Web activities by nonprofit organizations because of the global reach of organizational Web presence, the high customizability of online messages, and the convenience of online transactions (Roufa, 2000; T'eni & Kendall, 2004). It also emphasizes the critical importance of having a Web presence for these organizations, and especially for nonprofit theatres (Kendall, 2006)

The Current State of the Theatre Industry in the United States, With Emphasis on New York City

Sam works in an industry that is divided into two main categories represented by two main bodies: the Theatre Communications Group (TCG) (http://www.tcg. org/) that speaks for the nonprofit sector, and the League of American Theatres and Producers (http://www.livebroadway.com) that represents the commercial theatre sector (O'Quinn, 2000). Seventeen theatre houses on the famous Broadway Street in New York City are rented by Gerald Schoenfeld, the chairman of the Shubert Organization. The country's two publicly subsidized theatre houses are Lincoln Center Theatre and the Roundabout Theatre Company. Both reside in New York City. Other theatre houses are either for profit, such as Disney, or not for profit, such NYTG and the Roundabout.

There are about 1,477 professional nonprofit theatres in the United States, 258 of which are members of the Theatre Communications Group, which was established in 1961. The TCG serves over 18,000 individual members and offers many programs and services such as publishing the American Theatre magazine and the ArtSEARCH employment bulletin. It also conducts a yearly fiscal survey that started in 1997 and maps the latest attendance, performance, and financial indicators of the theatre industry about participating members. The latest survey which was conducted in 2004 included 1,477 theatres, divided into 258 members and 1,219 nonmembers.

Approximately 60% of the theatre income is earned through ticket sales, concessions, and other earned sources, while 40% are contributions from individual and corporate giving, foundation donations, and other sources. More than 104,000 artists, technicians, and administrators are on theatre payroll. These are divided into artistic positions (64%), technical personnel (24%), and administrative staff (12%). Eleven thousand productions translated into 169,000 performances that were presented attracted about 32 million attendees, of which 1.8 million were active subscribers (Voss & Voss, 2004).

The general trend of the industry is characterized by an increasing number of established theatres replacing or adapting aging buildings, while newer and smaller theatres are acquiring new buildings or expanding their facilities (Channick, 2000). Attracting young talents to the theatre movement has been difficult mainly because of low remuneration, especially in the nonprofit sector (Coen, 2000). This difficulty extends beyond artistic talent to IT professionals such as Web masters who can design and deliver any needed changes in house. The hindrance lies in the cost factor, where a Webmaster would cost in the range of forty to fifty thousand dollars on average. Many theatres do not believe this is an essential expense to incur, and many simply outsource their Web operations.

The number of audiences, artists, performing arts organizations and their budgets has increased across the board. The number of audiences is increasing but is biased toward the recorded and broadcast productions. The number of artists has grown over the years between 1970 and 1990, and their pay and job security has marginally improved. The number of nonprofit performing arts organizations has increased by about 80% between 1982 and 1997 (McCarthy, Brooks, Lowell, & Zakaras, 2001).

The Performing Arts delivery Channels

The theatre is part of the performing arts that presents art work dramatically in different forms on stage. Figure 1 shows the different categories of art. Art itself is not an easy concept to define, since it is a composite concept that describes many things. The most widely accepted definition of it is "art is an imitation of an imagined or real object or thought" (Huberman, Pope, & Ludwig, 1993). Art has been categorized into two major parts: applied arts that are valued for their specific uses, and fine arts that are valued aesthetically.

Fine arts are classified into two main categories: spatial and temporal. Graphic and plastic arts are material created and manipulated in space. Anything that is created by the manipulation of sound, symbols, moving forms, and any combination thereof over a period of time is considered time art. Poetry and narratives are categorized under the literary arts while dance, music, and drama are categorized under the performing arts.

Art must be presented and delivered to its audience to be appreciated. To that effect, several delivery systems facilitate that function. Figure 1 presents three main channels of performing arts delivery: film, theatre, and video. Since the commercial use of the Internet is rather recent, the Web (as one of the Internet applications) has been used as a means of publicizing performances and selling tickets rather than a fourth delivery channel. This has to do in large part to the nature of the theatrical presentation, which is by definition a live performance. This is one of the challenges that faced Sam in his quest to integrate the theatre's operations in its Web presence.

THE THEATRICAL PRODUCTION PROCESS

E-commerce or e-business did not have a significant impact on the production of a play or a musical, which remains in large part a humanistic endeavor. A manuscript produced by a playwright is the first step in creating a performance. Many playwrights have agents who represent them vis-à-vis producers and theatre houses. The manuscript runs through several readings and filtrations before it reaches an artistic director, who has the final decision. If the manuscript is produced, the producer gets involved and he/she has the final go/no-go production decision. If the producer's expectations are positive for a good audience response, then the producer works on finding a director for the play. The director's role is to envision the whole production process and assign the duties to the individuals in the production.

Live performances have the special characteristic of individuality, unlike traditional movies, where each movie is an identical copy of the original production. This presents a challenge for the director who works on tying the work together to give it a consistent and coherent form each and every time it is presented. The production finally goes live on stage to a divergent audience that includes critics, reviewers, and patrons, and could have either a favorable or an uncomplementary reception.

Most stages in this process are not dependent on technology, and certainly the Internet played little role in altering any of them. Although e-mail and attachments are in wide use today, this form of communication did not disintermediate agents that are required by many theatre houses as the only venue for play submission. Casting for a role in a performance is done in person, and the Web did not substitute for that. The most visible role the Web has played was to present opinions of critics and reviewers about a production to potential audiences. Whether using a theatre's own Web site, or through other media outlets' Web sites, reviews of performances are presented online, and in many instances, readers have the chance to respond to a particular opinion or review.

A Short history of the New York Theatre Group (NYTG)

The theatre was established in 1970 as a nonprofit organization. The early strategic vision was to produce a large number of off-Broadway plays of high standards to qualify for outstanding awards. This was achieved by producing 23 plays in six weeks in the early days of the theatre's existence. Afterwards, NYTG was awarded several grants from different foundations. In the early years of the Internet commercialization, around 1997, NYTG launched a creative and an ambitious program called TheatreConnection. This program uses the Internet to connect schools and students together in order to produce and discuss plays made by other schools (the program is described in more detail in the theatre programs section.) By 2005, the theatre had produced more than 40 award-winning or award-nominated (Obie, Drama Desk, and Tony awards) productions, created a base of over 20,000 subscribers and 1,000 patrons who provide between $5 and $8 million dollars annually, and expanded its production facilities to the famous Broadway theatre district in New York City.

Organizational Structure and Management Responsibilities

NYTG is organized into a traditional hierarchical structure, headed by the executive producer. His main responsibilities include developing and implementing NYTG's long range plans and strategies. The executive producer supervises the general manager, who is responsible for the day-to-day operations, and oversees five departments: development, finance, production, education, and marketing. The development department performs one of the most critical functions for NYTG, and that is to provide the needed funds to support its operations when traditional revenue from ticket sales does not cover the expenses (and usually it does not). Despite its importance, NYTG did not use its Web presence to support this function, although it is technically possible.

The artistic component is managed by the artistic director who, along with the executive producer, heads the development and production of the performances presented by the theatre. The director is aided by an associate artistic director who oversees some of the programs supported by the theatre. Before a musical or a play is presented on stage, it goes through several filtration processes, starting from readings by the literary assistant and ending with the artistic director. The artistic director and the executive producer work in tandem to determine which performance will be produced.

Market Segmentation, Trend, and Growth

NYTG's target market could be divided demographically, psychographically, and geographically. Demographically, patrons and subscribers have an average age of 50 years or more, occupy the upper middle to upper class (more than $80,000 annual income on average), are evenly divided between the male and female gender groups, and have at least college education. Psychographically, they are theatre advocates and supporters who give annual monetary and other support to theatre activities. Geographically, they are mainly the dwellers of the tri-state area (New York and specifically New York City, New Jersey, and Connecticut). About eight million live in the greater New York City region. The average per capita income in the tri-state area is $37,390. As the baby boomer generation begins to retire from the work force, stronger demand is forecasted for recreational and leisure activities.

SETTING THE STAGE

Sam works in a theatre bustling with activity. Back stage tours are scheduled almost every week, while casting for roles in new performances is a daily act. Sam's day begins around eight o'clock in the morning, when he checks his calendar for any appointments or meetings. Then he opens his e-mail client (he prefers Microsoft's Outlook) and responds to e-mails and sends out new ones for invitations and special events that were or are posted on the theatre's Web site. He also instructs the Web site hosting company on any changes or new deployments of new ideas or initiatives. The latest one aims to appeal to the younger audience, which included announcing free tickets and subscriptions for winners of a contest that asked the Web site visitors to identify the main characters of different performances presented by the theatre over the past decade.

The traditional venues of phone and fax are used to receive between $5 and $8million in donations, subscriptions, and ticket sales, and Sam wants to change that. Instead of faxing in their ticket and subscription requests and donations, which will take time for someone to receive these faxes, verify their information, and send a fax back to finalize the transaction, Sam sought to automate that through an online transaction system (OLTS). "This should make the transaction round time much faster for the patrons and the theatre, and will free our sales associates' time to focus on other marketing initiatives," comments Sam.

Management acknowledged the importance of technology by facilitating computer use in the theatre by almost everyone, where all had Internet access, from the receptionist to the theatre director. However, in 1997, when the Web was flourishing into an unprecedented means of communication, transaction, and information delivery, the theatre outsourced selling tickets and subscriptions online to a third party (www.broadway.com). What it kept was enabling users to print out donations or subscription forms, which could be downloaded or viewed online, fill out the forms, and send them back through fax or snail mail. Although the Web site was redesigned several times, ticket and subscription sales were still handled by a third-party company (broadway.com) to handle the transactions.

In addition to musicals and plays presented, the theatre hosts many events that connect it with its audience and the community, such as stage tours, meetings with directors, writers, and other performance members. All these events are announced in print either through the Playbill publication, or via flyers given after performances, or are sent by mail. Mass e-mail is used occasionally to announce some of these events, but Sam does not like to rely on it often because of the sensitivity of some patrons and subscribers to spam. When the Web site was established, it was viewed as an ideal cost-cutting outlet to disseminate all this information without resorting to print, except in limited occasions such as the end of year financial reports.

CASE DESCRIPTION

The main objective of this case is to explore the experience of NYTG, a nonprofit performing arts organization, in using the Web and other online technologies to facilitate its activities and further its strategic vision. This is accomplished through presenting and analyzing its mission statement, describing its programs and the objectives it seeks to achieve through its Web presence, and portraying its business model and target market. It is important to understand the organic and dynamic nature of integrating and translating traditional brick-and-mortar business operations into the online domain. This challenge, while undertaken everyday by established organizations, is still insurmountable by many, and is not a panacea to business models seeking online lifeline and support. Bringing a historically deep-rooted cultural and organizational activity into the twenty-first century is a multidimensional challenge that demands an equivalent response (Andersen, Beck, Bjorn-Andersen, Wigand, & Brousseau, 2004; Winter, Saunders, & Hart, 2003).

NYTG uses information technology to manage its information resources. Computer systems are used to manage the accounting and financing functions, and in interoffice and general communication needs. Its Web site is outsourced to Broadway.com, which manages its design and hosting, and is supervised by Sam Jones, the Web site administrator. The following discussion will focus on how the theatre strategically uses its Web presence, and how it is tied to its marketing and management strategies.

When strategy of an organization is discussed, it is important to examine its mission statement. Part of the NYTG mission is to be "the creative and artistic home for America's most gifted theatrical artists, producing works of the highest quality by both established and emerging American and international playwrights...NYTG nurtures and develops new talent in playwriting, musical composition, writing, directing, acting and design... and it reaches out to young audiences with innovative programs in education and maintains a commitment to cultivate the next generation of theatre professionals with internship and professional training programs... [NYTG is a] leader in developing innovative ways to bring theatre to the widest possible audience. These include extending the life of its productions in house, transferring its productions to larger theatres and coproducing plays with fellow institutions" (NYTG, 2005). To fulfill its mission, NYTG has developed several programs, which are either executed in house, in cooperation with other institutions, or online. The following section briefly describes these programs.

NYTG's Programs

Several active programs fill the schedules of artists, staff, and management at the NYTG. Except for TheatreConnection, execution of these programs does not rely in large part on information technology or the Web. However, it is one of the challenges that Sam is facing, which is translating or integrating these programs into the theatre's Web presence. Despite the fact that many of these programs are developmental and not transactional in nature, integrating them into the theatre's Web presence and using the Web technology to enhance their productivity will reflect indirectly and positively on the theatre, and ultimately on its patronship and finances.

TheatreConnection is an advanced project for introducing theatre education into schools. It uses the Internet to enable students to study and create theatre together. In 2001, nine schools (divided into three different units) from across the country participated in the project. The Web's multimedia capability is used to transmit original ideas and achievements. Students at each site write an original scene based on an NYTG play they have read and send some of its parts online; the scene is then staged and videotaped by students at a partner school. Through the TheatreConnection Web site, students meet with each other and with NYTG teaching artists throughout the process. The site also provides teachers and students with project syllabi, production terms, guidelines, and bulletin boards.

The play writing program encourages writers to produce manuscripts for the stage specifically, and it provides a laboratory-like evaluation and experimentation setting that guides promising scripts and writers through the development process. Members of the NYTG's artistic staff act as dramaturgical guides for plays in anticipation of their production, and they support playwrights at every stage of their professional development. Playwriting fellowships support early career writers with a living stipend, a commission for a new play, and the opportunity to observe the development and the rehearsal process for an NYTG production. NYTG's readings provide playwrights with the opportunity to hear early drafts of their works performed by talented actors. Workshops aid writers in answering important questions about plot and character development and help directors in resolving early staging issues.

The musicals program was established in 1993. It encourages composers and lyricists to write for the stage, nurture the next generation of musical theatre writers, identify new directors, choreographers, and performers, provide them with the chance to practice their work, and reach out to artists in other fields, such as popular and symphonic music. It provides the needed developmental support that leads a work from conception to production.

The educational program aims to develop new audiences for the theatre and arts in general, deepen the students' understanding of themselves and the world through the medium of the theatre, stimulate students' creativity and critical thinking through the active engagement with challenging new theatre works, and improve the ability of classroom teachers to teach the arts and to incorporate arts education into the curriculum. It began in 1998 and is serving a wide and diverse population with different social, cultural, and economic backgrounds from all over New York City area.

The center program brings students to a matinee of an NYTG production after a series of in-class preparatory workshops. The workshops provide specific insights into the plays under study, and a deep understanding of the theatre in general.

The interactive project gathers students from two culturally, economically, and geographically diverse communities to study and attend a play. Activities in the workshops include acting, writing, discussing, and debating with a group of their peers.

Writers for the future asks students to write and revise original plays inspired by an NYTG production they have studied. A team of professional actors, directors, and classroom teachers supervises the students' revisions, and the project culminates in a performance of the students' work by professional actors.

Teacher development workshops focuses on the collaboration between teachers and NYTG artists through providing teachers and school administrators with instructional tools and techniques for integrating NYTG's educational programming into their school curriculum.

Since other renowned performing arts houses have gone online and were successful in retaining and enhancing patron loyalty (Olson & Boyer, 2005; Vence, 2003), in addition to showing a positive result on their bottom lines, Sam wanted to follow suit and use the theatre's Web presence to inform the public in general and theatre patrons and subscribers in particular about these programs. He also wanted to make sure tickets and subscriptions to current and new patrons are sold online, and enable individuals and institutions to support NYTG online as well. Hence, Sam's vision of the theatre's Web presence is to

* Inform the public of NYTG's productions

* Sell tickets and subscriptions to these productions online

* Promote programs engaging the public in general and theatre enthusiasts in particular in different theatrical activities, such as playwriting, directing, and casting

* Develop and maintain a NYTG patron and subscriber bases

* Provide information about NYTG's educational programs, such as writers for the future, internships, and fellowships

* Provide information about the space available for rent at NYTG's production houses.

* Preserve a loyal theatre subscriber and patron bases through email and listservs.

NYTG's Objectives Translated Onto Its Web Presence

High service quality perceived by users of a Web site reflect positively on their satisfaction with their Web presence visit experience (Kuo, Lu, Huang, & Wu, 2005). Sam wanted to provide NYTG's Web site visitors with the best experience they can find anywhere online. Information push (Kendall & Kendall, 1999) is used to supply NYTG's site visitors with almost everything they need to know about the theatre, its staff, programs, current and past seasons, and available rent space at its Creative Center. Ten out of nineteen main links on the NYTG's Web site are devoted for this purpose. The other links are used to "pull" information from the site visitors, such as asking for information about them when they want to subscribe, buy tickets, get involved in an internship or an employment opportunity, participate in a gala, or join the mailing or e-mail lists. Although NYTG management embraces technology and supports the use of the Internet and the Web in its operations, it has a policy of not accepting unsolicited manuscripts from individuals either electronically or otherwise. It only accepts them through agents. This is due to the large number of manuscripts that would be submitted by individuals in the absence of such a policy.

Subscribers and patrons are kept informed about the theatre activities through the traditional snail mail and e-mail. Several in-house activities are designed to strengthen ties with them through programs such as the 7x7 (readings of new productions) and backstage tours. Information about schedules of meeting times and places are regularly updated on the Web site. Stage and hall space available for the theatre is not always used, so it is rented out to other institutions, which provides an additional source of funding. Funding is critical for NYTG's survival, and opportunities for support are found in several places on the site, whether in selling tickets online, or providing support through donations and gifts, gala events, and space rental.

The Technology Used To Build NYTG's Web Site

NYTG's Web site is composed of HTML, JavaScript, and Macromedia's Cold Fusion and Flash pages for interactivity. The Flash plug-in is needed to play the multimedia content on some pages. Although it is an attractive visual component, Web site visitors who have slow Internet connection expressed dif- ficulty in accessing such pages, either because the Flash plug-in is not installed, or the Flash content has a large size and is slow to download. Tables are heavily relied upon to present the site's contents, which have the advantage of allowing it to remain unchanged in the event that viewers decided to change browser window size. High-level strength SSL (Secure Sockets Layer) 128 bits encryption is used to protect the information exchanged between users of the theatre's Web site and the servers hosting it.

NYTG's Business Model

NYTG's business model is based on expanding its subscriber and patron bases, and relies on converting performances, grant applications, and other fund-raising initiatives (galas, space renting, etc.) into income. The value cluster that NYTG offers is not limited to the stage performances, but it also includes the diverse programs that aim to develop and nurture new talents, whether performers on stage or writers behind the scenes. In addition, the theatre has many programs that strengthen its ties with its patron and subscribers, such as meetings that take place every week with interested subscribers to discuss the latest performance with the director, writers, and other performance producers.

Table 1 in the appendix categorizes NYTG's sources of income. About 84% of the theatre's income is from patron, subscriber, and nongovernment foundation contributions and grants. This departs from the traditional income ratio for nonprofit performing arts organizations, where 40% comes from public support and 60% from private sources. These numbers and ratios assist NYTG in determining the marketing and fund-raising sources and strategies. Most of this income is received through the phone and fax. Few subscribers and patrons do their transactions online, despite its availability and ease of use. Subscriber and patron demographic data might give a hint as to why this could be the case. Table 2 summarizes NYTG expenses. The greater proportion of expenses, 69%, is on programs produced by NYTG. The remaining expenses, or 31%, are for management and fundraising activities.

Target Market Survey

To better understand NYTG's market, and in an attempt to learn why patrons and subscribers do not use the theatre's Web presence to buy tickets or subscriptions online, or to simply donate or bestow gifts, Sam distributed a survey to its patrons and subscribers to discover their demographics and theatre attending habits.

Subscribers/Patrons

There are about 20,000 subscribers and 1,000 patrons who support NYTG. A small sample consisting of 77 respondents, divided into 31 patrons and 46 subscribers, agreed to respond to his survey. There is a categorical difference between patrons and subscribers for NYTG. A patron is a contributor at different monetary levels, each having a different label and privileges (for example: supporter, contributor, benefactor, and so on). Subscribers, on the other hand, are purchasers of specific subscription levels to NYTG's performances. They buy these subscriptions and are entitled to attend a certain number of shows depending on their subscription level (3-play series, 4-play series...).

NYTG's Patrons and Subscribers demographics and Theatre Attendance Behavior

There are 31 males and 46 females in the sample. About two thirds, or 68%, are over 50 years old. Only one respondent is in the age range of 23-29 years. More than 89% are either college graduates or have a graduate degree. About 73% had a yearly income higher than $80,000. A detailed cross-tabulation of respondents' income with subscriber/patron categories reveals that all patrons have an average annual income over $80,000. More than 35% attend theatre weekly, 45% attend theater monthly, and about 16% attend theatre twice or three times a year. Hence, about 82% attend theatre performances at least every month-that's more than 12 times a year.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

Theatre attendance used to be mostly for the privileged and royalty in the pre-industrial revolution era. When factories started appearing in major cities and people moved there to become factory workers, theatres sprung up everywhere to entertain the masses. This trend continued until television and moving pictures (movies) were invented around the 1900s, which drew some of the theatre attendees. People could now see identical presentations on a small or a big screen. Theatre attendance continued to decline after the invention and widespread use of the video cassettes in the 1970s, and the compact disc or CD and DVD optical media in the 1980s and early 1990s. People's lives and business operations where forever changed when the private sector was allowed to use the Internet for commercial purposes around 1994. All sorts of audio-visual entertainment experiences became available at the touch of a button or a click of a mouse.

Opening the Internet for commercial activity and the birth of electronic commerce, or e-commerce, leveled the playing field for commercial institutions, where a giant corporation has an equal footing on end user screens with an around-the-corner micro mom-and-pop shop. It also changed how entertainment is consumed. The availability of on-demand streaming audio and video 24/7/365 in one's home is very different from the need to schedule a particular time frame to physically attend a play in a theatre house with tens or hundreds of others. Also, live performances cannot be replayed or repeated with a click of button, and even a play or a musical that is presented every night will be different and unique, which is the hallmark of a live performance. In contrast, identical copies of movies and other audio-visual entertainment on DVD media, for example, could be paused and replayed repeatedly with identical outcome.

In this new age of entertainment delivery, some of the challenges facing theatre houses in general and NYTG in particular include:

1. Finding new, and for the theatre industry, revolutionary distribution channels different from the traditional wooden stage.

2. Attracting and sustaining a viable patron and subscriber base in current and future markets.

3. Enabling the current Web presence to be not only an integral but a primary source of funding for the theatre.

4. Incorporating the e-business and e-commerce technologies within the theatre operations and production processes.

5. Enabling individual internal contributions to the current Web presence through content management software to decentralize online information dissemination.

The first issue pertains to exploring new delivery channels. Theatrical production is presented live on stage, which is the only prevalent delivery method. Online technologies and e-commerce activity is by far limited to selling tickets and subscriptions, and playing an informational role about the theatre and its activities. Discovering new channels of theatrical production delivery is one of the onerous tasks theatres are facing in the new online-connected world today. How could online technologies be used to transfer live experiences? The seatinglimited number of persons attending a live performance on stage could become limited only by the number of online connections logged on to view the performance. This could translate into a revolution in funding streams theatres have not experienced before (Adelaar, 2000). Technologies that stream live performances are available today, but they face many hurdles, such as stage design copyrights (for example, attendees are not allowed to take photographs of the stage before, during, or after a performance), and matching the experience of witnessing a performance through a screen with attending a live one. The connection between finding new delivery channels and expanding the theatre's funding streams could not be more overemphasized.

The second issue relates to attracting and sustaining an online customer base, which is a challenge not limited to not-for-profit organizations. When NYTG introduced its Web site, few of its subscribers and patrons knew about it. Even after the theatre carried out a promotional campaign for its seasons and included a reference to its Web site, a temporary surge in Web site visits occurred. Contributions and ticket sales through the Web site did not change dramatically, as most of those sales, grants, and gifts were made through the traditional phone and fax channels. This shows that having a Web presence does not translate into immediate or subsequent use. However, the Web presence is not isolated from the theatre constituents, since the age group of the theatre audience is a contributing factor (Van den Poel & Buckinx, 2005).

NYTG is trying to widen its base and focus on the younger audience through different means. Many of the current theatre subscribers and patrons are over 50 years old, so there is a whole market of younger audiences that is yet not well tapped. The programs sponsored by NYTG are in many respects aimed at youth, but to what extent that will effectively translate into more subscribers, supporters, and patrons is yet to be seen. Despite the numerous redesigns that the NYTG's Web presence has undergone, it fell into the general pattern of organizations who were providing more information than by adding e-commerce features (Benbunan-Fich & Altschuller, 2005). The younger generation is more computer-savvy and connected, and new Web features that command younger attention are needed. Many young Web surfers belong to online communities, and use different communication technologies to stay in touch. Thus, the theatre could use virtual communities' technologies, such as online bulletin boards or Web logs (blogs), to enable those groups to express themselves and return to the theatre's Web site for the latest news and information they could be interested in (Abuhamdieh, 2003). When such a young audience is present en masse, it becomes a potential for other sources of income beyond ticket and subscription sales, such as online advertising and promotions for that group.

Funding is the third issue for the theatre. The strategic positioning of the theatre's Web presence within its bundled offerings could have a significant effect on its operations. Web presence redesign, for example, increases the value of service organizations similar to NYTG (Benbunan-Fich & Fich, 2005). Web sites are much easier, cheaper, and faster to update, and information is distributed to users instantly, compared to the traditional print, audio, visual, and other offline media. Responsibility of the Web site is delegated to Sam, the associate marketing manager, and site design and development is outsourced to Broadway. com. Ticket sales are also delegated to another organization (telecharge.com). Despite the fact that the theatre's income from ticket sales and contributions is over $8 million, its Web presence has not taken a strategic role to secure some of these funds, or add to its incoming fund stream.

For the theatre's Web presence to play a larger role in transforming its funding stream, a different online strategy is needed. For example:

1. Patrons, subscribers, and theatergoers in general need to be aware of the existence and viability of the theatre's Web presence. As described earlier, the theatre's patrons knew about its Web presence and actually visited it only after a short marketing campaign. In today's e-commerce world, online Web presence needs to be part of an organization's identity and an important means of connecting to it, not merely a sign that reads "we are here."

2. Patrons need to be encouraged to use that presence through all sorts of incentives, such as discounts and free tickets or subscription contests. They should also know the benefits of using the Web site for the theatre and themselves, such as reduced costs and speedier transaction time.

3. The Web presence should be built on ease of use and usefulness principles for end user computing (Davis, 1989; Venkatesh, Morris, Davis, & Davis, 2003). Many Web sites use the highest and most sophisticated technology to build, with extensive information and capabilities, but are not used simply because they confuse users rather than aid them in finding what they need.

Incorporating e-business and e-commerce technologies into the theatre's production processes is the fourth issue. Agents are required prerequisites to the submission of the manuscript, and even that is not taking place through the theatre's Web presence. In addition, casting is carried out traditionally, where personal presence is an essential step toward securing a role in a performance. Introducing online technologies into the core business process operations at NYTG goes beyond structural to cultural and strategic changes (Cao & Schniederjans, 2004). Opening up the window for anyone to send their manuscript electronically will result in a flood of material that needs a small army of staff members to carefully screen them and make a sound judgment on what is lean and what is corpulent and promising. Also, casting is customarily done in person. Doing so using online video conferencing, for example, poses significant challenges such as connection speed and reliability, in addition to the technical setup.

The last issue pertains to enabling staff members in the theatre's different department to directly contribute information about their activities on the theatre's Web presence using content management software, which helps in decentralizing information dissemination to the theatre's constituents. Immediate updates are possible without the need to pass through the desk of the Web manager.

Web presence visitors identify with what they view on a site's layout and design. Organizational Web presence is of critical importance because it influences an organization's existence, creativity, and customer appreciation. It is the image of the organization itself, and how its customers and patrons perceive it is directly related to how they perceive the organization itself. Thus, this close identity relationship should be on the mind of any manager responsible for the e-commerce operations of any organization.

References

REFERENCES

Abuhamdieh, A. (2003). Educational institutions portal system utilization: A student perspective. Journal of Informatics Education Research, 3(1), 29-40.

Adelaar, T. (2000). Electronic commerce and the implications for market structure: The example of the art and antiques trade. Journal of Computer-Mediated Communication, 5(3).

Andersen, K., Beck, R., Bjorn-Andersen, N., Wigand, R., & Brousseau, E. (2004). European e-commerce policies in the pioneering days, the gold rush and the post-hype era. Information Infrastructure and Policy: An International Journal on the Development, Adoption, Use and Effects of Information Technology, 9(3-4), 217-232.

Benbunan-Fich, R., & Altschuller, S. (2005). Web presence transformations in the 1990s: An analysis of press releases. IEEE Transactions on Professional Communication, 48(2), 131.

Benbunan-Fich, R., & Fich, E. M. (2005). Measuring the value of refining a Web presence. Journal of Electronic Commerce in Organizations, 3(1), 35.

Cao, Q., & Schniederjans, M. (2004). Empirical study of the relationship between operations strategy and information systems strategic orientation in an e-commerce environment. International Journal of Production Research, 42(15).

Channick, J. (2000). Promise and progress. American Theatre, 17(7), 4.

Coen, S. (2000). The field and its challenges. American Theatre, 17(1), 98-107.

Davis, F. D. (1989). Perceived usefulness, perceived ease of use, and user acceptance of information technology. MIS Quarterly, 13(3), 319.

Huberman, J. H., Pope, B. L., & Ludwig, J. (1993). The theatrical imagination. Fort Worth, TX: Harcourt Brace College Publishers.

Kendall, J. E. (2006). Theatres, metaphors, and e-collaboration: An examination of Web-based cooperation of regional nonprofit theatres. International Journal of E-collaboration, 2(1), 41-60.

Kendall, J. E., & Kendall, K. E. (1999). Web pull and push technologies, The emergence and future of information delivery systems. In K. E. Kendall (Ed.), Emerging information technologies, improving decisions, cooperations, and infrastructure. Thousand Oaks, CA: Sage.

Kuo, T., Lu, I.-Y., Huang, C.-H., & Wu, G.-C. (2005). Measuring users' perceived portal service quality: An empirical study. Total Quality Management & Business Excellence, 16(3), 309.

McCarthy, K., Brooks, A., Lowell, J., & Zakaras, L. (2001). The performing arts in a new era. Santa Monica, CA: Rand McNally.

NCCS. (2005). Number of nonprofit organizations in the United States 1996-2004. Retrieved August 22, 2005, from http://nccsdataweb.urban.org/PubApps/ profile1.php?state=US

New York Theatre Group. (2005). Mission statement [Electronic Version]. Annual report. Retrieved August, 2005.

O'Quinn, J. (2000). Why can't we all just get along? We can. American Theatre, 17(7), 82.

Oehler, J. E. (2000). Not-for-profit organizations can profit by investing in the Internet. The CPA Journal, 70(12), 65.

Olson, J. R., & Boyer, K. K. (2005). Internet ticketing in a not-for-profit, service organization: Building customer loyalty. International Journal of Operations & Production Management, 25(1), 74.

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Saeed, K. A., Grover, V., & Hwang, Y. (2005). The relationship of e-commerce competence to customer value and firm performance: An empirical investigation. Journal of Management Information Systems, 22(1), 223.

T'eni, D., & Kendall, J. E. (2004). Internet commerce and Fundraising. In D. R. Young (Ed.), Effective economic decision-making by nonprofit organizations (pp. 167-189). New York: The Foundation Center.

Van den Poel, D., & Buckinx, W. (2005). Predicting online-purchasing behaviour. European Journal of Operational Research, 166(2), 557-575.

Vence, D. (2003). Boston orchestra tunes up net campaign. Marketing News, 37(13), 5-6.

Venkatesh, V., Morris, M., Davis, G. B., & Davis, F. D. (2003). User acceptance of information technology: Toward a unified view. MIS Quarterly, 27(3), 425.

Voss, Z. G., & Voss, G. B. (2004). Theatre facts 2004: Theatre Communications Group.

Winter, S. J., Saunders, C., & Hart, P. (2003). Electronic window dressing: Impression management with Web sites. European Journal of Information Systems, 12(4), 309.

AuthorAffiliation

Ayman Abuhamdieh, Indiana State University, USA

Julie E. Kendall, Rutgers University, USA

AuthorAffiliation

Dr. Ayman H. Abuhamdieh is an assistant professor of e-Commerce and Management Information Systems in the College of Business, Indiana State University, Terre Haute, Indiana, USA. His research interests include strategic organizational web presence, web portals, and cognitive web search structure. His teaching interests focus on the technical side of web programming, Object-Oriented programming languages, and e-commerce. He is a member of several information systems and decision sciences societies, and has published numerous papers in journals such as Journal of Informatics Education Research and Review of Business Information Systems.

Professor Julie E. Kendall is a professor of e-Commerce and Information Technology in the School of Business, Rutgers University, Camden, New Jersey, USA. She researches and teaches in the areas of systems analysis and design, strategic ecommerce, and the human aspects of management information systems. She has published in leading IS journals, such as MISQ, Information and Management, and Decision Sciences, and is the co-author of a leading college textbook, Systems Analysis and Design (with Ken Kendall).

Professor Kenneth E. Kendall is a professor of e-Commerce and information Technology and area coordinator in the School of Business, Rutgers University, Camden, New Jersey, USA. He researches and teaches in the areas of emerging technologies, systems analysis and design, and project management for Information technology. He is one of the founders of the International Conference on Information Systems (ICIS), and he has published in leading IS journals, such as MISQ, and Decision Sciences, Operations Research, and Management Science. He is the co-author of a leading college textbook, Systems Analysis and Design (with Julie Kendall).

Appendix

(ProQuest-CSA LLC: Appendix omitted.)

Subject: Electronic commerce; Opportunity; Nonprofit organizations; Web sites; Performing arts; Strategic planning; Case studies

Location: United States--US

Company / organization: Name: New York Theatre Group; NAICS: 711130

Classification: 9130: Experiment/theoretical treatment; 9190: United States; 8307: Arts, entertainment & recreation; 9540: Non-profit institutions; 5250: Telecommunications systems & Internet communications

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 1

Pages: 28-47

Number of pages: 20

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Diagrams Tables References

ProQuest document ID: 221243387

Document URL: http://search.proquest.com/docview/221243387?accountid=38610

Copyright: Copyright IGI Global Jan-Mar 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 76 of 100

The TradeCard Financial Supply Chain Solution

Author: Yuan, Soe-Tsyr

ProQuest document link

Abstract:

TradeCard is a US-based online financial supply chain provider, founded in 1997. The online compliance and financial settlement engine was launched in 2000. TradeCard incorporated a number of partners into its service network: financial institutions, credit insurance, inspection and logistics companies. TradeCard quickly grasped market share in footwear and textile industries. TradeCard mainly serves buyers in the US and suppliers in Asia, but is expanding in Europe and transactions are supported worldwide. During the years 2000-2005 TradeCard's business has been growing exponentially. TradeCard platform connects buyers, sellers, and service providers in an online environment, where they can manage the whole documentary process of international trade transaction quickly, visibly, and cost-effectively. In other words, TradeCard is changing the international trade practices. Traditionally companies use banks' services-letter of credit or open account-but TradeCard solution is replacing these services. Although TradeCard is more a substitutor than a complementor to banks' international trade departments, some banks are now trying to use Web-based solutions to gain their customers back. In other words, for survival and growth the banks are adopting e-commerce solutions to letter of credit and open account transactions in order to stay in the financing business. Accordingly, how TradeCard retains its edge in the provision of a financial supply chain solution while expanding the reach of new markets beciomes an important question to tackle. This case is a study of the TradeCard system, electronic solution development in international trade, and the relationship between TradeCard and banks. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: B2B E-commerce; supply chain management; financial services industry; strategic alliances

(ProQuest-CSA LLC: ... denotes text stops here in original.)

FINANICAL SUPPLY CHAIN

A supply chain is a network of partners that produces raw materials, subassemblies, and finished products, then distributes them via various sales channels to customers. This is the physical supply chain that manages the movement of materials and goods from outside the factory, through the factory floor and the manufacturing process, and then, finally, to the consumer''s hands.

On the other hand, the financial supply chain is the movement of money that flows in the opposite direction. As each entity in the chain receives goods, they are compensated with money that moves the other way to who distributed or produced the goods. A financial supply chain includes purchase orders and terms, credit and financing, document preparation and collection, matching and payment. The financial flow in a typical supply chain may involve thousands of invoices and payments in a given year. The scale of this problem is challenging corporations to find ways of streamlining their processing.

Moreover, in the 1990's and the change of millennium, the online business- to-business market was exploding and Forrester Research projected that this sector would grow to $1.3 trillion by 2003. The most significant obstacle to meeting this projection was the lack of a payment mechanism for large dollar, cross-border transactions. Credit cards made the tremendous growth in the business- to-consumer sector possible; however, there was no comparable payment method for the business-to-business market. In the context of international trade, processes have not evolved and continue to be nearly as labor and paper-intensive today as they were hundreds of years ago.

In other words, traditional payment mechanisms treated information and financial flows separately. However, innovative payment solutions can now include detailed transaction information such as date and time of receipt, supplier name, quantity received, purchase order (P.O.) number, and so forth. Having both financial and detailed product information available electronically can minimize human errors, reduce reconciliation time, and create a more tightly integrated supply chain. In other words, the financial services supply chain integrates that '"last mile," helping enhance operational performance and increase profitability, by having the same control and visibility over the financial processes in your transaction as you do over the physical movement of goods (i.e., from procurement to payment, as shown in Figure 1).

TradeCard provides such a payment mechanism connecting trading partners and routes and stores their trade documentation electronically-from P.O.s to commercial invoices. All parties have appropriate access to view and amend documents as the transaction progresses.

TradeCard: 1994-2005

TradeCard, Inc. is headquartered in New York City with offices in the San Francisco Bay Area, Hong Kong, Taipei, Seoul, and Tokyo. TradeCard can support transactions worldwide among the following countries: Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, Norway, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, and the United States.

TradeCard is a registered trademark in the United States and elsewhere in the world. Between the platform launch in 2000 and 2005, TradeCard has reached over 1,000 corporate customers in 34 countries.

Tradecard's history traces back to 1994, when the World Trade Centers Association (WTCA) conceived of TradeCard. In 1997, TradeCard was formally established as an independent company. The following year, TradeCard was issued US patent number 5,717,989 for its compliance and financial settlement engine. In February 1999, TradeCard, Inc. received a private equity commitment of $53 million from E.M. Warburg Pincus & Co., which is a leading venture capital firm on private equity investments. This allowed the company to rapidly accelerate its presence in the international trade marketplace. At the same time, Kurt Cavano was named CEO of the company. He announced the new team of industry experts who would work towards the company's goal of "simplifying international trade." In a TradCard's press release (May 10, 1999), Cavano expressed the future views:

TradeCard is now solidly equipped to fundamentally change the way the world does business. We have real momentum going here. With the team and the funding, all the elements are now in place to allow TradeCard to become the standard way to conduct international trade, quickly and simply. The team's first step is to complete the pilot testing and fine-tune our business model in order to maximize its value to all members of the international business community.

In the late 1999, TradeCard began its transaction services. TradeCard signed an agreement with Tradelink, a joint venture of Hong Kong SAR Government and the private sector, which encourages e-commerce service use and development among the trading community. This agreement was the first of several planned alliances in Asia and worked as the initial step to bring the innovative online business transaction settlement network to Hong Kong and Asia.

In March 2000, TradeCard announced a partnership with Coface, the world's largest export credit insurance provider. This agreement added a critical piece to TradeCard's revolutionary e-commerce service, providing documentary compliance and settlement while assisting the world's trading community to expand the global reach of their businesses. In the same month, Softbank Finance Group, Mitsubishi Corporation, and Mitsui & Co. each made strategic investments in TradeCard. This was the first direct investment by Japanese interests in TradeCard.

In May 2000, TradeCard started to expand its network with quality assurance, export/import inspection companies such as Bureau Veritas or SGS Societe Generale de Surveillance S.A. to add services in trade financing, inspection, and logistics. TradeCard also continued to expand by allying with banks. For example, in June 2000 TradeCard signed a contract with an American bank, Comerica, as well as with Dah Sing Bank, based in Hong Kong. The Asian banks in particular provide sellers with export financing, which is an important aspect added to TradeCard service offering. In June 2000, RadioShack Corporation, a premier retailer of consumer electronics, became the first company in North America to successfully complete a series of international trade transactions, from purchase order to payment, using TradeCard.

During the year 2000, TradeCard achieved many important milestones of its first years of operation. The development and commercial launch of TradeCard's initial Web-based transaction management and financial settlement offering took place in April 2000. So far, TradeCard had signed partnership contracts with over a dozen banks that including Comerica, Fleet, Bank of East Asia, and Bank SinoPac. These banks provide TradeCard with product sales and service support as well as financing to TradeCard members. TradeCard created a network with over 40 logistics companies including Fritz & Co., Jardine, and Dimerco; 80% of the industry's inspection providers; Coface, the leading provider of export credit insurance; Marsh, the largest broker of cargo insurance; and Thomas Cook, a leading money movement provider. A very significant development was a partnership with MasterCard International to provide businesses-to-business payment capabilities for small as well as large dollar purchases. TradeCard also entered an alliance with Cap Gemini Ernst & Young to provide financial supply chain tools to CGE&Y clients and prospects.

The spring 2001 marked the launch of TradeCard's enhanced platform. The platform hosted a full suite of financial settlement products that enable buyers and sellers to track and settle virtually any type of domestic or cross-border financial transaction. So far, TradeCard had over 500 active users of the system, including RadioShack, Wolverine World Wide, SK Global, and International Playthings. TradeCard's performance seemed to be a promising success, as it received an acknowledgement by Global Finance magazine as "Best Online Trade Finance Service Provider" for 2000. Technologic Partners in Financial Services Outlook conference in August 2001 recognized TradeCard as one of the top ten privately held e-finance companies voted most likely to succeed. Finally, TradeCard expanded to Japan by the launch of TradeCard Japan K.K., a joint venture backed by Mitsui & Co., Ltd., Mitsubishi Corporation, and Warburg Pincus.

The year 2002 was a financially successful year for TradeCard. Revenues increased at a growth rate of over 15% per month and purchase orders initiated through the TradeCard system showed monthly increases of 40% over the past quarter. TradeCard corporate membership was approaching 600, including 5 of the largest U.S. retailers, the 2 largest Japanese trading companies, 2 of the largest Korean chaebols, and several of the world's largest footwear, apparel, and toy companies. TradeCard's integrated trade services network consisted of over 100 logistics providers, 15 global financial institutions, the top three inspection services (Bureau Veritas, Inspectorate, and SGS), the leading provider of export credit insurance (Coface), and the largest broker of cargo insurance (Marsh McLennan). Transaction service was capable in over 25 countries. TradeCard was selected as the Best Online Trade Finance and Trade Logistics Provider for 2001 and 2002 by Global Finance magazine. TradeCard also received the AICPA's WebTrust Confidentiality seal, first U.S. company to do so.

In 2003, TradeCard recorded further success. The transaction volume processed through the TradeCard Platform increased by 225% during the year. The company experienced a fivefold increase in revenue from customer transactions since January 2002. One of TradeCard's strengths is a wide customer base that includes well-known companies such as Staples, JC Penney, Linens N' Things, Wolverine Worldwide, Hurley International, TAL Apparel, Van Heusen, and Vans. TradeCard was granted a patent by the European Patent Office (EPO) for TradeCard's entire trade transaction platform, as well as for certain elements of the process. With two U.S. patents granted in 1998 and 2000, these European patents extended the protection of TradeCard's unique offerings to additional geographies.

In 2004, TradeCard's revenue was up 129%from 2003. This marked the second consecutive year that the company more than doubled its revenue. The 2004 growth was powered by a series of high-profile customer wins. As recorded in the beginning of year 2005, TradeCard was quickly approaching industry-standard status in footwear and apparel. Retail was a newer market to TradeCard, but the company already started to expand in that industry.

In 2004, TradeCard saw a nearly 100% increase in the volume of transactions processed over its platform. According to CEO Cavano, "Our existing customers were a big part of the increase. Every single buyer boosted their transaction volume this year." Likewise, business with suppliers remained strong, as TradeCard signed on nearly 500 companies in China, Hong Kong, India, Korea, Taiwan, Vietnam, and other countries. TradeCard also continued its success in Europe, where its new office brought on suppliers in approximately 10 countries. All together, TradeCard now counted customers in 34 countries. "What we're doing is providing a technical, financial and legal framework for global trade," explained Cavano.

In 2004, TradeCard was awarded several nominations by recognizable parties. The company won Global Finance magazine's prestigious Best Online Trade Finance Provider award for the fifth consecutive year. The company was also the recipient of Supply and Demand Chainmagazine's 2004 Executive 100 Award, an honor given to supply and demand chain innovators. World Trade Magazine recognized Cavano as one of its Fabulous 50, a list of leaders transforming global trade.

The year 2005 started with a contract with French bank Calyon, which will offer the TradeCard platform to its customers across Europe. TradeCard currently serves nearly 1,000 corporate customers in approximately 40 countries. According to U.S. analyst firm AMR Research, "Companies that are reviewing their global trade finance strategy and systems, contemplating the move toward open account, or looking for a paperless way to streamline trade finance should look at TradeCard."

TRADITIONAL PAYMENT METHODS: LETTER OF CREDIT (L/C) AND OPEN ACCOUNT (OA)

Letter of credit (L/C) was the most common method of making the international payment. A L/C international transaction process (Exhibit 1) involves buyer, seller, banks, and service providers such as freight forwarders, customs, inspectors, and generally all parties that are required in practicing international trade.

When an overseas company wants to make a purchase, the order is sent to the seller. The buyer needs to apply for a letter of credit (Exhibit 2) in the domestic bank. The bank prepares documents and sends this to the seller's bank for checking. As the order is approved, seller starts fulfillment. At the same time, the seller's bank might provide the seller with export financing by crediting the company's account. The seller prepares a packing list, which is given to the freight forwarder and inspection officer. The shipping company creates a bill of lading, which guarantees satisfactory delivery of products. All of these documents are sent to the bank, first to the seller's bank to approve the export financing. Then they are sent to the buyer's bank for a careful, time-consuming manual check against L/C. This procedure takes approximately 20 minutes to 2 hours. Should any discrepancies be found, the changes on L/C or other documents requires lots of time and effort, and it might critically hinder the whole trading process. In case of no discrepancies, the buyer's bank is ready to provide financing or receive the payment from the buyer. However, the inspection agent in buyer's country still holds the shipment; they need to check the content against the packing list and bill of lading. Finally, the buyer receives the shipment and is ready to pay or receive financing. The L/C process described is a paper-intensive and manual process with several chances of failure.

On the other hand, open account is a payment method (Exhibit 3) based on extended credit agreement that the buyer of the goods will pay for them as they are received. This payment method is not supported by a note, mortgage, or other formal written evidence of indebtedness. In other words, this payment method poses a risk to the supplier, as the buyer's integrity is essential.

TradeCard takes on part of the role of the trade finance department of a bank and integrates numerous trades, transport, and other documents. TradeCard differs in that it has an automated compliance engine, is more electronic, and its financial settlement does not use letters of credit. "TradeCard is an alternative to a letter of credit," said Kurt Cavano, chief executive officer of the company. "We do everything that a letter of credit does, but we do it without paper." Working with TradeCard, the credit rating and insurance firm Coface is responsible for rating new users of the system, who must apply for credit the same way they would deal with a bank.

International Playthings is a U.S. toy company and one example of selecting TradeCard to replace tedious L/C transactions. International Playthings believes the move will yield both process efficiencies and cost savings. "In Asia alone, we have 18 vendors who send us hundreds of shipments of toys annually using letters of credit, a cumbersome process which often involves frustrating and costly paper chases. But TradeCard gives us the tools we need to streamline and take control of our transactions. We can see every step of a transaction through the TradeCard system, and as a result both manage our working capital better and rein in transaction costs," says International Playthings Chief Financial Officer Michael Varda.

Burton Snowboards, a privately held U.S. company, is another company that had its share of letters of credit, since it sources and ships its clothing and snowboarding equipment throughout the world. In 2004 the many varieties of L/Cs could take an average of 15 days to complete, as bankers check the documents for discrepancies. To company treasurer Tom Durso, they simply tie up business deals and disrupt one's ability to manage the company's working capital. "It is truly an archaic way of doing business with pieces of paper shuffling around the globe," says Durso. He moved five of the company's key vendors onto TradeCard. Durso expects to reduce his costs by one third to one half this year alone. "It allows me to plan more precisely," he says. "I don't have cash around that I don't really need. With the L/C process, I'd have to keep a fair amount of cash around, available for that unforeseen L/C hit. With TradeCard, we have the visibility of being able to find these transactions anywhere in the system and knowing when the cash flows are coming in. It helps cash management substantially."

TradeCard's BUSINESS MODEL

TradeCard saw its success years since the financial supply chain platform launched in 2000. The way until now had been long but fast: Only five years after the launch the company had established a firm foothold as the leading provider of cross-border transaction services. It had succeeded in connecting some of the world's biggest as well as smaller footwear and textile buyers in the US and their suppliers in Asia. Members conduct transactions on a Web-based, paperless platform, which helps them with partner management, document storage, range of trade-related services, and most importantly, fast pace of completing transactions-in short, streamlining the business. TradeCard had also incorporated additional service providers to their network, of which banks had great importance. Banks had been one of TradeCard's distribution channels, as it was one alternative for letters of credit or open accounts. However, banks were losing their share of services to TradeCard. Now there was an online service offered that would replace the paper-intensive and manpowered work. Still, banks were an important part of the financial supply chain as the finance providers. Recently, TradeCard expanded in Europe with a French bank, Calyon. The conflict between banks and TradeCard never seemed to be spoken out loud, but the TradeCard Asia/Pacific Vice President Carl Wegner admitted its existence. Accordingly, there remain the questions of how should TradeCard go on with its relation to banks and what would be the future of this B2B e-commerce solution.

TradeCard is a service provided for financial supply chain management. TradeCard helps to reduce the time and effort involved with these actions. Purchase orders are presented online, negotiations and amendments take place online, financing services are reachable online, and documents are stored on a hosted online platform for seven years. TradeCard takes advantage of Internet's network effects, connectivity and interactivity, exchange and sharing of information, speed and frequency of changes. In this way it can differentiate itself from the traditional trade transactions services.

STRATEGY

TradeCard's cross-border transactions are mostly served between the buyers in the US and sellers in Asia. According to VP Asia/Pacific, Carl Wegner, in the starting year of 2000, Taiwan accounted for about 60% of the total seller volume. However, in 2004 the percentage had gone down to 40%, but this did not indicate decrease in the absolute number of Taiwanese transactions. Hong Kong's share of transactions in year 2004 was 30%.

TradeCard transaction value growth during the years has been enormous. Wegner approximated the total TradeCard transaction growth to be from year 2000's some hundred thousand dollars to about 3-4 billion dollars in the current year 2005.

TradeCard is a firm starting in serving footwear and textile industries. TradeCard concentrates efforts in finding big buyers, as Wegner explains:

The reason we are focused mostly on textile and footwear is because that is where we started out with our biggest customers, and made the decision that each one of these industries is large enough that we would be extremely successful if we got significant market share, and therefore we can expand quicker in an industry where we have a reputation and references rather than continue to try to learn new industries. We can get to new industries in the future. We are targeting customers with established relationships-we don't want to sign up and train vendors that only sell to a buyer once in a while. We are sticking in textile, footwear, and retail stores as we have some leverage in those industries. We are also looking for bigger buyers rather than smaller ones; the effort to get a big buyer is about the same as a small buyer, but payoff is better. We are also working on getting sellers to become buyers as they source down the supply chain.

Service Offering

The ultimate offering of TradeCard is to automate the financial supply chain (Exhibit 4). Automating the financial supply chain means having the same control and visibility over financial processes in a transaction as one does over the physical movement of goods, from procurement to payment.

TradeCard provides a range of services supporting both cross-border and domestic trade transactions, as well as indirect procurement. In addition, TradeCard provides the benefit of a patented data compliance engine, assurance of payment, money movement and access to logistics, inspection, insurance, and financing services. TradeCard is a flexible modular platform (Figure 2) for global trade transaction management and offers its users services that can be used in two ways:

* Full Service Transaction: Customers can choose to use the complete TradeCard transaction cycle, starting with purchase order execution with trading partners, moving on to matching and compliance, and completing the transaction with financial data settlement.

* Unbundled Transaction: Customers can select the individual components of TradeCard as needed. For example, the user can initiate exchange and collaborate with their trading partners just on the purchase order and invoice level, or implement financial settlement with or without assurance of payments services.

An example of the latter service is the invoice presentment transaction, where the seller can create an invoice, and the buyer get the payment authorization document to be approved online. Invoice presentment transactions are ideal for standing orders with established and trusted trading partners because they offer faster and easier transaction processing, do not require data compliance for payment and have simpler documentation requirements.

Wegner clarified that TradeCard's service offering complies with the Uniform Customs and Practices for Documentary Credits 1995 (UCP 500), the universally recognized rules for letters of credit, created by the International Chamber of Commerce (ICC). The supplement for electronic presentation eUCP has been created to provide guidelines to allow current UCP 500 terminology to accommodate the presentation of equivalent-to-paper documents electronically.

THE TECHNOLOGY AND SECURITY

TradeCard's platform infrastructure provides a 24-7, ASP-hosted environment that is easily deployed through the Internet or integrated with a company's existing back office accounting system. It is not necessary to procure, install, or maintain any hardware or software in order to manage a financial supply chain through TradeCard.

Security and trust are integral aspects of the platform infrastructure. TradeCard's system incorporates the five tenets of data security: authentication, authorization, confidentiality, integrity, and nonrepudiation. TradeCard identifies and authenticates users to the network using two-factor authentication. In order to access TradeCard, members must enter a valid user name and password as well as a unique authentication code generated by TradeCard's e-identity security system.

A VeriSign Global Site Certificate provides server authentication as well as the highest-level communications encryption (128-bit) available. TradeCard defines authorization via the configuration of access control lists, user and company roles, and business workflow rules within the system. TradeCard uses digital signatures to verify that a specific user has created or approved an electronic document and that the document has not been altered since it was signed. These building blocks work together to provide a comprehensive data security infrastructure. In addition, TradeCard requires all members using its services to be properly vetted and approved through an in-depth registration process.

All documents required by TradeCard may be entered via a standard Web browser or sent electronically to TradeCard via TradeCard's messaging architecture, or any combination of the two approaches. Documents sent via messaging may be in any data format and can be mapped by TradeCard. TradeCard's adaptive messaging architecture causes minimal disruption to existing processes and systems.

Another key feature of the platform infrastructure is the XML-based workflow. This feature allows each company to have its own customized workflow, which accommodates the company's existing processes or procedures. Companies can specify roles and responsibilities for their users as well as establish user access and security rights to ensure proper sign-off on documents. Based on the workflow set by the company, e-mail notifications are sent to the appropriate party when an action is required. This helps ensure timely execution of the transactions and helps coordinate the movement of transactions within an organization.

The unique feature of the TradeCard e-commerce solution is the patented compliance engine, which replaces all the time-consuming manual and "eyeball" work done in banks or in companies. When activated, this engine will check shipping documents against the original purchase order in just 2 seconds. Discrepancies are highlighted for review and correction before authorizing payment to the seller.

TRANSACTION PROCESS

In order to use TradeCard's patented transaction system, buyers and sellers must first become approved TradeCard members. TradeCard is a Web-enabled platform that all parties access through the Internet by logging into its secure transaction environment. The following process describes a full-service transaction plus money movement in the auto-approved and buyer-approved payment (Exhibit 4):

1. The buyer logs into the TradeCard Global e-commerce site by entering user ID, password and e-identity code (the e-identity provides additional security, and it is generated in a wireless reader, in which the customer enters a personalized card. The one-time access code can be used only with the user ID and password.)

2. The buyer begins by choosing the level of compliance for the transaction (strict, core, or basic)

3. The buyer creates and approves the procurement documents: purchase order, logistics detail, and optional cargo insurance. TradeCard stores the approved purchase order in its secure, proprietary database.

4. The seller is notified by e-mail that there is a new pending order to be reviewed.

5. The seller logs into TradeCard Global e-commerce site.

6. Buyer and seller can negotiate the purchase order terms online.

7. Buyer and seller both digitally sign the procurement documents. Purchase order is complete and seller begins fulfillment

8. When goods are ready to be shipped, the seller creates and approves the commercial invoice and packing list.

9. TradeCard Network service providers facilitate the process; the logistics service provider is notified and creates the proof of delivery; the inspection service provider (or buyer) is notified and creates the proof of inspection.

10. Once all electronic documents have been submitted, the patented compliance engine is activated. Any discrepancies are highlighted for review, status, and negotiation. (Or: Buyer receives the payment authorization document and then reviews, negotiates, and approves discrepancies, negotiates payment terms, approves payment date and amount. Payment authorization document needs to be approved before transaction process.)

11. When all compliance requirements are met, TradeCard initiates the payment process; instructions are sent to JPMorgan Chase to debit the buyer's account and credit the seller's account. The transaction is complete.

Throughout the whole process, all parties can track the status of transaction, access the contract details, receive e-mail reminders, and view document status.

VALUES DELIVERED

As noted in TradeCard's press release in May 1999, companies wishing to import and export have to struggle with complex financing and extensive documentation which can add from 4% to 7% in costs to the value of goods shipped, with up to 70% of documents found discrepant. TradeCard's patented electronic compliance engine virtually eliminates discrepancies, and estimates an 80% reduction in paperwork. The values delivered, in general, are threefold:

* Paperless visibility and online connectivity: International trade involves loads of paperwork and requirements for precision. In the fast-moving world there is also demand for speeding up trade to be competitive in business. The different documents needed for completing international trade cycle can be listed as follows: purchase order (by buyer), letter of credit (by bank), commercial invoice (by seller), packing list (by seller), bill of lading (by shipping lines), certificate of origin (by trade authority), inspection/survey report (by surveyor), insurance policy (by insurer). Managing all these documents in different parts of the trading cycle and institutions involved is a burdensome job. TradeCard offers a solution with its online platform, where documents are stored electronically and parties are connected to each other. Every party can also view and check the documents anytime when connected to TradeCard.

* Reduced cycle times: TradeCard is a fast solution for international trade. The system allows revision of purchase orders or letters of credit even at last minute-if any changes are needed, they are possible to make, contrary to the conventional L/C where making changes requires a complicated process. Naturally, TradeCard significantly reduces the delivery time of the whole bunch of documents and thus reduces the whole cycle time of trading. It speeds up cash flow and helps the company in accounts payable/receivable management.

* Low cost: The cost of TradeCard is lower than EDI (electronic data interface) through private network. TradeCard uses Internet and ASP (application service provider), which require much less investment on hardware. Wegner also emphasizes the cost savings (Exhibit 5) for companies for not needing to manually check documents related to even open account transactions. In addition to funds transfer, foreign exchange, and assurance of payment services, TradeCard members have access to the TradeCard etwork, which is a network of service providers offering logistics, inspection, as well as pre- and postexport financing. Many of these services are available to TradeCard members at discounted rates.

REVENUE SOURCES

TradeCard network consists of buyers, sellers, banks, and other service providers. TradeCard serves 60-70 buyers in 34 countries. A majority of them are in the US. Membership fee for buyers is $500, which is charged once.

The number of sellers connected to the network is around 9001, of which 30% are in Taiwan. Sellers pay a service fee of 0.25% of invoice amount, a credit insurance fee of 0.5%-1%, and a cross-border remittance (Swift) fee of $15 per transaction

Banks' membership fee for TradeCard is $75,000 plus an annual fee of $15,000 and a service fee of $10 per transaction. So far, there are 13 Asian banks offering their customers export financing through TradeCard. Eleven banks around the world are reseller partners of TradeCard.

COMPETITIVE ENVIRONMENT

There are also a couple of companies that offer similar services as TradeCard. One of them is TradeBeam, a global trade management software and services company providing a solution that streamlines global trading processes for enterprises and their partners. TradeBeam delivers an end-to-end solution across order, logistics, and settlement to improve global trade operating efficiencies and cash flows. TradeBeam is a US-based software company that offers a global trade management suite of applications spanning the complete global order, shipment, and settlement cycle. TradeBeam has offices in Germany, France, and Australia, and thus their business concentration is in different areas from TradeCard's. TradeBeam also serves different industries, which are high tech, manufacturing, distribution, and third-party logistics. Conflicts and competition might arise between these firms when their business areas and customer base start to overlap.

Bolero is another company that provides a neutral, secure platform enabling paperless trading between buyers, sellers, and their logistics service and bank partners. It is based in the UK, has consultants around the world, and is able to support global transactions. However, Bolero seems to be a minor threat to TradeCard, as the vice president of Asia/Pacific said, "We have never heard or seen of a transacting customer using Bolero to date." Also, Bolero's annual membership fee is higher than that of TradeCards.

RELATIONSHIPS WITH BANKS

Banks are often part of the TradeCard network because they offer financing services. However, at the same time they are competitors because they offer letter of credit and open account services that are substituting TradeCard offering.

However, companies do not necessarily use letter of credit in their international trade. For those that do use it, TradeCard is a recognizable alternative to burdensome L/C processes with its insurance provided through Coface and the electronic monitoring of flows of funds and goods. TradeCard also provides a fast open account service for companies with trusted relationships. This means that companies have the choice to replace banks' services in both open account and letter of credit, thus eating up banks' market share in international trade.

In 2001, the CEO Cavano said that TradeCard is considerably cheaper than a traditional bank letter of credit, and it still guarantees payments. His company also provides supply chain visibility. "You cannot do that with a bank," he added.

As noted by Shane Kite in 2004 Bank Technology News, the US banks are seeking to recover market share in providing import-export trade services to corporate clients by automating and standardizing the lengthy, paper-heavy process of L/C and porting it to the Web. Usage of L/C has decreased in the last several years as Asian manufacturers have sought to cut costs. TradeCard has succeeded in grabbing considerable market share, and banks are just catching up by developing similar Web-based options. Banks, however, have more difficulties integrating cross-border transactions in their electronic services, as they usually operate in certain areas only. Naturally, partnerships would be a key to this problem, but it takes time to establish them. Some banks have chosen to promote TradeCard, to join this company as its partner. However, Gartner analyst Doug McKibben said, "I'm sure there's some kind of fee-sharing, revenue arrangement, but I'm not sure banks are willing yet to let go of this business."

The recent partnership of TradeCard with the French bank Calyon shows further expansion for the company among the buyers in Europe. Emmanuel Bouvier D'Yvoire, Global Head Trade Finance, Calyon, explained the reason to join TradeCard network: "We saw very clearly what is happening in the market. Some of our customers need to trade faster, they are under pressure to manage their cash at maximum efficiency, and to achieve this all parties in a trade need to be in sync. As our customers' banking partner, we needed to address this." In 2005 Calyon saw the benefit of new opportunities to cross-sell services to the existing customers and increasing its market share.

So far, banks have been joining the TradeCard network. "As their customers want to use TradeCard, they need to join," explained Wegner. Banks are an important part of the network, since they initiate the money movement in practice and provide valuable financing services to customers. However, the relationship of banks and TradeCard is relatively controversial.

The research done among TradeCard member banks in Taiwan shows that there are some aspects causing discomfort to the bankers. When using TradeCard, they still need to print out purchase orders from TradeCard's system and re-key into the bank's loan system for OA loan applications. To avoid duplication of loan application for the same shipments, the bank's tellers have to manually control each shipment piece by piece based on printed papers. There is no connection between each bank's data systems and the TradeCard system. When a technical problem arises, the speed of resolving it is slow given that TradeCard Taipei or other branch offices have no authorization to reprogram the system, and they have to rely on the New York headquarters to fix system problems.

CHALLENGES AHEAD

Since its commercial launch in 2000, TradeCard has been highly successful in its e-commerce solution development in the US-Asia trading transactions. In order to grasp the market, TradeCard directly approached buyers, who consequently brought sellers and their banks to the network. The company's key success factors are the modern, innovative technology, effective pricing system, strategic partners, low marginal costs, and the early mover advantages in this field of business. The company continues to beat banks with the paperless, visible transaction service and banks are losing their slow, paper-heavy L/C trade business. TradeCard will definitely keep bypassing banks and positioning itself as a solution provider to buyers and sellers.

The key success factors of TradeCard could be summarized as below:

1. Technology: TradeCard has successfully adopted its cutting-edge e-commerce solutions to users.

2. Pricing Strategy: TradeCard embraces the pricing strategy that is in favor of both buyers and sellers, but unfavorable to banks. This approach marginalizes banks in business of international trade.

3. First Mover: TradeCard is the first mover of the e-commerce solution provider for exporters and importers. Other competitors such as TradeBeam and Bolero have lost the first mover advantages.

4. Low Cost: As TradeCard adopts Internet rather than an expensive private network, the business model attracts more and more buyers and sellers to join the partnership.

5. Strategic Partnerships: TradeCard also succeeds in looking for and maintaining a good relationship with its cross-boarder strategic partners, except banks.

Although TradeCard is more a substitutor than a complementor to banks' international trade department, some banks are now trying to use Web-based solutions (e.g., Wachovia's Cyberimport, as shown in Exhibit 6) to gain their customers back. In other words, for survival and growth the banks are adopting e-commerce solutions to L/C and OA transactions in order to stay in the financing business.

Within the banks' historical stronghold, electronic payment-related services promise profits that eclipse those of traditional paper-based services. The most lucrative opportunities, however, lie not in banks' historical domain but rather in system integration and information-related services. Banks can add significant value by integrating their systems into their clients' ERP/accounting systems, building a critical electronic bridge over a manual abyss. For instance, JPMorgan Chase has assembled an array of proprietary and white label Web-based trade finance products to streamline the trade process. The bank has linked its electronic trade finance features to a centralized platform, called the Global Trade Processing System, which is in turn connected to the bank's internal systems. This enables the bank to exchange data with clients and vice versa. That is, JPMorgan's approach is to provide a working capital solution, not just trade finance.

Accordingly, it is ultimately important for TradeCard to think about how TradeCard retains its edge in the provision of a financial supply chain solution while expanding the reach of new markets and the opportunities for banks to expand their role in the financial supply chain, from purchase order to payment settlement and reconciliation. There are some important questions for TradeCard to ponder:

* Should TradeCard continue to sell its solution as a consulting service product (like SAP) to just the buyers/the sellers? Should TradeCard sell the solutions to the banks?

* Should TradeCard continue to target the OA customers? Should TradeCard also target L/C customers?

* What opportunities could TradeCard offer to the banking partners to sustain their relationships?

* What would be the future of this B2B e-financial supply chain given some overlapped functions of TradeCard and the banks?

ACKNOWLEDGMENTS

Special thanks to the contributors of this case, Mirjam Uusitalo of Helsinki School of Economics (Finland), and Mark Tsai of IMBA, National Chengchi University (Taiwan).

References

REFERENCES

Damas, P. (2001, February). E-shippers kick the paper habit. American Shipper, 20-23. http://www.tradecard.com/languages/EN/news/articles/American- Shipper_022001.pdf

Farhoomand, A. F., & Marissa McCauley, M. (2000). TradeCard: Building a global trading electronic payment system (Harvard Case HKU105).

Hong Kong Shippers' Council. http://tdctrade.com/shippers/vol24_4/vol24_4_ 4logistics_e04.htm

IBM. (2005). Banks embrace on demand http://www-03.ibm.com/industries/financialservices/ doc/content/bin/IBM_banking_primer_booklet_1_banks_embrace_ on_demand.pdf

IBM Primer Booklet One (2005), "On Demand Business for Banks - Banks embrace on Demand". availabe at http://www-03.ibm.com/industries/financialservices/doc/content/bin/IBM_banking_primer_booklet_1_banks_embrace_on_demand.pdf

Kite, S. (2004). Bank Technology News, 17(11), 25.

Shane Kite, Trade Services: Banks Refocus On The EX/IM Business, in November 2004 Bank Technology News ( http://findarticles.com/p/articles/ mi_km2919/is_200411/ai_n8616615 ).

TradeCard, Inc. http://www.tradecard.com

TradeCard. (2004). 20 best practices for your financial supply chain. http://whitepapers.techrepublic.com.com/abstract.aspx?docid=124797&promo=300111

Van Hasselt, C. (2004). Dump LC headaches overboard. Supply Chain Man- ...

AuthorAffiliation

Soe-Tsyr Yuan, National Chengchi University, Taiwan

AuthorAffiliation

Soe-Tsyr Yuan is a professor of Information Management in Commerce College of National Chengchi University, Taiwan. Her research interests include e-commerce, m-commerce, service science, intelligent agents and data mining.

Appendix

(ProQuest-CSA LLC: Appendix omitted.)

Subject: Business to business commerce; Electronic commerce; Supply chain management; Financial services; Alliances; Case studies

Location: United States--US

Company / organization: Name: TradeCard; NAICS: 425110

Classification: 9190: United States; 9130: Experiment/theoretical treatment; 8100: Financial services industry; 5250: Telecommunications systems & Internet communications

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 1

Pages: 48-70

Number of pages: 23

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Diagrams Charts Tables Illustrations References

ProQuest document ID: 221167292

Document URL: http://search.proquest.com/docview/221167292?accountid=38610

Copyright: Copyright IGI Global Jan-Mar 2007

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 77 of 100

A Not Quite Bountiful Thanksgiving at BizE

Author: Gogan, Janis L; Kamis, Arnold

ProQuest document link

Abstract:

BizE (disguised) offers online content and services to small businesses. In summer 2000, BizE launched a private-label business that brought in only three large clients as of fall 2000. Expected revenues from advertisements, fee-based services, and transaction commissions were not sufficient to cover costs after the April 2000 dot-com implosion. In late fall 2000, the chief technology officer requests $5 million to upgrade the company's systems for future growth. The twenty-something founder and chairman expresses regret that BizE did not accept an offer of $10 million from a venture capitalist the previous spring, and he wonders whether funding could be obtained under the current circumstances. The CEO considers several courses of action: Charge a membership fee for the public small business portal (i.e., convert free customers to paying customers), lay off some employees, and/or abandon the new private-label strategy. A glossary at the end of the case defines various business and technical terms. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: B2B e-commerce; business strategy; business models; e-commerce in SMEs; e-commerce strategy; Internet start-up

(ProQuest-CSA LLC: ... denotes formula omitted.)

ORGANIZATION BACKGROUND

BizE was founded by Riki Annan and a partner in 1997, receiving $1.3 million in funding from angel investors in 1999. In early spring 2000, the company received its first round of $11.5 million in venture capital funding. The company was organized in two product divisions, neither of which was profitable as of fall 2000:

* The public BizE.com portal provided a mix of free and fee-based business services to small e-businesses. The services included the ability to easily design (for free) a basic online storefront with an HTML editor, domain name registration, free Web hosting (with 35MB of storage and 24/7/365 site monitoring), various add-on fee-based storefront services (e.g., shopping cart, guest counter, survey taker) and business services (accounting, legal, payroll processing). Revenues came from advertising, the fee-based services, and transaction commissions. The public portal grew from 200,000 members in fall 1999 to more than one million members in fall 2000. Half were businesses with fewer than five employees; 15% reported having 100 or more employees. About 70% of BizE small-business members reported annual revenues of $100,000 or less.

* The other division, formed in spring 2000, supported a private-label version of the public portal. Its clients were large companies, for whom BizE created and hosted customized portals to offer similar types of services and content, under their own well-known brands, to their own small-business customers. The first private-label portal was launched in July 2000 and two more were launched by fall 2000. Clients paid a one-time launch fee (up to $250,000) for development of their customized site, a recurring hosting and management fee ($5,000/month), advertising fees, and commissions (for transactions that could be traced back to BizE).

In order to support both the public BizE.com side and the private-label side, the company had ramped up quickly. Three vice presidents-business development, marketing, and customer support/operations-were hired in April. Nearly 100 new employees were hired in spring, summer, and fall 2000, yielding a total of 115 employees as of November, split roughly half and half between the two divisions.

SETTING THE STAGE

BizE targeted the small-business market. In 2000, there were about 25 million small businesses (defined as companies with fewer than 100 employees) in the United States, and in the late 1990s this number had grown by more than one million per year. Most reports indicated that only about 20% of small businesses had a Web presence of any kind, and most small firms did not have extensive in-house IT resources (Web infrastructure and expertise). Forrester Research reported that outsourcing could save small companies 25 to 82 % versus building or managing systems internally (Schaaf, Mines, Giffen, Scaffidi, & Lee, 2001), and this IT strategy was said to offer superior specialized skills, economies of scale, speed of implementation, and security (Levina & Ross, 2003; Lopez, Cooperstein, & Scaffidi., 2001).

Small firms looked to e-commerce portals and services (including BizE as well as Bigstep, BizLand, eCongo, Freemerchant, Yahoo! Small Business, and others) for an inexpensive way to build a Web "storefront" by selecting from a menu of design templates. BizE and its competitors offered domain registration, Web hosting (usually in server farms located at a Web hosting company), and other necessary e-commerce services (e.g., credit-card processing, linkages with search engines, tracking capabilities, etc.). A small business could get set up and running quickly at a low cost.

Some companies chose to develop their own online "storefront" software. They did so because they had the in-house development talent and/or wished to have a more distinctive design than was possible using predefined templates. They then could choose to host the server on their own machines or contract directly with a Web hosting provider. Services available from hosting providers (such as young firms Exodus and Navisite, as well as established firms such as AT&T and IBM) included continuous security monitoring, firewall protection, failover to hot site backups, user authentication, and so forth, on a continuum from inexpensive collocation ("co-lo") services to full-service managed service providers.

The dot-com frenzy reached its peak in winter 2000 and was followed by a stock market crash in March/April that set off an extended economic recession in the United States, leading to the failure of many start-ups (Farrell, 2000; Mandel, 2000; Norris, 2005; Veverka, 2000). Their assets were sold at auctions, often at prices less than half of their intrinsic value (Fox, 2001). Surviving dot-coms were able to acquire hardware, software, office equipment, customer accounts, and skilled employees at deeply discounted prices.

A spate of business articles admonished entrepreneurs to focus on business basics in order to survive (Boitano, 2000; Green & Hof, 2002). Subsequently, researchers attempted to explain the high dot-com failure rate. Some blamed customer service lapses (Lederer, Mirchandani, & Sims, 2001), while others reported that many rapidly growing dot-com firms exercised poor control over costs and spread themselves too thin (Thornton & Marche, 2003). Some researchers deployed evolutionary game theory to examine why some firms survived while others failed (Kauffman, Wang, & Miller, 2002). Strategy guru Michael Porter contends that poor strategic positioning was to blame. He explains: "Economic value for a company...is reliably measured only by sustained profitability. To generate revenues, reduce expenses, or simply do something useful by deploying Internet technology is not sufficient evidence that value had been created" (Porter, 2001, p. 65). Strategy is about what leaders choose to do as well as what they choose not to do. Porter (2001, p. 77) states: "The leader must provide the discipline to decide which industry changes and customer needs the company will respond to, while avoiding organizational distractions and maintaining the company's distinctiveness." Effective strategic positioning requires a coordinated, coherent effort-something Porter contends was lacking during the dot-com frenzy. Porter (2001, p. 71) proposes six principles of strategic positioning:

1. Start with the right goal: sustainable profits

2. Offer a unique value proposition

3. Perform value chain activities differently.

4. Don't be all things to all customers.

5. Fit the elements together coherently.

6. Maintain continuity of direction.

Many dot-com failures were due to one or more violations of these principles, Porter contends. More recent articles caution that some companies have forgotten the lessons that were learned when the dot-com bubble burst (Norris, 2005) and to observe that "venture capitalists are indeed breathing air into something of a bubble for the so-called Web 2.0" (Lashinsky, 2006). Online advertising is once again becoming attractive as a source of revenue for small and mid-sized businesses. The Internet has recently ranked #1 in percentage of advertising budget (24%), ahead of direct mail (16%) and television (15%) (Li, VanBoskirk, Charron, Joseph, & Cohen, 2005).

Do today's small businesses intend to build their own retail sites, for greater control, or have them hosted, for the economies of outsourcing? In 2006, 24% percent of small businesses intend to increase their spending on Web site hosting and 45% say that Internet and e-commerce initiatives are either a priority or a critical priority (Speyer, Pohlmann, & Brown, 2006). More than half of small businesses in the US plan to use a hosted e-commerce solution, with 34% using one for the first time or upgrading their existing platform (Mendelsohn, Johnson, & Meyer, 2006).

The case study described herein describes BizE's strategic positioning as it attempted to survive in the harsh economic climate of late 2000. As noted above, this start-up company's business strategy was to serve small dot-com businesses directly through its BizE.com portal. Indirectly, BizE supported the same market through its private-label service, which enabled large companies to offer similar services and content to their own small-business customers. By analyzing this case, the reader has an opportunity to consider the applicability of Porter's six principles to Web 2.0 underway today.

CASE DESCRIPTION

Time to Give Thanks?

A chill was in the air on Friday, November 24, 2000, the day after Thanksgiving. The maple trees outside Steve Severin's Waltham, Massachusetts office had recently lost their brilliant yellow and orange foliage; their bare branches were set against an iron gray sky. Steve, the CEO of BizE, sat with Riki Annan, founder and chairman, and Harry Chan, chief technology officer, discussing the future of the company. In April, BizE had received $11.5 million in venture capital, and in June the company had turned down an offer of $10 million more, because of a disagreement over BizE's valuation. In November it was clear that the spring 2000 tech-stock crash had ushered in a new economic reality for the many small dot-com companies that BizE served. The company's revenues fell far short of the levels that were forecast six months before. Expenses were climbing and cash was running dangerously low. The three members of the senior executive team needed to determine how to keep BizE afloat.

The office was quiet, since most of the company's 115 employees had been granted a long Thanksgiving weekend. Steve Severin was upbeat, as usual. "There's much to be thankful about," he stated,

One million small businesses have joined BizE.com. One million members! That tells me that we serve a real need. However, we just aren't yet reaping enough value from the public BizE.com portal. Advertising revenues are not robust enough to generate a profit, and too many members are content to use only our free services; the revenues we thought we could pull in from the fee-based services are not yet getting significant traction.

As for our new private-label division: We got off to a great start, with the launch of the first three sites last summer, and these private-label clients are happy with us. The sales team worked hard to sell the idea to 39 other prospects, but not a single contract was signed this fall-not even two companies who signed letters-of-intent in July. Our fee structure is such that we should be able to reap excellent profits from this offering, if we can sign just one or two contracts per month. But if they don't come through soon, we may have to reevaluate this whole private-label idea.

Steve Severin previously served as executive vice president of worldwide marketing at a mid-sized software company that was later purchased by Microsoft. He joined BizE in September 1999. Riki Annan, who was only in his twenties, had hired Steve and other seasoned managers on the advice of the angel investors, who provided the company with its first $1.3 million.

A Strategic Shift

In 1999 founder Riki Annan had expected that the public BizE.com portal's free services would entice many small businesses to become members. (A screenshot from the public BizE.com web site is provided in Exhibit 1). A critical mass of members would, in turn, make it possible to generate substantial advertising fees from vendors who were eager to reach these small companies. When Steve Severin joined the company in September 1999, he at first agreed with Riki that the public BizE.com portal offered a promising "path to profitability." However, it soon became apparent that advertising revenues were not growing fast enough to cover costs, even though the membership roster was growing rapidly through "viral marketing" and co-branding efforts with other Web-based marketers.

Within a few months of joining the company, Steve approved two new strategic initiatives which he hoped would generate more robust revenues. First, BizE would develop some new small-business services, such as payroll and accounting services, for which they could charge fees. Second, in a significant extension of the business, they would offer a tailored private-label version of the portal services and content. Steve hoped that various large companies, such as office supply retailers (Kinko's, Staples, OfficeMax), computer and software producers (Dell, Gateway, Hewlett-Packard, IBM), and financial services companies (American Express, Citibank), would use private-label versions of the BizE services and content to serve their own small-business customers. An advertising brochure explained:

* The private-label program allows companies to capitalize on our small business expertise yet still retain their own brand identity....It is much faster and cost-effective to customize our suite of tools and services to your needs than it would be to build these capabilities yourself.

The sales team worked hard to get five letters of intent signed with large companies that each wanted their own private-label small-business portal. The technical team, under Harry Chan (the chief technology officer) worked feverishly to do the customization that was required for each of the private-label sites, while also developing the new fee-based services for the public BizE.com site. Before joining BizE, Harry Chan had worked for a prominent computer manufacturer, where he designed server hardware, networking gear and software algorithms. Harry had designed the public BizE.com portal, and he also managed the construction of the private-label portals.

In April 2000, the company obtained $11.5 million in venture capital funding, based on a valuation of $30 million. In June 2000, shortly after five letters-of-intent were signed by potential private-label clients, venture capitalists offered another $10 million in funding, but BizE rejected this offer. At the time, Steve Severin had felt it was reasonable to expect that one or two private-label sites would be sold per month for the next few years, and that revenue from advertising and sponsorships would grow exponentially. He also expected that at least 1% of BizE.com members would each purchase $1000 worth of fee-based services per year. Based on these assumptions, Steve's calculations put the company's worth at approximately $70 million; he felt certain that the venture capitalist's pre-money valuation of $50 million was too low. Steve explained to other members of the management team:

Compared with last spring, our advertising revenues are higher, and our private- label business is off to a good start. When I extrapolate from our recent performance I get a pre-money valuation of about $70 million. I think we should hold out for that valuation.

Steve's forward-looking valuation, shown in Exhibit 2, summarizes BizE's actual and estimated operating figures. Steve assumed that private label launches would have to be discounted for the first few clients, and then obtained at a rate of one new client per month at $250,000 each. He built a spreadsheet model (Exhibit 2) to calculate his valuation of BizE using the fundamental method (see glossary). Steve assumed a venture capital discount rate (cost of capital) of 60%.

The main operating expenses were employee salary and benefits, at $9,500 per employee per month (stock options were a minor portion of this amount). In June 2000, this accounted for more than half of operating expenses (other expenses included rent and utilities, hosting provider fees, depreciation, and other expenses). Monthly overhead (including office rent, supplies, personal computers, phone and internet access, and utilities) amounted to about $5,000 per employee. Since many operating expenses were fixed or semi-fixed, salaries and benefits would, over time, account for a greater proportion of the overall cost structure. The next largest group of operating expenses consisted of advertising and public relations, marketing and sales for private labels, and professional services (accountants and lawyers).

Steve was surprised when the venture capitalist arrived at a figure that was $20 million lower than his own $70 million valuation. The two valuations were so far apart that Steve did not see any point in negotiating specific terms, such as board seats, voting rights, antidilution protection, or other elements that would ordinarily go into an agreement for another funding round.

The Private-Label Business: A Promising Start.

The first private-label portal, the 3Com Small Business Center, went live in late June 2000. Steve Severin, feeling that BizE needed 3Com more than 3Com needed BizE, had agreed to sell this service as a loss-leader: 3Com paid a development/launch fee of $20,000, combined with a monthly operating and maintenance fee of $5,000. Steve was pleased with the strong working relationship with 3Com, and he expected that other private-label clients would be willing to pay a one-time launch fee of $250,000 plus maintenance fees of at least $5,000 per month. Customized functionality would be provided for an additional charge. BizE's public portal would be used as a research and development environment; new content and services that proved successful there would subsequently be offered to private-label clients.

In July, contracts were signed with two more private-label clients: a Fortune 100 manufacturer of office equipment and an insurance company that specialized in small business. The manufacturer paid the same fees as 3Com: $20,000 upon launch and $5,000 for monthly maintenance. Steve would have liked to charge much more, but he felt that landing this company would help the sales team convince other large companies that BizE could "play in the big leagues." The insurance company paid $200,000 upfront, plus the maintenance fee. Each of the three companies signed on for one year, and each agreed to provide three months notice if they decided not to renew the contract.

Harry Chan informed Steve Severin that the public- and private-label portals were hosted on separate servers (one Sun Microsystems server per private-label customer), even though most of the functionality was similar. Harry felt that it was faster and safer to implement the sites this way, despite the duplicated code and wasted CPUs. One reason was that large private-label customers insisted on various features that were not yet available on the public BizE portal. For example, larger customers needed middleware to integrate some of their internal systems and databases with their portal. Harry explained that the use of separate platforms also ensured that if one private-label customer's server went down, no other large customer would be affected. He added, "Our current approach allows us to get these sites up and running very quickly." Indeed, the first two privatelabel sites took four weeks to implement, while the third took only three weeks. Still, the decision to utilize separate infrastructures meant that the technical team had to replicate common code changes on each platform, which increased the cost of maintaining each site.

With the three reference accounts, plus two other companies that signed letters of intent by the end of July and 36 other strong prospects, Steve felt optimistic in early August 2000. The sales team assured him that they had established a set of procedures and contract specifications that would enable them to close sales more quickly with future private-label customers. One note of caution was offered by the VP for marketing and sales: "What keeps me up at night is the recognition that we need consistency with these private label sites, in terms of the content and advertisers on each site, and to some extent, even the look and feel. The more customized each private-label site is, the more resources it needs and the more difficult it is to manage."

Steve felt that this was a valid concern, but a manageable one provided the next set of private-label clients proved willing to pay the $250,000 up-front price and the additional customization fees.

CURRENT CHALLENGES

BizE occupied a challenging position, according to Steve Severin. Most of its competitors specialized in one of three e-commerce niches:

* Content and Resources: Several companies, such as AllBusiness and BusinessTown, hosted small-business service centers which offered online content and links to valuable resources, such as the U.S. Small Business Administration or the Corps of Retired Executives.

* Products and Services: Other companies, including start-ups such as Biz- Buyer and established vendors, such as Dell Computer and Staples, hosted online B2B marketplaces. BizBuyer had received more than $35 million in financing.

* Hosting: This was a crowded field. A growing number of companies, such as Bigstep, DigitalWork, Freemerchant, and HyperMart, hosted small businesses' Web sites. In 1998, portal leader Yahoo! had launched its Yahoo! Small Business solution, which also enabled small merchants to design their online storefronts. Like BizE, many hosting companies gave small merchants (for free or a low fee) the ability to design their Web presence, selecting from predesigned templates. In August 1999, Verio completed a private placement of $360 million of convertible preferred stock. Bigstep had received more than $72 million in venture capital funding in the past two years, and in November 1999 PC Magazine had conferred its Editors' Choice Award on Bigstep's storefront builder. Competition also came from larger Web hosting companies similar to Verio, which already had big-business customers but were adding small businesses to their customer mix.

Steve explained to potential investors: "We want to cover all three fronts" with the BizE.com portal-be a one-stop shop for small business owners and managers, who could find all the content, products and services they needed to run their business, and come together in an online community. In this inclusive space, BizE did face competition from companies such as HotOffice Technologies, which offered an intranet product for small businesses. They served content similar to that found on BizE's site as well as access to various Web-based administrative tools, such as appointment scheduling and expense reporting. Onvia, calling itself an "online chief operating officer" for small businesses, had received approximately $71.5 million in funding and offered some services that were similar to those offered by BizE. Another company, Biztro, marketed a similar set of services through large businesses such as those that BizE was targeting with its private-label offering. American Express, Netscape, and Staples were among the established companies that were also exploring the small-business services space.

In spring and summer the public BizE.com membership roster continued to grow rapidly, and when it reached one million members, many bottles of champagne were uncorked in a jubilant celebration. With one million members, Steve was confident that valuable insights could be gleaned through analysis of members' business activities and purchasing habits. Furthermore, prospects for continued growth of the public portal looked strong. In the United States alone there were at least 25 million small businesses, and about half of BizE's members came from outside the U.S. BizE's VP of marketing stated: "It's a huge market, and so far we're not running into each other. However, even though we're all different, we're all beginning to head in the same direction. So, it's important to implement a "get big, fast" strategy. Those that enter late in the game will not get the critical mass that it will take to win."

When no new private-label customers materialized in August 2000, Steve Severin had to reassure Riki Annan: "It happens every year. Decision-makers go to the beach; this is just the summer-vacation doldrums." But as children returned to school and the leaves put on their autumnal display, no new contracts were signed. By October, Riki Annan felt that an infusion of venture capital was needed so that the company could ramp up its selling effort. Venture capital would also make it possible to continue to develop additional value-added services for both public BizE portal customers and the private-label sites. While Steve had agreed that venture capital would be helpful, he was reluctant to seek it until at least a few more private-label clients were on board to demonstrate the true potential of the new strategy.

Still, advertising revenues had dipped in August. Riki Annan asked, "Was that due to the summer doldrums, too?" "I don't know about that," was Steve Severin's reply. "Business publications are questioning whether any dot-com can survive on advertising revenues. Many companies now charge for services that they previously offered for free. We'd better closely monitor this, and consider whether we want to continue to offer the basic services for free, or entirely switch to fee-based services."

Riki worried that public BizE members might resist a shift from free to feebased services. Steve observed, "It's true that many small businesses offer limited revenue potential. That's why we need to do a good job of mining our member data, to identify several excellent subsets of our membership with strong revenue potential." He pointed out that companies with 75 or more employees "... are small enough that they need to manage expenses carefully, but large enough to benefit from the fee-based services we provide." He added, "We just need to do a better job of targeting those members."

Riki was also concerned about the low click-through and purchase rates of online customers, which translated into small commissions. Steve was less concerned about this problem, saying. "I haven't been counting on that revenue stream for the near term, but I hope that it will continue to ramp up next year." By late November 2000, It had become very clear that the tech-stock crash the previous April was causing strong and troubling repercussions throughout the economy (Berman, 2000).

Steve Severin was proud of his ability to leave the worries of the office behind him when he headed home each night. Indeed, he felt this was a necessary trait for any entrepreneur. So, he thoroughly enjoyed celebrating Thanksgiving 2000 with his family on Thursday. On Friday, he rose early and headed to the office, and soon Riki Annan and Harry Chan joined him there. Steve turned to his computer and opened a spreadsheet which summarized BizE's performance to date (Exhibit 3). "As you can see, our operating expenses were a bit higher than expected, and advertising revenues for the public BizE.com site did not rise as fast as we hoped. Our inability to sell any more private-label business is my biggest concern, though. Still, surely we ought to be able to close at least one deal before the end of the year."

He added, "I have to admit; I'm less confident today than I was last spring. But I still feel we are a solid company with good solid prospects."

Riki Annan responded: "If we are a solid company, then perhaps we should go back to the venture capitalist who offered us $10 million last June." Steve replied, "Yes, VCs should like the BizE story, particularly the fact that we are aiming at a huge target market." Advertisers on the public site generated $267,000 in October, and advertising revenues had increased in each of the previous six months except August. It was true that November revenues were lower than expected, but perhaps the Thanksgiving break was a factor. It seemed to Steve that 2001 public BizE.com advertising revenues ought to exceed several million dollars. Furthermore, at some point BizE merchants should start generating significant sales and then BizE would start receiving significant transaction commissions.

If 18 private-label clients materialized, Steve added, BizE could earn revenues of about $4.5 million in launch fees alone (at $250,000 each). Ongoing monthly maintenance fees (at $5,000/month) for 18 private-label sites would yield another $1.1 million in yearly revenues.

CTO Harry Chan had been listening attentively to Steve and Riki. He cleared his throat.

With one million members on the public BizE.com site, we are starting to hit the limits of our current IT architecture (see Exhibit 4). We need to spend some money to fix it. Our Web server is good, but it sometimes crashes during peak usage. A crash brings all sites offline for 15-20 minutes; our members do not appreciate that! We have 2.5 terabytes of data on our system, so it takes a long time for the system to check for corrupted files and other errors during a reboot. The real problem is our file system, which is a dinosaur. It does not degrade gracefully, so when it crashes, it cannot recover what it was trying to accomplish. And, it's nearly reached its limit in terms of the maximum number of files it can hold.

Riki asked, "How do we compare with our competitors?" Harry replied, "Our uptime is 99%, but our competitors brag that they are at 99.9999% uptime. Those extra nines may not seem like much, but they do make a difference to some customers. We have to keep up. Our file system needs to be replaced." Steve asked, "Does anything else need to be replaced?" Harry replied:

Here's the rundown: We have solid enterprise-class servers and networking gear. Our operating system, Web server, and databases (SQL Server for BizE.com and Oracle for the private-label sites) are all fine. As for the development side, I selected standard scripting and programming languages-Perl and Java-and hired disciplined developers who write good code and know how to test it rigorously. However, because each private-label site is hosted on a separate machine, we often have to fix the same bug multiple times, which is inefficient and error prone. If we do land a dozen or more private-label contracts in the coming year, we will certainly want to consolidate them all onto a single platform.

My biggest concerns are: 1) improved uptime, 2) overall capacity and scalability, and 3) software maintainability. To improve these three things, we need to upgrade and consolidate our multiple platforms into one or two (one platform for the public site and one for all of the private-label sites combined). We could make incremental improvements for about $1 million, or we can make a radical shift to a more robust IT architecture, for $5 million.

Our hosting provider is technically solid: secure and reliable, with good performance and scalability; we will never outgrow them. However, I hear that they have grown so fast that they may run into trouble. We must be prepared to shift providers if they go bankrupt. And, we might be able to get even better performance, scalability and customer service with another provider-at a lower cost.

As Harry described his IT wish list, Steve could feel the heat of cash burning. He thought of all the good people that were hired in the summer. Now his conscience was shouting "cost containment!" Was it time to lay off some employees? Steve Severin stated:

Given that we need to keep two months' worth of payroll in escrow, we are running dangerously low on cash. Last week I had some intense discussions with venture capitalists (including the firm that offered us the $10 million last June), but so far, no one has signed on the dotted line. We did obtain a $3 million loan. It's senior, secured debt with a high interest rate, 1.5% per month. Think of it as a short-term bridge loan, just to carry us a couple of months, until we get that next round of VC funding. Of course, if the VC funding falls through, our loan will be a bridge to nowhere! Either way, the situation is pretty grim. We're going to have to make some tough decisions.

CONCLUSION

This case has been prepared to support discussion of an administrative situation, and is not intended to illustrate either effective or ineffective handling of the situation. The BizE case is based on real events at a real company. The company's identity, as well as certain dates, names, and other elements, have been disguised. The authors gratefully acknowledge the assistance of the many employees of "BizE" who gave generously of their time and insights during the research that led to the preparation of this teaching case. We also acknowledge the contributions made by Ken Chapman and Kathleen Fitzgerald, who participated in the early stages of this study.

Sidebar

GLOSSARY

Angel Investor: a wealthy individual who provides very early seed money (usually less than $1 million) to a company.

Burn Rate: Negative cash flow; a measure for how fast a company will use up its shareholder capital. If shareholder capital is exhausted, the company will either have to find additional funding or close down (source: wikipedia. org).

Discount Rate: An investor's cost of capital. The higher the rate, the higher the return on investment must be, or else the investor will not be interested.

Fundamental Method: This valuation method is the present value of future earnings streams, positive or negative, and nothing else. All capital is presumed to be working capital, which is spent to be a going concern. The fundamental method can be calculated simply as net present value.

Loss-Leader: An item that is sold below cost in an effort to stimulate other profitable sales (source: wikipedia.org ).

Middleware: "Software that connects two otherwise separate applications. For example, there are a number of middleware products that link a database system to a Web server. This allows user's to request data from the database using forms displayed on a Web browser, and it enables the Web server to return dynamicWeb pages based on the user's requests and profile." (webopedia.com)

Net Present value (NPv): The value of an investment, using a discount rate and a series of future payments (negative values) and income (positive values) As a formula, NPV is the following:

...

Portal: "a Web site or service that offers a broad array of resources and services, such as e-mail, forums, search engines, and online shopping malls...." (webopedia.com)

Private-label: an unbranded subsystem of a larger branded system. A private-label Web system may be licensed and receive a "Powered by XYZ technology" logo to receive some branding exposure.

Senior debt: debt that takes priority over other debt securities sold by the issuer.

Secured debt: debt backed by collateral to reduce the risk associated with lending.

Term Sheet: A document that defines the control obtained for a venture capital investment, including board seats, voting rights, participation in subsequent investment rounds, antidilution protection of shares and a noncompetition clause.

Valuation Methods: There are several main methods for calculating the value of a company: Venture Capital, Fundamental, First Chicago, and Discounted Cash Flow (Timmons & Spinelli, 2004).

Valuation, pre-money: valuation of a company prior to an additional round of venture capital investment.

Valuation, post-money: pre-money company valuation + an additional round of venture capital investment.

Viral Marketing: "marketing techniques that seek to exploit pre-existing social networks to produce exponential increases in brand awareness, through viral processes similar to the spread of an epidemic. It is word-of-mouth delivered and enhanced online; it harnesses the network effect of the Internet and can be very useful in reaching a large number of people rapidly." (Source: wikipedia.org).

References

REFERENCES

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AuthorAffiliation

Janis L. Gogan, Bentley College, USA

Arnold Kamis, Bentley College, USA

AuthorAffiliation

Janis L. Gogan holds EdM., MBA, and DBA degrees from Harvard University. A member of the information and process management faculty at Bentley College, she conducts research on complex IT projects, management of emerging technologies, inter-organizational systems, e-commerce, and time-pressed cross-boundary information sharing. Recipient of the Bentley College Scholar of the Year Award in 2001, Dr. Gogan's publications include more than 65 papers in refereed conference proceedings and journals (such as Communications of the Association for Information Systems, the International Journal of Electronic Commerce, and Journal of Management Information Systems). For several years Dr. Gogan was a columnist for Information Week.

Arnold Kamis is an assistant professor of information and process management at Bentley College. His teaching and research interests are in decision support technologies and advanced statistical methods. His publications appear in or are forthcoming in the International Journal of Electronic Commerce, The American Statistician, e-Service Journal, Communications of the Association for Computing Machinery, Communications of the Association for Information Systems, The Database for Advances in Information Systems and in the proceedings of the Hawaii International Conference on System Sciences, SIG IS Cognitive Research Workshop, and Americas Conference on Information Systems, Workshop on Information Technologies and Systems and North American Case Research Association.

Subject: Business to business commerce; Electronic commerce; Business models; Market strategy; Small & medium sized enterprises-SME; Online information services; Case studies

Classification: 8300: Other services; 9130: Experiment/theoretical treatment; 5250: Telecommunications systems & Internet communications; 9520: Small business; 7000: Marketing; 2310: Planning

Publication title: International Journal of Cases on Electronic Commerce

Volume: 3

Issue: 1

Pages: 71-86,93

Number of pages: 17

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15480623

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: Illustrations Tables References

ProQuest document ID: 221170489

Document URL: http://search.proquest.com/docview/221170489?accountid=38610

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 79 of 100

Transaction Processing An Industry Performance Analyser for Tourism (IPAT): Introducing an Information System into a Diverse Industry in Australia's Capital Territory

Author: Carson, Dean; Richards, Fiona

ProQuest document link

Abstract:

The case describes the development and implementation of a Web based application to manage the collection and analysis of business performance data in the tourism industry. The case initially focuses on challenges with the Industry Performance Analyser for Tourism (IPAT) and how this knowledge about past and potential systems failure was used when designing a new system. Attention to this part of the case will help build skills in describing logical specifications for information systems. The case is then concerned with project management challenges faced by the organisation when key people leave the project and a new management team is formed. The reader may be able to articulate strategies which enable information technology projects to become less dependent on the tacit knowledge of individuals or groups. [PUBLICATION ABSTRACT]

Full text:

Headnote

Executive Summary

Keywords: information systems; knowledge management; retention of tacit knowledge; stakeholder engagement; tourism; tourism statistics; Web-based applications

ORGANIZATIONAL BACKGROUND

This case is set in the tourism industry, in a destination marketing organisation (DMO) for one of Australia's eight states and territories. The Australian tourism industry includes DMOs at national (Tourism Australia), state/territory (State Tourism Organisations), regional (Regional Tourism Associations), and local (Local Tourism Associations) levels. They operate under different funding models, but Tourism Australia and the State Tourism Organisations are directly responsible to the Commonwealth and state governments respectively. Of the eight State Tourism Organisations, the Australian Capital Tourism Corporation (ACTC) is unique in that its jurisdiction (the Australian Capital Territory) includes no regional or local tourism associations. Like other DMOs, however, the ACTC has responsibility for promotional campaigns, event management, informing government tourism policy, and introducing strategies to assist the development of the tourism industry as a contributor to the broader economy.

The Australian Capital Territory (ACT) has a population of just 330,000 centred on Australia's capital city of Canberra. It draws much of its economic activity from housing the bulk of Australia's federal public servants and public service agencies (Australian Bureau of Statistics, 2004). Outside of the public service sector, tourism is arguably the most significant industry for the Territory. In 2004, there were over 2 million visitors to the territory (Australian Capital Tourism Corporation, 2005b).

Figure 1 shows the state/territory and regional boundaries of Australia. The Australian Capital Territory is in the southeastern corner of mainland Australia (shaded black in Figure 1) and covers a land mass substantially smaller than many of the tourism regions in other states and the Northern Territory.

The ACT is largely a visiting friends and relatives tourism destination. The principal leisure tourism attractions of the ACT are the national monuments, galleries, and administration buildings including the Australian War Memorial, Parliament House, and the National Gallery of Australia. In addition, the ACT hosts several large scale festivals and events including Floriade, a flower festival held each spring, and the Subaru Rally of Canberra, an annual car rally. There is also a wine boutique and regional cuisine tourism sector. The key commercial interests in tourism in the ACT are accommodation establishments, the attractions (many of which are noncommercial in the sense that they run as not-for-profit or government owned enterprises), restaurants, the wine sector, and organised tour operators. The activities of the Australian Capital Tourism Corporation are designed to realise opportunities for these types of businesses through targeted promotion and marketing and strategic industry development programs (including offering business advice, fostering business networks, and in some cases providing access to business development funding) (Australian Capital Tourism Corporation, 2004b).

The ACTC reports to the ACT Minister for Economic Development and in addition to its marketing and promotion focus provides some strategic advice about the state of the tourism industry and the potential for industry development. This role is particularly important in tourism as about 90% of all tourism businesses are small and medium enterprises with a limited collective voice at the policy level (Kelly, 2002). It is important to note that organisations such as the ACTC are not industry representative associations as we would normally picture them. There is, in fact, a whole other layer of industry representative groups which may be sectoral (hotels and motels, tour operators, attractions, etc.) or geographical in scope. In the ACT, for example, there is the Tourism Industrial Council (a cross-sectoral representative body), the National Capital Attractions Association, and a branch of the Australian Hotels Association. However, the ACTC, like other DMOs in Australia, has close contact with individual tourism businesses through engagement in collaborative marketing campaigns and sponsorship ventures.

This case is concerned less with the promotion and marketing functions of the ACTC and more with its interest in monitoring industry performance and providing strategic advice both up the chain (to the Minister for Economic Development and Tourism, for example) and down the chain (to industry representative groups and individual businesses).

The Australian Capital Tourism Corporation came into being under legislation enacted by the Australian Capital Territory government on July 1, 2003. The organisation had previously been known as the Canberra Tourism and Events Corporation, and had existed in some form since 1928. The change from Canberra (which is the capital city of Australia) to "Australian Capital" was important for the structure and functions of the organisation. It was now responsible for more than the city itself, but for the surrounding areas. Under the new structure, the ACTC has a clear focus for its marketing - to emphasise what visiting the capital of Australia should mean for tourists. The organisation came to place less emphasis on its role as an event manager, and greater emphasis on providing a range of services to government and the tourism industry. The ACTC, in addition to being a marketing agency, runs a travel booking and sales service, and is an event manager.

This case focuses on the research function which was enhanced as part of the restructure under the new legislation in 2003. The research function is concerned with assessing the impact of marketing campaigns and providing analysis of various data sources that can inform industry development strategies. The research function is performed by a small team - initially just a research manager but more recently a research manager and research officer. The annual research budget represents approximately 4% of the organisation's annual budget of $20 million. This includes expenditure on research staff, commitments to purchasing research from national suppliers (Tourism Research Australia and the Sustainable Tourism Cooperative Research Centre), the contracting of specific research projects (including event evaluations and visitor perception studies), and the development of the research and data infrastructures for the Corporation (Australian Capital Tourism Corporation, 2004a). During postformation of ACTC, a research manager was appointed who had a background both as a university based researcher and as a local government tourism manager. The manager was appointed to the role in late 2002 and oversaw the development of the research portfolio. In early 2004, the manager left the ACTC to pursue her Ph.D. studies. After a short period with the position vacant, a new manager was appointed in mid-2004, with the research team expanding to include a research officer later in the year.

The research function exists to "profile the market, determine the trends and motivators in order to facilitate evidence based decision making by both the Corporation and stakeholders" (Australian Capital Tourism Corporation, 2005a). Research is most commonly used to respond to ministerial requests for information about the state of the industry, to inform the design of marketing campaigns, and to evaluate the economic and other impacts of campaigns and events. The expectations are that the research team will have access to timely, high quality data about tourism businesses, visitors, and the events and campaigns. This information is passed on to other functions in the organisational structure, communicated to the board through briefings and reports, and communicated to the minister for economic development through memos and briefings.

The ACTC research function is linked directly to other sources of tourism research and tourism research programs across Australia. The ACTC has a seat on the Tourism Research Committee, which represents each of the state tourism organisations in developing the research agenda for Tourism Research Australia - the national public sector tourism research agency. States and territories share the funding of Tourism Research Australia with the Commonwealth Government. Tourism Research Australia is primarily concerned with administering the national data collections - the International Visitor Survey and the National Visitor Survey. The Tourism Research Committee also serves as a forum for state tourism organisations to share information about their own research strategies and projects and has inspired collaboration on a number of specific research ventures of common interest to all states and territories. The ACTC is a shareholder in the Sustainable Tourism Cooperative Research Centre (ST CRC). ST CRC is a collaboration between 15 universities and 20 government agencies and private businesses aimed at pooling resources (human and financial) to conduct longer term strategic research which can underpin the sustainability of Australia's tourism sector into the future (Sustainable Tourism Cooperative Research Centre, 2005). Shareholders pay an annual subscription which entitles them to a share in intellectual property developed through research projects, but also allows them to play a role in determining the research agenda. The existence of the ST CRC enables shareholders to develop contacts with research agencies across Australia. In cases where a shareholder requires research that is beyond the capacity of its own research function and does not align with the functions of Tourism Research Australia or the ST CRC, these contacts can be used to source potential research providers and to independently procure that research (Richards & Carson, 2006).

SETTING THE STAGE

In January 2003, the Australian Capital Territory was devastated by bushfires which began in the national parks and bushlands that surround the territory and caused significant damage and loss of life in many of Canberra's outer suburbs. There was enormous resultant social and environmental destruction. There were also severe economic implications, as large numbers of stock in the farming and agricultural sectors were lost. It was also suspected that major impacts would be felt by the tourism industry (Walkenhorst, 2004).

In the wake of the bushfires, the CEO of the ACTC was required to provide ministerial briefings and strategies for minimising negative impacts. The ACTC research manager was required to be able to report on the state of the tourism industry and the extent to which the bushfires threatened its viability. In the early stages just after the bushfires, there was the opportunity to implement assistance, restructuring, and "fight back" programs involving substantial public funds. Good data were required to demonstrate the need for such programs and to monitor recovery so that programs could be withdrawn as and when they were no longer needed, or changed if they were not succeeding. The research manager's attention was drawn to the ability of other industries (such as the wheat industry) to use immediate indicators of change in key performance indicators to argue for government support.

The research manager found that she did not have access to the sorts of data that were being provided by other sectors of the economy. The most timely data were from the Survey of Tourism Accommodation (a national data set managed by the Australian Bureau of Statistics), and it showed an improvement in accommodation occupancy around the bushfire period! The research manager scrambled to interview key informants and collect what data she could in an ad hoc manner to get a more complete picture across all tourism sectors. What she found was that accommodation establishments benefited from the large numbers of firefighters, displaced residents, and media that had come into Canberra in response to the fires. Other sectors - attractions, tours, and transport, in particular - suffered major downturns in business. However, the research manager found it difficult to quantify these events due to unavailability or poor quality of data. Even when data from the International Visitor Survey and National Visitor Survey (both national data collections were managed by what was formerly the Bureau of Tourism Research and is now Tourism Research Australia) filtered through in May (some five months later), there was only tenuous links between changes in visitor numbers and the impacts on tourism businesses.

For the ACTC team, the bushfires represented a major challenge to the tourism industry "on their watch" and also the first opportunity to demonstrate the capacity of the new ACTC structure to manage such challenges. While the organisation was able to respond well in terms of media and public relations, and to secure additional funding for some recovery initiatives, the lack of tourism business performance data to both strengthen the arguments for assistance and provide timely assessment of the rate of recovery were of concern. The research manager was tasked with ensuring that adequate data would be available in future times of crisis.

CASE DESCRIPTION

Australia has a relatively large amount of tourism statistical data and research when compared with other jurisdictions. There is national coordination of surveys of domestic and international visitors. There is a monthly national survey of tourist accommodation. There is also the network of research organisations described in the Organisational Background section. The bushfire crisis in the ACT highlighted three key deficiencies in the large pool of information available:

* most information is about visitors and not about tourism businesses, and it is not always easy to make a direct connection between the number of visitors in a place and the performance of tourism businesses in that place;

* highlighting this, the key business data are about accommodation businesses, and their experience of the bushfires was very different to that of businesses in other sectors;

* most of the data sets are not available for some weeks or months after the collection period. They are large data sets with many data items collected and a corresponding high time cost in processing and publication.

What the CEO and research manager felt they needed for times of crisis such as the bushfires was immediate information about businesses across a range of sectors. They did not need much information (as illustrated by the sorts of monitors in other sectors such as the wheat monitor in Figure 3), but they needed it within a few days of a crisis. The research manager was quick to shake off any suggestion that the bushfires were a once in a lifetime crisis and that the need for these types of data would be unlikely in the foreseeable future. Faulkner and Russell (1997) proposed that, while the exact nature of the "next great tourism disaster" is unknown, the history of the industry shows that disasters will occur and with some frequency. Faulkner and Russell were commenting on the 1995 floods in Katherine in the Northern Territory, and were able to point to disasters such as the 1989 Australian airline pilots strike, the soaring value of the Australian dollar on international money markets in the late 1980s, and the Japanese economic downturn in the early 1990s. Since the 1997 publication of Faulkner and Russell's article, the tourism industry broadly has claimed to have experienced significant negative impacts from the SARS outbreak in Asia, the terrorist attacks in the United States and Bali, the collapse of Australia's Ansett airline, and the recent steep rise in petrol prices. In other words, there was likely to be an irregular, but frequent need for business performance data that would not be serviced by existing information systems.

Advice was sought from colleagues on the Tourism Research Committee and within the Sustainable Tourism Cooperative Research Centre. When she told them that she wanted to set up an ongoing regular monitor of industry performance across a range of sectors that could provide reports within a very short time of the end of the collection period, seasoned veterans were able to list many failed or barely successful attempts to do the same thing. Even within the ACT, an "attractions monitor" had been tried in the late 1990s but had fallen into disuse. The research manager did find a kindred spirit in the head of the Centre for Regional Tourism Research, a business arm of the Sustainable Tourism Cooperative Research Centre which was specifically concerned with providing quality research at regional and local levels. The head of the centre had recently completed a review of small area tourism data, particularly data sets managed by local agencies (as opposed to the national coordination of the data sets previously discussed in this case). The review included documentation of several attempts to collect data from tourism businesses (Carson, Richards & Tremblay, 2005). While willing to concede that a new strategy could overcome past difficulties, the head of the centre suggested to the research manager the following reasons why past attempts to develop business performance monitors for tourism had failed:

* It had proven almost impossible to keep tourism businesses interested in data collection during "normal" times when there was no perceived immediate need for the information (although the same businesses could be guaranteed to be the ones to complain when the data was not available and there WAS a need!).

* Businesses are constantly being asked to report to government departments (such as the tax office), business owners, financial institutions, industry associations, franchisors, and so forth. Even though these sources of data are dispersed and hard to bring together, businesses felt that they spent too much time providing (often the same) data to many different agencies.

* There are no data standards for tourism (at least in terms of business performance monitoring) so it has proven difficult to compare what is happening in one sector with another sector.

* The agencies that have tried to collect data have become "data hungry" and have tried to collect as much information as they can from businesses. Once too many data items are included in a collection, the costs of asking the questions, filling in the forms, processing the data, and producing reports start to spiral and justifying increased costs becomes difficult.

* Confidence in the quality of the data diminishes over time, particularly as it becomes relied upon for a wider range of purposes than originally intended. Procedures required to ensure increasing expectations of data quality are met again become too expensive to justify.

* Tourism businesses often lacked the skills to make use of the data in their own operations, and consequently felt that they were simply providing data to the government at a cost to them with no perceived benefit.

The head of the Centre for Regional Tourism Research distilled these reasons for system failure down to two key achievements that would be required for a new system to work. First, expectations of what the system could achieve must be kept realistic throughout the life of the system. Second, participating tourism businesses must be continually reassured that the system was providing them with a benefit. These obviously become greater challenges between intermittent times of crisis. The head of the centre was willing to give a new system a try.

The ACTC research manager and the head of the Centre for Regional Tourism Research worked out a plan for implementing a business performance monitoring system for tourism in the Australian Capital Territory that they called the Industry Performance Analyser for Tourism (IPAT). The head of the centre had led a number of information systems projects in various industries throughout his career and proposed that three documents were required. The first would be a logical specification for the system - what should it include and not include and how it should work from a user perspective? The second would be a technology analysis - what technologies should be used to manage the system? The third would be an implementation strategy - how would the ACTC ensure that the range of stakeholders in this project (tourism businesses, the ACTC organisation itself) were sufficiently enthused to embrace the system, make the contribution they needed to make to it, and respect the information provided?

The research manager was keen to ensure that the stakeholder engagement process commenced right at the start of the project. She scheduled a meeting with key industry representatives and another meeting with staff from across the ACTC to talk about the problem and to propose the project. From these meetings an informal project team was established that included the research manager, the head of the centre, a member of the National Capital Attractions Association (NCAA), and a staff member from the Product and Industry Development section of the ACTC. The NCAA member was interested in the project because he had manually collated performance data (in the form of visitor numbers) for 12 key attractions in the ACT for several years. He had his own challenging experiences in trying to get businesses to contribute their data, but also had positive experiences in how the data could be used to foster collaboration and increase market understanding for participating businesses. In the end, the principles of the manual system used by the NCAA strongly informed the ACTC system. The Product and Industry Development section was interested because they saw their role as engagement with industry. There was some concern that asking businesses to contribute data to IPAT would be seen as an unwelcome burden and would make it more difficult for the organisation to get business participation in other activities.

The first decision made by the project team actually related to the technology that could be used to manage the information system. There was broad agreement that a Web-based system for collecting data and distributing reports was desired. Several factors contributed to this preference. Other methods of data collection, including mail-back (Survey of Tourist Accommodation) and telephone surveys (the Northern Territory Telephone Operators Survey) had proven either too time consuming or too costly. Tourism enterprises across the sectors were being encouraged to make greater use of the Internet for a range of business functions. In particular, there were national initiatives supported by the ACTC including a tourism data warehouse in which individual enterprises were responsible for maintaining their own business profile. The data warehouse serves data to promotional Web sites hosted by state and regional tourism organisations. This initiative is known as the Australian Tourism Data Warehouse and has been described by Daniele, Mistilis, and Ward (2000) and Carson and Sharma (2001), among others. Tourism enterprises were also being encouraged to use the Internet for their own market research through the development of the Decipher data mining application. Decipher was developed by the Sustainable Tourism Cooperative Research Centre as an online store of tourism statistics, data sets, and research reports relating to tourism in Australia. Decipher has been described in several previous articles, including Sharma, Carson, and DeLacy (2000) and Carson, Taylor, and Richards (2003). Finally, ACTC was considering implementing an online booking system (for sales functions as distinct from the merely promotional functions of the Australian Tourism Data Warehouse) to operate in partnership with its Visitor Information Centre.

The vision, then, was for ACT tourism businesses to have access to a suite of online applications which would enable them to upload product information for consumers, download research reports and business intelligence, manage inventory and distribute their product, and upload and review indicators of their month by month business performance. The Industry Performance Analyser for Tourism was conceived as a part of this suite of tools. In the first instance, the suite would consist of independent tools, but the programmers ultimately contracted to build IPAT were asked as far as possible to use technologies that were compatible with those powering the Australian Tourism Data Warehouse and Decipher in particular. The selection of technology was therefore the easiest part of the project. IPAT would be built on the .NET framework (with no limitation on the languages available within the framework) and using SQL server. The presentation layer could include Java script and other "aesthetic" technologies.

If the commitment to use Web-based technologies for IPAT was agreeably reached, the determination of logical specifications was more problematic. Logical specifications for an information system not only describe what information is required, but how it will be managed through all parts of the system. The head of the Centre for Regional Tourism Research proposed a relatively simple high level schema for IPAT which helped the project team identify those parts (see Figure 3).

Tourism businesses would receive an e-mail each month asking them to log on to the IPAT Web site and fill in a form reporting on their business performance for the previous month. Data from that form would be pumped to a central database and, if there were sufficient data in the system, data would be processed to provide reports. This relatively simple schema was the subject of great discussion and raised many questions about the system and its performance. Some of the key questions were:

* Why monthly data entry?

* How many reminder e-mails?

* Who could log on to the data entry form?

* What questions would be on the form?

* How many records constitute sufficient data?

* What data items should be included in reports?

* What should reports look like?

* How would reports be updated?

* Who would be allowed to see reports?

* How would data from new businesses be incorporated?

* What happens to businesses which do not enter data?

Over the top of all these questions was the fundamental concern about the quality of the information such a system could produce. The project team saw many barriers to getting consistent, quality data into the system and consequently getting quality information out of IPAT's reports. Key barriers included the comparability of data items between different sectors (for example, some accommodation businesses count guests, others count rooms sold, some attractions count all visitors, some just count tickets sold). There was also the expectation that the population of participating businesses would fluctuate over time - some new businesses would join the system, some old businesses would leave, businesses would skip data entries from time to time, and so on.

As discussion raged around this critical issue, the head of the Centre for Regional Tourism Research drew the project team's attention back to the list of reasons why previous similar systems had failed. Clearly identified in the list was the issue of expectations of data quality, and how increasing expectations led to higher costs and greater disappointment. Rather than propose convoluted processes for ensuring data quality, the head of the centre suggested that the project team clearly articulate what they wanted from IPAT data. To assist this process, he proposed a set of criteria for assessing whether a particular solution to the data quality problem would produce the Best Available Data (BAD). The BAD criteria came from work the head of the centre had previously done in health informatics (Togno, Strasser, Carson, Kirkbright & McGrail, 2000) and had promoted as a tool for assessing tourism data needs at the 2003 Tourism Local Data Summit in Hobart, Tasmania (Carson, Richards & Tremblay, 2005; Kelly, 2004).

Table 1 describes the BAD criteria and the first column shows the rating for each item given by the IPAT project team. The rating for each item should not be considered in isolation, as obviously the ultimate objective would be for each criterion to have a high rating. Instead, the stakeholders understood that a higher rating on a particular criteria (for example, reliability) would have implications for other criteria (such as cost or availability). Following the table is a discussion of some of the compromises that were accepted by the ACTC.

In the IPAT case, the key criteria were coverage, availability, and timeliness. Coverage was significant because of the need to be able to distinguish between local and national or global crises. The system would be required to report on tourism in the ACT as a whole. Availability and timeliness were closely linked with the need being to report quickly and to make the information freely available to businesses, marketing agencies, and policy makers. The value of the information would also be in its availability over time, providing an ongoing monitor of industry performance. The data would need to be valid in that the data items could be reasonably viewed as true measures of industry performance, but also in that the formats in which data were reported (tables, graphs, percentages, etc.) had meaning in terms of comparing the status of the industry over time. In terms of data collection periods, there was widespread agreement that monthly data were most appropriate. This time period aligned with existing reporting phases of many of the businesses which would be asked to participate in the system, was not so frequent as to provide a high respondent burden, and was frequent enough to be sensitive to relatively short term shocks in the industry.

Less important were issues of cost and, in particular, comparability. While there was a limited budget for development of an information system, there was a possibility of further funding if required. The information was not intended to be used to compare industry performance in the ACT with industry performance in other jurisdictions. There was also limited scope to compare data collected through this system with the standard national data sets which, apart from some information about accommodation businesses, do not report on industry performance.

There was interesting discussion around the issue of reliability. The primary concern was that data could be produced frequently and that they would provide a consistent measure of industry performance over time. It was recognised that the enforcement of any onerous controls on reliability may negatively impact the availability and timeliness of information delivery. For example, requiring a particular sample size or representative sample may result in time periods for which no data were available. It was preferable to have some data, even if of questionable quality, than no data for a collection period.

The project team articulated some further requirements for the information system. There was strong interest in the system having capacity to compare the performance of different sectors of the industry. The bushfire event had highlighted how just having information about one sector of the industry (in that case, the accommodation sector) was likely to be insufficient to describe the performance of the industry overall. It was therefore considered critical to include other sectors in the system - particularly the attractions sector (considered more susceptible to changes in the leisure tourism market) and the tours sector (for which there was no existing information and no representative group). This imposed a comparability requirement not considered in the BAD criteria.

The project team also recognised a requirement for multiple levels of access to information. Some businesses (particularly those belonging to the same franchise, or being members of the same industry representative group) were interested in using the system to exchange data between individual enterprises, or to have the data subsetted for smaller groups of businesses within a broader sector.

In summary, ACTC was looking for an information system which would focus on availability and timeliness of data across a range of sectors, and do so with recognition of the following limitations:

* only a small amount of data would be collected from participating businesses to reduce respondent burden (and therefore encourage participation in the system), increase the frequency with which data could be collected, and maximise the simplicity of the reporting process;

* the data would serve as indicators rather than as statistically significant measures of industry performance, reducing the need to draw random or representative samples; and

* reports would be limited in format and variety due to the small number of data items, the need to deliver reports as soon as possible once data had been collected, and the desire to have consistent and easily interpreted reports available to a range of stakeholders.

While this process did not answer in detail the questions raised by the proposed high end schema (Figure 3), it did provide the parameters within which answers could be assessed. IPAT was to be fundamentally a simple system which focused on producing some information at regular periods for a range of sectors.

The ACTC research manager and the head of the Centre for Regional Tourism Research developed a mock-up of IPAT to use for both briefing system programmers and informing the industry and stakeholders about the progress of the project. This case is not concerned with the technical details of IPAT, but the reader may be interested in how the issues raised by the initial proposed schema were managed.

With a broad set of logical specifications, a relatively detailed mock-up, and the guiding view that the system should be simple to use and focused on its primary objective of producing some information at regular periods for a range of sectors, the ACTC research manager asked the head of the Centre for Regional Tourism Research to engage programmers to build a live application. The authors do not want to suggest that the process of engaging suitable programmers and ensuring that the application was developed to specifications was an easy one! However, this case is less concerned with the technical development of IPAT and more concerned with managing the introduction of an information system into a complex environment. Suffice to say that IPAT was ultimately built at a relatively small financial cost over a period of eight months. It met the specifications of the project team and survived a rigorous testing by members of the team and other stakeholders who had developed an interest in the project along the way. The programmers were responsible for ensuring that technical issues were identified and addressed and that technical performance standards were met. The project team left responsibility for managing the technical development phase to their information systems expert (the head of the Centre for Regional Tourism Research) with confidence that their requirements were well understood.

The ACTC and specifically its research manager now had a tool which conceptually met the need to deliver industry performance data in a timely manner during and after times of crisis. The process of articulating the logical specifications for the system and ensuring that the project team (and particularly their information systems expert) were "on the same page" had worked well thanks to the use of the BAD criteria and the attention paid to lessons learnt from failed systems. The research manager was able to organise another set of stakeholder meetings and announce that IPAT was ready. Unfortunately, she also chose that time to announce her leave without pay from the organisation!

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

A critical challenge now faced the organisation. The original project team had been led by the research manager and had seen a key milestone in the completion of the programming of IPAT in early 2004. The information systems expertise also left the project at this point. The organisation still had several individuals who understood why IPAT existed, and there were links into the industry through the NCAA and other associations consulted throughout the development phase. However, there was not much documentation (apart from the mock-up and a set of user guides) about how IPAT worked. The ACTC knew they had a system, they knew how to operate it (and how to teach others to operate it), and they knew it potentially provided information for which there was a clear need. However, they did not know in detail the compromises that had been made in keeping the system simple, and they did not have a driving force for its implementation. The Product and Industry Development project team member had been involved simply to monitor the contact between the project and their industry. This section of the ACTC did not have a strong sense of attachment to the system itself, rather to the potential use of IPAT to foster relationships with businesses. The Product and Industry Development section had several such strategies (collaborative marketing campaigns, industry training seminars, etc.) and so IPAT was not mission critical for them.

It took several weeks for the ACTC to recruit a replacement for the research manager. Fortunately, some funds became available within the organisation, and the new research manager was able to appoint a research officer. It was now late 2004, nearly two years removed from the bushfire crisis. The new research officer was very much aware of the potential value of a system such as IPAT and was determined to work with industry to implement the system.

What was required was a roll out strategy which included:

* articulation of the importance of IPAT for its various stakeholders (ACTC, industry associations, tourism businesses, etc.)

* a program of industry consultation and training

* identification of the businesses and sectors that should be targeted as users of IPAT

* identification of key partnerships - industry associations, technical support, internally, and so forth

* identification of the technical skills required by users of IPAT

* goals for level of uptake

* resource requirements - promotion, training, system maintenance

* mechanisms to get user feedback and inform improvements in the system

References

REFERENCES

Australian Bureau of Statistics. (2004). Year book Australia 2004. Canberra: Australian Bureau of Statistics.

Australian Capital Tourism Corporation. (2004a). Annual report 2003-04. Canberra: Australian Capital Tourism Corporation.

Australian Capital Tourism Corporation. (2004b). The economic contribution to tourism to the ACT: A tourism satellite account based analysis. Retrieved August 2, 2006, from http://www.tourism. act.gov.au/CA256E140014A4CF/Lookup/Research%5fLatest%5fResults%5fFILES/$file/FS%5fEconomic%5fContribution%5fof%5fTourism.pdf

Australian Capital Tourism Corporation. (2005a). Our team - organisational structure. Retrieved August 2, 2006, from http://www.tourism.act.gov.au/CA256E1D0083A261/OrigDoc/~7100884BDB95AFABCA256E22001C5181?OpenDocument&1=10- The+Corporation~&2=30-Our+Team~&3=~

Australian Capital Tourism Corporation. (2005b). International visitor travel profile for year ending December 2004. Retrieved August 2, 2006 from http://www.tourism.act.gov. au/CA256E140014A4CF/Lookup/Research%5fLatest%5fResults%5fFILES/$file/FS% 5fInternational%5fVisitor%5fProfile%5fDec%5f04.pdf

Carson, D., & Sharma, P. (2001). Trends in the use of Internet technologies. World Hospitality and Tourism Trends, 2(3), 116-128.

Carson, D., Richards, F., & Tremblay, P. (2005). Catalogue of local data collection initiatives across Australia. Gold Coast: Sustainable Tourism Cooperative Research Centre.

Carson, D., Taylor, A., & Richards, F.E. (2003). Delivering business intelligence for regional tourism in Australia: Analysis of the Decipher technological innovation. In S. Marshall & W. Taylor (Eds.), Proceedings of 5th International IT in Regional Areas (ITiRA) (pp. 15-17).

Daniele, R., Mistilis, N., & Ward, L. (2000). Partnership Australia's national tourism data warehouse: Preliminary assessment of a destination marketing system. In D. Fesenmaier, S. Klein, & D. Buhalis (Eds.), Information and Communication Technologies in Tourism 2000 (pp. 353-364). New York: Springer- Verlag.

Faulkner, B., & Russell, R. (1997). Chaos and complexity in tourism: In search of a new perspective. Pacific Tourism Review, 1, 93-102.

Kelly, I. (2002). Australian regional tourism handbook: Industry solutions 2002. Gold Coast: Cooperative Research Centre for Sustainable Tourism.

Kelly, I. (2004). Australian regional tourism handbook: Industry solutions 2004. Toowoomba: Country Colour Group.

Richards, F.E., & Carson, D. (2006, February 6-9). Foundations of innovation: The role of local government in the production and distribution of knowledge in regional tourism systems. In Proceedings of the 2006 CAUTHE Conference, (pp. 607-621) Melbourne, Australia.

Sharma, P., Carson, D., & DeLacy, T. (2000). Developing a business information data warehouse for the Australian tourism industry: A strategic response. In D. Fesenmaier, S. Klein, & D. Buhalis (Eds.), Information and Communication Technologies in Tourism 2000 (pp. 147-156). New York: Springer.

Sustainable Tourism Cooperative Research Centre. (2005). About ST CRC. Retrieved August 2, 2006, from http://www.crctourism.com.au/page.aspx?page_id=42

Tourism Research Australia. (2005). About the BTR. Retrieved August 2, 2006, from http://www. tra.australia.com

Togno, J., Strasser, R., Carson, D., Kirkbright, S., & McGrail, M. (2000). GP workforce and skills minimum dataset. Traralgon, Victoria: Monash University School of Rural Health.

Walkenhorst, D. (2004). Photos of Canberra's bushfires. Retrieved August 2, 2006, from http://canberrafires.xsnet.org

AuthorAffiliation

Dean Carson, Charles Darwin University, Australia

Fiona Richards, Charles Darwin University, Australia

AuthorAffiliation

Dean Carson is the principal research fellow for the Tourism Research Group at Charles Darwin University in Australia's Northern Territory. Dean was previously the Head of Australia's Centre for Regional Tourism Research. He has lead research into the use of information technology (particularly online technologies) in a variety of industries in regional Australia. He is now consulting on the implementation of IPAT in the Northern Territory as well as heading up a major research program on four wheel drive tourism in the desert.

Fiona Richards was previously the research manager of the Australian Capital Tourism Corporation. She has since taken time off to complete her PhD in local government management of tourism before recently returning to work as the international marketing manager for Charles Darwin University. Fiona has published on knowledge management in tourism organisations, and the capacity for innovation in Australia's regional tourism systems.

Subject: Tourism; Information systems; Data processing; Market strategy

Location: Australia

Classification: 9179: Asia & the Pacific; 8350: Transportation & travel industry; 5240: Software & systems; 7000: Marketing

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 1

Pages: 1-10,13-15,18-19

Number of pages: 15

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: References Maps Diagrams Illustrations

ProQuest document ID: 198678558

Document URL: http://search.proquest.com/docview/198678558?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 80 of 100

Secure Authentication Process for High Sensitive Data E-Services: A Roadmap

Author: Ardagna, Claudio Agostino; Damiani, Ernesto; Frati, Fulvio; Reale, Salvatore

ProQuest document link

Abstract:

The widespread diffusion of online services provided by public and private organizations, firstly driven by e-commerce and more recently by e-government applications, has stressed the need of secure ways to authenticate users who need to access online resources. The huge number of resources accessible on the Web leads to different authentication mechanisms implementations that often require multiple log-on actions also in intradomain multiservices scenario. In case of high sensitive services, users' authentication plays a role of paramount importance. In this article is presented a case study that gives a roadmap of authentication mechanisms implemented at different levels of services' software structure. The discussion starts by illustrating different authentication solutions implemented at operating system, application server or components level to conclude with Single Sign-On approach. For each solution, pros and cons are discussed. The SSO system, called CAS++, developed as an extension to Yale University's CAS, is then presented. [PUBLICATION ABSTRACT]

Full text:

Headnote

ExECUTIVE SUMMARY

Keywords: access control; access methods; authentication; authorization; data protection; data security distributed systems; Internet-based technology; Web-based applications

ORGANIZATION BACKGROUND

Established in early July 2002, Siemens Mobile Communications S.p.A. (SMC) is involved in mobile networks (for Italy) and fixed and mobile network access systems (for the international market). It works in close collaboration with the Siemens AG Information and Communication Mobile group. The company is among the foremost research and development centers in the telecommunications industry, with a large percentage of its staff employed at the Cassina dè Pecchi and Cinisello Balsamo (Milan) premises. Manufacturing mainly takes place at the Marcianise plant (in the province of Caserta), as well as in Cassina.

Turnover for 2003-2004 came in at 1,171 million euros, with staff levels at 2,562.

Siemens Mobile Communications' business divisions are marked by their aggressively market-oriented approach and a commitment to excellence in partnerships with mobile operators - regardless of whether they are new or existing clients - in every area of telecommunications, fully capitalizing on the synergies offered by the Siemens Information and Communications group in Italy and internationally. The company comprises two business divisions:

* Mobile Networks: Siemens Mobile Communication proposes itself as one of the leading companies in the mobile communication market. Its products are made to answer in the better possible way to the requirements of the costumers. The infrastructure range includes technologies for GSM, GPRS e 3G systems. The processes of technological innovation realized by the research centers pose Siemens always at the highest level in the development of new technologies for the Mobile Network.

* Microwave Networks: Microwave Networks division has a lead-house role in Siemens with the mission of developing, manufacturing, promoting, selling, and supporting microwave and WiMAX products. Siemens offers innovative radio products and solutions for the transmission and access to the mobile and fixed networks thanks to the proven turn-key capability and world-wide presence.

SETTING THE STAGE

The increasing usage of GSM mobile phones and the upcoming of a new generation of mobile systems (called third-generation or 3G) have led to the development of applications that manage the mobile network and provide new services to users. In this scenario, every network technician, that has to use multiple parallel services, must manage several pairs username/password, raising a great amount of security concerns (Bettini, Jajodia, Sean Wang & Wijesekera, 2002). In particular, when the organization manages very sensitive data, the main problem that has to be addressed is the efficiency and security of the authentication process, the first point of contact between users and systems. Hence, in this scenario, the major challenges were to improve authentication process in order to avoid malicious accesses, privacy violations and data correlation. The importance of security mechanisms, in fact, arose when a solution for remote management had been adopted for simplifying and improving network management performances. In this scenario, the high sensibility of the information and the risks introduced by the adoption of remote services imposed to provide a strong solution to security issues.

The presented case study, named "Pitagora Project", is managed in the context of a joint research project that involved Siemens Mobile Communication S.p.A. and the Software Engineering and Advanced Architectures Group of the Department of Information Technology of Crema (DTI), University of Milan. This project, started in January 2004, is focused on security and authentication issues applied to real-life experiences of Information Technology (IT) in an important organization.

Project Pitagora gave a solution that allowed the implementation of security architecture, also in an e-services scenario, that integrated and protected all the services, components, and applications composing the studied environment. More in detail, this environment included the following innovative applications in the field of mobile communication:

* IMW was the application tool, developed from March 2004 to November 2004, which provided and controlled the access, requested by users/technicians, to the Operation and Maintenance Center system (OMC), the system used to manage the network elements that composed the real mobile network. In particular, users were able to manage, configure, and check the OMC mobile network using different technologies and devices, such as traditional PCs/laptops, PDAs, and mobile phones. Hence, IMW managed all the communication processes between users and the OMC system, through different technologies such as Web browsers and the HTTP/HTTPS protocol, WAP browsers, and SMS. IMW kept the technicians informed on the supervised network state, notifying alarms and warnings, at which the users were previously registered. To conclude, the users could configure and detect the components state, receiving alarm notifications in case of hardware or software failures, and could try to solve the problems running actions and tests over the damaged components. To summarize, IMW fulfilled all the requirements for the remote management environment for mobile networks.

* i-Geo (intelligent Geo-Location) was the application involved in the geo-location of customers mobiles (Anisetti, Bellandi, Damiani & Reale, 2005). In particular, i-Geo tool allowed the definition of the number and position of mobile antennas, the calculation of produced electromagnetic field, the calculation of sensibility map, the geo-location of a mobile phone, and, finally, the computation of the path of a mobile phone during a time interval. Future enhancements could be provided to compute the best antennas positions to optimize the mobile signal covering. The i-Geo application implementation, started in September 2004 is still under development. Its first version has been completed in April 2005;

* GEMFIS was an open source application, developed in 2004, used to monitor the network usage focusing on maximizing performance and guaranteeing a healthy environment, with respect to the current laws (Damiani & Montel, 2005; Montel, 2004). GEMFIS provided features for memorization, visualization, and management of the environmental data. In particular, it provided information about electromagnetic field and acoustic level compared with environmental rules. It also managed an historical database related to the installed facilities, disposal of waste material, and variation of electromagnetic field.

Both of the proposed applications hold and manage a huge amount of sensible data or services that must be protected from unauthorized accesses. The risks of malicious actions improve in case of remote requests and interactions. In this scenario, as said before, the need for a stable and strong mechanism to authenticate the users arises. Before Pitagora Project, Siemens managed several parallel applications as stand alone services, with their own authentication mechanism based on username-password pairs. In particular, all the user/technicians that had to use these applications were faced with different types of authentication processes and different sets of authentication information, thus increasing the probability of errors or intrusions that Siemens wanted to solve to be able to expose the services to the Net.

CASE DESCRIPTION

Accessing information on the global Net has become a fundamental requirement of the modern economy. Recently, focus has shifted from access to traditional information stored in WWW sites to e-services such as e-government services, remote banking, or airline reservation systems (Corallo, Cremonini, Damiani, De Capitani di Vimercati, Elia & Samarati, 2005; Damiani, Khosla & Grosky, 2003; Feldman, 2000). In particular, the perceived importance of e-services is growing and, consequently, many works try to develop methods and models to make uniform the e-services development process. Today, it is widely acknowledged that e-services should follow a layered software structure as outlined in Figure 1. The structure depicted fits also the real case described in this article and it is composed of three layers, where the first comprises a community of e-services components, managed by an application server (second layer) in turn running on an Operating System platform (third layer). More in detail:

* E-services components layer. All software components that implement an e-Service.

* Application server layer. Middleware over which the applications will be deployed. It provides some additional functionalities such as management of security and persistence. In this manner, the developer can focus on the implementation of application components.

* Operating System platform layer. The Operating System platform over which the applications will be distributed.

In this scenario, where data represent one of the major critical assets for the enterprises and are shared among strangers, the need for security arises becoming the most critical issue in e-services implementations. The fact that users are potentially strangers, during a negotiation, makes security a research issue involving and affecting several fields as access control, trust and reputation and several technologies as biometric systems. This article, however, focuses on the major authentication solutions for e-services discussing their pro and cons, in an e-services three-layered structure. Then, it presents and discusses single sign-on and federation approaches that are the emergent technologies providing an infrastructure to integrate and coordinate authentication processes.

The discussion starts from the experience gathered in a real case study involving Siemens Mobile Communication S.p.A. and the University of Milan. In particular, Siemens Mobile Communication S.p.A. had perceived the needs to open its applications to the technicians also through the Net and not only in a closed network. The exposition of the application interface had introduced the need of redesigning and strengthening the authentication process due to the high sensibility of the exchanged data, whose corruption or unauthorized release could cause enormous economic losses. This sensibility, in fact, had in the past defected any tentative to expose Siemens services to the technicians through the Net and had imposed the definition of several restrictive requirements that the security architecture must fulfill to reduce intrusion risk closed to zero.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

Before describing the solution for the case study, the roadmap, which brought to its adoption, is presented explaining pro and cons of all the analyzed authentication practices. The following solutions represent the most important methodologies in current e-services implementations.

Looking at the picture in Figure 1, the three levels structure of e-services could implicitly suggest the application of an authentication mechanism at one of its layers. In formalizing Pitagora's components, each level was examined and studied to implement an authentication mechanism.

In the following sections, the resulting three scenarios together with emergent solutions are presented and each approach is described focusing on the advantages and disadvantages that it provided.

Operating System Level Authentication

The first considered solution was to rely on the authentication features provided directly by the operating system platforms. Each user (in this case a technician) that tried to enter the system had to provide her credentials (username and password) at system start up. Operating systems internally manage a user repository that grants access only to registered users, associated with simple authorization roles (e.g., administrator and guest).

If login process succeeded, applications based on operating system repository retrieved and collected username and role, through predefined system calls, and used them to give services access whenever possible based on their authorization rules.

This solution, also if reduced the effort in user and authentication process management and avoided any code customization, raised a set of crucial issues. First of all, operating system account repository (composed only by username and role) is not fully satisfactory for what concerns the management of access control in e-services and, therefore, applications had to maintain its own user accounts repository, reducing all the benefits given by this solution.

Usually, roles managed by applications was more than two (administrator and guest) and more additional credentials were needed to determine which actions the user could perform. Furthermore, the user that gained the access could not be the one that made use of the application, since system and application start-up could happen at different time instants, without the sureness of the identity of the user that was accessing the application.

Finally, operating systems do not provide standard methods to obtain logon information requiring system-dependent authentication process.

Due to the concerns above mentioned, operating system level authentication was not applicable to Pitagora Project and alternative solutions were explored.

Application Server Level Authentication

Going up in the pyramid structure depicted in Figure 1, the focus switched from operating system to application server layer that is responsible for the lifecycle management of the applications and provides additional horizontal functionalities such as management of security and persistence. The authentication process, then, could be easily delegated to Application Server, taking advantage of horizontal functionalities and libraries that application servers provide. In particular, Pitagora's applications were based on JBoss (JBoss, 2005; Scott, 2003), a widely accepted Open Source J2EE1 compatible Application Server, kept up to date with the J2EE specifications and whose proposals are often taken into account in its formalization.

JBoss allows a complete security environment implementation without custom programming inside business components (Ardagna, Damiani, Frati & Montel, 2005; Damiani & Montel, 2005). Current J2EE specifications define a simple role-based security model for Enterprise Java Beans2 (EJBs) and Web components. JBoss provides a component framework that handles security. The JBoss security extension provides support for both the role-based security model as well as integration of custom security through a security proxy layer.

The default implementation of the security model is based on Java Authentication and Authorization Service (JAAS) login modules and subjects that are the package enabling services to authenticate and enforce access controls upon users. The security model advocated by the J2EE specifications is a declarative model and security roles and permissions are described using a standard XML descriptor rather than embedding security into business components.

By configuring the JAAS login modules bundled with JBoss the integration of security without custom programming can be completed and supported. JAAS includes a set of standard modules for the use of file, database and Lightweight Directory Access Protocol (LDAP)-based security information. Every user is able to write own security modules that fulfil more specific requirements.

In particular, the development of a security environment is composed by three main parts: (1) configuration of a database security domain, (2) definition of authentication, and (3) specification of authorization process. All these phases are entirely accomplished through the customization of Application Server JBoss and Tomcat-specific deployment descriptors. Tomcat is a Web server and servlet container, bundled with JBoss application server, responsible for the management of Web applications; it provides several functionalities by means of deployment descriptors (XML file) customization, such as security functionalities.

To add the chosen database configuration to the application, the jBoss login-config.xml file is configured defining the following modules (see Figure 2): (1) dsJndiName: JNDI3 name of the database containing user and role tables; (2) principalsQuery: SQL statement to retrieve the password for a specific user; (3) rolesQuery: SQL statement to retrieve a user's role; (4) hashAlgorithm: hashing algorithm used to encrypt passwords; (5) hashEncoding: statement to select the encoding algorithm to convert the binary hash value to a string.

Focusing on Pitagora's Authentication process, after the definition of the Security Domain, the servlet specifications define a standard method of configuring the login process for Web applications, through the specification in Tomcat's Web.xml file of the URL of the login page and the login error page (see Figure 3).

By means of a standard JSP page, the user could insert login and password that was sent to the login module specified in the ACTION tag. In this case, the predefined method for servlet form-based authentication j_security_check, that accepted as parameters username (named j_username) and password (named j_password) and referred to the specified Security Domain, was used.

This solution was, however, not fully satisfactory for the goals of the project. Albeit application server authentication gave some notable advantages, as for instance no need of code customization and clear separation between business and security components and high reliability levels, it raised a major problems: it did not allow different implementations for different applications, binding all the services to an unique authentication process. Logically different applications that, potentially, require different authentication mechanisms with different requirements cannot live with this solution that imposes a single authentication approach for all the applications deployed on the same application server.

For this reason, also this solution was not adopted, since it did not provide a suitable environment for Pitagora's applications.

Component Level Authentication

To conclude the roadmap, the most adopted solution in current e-services scenario is described, relying on the insertion of components responsible for the authentication process at the top of the structure depicted in Figure 1. In this manner, there is a strict integration between business and security components and it is possible to customize the authentication process for single application needs. This solution implements a decentralized authentication mechanism that requires the insertion of customized code inside the business components to manage the communication protocols with the requestor, validate the received requestor credentials with the user profile information stored in the local user repositories, and allow or deny the access request.

Also if this decentralized approach implied different security implementations focused on services goals and allowed ad-hoc security implementations for each service, there were many drawbacks that suggested refusing this solution:

* increase of costs and time spent for logon to multiple services: for each service the user had to provide service-specific credentials;

* username/password proliferation: for security concerns, the user was stimulated to choose a different username/password for each service and, hence, she had to manage, protect, and remember several of these information pairs;

* increasing of administration cost and time: administrators had to deal with multiple profiles repositories with variable schema and variable authentication policies;

* usability problems: user had to interact with multiple logon interfaces.

From the account management point of view, this approach required an independent management of accounts in each domain and the use of different authentication mechanisms. Several usability and security concerns had been raised, leading to a rethinking of the logon process aimed at co-ordinating and, where possible, integrating user logon mechanisms and user account management tools for different domains.

The description of the most widespread methods to implement an authentication infrastructure, suggested that an optimal solution had not been found out. In the following, the idea of adopting an emergent solution, named Single Sign-On, that seemed the most suitable approach for securing authentication processes in e-service, is put forward.

SINGLE SIGN-ON: A SOLUTION FOR SECURING AUTHENTICATION PROCESS

A service/architecture that provides the requested coordination and integration of access control processes is called Single Sign-On (SSO) (Galbraith et al. 2002; Single Sign-On, The Open Group, 2005) (see Figure 4). The advantages given by the introduction of SSO architecture in a pre-existing multiservices intra-domain scenario could be summarized as follows:

* reduction of: (1) time spent by the users during logon operations to individual domains, (2) failed logon transactions, (3) time used to logon to secondary domains, (4) costs and time used for users profiles administrations;

* improvement to users security: the user has to manage only a couple of username/password;

* secure and simplified administration: with a centralized administration point, system administrators reduce the time spent to add and remove users to the system or modify their access rights (authorization);

* improvement of security through the enhanced ability of system administrators to maintain the integrity of user account configuration, including the ability to change an individual user's access to all system resources in a coordinated and consistent manner;

* improvement of services usability.

From the point of view of economic feasibility, most available Return-On-Investment (ROI) models available for SSO focus on cost reduction rather than on the alleviation of damages, for example, deriving from intrusions. While this is a rather conservative approach, experience has shown that even minor achievements like reducing Help Desk calls by eliminating password problems can generate significant savings. Studies by Forrester Research (www.forrester.com) confirm that eliminating password chaos can lighten internal Help Desk burden by 50%. Anectodical evidence has been brought up of a case where a Single-Sign-On solutions eliminated 95% of all password-related support calls. Helping users gain quick, secure access to password-protected applications can save everyone many minutes of wasted time. Also, whenever sales force and executives travel, they still can get access to the applications they need. All these factors create a boost in productivity. Also, integration and maintenance of SSOs being minimal, invest ments in existing infrastructure are preserved. The Total Cost of Ownership (TCO) for SSOs compares favorably with other solutions on the market.

As clearly highlighted by the above list, many of the advantages provided by a SSO solution reflect the drawbacks raised by the previous solutions based on security customization at component level. In the SSO approach, the primary domain is responsible for collecting and managing all user credentials and information used during the authentication process, both to the primary domain and to each of the secondary domains that the user may potentially require to interact with. This information is then used by Single Sign-On services within the primary domain to support the transparent authentication to each of the secondary domains whereby the user actually requests to interact. The information provided by the user to the primary domain can be used in several ways to logon to secondary domains:

* directly: the user information is forwarded to a secondary domain as part of a secondary logon;

* indirectly: the user information is used to retrieve other user identification and credentials information, stored within the Single Sign-On management information base. The retrieved information is then used for a secondary domain logon operation;

* immediately: a session is established with a secondary domain as part of the primary domain session initialization. Client applications are automatically invoked and communications performed at the time of the primary logon operation;

* temporarily: information is stored or cached and used when the secondary domain services are requested.

SSO provides a uniform interface to user accounts management interface, allowing a coordinated and synchronized management of component domains.

The aim of any SSO solution should be making single sign-on to multiple sites as secure as giving a username and password at each site. To achieve this goal, different security issues need to be taken into consideration.

First, SSO solutions should be based on strong authentication mechanisms; with the traditional password-based mechanism, the theft of a user password could compromise the whole system and even if the passwords are not stolen, storing passwords on a single server makes it a single point of attack. Therefore, for high security environments, a password-based mechanism cannot be sufficient and a certificate-based authentication (e.g., based on X.509 certificates) is preferable.

Another important aspect is related to the security of the server where the authentication information (e.g., passwords or certificates) is stored. A robust SSO implementation should ensure the security of that server to prevent confidential data from being accessed by a malicious party. Encryption is a viable solution for securing the storage of the user credentials.

A SSO solution should then be designed to guarantee that the key information cannot be determined. For instance, keys could be stored on a smart card or derived each time the user logs on using the password.

The security of user's credentials should be preserved also during their transmission. It is therefore mandatory to use SSL-encrypted connections to protect the authentication information, transmitted during the authentication process.

Finally, a particular challenge in SSO systems is to provide for complete retrieval of identity information while preserving its privacy. Innovative SSO systems should be able to help the user in determining the consequences of releasing her identities to a counter-part in terms of potential danger to her privacy.

Criteria are needed for evaluating tools with respect to the privacy features they are expected to enforce. This problem could be addressed by obscuring the identity of each user so that to each participant is presented a unique pseudonym.

SSO solution clearly seemed to be suitable to Pitagora Project needs, addressing all requirements of security, reliability, and performance. Many implementations have been presented to the Internet community such as, the Central Authentication Service developed by Yale University (Aubry, Mathieu & Marchal, 2004; Central Authentication Service, 2004), Liberty Alliance project (Liberty Alliance Project, 2005; Galbraith, et al. 2002), a business and technology consortium of more than 130 global organizations that was constituted in 2001, and its SSO implementation SourceID (SourceID, 2005), founded in 2001 by Ping Identity Corporation Company, Shibboleth (Shibboleth Project, 2005), an open source implementation, of Internet2/MACE, Java Open Single Sign-On (JOSSO) (Java Open Single Sign-On, 2005), an open source J2EE-based SSO infrastructure hosted by SourceForge.net and finally Microsoft Passport (Microsoft .NET Passport, 2005), one of the most known commercial Single Sign-On implementation.

Central Authentication Service

Central Authentication Service (CAS) (Aubry, Mathieu & Marchal, 2004; Central Authentication Service, 2004) is one of the frameworks that imposes to open source community as an optimal solution in SSO scenario, and consequently also in Pitagora's environment.

Central Authentication Service was developed by Yale University that implements a SSO mechanism to provide a Centralized Authentication to a single server through HTTP redirections. When an unauthenticated user sends a service request, this request is redirected from the application to the authentication server and back to the application if the user has been authenticated. The information is forwarded by the authentication server to the application during the redirections by using session cookies (see the data flow in Figure 5).

CAS is composed of Java servlets running over any servlet engine and provides a Webbased authentication service. Its more interesting characteristics are security, proxying features, flexibility, reliability, and its numerous client libraries. In particular, the most important security features are three:

* passwords pass from browsers to the authentication server through an encrypted channel;

* re-authentications are transparent to users, if they accept a single cookie, called Ticket Granting Cookie (TGC). This cookie is opaque (i.e., TGC contains no personal information), protected (SSL) and private (it is only presented to the CAS server);

* applications know user's identity through an opaque one-time Service Ticket (ST). This ticket is provided by the authentication server, transmitted to applications by the browsers, and finally, validated by the authentication server (returning the corresponding identity). Using this mechanism, applications never see the user's password.

The CAS Server is therefore the only entity that manages passwords to authenticate users and transmits and certifies their identities.

CAS implementation, however, was not completely suitable for Pitagora's needs and, hence it was extended with the integration of strong authentication mechanisms and digital certificates, leading to the implementation of CAS++, as described in the following section.

CAS++

An improved version of CAS architecture has been developed to fulfil all the Pitagora's open issues and requirements. This solution was named CAS++ and it was an open source SSO system, developed by Siemens Mobile Communication S.p.A. and University of Milan, Department of Information Technology of Crema (DTI), based on the use of certificates and fully integrated with the JBoss security layer.

CAS++ solution integrated the CAS system with the authentication mechanism implemented by a Public Key Infrastructure (PKI). CAS++ used standard protocols such as HTTPS, for secure communications between the parties, and X.509 digital certificates for credentials exchange.

It is a fully J2EE compliant application integrable with services coded with every Webbased implementation language. It enriched the traditional CAS authentication process through the integration of biometric identification (by fingerprints readers) and smart card technologies.

The strong authentication process flow was composed by the following steps (see Figure 6):

1. the user requests an identity certificate to the CA (Certification Authority);

2. the user receives from the CA a smart card that contains a X.509 identity certificate, signed with the private key of the CA, that certifies the user identity. The corresponding user private key is encrypted with a symmetric algorithm (e.g., 3DES) and the key contained inside the smart card can be decrypted only with a key represented by user fingerprint (KFingerprintUser);

3. to access a service the public key certificate, along with the pair username/password, is encrypted with the CAS++ public key (KPuCAS++) and sent to CAS++;

4. CAS++ decrypts the certificate with its private key, verifies the signature on the certificate with the CA public key, and verifies the validity of this certificate by interacting with the CA;

5. CAS++ retrieves from the CA information about the validity of the user certificate;

6. if the certificate is valid, CAS++ extracts the information related to the user, creates the ticket (TGC, Ticket Granting Cookie) and returns it to the user encrypted with the public key of the user (KPuUser). At this point, to decrypts the TGC, the user must retrieve the private key stored inside the smart card by mean of her fingerprint. As soon as the card is unlocked, the private key is extracted and the TGC decrypted. This ticket will be used for every further access, in the same session, to any application managed by the CAS++ Single Sign-On server.

For every further access in the session, the user was authenticated by the service providing only the received ticket (TGC, Ticket Granting Cookie). Note that, to improve security, any communication between entities (PKI, CAS++ and User) was based on SSL (Security Socket Layer). The advantages of this mechanism were that the account management was centralized and separated by the real application and the user had not to remember username and password, since they were logically contained in the certificate used during authentication phase. The introduction of smart cards and fingerprints readers did not affect the system performance and did not require huge additional costs.

CAS++ addressed authorization managing the association of users' identity with roles and leaving to the specific service the task of defining and managing the authorization policies (who can or cannot execute which action on which resource). CAS++ returned to the services the association between user and role.

Federation

CAS++ is however not the best solution for Pitagora's needs. For instance, the concept of federation (Galbraith et al. 2002), strictly related to the concept of trust, could integrated in the CAS++ solution because introduced the concept of dynamic joining of SSO systems. The Liberty Alliance protocol is the most representative example of federation. It was implemented to define a federated SSO system. The Liberty Alliance protocol defined three main actors: (1) Principal, that is the services requestor, characterized by an identity profile; (2) Identity Provider (IdP), that provides authentication assertions to the Principal; and (3) Service Provider (SP), that supplies services to the Principal.

The Liberty infrastructure is based on the concepts of Circle of Trust and Identity Federation:

* Circle of Trust is a set of SPs and IdPs that have trusted business relationships, based on Liberty architecture, and operational agreements and whereby can transact business in a secure and apparently seamless environment.

* Identity Federation represents the linked "local identities" that users have defined for multiple SPs. When an user authenticates to a particular service, the provider supplies the user with an assertion of the authentication event. An identity federation is said to exist between the provider and other service providers, when they are in the same Circle of Trust. The authentication assertion is used to link user identity across business boundaries.

A user should be able to select the services that the user wants to federate and defederate to protect user privacy and to select the services to which the user will disclose authorization assertions. This mechanism could allow a "user customization" of the Circle of Trust.

Focusing on the authentication process, the first step to enable federated Single Sign-On between all the providers is to establish a Circle of Trust between IdPs and SPs. Single Sign-On implementation in Liberty protocol is based on the assumption that the user has already federated at least one Service Provider with an Identity Provider of the same Circle of Trust. Before that a user can access a resource/service, the user has to logon at the Identity Provider. The user has to provide the username and password and, if authentication succeeds, the Identity Provider shows the federated Service Providers available for the user. After the selection, the user is redirected to the Service Provider. The Service Provider sends then a request to the Identity Provider for authentication confirmation. If the Identity Provider sends, through an HTTP redirection transparent for the user, a positive response, the user gains access to the Service Provider. If the Identity Provider sends a negative response, the user is redirected to authenticate again using the Federation Single Sign-On process. This solution added to CAS++ implementation could give a complete answer that fulfils all Siemens security requirements.

CONCLUSIONS

A roadmap, that described and recalled the flow that brought to the adoption of single signon approach to secure critical remote applications, managing high sensitive data and services, is presented. First, three methodologies, currently adopted to secure critical e-services, have been described: operating system level authentication, application server level authentication, and components level authentication. Second, the case provided a description of single signon technology. Then, CAS++ system is introduced, and, finally, it is described how it could be improved by mean of federation approach.

Footnote

ENDNOTES

1 J2EE (Java 2 Platform, Enterprise Edition) is a platform for building distributed enterprise applications. J2EE comprises a specification, reference implementation and set of testing suites.

2 EJB (Enterprise Java Bean) is a software component, which provides a pure Java environment for developing and running distributed applications. EJBs are written as software modules that contain the business logic of the application.

3 The Java Naming and Directory Interface (JNDI) is part of the Java platform, providing the applications with an unified interface to multiple naming and directory services.

References

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AuthorAffiliation

Claudio Agostino Ardagna, University of Milan, Italy

Ernesto Damiani, University of Milan, Italy

Fulvio Frati, University of Milan, Italy

Salvatore Reale, Siemens Mobile Communication S.p.A, Italy

AuthorAffiliation

Claudio Agostino Ardagna received the Laurea degree in Computer Science from the University of Milan, Italy in 2003. Since January 2005 he has been a PhD student at the University of Milan. His research interests are in the area of information security, distributed computing and privacy, access control, mobile networks, open source and e-Government. He investigates the following issues: privacy protection and identity management, access control policies and languages, Web Service infrastructure protection, XML security, remote management of mobile networks, mobile networks security, mobile phone location, evaluation and adoption of open source frameworks in e-government and critical environments.

Ernesto Damiani is a professor at the Department of Information Technology of the University of Milan. He has held visiting positions at George Mason University, VA (USA), La Trobe University, Melbourne, Australia, and the University of Technology, Sydney, Australia. His research interests include knowledge extraction and processing, secure mobile architectures, software process engineering and soft computing. On these topics he has filed international patents and published more than 80 refereed papers in international journals and conferences. He is the Vice-Chair of the IFIP WG on Web Semantics (WG 2.12) and a co-author of the book "Human-Centered e-Business" (Kluwer 2003).

Fulvio Frati received the University degree in computer science from the University of Milan, Italy, in 2004. Since February 2005 he is a research collaborator at the Information Technology Department, University of Milan, Italy. His research interests are in the area of software engineering, Java programming, information security, distributed computing, access control, open source in e-Government scenario and virtualization. He investigates the following issues: introduction of single sign-on in existing systems, application of open source to e-Government and evaluation of open source applications in critical environments, ontology management, requirement engineering and virtualization in simulation environments.

Salvatore Reale is head of the Radio Access Network Management department in Siemens S.p.A. Research and Development Division, with the responsibility of defining, implementing, testing and maintaining software products for managing GSM and UMTS mobile networks. His experience, operating since 18 years in one of the world's leading telecommunications company, and in particular in the business segment of mobile networks, grew in organizations with a strong international component and in large and complex software projects.

Subject: Authentication protocols; Online information services; Case studies; Mobile communications networks; Systems integration

Location: Australia

Company / organization: Name: Siemens AG; NAICS: 334210, 334220, 334517; Name: Siemens Communications; NAICS: 334220

Classification: 9179: Asia & the Pacific; 5140: Security management; 5220: Information technology management; 9110: Company specific

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 1

Pages: 20-25,27-35

Number of pages: 15

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Diagrams References

ProQuest document ID: 198678489

Document URL: http://search.proquest.com/docview/198678489?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 81 of 100

Designing for Service-Oriented Computing

Author: Vassiliadis, Bill

ProQuest document link

Abstract:

This case describes major management and technology issues which arise when designing advanced service-oriented architectures in distributed networked environments used for e-learning. The organization at hand uses a mixed funding model and is preparing for a large expansion of its services and capacity. This case takes place after the initiation of a project and during the design phase where significant decisions have to be taken about what is feasible, what are the risks and how they can be dealt with and finally, what is to be developed and how. The need to address diverse goals set by business, technology and education right from the start of the project requires new methodologies for documenting development plans, feasibility studies, risk, and human resource management policies. The project manager needs to go beyond traditional project management methods in order to cope with the needs of this use case and most importantly, to manage the risk that arises from many directions. [PUBLICATION ABSTRACT]

Full text:

Headnote

ExECUTIVE SUMMARY

Keywords: case study; e-learning organization; feasibility analysis; grid technology; high risk/high gain project; innovative IT solutions; partners diversity; risk management; service-oriented computing; software development; software as a service

ORGANISATIONAL BACKGROUND

This case is set in the higher education industry involving an Open University which utilizes a mixed business model: its operation is funded by both public and private funds. This institution is supporting a diverse population of students which undertake undergraduate or postgraduate studies. Moreover, it provides postgraduate curricula to graduates who wish to extend or upgrade their studies to subjects related to their profession. The University's curricula correspond to various certificates, Bachelor or Master's degrees. A Bachelor degree is comprised of several research directions. Courses, organized in modules, are designed according to the distance learning methodology: students study using text books, participate in 5 tutorials for each module taking place in 8 towns, communicate with the corresponding tutor by telephone, fax, e-mail and letters, prepare 4 - 6 assignments for each module and finally, take a final examination 10 months later. A student belongs to one student group, called class. A class is based on a major city in which class sessions take place. A tutor is allocated for each class of a maximum capacity of 32 students who inhabit in a specific geographical region.

The organization's educational services are targeted to a very specific audience:

* students: students are the main clients of the organization. They pay fees for attending courses.

* other Academic Institutions collaborating with the University: academic institutions are possible collaborators in the development and provision of MSc Curricula.

The academic personnel of the institution involve a small number of about 30 permanent personnel (Professors, Associated Professors and Assistant Professors) as well as a large number of tutors (about 1000). Each one of the permanent personnel undertakes, besides tutoring, the coordination of all classes and the overall academic responsibility for a specific course. Tutors cooperate with the University on an annual basis.

This organization is supported by a mixed funded scheme: it allows admission of students without an entry examination but although it is a state University, students pay fees for the cost of their studies. Fees cover the cost of the instructive material and all the expenses related to the studies. The number of annual registrations in each bachelor degree programme is about 500. To date, over 1800 students are registered for various stages of each course. Future plans of the administration foresee a significant increase in the number of new registrations will reach up to 1500 per year. The total number of students attending at all the educational programmes totals to 16000. Table 1 summarizes these figures.

The institution is relative new, with only five years of existence. It monopolizes the open and distance education of the country since it is the first and only higher education institute of its kind with bachelor and MSc. degrees recognized by the state. This fact has given the administration of the University the possibility to expand both its range of services and its capacity without serious competition in the domestic market. The following graph depicts in approximation, the annual increase of the organization's budget for the last 5 years.

It is worth noting that the unique services offered has created a large and ever-increasing client base. As the University is annually increasing its capacity, more and more applications are made for filling new student positions. Figure 2 presents this annual increase in capacity and the corresponding applications for registration for the last five years.

Since the organization is an Open University, new technologies are used for delivering education: electronic material, video lectures, electronic forums and e-mail. Advanced services include high-end communication and collaboration tools for online delivery of content and lectures in real time. It is reported that these tools have several drawbacks and they will be probably replaced in the near future. Asynchronous services are provided through Web sites, forums and e-mail. Frequent meetings between tutors and students take place for presentations, discussing problems or for providing additional information. Since this University covers the whole country, a small number of centres are used in major cities providing support such as lecture rooms and in the near future, video-conferencing facilities. It must be noted that a firm policy of the organization is to keep the tutor/student ratio steadily at 1:30, regardless of the increase in user capacity. This allows the continuing monitoring of student's performance and the establishment of tight relations between the learners and the academic staff.

The organization's culture is characterized by a spirit of innovation both technologically and administratively. Although some initial organizational problems prohibited rapid expansion in the first 4 years of its operation, rapid growth has taken place in the beginning of the fifth year while ambitious plans have been set for the next 5 years: a 50% expansion with regard to current numbers.

The population of students, the actual users of the organization's services, is extremely diverse. A typical student is rather of a mature age, part time student. Many students are already professionals and have different cultural backgrounds and career goals. They are highly geographically dispersed all around the country.

SETTING THE STAGE

In order to support the rapid expansion within the next five years, the organization has decided to use new technologies as a spearhead for increasing quality of service and reducing organizational complexity. The main effort was focused on the main product: e-learning service provision. The effort of upgrading services was of a high risk because the client population was very sensitive to changes in the way learning was delivered. On the other hand, repeated evaluations of current procedures had shown several deficiencies in service delivery and most of all inability to support the ever-increasing client population. In short, services were suffering from the following drawbacks:

* low participation. The participation of students to e-learning sessions and the use of collaboration tools were extremely low. The main reason was that users were not motivated enough. Although basic functionality such as video-conferencing and collaborative support were provided, procedures and tools seemed to lack the interactivity and the efficiency needed for broad acceptance.

* interactivity: The lack of interactivity in current services was largely reducing the interest of users.

* efficiency. Since students had significant time constraints (most of them were employed), services should have been tailored as mush as possible. This means that an upgraded version of the system should provide the means to cut down the costs of learning through adaptation, along with effective task assignment, execution duration control and monitoring.

* cost reduction. The inclusion of new tools or services to the existing system was deemed to be a too costly process. Costs increase when management of the integration of internal and external resources is needed: aspects such as security, heterogeneity and copyright were not dealt with by current approaches.

* ever-increasing number of clients. The number of clients (actually students) that need to be supported by distance learning applications was quite large. Their number is estimated to increase by 50% within the next five years. Normally, this would not be a problem if static Web applications were used for delivering content. A simple Web server would be adequate. Nevertheless, in the case of more complex services, there was a problem on how to cope with tens or even hundreds of processes running at the same time by remote users. Furthermore, according to the organisation's rules, there could be no strict rules on when students may access a service or not. Access to services is quite random in terms of number of users, time of access and duration of use. The University's policy to improve the quality and capacity of the e-learning services (number of user supported), required a solution that could handle possibly thousands of users at the same time.

Existing tools used were quite cost-effective to support, relying mainly on Web-based technology. They included:

* asynchronous collaboration tool, which was being used for simple collaboration/sharing of knowledge and resources and virtual class management.

* Web sites and forums, used for asynchronous delivery of educational material and for off-line collaboration.

* tools and Web browsers were used to access and manipulate information objects:

* Internet Explorer/Mozilla for Web browsing,

* Word for creating documents,

* PowerPoint for creating, organizing and illustrating presentations,

* WordPad for plain text editing.

Besides the obvious drawbacks of using such simple technology for supporting an extremely demanding and diverse client population, another disadvantage relating to the philosophy of the organisation was soon discovered: its business model was distributed and current technological solutions were based on a client-server model. The University has its headquarters in a major city of the country while clients are supported by 8 satellite centers based on 8 other cities (Figure 3). This network was already supported by a high speed network backbone guarantying fast delivery of heavy loads. Although electronic services were geographically independent, other services were provided on-site. The latter included mainly facilities for regular face to face sessions, a significant aspect of the University's educational policy. Thus, several of the provided services were geographically-sensitive, but the supporting technology was not.

Such a business model was recognized as an advantage but only in the case were distributed computing would be used as its enabler. Administration as well as user services should be supported by a networked model mapped to the nodes of the existing, underlying business model. Classic practices used so far were minimizing ROI (Return on Investment) and kept quality and user satisfaction at low levels.

The above-mentioned situations required a mixed economic/technological/pedagogical solution that would not address all problems at once, but rather deal with the most important ones. This decision was made after considering several similar cases of organisations that tried to introduce state of the art technologies, although not all of them were based on a high risk/high gain model. Most such efforts involved small scale, single institute adoption of state of the art tools from which the organization's experts have drawn some useful conclusions (Haywood, Anderson, Coyle, Day, Haywood & Macleod, 2000; Jefferies, Thornton, Alltree & Jones, 2004; Saunders & Klemming, 2003). Cross-institution (Van Weert & Pilot, 2003) or nation-wide (Demb, Erickson & Hawkins-Wilding, 2004) efforts were also considered since one of the University's future and most bold goals was to become a nationwide service provider of e-learning services to the commercial sector also.

Before any decision was taken about how to proceed, feelings about changes were mixed. On one hand, most thought that using advanced IT for facilitating better service provision was a must but the economy and benefits of such a solution were under question. The benefits of introducing advanced e-learning services, even in an organization that already uses IT as a backbone, still remains in theory. Services that are considered the most promising are also the most costly: personalization, real-time communication and other advanced functionalities lead to significant costs. So the business problem faced in this situation was focused on how to improve e-learning services by keeping costs to a minimum and maximize ROI in such a diverse and difficult sector as the educational one (Bender, 2003).

CASE DESCRIPTION: GOALS

Before undertaking any large effort to upgrade the current system, it was decided that it would be wiser to test some high risk/high gain technological/educational solutions to a specific curriculum. Three main directions where considered as most important for project execution: economy, pedagogy and technology. Funding was provided by the participation of the University to a large international project with very ambitious goals: to design and develop new educational services using distributed technologies. Although this entailed a high risk, possible benefits were also high. Furthermore, the fact that funding was coming from external sources, did reduced somewhat the economic risk of the University itself.

The pedagogical goal of the project was to improve learning through real time cooperation/working among individuals, sharing and reuse of information in highly distributed and dynamic environments. The pedagogical goals outlined had highly demanding technical requirements, many of which were also the concerns of distributed systems research (Duffy & Jonassen, 1992). Group working implies shared interactive resources, necessitating both concurrency control and awareness of others activities. Active learning requires interactive resources, many of which will only be engaging if they are suitably responsive - a quality of service (QoS) issue that depends on many components of a distributed system - the low-level infrastructure (hardware, OS, network), the middleware and the interface software. Concurrency control and interactive responsiveness can make conflicting demands on a system. Real world input, such as live student interaction makes a network connection mandatory, and this again raises QoS issues such as fault detection, masking and tolerance for the learning environment. Accessibility, as in anytime/anywhere, requires availability, which may be supported through replication of resources, but this creates further tensions with responsiveness and concurrency control due to the need to maintain state across replicas. Accessibility also means adapting to available capabilities. For example: can the same learning environment be delivered through low-bandwidth mobile devices and highbandwidth multimedia workstations? Accessibility also means supporting special needs of the individual, such as disabilities. More generally, the individual user should be recognized and catered for, and this personalization requires semantic tagging and profiling that can be difficult to formulate, both conceptually and in terms of machine representation. Standards efforts have been particularly slow in addressing this problem. Finally, contextualization required a move from the traditional view of an online learning environment as a stable long-lived entity (e.g., during the lifetime of a teaching module) - to another where the environment may evolve and change much more frequently, perhaps even several times a year - a dynamicity that is alien to current e-learning products.

The overall goal of the project was set to be the improvement of the efficiency of current e-learning practices by promoting a collaborative/social learning model based on services rather on tools. Furthermore, to use the new services as reinforcements to the foundations laid by the linear structured text books and the online and off-line lectures. As mentioned in a previous section, the goal was not to solve all identified problems, but rather to integrate a new learning methodology that would work as a supplement to existing practices. The aim was to increase:

* student motivation to participate in online sessions,

* student confidence and satisfaction,

* efficiency of the learning process.

In order to reach the main goal, the following subgoals had to be accomplished:

Sub-Goal 1

* provide added value services in the form of highly interactive multi-cooperation sessions and advanced virtual communities support.

* provide advanced, media rich services in the form of multi-step, cooperative working sessions for the a specific course.

* facilitate social learning and collaboration through knowledge sharing and reuse between groups and individuals.

Sub-Goal 2

* support thousands of users while preserving adequate Quality of Service.

* provide the services to a diverse and very large student population.

* provide a single access point with a homogeneous interface.

* preserve quality of service (fault tolerance, response time) at any time.

Sub-Goal 3

* evaluate the didactical approach and the technology infrastructure by contacting a real, large scale experiment in the selected course.

* provide/configure metrics for measuring performance in terms of scalability, quality of service and security.

* test the infrastructure in a real situation.

* assess the results and provide feedback.

Supporting computationally expensive services for thousands of users with minimum costs and maximized ROI was the biggest challenge. A novel, and thus high risk technology was selected for delivering the services: grid computing.

GRID COMPUTING: STATE OF THE ART

Grid computing is a new paradigm that enables the virtualization, management and provision of heterogeneous and geographically dispersed computing resources (Berman, Fox & Hey, 2003). A resource may be CPU power, storage, information/knowledge or even services. The vision of the grid is to provide computing resources in the form of commodities just like as the electric grid provides electricity to consumers. Providing computing as a commodity means that the end-user just plugs into a provision and gets all the resources needed under payment, transparently and with adequate quality of service. Transparency is essential because users should not be worried about how to find and manage computing resources, they just consume them. Quality of service involves not only high availability but increased security as well.

In order for this vision to become a reality, the distributed computing research community defined a set of functions that a grid should perform: resource scheduling, data virtualization, provisioning, and resource management (Li & Baker, 2005). The enabling software of the grid, actually in the form of middleware, should be able to operate on a variety of operating systems and network configurations.

In the past ten years, the grid has matured from a purely scientific instrument that processed vast amount of data to a collaboration enabler (De Roure, Jennings & Shadbol, 2005). Besides standard distributed computing technologies (virtualization, grouping of resources), the grid now incorporates semantics (De Roure et al., 2005), Peer to Peer (Talia & Trunfio, 2003) and Web Services' (Cannataro & Talia, 2004) characteristics/functionalities. The use of these functionalities in the grid however is slightly different as described in Table 2.

The grid was originally applied in e-science but the framework it engendered to realize effective sharing of distributed heterogeneous resources is now being applied to many other areas, especially enterprise computing, e-commerce and recently higher education (Maldonado, 2004). The first application is extremely interesting since the grid has been proposed as a Virtual Organization (VO) enabler (Foster, Kesselman & Tuecke, 2001). In this model, grid technology is used for coordination, sharing and reuse of services, knowledge and data across the geographically dispersed nodes of the VO. VO nodes are mapped onto the physical grid nodes (computers or clusters of computers) and predefined workflows are used for service execution and data management (Figure 4). The next generation of grid solutions will increasingly adopt the service-oriented model for exploiting commodity technologies. Its goal is to enable as well as facilitate the transformation of Information into Knowledge, by humans as well as - progressively - by software agents, providing the electronic underpinning for a global society in business, government, research, science, education and entertainment. The most important benefit of this technology is its ability to meet major bursts of CPU demand using existing resources. By decoupling the services from the underlying h/w, resources are automatically allocated/deallocated as loads are increased/decreased. This increases ROI on h/w since idle computers are used instead of buying new ones.

TECHNOLOGY SELECTION

The grid computing paradigm is relatively new although it uses ideas and technologies from other, more mature disciplines. It has been recognized as a high risk technology that may provide significant benefits in special kinds of applications and especially in distributed coordination/cooperation. Although its potential has been recognized by the research and commercial community, the lack of grid-specific standards has been viewed as a serious uncertainty factor, prohibiting currently its wider adoption. Thus, projects that use grid technology bear a significant technological risk but also have a lot of potential.

The use of grid technology was chosen because the services anticipated were computationally expensive since a large number of users would be engaged in processes including massive calculations (e.g., online experiments). Furthermore, the grid had already shown significant advantages in collaboration and knowledge sharing for large teams. The organization's policy to adopt new technologies in order to minimize costs and maximize return on investment in all levels played a significant role in taking this decision. Improvements were anticipated in many levels, from administration to the delivery of education. In the latter case, new e-learning services were supposed to be designed in a way that:

* fully utilizes existing resources,

* could be expanded in order to support a large number of users while minimizing costs,

* would be flexible and able to respond to the rapidly evolving market,

* increases the power of core resources without creating the need for investing in additional hardware or hosting infrastructures,

* supports the University's dynamic policy for expansion.

* In this context, grid technology would play a significant role towards the direction of a compact, scalable and cost-efficient infrastructure for e-learning services. The use of grid technology was also necessary in order to fulfil real business needs:

* to combine resources on-demand for service provision,

* to intelligently allocate finite resources to the appropriate applications,

* to free expensive supercomputing resources for only the most high-end processing needs while still supporting the wide range of compute-intensive applications run by research groups throughout the University,

* to increase ROI on existing resources,

* to be able to support the ever-increasing number of users,

* to provide cross-domain functionality.

A grid infrastructure would permit transparent access to services and resources wherever they are located. Furthermore, special grid functions valuable for the efficient provision of services such as resource reservation, storage of large volumes of data and minimization of data transferred by using a super-node grid structure would be made available. In conclusion, the business value of using grid technology for this project stemmed from the possibility to leverage existing h/w and s/w investments and resources, reducing operational costs and creating a scalable and flexible infrastructure. It has been argued by some of the technical staff that acquiring CPU power and increasing storage capacity by using clusters of computers was both a cheap and efficient solution for supporting large numbers of users. This was partially true, but the real problem was not purely technological (e.g., about CPU power) but business as well. If contemporary technology would be used then cost would be increased since the management and monitoring of different resources, would be difficult and expensive. Furthermore, expanding usually means buying and dedicating new hardware and software to new services, possible fragmented resources while ROI would not be maximized. It was also recognized that return of value would stem from educational, organizational and external benefits. Educational benefits would include more efficient learning models overcoming limitations problems of current computing infrastructure, provision of ubiquitous e-learning services. Exploiting potentials from the provision of consulting services to other academic institutions in the country concerning new e-learning models, and grid-enabled learning were also identified. Organizational benefits were supposed to include improvements in organizational efficiency (better information flow, savings in staff time, and improvements in service provision), a possibly, enhanced public profile of the institution and high return on investment: support more students, with less effort and reduced costs. Other secondary factors such as strategic partnering with external organizations (e.g., other higher education institutions, commercial, or community organizations), and the opening of new markets by providing new services through the collaboration with other academic organizations were identified.

CASE DESCRIPTION: DESIGN AND INITIAL STEPS

Before the design phase of the project was initialized, a strategic decision was taken concerning the identification of the project's stakeholders: the actors involved and/or affected by its implementation. It was decided to include:

* Students: students of the University. They indirectly provide the requirements for designing a new learning model. This means that their requirements should be assessed though their behaviour throughout the learning process.

* Teaching Staff: academic personnel including professors and tutors. They would provide input on the design and adoption of new learning models and evaluate the project's efficiency.

* Technical and support staff: including network and server administrators, special technical staff for supporting e-learning service provision.

* Laboratories: laboratories include laboratory staff, equipment, e-learning modules, services, knowledge.

* Academic Institutions collaborating with the University.

* Government: a potentially successful deployment of grid service architecture in the University would boost the adoption of new learning models and grid services in other higher education institutions. This would be made possible through the cooperation of the local Ministry of Education. Experts of the Ministry would evaluate the new methods and decide if the return of investment for its adoption in a wider scale would be feasible.

The actual role of the University was to produce specific requirements, test and evaluate solutions developed by the other partners. A proactive approach was adopted for the management of risk in the larger project. Project risks, especially the ones related to technological innovation, but also those related to budget, schedule and coordination were considerable but the Consortium was comprised of selected partners with strong research and development experience. The University's subproject purpose, referred in this communication as case study, was to develop and gain insight into the processes involved from formulating pedagogic requirements to the implementing environments that meet these requirements. The case study and the University's goals were converging, since they were both aimed at a mixed pedagogic/economic/technological solution for advanced service provision (Figure 5).

The case study was anticipated to include five main phases, each of them decomposed in smaller tasks: design, development, deployment, evaluation, and exploitation (Figure 6). The first phase would check the feasibility of reaching the goals with the available funds and technology and define detailed requirements. During the development, phase data preparation, services setup and configuration would take place. Furthermore, tasks such as introduction, motivation and training of staff for operating the service were anticipated. Case study enactment would involve the actual running of the new services in real conditions for a short period of time. These services would be then evaluated by different user groups and conclusions would be communicated to the consortium.

FEASIBILITY ANALYSIS

Although the project is its initial phase, the project team is able to pinpoint the milestones for the upcoming phases. Phases are not necessarily sequential; two phases may be executed in parallel at a given moment. The first phase is relatively easy to decompose into smaller phases and set exact milestones, while for the others it is harder since one phase depends on the results of the previous ones. Assumptions however are possible (and useful) to make (Table 3).

As described previously, in the first phase requirements are defined. A feasibility study that takes into account technological, pedagogical, organisational and economical considerations would be of great help to define concrete and realistic objectives (Bates, 2000; Boucher, 1998). Subsequently, a detailed initial plan for the first period (e.g., the first year) can be drafted. Since this plan is based on the feasibility study, it is (theoretically) based on solid ground and it is as close to reality as possible. This study should consider the economic viability of the project. As mentioned previously, major cost savings of ICT introduction still remains in theory while it seems that its greatest pedagogical advantages are the most costly. Other, usually overlooked, costs may include courseware development costs, incremental capital and recurrent equipment costs, costs associated with provision of appropriate resources, infrastructure costs, maintenance, user support costs, costs of adoption, access costs, security costs, replacement costs and institutional overheads. This has lead Rumble (1999) to suggest that the cost of utilising advanced ICT services is nearly the same with face to face teaching. This assumption holds for complete distance learning solutions where traditional methods are completely replaced by ICT but in this blended learning situation it remains to be seen if this is the case.

The project team should be extremely careful in determining the resources needed and technologies used. Since grid technologies and Service-Orientation are relatively new fields, changes in frameworks or standards may have a significant impact on the project. For this reason, a technology-watch team should be formed in order to monitor changes and inform the partners.

The milestones of the subsequent phases (B-E) can only be generally defined. They include the design and development of services and infrastructure, the availability of prototypes and demonstrators and finally, the evaluation results (performed by a specially selected user group).

Management Structure

A local project team was put together coordinated by an experienced project leader with background in both technology and pedagogy. Achieving a consensus between these two disciplines was important since the failure of addressing the requirements of one was automatically transformed to the failure of the other. The project leader was responsible for managing three sub-teams: the technological, the educational, and the evaluation team. Each of these teams would be managed by a corresponding leader and would have a relatively small number of members (3- 4). As depicted in the team chart (Figure 7), there are many different roles that cover managerial, assessment, technological and educational criteria. Many of the actors involved, would work in the project for a specific, short period of time engaged in special duties (e.g., assessment).

The Project Manager would be responsible for the overall management of the case study. The project manager would coordinate the staff working in the project and would be responsible for the completion of individual tasks within the appropriate timeline. Project manager's responsibilities also included the final quality check of the work produced by the team. The Technical Manager would be responsible for the technical development of the project. This included the provision of technical requirements and guidance to experts during the installation, enactment and evaluation of the services. The Educational Manager had the responsibility to put together the requirements analysis, design, and integration of new e-learning models. Furthermore to design and support a concrete e-learning use case that would have an actual educational value for the University. Finally, the Assessment Manager was responsible for assessing the services during the installation and enactment phase. For this purpose, three tutors would be cooperating along with a number of students for assessing the final output of the project. Since assessment was going to take place at the final stages of the project, the names of the above mentioned actors were not made available from the beginning. The project team should cooperate smoothly with the much larger international team responsible for designing and producing the solutions.

The project manager and the members of the local project team interact with other members of the international consortium. This consortium is also organised so as to cope with a range of legal, contractual, ethical, financial and administrative tasks that may occur during the project life-cycle. The management structure of the consortium is divided into four bodies: project management (project manager, Project Coordination Board, Executive Board and Scientific Advisory Board), financial management (financial manager), Operations/Technical management and Quality management. Each of these bodies is comprised of separate roles and/or special boards with distinct authorities. These authorities are defined in a consortium agreement which is agreed upon and signed by each participant organisation before the start of the project. There are a lot of different configurations in these kinds of managerial structures; structure flexibility and the competence of the leading persons are the keys to successful management.

CURRENT CHALLENGES FACING THE ORGANIZATION

The project manager has a draft of a general implementation plan which defines major deliverables and deadlines. The project manager knows that this plan must be detailed and refined in the near future. For the time being, he is concentrated in the first phase of the project. One of the most important phases of project elicitation is feasibility and requirements analysis. The feasibility study to be contacted for the case study has the purpose of instigating cross-project understanding of requirements engineering, identifying and agreeing on common representations and modelling techniques for requirements engineering. The value of this analysis is very important since the adoption of a new technology like the grid in such a difficult application domain as distance learning, is of high risk. The existence of a gap between technologists, educationists and final users is natural to exist but it should not exceed a certain threshold; otherwise the final solutions would fail to perform successfully in real situations (Xenos, Pierrakeas & Pintelas, 2002).

The University's project team needs to initiate an intense specification process to clarify, on the one hand, for the user groups the specific options in a given learning setting and on the other, to enable technologists to efficient communicate their views about emerging features and services useful for learning. This analysis process is demanding in time and resources since there are different views and a broad spectrum of ambitions and contexts inside the consortium.

The basic idea for the requirement analysis is to analyze the case study with a well experienced tool that provides sophisticated semantics for describing Service-Oriented architectures (SOA). The project leader needs to choose a general framework as a starting point for the requirements specification that also takes into account economic, technological and educational parameters. Furthermore, it should be oriented to the application of innovative technological solutions to traditional contexts.

A challenge that needs to be addressed in the first phase of the project is the methodology that should be followed for putting together the feasibility analysis plan. From his experience, there is no formal template or methodology for SOA cases. Most methodologies are either too technical or business/product oriented. But this project will produce services not products and furthermore, these services will be developed by a third party using an innovative, high risk technology. Services are different from tools; they have to be composed on the fly depending on needs (Rust & Kannan, 2003). They promote the so called "user-centered" approach for the design and development of software. Software as a service (SaS) has emerged as a response to a fundamental shift in enterprise business culture that started at the late 1990s (Foster & Tuecke, 2005). Traditional monolithic architectures are giving way to Service-Oriented Computing, which permits the utilization of large systems comprised of self-containing building blocks: services. Services may be made public, searched, reused, and combined to form complex business processes while in the same time retaining a significant level of flexibility. Since services are a relatively new concept, then the design of a SOA is in itself a challenge (Singh & Huhns, 2005). Again are the questions of what method is appropriate for system design and will classic approaches do the job?

The context also complicates things. Distance learning does not fall into any of the classic product categories, maybe it resembles e-commerce in some aspects, but there are differences: an online user does not behave as an e-learner does (De Bra, Brusilovsky, & Houben, 1999). How is it possible to identify and take into account business, technology and pedagogy requirements at the same time?

Anyway, before deciding on the methodology, the project team made some assumptions about the project, hoping that they would be the correct ones. First, that the design envisaged for the project could be developed in time and it would work within the context of the mission and goals that were set by the consortium and that the characteristics of the envisioned system would be among its high priorities. Secondly, that the organization's educational policy and legislative requirements would not prevent or circumvent key aspects of the system and those tools and technologies used so far can be integrated in the new infrastructure. Other assumptions should also be made on conceptual, legislative, stakeholder-related, and technological matters.

The administration of the institution also puts pressure on the project manager to consider the economic goals of the project, which closely relate to exploitation potential. A plan is needed to identify exploitation results and opportunities during and after the completion of the project. Furthermore, the project manager needs to consider the quality aspects of both the procedure and the deliverables. The project manager is responsible for producing an output that is efficient and workable. In cooperation with the assessment manager, an expert in software quality and assessment, he is planning on putting together an initial evaluation plan to assess both methodology and services. This plan will be used as a guide to insure that quality is maintained at high levels. Priorities for evaluation must also be divided into categories and related to goals. Several indicators must be identified that can supply a measure of the success of the project in achieving the targets set in each of the above mentioned categories.

Expansion, a strategic business objective of the institution is one of the drivers of the project. It would seem thus, that this IT-focused project strengthens the strategic alignment between business and IT: the alignment of business and IT strategy in order for the organisation to stay competitive and gain profit from the use of advanced technology (Boar, 1994). In this case, the added value expected is (1) to provide more quality services to existing clients and (2) the ability to serve more clients efficiently. So the benefits are only connected to client services and not directly to organisational structure, internal infrastructure or processes; these will probably remain stable due to the academic nature of the organisation. One way to ensure strategic alignment is through assessments that is, setting performance goals for the processes affected. This should be dealt with both in the feasibility analysis of the design phase (phase A) and in the evaluation phase; software developed should be evaluated in the light of its impact on business strategy. For this reason cross-discipline metrics need to be defined during the design phase, metrics that measure the impact and relationships between IT and business strategy. These metrics should be evaluated at specific milestones and, if needed, corrective actions should be taken.

A set of assessment criteria must also be clearly identified for several categories of elearning provision that the deployment of new services will affect. These criteria should then be de-composed, where possible, into smaller metrics that can be quantifiable - that is, a number can be assigned to them. All this "atomic" measurements, combined together using mathematical equations, will finally provide some kind of performance indicator. These criteria should try to establish whether the services create new possibilities compared to present tools and methodology, support the transition from classic educational models to advanced, student-centric methods and finally if they are cost-effective. It is apparent that different complexities (or levels) for these criteria exist and they need to be identified.

The case study's project management should also be based on a concrete project plan that anticipates risks stemming from the collaboration with many partners in a multi-cultural, international environment. Specifications are greatly affected by the technological solutions at hand, so strong cooperation with other partners need to exist in order to exchange information on what or what cannot be done. A risk that has been identified by all partners is the possibility that a different visions exists for different institutions in the consortium. Although the goals of each partner participating in the project may be different in an atomic level, the general goals should be the same and most importantly, well understood. The project manager and its colleagues at the institute are a little bit concerned about this but at the beginning of the project there is little thinks they can do. But they have in mind to follow a formal methodology in order to anticipate future misunderstandings or risks relating to these differences in vision, anticipations and business/technology culture between partners.

The formation of the project team is also a challenge. Its basic structure should include experienced sub-team leaders with proven abilities to cope with high risk research and development. Although the four main members of the team (the managers) will work in the project from the beginning to its completion, other members will participate only in certain phases of the project. The project manager is concerned about the dynamicity of its team so he needs to put together a flexible human resource management plan.

After a discussion with the assessment manager, the project manager also decides to anticipate risk by developing a risk assessment and contingency plan that will monitor all ongoing management activities. The initial version of this plan should identify only high level, major risks and propose measures to overcome them. The challenge here is to correctly describe the impact of each potential problem on the project. The relevant coordinators and managers will review and apply risk management strategies. Risks will be re-evaluated at the regular consortium meetings. The project manager's opinion is that, in general, the strategy for reducing the risks related to project management is to reduce their probability of occurrence, rather than their impact. This necessitates a proactive style of management, with strong emphasis on planning, control, and corrective action.

References

REFERENCES

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Berman, F., Fox C. G., & Hey, A. (2003). Grid computing: Making the global infrastructure a reality. New York: Wiley Press.

Boar, B. H. (1994). Practical steps for aligning information technology with business strategy. New York: John Wiley & Sons.

Boucher, A. (1998). Information technology-based teaching and learning in higher education: A view of the economic issues. Journal of Information Technology for Teacher Education, 7(1), 87-111.

Cannataro, M., & Talia, D. (2004). Semantic and knowledge grids: Building the next-generation grid. IEEE Intelligent Systems, 19(1), 56-63.

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De Roure, D., Jennings, N. R., & Shadbolt, N. R. (2005). The semantic grid: Past, present, and future. Proceedings of the IEEE, 93(3), 669-681.

Duffy, T. M., & Jonassen, D. H. (1992). Constructivism and the technology of instruction: A conversation. Hillsdale, NJ: Lawrence Erlbaum Associates.

Foster, I., Kesselman, C., & Tuecke, S. (2001). The anatomy of the grid: Enabling scalable virtual organizations. International Journal of High Performance Computing Applications, 15(3), 200-222.

Foster, I., & Tuecke, S. (2005). The different faces of IT as a service. ACM Queue, 3(6), 27- 34.

Haywood, J., Anderson, C., Coyle, H., Day, K., Haywood, D., & Macleod, H. (2000). Learning technology in Scottish higher education - A survey of the views of senior managers, academic staff and experts. ALT-J, 8(2), 5-17.

Jefferies, A., Thornton, M., Alltree, J., & Jones, I. (2004). Introducing Web-based learning: An investigation into its impact on university lecturers and their pedagogy. Journal of Information Technology Impact, 4(2), 91-98.

Li, M., & Baker, M. (2005). The grid: Core technologies. Chichester: Wiley and Sons.

Maldonado, M. F. (2004). Grid computing in higher education: Trends, values and offerings (IBM White Paper). Retrieved August 7, 2006, from http://www.ibm.com/grid/pdf/grid_computing_ in_higher_ed.pdf

Rumble, G. (1999). Costs of networked learning: What have we learned. In Proceedings of the Conference on Flexible Learning on the Information Superhighway, Sheffield, England. Retrieved August 7, 2006, from http://www.shu.ac.uk/flish/rumblep.htm

Rust, R. T., & Kannan, P. K. (2003). E-service: A new paradigm for business in the electronic environment. Communications of the ACM, 46(6), 36-42.

Saunders, G., & Klemming, F. (2003). Integrating technology into a traditional learning environment. Active Learning in Higher Education, 4(1), 74-86.

Singh, P. M., & Huhns, M. N. (2005). Service oriented computing, semantics, processes, agents. Chichester: John Wiley and Sons.

Talia, D., & Trunfio, P. (2003). Toward a synergy between P2P and grids. IEEE Internet Computing, 7(4), 94-96.

Van Weert, T. J., & Pilot, A. (2003). Task-based team learning with ICT, design and development of new learning. Education and Information Technologies, 8(2), 195-214.

Xenos, M., Pierrakeas, C., & Pintelas, P. (2002). Survey on student dropout rates and dropout causes concerning the students in the course of informatics of the Hellenic Open University. Computers & Education, 39(4), 361-377.

AuthorAffiliation

Bill Vassiliadis, Hellenic Open University, Greece

AuthorAffiliation

Bill Vassiliadis obtained his diploma and PhD from the department of Computer Engineering and Informatics of the University of Patras in 1995 and 2004 respectively. He is now working as a post-doctoral research fellow at the Digital Systems and Media Computing Lab of the Hellenic Open University. His current research interests include Information Systems design and information management. He has published more than 50 papers in international conferences and journals.

Subject: Service oriented architecture; Online instruction; Case studies; Colleges & universities; Business models; Distributed processing

Location: Greece

Classification: 9175: Western Europe; 5220: Information technology management; 6200: Training & development; 9110: Company specific; 8306: Schools and educational services

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 1

Pages: 36-37,39-47,49-53

Number of pages: 16

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Tables Graphs Illustrations Diagrams References

ProQuest document ID: 198670568

Document URL: http://search.proquest.com/docview/198670568?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 82 of 100

Facing the Challenges of Multi-Channel Publishing in a Newspaper Company

Author: Salminen, Airi; Hakaniemi, Kirsi

ProQuest document link

Abstract:

Newspaper companies all over the world are faced with the challenge of how to react to digital convergence and reformulation of the media field. The study describes the transfer from paper-based publishing to multi-channel publishing in a Finnish newspaper publishing company and how this was experienced by the participants. The case analysis covers the news products of the company, the editorial processes, actors in the processes, the tools used to produce and manage news content, and the problems faced. During the transfer the company expanded its collaboration network to include several other media companies and some information technology companies. Lack of a revenue generation strategy for new digital services was one of the major problems in multi-channel publishing. Although the company offered a rich selection of digital services, 90% of the company's income still derived from paper-based publishing. The experience gained with creating the digital services was however, seen valuable as a necessary preparation for the emergent future changes. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: case study; content management; digital publications; digital video; electronic media; emerging information technologies; information technology adoption; internet-based technologies; internet publication; news on-demand; news publishing; multi-channel publishing; online publishing; Web-based services

ORGANIZATION BACKGROUND

Keskisuomalainen is a regional daily newspaper covering the entire area of Central Finland. The paper is published seven days a week in the city of Jyväskylä and its everyday circulation amounts to about 76,000 copies. The paper was established in 1871 and it is the oldest Finnish newspaper. Today it is the fifth biggest newspaper among all Finnish seven-day papers by circulation. The newspaper is part of a media company called Keskisuomalainen Ltd. The company's main businesses are publishing, printing, and delivering newspapers and other print products, and digital services. Table 1 describes Keskisuomalainen Ltd's economical development through the last five years (Keskisuomalainen Ltd, 2004). Keskisuomalainen Ltd bought the majority of shares of Savon Mediat Lt at the end of 2001. The number of employees in Keskisuomalainen Ltd then crew with 500 people and the concerns net sales doubled.

Since the start of the digital convergence, the Finnish media business has become centralized so that there are basically two big media companies, Sanoma-WSOY and Alma Media (Tommila & Salokangas, 1998). Outside the two big media companies, five regional newspapers, including Keskisuomalainen, created, in 1998, a joint company, Väli-Suomen Media Lt, to enhance cooperation among the five in content production. In June 2000 the case company established together, with other 12 regional newspapers, a company called Arena Partners Lt to design and build new e-business and mobile solutions for customer interaction and multi-channel publishing (Arena Partners Lt, 2004-2005). In the central Finland region, Keskisuomalainen has almost a monopoly status in newspaper publishing. In the field of digital services there is a competition with various media, but the core business of Keskisuomalainen, the regional news publishing, is still outside the scope of international and big national media companies.

The newspaper Keskisuomalainen is an organization divided into an advertisement marketing department, a subscription marketing department, and an editorial department. This study concerns the editorial department of 100 employees. The editorial department is responsible for the creation of the content to be marketed, printed, and distributed by other departments.

In the utilization of information technology (IT) and in developing new kinds of services to facilitate multi-channel publishing, Keskisuomalainen has been one of the pioneering media companies in Finland, and Finland as a country has been one of the most active in the utilization of IT and particularly in the adoption of the Internet technologies. In April 2005 there was a broadband Internet connection in nearly 1,000,000 Finnish households. If the amount of the broadband connections is proportioned to the population rate (5.5 million people), Finland is fifth in this area among the European countries.

Pavlik (2001) states that in improving the efficiency to reach the audience, digital media facilitates improvements in the quality of journalism. Fast news delivery is an essential component of the quality. Digital media causes, however, problems as well. Compared to traditional newspaper publishing, multiple channels create a need for a united production organization, more complicated editorial processes, and new kinds of services (Huovila, 2001; Oittinen, Järvenpää & Immonen, 2002; Ståhl, Jankko & Oittinen, 2002). The traditional journalistic values may come into conflict with the expanded capabilities and instant distribution possibilities (Northrup, 2000). It is important that the editorial processes proceed in terms of journalism, not in terms of technology (Huovila, 1998). The work in the editorial departments of newspapers has been hectic at times during the predigital era; continuingly changing business and technological environment adds new demands to the people creating news stories. The case description is intended to provide understanding and lessons learned in regard to IT utilization in media sector where the technological and business environments as well as services provided are changing continuously. The case is described particularly from the point of view of the news staff.

The data for the case description was gathered between November 2003 and May 2005 from various sources. The data gathering was limited to the regional news content. The data sources consisted of the following:

* Participant observation and participation in the editorial work as a journalist by one of the authors.

* Several discussions and nine semistructured interviews with people working in the editorial department. The interviews took place at the time of a disastrous accident when a bus full of young people and a truck crashed into each other in the middle of the night March 19, 2004 in Konginkangas, near Jyväskylä. The accident caused the death of 23 people and 15 were injured. Three of the interviews took place before the accident, the rest after it. In the editorial department the accident activated a discussion about the benefits and problems in multi-channel news publishing related to unexpected events.

* An interview of the development manager in the supplier company of the editorial system (Anygraaf Lt, 2004).

* Annual reports and the Internet site of Keskisuomalainen (Keskisuomalainen Ltd, 2003, 2004, 2004-2005) and the Internet site of the supplier company of the mobile service management system (Arena Partners Lt, 2004-2005).

SETTING THE STAGE

The case description reports results of a holistic analysis of the IT development and utilization of IT for the editorial work in the case environment. The analysis is based on the content management model used earlier, for example, to analyze content management development efforts in the Finnish Centre for Pensions (Honkaranta, Salminen & Peltola, 2005). The model offers a framework to consider the role of various kinds of resources in work processes: actors, systems, and content alike.

The Content Management Model

The content management model creating the basis for the case description is a variant of the document management model described in Salminen (2000). The original model has been applied to analyze document management and changes in document management caused by information technology acquisition in a number cases, for example, in a power plant (e.g., Päivärinta & Salminen, 2001) and in the Parliament of Finland (Salminen, Lyytikäinen, Tiitinen & Mustajärvi, 2001). The variant of the model has been defined in Salminen (2005) to describe content management environments more widely, not limiting it to management of documents only. The content management model is shown in Figure 1. There are two basic types of entities in a content management environment: activities and resources. In Figure 1, the oval represents the activities and the rectangles the resources. The broken lines show the information flow between activities and resources.

An activity is a set of actions performed by one or more actors. The activities may be actions in any work processes chosen as the analysis domain, be they business or administrative processes, technical content manipulation processes, or various kinds of development processes. Three kinds of resources are essential in any content management environment: actors, content items, and systems. Systems consist of the tools used to support the performance of activities and to produce and use content. Systems include hardware, software, and standards. Actors are the performers of activities. An actor is an organization or a person. In the Internet environments actors can also be software agents. In that case activities consist of actions performed by software modules. Content items consist of the stored and named data items produced and used in the activities by actors, and may be documents or other addressable data units intended as information pertaining to the activities of the domain.

The analysis in the case concerned the activities of editorial process (see Figure 2), and the development activities related to them at Keskisuomalainen. The actors in the case consisted of organizational and human actors, no software agents were involved. The organizational actors were the publishing company Keskisuomalainen, its editorial department, and the organizations collaborating with Keskisuomalainen in the matters related to the editorial process and IT development. Human actors consisted of the people working in the editorial and development work. The analysis did not concern the customers consuming news products. The content analysis concerned the news products of the company and components of the products. The content items stored during the development work were not analyzed. The systems analyzed included the media channels used to distribute and archive news, the software applications developed and adopted for the editorial process, and the major standards utilized in the editorial process.

Content Management Prior to Multi-Channel Publishing

Until 1996, the only news product of Keskisuomalainen was the printed newspaper. The news content consisted of textual stories, photos, and graphics. The systems used in the editorial process were in continuous change from the 1970s. In 1978, the editorial department started using a DOS-based word processing program. Before that time the news stories were written by typewriter. In 1994, the editorial department transferred to a digital editorial system and the newspaper layout was prepared with the Quark program. Before that the page layout was created manually with paper and glue. Photographing with digital cameras started in 1992, and since 1998 all photographs have been taken by a digital camera. Before the transfer to fully digital photographing and the time of digital photo processing capabilities, the negatives were scanned and digitized. Newspaper as a whole was archived in microfilm. The texts were archived digitally from 1990 in ASCII format and pictures from 1991 in jpeg format. Before that the stories and photos were archived in paper.

Back then, the actors of the editorial process were primarily organizational units and people of the editorial department. There was not much collaboration with other newspapers. The department was headed by the editor-in-chief and vice editor-in-chief, and divided into five sections: a news production section, a photo studio, a composing room, a reproduction section, and an archive. The journalists worked at the news production section, the photographers and graphics designers at the photo studio, the compositors at the composing room, the reproduction staff in the reproduction section, and the information specialists at the archive. As a result of the digitalization of the content items, the number of people needed in the editorial department was gradually reduced. The composition section and the reproduction section were shut down, but some of the people from these sections continued working in other sections, for example, in the photo studio in picture manipulation or in layout tasks. The number of employees in the editorial department was decreased by dozens.

The editorial process of Keskisuomalainen followed the traditional phases of news publishing (Sabelström Möller, 2001), consisting of the following activities:

1. idea generation and choosing the topics,

2. information gathering,

3. production of different content items (text, photos, and graphics),

4. editing and composing the newspaper pages,

5. printing and delivering the newspaper, and

6. archiving the texts, photos, and newspapers.

The process was repeated daily and the resulting newspaper was delivered to the subscribers each day.

Case Description

From the IT development point of view, the adoption of a new editorial system was the essential facilitator in the transfer to multi-channel publishing in the case. Therefore the description below is divided into two parts. First the development work for changing the editorial system is described. Neither of the authors was involved in this development. The data for the description was gathered by interviewing the editorial staff and the development manager in the supplier company of the new editorial system. The latter part describes content management in multichannel publishing and experiences from it from the point of view of the editorial staff.

Changing the Editorial System

In 1999, Keskisuomalainen established a project in order to change the editorial system. Strong support for multi-channel publishing was the main requirement for the new system. The project group consisted of representatives from the editorial and technical departments. There were six persons in the group from the editorial department: the vice-editor-in-chief, the director of the archives, the director of the Internet department, an editor, the director of culture department and a maker up. Two system specialists, the director of the information management department, and a personal computer support advisor also participated in the project group. The group work started by examining the editorial systems used in Finnish newspapers. Then the vice-editor-in-chief and the director of the archives prepared the requirements and philosophy for the new editorial system. Besides of the requirement of multi-channel publishing, the system had to be usable also in the future and the system supplier had to take Keskisuomalainen along to the development work. The system had to fit to Keskisuomalainen's other systems and it had to form a basis for managing, creating and collecting content. The requirements were sent to four system suppliers and the different alternatives were carefully discussed in the project group.

After the evaluation of the alternatives, Keskisuomalainen chose Anygraaf Lt for the supplier of the new editorial system. Anygraaf Lt was the deliverer of the previous editorial system. In the selection it was found important that the supplier was already familiar to Keskisuomalainen and knew the use environment. Also the communication between people at Keskisuomalainen and representatives of the supplier company had been found easy. The new software system was in the development stage and thus the requirements of Keskisuomalainen could be considered in the development of the system.

The new editorial system called Doris was bought in Spring 2000. Doris is a set of sophisticated and integrated tools for content production, publication management, and media planning and control (see Figure 3). It is based on an SQL database. The system gives control over different types of documents (videos, images, pages, text) and channels. A full text search can be applied to all documents in the system. Actual document processing is done by standard tools (Quark, PhotoShop). A variety of standard document formats can be used for text, for example, HTML (HyperText Markup Language), XML (Extensible Markup Language), SGML (Standard Generalized Markup Language), and WML (Wireless Markup Language). In multimedia messaging for mobile phones the format adopted is MMS (Multimedia Messaging Service).

Doris was taken into use at Keskisuomalainen in Fall 2000, one editorial section at a time. Keskisuomalainen was the first regional newspaper to start using the system. The project group planned a schedule for the adoption of the new system in the editorial work. The biggest problem in keeping the schedule was that the delivery of new computers was delayed.

Technically the transfer from the old system to the new went well. Temporary connections between the old and the new system were implemented to support the transfer. Lack of information about the new system was a big problem for people working in the editorial department. They did not find motivation for the changes sufficient, and there was resistance towards the new system. There was no testing of the system in the editorial work before its adoption in the production work. This caused problems in the editorial work. Afterwards, a testing period of a month was suggested for the kind of new system adoption by representatives of the editorial department.

CONTENT MANAGEMENT IN MULTI-CHANNEL PUBLISHING

At the time of the study Keskisuomalainen offered to its clients a versatile repertoire of news products. The description below is structured according to the content management components shown in Figure 2. Table 2 summarizes the analysis of the news products, systems, actors, and activities. The quotations of this chapter are from the nine semi-structured interviews with people working in the editorial department.

News Products

Figure 4 depicts the time span of initiating digital services at Keskisuomalainen. The Internet news service was opened in 1996. The WAP Service was started at the end of 2000, and the MMS Service in 2002, both intended for mobile phone users. Selling the archived texts through a Web service was started at the end of 2002. The e-paper was introduced 2003, the same year as Keskisuomalainen started co-operating with the national TV station MTV3. During the time span the content item repertoire broadened from texts, pictures, and graphics to cover also video and audio. The news products at the time of data gathering are shown in Figure 5.

The Internet services at the Web site of Keskisuomalainen (www.keskisuomalainen.net) included the online news service, the Ajantasa digital newspaper, and the archive. The content of the online news service was updated 24 hours per day. The service was free for everybody. A subset of the news was originated from a national news service, the local news was provided by Keskisuomalainen. In a case of a big news event, as in a case of an accident, video clips were also published on the online news service.

The Ajantasa news Web site was published after midnight. When the newspaper was ready for printing most of its content was published in Ajantasa. Reading Ajantasa was free for the paper subscribers, for other readers there was a fee. The archive provided text of the newspaper stories from 1996. For copyright reasons pictures and graphics were not available for readers outside Keskisuomalainen. The weekly archive of the news published on the Web was available without a fee for the newspaper subscribers. The larger digital text archive was available only for an extra fee.

The mobile services included two services, a pull type service and a push type service. The readers of the WAP Service could access the online news with their mobile phones. The MMS Service delivered news with text and graphics for reading and viewing by mobile phones. Usually the news and pictures came from national news and picture agencies. The idea was to deliver the three most important news stories for each day. The issues varied from politics to business and sports.

The TV production was not targeted directly to the customers of Keskisuomalainen, but to the national commercial TV channel, MTV3. Keskisuomalainen produced regional news stories of national interest from the Central Finland area for the MTV3's news programs. Typically, Keskisuomalainen reported of important or unusual events, for example, of accidents occurred in the area.

The e-paper was a digital copy of the printed newspaper. It was distributed over the Internet connection and required only a Web browser for reading. The price was 150 [euro] a year for all the customers. The product was targeted to the customers, who live beyond easy delivery distances, for example, for those living abroad. Keskisuomalainen initiated the e-paper publishing as the first newspaper publisher in Finland in 2003.

At the time of this study the printed newspaper was still the most important product of Keskisuomalainen. From the company's income, 90% was based on paper publishing, and the importance of the paper product was stated also in the business strategy of the company. The strategy also stated the importance of gaining experience with the digital services as described by the vice editor-in-chief (translated from Finnish, like the subsequent quotations, by the authors):

We try to gain experience, it is probably necessary in the future business. For now we see the newspaper clearly the most important, and the e-business supporting the paper publishing. But as the technology development continues, it is possible that some part of the e-business will form its own business field.

The need to be prepared for new kinds of revenue generation strategies was seen important by several interviewees, for example:

There is a clear social demand for digital newspaper and online service, people use them from their workplace and there are many visitors on the Web site. ... the problem is the lack of the revenue generation strategy.

... in digital services ... there are markets for quality and local issues.

There were no real customer requests for the mobile services but providing the services was still regarded as useful:

The mobile services are produced as side products, when we prepare news content for the Web. I believe that in the future the mobile devices will become an extension to the Internet. It is like a wireless Internet so that you can access from mobile devices practically everything published on the Web. I don't see them (Internet and mobile) that separate. When we develop them we must always take into account both of them. The biggest difference is that the mobile device has a small screen... in mobile services there are more revenue generation possibilities than in Web services.

Many interviewees saw the e-paper particularly as the future's product:

In the future the significance of the e-paper will be remarkable. Large amounts of data can be transferred far away very quickly. Currently, people in the Finnish countryside are losing many of their traditional services, a daily newspaper in e-format could offer a new, unexpensive and easy service to people scattered in the countryside. It still requires that the customers get used to these kinds of new services.

The bus accident during the interviewing period activated discussions about the benefits of Internet and mobile services. The printed paper was regarded as extremely slow from the reader's point of view, especially for news events occurring at night after the newspaper had been printed. The speed in getting stories published and thus a possible advantage compared to some other publishers was one reason why Keskisuomalainen had started to publish news also to Internet and mobile devices.

Systems

At the beginning of the Internet services, the content of the Web site was created manually, needing a lot of work. From the year 2000 onwards, the editorial system, Doris, became the core software application to support multiple channel content management. The online news service, as well as the newspaper, the e-paper, and the mobile services were published using Doris.

Table 3 lists the software applications used in the editorial work. The editorial system, Doris, is integrated with different applications, which take care of the different parts of the publication process and combine the parts together. For example, the Planner program facilitates the planning and creation of the newspaper and also relocating the advertisements. Tivoli program formats automatically the layout of the TV programs and the sports results are formatted and published both to newspaper and to Internet with the Sport application. The news stories are written with a simple word processing program called Eddie. Doris system includes also a circulation system, management of advertisement material, sales support, management of working shifts, and resources and connections to the layout software, such as Quark. With this editorial system it is easy to manage texts, pictures, advertisements, newspaper pages, archives, and digital publication.

There are different kinds of document templates specified in the editorial system. The templates include all the elements needed in different newspaper stories. For example, a news story includes a header, a caption, the name of the author, news text, picture text, and the name of the photographer. The document template structures the story automatically and the journalist does not have to do anything else, but write the story. The editorial system supports the creation of metadata. Preparing the layout for the newspaper pages as well as publishing to Internet and mobile devices is based on the document templates and metadata. The editorial system was regarded as easy to use:

The basic things, like how to send e-mail, how to send pictures, pdf, everything like that. So this is an easy system. Probably its layout isn't the most beautiful, but I think that it is a minor point as to what concerns the whole system as it is so easy to use. Now it looks like us, because we have learned to customize it by ourselves.

Multi-channel publishing capabilities of the editorial system had not yet been fully utilized in the editorial department. Lack of resources was regarded a major reason for the limited utilization:

We say that we are doing multi-channel publishing, but we are not fully utilizing the system. We haven't had time to properly get to grips with it yet. We should train our staff. It is also due to the work load of our technical staff, they haven't had time to find out about all the functions of the system. In many cases there is this thing that we don't have resources to do this and that, so it isn't taken wholly into use.

Actors

Figure 6 shows the actor roles in the news department of Keskisuomalainen at the time of data gathering. Besides journalists, the news staff consisted of two news producers, editors, Web editors, a picture producer, photographers, graphics designers, photo editors, information specialists, and page make-up persons. The news producer worked at the news desk in the center of the editorial department. The producer ensured that there was enough news ready for the next day's newspaper. The picture producer was responsible for the newspaper's main pictures. The editor edited the news stories and composed the newspaper pages in the evening. As the pages were ready the editor published the stories and pictures on the Internet. The Web editor updated constantly the online service.

The work in the television group was broader than the work of the newspaper staff. The TV journalist and the cameraman produced stories by themselves from the idea generation to editing. They did not have a director in Keskisuomalainen, because they worked under a national TV channel having its main office in Helsinki. The information specialists helped to gather information and archived stories, pictures, graphics, and pages.

Keskisuomalainen had created different kinds of partnerships with actors outside the organization. In developing the company towards becoming a stronger e-business company, collaboration with other organizations was seen as important: "In e-business there are many more actors and we have to work in collaboration with other actors."

Figure 7 shows the major business partners of Keskisuomalainen related to the editorial work. Especially in the field of digital services close cooperation with technical suppliers was seen essential. Keskisuomalainen used a lot of freelance journalists, a national news agency and a number of picture agencies in the content production. Keskisuomalainen cooperated with the commercial TV channel MTV3 and produced television news stories for it. The company was also participating in broad cooperation with other publishing companies. Through cooperation Keskisuomalainen aimed to gain broader competence, cost benefits and quality. One form of co-operation took place with Väli-Suomen Media Lt, which was jointly owned by five Finnish local newspapers. The company had its own editorial department in the capital of Finland. The company produced financial and political news and common Sunday pages for the needs of the co-operating newspapers. In November 2003, Keskisuomalainen modernized and unified its layout with two other local newspapers so that the co-operation between the companies could be closer and the exchange of stories easier.

Activities

The importance of the printed newspaper was observable in the editorial processes. There was strong experience and expertise in the traditional newspaper publication process and it was regarded as simple:

Newspaper is still invincible as mass media. Papers can be produced in a simple process .... The main thing is that the distance between the printing house and the customer cannot be longer than two hundred kilometres, because after that the schedule is too slow.

According to the business strategy of the organization, the editorial work was planned to contribute primarily towards the printed newspaper production. In the strategy, other channels were intended to support paper publishing and to help in gaining experience and expertise for the future.

The editorial work consisted of activities in two parallel processes. One of the processes basically followed the phases of the traditional newspaper publishing process. It was however extended by phases for providing content for the Internet and mobile services, and for e-paper publishing. The other process was intended for television news production, though the TV group got the news by following the news section. The television group worked as an independent section under the control of MTV3.

Each day people of the editorial department were gathered to the morning and afternoon meetings to plan the stories for the newspaper. After all the necessary information for a story had been gathered, production of the content components was initiated. A journalist wrote the story, a graphics designer produced graphics, a photographer took photos, and a picture editor edited the pictures. The text for online and mobile news was prepared and published in this phase as well. Although the aim was to produce news for Internet before writing the actual story, the news was usually edited afterwards from the longer text. The newspaper story was composed from the text, picture and graphics components, edited and laid out onto the page. After preparing the newspaper's layout, the pictures were separated and the newspaper content was delivered for printing. The Ajantasa digital newspaper was compiled from newspaper stories and published automatically after midnight like the e-paper. After the newspaper had been published, all the stories, pictures, graphics, and pages were archived.

The TV group worked separately from the newspaper's editorial department. Every weekday morning the TV journalist on shift took part on an MTV3 teleconference, where daily issues were discussed. All the ideas were represented to the main editorial department in Helsinki. The TV journalist and the cameraman started to work the story once the idea had been accepted. The role of visual and audio content was essential in television news. That is why the story planning and information gathering required close cooperation between the journalist and the cameraman. The editor chose and cut the video material for a shorter story. The speech was taped afterwards in the studio, attached to the video, and the news story got its final shape. Editing was the hardest phase in the television editorial process: "Editing takes a lot of time. Shooting and reporting are only scratch of the whole process."

The television story was sent to MTV3 in Helsinki and shown during the newscast. Video and sound recordings were not archived.

The company found it did not have enough competence to produce content to different publishing channels, such as TV. Video and especially the sound production caused problems:

We are writing journalists, of course we manage the substance. And we are photographers, so we understand pictures. But then there comes also the sound, which is, along with the video, so important, perhaps the most important, which you can't fix. And if the sound cracks in the microphone, you can't fix it in any way.

In sudden news events, like in accidents, the editorial department had to react quickly, and the news stories were then produced collaboratively in a group. Creation of updated content throughout the day for Internet and mobile services became more important during such events than during days without any unexpected major event. The conventional working practices were not necessarily followed in these unusual situations: "In that kind of major situation we must decide extremely quickly whether the departments continue working in a conventional way or do we have to resort to different solutions."

Many interviewees saw development needs especially in the beginning of the editorial process, in the idea generation phase. If the first phase was done carefully, a professional journalist or photographer could proceed correctly and produce quality news content. If the idea generation was inefficient the final result was also poor. This suggests that the depth of brainstorming and the involvement of every publishing channel should be enhanced in the future.

Idea generation is still the weakest point in our organization. That is where it all begins. If you have a golden idea and it will be tomorrow's main story and you are a professional journalist, you can collect the material, you can find the right persons, you know the right information sources, you can write the story and so forth. After that you can publish it through different channels and in different forms... . But if the idea generation is poor, you will get results which don't interest anybody, so the process itself doesn't add any value. This is the key.

CURRENT CHALLENGES FACING THE ORGANIZATION

Multi-channel publishing has caused many problems and created challenges in the case organization. The discussion below about the current challenges is structured according to the content management components introduced earlier. The quotations are from the interviews unless stated otherwise.

News Products

The printed newspaper is clearly the main product of Keskisuomalainen Ltd, as stated in the business strategy of the company. With the strategy the company has been able to strengthen its business up to now. And with the printed newspaper specialized in regional content as its flag product, it has been able to stay profitable. Continuing development in technology and evolving news business, however, cause uncertainty.

There should be several potential opportunities for synergy benefits in multiple channel news publishing, but in the case here, clearly, the synergy benefits have not been realized. Synergy benefits are possible in the fields of content, production, staff and customer communications (as discussed in Sabelström, Nordqvist & Enlund, 1998). At Keskisuomalainen, the content is recycled from one publishing channel to another, but there are no resources to plan the reuse to serve the requirements and features of each medium. The TV production was especially problematic in this particular case. The TV group worked under the control of a national TV station, therefore there was not much coordination with the work of the TV group and other news staff. The collaboration with the TV station and thereby the TV production ended in 2004. Keskisuomalainen saw that the cooperation with a TV channel could not bring any added value for the multiple channel news production. Still the editorial department continues producing video material for the Web services and, in the near future, the production will increase.

Not all digital services have met the customers' needs. For example, the MMS Service has not come across any true demand or eager customers: "We have produced things that have not yet been familiar to the consumers. We have done too much in the name of technology; this society hasn't been ready for it."

The image of the company as a modern newspaper house is one of the reasons for creating the mobile services, but the benefit derivable from this image can hardly last unless the services will meet customer needs. The e-paper is expected to be an important product in the future, because its costs are low and it is easy to deliver. The product requires marketing efforts, but there seems to be some reluctance in marketing these new products, because they are partly seen as threats to the printed newspaper. The role of e-paper is still unclear in the business. The e-paper is marketed only to the subscribers living abroad, not to readers in Central Finland.

The problem in identifying the role of various digital services is that they compete with a wide range of different national and even global digital services. The main strength of the company has been in its regionality, but it is uncertain whether regionality alone brings enough benefits in digital services: "the person should be extremely committed to Keskisuomalainen and to the products of Keskisuomalainen, so that he or she could end up ordering our products instead of the many many many many others. So how can we stand out from those others?"

Many interviewees still believed that the profitability of digital news services would be possible in the near future. So the experience gained from using different technologies would be useful.

We must obtain a total customer relationship, so that the customers can choose from our different services what suits best for their life situations. We cannot force people to use some channel for option A and for option B something else. On the contrary they should get all the information and whatever news they want during the day wherever they are and at any times.

Several questions arise about the future of news products - for example: What will be the roles and relationships of various publishing channels in the future? What will be the role of regionality in digital services? Will the digital news services replace the paper product, at least partly?

Systems

It seems that the learning process in the utilization of new technologies at Keskisuomalainen is still in its first stages. As Northrup (2000) points out, for contemporary journalism technology is the essential enabler:

Another message is that modern news handling is, more than ever before, a technologically enabled process. Traditional journalistic values and expertise are still center stage - the ability to recognize a good story, skill in finding the right sources and asking the right questions, talent at putting it together in the most effective and compelling way. But the pace, the 24/7 reporting cycle, the explosion of information sources within reach of even the most local news organization, and the parallel explosion in how and when news can reach subscribers and users - these are attributes of contemporary journalism that cannot be managed without being comfortable with and in control of the technology.

The editorial system of Keskisuomalainen was found easy to use, but the special features of the system intended to support multi-channel publishing were not fully utilized. Complicated and sophisticated technology also caused problems especially to the photo studio and to the television group and took a lot of resources:

I think that 80% of our work is technology and 20% something else. Now that we are so much tied in with the technology and then it doesn't work. There are something like seven connections and links and wires that can go wrong. It's the technology that saps your energy and strength and you feel like being a total idiot with these things.

Actors

The organization structure has been built for the needs of the newspaper. Multi-channel publishing requires content production constantly through the day and therefore the structure of the editorial department may need redesign: "I think that the problem in multi-channel publishing is not technical nowadays. There are plenty of different kinds of systems. Every editorial system, including Doris, supports multi-channel publishing. If we talk about the way newspaper companies are organized, the problems are in these instead."

Many people working at the editorial department seemed to be uninterested or unwilling in working for multi-channel publishing. For example, there has been resistance against Internet publishing from the beginning: "The problem is that the editorial department as a whole is not publishing these [digital media] from the bottom of their heart. And a quite a number of the journalists still conceive themselves as newspaper journalists only."

A reason for the resistance is probably the lack of resources. In a constantly developing work environment the demand for competence grows also. Many interviewees remarked that one person cannot produce different kinds of content to every publishing channel, for example:

The problem is that multi-channel publishing must be done almost with the same resources as before, sometimes even with fewer resources. And when the demand for competence is bigger than before and you must also be capable to deal with the affairs financially, market the products and many other things, so our organization just doesn't stand up in the development work.

Sabelström Möller (2001) has pointed out the importance of collaboration between different editorial sections in multi-channel publishing. The interviews at Keskisuomalainen brought out that the cooperation between different teams inside the editorial department and publishing channels needs a lot of developing. Especially in the case of an accident, the news section should always remember first the digital services and be prepared to produce quickly short stories to Internet and mobile phones. Communication always requires human activities: "No matter how sophisticated systems we have and how perfectly we use them, still there is the fact that always and forever the information should move between people. And you still run into that in this system, that somebody hasn't known something."

The quality of daily Internet production varies and causes problems. Some journalists write also shorter online news, but some of them forget to do this completely. Still the interviewees believed that the future generations would have fewer problems in learning to publish content through multiple channels.

Keskisuomalainen has been building a multiple channel organization for a long time and tried to change the working habits in the editorial department. But the development process still remains unfinished. A major challenge is to get the whole editorial department working for multi-channel publishing instead of only the newspaper. Some interviewees thought that the ideal situation in the future would be a situation, in which there would not be any separate Internet section. In the future the organization has to find a balance between the need for multi-skilled journalists and strong media specialists.

Activities

When the news stories are created for the needs of paper publishing, the features of other publishing channels are not taken into account. In the future it is necessary to decide how much the company wants to contribute in multi-channel publishing. Also the employees in the editorial department have still not understood the meaning of multi-channel publishing and the possibilities it could bring.

We have talked about this multiple media since 1999, but the people have not necessarily realised the meaning of it. And now when it has come true it takes a lot of time for the employees to internalise it. That is, when I start writing a story it goes to many different media, also to Internet. So the attitude process is still not finished.

In the future it is essential to create more efficient publishing processes for multiple media. The cooperation of different publishing channels in idea generation and planning is the most important thing. Still the features of different media should always be considered carefully, because processes for newspaper and digital media differ a lot. The main questions to be answered are: how much the different media can use the same content items and to what extent the organization can take the different features of each medium into account?

References

REFERENCES

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Huovila, T. (1998). Digitaalisuus yhdistää välineominaisuuksia uutisessa (Digitalization combines different media in a news, in Finnish). In T. Perko & R. Salokangas (Eds.), Kymmenen käskyä journalismista (Ten dictates of journalism, in Finnish) (pp. 225-249). Jyväskylä: Atena.

Huovila, T. (2001). Uutinen eri välineissä: GSM-sähkeestä taustajuttuun (News in different media: From GSM Telegram to background story, in Finnish). Helsinki: Inforviestintä.

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AuthorAffiliation

Airi Salminen, University of Jyväskylä, Finland

Kirsi Hakaniemi, Newspaper Keskisuomalainen, Finland

AuthorAffiliation

Kirsi Hakaniemi is a head of the Web department in the newspaper Keskisuomalainen, the fifth biggest newspaper among all seven-day newspapers in Finland. She received her Master's in information systems from the University of Jyväskylä in 2004. She has worked as a web editor and as a news journalist in Keskisuomalainen since 2003. Her professional interests include journalism, multi-channel publishing, Internet's revenue generation models and citizen journalism.

Airi Salminen is a professor at the University of Jyväskylä, in the Department of Computer Science and Information Systems, in Finland. She received her PhD in computer science from the University of Tampere in 1989. She has worked as a visiting professor at the University of Waterloo in Canada and headed several projects where research has been tied to content management development efforts in major Finnish companies and public sector organizations. Her current research interests include enterprise content management, structured documents, e-government, user interfaces, and Semantic Web.

Subject: Studies; Newspaper industry; Electronic publishing; Information technology; Content management software

Location: Finland

Company / organization: Name: Keskisuomalainen Oyj; NAICS: 511110

Classification: 9130: Experiment/theoretical treatment; 8690: Publishing industry; 9175: Western Europe; 5240: Software & systems

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 1

Pages: 54-72

Number of pages: 19

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Tables Diagrams Illustrations References

ProQuest document ID: 198737938

Document URL: http://search.proquest.com/docview/198737938?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 83 of 100

Electronic Commerce Travel: A Case Study in Information Technology Use, Market Flexibility, Adaptability, and Diversification

Author: Pedersen, Eric; Paper, David

ProQuest document link

Abstract:

Convenient Travel (CT) is an organization that conducts business with its customers primarily on the Internet. As such, CT is considered an Internet travel provider. CT competes with many of the most easily recognizable Internet travel providers including Expedia.com, Travelocity.com, Orbitz.com, and many others. Its niche market focus concentrates on Mexico and the Caribbean. Our case study focuses on (a) electronic commerce technologies that improve productivity, provide real-time data, and increase profits, (b) strategic corporate responses to unexpected events that caused market downturns in travel following the September 11, 2001 attacks on the U.S. as well as Hurricanes Emily and Wilma in the Yucatan Peninsula in 2005, (c) corporate ownership restructuring to provide employee incentives, (d) online marketing and promotion techniques, (e) market diversification and market adaptability to replace lost sales in key markets and grow sales in new markets, (f) cost control through adoption of open source enterprise-class technologies, (g) cost control through management of merchant account and vendor fees, and (h) customer relationship enhancement through technical development and employee training. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Convenient Travel1 (CT) is an organization that conducts business with its customers primarily on the Internet. As such, CT is considered an Internet travel provider. CT competes with many of the most easily recognizable Internet travel providers including Expedia.com, Travelocity.com, Orbitz.com, and many others. Its niche market focus concentrates on Mexico and the Caribbean. Our case study focuses on (a) electronic commerce technologies that improve productivity, provide real-time data, and increase profits, (b) strategic corporate responses to unexpected events that caused market downturns in travel following the September 11, 2001 attacks on the U.S. as well as Hurricanes Emily and Wilma in the Yucatan Peninsula in 2005, (c) corporate ownership restructuring to provide employee incentives, (d) online marketing and promotion techniques, (e) market diversification and market adaptability to replace lost sales in key markets and grow sales in new markets, (f) cost control through adoption of open source enterprise-class technologies, (g) cost control through management of merchant account and vendor fees, and (h) customer relationship enhancement through technical development and employee training.

Keywords: adaptability; diversification; electronic commerce, flexibility; markets; strategy; technology; travel

ORGANIZATION BACKGROUND

Convenient Travel2 (CT) was incorporated in 1999 in the state of Utah as a subchapter S corporation. CT is an electronic commerce company focusing on specific travel markets in Mexico and the Caribbean. The organization has grown every year since its inception, except in 2001. Current year growth (2005) has exceeded 2004 with monthly increases over the prior year of up to 105%. Revenue growth rate for 2005 is estimated at 15% above 2004. CT was originally financed with $75,000 in cash and thousands of hours of sweat equity3. CT is currently free of any debt. At present, the organization claims 7 employees, 8 shareholders who hold ownership and 5 shareholders who serve on the board of directors. Almost every employee is a shareholder (with the exception of some part-time employees). Moreover, all employees participate in profit sharing. Annual revenues are in the millions and profitability and productivity are high.

CT provides hotel booking services to Mexico and the Caribbean for its customers. It owns approximately 90 domain properties related to two targeted travel markets. CT primarily promotes online travel via opt-in direct e-mail, Internet search engines, and directory listings. Its main products are available online4. CT sells its products (i.e., hotel booking arrangements, transfers, and tours) to travelers from the U.S., Europe, and Asia. U.S. customers comprise the organization's largest market share with European travelers second. However, CT is increasing its sales to Japan and other Asian countries. Corporate offices are located in St. George, Utah; 125 miles north of Las Vegas, Nevada and 300 miles south of Salt Lake City, Utah.

Type of Business

CT is a pure play electronic commerce travel company. Pure play means that CT conducts all of its business online. CT has a variety of key Internet domain properties and hundreds of Web sites related to travel destinations in Mexico and the Caribbean. CT books hotel reservations, transfers, tours, and other travel services through secure Web sites, but will handle bookings over the phone if the customer so desires.

Products/Services Provided

CT believes that its services are superior because of its focused market niche, efficiently packaged customized tours, and well-trained and dedicated employees. Customized tours include adventure travel, transportation, and a wide variety of services on the Web. Employee dedication stems from ownership of the organization, interest in the business, and buy-in to the corporate mission. The CT corporate mission is to provide the best possible travel experience to its customers at a reasonable price. Concentrating on the Mexican and Caribbean markets allows CT to be more focused than its competitors. Moreover, a small, but dedicated workforce enables CT to promote customer satisfaction over any political or bureaucratic concerns that may hamper its competitors. Specific product offerings include (a) hotel booking services in Mexico and the Caribbean, (b) airport transfers and transportation services, (c) customized travel packages, and (d) tours and charter services.

The CT Relationship with Product and Travel Vendors

CT develops relationships with targeted hotels, transportation services companies, airlines, and tour and charter companies. It selects product vendors based on their reputation in the travel industry with regard to value, price, customer service, capacity to serve additional customers, strategic value to existing CT customers, and customer satisfaction. CT then negotiates longterm relationships with vendor organizations. To maintain quality control with its long-term vendor partners, CT provides a professional Web site for each vendor including a professional photo shoot and customized write-up on the property. CT also purchases a domain (or hosts the vendor's Web site on an already established domain) and hosts the newly developed Web site. The hosting services CT provides to its clients includes promotion and marketing of Web sites through search engines, development of direct customer relationships via email, and other ad hoc services as deemed appropriate by CT management. CT thus ensures tight control of its travel Web site services to its customers by ensuring that they can make secure room reservations to all vendor products online in a seamless manner.

Management Structure

The management structure of CT is lean. With only 7 full-time employees, the management structure is by default uncluttered. That is, everyone has direct access to everyone else which vastly reduces politics and bureaucracy. The company is directed by a board consisting of 5 shareholders, one of which is the president of CT. The chairman of the board is an active participant in almost all aspects of the company. The president runs the day-to-day operations of the organization. There are three main employee groups at CT including (a) customer services, (b) technical development, and (c) business development.

Figure 1 provides a visual representation of the management structure. Command and control is top-down with the board of directors reporting to shareholders, officers reporting to the board, and employees reporting to officers. However, the leanness of CT enables worker empowerment to be very fluid as management and the board wants to provide necessary resources wherever possible to improve productivity and customer satisfaction. Moreover, everyone knows everyone else because CT employs only 7 people. Everyone sees each other almost on a daily basis. Employees share family stories, often times meet for lunch, and engage in other social activities together. CT is a small, "family-oriented" shop. That is, most of the employees' family members know each other and relate together well.

Financial Status

CT is currently a financially healthy company5, but it has not always been that way. Annual revenues for 2005 were $2,969,125. Profits for 2005 were $269,786.00. The company is debt free and has a rainy day fund of $66,000. However, CT struggled financially in both 2001 and 2002 due primarily to a downturn in global travel following the Sept. 11, 2001 attacks on the World Trade Centers in New York City.

From September of 2001 to 2003, the travel market prospects remained weak at best. Correspondingly, the travel revenues garnered by CT dropped significantly. The poor revenue picture forced the organization to enact major changes. The first mandate dictated by the board was managing costs more efficiently. As such, cost cutting measures were undertaken to ensure the survival of the company. A corporate reorganization resulted from a series of cost cutting measures. From one employee's perspective, "We were all worried that we would have to find another job; we didn't want to leave the company because we liked the tight working environment and family orientation." Another employee reinforced this feeling, "They [CT] have been great for our family financially and otherwise. I would hate to leave. I really enjoy the environment, but understand the possible problems that might face this industry."

An extremely deep cut in travel revenues and numerous travel cancellations necessitated cost cutting at an unprecedented level. This financial situation, which presented itself immediately following the September 11, 2001 attacks, created a management challenge, a challenge where the survival of the company hung in the balance. With only a few thousand dollars in the rainy day fund in 2001 and drastically shrinking cash flows caused by cancellations and lack of new reservations, CT found itself in a dire situation. The president of CT stated this succinctly to the board and employees, "If we don't reduce our cost structure immediately, we will probably have to close our doors for good."

Additionally, CT also struggled in 2005 due primarily to hurricanes Emily and Wilma and their destructive effects on the Yucatan Peninsula; a primary travel market for CT. Since unexpected events, such as terrorist attacks and hurricanes, began to occur at increasing rates, CT management believed that it had to become proactive in making the unexpected into the expected. The president addressed the board and employees by stating, "The world is changing and may have changed forever. If we are going to prosper as a business, we need to assume the worst. We have to become much more prudent with how we deal with expenses and find ways to become much more efficient." These unexpected events actually became the impetus for change and CT began to change how it operated so that the unexpected in its markets became the expected. As a result, CT became a more flexible, adaptable, and prepared organization. The chairman of the board addressed CT employees right after the world trade center incident, "This is a time of trouble for many in the world and our country, but we must survive and prosper for our families. The president has a plan of action and it appears to make sense. Let's back him completely and work hard to make our company strong."

The president's plan involved innovative management that drew upon an astute understanding of the potential of information technology, the existing corporate climate, and the economic outlook and potential of the travel industry. Implementation of the plan allowed CT to survive the lean years in the travel industry and position itself to prosper in the future. As the case unfolds, we will discuss how the plan incorporated strategy, culture, information technology, and the economic climate to enable CT to survive and even prosper.

Strategic Planning

From a strategic standpoint, CT was actually well positioned. Company founders and officers have been involved in the travel industry for over 20 years. Moreover, the board and employee base have over 60 years of combined experience and relationships in the industry. This was and is a key to the company's success. The reputation of board members and employees is excellent and has been used to the company's advantage. Most of the relationships with travel vendors come from personal relationships with board members and employees. Relationships and experience are salient components of the CT operating model. Moreover, most employees share in the ownership of CT, which is a large part of the strategic plan. That is, part of CT's strategy is that employee ownership is the key to happy and productive workers. The president touted, "The strategic base of our company is sound because we have the experience and technical acumen required to prosper in the travel industry, even in lean times such as what we now face. We also rely on employee ownership to push us in the right direction. Our basic strategy thereby doesn't have to change much. We just have to better utilize IT to improve operationally efficiencies. We also have to use IT as a strategic tool in securing and maintaining market share and increasing existing and future customer satisfaction with our product lines." An IT employee added, "We embrace the president's vision because we are part owners. We have a stake in the success of the company." Another employee stated, "We know each other well enough that we have trust in each other's abilities. Our talents are also complementary. We agree with the major thrust of the company's strategy to prosper."

The image that CT presents is intended as professional and technologically advanced. Its team of Web and systems developers seeks to lead the industry and create superior technology and technology-related products and services. At CT, there exists a culture and organizational openness that promotes continuous improvement and innovation among the technical developers. The president states, "Everyday we communicate with each other how IT is a tool for customer service. We don't limit ourselves to what IT vendors tout. We explore and exploit open source tools that can better our organization. Open source tools are free to acquire and appear to be more robust than most proprietary software." One Web developer agrees, "Our president is great because he allows us to experiment with any IT tools that may help the organization. This is wonderful because I can help the company, which helps my family because I am a stockholder." An IT employee adds, "It is unusual that a company president understands technology well enough to interact with technical people at a relatively technical level. The president has a programming and business background, which makes it very easy to explain to him our technical needs."

Employee skills and personalities are complimentary at CT. Employees work hard, have opportunities for training and advancement, and produce hundreds of thousands of dollars of revenue annually per employee. Employees receive incentives through two different reward structures including a point-driven bonus plan for base employees and a shareholder distribution plan. Both plans combine to create an environment where everyone benefits when the company is doing well. Another impressive attribute at CT is the attitude of teamwork and selflessness, meaning that people really look out for each other and work toward the best interest of the organization. As one employee reported, "The reward system is fair and is helping me earn a lot more than I would in another organization because my sweat equity is appreciated. I mean that when I provide ideas that help the company, management either rewards me with money or shares." Another employee said, "The family atmosphere is great, but the reward system is an even better incentive. It is fair!"

Strategically, CT plans to increase annual revenues in 2006 by 50 percent over 2005 while still maintaining high profitability levels. The challenge CT faces is drafting plans that can be implemented to bring this strategy to fruition.

Organizational Culture

CT's organizational culture is (a) shareholder and employee driven, (b) technologically advanced, (c) customer-service oriented, (d) open, (e) reward-based for employees, shareholders, and officers, and (f) professional and enjoyable. Shareholder- and employee-driven mean that CT shareholders and employees invest and work to provide well for themselves and their families. CT management wants to instill such a philosophy because it believes that building a positive culture improves productivity over the long term. "Technologically advanced" means that the organization is continuously updating and upgrading equipment and systems to provide superior technological resources for its employees. A customer-service orientation is one way the company differentiates itself within the industry. That is, CT clearly looks out for its customers. Open means that the barriers between employees and management are nonexistent. Reward based means that there is a financial balance between shareholders, employees, and customers. One employee stated, "I was really worried about my job in 2001 for obvious reasons. I really like it here, but business is business. Luckily, our company survived and I can remain in a wonderful work environment. I have to credit [the president] because he is very bright strategically and makes us feel that we are important as employees." Another employee stated, "I almost left [the company] after the terrorist attacks, but I was encouraged by [the president] to gut it out. He is very strong and smart. He also makes me feel like I am important to the company. Needless to say, I am glad that I am here."

Financial balance hinges upon several criteria. CT has a plan to benefit shareholders through shareholder distributions that link to stock ownership in the company. Employee bonus plans are based on each employee's strategic value to the company. Investments in equipment, software, systems, services, and relationships are based on benefit to customers in the long term. Such a complex financial balance requires CT officers to make ongoing adjustments to investment policies concerning IT, shareholder distributions, and employee bonuses. As a result, CT priorities concerning shareholders, employees, and customer requirements change over time. Another challenge faced by CT is to decide upon what policies should be put into action to maintain financial balance. The president stated, "We are not a large company, so our IT budget is small. As such, we must explore opportunities to save money while maintaining quality. One area that is wonderful is open-source. We have the technical staff to support open-source software and the flexibility to allow our IT to adapt to software changes rapidly."

Economic Climate

Present market conditions for travel are below average in Mexico and the Caribbean. Currently, CT revenues in travel to Mexico and Caribbean are down about 15% over 2005 figures. However, travel conditions can change very rapidly. This year, 2006, travel revenues to Mexico and the Caribbean are below average or slightly growing in some local markets. However, revenues year-to-year can fluctuate more than 50% in a given year.

The travel industry is known for its ups and downs. There are many events or occurrences that impact travel. A few potential threats to travel include hijacked planes, geo-political tensions, wars, weather, economic downturns, and price wars. Uncertainty about the future can reduce revenues because travelers tend to stay close to home during chaotic economic and political periods. As such, travel companies must be flexible and recognize the need for planning for economic downturns. The president stated, "Our survival depends on our ability to adapt to industry changes rapidly. One of the reasons that we have been successful is that the idea of adaptability is built into our company vision." One of the most senior employees stated, "I have worked for other organizations in the travel industry. The reason I like it here is because of the company's emphasis on dealing with change head on. There are no games or politics. The only real concern is prosperity for us and the satisfaction of our customer base." Yet another challenge in this industry is deciding on the types of business planning that might increase the likelihood of survivability during economic downturns or other events that impact travel.

Literature Review

With the almost ubiquitous availability of the Internet and low entry costs, smaller organizations can effectively compete with larger rivals (Marshall & McKay, 2002). The Internet offers smaller organizations a relatively efficient and effective media channel to provide and exchange information related to advertising, marketing, transaction processing, and distribution of goods and services (Czerniawska & Potter, 1998; Ernst &Young, 2000; Baldwin, Lymer & Johnson, 2001). However, managers and owners of small organizations often lack the requisite technological knowledge and skills necessary to be competitive (Baldwin et al., 2001). Moreover, "establishing an Internet presence that provides appropriate quality assurance (including trust) is a formidable task for small [business]" (Fader, 2002, p. 5). To alleviate these potential problems, Internet service providers (ISP) offer technical and business acumen to assist small organizations at relatively reasonable prices (Cirillo, 1999). However, over reliance on an ISP can be counterproductive.

One problem with an ISP is that it may not be around for the long-term. "Almost half of last year's leading ISPs have already disappeared, most through mergers and acquisitions" (Cirillo, 1999, p. 53). Another problem is that an ISP is a generalized service organization. That is, it offers Web hosting, application services, and electronic commerce solutions in a general sense. The ISP may not have any experience with the special needs of a particular industry or the special requirements of a particular business. As a result, one must be very careful when deciding upon an ISP (Cirillo).

Research suggests that the success of electronic commerce hinges on "determining an appropriate blend of electronic commerce vision, strategy and technology, coupled with knowledge of industry and marketplace pressures and trends, and e-customer concepts of value creation" (Marshall & McKay, 2002, p. 4). Marshall and McKay argue that owners and managers of smaller organizations must adhere to a holistic approach of planning for the adoption and implementation of electronic commerce. A vital element of such a plan is strategy. Research suggests that electronic commerce strategic development and management is vital to any successful electronic commerce venture (Chen, 2001; Lientz & Rea, 2000; Venkatraman, 2000; Willcocks & Sauer, 2000).

White (1998) argues that smaller organizations can obtain advantages over large enterprises through establishing personal customer relationships, customized offerings, and targeting niche markets. Kleindl (2000) adds that the Internet can help small businesses enter niche markets at no additional cost. Further, Benjamin and Wigand (1995) note that establishment of Web sites enables smaller firms access to markets quickly. However, for smaller organizations, developing customer relationships is the basic marketing philosophy (Sparkes and Thomas, 2001). Customer relationships are so important to such organizations because they lack the name recognition, resources, and reputation of larger enterprises. Smaller organizations have an obvious advantage over larger organizations in this respect because the lack of bureaucracy and politics enables employees to better cultivate personal relationships with customers.

A Web site that engages the customer with content and services differentiates the Internet from other forms of marketing and can thereby provide an organization a viable competitive advantage (Sparkes & Thomas, 2001). Moreover, online content involves a lower cost in the exchange of information (Sparkes & Thomas, 2001). Kleindl (2000) suggests that online content allows for a publish once, read-many-times environment. Web sites can also bring mass customization to a wide range of products and enables employees to focus their marketing efforts on developing close customer relationships (Peppers & Rogers, 1996).

The degree of customer impact provided by a Web site can be divided into three categories, namely informational level, transactional level, and relational level (Ditto and Pille, 1998). According to Ditto and Pille, bringing these three levels together to create a shared vision is critical toward creating an interactive Web presence. The informational level is the ability of a Web site to provide an information infrastructure for managing the firm (Lederer, Mirchandani & Sims, 2001). That is, the ability of a Web site to provide the same information available through traditional marketing (Sparkes and Thomas, 2001). The transactional level is the ability of a Web site to automate a firm's financial events (Lederer et al.). Such automation can also extend to customers by allowing them to interact with the enterprise by e-mail, telephone or the Web site itself (Sparkes and Thomas). The relational level is the ability of the Web site to provide interactivity with the customer (Sparkes and Thomas). The Web site can act as a conduit to develop closer relationships with customers.

SETTING THE STAGE

CT uses a diverse set of computer platforms, technologies, and management approaches. It employs this myriad of techniques for different purposes. CT groups its key information technology (IT) functions and systems into several categories. Major IT categories include (a) systems administration and security, (b) graphic design and development, (c) back-end systems development and database design, (d) content and communications management, (e) contract management, and (f) accounting information systems (real-time revenues and resort inventory controls). For a small firm, such IT diversity is atypical. The president stated, "An integral part of our vision is to embrace IT as a facilitator of business processes. That is, new IT is only an answer if it helps us better serve our customers and realize our company mission." One employee stated, "We do a good job of communicating with each other the importance of IT toward the business bottom line. Our IT people are not uses their technical expertise to impress management. They really help us do our job." One of the IT employees stated, "This place is really different. I have worked for many organizations as an IT specialist. I used to spend most of my time maintaining bad systems that mostly got in the way of the business. It is refreshing to work with people that understand how IT and process can work together."

CT uses open source applications for its Web services. Macintoshes and Apple computers loaded with Adobe and other graphics software applications are used by CT employees for content development. Windows computers are used for office and client communications. Specifically, CT owns four Macintosh high-end computers used primarily for graphics, content, contract, and communications. In addition, it owns three Windows computers that are used for reservation management, communications, and contract management. The two FreeBSD (UNIX) servers CT owns are used for managing Web services, domains, content, communications, security, and accounting information systems software.

CT has chosen open source solutions, specifically PHP, MySQL, Apache, and FreeBSD for their electronic commerce applications. Among their reasons for choosing an open source development platform are cost, speed, enterprise capability, and reputation among other developers in companies using open source solutions. CT has co-located its servers at a high-end Internet service provider (ISP), which provides more than 140Mbps of bandwidth to the Internet backbone. CT also has broadband connectivity so that employees can have Internet access at home. This capability is critical because demands in the travel industry for exceptional customer service as well as prompt responses to customers needs often prompt office managers and administrators to provide client support services from their homes. Additionally, board members have computers, networks, and broadband access from their homes to the company's real-time accounting and revenue information.

Technological Concerns

The more one learns about technology and its potential for unforeseen problems, the more one worries about "what if" scenarios. What if the power goes out in town? What if the network connection to the Internet gets cut? What if a hard drive fails on the main server? What if someone compromises the security of the system? These are just of few of the potential problems that might occur. Clearly, there are many technological concerns for electronic commerce companies as they seek secure, reliable, fast, and redundant technical environments. Broadly speaking, the technical concerns at CT include (a) reliability (are all systems reliable?), (b) redundancy (are network connections and servers redundant?), (c) security (are systems and data secure?), and (d) speed (are all systems and servers up-to-date and fast?).

Since technology is used as a key element for conducting business and is therefore core to business operations, what specific things should be done to address technical concerns such as reliability, redundancy, and security?

CASE DESCRIPTION

CT started business in 1999, shortly before the technology bubble began to burst. The business model was based on the long-term relationships of two CT board members with travel vendors in Mexico and the Caribbean. These two board members had been booking travel and taking groups all around the world for over 20 years and had relationships with key vendors. Based on business relationships built over the years with travel vendors, the two board members approached several technical people that they believed could support the technical needs of a Web-based travel company. The start-up team for CT consisted of IT developers and travel experts. Using existing relationships and the IT capabilities of their newly formed technical team, a number of travel vendors were approached and rate agreements were negotiated. CT began to design, develop, author, and implement vendor Web sites in accordance to the negotiated agreements.

CT is a company built on vision and strategy. The president is responsible for the vision and the board is responsible for helping the president create, implement, and execute company strategy to realize the vision. In the president's words, "The vision of CT is to create travel products that meet or exceed customer expectations with the facilitating capability of IT and the sweat equity of our excellent employees." To realize this vision, CT management had to approach strategic development in a systematic fashion. The first step was to articulate the best viable approaches to creating an organization that is flexible, adaptability, and capable of competing in a competitive and sometimes very turbulent environment. The president and board thereby developed a set of alternative approaches for the business as shown in Table 1. They used this table as a means to systematically analyze the alternatives. The advantages and disadvantages of each alternative were then carefully scrutinized and discussed.

The first alternative as shown in Table 1 was chosen as the best path for success. This choice was the most viable based on the expertise and experience of the board, president, and CT employees. It was also less risky in terms of general and technical capital expenditures. The president stated, "The unique skill sets that we brought together to form this company is atypical. We knew that we had to get IT people who understand business process and are not afraid to experiment with new software, especially open source." One of the IT employees stated, "It is refreshing to work with someone [the president] that understands programming and open source potential. I think this is why we have such a competitive advantage. We match IT with business processes and are not tied to proprietary software. Of course, to accomplish this not so trivial task we have to have the experience and background." Another IT specialist stated, "We not only have the technical expertise, our minds are open to change and new ideas. This is definitely atypical in a large organization."

The choice of strategy was exacerbated by the composition of the organization and board. CT had the business and IT personnel in place with the energy to make it all happen. According to a member of the board, "Without the core of talented and motivated people we assembled, this alternative would not have worked. We knew that our idea was sound if we could assemble the people to execute our vision. We think that we did a good job." The chosen startup strategy was also low risk with minimal capital investment and proven technology. Another board member stated, "Low risk and small investment is typically not a way to gain high returns. However, our experience in this industry and technical acumen helped us better focus investments toward employee facilitative processes rather than proprietary IT. Most organizations have huge IT budgets because they fail to integrate their business processes with IT. That is, they fail to use IT to actually help business processes. Moreover, they have too much sunk cost in dated proprietary hardware and software. We were able to think through how IT can help us from scratch. We didn't have any real sunk costs in proprietary hardware and software." The president stated, "Everything that we do in terms of process is discussed openly with our people. We want to know if everyone agrees that our business processes make sense. We do not buy into the idea that IT solutions are necessarily expensive. With open source software available for almost any business purpose and cheap hardware, the IT budget can be value-adding rather than just a huge drain on profits."

Following from the choice of business strategy, the next step taken by CT management was choice of regional marketing strategy. Management formulated only two alternatives. One was to focus on two specific markets, namely Mexico and the Caribbean. These two markets were chosen based on the experience, expertise, and contacts that CT employees possessed. The second was to focus on the biggest markets such as the United States and Europe. The first alternative was the only viable choice if the basic strategy was to be followed. That is, focusing on just two locations was very risk adverse and required low capital expenditure because the connections to vendors and markets had already been established. Specifically, startup risk was minimized because key personnel had already established relationships with hotel owners in Mexico and the Caribbean, and possessed twenty years of travel experience in the region. Table 2 presents the two alternative marketing choices.

From CT's ability to focus closely on just two markets, it redefined the way travel arrangements were conducted in their travel niche. CT was able to work closely with the vendor as a marketing and promotion partner as well as a technical delivery partner. That is, CT pooled its marketing and promotion resources with its vendors to save resources. This way, CT could take advantage of its vendor's marketing expertise without additional cost. Of course its vendors could do the same. CT also worked with its vendors to delivery content on the Web. Since its vendors already had a Web presence, CT could use these resources as well as its own to save huge amounts of software development time and expertise. One of the senior IT people stated, "It is amazing what some of our vendors are doing in terms of marketing and IT delivery. Our relationship is so trusting with our vendors, that we can share existing marketing, IT, and business resources. We have this level of vendor trust because our people have so much experience working with them [vendors] over the years." The president stated, "It was part of our initial strategy to bring together people with travel industry experience in the Mexico and Caribbean markets. We knew that we had a good chance of pooling resources (both marketing and IT) if we could hire the right people."

Another important innovation established by the company was to waive fees to vendors for technical development, content development, and visual and design development. In lieu of such fees, CT negotiated a set percentage of vendor transactions. This approach differed from the typical business model at the time, where travel vendors contracted with Web developers to both create a Web site and promote the company online. The company's business model and approach has proven itself over the past four years in terms of increasing profits and growth. Additionally, the CT business model has shown that it will last in the long term. Such an approach creates a strong relationship between the vendor and CT. This is because CT must market and promote the vendor hotel or travel services Web site in order to earn bookings and sales commissions and the hotels and travel services companies only pay commissions bookings that they make money on as well. One board member stated, "We are essentially locking in the vendor to our way of doing business. Of course, the vendors know that it is advantageous so they are happy and we are happy."

Once the overall and regional strategies were in place, CT now looked at the IT strategy. Three alternatives were articulated by the board and president. One alternative was to let the hotel pay for its own IT development costs. A second alternative was to have CT develop each site for each hotel at no cost to the vendor. The third alternative was a combination of the first two. Table 3 articulates the alternatives.

CT chose the second alternative because the difficulty of recreating individual Web sites for each hotel was minimal. The reason is because the underlying business processes supported by each Web site are very similar. The only difference is some graphic content. With CT developing each Web site, the company can monitor quality control very easily and make sure that the underlying technology is working seamlessly. One of the IT people stated, "We love the control of the Web sites. If the vendor wants a change, we can do this for them quickly and easily without it impacting how the technology supports transactions." The president stated, "The vendors like it because it costs them nothing. Our IT people like it because IT control is centralized with us. The organization prospers because it doesn't cost much and it minimizes risks associated with bad data and unhappy vendors. Customers like it because the Web sites are easy to navigate and function transparently."

CT also improved upon the online marketing techniques being used in the travel industry at the time. Specific techniques used by CT were pay-per-click, e-mail campaigns, and adwords. CT found that by using a mixture of such marketing and promotion techniques, the profit per booking increased, revenues increased, and the cost per booking decreased. This mixture helped the company better manage frequent online promotion changes. Currently, CT uses a combination of Overture's pay-per-click and Google's adwords to maximize revenues and profits. One of the board members stated, "Sweat equity is the key to creativity. Since our excellent employees have a stake in the prosperity of the company, they come up with great ideas that work."

In 2001, CT implemented a PHP/MySQL-driven client communication system. The productivity gains from this system implementation were significant. The system manages all communications with clients as well as providing templates for responses to client e-mails. The benefits of the new system reduced employee errors with regard to giving out correct information. It also enhanced customer satisfaction and employee job satisfaction. CT also noticed that the system enabled employees to handle more customers more effectively. A review of the advantages of open source and proprietary technology alternatives is provided in Table 4.

After September 11, 2001, CT, and the travel industry in general, experienced a significant downturn in revenues. Because of this, company costs came under greater scrutiny from the board of directors. The board mandated that all costs be reviewed and that managers actively seek means for reducing costs. Through this cost reduction process, the company's merchant account came under review and it was found that a new relationship structure had to be established in order to reduce the costs of transacting business via the Web. Almost all of the company's revenues were coming in through VISA/Mastercard, and such revenues were in the millions of dollars. The merchant fees were between 3.5-4%, which was considered exorbitant by the board. As a result, a relationship was established with a new merchant company that would accept a 2 .1% fee. The savings garnered from the new merchant relationship resulted in cost savings in the tens of thousands of dollars in annual merchant fees. Additional cost cutting measures took place over the next 18 months and these measures significantly reduced monthly costs.

Technological improvements and ongoing technical upgrades, in addition to cost cutting proved successful and have resulted in strong current revenues, productivity, and profitability. CT continues to make improvements and additions to its IT systems. These systems have provided a new level of scalability for the company. One company executive forecasted that because of the electronic commerce IT systems in place, CT can handle ten times their current revenue and customer support levels without adding additional employees.

The CT success story hinges on strategic thinking. The board and president formed the company based on a vision that a small group of experienced and motivated people can create a profitable entity with the facilitative power of inexpensive open source software, sweat equity, and a great working environment.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

CT currently faces a number of challenges including (a) competitors with significant financial and technical resources as well as market share, (b) changing economic conditions that require flexibility, adaptability, and diversification, and (c) the market demands for ongoing technical research, development, and innovation. These challenges are principal driving forces behind what makes companies better or what eliminates them from the market place. These are the common challenges and opportunities of the market place; to plan, to research, to strategize, to compete, to adapt, to diversify, to be flexible, to prepare, to respond, and to innovate and to do it again and again, and again.

Footnote

ENDNOTES

1 A pseudonym is used to protect the name of the organization.

2 A pseudonym is used to protect the name of the organization.

3 Sweat equity is work performed in return for company shares (ownership)

4 The Web site address is not provided to secure anonymity.

5 Financial information reported in this case is limited at the request of CT.

References

References

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AuthorAffiliation

Eric Pedersen, Dixie State College, USA

David Paper, Utah State University, USA

AuthorAffiliation

Eric Pedersen is an associate professor of Visual Technologies and Computer Information Systems at Dixie State College. He has worked at DSC since 1989. In addition to his faculty work, he has been the principal investigator in the DSC Center of Excellence for Computer Graphics since 1991. He has co-founded several e-businesses and is currently conducting research in electronic commerce.

Dr. David Paper is a full professor at Utah State University in the Management Information Systems department. He has several refereed publications appearing in journals such as Communications of the ACM, Information & Management, Information Resources Management Journal, Communications of the AIS, and Long Range Planning. He has worked for Texas Instruments, DLS, Inc., and the Phoenix Small Business Administration. He has performed IS consulting work for the Utah Department of Transportation (Salt Lake City, UT) and the Space Dynamics Laboratory (Logan, UT). His teaching and research interests include change management, process reengineering, database management, e-commerce, and enterprise integration.

Subject: Case studies; Travel agencies; Electronic commerce; Niche marketing; Productivity; Technological change

Location: United States--US

Company / organization: Name: Convenient Travel; NAICS: 561510

Classification: 9190: United States; 9110: Company specific; 8350: Transportation & travel industry; 5250: Telecommunications systems & Internet communications

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 1

Pages: 73-89

Number of pages: 17

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Tables References

ProQuest document ID: 198656563

Document URL: http://search.proquest.com/docview/198656563?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 84 of 100

Promoting the Use of ICT for Education in a Traditional University: The Case of the Virtual Learning Center of the University of Grandada

Author: Cordon, Oscar; Anaya, Karina; Gonzalez, Arturo; Pinzon, Susana

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Abstract:

This case describes the Virtual Learning Center of the University of Granada in Spain. It relates the creation of a specific service structure to manage the promotion of the use of ICT and e-learning in the educational processes of a large, traditional, five century-old university. With just the base of a few previous pilot experiences, this Center, created in February 2001, had to address the training of the teaching staff of the University in ICT competences and the creation of both graduate and post-graduate virtual courses. Four years later, all the proposed goals have been achieved and, currently, the University of Granada has more than 4,000 virtual students and more than one third of its academic staff (around 1,200 teachers) have proper e-learning skills, with some of them being able to create their own digital materials for face-to-face teaching support and blended learning. [PUBLICATION ABSTRACT]

Full text:

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ExECUTIVE SUMMARY

Four years later, all the proposed goals have been achieved and, currently, the University of Granada has more than 4,000 virtual students and more than one third of its academic staff (around 1,200 teachers) have proper e-learning skills, with some of them being able to create their own digital materials for face-to-face teaching support and blended learning.

Keywords: case study; e-learning; internet-based instruction; instructional design; institutional policy; teachers' IS skills and IT competency; undergraduate and postgraduate education

ORGANIZATION BACKGROUND

The University of Granada in Spain was founded in 1531, under the initiative of the Emperor Carlos V, by means of a Papal Bull from Pope Clemente VII. In this way, Granada asserted its vocation as a university city which was open to different cultures, people and beliefs. With more than 470 years of tradition, the University of Granada has been an exceptional witness to history. Its influence in the city's social and cultural environment grew until it was to become, over a period of almost five centuries, an intellectual and cultural nucleus in Southern Spain in its own right.

At present, it has 24 university centers and 4 associates, 69,811 degree and diploma students (year 2004), 10,000 students of Spanish as a foreign language, 3,000 doctorate students, 3,423 lecturers, 1,729 administration and service staff, and more than 3,300 professors in 108 departments. The University of Granada currently runs 50 degree courses, 22 diploma courses, 132 doctorate programs and a wide range of courses (of varying length) related to almost every area of knowledge.

The University of Granada takes an active part in the European Union university programs, both in the mobility of teachers and students as well as research. The programs are coordinated by the Office of International Relations and aimed at EU countries and other geographical areas (Latin America, Eastern Europe, North Africa, etc.).

By way of bilateral or specific agreements between groups of universities, it has traditionally collaborated with universities from these geographical areas as well as with the USA, Japan, China, Israel, Canada, Australia, Benin, Asian countries from the former USSR, Palestine, and so forth, and university associations such as the Coimbra Group, the AUIP, ISTEC, ATEI, and so forth. All these are some examples of collaborative initiatives.

Although the three most intense areas of cooperation, as might be expected for a country such as Spain and a university with the tradition of Granada, are the European Union, Latin America and the Magreb, of no lesser importance are the lines of collaboration which exist with the remaining countries mentioned above. As a result of this cooperation, the University of Granada receives more than 8,000 lecturers, students and university administrators each year from all over the world, who attend Spanish classes, regular courses (around 5% of registration numbers), teach, and collaborate with research groups.

The University of Granada has made a strong commitment to its future by means of the development of quality research. The criteria behind its research activity are to stress traditional lines of research in order to support those which, although less developed, may be interesting to a changing society, and to forge bonds with firms and institutions. These ideas offer advantages which have enabled to increase funds allocated to research and to open real future perspectives that never existed before.

As a result of the growth in scientific production, the University of Granada is among the top three Spanish universities. The growing relations with private and public companies in the country, through research contracts and provision of services, are the guarantee for the future. Besides, the same commitment is made in the quality control of teaching processes. A classical, old university such as ours must offer the best formation programs. With this aim, a specific Vice-Rectorate is in charge of all the aspects related to quality in education.

The application of ICT to science, economy, educational institutions, culture, and so forth, implies a wide variety of transformations in both aspects: in the way people behave and interact and in how services are provided. The University, as an institution that generates knowledge, is also responsible for the use of these new technologies with academic goals. Since 1995, the University of Granada has encouraged the application of ICT in its curricula. The daily use of technology requires an essential change in the way of training, teaching, and learning. If this were not the case, we run the risk of giving way to the so-called "digital breach". For that reason, the University of Granada is aimed at promoting the application of the ICT for the improvement of the teaching and learning system and the academic community at large.

At the University of Granada, the Vice-Rectorate of New Technologies promotes a progressive and continuing expansion of the use of ICT into the field of learning, knowledge and technology through its different services areas (Library Services, Computer Services and ICT Services). On this line, the Virtual Learning Center, embedded in this Vice-Rectorate, emerges in order to channel and promote the changes issued from the introduction of ICT in the academic and educational framework. It provides adequate training for the teaching staff in issues related to virtual teaching, introducing teachers to the virtual learning environment tools and e-learning methodology. The CEVUG also promotes the consolidation of a virtual academic structure developed from on line training pilot experiences, as a way to improve educational quality and research activities of the University of Granada. Finally, the Center means to strengthen international relations with other partner universities in the field of e-learning, participating in various e-learning projects and groups.

SETTING THE STAGE

The experience of the University of Granada (UGR) in e-learning started in 1995 and included both an external and an internal side (Cabrera & Cordón, 2002; Cordón, 2002). Whereas the former refers to the participation in several international projects, the latter alludes to a series of teaching staff training programs on the use of ICT and the development of virtual authoring tools.

Summing up, between 1995 and 2000 the UGR was involved, among others, in the following international projects:

* Humanities I and II (1995-96). European Community (EC) and Coimbra Group project for the creation of courses in Literature and Law using videoconferences.

* Euroliterature (1996-97). EC program (continuation of Humanities) for the shared creation of virtual courses between European universities.

* Patagonia (1998). Alfa Project, Coimbra Group and Argentina and Chile universities. The goal was the development of an e-learning exchange framework from Spain to Latin America. The UGR provided technical support and participated in the creation of different courses.

* HECTIC (2000). European project supported by the Coimbra Group for the sharing of European experts experiences on e-learning in order to establish future policies in this area.

Almost all the previous projects were developed under the umbrella of the Coimbra Group of Universities (http://www.coimbra-group.be/). This collaborative group is composed of 39 European Universities which are characterized by being long-established and not located in capitals of countries (so known universities such as Barcelona, Cambridge, Coimbra, Oxford, Poitiers, are members). It was created 20 years ago in order to promote internationalization, academic collaboration, excellence in learning and research, and service to society. Currently, the activities developed by the group are managed by different Task Forces, being the e-learning activities put into effect by a specific Task Force of the same name.

On the other hand, the UGR is a founder member of EUNITE (http://www.eunite-online. org/), a strategic alliance of eight European universities to create a common Virtual Campus for sharing online courses as well as developing e-learning programs. As a first step, this partnership has the aim of the production of several common pilot courses. Some of them, related to areas such as Law and Literature, have already been distributed since 2002.

As for methodological aspects of virtual education, our university was involved in the MULTIPALIO Project, a European training program for specialists in design, development an evaluation of e-learning programs with new technologies.

All these initiatives connected to international projects came from the Vice-Rectorate of Research as well as from the International Relations Office, and they were an important precedent for the future establishment of e-learning in the UGR teaching policies.

Related to the internal perspective, the UGR Computer Services organized technical courses between 1999 and 2000. This teaching staff training program of 20 hours length was focused on the use of computer-based tools to design online contents for the support of their face-to-face subjects. The main topics of these courses were an introduction to computer science, Internet, Microsoft Word, Microsoft PowerPoint, an Automatic Virtual Course Generator (an authoring tool developed by the UGR Computer Services), Web design and image processing.

Throughout this program, the UGR encouraged teachers to develop Web-based materials and to use them to support their daily teaching. In addition, in order to support face-to-face teaching, students and teachers used a digital platform, developed by the University that provided authenticated access and allowed teachers to serve Web materials for the students.

This identified access, linked at the main portal of the university, allowed teachers to fill in and check the school records of the students enrolled in their subjects. They could also attach materials for supporting their face-to-face classes. On the other hand, the students could (see Figure 1):

1. check their school records

2. check the list of their subjects

3. check the material of a specific subject

4. fill in an application for a student card

5. check scholarship information

The UGR initiatives on e-learning before 2001 were the beginning of a strong commitment with the promotion of the use of ICT in education. However, these experiences showed the lack of a common nexus on the virtual learning development. They were much decentralized, as many different actors from different Vice-Rectorates participated, and no specific staff existed in the University to support them.

As we will see in the following sections, the creation of the Virtual Learning Center of the University of Granada (CEVUG) meant not only the centralization of all the e-learning activities of the UGR but also the setting of specialized staff focused on teaching staff training programs on the use of ICT and on the development of undergraduate and postgraduate online courses.

CASE DESCRIPTION

As seen in the previous section, although the UGR had developed some activities to promote the use of ICT in education, those were a few pilot experiences completely decentralized. By the beginning of 2001, just a couple of pilot courses with a small number of students had been put into practice and the UGR teaching staff did not have a proper technical and methodological background on the use of ICT in their teaching.

From that moment on, the UGR tried to support the growth of e-learning on its regular teaching. To do so, the Secretariat for Information Technologies in Education (STAD, in Spanish) was created within the Vice-Rectorate of Services to the University Community (the previous name of the Vice-Rectorate of New Technologies) in February 2001, with the following goals:

* To promote the use of ICT to improve educational and research activities in the UGR.

* To provide an appropriate teaching staff training (at several levels) on the use of ICT in their teaching ("teachers' technoliteracy").

* To support the adaptation of educational contents for its digitalization and to facilitate teachers' familiarization with the different existing tools in virtual learning environments.

* To manage the e-learning international relations, specifically with the Coimbra Group and the EUNITE alliance, as well as to participate in other international experiences in order to consolidate knowledge and liaisons in this field.

* To promote the creation of a virtual academic structure developing from online training pilot experiences to a Virtual Center (the CEVUG).

Nowadays, the Virtual Learning Center of the University of Granada (CEVUG) (Cordón, 2002; Cordón, Anaya & Pinzón, 2003) has become a reality (http://cevug.ugr.es), with a well defined structure (supported by the STAD). Moreover, within a short period of time, we will have our own physical building.

As we will see below, during the last four years the CEVUG has grown successfully, achieving and surpassing the originally planned goals. Up to present, it has organized 69 virtual courses (7 in 2002, 21 in 2003, and 41 in 2004), with the participation of 4,115 virtual students (214 in 2002, 1,132 in 2003, and 2,769 in 2004).

In addition to the teaching staff training programs and several undergraduate and postgraduate online courses in the UGR, the CEVUG has also developed different courses for prestigious external institutions like the University of Jaén, the University of Almería, the University of Alcalá (Madrid), the University Carlos III (Madrid), the MADOC (the Spanish Army Training Center), as well as the Diputación de Granada (County Council of Granada) and Caja Granada (a Spanish savings bank group).

The CEVUG also has an active role in the international sphere. It is a member of different international projects funded by the European Commission, as well as being a participant in the EUNITE alliance and Coimbra Group e-learning Task Force,

The remainder of this section is focused on the description and justification of the main tasks developed to achieve the goals we have mentioned before:

* To define a coherent structure of the CEVUG.

* To design a teaching staff program for UGR teachers.

* To create a workflow for the production of e-learning courses (see Figure 2).

The following three subsections are focused on the analysis of the decisions taken to develop each of these tasks. We will describe not only what but also why we have acted in that way in each case. Finally, the fourth subsection describes some of the results accomplished such as several virtual postgraduate courses developed by the CEVUG.

Structure of the CEVUG

The structure of the CEVUG has been increased in the last few years, adapting the number and skills of its members to new requirements. At the beginning, our staff was composed of 6 members but currently we have 12 people taking part in a heterogeneous team:

* A Director

* An International e-learning Networks Coordinator needed to fulfill the UGR active participation in international e-learning programs (see Section "Organization Background").

* A multidisciplinary support and development team of 8 permanent and 2 granted technicians, whose skills and tasks are as follows:

* A Journalism graduate: instructional design for Web contents.

* Four Computer Science graduates: WebCT Learning Management System (LMS) and Web server administration, evaluation and self-evaluation exercises design, HTML design, databases management, and so forth.

* Four Librarianship graduates: HTML design, usability, resource search, quality control.

* An Arts graduate: graphic design and development of additional educational resources.

The multidisciplinary team develops different functions across a planned program. The harmonic integration of functions and activities put into effect by diverse specialists allows us to adequately generate high quality virtual materials. In the third subsection we will describe the applied workflow with the aim of showing the functions of each member of this multidisciplinary team.

Nowadays, the CEVUG staff must develop the following tasks:

* Generation of virtual courses from authors' rough educational materials by applying an appropriate instructional design process

* Maintenance of our own computer system structure

* Handbook writing: guides for content authors, online tutors, evaluation, LMS use, and so forth

* Methodological and technical formation for content authors and online tutors

* Hotline: e-learning technical and methodological problem solving service for the UGR staff

* Promotion of International Relations in e-learning, taking part in various projects, especially within the European framework

* The promotion of ICT among UGR teachers

As said, the CEVUG manages both the undergraduate and postgraduate online courses in the UGR. On one hand, the Web-based materials for undergraduate courses are developed by the teachers themselves, with the support of the CEVUG staff. Teachers receive a specific training program and get some rewards (e.g., reduction in face-to-face teaching time) for their work. On the other hand, online materials for postgraduate courses are usually developed by our team from the rough materials provided by content authors who get paid for them.

In the remainder of this subsection and in the next one, we will state the key aspects of the IT case: the UGR teaching staff training program on ICT and the promotion of e-learning course creation by the teachers at the Virtual Free Credit Choice and Optional Subject Program, as well as the description of the technology used to do so. Later, in the fourth subsection, we will devote some lines to the creation of postgraduate courses by the CEVUG staff.

Academic Staff Formation Program

The CEVUG has always made a bet for the UGR teacher training in order to promote the use of ICT in education in our university. Since the creation of the STAD in 2001, more than 1,200 teachers have received these teaching staff training courses. Moreover, this program has evolved from a 20 hours technical course to a complete methodological and technical program composed of four consecutive levels and 110 hours of face-to-face and blended teaching. This evolution has been a consequence of the observation of teachers' requirements and the increase of the CEVUG staff and resources.

In June 2001, after the creation of the STAD, 60 teachers followed a course created with the same one-level 20 hours structure used previously. This course was taught by the Computer Services staff because the CEVUG had not its own employees yet.

After a survey made among the teachers enrolled in the course, the Director of the CEVUG realized that the contents were too heavy and that the teachers required more teaching materials and later support to apply their acquirements to their own subjects.

That was the reason why, in the 2001-2002 academic year, the CEVUG started a new program with a two-level structure (20 face-to-face hours each course):

* Level 1: Microsoft Word, Microsoft PowerPoint and e-mail (basis for the Automatic Virtual Course Generator).

* Level 2: online materials generation tools: Macromedia Dreamweaver, Macromedia Flash, Virtual Course Generator; and the basics of the methodological aspects of digital materials creation.

In addition to giving those courses, the CEVUG staff started to offer technical support to answer the teachers' inquiries.

Till May 2002, several face-to-face editions of both level courses were done in Granada, Ceuta and Melilla1. In June and July 2002, the Level 2 course was offered in a blended modality: 3 face-to-face and 17 online hours. This way, teachers acquired the online student perspective, experiencing the usual existing problems.

This program, focused on face-to-face teaching support, was not enough for teachers to create online courses. Immediately, the CEVUG began to develop a new plan and, in the 2002-03 academic year, the formation program became a four level structure with both methodological and technical sides, performed by 210 teachers:

* Basic Level: 20 face-to-face hours. Microsoft Windows, e-mail, Internet and file transfer (ftp)

* Medium level: 20 face-to-face hours. Microsoft Word, Microsoft PowerPoint, basics of HTML, and Automatic Virtual Course Generator

* Advanced Level: blended model: 3 face-to-face and 17 online hours. Macromedia Flash, Macromedia Dreamweaver and e-learning methodological basis

* Pedagogical Level: blended model: 3 face-to-face and 27 online hours. E-learning methodology: instructional design, IPR, virtual tutoring, online evaluations design, and so forth

The last stage of these courses included important changes to take into account new teachers' necessities. The CEVUG focused its new offer on increasing the quality of contents and on methodological aspects instead of on technological ones, and tried to simplify the process of courses generation. To do so, the order of levels was changed, Macromedia Flash was removed from the program and templates and Cascading Style Sheets (CSS) were included into the Level 4 course. The current offer is designed with the following structure:

* Level 1: face-to-face course for beginners. 20 hours. Windows Explorer, e-mail, basics of Internet and ftp

* Level 2: face-to-face basic course on online materials generation. 20 hours. Microsoft Word, Microsoft PowerPoint, basics of HTML, Automatic Virtual Course Generator, UGR LMS (see Section "Setting the Stage")

* Level 3: blended model. 8 face-to-face and 42 online hours. Instructional design of educational materials on virtual environments: characteristics of e-learning, how to write materials for the Internet, online tutoring, online evaluations design

* Level 4: face-to-face. 20 hours. Macromedia Dreamweaver, templates, CSS, and image optimization

During 2004, 512 UGR teachers followed our courses. The formation program structure is thought to incorporate two different kinds of teachers to the UGR e-learning project:

* Those receiving the two/three first levels and developing ICT-based materials to support their face-to-face classes, accessible by the UGR LMS (see the next subsection).

* Those receiving the upper two levels and creating online courses in WebCT promoted by the CEVUG institutional projects (Virtual Free Choice Credit and Optional Subjects, postgraduate courses, etc.).

As said, apart from the training teaching staff program, the CEVUG provides technological support service for content authors and teachers initiating on online teaching. This service was created to advise the authors on preparing contents according to their technological possibilities, as well as to give technical support and assistance to the partakers of the virtual courses.

VIRTUAL FREE CREDIT CHOICE AND OPTIONAL SUBJECT PROGRAM

After receiving some teaching staff training courses, teachers would be able to apply what they have learned through the UGR Virtual Free Credit Choice and Optional Subject Program. First of all, the subject digitalization projects have to pass an evaluation process, and afterwards, teachers themselves prepare the course materials: they do content instructional design and even the HTML design. The CEVUG staff offers both specific training and technical support, and finally makes the developed materials available by the LMS through a virtual course (see more details about the CEVUG operation mode in the next subsection).

After the production phase, there is an internal evaluation, developed by the CEVUG staff, and an external one, carried out by Virtual Learning Centers of other Spanish Universities. In case the subject does not pass the evaluation, it is offered in the usual face-to-face modality. In case the evaluation is positive, a blended teaching modality is applied where the teacher structures the subject syllabus into two different parts: face-to-face and online. The online subject percentage can be up to a 75%.

In order to maintain its quality standards, the UGR also coordinates other initiatives like the e-learning Quality Evaluation Project, funded by the UCUA (Quality Unit for Andalusian Universities), as well as the MASSIVE Project (Modeling Advice and Support Services to Integrate Virtual Components in Higher Education), funded by the European Commission to design a model of necessary support services for European traditional universities in order to successfully implement the virtual component of teaching.

During the 2002-03 academic year, the CEVUG started up the Virtual Free Credit Choice Subject Program (LiCEvI in Spanish) with seven virtual subjects. They were followed by 250 students. Ten more subjects were added during the 2003-04 edition. Throughout the current course, the undergraduate e-learning offer has been enlarged with new courses. For the first time, optional subjects have been considered in the program, now called Subject Virtualization Program, and eight subjects of this kind, as well as six more free credit choice ones have been implemented. Currently, the CEVUG runs 31 virtual subjects from different studies and 2 free credit choice courses within the EUNITE alliance.

Technology Components of the Virtual Learning Center

Since the CEVUG got involved into the process of creating a Virtual Learning Center for the University, there was a need of some technological components to develop and deploy digital contents somehow. Apart from the people required for the tasks involved, a digital platform (LMS) and some client products were also necessary to interact with this platform, so that the CEVUG staff could create the resources that eventually would be offered to the student community. The main objective was that all these parts should come together to a common end: to blend pedagogy and technology in a suitable way (Moreno & Santiago, 2003).

Undoubtedly, at the moment of the initial decision, it was not easy to determine which deficiencies of the LMS could eventually affect us. This was due to the fact that e-learning technology is still changing these days and the requirements of the organization can evolve too. After a deep evaluation of some commercial products, the CEVUG decided to invest in WebCT (Rehberg, Ferguson, McQuillan, Winburn, Sanderfur & Riley, 2002), the most known software by the time of the decision.

WebCT is a global market-leading course management system that enables the efficient delivery of high quality online education. It provides some of the elements that a learning institution would need (WebCT, 2006):

1. Personalized learning paths for the students.

2. Best online assessments (self-tests, surveys, quizzes).

3. Student tracking (collecting and tracking data of students across the platform, analyzing their use of the learning modules).

4. Efficient course management (file management, discussion forum monitoring, assignment submission, and grades management).

5. Easy deployment and scalability.

6. Reliability, security and performance.

WebCT provides three main roles for the actors: student role for the students, designer role for the authors of the material and teachers, and teacher assistant role for those who give support to the main teachers, but have less permission than them. These roles were enough to our organization when we started delivering the courses.

Its software and hardware requirements fitted all the CEVUG needs at that time. The Center firstly started with the 3.6 release, and currently, after some migration processes and security patches applied, the 4.1.2 release is the one available.

WebCT Campus Edition was distributed under two different licenses:

1. WebCT Campus "focus" Edition: It had a limit of 3000 signed-up students; it did not provide the WebCT API for accessing internal data, neither provided the LDAP integration.

2. WebCT Campus "institution" Edition: It provided all the functionality available, besides unlimited number of users.

The CEVUG chose the former, essentially because the cost of the second option entailed a great expense for the available budget. However, in 2004, having an increasing number of students, around 4,000, the Center had to migrate to the institution license. As we will comment on afterwards in Section "Current Challenges/Problems Facing the Organization", migrating to this license was not an easy decision to make, mainly because there were some serious, weird problems at the beginning of that period with the software.

In order to get the rest of the system up and running, the CEVUG needed to set up a server with some network services running on it. That would be the base for the management and maintenance of the general service offered. At that time, Linux operating system was growing up as an option on the server part and fulfilled all our requirements. It was mainly a cheap, robust and scalable option. RedHat 7.3 was the first release used and, over the years, we have upgraded to new ones. In February 2004, the CEVUG acquired a 2.2Ghz Xeon bi-processor server with 2GB RAM and seven 72GB SCSI hard disks using a RAID-5 setup for primary storage, where RedHat Enterprise Edition 3.0 AS was installed.

In an institution that needs to expand its knowledge over the World Wide Web, it becomes essential to deploy a Web server. So, the CEVUG staff configured Apache 1.3 for serving Web pages, sign-up procedures for the online courses, management of internal work group using some collaborative tools (forums, tasks manager), surveys for the students, access statistics, and so forth.

Besides this, a DBMS was needed to store the organization and customers' data. The CEVUG staff decided to use the most popular open source database server, MySQL 4.0, which guaranteed a great performance and easy management, backup procedures and maintenance, with the background support of a big community of users. With zero cost, the CEVUG got its main infrastructure prepared.

Why WebCT?

By that time, most LMS vendors offered good products that could match the CEVUG needs at the starting of the process, but that could come to a wrong and incomplete development as well, as the project grew up. However, these inconsistencies could be solved by the vendor consultants if they had a good support service, so we identified here one of the concepts that should matter in an evolving technology like e-learning.

Many factors affected the chosen platform. Some of them were:

* Target Audience: A lot of differences could exist between higher education students and secondary schools students. The LMS should be focused on the sort of students that would sign up for a course.

* Costs and Benefits Rate. Almost all of the evaluated LMS costs entailed an important percentage of our budget.

* License. It was important to identify the constraints associated to the product license, such as the number of users that could sign up for the LMS, the concurrent clients allowed, and so forth.

* Hardware requirements. It was needed to purchase an adequate server for the service.

* Use of the product on similar institutions. While it was not a decisive factor, it helped to investigate which LMS was being used at that moment by other educational organizations.

* Suitability of the product to the subjects that would be taught through the LMS. The pedagogy and methodology could change a lot with Arts, Science, Language or Mathematics materials.

* Communication Tools. The way the teachers and students communicate depends on the LMS.

* Localization of the product. It was essential to have different languages support for the LMS, as foreign students could eventually sign up for a course.

* Standards support. As e-learning is an evolving technology, the LMS contents should be easily migrated to other systems.

All these factors were taken into account in order to decide which platform would be better. A study made in 2001 by a local company in collaboration with the "Training and Employment Foundation" (Fundación, 2001) showed that WebCT was the best scored LMS among several evaluated systems (Virtual-U, FirstClass, IntraLearn, TopClass, WebCT, Blackboard, LUVIT, TLM and Netcampus).

The Distance Learning Office (also known as GATE) of the Universidad Politécnica de Madrid in Spain, wrote a deep comparison analyzing a lot of commercial e-learning platforms, which also helped us in the decision. Furthermore, WebCT was being used at that moment in other national universities that we contacted with, in order to get some feedback about how their decisions were made and how satisfactory their experience with WebCT was. This initial feedback from other organizations related to the university activity was decisive for the final decision.

Finally, we analyzed two products in depth, Blackboard and WebCT, as they both were well scored in the studies observed. WebCT presented a better structure and ease of use than Blackboard. It had the "plug & play" concept that the CEVUG staff was searching for, and it was demonstrated in some practical cases that setting up the virtual center would be easier using WebCT as the e-learning engine. Moreover, WebCT could also be installed in Linux and Solaris operating systems. We had to have this in mind as well, as the Computer Services of the UGR used this kind of systems to offer most of their services.

TECHNOLOGICAL ASPECTS OF THE CEVUG MULTIDISCIPLINARY TEAM OPERATION MODE

As mentioned in the first subsection of Section "Case Description", the CEVUG multidisciplinary team follows a common procedure for producing resources, in which all members of the team participate. The staff works under this methodology because the creation of virtual courses needs specialists in concrete areas. When it comes to create virtual courses, the design generally involves two principal tasks:

1. Instructional design (process to convert a simple electronic text into an organized hypertextual resource): text, graphical, and resources.

2. HTML design: hypertext, animations and self-tests.

From a technological point of view, the CEVUG production system takes place as shown in the workflow at Figure 2:

1. The teachers or content authors prepare the rough resources (usually in Word format, or in the best case directly in HTML format following a CSS style sheet provided by our team). The Center staff provides technological support for the content authors and the teachers that want to initiate their teaching activity through the Internet (A).

2. Then, the instructional designers review those resources and make the page layout of the material prepared to be browsed through the Web. The graphic designer reviews the multimedia content of the resources and modifies, adapts and optimizes what is needed. Besides this, some information related to those media objects, which would be shown later on the course content, is added (file size, transfer time, dimensions, etc.) (B).

3. The system administrator creates a course within WebCT, using a predetermined identifier, and the librarianship graduates, after a pedagogical quality evaluation of the virtual contents and an external evaluation by qualified consultants, make a table of contents within the course and organize all of the tools that would be used (calendar, activities, periods, exams, or whatever it would be needed). The course material, packed in a folder of HTML files and multimedia files, is then uploaded to the server through the Samba network file system that allows the interaction with Microsoft Windows, being finally stored at the Linux server.

When the course is about to start, the administrator will insert a file with the sign-up data for that course (students and teachers login identifiers and passwords) through the WebCT administration interface and the course is made available to the students through a personal homearea called MyWebct, where the courses are listed (C).

WebCT 4 was somehow easier to personalize than previous versions, but, nevertheless, it had strict restrictions for doing so. In our installation we changed some icons, but the color template remained the same as originally.

We used to have the left menu where the course content was placed activated: communication tools, calendar, course syllabus, self-evaluation and activities. However, you can also navigate most of these items through icons on the central frame.

As we mentioned before, the CEVUG staff normally uses some client tools for the creation and optimization of resources:

* Microsoft Office

* Macromedia Studio MX Edition

* Adobe PhotoShop CS Edition

* CourseGenie (convert Microsoft Word documents to e-learning units on XML and HTML WebCT compliant format)

* Reload Editor (creation of SCORM content)

* Turbodemo Professional Edition (for creating animations and tutorials).

POSTGRADUATE COURSES DEVELOPED BY THE CEVUG

Virtual Certificate of Pedagogic Proficiency (CAP)

The CAP is a Certificate of Pedagogic Proficiency that postgraduates need to become Secondary Education (High School) teachers in Spain. This year, we are applying again the experience started three courses ago with a blended modality for the three obligatory subjects required to obtain it:

* The School, the syllabus, and the teacher.

* Learning and Development in Adolescence.

* Theories, Institutions, and Contemporary Problems in Education.

This online modality is offered to graduates with problems to follow the usual face-to-face instruction. It is composed of 7.5 credits of the total 18 credits program. The first year, it was done by 180 students and more than 300 enrolled in last year edition. This academic course we have a new subject: Teaching English.

Virtual Master in Forensic Anthropology and Genetics

Master Course of 500 online hours composed of two different parts, forensic anthropology and genetics identification, with a common block of 100 hours. Content authors are recognized researchers in both areas, as well as FBI and Israel Police staff. The academic directors, Drs. J.A. Lorente and M. Botella, are UGR teachers chairing labs in our university.

This Master contains diverse online support materials: original images, virtual skeletons, lab practice videos, web resources, self-evaluation, and so forth. (see Figure 3). Tutors are experts in the area, belonging to the labs of the academic directors.

This year, the third edition of the Virtual Master in Forensic Anthropology and Genetics, the third Virtual Expert Course in Forensic Anthropology, and the second edition of the Virtual Expert Course in Forensic Genetics are being followed by 32 students from several parts of Spain and Latin America countries. Moreover, we have developed two short related courses with 70 virtual hours: Anthropological Techniques of Identification and Investigation of Paternity with DNA Analysis, followed by 60 more students. The former editions of the Master and Expert Courses were followed by around 70 students.

E-Learning Methodology Course for Teaching Staff Training

Blended learning course organized by the STAD-CEVUG for more than 400 teachers of the University of Alcalá de Henares (Madrid, Spain) and 26 teachers of the University Carlos III (Madrid, Spain). This program, called "Learning through the Internet: Instructional Design of online didactic materials", has the goal of training these teachers in the creation and administration of e-learning materials, in both the methodological and technical aspects.

Previous Instructional Design courses organized by the CEVUG have also been performed for some other prestigious institutions like the University of Jaén (blended course for 230 teachers), the University of Almería (180 teachers), as well as the MADOC, the Spanish Army Training Center (15 Training Centers representatives).

Instructional Design and Online Tutoring on E-learning Environments

This is a 100 hours virtual course on Instructional Design and Online Tutoring on e-learning Environments, completely developed by our staff, to give a complete, methodological and technological training in e-learning. It is mainly addressed to undergraduate or graduate students in Computer Science, Pedagogy, Education, Journalism and Information Sciences.

The first edition began in 2004 with 48 students and the second one has just finished with 31 new students.

Experimenting with Animals for Researchers

Blended expert course directed to teachers and trainers who work in scientific experimentation with animals. Last year, 13 students took part in the first edition with 65 hours of teaching (53 online and 12 face-to-face practices in laboratory).

Internet Languages, HTML and XML

Blended course addressed to Caja Granada employees (a Spanish savings bank) and held during November 2004. This 24 hours course has been completely created by our technical staff and was followed by 26 Computer Science graduates.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

One of the first problems the CEVUG staff had with WebCT was the small customization capabilities it owned. It was impossible to add our own functionalities to the LMS and the aspect (colors, styles) of the Web pages within the LMS was not easy to modify either. As it was distributed under a proprietary license, the modification of the source code in order to develop our own functionality within the platform was both difficult and risky and we surely would be infringing the license. It would be difficult to modify it because WebCT has been developed in PERL, a structured programming language that could be not so easy to understand. Besides, it would be dangerous (and surely illegal) to modify some parts of the code, because it did not use a relational Database Management System (DBMS), but it is based on Berkeley DB and it did not provide any documentation at all about how to access the whole internal data.

Among others, one of the most important problems was the absence of really standard ways of importing learning resources in the LMS. WebCT used to have IMS support, a standard specification made by a global consortium of vendors, institutions, technical developers and others, to enable learning technology to be interoperable. However, WebCT modified some parts of this standard, making their own IMS format that could be incompatible somehow with some external authoring tools. Besides this, another specification called SCORM seems to be the most promising at present, and it is not supported by WebCT yet. We need to turn to external tools, as CourseGenie, that makes possible to create WebCT compliant modules from Microsoft Word, but this option keeps increasing the expense every year.

One of the main functionalities absent in WebCT currently, is the chance to see who's online inside the LMS when you are logged in. So, you are not able to know if your teacher or any student is already in the platform. You also need to use external tools like MSN or ICQ to talk to other people, once you have obtained the contact information of all your students or teachers.

Besides, we should mention that the cost of WebCT licenses, both campus focus edition and institution edition, is really expensive, mainly because it depends on the number of students your educational organization could manage as maximum. So, if our university had 60,000 students, even though the CEVUG only had 2,500 students that applied for online courses, the cost for our organization would be calculated by the total number of students for the University. After some period of negotiation with our national vendor, we finally came to an agreement for a reduction of the price on the institution license, but yet we would prefer to spend our budget in increasing the technical staff in the CEVUG or in investing in the training program.

Another very important problem associated to licenses is that we could only have one server running on an IP and port by license, so we could not have a backup server for failure situations or set it to another IP/port without contacting with WebCT support. In February 2004 we had a failure on our main server and, as some courses were running at that moment, we needed to restore the online courses as soon as possible in another backup server; WebCT allows you to export the courses as encrypted zip files and, as we made backup copies every day, we followed the restore procedure. But, as it managed two internal databases (global DB and students DB), when we needed to restore those compressed backups on another recent installation, only some data were really restored. When making WebCT support service aware on this fact, their answer was that they could help us just in case we pay them an amount of money proportional to the number of courses that had to be restored, what in fact was actually unacceptable.

Another point where WebCT fails is that it has not got the option to be installed in a Fault Tolerant way without turning to external software again. As we mentioned before, this is a strong requirement when you have to provide your service to national and foreign customers, mainly because you could have almost the same traffic at day (i.e., in Europe) or at night (i.e., in South America). It would be perhaps necessary to look into WebCT Vista (WebCT Vista, 2005), an Academic Enterprise System, which is specifically built to address the mission-critical challenges of enterprise-scale deployment, but that would highly exceed the price for the institution license.

Besides all these problems, a current challenge for our institution is to deploy the LMS inside the computer farm available at the Computer Services of the UGR. With this feature, which is strongly needed in our organization, the CEVUG could have a 24hours/7days active LMS, with the advantage that we would have it available even if an error occurs in one of the eight computers that compose the farm. This would also improve the response time to HTTP requests.

WebCT does not provide an option for this, as you need to use again external software called Lifekeeper, from Steeleye Technology Inc. (Linux, 2005), setting up a cluster. For this reason, in 2002, we started to look into an open source LMS called ILIAS (ILIAS, 2005), which is based in Apache, PHP and MySQL, and has already some experience being deployed in clusters and computer farms.

ILIAS started as a project at the University of Cologne (Germany) in 1998, and at the moment it maintains a cooperation network with some other universities and companies (ILIAS Cooperation Network, Databay Inc., Novell Inc.). They organize annual sessions about the LMS and developer conferences that help to make the project successful.

The main features of ILIAS are:

* Personal desktop for each user with information about last visited courses, new mail or forum entries

* Learning environment with personal annotations, test, glossary, print function, search engine and download

* SCORM 1.2 and AICC compliance

* Course management system

* Communication features like mail system, forums and chat

* Group system for collaborative work and organizing users and resources

* Integrated authoring environment (Editor) to create courses even without any HTML knowledge

* Support of metadata for all levels of learning objects

* Context-sensitive help system for learners and authors

* User and system administration interface

* System languages: Chinese, Czech, Danish, Dutch, English, French, German, Greek, Indonesian, Italian, Lithuanian, Norwegian, Polish, Portuguese, Russian, Spanish, Swedish, and Ukrainian

ILIAS solves some of the problems mentioned above about WebCT. As it has been developed in a common platform as LAMP (Linux, Apache, MySQL, PHP), it is easy to add new features or improve the existing ones. We have been installing it on the computer farm under Solaris operating system where its performance and adaptation to our requirements would be evaluated. Our main purpose is to open ILIAS to all the teachers of the University, so that they can slowly and progressively get involved in the e-learning process by themselves. At first, we would use it for face-to-face teaching support and blended learning and not for whole virtual courses.

Besides, it already supports the new system of credits ECTS that is being developed in European Education and it will help us promote the mobility for students and teachers with an embedded translation system for learning modules, as was established at the Declaration of Bologna of 1999 (Bologna Declaration, 2005).

Footnote

ENDNOTE

1 Ceuta and Melilla are Spanish cities in the north of Africa that administratively belong to the UGR, thus owning their respective Campus.

References

REFERENCES

The Bologna Declaration. (1999, June 19). Retrieved August 6, 2006, from http://www.bolognaberlin2003. de/pdf/bologna_declararion.pdf

Cabrera, M., & Cordón, O. (2002). Teleformación para colectivos con necesidades educativas especiales (in Spanish). Tecnologías de la Información en el nivel de formación superior avanzada (pp. 41-58). Salamanca, España: AUIP Publishers.

Cordón, O. (2002). Experiencias y proyectos futuros de teleformación en la Universidad de Granada: El Centro de Enseñanzas Virtuales (in Spanish). In J.A. Ortega (Ed.), Educando en la sociedad digital. Ética mediática y cultura de paz (Vol. II., pp. 777-790).

Cordón, O., Anaya, K., & Pinzón, S. (2003, November 23-25). E-learning policies & services at the University of Granada: The Virtual Learning Center (CEVUG). In Proceedings of the International Conference on Networked E-learning for European Universities, Granada, Spain.

Fundación Tripartita para la Formación y el Empleo. (2001). Sistema telemático de impartición de formación para Prensa no Diaria (in Spanish). La Montaña Publishers: Madrid, Spain.

Lifekeeper for Linux. Retrieved August 6, 2006, from http://www.steeleye.com/products/linux/

ILIAS Open Source. Retrieved August 6, 2006, from http://www.ilias.uni-koeln.de/ios/indexe. html

Moreno Ramiro, F., & Santiago Campión, R. (2003). Formación online: Guía para profesores universitarios (in Spanish). Universidad de la Rioja Publishers: Logroño, Spain.

Rehberg, S. D., Ferguson, D. M., McQuillan, J. M., Winburn, S. A., Sanderfur, K., & Riley, M. (2002). The ultimate WebCT handbook: A practical and pedagogical guide. Georgia State University Publishers.

WebCT Campus Edition 4.1 Datasheet. Retrieved on August 6, 2006, from http://www.webct. com/products/viewpage?name=products_campus_edition

WebCT Vista. Retrieved August 6, 2006, from http://www.webct.com/products/viewpage?name=products_vista

AuthorAffiliation

Oscar Cordon, University of Granada, Spain

Karina Anaya, University of Granada, Spain

Arturo Gonzalez,University of Granada, Spain

Susana Pinzon, University of Granada, Spain

AuthorAffiliation

Oscar Cordón received his MS (1994) and PhD (1997) in computer science from the University of Granada, Spain. He is an associate professor in the department of computer science and Artificial Intelligence at that University, and headed the Virtual Learning Center (CEVUG) from 2001 to 2005. He has published more than 50 papers in international journals and is co-author of the book "Genetic Fuzzy Systems: Evolutionary Tuning and Learning of Fuzzy Knowledge Bases," published by World Scientific in 2001. He has also advised 9 PhD dissertations, co-edited 5 special issues in international journals and 3 research books, co-organized 2 international conferences and 8 special sessions, and worked in 15 research projects and contracts (being the coordinator in 5 of them).

Karina Anaya received her MS degree in computer science from the Institute of Querétaro, México, in 1994, and her PhD degree in computer science from the University of Granada, Spain, in 2005. Currently, she heads the Computer Science Career in the Polytechnics University of Queretaro, México. She worked as computer science engineer in the Virtual Learning Center of the University of Granada (CEVUG) from 2001 to 2005. She has published several international contributions, and worked in 2 research projects and contracts.

Arturo González Ferrer received his MS in computer engineering from the University of Granada in 2001. At the moment, he is enrolled in a PhD program at the Department of Computer Science and Artificial Intelligence of the same University. After some time committed to open source development, he has participated in some international events related to e-learning development over Europe. He is right now concerned about e-learning evolution and its desktop integration. Arturo has been working for the last four years at the Virtual Learning Center of the University of Granada (CEVUG) as Software Engineer.

Susana Pinzón Tirado received her MS in Journalism from the University of Seville, Spain, in 1996 and started a PhD program at the department of Audiovisual Communication, Publicity and Literature. She has worked in different media and has focused her career in creating contents for the Internet and multimedia products. After some professional experience in this area, she has been working since 2003 as instructional designer in the Virtual Learning Center of the University of Granada (CEVUG).

Subject: Colleges & universities; Online instruction; Teaching methods; Skill development; Case studies

Location: Granada Spain

Company / organization: Name: University of Granada; NAICS: 611310

Classification: 9175: Western Europe; 8306: Schools and educational services; 6200: Training & development; 9110: Company specific

Publication title: Journal of Cases on Information Technology

Volume: 9

Issue: 1

Pages: 90-107

Number of pages: 18

Publication year: 2007

Publication date: Jan-Mar 2007

Year: 2007

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Illustrations Diagrams References

ProQuest document ID: 198650377

Document URL: http://search.proquest.com/docview/198650377?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 85 of 100

The Snakes and Ladders Game in E-Business: Digital Transformation at American Hardware Depot

Author: Ranganathan, C; Dong Back Seo

ProQuest document link

Abstract:

American Hardware Depot (AHD), a retailer of hardware and home improvement products, sells over 65,000 products through its network of 4,500 stores nationwide that are operated by owner-dealers. While rivals such as Home Depot were quick to launch their e-business efforts, AHD was late to embrace technology as well as electronic retailing. Though some of the AHD's e-business efforts met with moderate success, others faced severe challenges. AHD invested over $5 million as a minority equity stake in Americanhome.com in return for this dot-com firm acting as an online front-end store for AHD-however, this effort failed within a year. AHD was at a critical inflexion point. AHD seeks to enhance its e-business efforts in at least three major areas: (1) to connect its dealers who had varied business processes and technologies, (2) to market and sell its products through the Web, and (3) to streamline its supply chain operations. A newly appointed vice president of e-business has to find solutions to the challenges facing AHD. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: B2B e-commerce; business models; e-business; e-commerce implementation; e-commerce management issues; e-commerce strategy; electronic retailing; organizational strategies; partnerships; Web-based supply chain management; Web systems implementation

ORGANIZATIONAL BACKGROUND

Sri Nathan, vice president of e-Business at the American Hardware Depot (AHD) looked out her office window at the gardens sprawling the seven-acre campus of AHD. The lush green foliage reminded her of her ancestral home in India. She thought back to the meeting she had just left on the future of e-business at AHD. Nathan had joined AHD only six months ago after leaving her successful consulting career at Accenture. AHD had gone through a rough phase after its e-business venture failed to deliver on its intended promises. Nathan was hired to resurrect and steer AHD ahead on its e-business efforts.

Nathan faced three key issues: First, AHD needed an intranet to electronically connect its 4,500 owner-dealer operated stores nationwide. Such a system will not only facilitate electronic ordering and inventory management, but also help alert stores with special offers, trends and product information. AHD had deployed a legacy system that linked only a proportion of its stores-this system had several limitations in providing real time information and was also outdated. Second, AHD needed to quickly step up its online retailing efforts in order to respond to its competitors' Web-based e-commerce endeavors. This was crucial as AHD's e-business venture with Americanhome.com, which had over $5 million as equity investment, had failed. Third, in order to expand its online initiatives, AHD had to work out a strategy to partner with other companies that had online experience.

Nathan wondered how long it would take AHD to finalize its technology plan. The company's recent experience with the Web had created considerable cynicism and skepticism among some senior executives as well as dealers of AHD. However, the CEO and some senior managers were strongly committed to e-business. Given these sharp differences among the rank-and-file of AHD, considerable ambiguity had surfaced about the course of action to be adopted.

Relaxing for a rare moment, Nathan pondered: Is it worthwhile for a hardware retail company to think about e-business? At a time when other hardware retailers and rivals have been effective in using the Web for increasing their sales, how could AHD utilize this opportunity and become a retail leader? How do you make a once-bitten-twice-shy company continue with its online initiatives? These issues highlighted some of the major challenges facing the senior management at AHD.

Nathan was reminded of the traditional Indian game of snakes and ladders, in which the players roll a dice and run a race on a board featuring multiple squares. There are various amounts of snakes and ladders of differing lengths on the board-the varying lengths of snakes and ladders will move a player backward or forward, slowing down or speeding up their race to the end of the board. If one should land at the base of a ladder, they advance to the top of the ladder, surging ahead of rivals. If the top of the snake is reached, a player descends down to the bottom and will have to attempt to move up again. AHD was going back and forth on some of its e-business efforts and in some cases, had to even restart and rebuild. While AHD had attempted major strides, all of its efforts have not paid off, forcing many of AHD's rivals to surge ahead. .

Home Improvement Retail Industry

The home improvement industry caters to a variety of customer needs-supplying tools, materials and the know-how to build, repair, maintain, and improve residential homes. The industry boomed right after World War II, and within a decade, the do-it-yourself concept started becoming popular.

Prior to the 1970s, the industry was dominated by small and mid-sized retailers and specialty stores that sold specific home improvement products. However, during the 70s, hardware stores expanded their product line to include building material and lumber to become "home centers." Lumberyards expanded their offerings to move into the home center category. This led to the emergence of regional and national hardware retail chains. By the 1990s, these chains had opened large stores, 100,000 square feet or more in size, that operated across several states and territories.

Home improvement retail sales grew steadily in the 1990s, with a compounded annual growth of 5 to 7%. The home improvement retail market generated total sales of about $187 billion in 2001 and was expected to reach $250 billion by 2006 (Exhibit 1 in the Appendix). The demand for home improvement products is largely driven by the maintenance needs of several thousands of homes all across U.S. It is estimated that over 85% of homes built prior to 1980 will require frequent maintenance, thus driving up the demand for home improvement goods. Home improvement retailers typically deal with several categories of products such as hardware, tools, lumber and building materials, plumbing supplies, electrical supplies, lawn and garden equipment, hard-surface floor coverings, paints and preservatives, and so forth.

The demand for home improvement products are also driven by do-it-yourself (DIY) consumers. DIY home improvement is a prevalent hobby for several millions of customers all around the world. The popularity of DIY projects and the growth in the population of DIY customers have been so significant that special cable networks like Home & Garden Television and Do-It-Yourself network have arisen to specifically cater to this group. DIY retailers made up the largest segment of the home improvement industry (80.7% of market share in 2003).

By the turn of the millennium, the U.S. home improvement industry was dominated by a few national chains such as Home Depot and Lowe's, some regional co-operatives, and a very small set of independent stores. The two large national chains, Home Depot and Lowe's, together accounted for about 30% of the market share in 2003. Apart from exclusive hardware retailers, general merchandise chains such as Sears and Wal-Mart also carried many hardware and home improvement goods, leading to intensified competition in this industry. Most national and regional hardware chains started expanding their presence by opening stores in new geographical areas and by moving into foreign markets.

E-Commerce Trends and Home Improvement Industry

When the World Wide Web became popular in the early 1990s, companies and individual customers started looking to the Web as a definitive source of information, products, services, and communication. As the amount of business transacted between firms and customers over the Web grew, the Internet emerged as a fruitful channel for conducting business-to-consumer (B2C) commerce. U.S. online retail spending has been growing steadily over the last decade. The annual online B2C spending in the U.S. was about $65.1 billion dollars in 2004, and is projected to rise to more than $117.3 billions by 2008 (Source: Jupiter Research1). Lured by the potential growth in online commerce, several pureplay Internet firms (more popularly known as dot-com firms, who relied primarily on the Internet to conduct their business without having a storefront or other traditional business channels) also emerged.

By the late 1990s, at the height of the dot-com boom, the online marketplace was crowded with traditional brick-and-mortar companies that were trying to expand into e-business as well as relatively new pureplay Internet firms. Despite the dot-com bust that led to the collapse of several pureplay firms, online retailing and commerce grew at a steady pace. For several brickand- mortar firms, the Web became an additional channel for conducting business. Moreover, many firms also started utilizing the Web for connecting with their suppliers, dealers, and other businesses, thus leading to an increase in business-to-business (B2B) e-commerce efforts.

E-commerce in the home improvement industry started with several leading retailers designing passive, informational Web sites that were converted into transactional, retail-oriented Web sites over a period of time. In the mid-1990s, national chains like Home Depot quickly revamped their technology infrastructures to open Web shops. General merchandisers like Sears also moved their hardware tools online. In addition to these traditional brick-and-mortar retailers, a number of pureplay Internet merchants such as builderdepot.com, cornerhardware.com, and ebuild.com also entered the industry. These Internet players added to the already intensified competition in online hardware retailing.

Exhibit 2 (see the Appendix) presents the total (off-line and online) sales of different categories of home improvement goods from 1998 to 2001. Online sales represented only a small fraction of total retail sales in the fairly undifferentiated hardware products. For hardware retailers, this could imply two possibilities: (1) e-commerce represented a relatively untapped opportunity, or (2) several hardware products may not be suitable for online selling. Despite these figures, national hardware retailers such as Home Depot and Lowe's had stepped up their e-commerce initiatives in 2001. Exhibit 3 (in the Appendix) presents some details of the online activities of Home Depot and Lowe's.

American Hardware Depot: Company Background

American Hardware Depot (AHD), a 75-year-old business, is one of the leading players in the U.S. hardware retailing industry. AHD follows a cooperative business model by which dealer-owners operate more than 4,500 stores throughout the U.S. From about 25 warehouses, AHD distributes over 65,000 products such as electrical and plumbing supplies, garden equipment, hand tools, housewares, power tools, and other hardware. In 2003, AHD employed over 5,000 personnel, and had sales of $3 billion and profits amounting to over $100 million.

AHD operates in a highly competitive industry that is dominated by national hardware chains such as Home Depot and Lowe's, and other wholesalers and cooperative businesses. National chains such as Home Depot and Lowe's enjoy higher bargaining power with suppliers, and benefit from standardization of business processes and systems across their stores nationwide.

AHD caters to both DIY as well as general customers. Most DIY customers have some kind of prior knowledge or experience to do their home improvement projects. However, AHD places special focus on customers who may not possess the required skills or expertise to carry out their home improvement products. In line with this emphasis, AHD has positioned itself as a "friendly place," where the know-how and skills on home improvement as well as the required hardware supplies can be readily obtained.

Traditionally, AHD's expansion strategy has been to recruit newer dealers in un- and underrepresented geographical areas. These dealers could be first time store operators with no prior retail experience or those who wish to convert their existing stores under AHD's brand name. A new dealer typically spends between $800,000 to $1,500,000 to open a new store. AHD's corporate office provides support and training on all aspects of business from sales and inventory management to day-to-day operations of the store. Apart from such dealer-owned stores, AHD also runs its own large retail centers (numbering over 15), primarily to counter the threat of national hardware retail chains.

Despite the increase in geographical expansion, AHD's sales registered a decline from 1999 to 2001. The net income also fell from $90 million to $70 million in this period (Exhibit 4 in the Appendix). A number of issues pertaining to the business model and technology had to be tackled for reversing the decline.

SETTING THE STAGE

AHD and Dealers: The Tenuous Relationship

The cooperative business model adopted by AHD poses considerable administrative and managerial challenges. The corporate AHD plays an advisory role, whereas the dealers have considerable flexibility in running their stores. The primary roles of AHD include wholesaling home improvement products, supplier management (includes identification, negotiation, contracting, and supply chain management), rationalizing procurement for dealers, and running their distribution centers where goods coming from suppliers are stocked and redistributed to dealers.

Due to the historic legacy that accompanied the evolution of AHD and its resultant cooperative business model, dealers have a great deal of freedom in running their retail stores. This implies that the dealers are free to choose the product lines they want to carry, pricing of these products, promotion and discount schemes, choice of local suppliers, and so forth. AHD provides advisory services in terms of recommending product lines, prices, monthly rebates and so on-however, the final decisions are made by the respective dealers. This style of functioning results in differential pricing of products and varied promotion schemes across multiple AHD stores. A customer could find different prices for the same product at two different AHD stores. Moreover, a customer could find specific promotions available in one store to be absent in another. Product returns and price adjustments also get complicated as one store may not honor the purchase transactions made in a different store. The key benefits that dealers get from their AHD affiliation are the brand name, prenegotiated agreements with suppliers, and streamlined distribution and logistics.

Dealers typically procure and replenish their inventory in three different ways (Exhibit 5 in the Appendix). First is the Direct-Drop-Ship method. Here, a dealer maintains direct relationship with selected local suppliers and places orders directly with them. The paperwork, billing and payments are also handled by the dealer. The corporate AHD has no role to play in this transaction. The second method is AHD-Drop-Ship where the dealer places orders to AHD. AHD negotiates the prices with suppliers and takes care of orders and paperwork, and takes a commission from the dealer based on the orders placed and delivered. The third method is the Retail-Support-Purchase. Here the dealer places orders to the national suppliers preselected by AHD, who directly ship the orders to the dealer. AHD handles all of the paperwork, including price negotiation, invoicing, and payments.

Obstacles to IT and E-Business at AHD

While most of AHD's stores are owned and operated by independent dealers, a few stores are corporate-owned and managed. Since many of AHD's dealers operate independently in terms of supply procurement and pricing as well as sales, the corporate office had little information on dealer activity. AHD relied on a legacy system that linked its stores to the corporate office, but it had a significant lag time for data updates, and provided little help for the senior management to have a corporatewide view of inventory as well as sales. Moreover, implementing a corporatewide system became challenging given the differences in how different dealers managed their supply, stores, and sales.

The complex relationship between AHD and its dealers posed several challenges for information technology management at AHD. The primary ones were:

1. Lack of comprehensive data on inventory and sales

2. Lack of integration of store-level data

3. Diversity in hardware and software at dealer locations leading to nonstandardization and systems-integration problems

4. Inability to do any real-time information processing

AHD did not have a comprehensive intranet-like system in place that would allow electronic connectivity with its stores. This inhibited its ability to move its dealer-interactions to a Web-oriented channel. Moreover, the cooperative business model implied considerable flexibility at the store level in terms of product lines, prices, and promotions. This flexibility poses considerable challenges to implementing an integrated system across the entire enterprise. Any system implemented across the store would have to recognize, accommodate, and possibly even incorporate the flexibility.

CASE DESCRIPTION: E-BUSINESS INITIATIVES AT AHD

Business-to-Business Efforts (AHD-Dealers)

When other national hardware and home improvement retailers caught on to the e-business wave that was sweeping corporate America, AHD was caught in a quandary over moving its business online. There were significant business challenges (e.g., varied dealer management processes, disparity in pricing and sales programs, etc.) as well as technological bottlenecks (e.g., lack of integrated databases, nonavailability of real time information, lack of standardized IT architecture, etc).

Prior to its online debut, AHD sent huge catalogs containing the product information to all of its dealers. These catalogs contained detailed information on over 70,000 different home improvement items. Dealers placed their orders via telephone, fax, or mail. These catalogs cost $10 per copy to produce, and an additional $1.00 per mailing. The print catalog system suffered from several problems. As the number of products and items grew, so did the size and complexity of the catalog. Moreover, telephone orders were prone to errors due to the manual data entry. Multiple orders from dealers (rather than a single comprehensive order) complicated order processing. Due to the increased size of the catalogs, dealers also found it difficult to search and locate the items. The catalogs had to be produced and distributed frequently, especially whenever the specifications of any of the items changed. Given the drawbacks of a catalog-order process, AHD started looking for other alternatives.

Electronic catalogs presented a nice opportunity for AHD to initiate its online activities. AHD decided to supply an electronic version of its catalogs using compact discs to all the dealers. The electronic version of its catalog, though limited in its functionality, was received well by the dealers. This measure reduced the costs of producing and distributing the catalogs by over 80%.

Encouraged by its initial attempts at an electronic catalog, AHD decided to expand its e-catalog with several features. AHD hired an external vendor to develop a Web-based online catalog application. This application provided information on over 70,000 items with different options for searching-by item, commodity, department, vendor or other specifications. Moreover, the electronic catalog also included graphic pictures of the items as well as cost information. AHD offered this electronic catalog via the electronic network it had with its dealers. Moving to online e-catalogs provided several benefits for AHD as well as its dealers. Product searches were faster and better. AHD could update its catalog with new prices or specifications and provide real time information to dealers.

Another important e-business initiative was AHD's effort to establish an electronic network among all of its dealers. Traditionally, many dealers had little contact with AHD as they operated independently-they sold AHD's as well as others' products but didn't exclusively work for AHD, although they carried the AHD name. In 2000, the company launched an extranet, AHDCONNECT, to link all of its dealers. Some of the dealers, especially those who were not too technically savvy, expressed their apprehensions about joining the electronic network. Some others felt it was an extra burden to use the network for transmitting and exchanging information. However, the senior management made it mandatory for dealers to join the network. AHD initially piloted the network with 300 of its dealers. The feedback from these dealers was overwhelming that it helped convince other dealers about the potential benefits of electronic integration. Once the network was in place, AHD created an intranet application to facilitate information sharing and exchange among dealers. While AHD provided some basic information and advice to its dealers at the site, the main attraction was that the dealers could communicate and collaborate with others, as well as with AHD's corporate headquarters. Dealers could post queries and get a quick response from other dealers and corporate executives. The application helped AHD develop such a productive community of mutual advisers that AHD decided to extend the idea to link all of its 5,000 plus retail stores.

Despite making AHDCONNECT mandatory, many of the dealers were slow in adopting and using the intranet applications. Therefore, AHD took several steps to promote its usage among dealers. To entice dealers to participate and use the site frequently, leads from prospective customers were posted on the intranet. In the past, AHD used to mail such inquiries to dealers and try to distribute them equitably based on dealer's geographic locations. Posting information on prospective leads on the intranet not only kindled dealers' interest to use the site, but also had the added benefit of reducing the time it took earlier to match dealers and prospects. Other measures like featuring "Dealer of the Month," and online training courses also made dealers embrace the Web more quickly. Gradually, AHD moved most of its dealer-communications like newly negotiated discounts, price changes, policies and procedural changes, and changed product listings over to its intranet. This effort eliminated the paper-based mailing and telecommunication expenses, apart from greatly improving the effectiveness of AHD-dealer communications.

Business-to-Consumer Efforts (AHD-Customers)

AHD made an online debut in 1996 with a passive information-only Web site. Incremental improvements were made over time by including a retailer directory and online rebate coupons. Later, the site offered an option for customers to register with a $10 gift certificate as an incentive. Most of the Web site development work was outsourced to external vendors.

Despite these incremental efforts, AHD lagged behind its traditional rivals as well as new dot-com entities that posed a serious threat. National chains had created advanced Web sites with interactive features. Pure-play Internet hardware retail sites also had more sophisticated features. Sensing that it might lose out to these early movers, AHD decided to adopt a different approach towards enhancing its digital presence.

In mid-1999, AHD announced a major e-commerce venture through a minority equity partnership with Americanhome.com. AHD decided to invest over $5 millions in a start-up firm focused on online retailing of home improvement products. This equity partnership was aimed at creating an industry-first "home solutions portal" that combined products, projects, information, service, installation, and online community. Through this partnership, Americanhome.com was to take care of all the electronic transactions of AHD, acting as the online front-end. AHD was expected to provide Americanhome.com with a back-end infrastructure for fulfillment including supplies, logistics, and distribution. Moreover, AHD was to be the exclusive hardware supplier for the new venture. Americanhome.com obtained additional venture capital financing to supplement the initial equity funding by AHD. The CEO of AHD joined the board of directors of the venture Americanhome.com.

AHD saw Americanhome.com as a quick, fast and easy way to ramp up its e-business to ultimately become a leader in online hardware retailing. Moreover, an initial public offering by Americanhome.com in the future would also prove lucrative for AHD with its minority stakeholder status. AHD offered stock options of Americanhome.com for its dealers. By early 2000, over 25,000 of AHD's products were offered through Americanhome.com, but this number increased in subsequent months. AHD and Americanhome.com launched a joint-marketing campaign to promote their online offering. AHD also decided to install in-store kiosks in its dealer locations so that the customers would be able to place electronic orders during their store visits. The kiosk program was intended to generate traffic for both the retail stores and the Web site, leveraging AHD's brand name. Kiosks were also expected to enable selling of products that was not ordinarily stocked at AHD's retail stores.

Though the AHD-Americanhome.com deal started off on a good note and showed signs of a great partnership, strains appeared in their relationship within the first year. Americanhome. com morphed into a site that sold several other products ranging from drawer pulls to electronic toothbrushes as well as appliances such as dishwashers. Americanhome.com also expanded its offerings into categories such as cooking, gardening, and home décor. Further, Americanhome.com added online features for connecting customers with contractors, handymen, movers, plumbers, and other home improvement service providers. These product and service line expansions were partly prompted by the less-than-expected hardware sales that were generated in the first year of operations. Expanding products and services at Americanhome.com meant that the company had to get into relationships with other manufacturers and distributors, some of whom were direct competitors for AHD. This also conflicted with some provisions of the contractual fulfillment agreement between AHD and Americanhome.com.

AHD and Americanhome.com terminated their co-marketing agreement. AHD also stalled the plans for in-store kiosks. Americanhome.com altered its logo (which closely reflected AHD's logo) and also dropped the link to AHD's name and Web link from its site. This was followed by AHD's CEO resigning from the Americanhome.com's board of directors.

Expanding E-Business Initiatives

There were other significant technology and e-business initiatives that happened at AHD during the period 2000-2001. AHD formed strategic partnerships with a B2B marketplace for lawn and garden products. Through this partnership, the dealers of AHD got the ability to make online purchases for various lawn and garden products. AHD also joined a global retail exchange with retail giants from all over the world to increase its online presence. AHD also entered into an alliance with FindMRO.com, a Web site launched by W.W.Grainger to have access to over $5 million hard-to-find maintenance, repair, and operating supplies. Through this partnership, AHD's dealers could access and order MRO supplies by simply accessing AHD's intranet.

CURRENT CHALLENGES

By 2003, AHD was at a crucial inflexion point in its digital transformation efforts. The business-to-business e-commerce efforts had proven to be fairly successful. AHDCONNECT provided AHD as well as its dealers with several benefits. It helped streamline the supply chain, rationalize inventories, reduce transaction costs, and enhance AHD-dealer communications. On the other hand, AHD's efforts to directly sell to end customers did not produce desired results. The partnership approach that AHD took to Web retailing was a total failure.

Nathan had several issues buzzing over her mind. Should AHD try to continue its efforts to sell hardware products online? If so, how should it go about establishing its Web presence? How should the shipment and returns be handled for online orders? While hardware sales on the Web have been limited, the Internet has emerged as a key medium for consumer research and knowledge base for DIY projects. Failing to have a retail presence on the Web might prove costly in the long run as other hardware retailers have established a significant presence on the Web and continue to sell home improvement goods online. However, questions still remain about customer preferences for buying home improvement goods online. Some of Nathan's colleagues had suggested winding up online retail operations and refocusing on in-store selling.

A few colleagues had pointed out other business-to-business applications that could benefit AHD. Having built a foundation through AHDCONNECT, AHD could invest in advanced data warehouses and business intelligence systems to capitalize on the vast sales data that could be captured through its 4,500 stores. Further, AHD could use the Web to enhance its procurement and supplier relationships.

AHD's voyage in e-business has been marked by both ascending and descending moves, placing it at the crossroads. Like the snakes and ladders game, while some of the e-business initiatives have helped AHD ascend, some others had failed, forcing AHD to go back to scratch. AHD has to plan its future moves carefully, in light of its own past experience as well as the position of its rivals.

Footnote

ENDNOTE

1 Press release available at http://www.jupitermedia.com/corporate/releases/04.01.20-newjupresearch.html.

AuthorAffiliation

C. Ranganathan, University of Illinois, USA

Dong Back Seo, University of Illinois, USA

AuthorAffiliation

C. Ranganathan is an assistant professor in the Department of Information & Decision Sciences at the University of Illinois at Chicago. His current research interests include e-business, information systems strategies and strategic issues pertaining to managing IS. His academic recognitions include the best doctoral dissertation award and the best teaching case award at the International Conference on Information Systems, and best paper awards given by the Society for Information Management. His work has been published in Communications of the ACM, Decision Sciences Journal, Information & Management, Information Systems Management, International Journal of Electronic Commerce, Journal of Strategic Information Systems, and MIS Quarterly Executive, among others. He holds a doctorate from the Indian Institute of Management, Ahmedabad, and master's degree from BITS, Pilani (India).

Dong Back Seo is a doctoral student at the Department of Information & Decision Sciences in the University of Illinois at Chicago. Her research interests include e-business, mobile commerce and understanding competitive dynamics in rapidly changing industries. Prior to her PhD, she worked as a software engineer in a wireless communications firm and as a small business owner in Korea. Her publications include two books in Korean and papers in the Proceedings of the Information Resources Management Association International Conference and Proceedings of the International Symposium on Research Methods. She holds a master's in management information systems from University of Illinois at Chicago.

Appendix

(ProQuest Information and Learning: Appendix omitted.)

Subject: Hardware stores; Electronic commerce; Business to business commerce; Business models; Market strategy; Partnering; Supply chain management

Location: United States--US

Classification: 5250: Telecommunications systems & Internet communications; 2310: Planning; 7000: Marketing; 9190: United States; 8390: Retailing industry

Publication title: Journal of Cases on Information Technology

Volume: 8

Issue: 4

Pages: 1-12

Number of pages: 12

Publication year: 2006

Publication date: Oct-Dec 2006

Year: 2006

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Graphs Tables Diagrams

ProQuest document ID: 198656652

Document URL: http://search.proquest.com/docview/198656652?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 86 of 100

The First ERP Upgrade Project at DSW: Lessons Learned From Disillusion With Simplicity Expectations

Author: Zarotsky, Marta; Pliskin, Nava; Heart, Tsipi

ProQuest document link

Abstract:

While abundant research deals with risks of ERP implementation, only a handful deal with ERP upgrades. This case study describes the first ERP upgrade project at the Dead Sea Works (DSW) chemical company. Whereas DSW succeeded in completing the initial ERP implementation project within budget and six months ahead of schedule, the first ERP upgrade project was fraught with difficulties in project planning, schedule control, cost containment, risk assessment, and employee involvement. Based on this case analysis, it is possible to conclude that the first ERP upgrade project at DSW was much more complicated than originally expected. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: enterprise resource planning; information system implementation; IS cost control; project management; risk assessment; upgrade project

ORGANIZATIONAL BACKGROUND

Israel Chemicals Ltd. (ICL) is a global group (See Figure 1) engaged in the development manufacture and marketing via four core segments: ICL Fertilizers (ICLF), ICL Industrial Products, ICL Performance Products, and ICL Metallurgy. ICLF has fertilizer manufacturing facilities in Israel, Spain, England, Holland, Germany, Turkey, and Belgium, and is a leading supplier of fertilizers in Europe and in the sophisticated Israeli market. ICLF has the capacity to produce about 5 million tons of potash each year and is today a major player on world markets, accounting for 11% of world potash production and 10% of international potash trade (excluding the cross-border trade between the U.S. and Canada), with the American and Asian markets being the biggest potash consumers and importers.

Dead Sea Works (DSW), a business unit of ICLF, is the world's major producer and supplier of potash products, as well as a broad range of chemical products, including magnesium chloride, anhydrous aluminum chloride, industrial salts, de-icers, bath salts, table salt and raw materials for the cosmetic industry. DSW evolved from the Palestine Potash Company, formed in 1930 to extract minerals from the Dead Sea and to process chemicals from these minerals. DSW is unique in that it extracts potash from the Dead Sea, the largest solar evaporation pond array in the world. Much like most of its competitors, ICLF also mines potash (in Spain and England). Because DSW is a multi-firm global company, distributed within and outside of Israel, its financial performance depends on trends in the world economy, including the economic conditions in Southeast Asia and Russia, as well as changing attitudes toward the environment.

In its commitment to environmental protection, DSW adheres to three principles. First, DSW is saving on raw materials and energy. Second, DSW is recycling and turning byproducts into final products. Third, DSW is returning any residuals of raw material to their natural place, and is transferring any materials that become hazardous to an authorized and supervised waste dumpsite. In addition, DSW has joined the international Responsible Care® Program, aimed at achieving improvements in environmental, health, and safety performance beyond levels required by law. In joining this voluntary program, DSW has undertaken to maintain transparency in dealings with customers and the public at large and to achieve the twin goal of zero accidents and no damage to the environment.

For its commitment to the well-being of environment, employees, and community members, as well as to high standards in the workplace, DSW has been repeatedly awarded prizes. For example, for 23 years, DSW has been granted the highest-ranking awards by The Council for a Beautiful Israel, winning "Four Stars of Beauty" and "Five Stars of Beauty" for aesthetics of industrial facilities and their surroundings. DSW has been also awarded "Level One System Status" by the Australian Government's Quarantine and Inspection Service, for a continuous demonstrated commitment to ensuring that quarantine integrity is maintained by implementing recognized contamination-management strategies throughout the supply chain.

The location of the Dead Sea at the lowest place on earth, in a valley whose southern part is suitable for evaporation pans, is both an advantage-in terms of energy cost-and as a disadvantage- in terms of transportation costs. On the one hand, the Dead Sea enjoys ample sunlight for most of the year and DSW harnesses the sun's energy in its production process, saving 10 million tons of oil that would otherwise be required each and every year. On the other hand, the 900-meters altitude difference between the plant and the nearest railway terminal can make potash transportation a major expense. In April 1987, however, DSW was able to overcome this disadvantage by constructing an 18-kilometer conveyor belt, whose incline at some points reaches 18 degrees, which substantially reduced transportation costs for DSW.

DSW has been profitable since 1970, selling to numerous countries on every continent. Even though one of its clients accounts for 10% of sales, DSW is not dependent on any one customer. It is also free from dependence on any one supplier and any one material. DSW's persistent growth has been made possible by such measures as expanding potash production, while lowering costs, accelerating worldwide business development, including joint ventures in salt and chloride aluminum, investing in development of power and water resources, paying attention to widespread distribution of sales, as well as sensing customer needs and responding to them. In addition, DSW has been harnessing its information systems (IS) to enable productivity, efficiency, and growth.

SETTING THE STAGE

The IS department at DSW evolved by the early 1990s into a division which is currently headed by a director of information systems (DIS) who reports to the senior vice president and chief financial officer.

In 1995, the CEO and the DIS recognized two major challenges that DSW faced. First, the IS applications, which were custom-developed to support a single Israeli firm, could no longer support a multi-firm global enterprise. Second, Y2K-compliance of the IS applications (Kappleman, 1997; Ometzberger & Deol, 2003; Violino, 1997) was critical for survival.

The CEO charged the DIS with proposing how to invest DSW resources to meet these challenges. A thorough investigation of the alternatives (see Pliskin & Zarotski, 2000) included prototyping Y2K conversion for one functional application. Based on that prototyping effort, the Y2K conversion cost for all IS applications was estimated to exceed $1.5M. The DIS made it clear to top management that such Y2K conversion would leave DSW with legacy systems and a database that could not really support transition to a multi-firm global company.

By then, ERP benefits were becoming obvious, including integration, speed, reliability, database distribution, convenience, and data security (Davenport, 1998; Goodhue, 2004; Murphy & Simon, 2001; Ranganathan & Samarah, 2001; Somers & Nelson, 2004). Moreover, ERP systems allow standardization of business processes across distributed branches, with data consolidation abilities that allow management to have full view of overall business performance. Furthermore, companies that implement this software have the opportunity to redesign their business practices, using "best practices" imbedded in the software (Gattiker & Goodhue, 2005).

In early 1997, having become aware of ERP and having been convinced to avoid a Y2K conversion, top management at DSW allocated almost $5 million for implementing the SAP R/3 leading ERP package. ICL backed DSW's ERP decision, expecting the initial ERP implementation project at DSW to serve as a pilot for other ICL subsidiaries.

High expectations within DSW with respect to ERP included hopes that the ERP implementation would help transform DSW from a single-firm to a multi-firm structure, from local to global operations, and from outdated to a modern IS infrastructure. Another expectation at DSW was that, once the initial ERP implementation project with all its expected complexity was completed, ERP upgrade projects would be simple to accomplish, allowing DSW to stay technologically current with minimal effort.

At the time, while knowledge about the complexity of ERP implementation was abundant, such expertise with regard to upgrade projects was provided neither by the professional literature nor by academic publications. Even several years later, while extensive literature has existed regarding critical success factors pertaining to ERP implementation projects, very little has been published regarding upgrade projects (e.g., Ng, Gable, & Chan, 2002). Only one study (Ng et al., 2001) details the difference between technical and functional upgrades. Only a few recommend precautions to be taken in the initial implementation project in order to ease upgrade projects, such as eliminating nonstandard customization, have been published (Brehm, Heinz, & Markus, 2001; Light, 2001). The absence of information about ERP upgrades is somewhat surprising given the general consent that upgrading is essential for companies to survive and to compete (McDonnell, 2000). At DSW, in the absence of information to the contrary before deciding to implement ERP, it was reasonable to expect simplicity of upgrade projects in the future.

In fact, while knowledge about the complexity of ERP implementation was abundant, such expertise with regard to upgrade projects was provided neither by the professional literature nor by academic publications. Consequently, in the absence of information to the contrary, it was reasonable to expect simplicity of upgrade projects in the future.

Following the decision to implement an ERP package, DSW stopped all planning, maintenance, and development for both existing and new IS applications. In particular, although a plant-maintenance application was already budgeted for $1 million, actual analysis, design, and development were suspended. Avoiding gradual implementation with the interfacing efforts it implies, DSW opted for the more risky "big-bang" transition to R/3. At the same time, to reduce risk and to increase prospects for successfully completing the initial ERP implementation project, DSW management took precautions to reduce the risks associated with project technology, size, and structure (Applegate, McFarlan, & McKenney, 1999; Hong & Kim, 2002).

To reduce technology risk, DSW outsourced the big-bang implementation project to IBM, even though HP supplied the server hardware (McFarlan & Nolan 1995). To contain project size, DSW implemented only those functions previously automated, with one exception. When the outsourcer IBM, in the middle of the implementation project, offered to add the R/3 plantmaintenance module to the implementation project, for $75K instead of the $1 million already budgeted, DSW could not refuse. To simplify project structure (Bancroft, Seip, & Sprengel, 1998), DSW kept to a minimum both reengineering business processes and modifying R/3 to meet DSW needs. DSW took this structuring measure not only to reduce the risk associated with the initial implementation project, but also to insure the simplicity and low cost of future upgrade projects.

To ensure that these three risk-controlling measures were effective, top management made it clear that they were championing the project with full commitment, and the CEO explained to the management team that the ERP implementation project was about organizational change, aiming at transforming the company in the 21st century into a leading, global company.

DSW started the initial implementation project of SAP R/3, Version 3.1, in early April 1997, with the target going-live date set for January 1999. A top management steering committee kept a close watch over the implementation schedule and the target budget. Implementation teams, each composed of an expert on the IBM side as well as a full-time top user and an IS analyst on the DSW side, were formed to oversee the implementation of each module, moving each schedule milestone a few days forward.

On July 1, 1998, 15 months after the implementation project began, 6 months ahead of schedule, and without exceeding the budget (other than the expense for adding the maintenance module to the scope), Version 3.1 went into production. In addition to staying within budget and going live ahead of schedule, the initial implementation project at DSW was successful by other measures, including satisfaction of managers, users, and IS professionals. Moreover, the feeling within business and IS management at DSW was that avoidance of software modification during the initial implementation project would help keep the ERP platform at DSW current by making future upgrade projects much easier, faster, and cheaper than the initial implementation project was.

CASE DESCRIPTION

In 2000, about two years after Version 3.1 went into production at DSW, its parent company ICL considered adopting electronic commerce to reduce the cost of procurement, shorten delivery time, lower inventory levels, and decentralize part of the purchasing process to workers in the plants. However, the electronic-commerce product of SAP and Commerce 1 required upgrading from Version 3.1 to Version 4.6, which presented radical changes in user interface and in business processes.

DSW's DIS responded to this challenge by reading reports about upgrades and seeking advice from his counterparts at Israeli companies that already started upgrade projects to Version 4.6. He thus learned that an ERP upgrade project is not as simple and as effortless as originally anticipated. This realization was a source of disappointment to the DIS, since he expected upgrades to be relatively simple, especially having taken upgrade-simplifying measures during the initial implementation project. Therefore, even though DSW was among the first in Israel to implement Version 3.1 and in spite of ICL's e-commerce aspirations, his advice to the CEO was not to upgrade to Version 4.6, waiting to learn more from early upgraders. In June 2001, however, SAP announced that support for Version 3.1 would terminate in October 2001, forcing DSW to enter into the first ERP upgrade project.

To begin with, DSW invited a British consultant, experienced in R/3 upgrades outside of Israel, to examine Version 3.1 at DSW and to assess the upgrade requirements. He recommended upgrading in two stages: a technical upgrade first, including changes and improvements to the user interface, without adding any new functionality, and a functional upgrade later on, including added functionality to the existing package, such as support of several new business processes, and interfaces to the newer SAP modules (e-commerce, BW, SAP Portal, SEM, etc.). He has also estimated that the full upgrade project, including the technical and functional phases, would last about 18 months, which was longer than the initial ERP implementation project. Top management found this assessment quite unacceptable and asked for a second opinion in this matter from an Israeli consultant. He recommended a 6-months-long technical upgrade only, with the functional upgrade project postponed to a later stage, arguing that a technical upgrade project would be easier.

Based on this latter recommendation, that was accepted and budgeted for, both the CEO and DIS expected a non-complex, relatively short, upgrade project, with minimal interference to current IS and business operations. Nevertheless, before the ERP upgrade project began, the DIS decided to expand the server's memory, to add disk space, and to upgrade the Oracle DBMS to Version 11. He based these actions on lessons learned from ERP upgrade projects at other companies where, after completion of the upgrade project, the existing infrastructure turned out to be inadequate for Version 4.6.

The first ERP upgrade project began in August 2001, with January 2002 set as the goinglive target date. As opposed to the initial implementation project, the CEO and all other business managers stayed uninvolved, other than letting all division heads know about the decision to upgrade. Also unlike the initial project, outsourcing of the first upgrade project was ruled out and, instead, the internal IS team was put in charge, enhanced by external consultants and programmers experienced with ERP upgrade projects at other organizations. This upgrade project was perceived by both business and IS management as a pure IS project, requiring minimal involvement of business management. Thus, the IS Division formed three steering committees, comprised mainly of IS personnel, who met once a week, and the DIS reported to top management about progress of the upgrade project once a month. For the upgrade project, top IS managers made three major decisions:

1. To stop non-urgent maintenance of the installed Version 3.1: "From today it will not be permitted to introduce changes to Version 3.1 unless the System-Development Manager has given an OK in advance" (from minutes taken during the August 28, 2001 meeting of the Top IS-Division Steering Committee).

2. To postpone any enhancements to Version 3.1 until after going live: "There is a problem with the old service-entry processes. New functionality will be introduced in the future since it does not pay to introduce changes at this point" (from minutes taken during the December 24, 2001 meeting of the Systems-Development Steering Committee).

3. To refrain from introducing new processes that Version 4.6 could support: "Report to the Systems-Development Manager upon discovering new processes. Each case would be assessed separately with preference not to change" (from minutes taken during the September 9, 2001 meeting of the Systems-Development Steering Committee).

The message conveyed to employees was that the benefits of the first ERP upgrade project to Version 4.6, being technical in nature, would be limited mainly to improvements in the humancomputer interface without necessarily solving problems encountered in Version 3.1. Although told that the upgrade project would take five to six months to complete, the employees were skeptical and did request non-urgent changes to the running Version 3.1 despite the Decision #1 above. Lacking the firm support of the top management about enforcement of Decision #1, IS personnel were occasionally forced to introduce changes in Version 3.1. Specifically, the sales and marketing department insisted on introducing changes to the sales and distribution (SD) module and were unwilling to wait the six months for the upgrade to be completed, thus imposing additional difficulty on the upgrade project.

Based on the success of dedicated module teams in the initial implementation project, DSW formed upgrade teams for each module composed of a top user and a system analyst. Yet, unlike in the initial implementation project, it was also pretty clear from the start that the involvement of users in the ERP upgrade project would be minimal and would be required in addition to, and not instead of, their regular duties. Therefore, top users assigned to the joint upgrade teams were reluctant to put in extra effort when required. For example, two testing rounds were required for each upgraded business process. First, according to SAP documentation, even though top users were supposed to scan for each object in Version 3.1 and its respective object in Version 4.6, the IS professionals themselves ended up doing this scanning process prior to installation of Version 4.6. Second, after installation, upgrade teams were supposed to test each module. Middle-management, however, ignored requests from IS management to free top users for testing in both rounds, thus forcing IS professionals to do the testing with the help of an external testing firm, the cost of which was not initially budgeted.

In the absence of top-user involvement, these two testing phases discovered only 30% of the problems, with most of the problems not surfacing during testing but emerging after the upgraded Version 4.6 was up and running. Consequently, the first few days after going live turned out to be traumatic. For example, most users were unable to access the system due to comprehensive changes in authorization procedures. Similarly, users refrained from attending training classes since their managers did not enforce full attendance as they did in the initial implementation project.

Version 4.6 went live at DSW in a somewhat incomplete manner in February 2002, about one month later and at a higher cost than originally planned, for a number of reasons. First, DSW ended up spending more than anticipated on training. Second, some of the testing had to be outsourced. Third, despite the pre-emptive actions taken with regard to the IS infrastructure before commencing the first ERP upgrade project, the existing workstations provided poor response time. This difficulty, not previously mentioned by any SAP expert, came as a total surprise to IS management and caused dissatisfaction among users. Since replacing the workstations would have caused a major budget overrun, the solution was to run 3-tier architecture that was novel to DSW, reducing the workstations to thin clients by purchasing Citrix licenses and servers. It is notable that this three-tier architecture was not widely used before at SAP installations, thus posing a considerable risk to DSW. In fact, only in 2004 did SAP and Citrix publish a joint manual on these strategies (Haendly, Koopman, & Roberts, 2004). Fourth, employees who refrained from attending the training classes did not know how to operate the new user interface.

Although the upgraded version functioned quite smoothly after solving these and other problems, management felt that they were much less prepared for the first upgrade project than for the initial implementation project. To them, a supposedly simple and technical upgrade project turned out to be rather complex and resource consuming.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIzATION

The relatively traumatic first upgrade project, compared to the successful initial implementation, positioned the IS Division at DSW in an undesirable situation. Top management believed that by investing in, and by carefully planning the initial ERP implementation project, upgrade projects would be smooth and relatively simple. The difficulties encountered in the first upgrade project were therefore quite disappointing. Table 1 summarizes the main differences between the two projects. Top management at DSW expected the initial ERP implementation project to be complex, long, and costly and to introduce enterprisewide changes to existing traditions and business processes. As such, top managers realized that their strong commitment to the project was a key success factor, and ensured full cooperation of middle management, total availability of key users, and minimal introduction of changes and new functionality. This, however, was different in the first upgrade project. Neither top business managers nor top IS managers anticipated the complexity of the upgrade project, especially after opting for the simpler technical upgrade project. As a result, there were significant differences between the organizational-wide effort invested in the initial implementation and in the first upgrade projects (see Table 1). For example, in the first upgrade project, reporting to top management was less frequent than in the initial implementation, the upgrade project was not outsourced, and top users were not as available as in the initial implementation project, resulting in the inability to contain structure and to perform appropriate audit and testing activities. The undesirable consequences were late delivery of the upgraded version, a budget overrun, and chaotic changeover period.

In the initial implementation project DSW top management were aware of the risks involved and took precautions to minimize risk by controlling project technology, size, and structure. These controls turned out to be effective mainly due to strong top management commitment and involvement throughout the project, which contributed to delivering to users the urgency of adhering to measures taken to mitigate risks. Interestingly, DSW did take similar measures to mitigate risk in the first upgrade project. First, DSW controlled the technology risk by upgrading the servers' memory and the database prior to project initiation. Second, DSW controlled the size risk by opting for a technical upgrade only. Third, DSW controlled the structure risk by deciding to freeze all changes and enhancements to the existing 3.1 systems. Yet, while these measures proved successful in the initial implementation project, they did not achieve the anticipated risk reduction effect in the first upgrade project.

Clearly, the success of the initial implementation project shows that DSW was capable of executing IS projects in the face of expected complexity. Therefore, it may be reasonable to attribute the lesser success in the first upgrade project, in part, to the lack of information regarding the complexity and risk of an upgrade project, even a technical one. Both SAP documentation and SAP experts did not clearly spell out the risks involved in an upgrade project. Moreover, while a rigorous methodology for ERP implementation is supplied by SAP and is extensively researched and documented, very little is available about ERP upgrade projects.

Thus, the main lesson learned from this case is that ERP upgrade projects can be as complex and almost as risky as implementation projects. As such, it is necessary to reduce risks and to increase prospects for successfully completing ERP upgrade projects by taking precautions to control project technology, size, and structure. In other words, ERP upgrade projects require risk mitigation efforts similar to ERP implementation projects. For example, outsourcing might be considered in upgrade projects as well, because there might not be enough knowledge within the organization about a new version. It is also important to assess the scope of the upgrade, whether technical or functional, to contain project size.

Prior to commencing an ERP upgrade projects CIOs should address several questions, typically considered in ERP implementation projects. Perhaps the most important one is whether the involvement of top management can be as intensive as in the initial implementation project. While an initial ERP implementation happens once, upgrades are likely to recur on a regular basis. CIOs may therefore not be able to recruit top management for each upgrade project at the same level of intensity as for the first implementation. As such, they must make sure that their teams acquire the expertise to execute upgrades successfully. Following the first upgrade project at DSW, for example, the challenge the IS department faced was to develop methods and techniques for smooth upgrades at manageable costs, while gaining the commitment of middle management and key users but without intense top management involvement or severe interference with everyday life.

There are other questions for CIOs to address prior to commencing upgrade projects. Should users involved in the project be freed from their daily tasks and be deployed full time in the upgrade project, as in an initial implementation project? What should be the attitude toward freezing all changes to the running version? Can bugs and urgent problems in the running version wait for months until the upgraded version is up and running? How can CIOs make sure that the IS infrastructure fits the new version in terms of response time and space requirements? Is there a way to make sure that the ERP vendor provides accurate specifications with regard to infrastructure requirements and complexity of the upgrade process?

The experience of the first upgrade project at DSW highlighted these and other questions. Given the limited coverage given to upgrade projects in the literature, this case study may be useful to IS management in other organizations using ERP packages and aspiring to stay current. Like DSW, IS managers elsewhere are likely to face a similar challenge, when coping with an ERP upgrade project in the absence of adequate how-to literature and in light of the reluctance of the ERP vendors to acknowledge the relative complexity of upgrade projects.

References

REFERENCES

Applegate, L. M., McFarlan, F. W., & McKenney, J. L. (1999). Corporate information systems management. Boston: Irwin McGraw-Hill.

Bancroft, N. H., Seip, H., & Sprengel, A. (1998). Implementing SAP R/3: How to introduce a large system into a large organization. Greenwich, CT: Manning.

Brehm, L., Heinz, A., & Markus, M. L. (2001). Tailoring ERP systems: A spectrum of choices and their implications. In Proceeding of the 34th Hawaii International Conference on System Sciences, 8017.

Davenport, T. H. (1998). Putting the enterprise into the enterprise system. Harvard Business Review, 76(40), 121-131.

Gattiker, T. F., & Goodhue, D. L. (2005). What happens after ERP implementation: Understanding the impact of inter-dependence and differentiation on plant-level outcomes. MIS Quarterly, 29(3), 559-586.

Haendly, M., Koopman, M., & Roberts, J. (2004). Cost-efficient NetWeaver deployment strategies from Citrix. Retrieved from http://www.sap.com

Holland, C., & Light, B. (1999, May-June). A critical success factors model for ERP implementation. IEEE Software, 30-36.

Hong, K., & Kim, Y. (2002). The critical success factors for ERP implementation: An organizational fit perspective. Information and Management, 40, 25-40.

James, G. (1997). IT fiascoes and how to avoid them. Datamation, 43, 84.

Kappelman, L. (1997). Year 2000 problems: Strategies and solutions from the fortune 100. London: International Thompson Publishers.

Light, B. (2001). The maintenance implications of the customization of ERP software. Journal of Software Maintenance and Evaluation: Research and Practice, 13(6), 415-429.

McDonnell, S. (2000, October) Squeezing more out of ERP. Computerworld. Retrieved February 28, 2006, from http://www.computerworld.com/softwaretopics/software/appdev/ story/0,10801,51545,00.html

McFarlan, F. W., & Nolan, R. L. (1995). How to manage an IT outsourcing alliance. Sloan Management Review, 9-23.

Murphy, K. E., & Simon, S. J. (2001). Using cost benefit analysis for enterprise resource planning project evaluation: A case for including intangibles. In Proceeding of the 34th Hawaii International Conference on System Science, 8018.

Ng, C. S. P. (2001, August 3-5). A framework for enterprise resource planning maintenance and upgrade decisions. In Proceedings of the Seventh Americas Conference on Information Systems, Boston, Massachusetts (pp. 1026-1029).

Ng, C. S. P., Gable, G., & Chan, T. (2002). An ERP-client benefit-oriented maintenance taxonomy. The Journal of Systems and Software, 64, 87-109.

Ometzberger, H., & Deol, J. (2003). Realizing the maximum business value from your SAP upgrade. Retrieved from http://www.SearchSap.com

Pliskin, N., & Zarotski, M. (2000). Big-bang ERP implementation at a global company. In Annals of Cases on Information Technology Applications and Management in Organizations, Volume 2/2000 (pp. 233-248).

Ranganathan, C., & Samarah, I. (2001). Enterprise resource planning systems and firm value: An event study analysis. In Proceedings of the Twenty-Second International Conference on Information Systems (pp. 157-158).

Scott, J. E. (2004). Tekcal's ERP implementation challenge: Climate, fit and effectiveness. In Proceedings of the Tenth Americas Conference on Information Systems (pp. 113-120).

Violino, R. (1997). Year 2000 getting down to the wire. Information Week, 10, 14-15.

AuthorAffiliation

Marta Zarotsky, Dead Sea Works, Israel

Nava Pliskin, Ben-Gurion University of the Negev, Israel

Tsipi Heart, University College Cork, Ireland

AuthorAffiliation

Marta Zarotsky works at the IT Department of Dead Sea Works (DSW) LTD, in Israel, as a manager of the Security and Information Unit. She graduated with a BSc in computer science at Ben-Gurion University, and holds an MSc in information technology from the Department of Industrial Engineering and Management at Ben-Gurion University of the Negev. Her research focused on implementation of enterprise resource planning in medium-sized enterprises, has published with Idea Group Inc. and in conferences.

Nava Pliskin is full professor at the Department of Industrial Engineering and Management Ben- Gurion University in Israel, in charge of the information systems (IS) programs. Previously she was a Thomas Henry Carroll Ford Foundation Visiting Associate Professor at the Harvard Business School. She acquired her PhD and SM degrees from Harvard University. Her research, focused on longitudinal analysis of IS impacts at the global, national, organizational, and individual levels, has been published in such journals as IEEE Transactions on Engineering Management, ACM Transactions on Information Systems, The Information Society, Communications of the ACM, Decision Support Systems, Information & Management, and Database.

Tsipi Heart obtained her PhD at the Department of Industrial Engineering and Management, Ben-Gurion University of the Negev in Israel, and is now lecturing at the Business Information Systems Department in University College Cork, Ireland. She has acquired her MBA from Tel-Aviv University. After serving for 15 years as CIO at Israeli SMEs, Dr. Heart has worked as an IT consultant. Her research focuses on IT implementation in small- and medium-sized enterprises, IT strategy and management, IT innovation and adoption, cultural differences in IT usage, and application service providers. Previous papers of hers have been published in academic journals, such as Information Technology and Tourism, International Journal of Hospitality Information Technology, INFOR, and the Journal of Global Information Management.

Subject: Enterprise resource planning; Chemical industry; Information systems; Cost control; Project management; Risk assessment; Software upgrading

Location: Israel

Company: Dead Sea Works Ltd

Classification: 8640: Chemical industry; 5240: Software & systems; 3300: Risk management; 9178: Middle East

Publication title: Journal of Cases on Information Technology

Volume: 8

Issue: 4

Pages: 13-23

Number of pages: 11

Publication year: 2006

Publication date: Oct-Dec 2006

Year: 2006

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Diagrams Tables References

ProQuest document ID: 198654508

Document URL: http://search.proquest.com/docview/198654508?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 87 of 100

Securing E-Learning Systems: A Case of Insider Cyber Attacks and Novice IT Management in a Small University

Author: Ramim, Michelle; Levy, Yair

ProQuest document link

Abstract:

The growing use of e-learning systems has been documented by numerous studies (Levy, 2005). Yet in spite of this enormous growth, little attention has been given to the issue of security of e-learning systems both in research and in practice. Security of e-learning systems has a unique challenge as these systems are accessed and managed via the Internet by thousands of users over hundreds of networks. However, the Internet can pose security threats such as unauthorized access, hacking/ cracking, obtaining sensitive information, and altering data and configuration, as well as enabling academic misconduct incidents (Freeh, 2000; Ramim, 2005; Sridhar & Bhasker, 2003). At the same time, cyber attacks have proliferated significantly in recent years. As a result, proper IT policies and procedures, in particular ones related to security of information systems, have become critical for organizations. This case study was written from the IS consultant's point of view and addresses the issues related to insider cyber attacks combined with novice IT management knowledge in a small university. After a year of substantial growth to its online learning program, the university in this case study experienced a devastating event that halted all academic activities enabled by the institution's e-learning system. This case reveals that internal cyber attack as well as lack of proper IT policies and procedures all resulted in multiple instances of damage to the e-learning system. The case provides detailed documentation on the security audit performed as well as stimulation for class discussions on actions to be taken as a result of the insider's cyber attack. Additionally, this case study attempts to provide a starting point on discussions in the area of security related to e-learning systems. It is hoped that this case study will stimulate discussions among practitioners and researchers related to e-learning systems security, and that it will help prevent such incidents from occurring at other academic institutions. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: cyber crime; e-learning systems; e-learning systems security; insider cyber attack; insider cyber threats; insider IS misuse; IT policies; IT procedures

ORGANIZATIONAL BACKGROUND

Knowledgeville University (KU)1 is a small higher education institution with mostly minority students in the Southeastern US. KU provides undergraduate and master's degrees in nine academic programs. The student body is about 1,200 students with most students attending full-time courses. However, a substantial number of students (20%) are enrolled on a part-time basis in the online learning program, which is enabled by KU's e-learning system. KU began to use its e-learning system during the 2001-2002 academic year. KU's IT department has been managing the technical administration of this program while a faculty member was appointed to recruit, coach, and encourage other faculty members to integrate their curricula into the elearning system. A year later, during the 2002-2003 academic year, KU had 84 courses using the e-learning system. KU had about 120 faculty members of which, at that time, 42 were using the e-learning system on a daily basis.

KU's e-learning system is a proprietary, fully developed comprehensive online course management system (WebCT). Since 2001, online courses have been an important part of KU's vision by enabling students' learning in a flexible "any time, any place" mode. Consequently, online courses have been explored by KU's administration as a new opportunity for reaching distant and local working students, as well as a new revenue stream. The online courses have become a competitive edge for KU among other small academic institutions in the region. KU's president, Dr. Lopez2, has committed to the success of the online learning program by incorporating the participation of faculty members in teaching online courses as part of their tenure and promotion review criteria. Additionally, Dr. Lopez has provided department chairs with incentives to help stimulate even further the use of the e-learning system both for on-campus courses and for fully online courses. Moreover, Dr. Lopez has allocated a moderate budget for the purchase of laptops for faculty members and for selected bright students who participate in online learning courses. Dr. Lopez also developed a set of strategies by which students, faculty, and administrators will incorporate the use of technology and the Internet in most of the daily activities on campus, quite apart from the online learning program. In every on-campus classroom building, KU now houses several multimedia classrooms and computer labs. The library purchased access to multiple electronic databases as well as acquiring several kiosk stations with Internet connection for students' use. Each full-time faculty member was provided with a computer system and basic software package. Residential halls were equipped with several kiosk stations in the lobby and a small computer lab in each hall. The president's office conducted annual surveys to assess students' and faculty members' technology skills. Consequently, as of the Fall 2002 term, all students were required to enroll in a technology course during their freshman year. Faculty who demonstrated low technology skills were encouraged to participate in technology training sessions provided by the Human Resources (HR) department. The use of the institution's e-mail system was regularly promoted during registration events. Although registration was not Webenabled, Dr. Lopez hoped that Internet registration would be in place by 2005.

SETTING THE STAGE

KU's IT department was comprised of an IT director, Mrs. Rodriguez; a network administrator; two technicians who supported the entire institution; an IS consultant, Ms. Maya; a Webmaster; and a telecommunication subcontractor. Aside from Ms. Maya, all employees had been with the department for several years (4-10) and enjoyed interacting with the rest of KU's employees on a first-name basis. Mrs. Rodriguez reported directly to Dr. Lopez, KU's president. With 10 years' employment with KU, she was the most senior in the department. However, she had very minimal IT knowledge and had been promoted to the position of the IT director primarily due to her seniority. Mrs. Rodriguez's specific knowledge was in the area of accounting and finance, where she was very instrumental in helping implement the HR and student management systems. Mr. Perez had been KU's network administrator; over the course of several months he came late to work, took extensive lunch breaks, and had overall low performance. As a result, Mr. Perez was asked to leave, and Mrs. Rodriguez assumed his responsibilities until a new network administrator could be hired. See Figure 1 for KU's IT department organizational chart.

KU's IT department has four primary functions:

1. To provide technical support and orientation to students

2. To support and maintain the computer laboratories throughout campus as well as in the library

3. To provide technical support and various IT training to faculty members as well as to maintain faculty members' computers, software, and Web sites

4. To support and maintain the university's administration computing and the IT equipment of all KU's systems/functions (i.e., registration, tuition payments, financial aid, bookstore's point of sale, cafeteria's point of sale, grade reporting system, e-learning system, KU's Web site, financial reporting, human resources, and IT training)

Most of the equipment in KU's IT department had been donated from various equipment providers (i.e., Dell, HP, Cisco, etc.) where it was outdated and inadequate to perform most of the IT tasks required. KU's IT network infrastructure consisted of the following hardware:

* An HP mainframe where the institution's administrative datacenter and main computing were hosted (student registration, financial aid, student housing, etc.)

* An e-mail server

* A server that hosted faculty members' Web pages as well as KU's Web site, and additional faculty members' server-end software used for teaching purposes

* A server that hosted the e-learning system application (WebCT)

* A server that hosted human resources application and data (payroll system)

* A server that hosted the library application and databases

* A server that hosted the bookstore point of sale application and data

* A server that hosted the cafeteria's point of sale application and data

* A server that hosted student access and a special debit card system

* A server that hosted server-end music software (used mainly by the music department)

* Two network-enabled HP printers that provided executive reports

* A dedicated T1 line connecting KU to the Internet

* Multiple Cisco switches and 16 port hubs

KU's IT department had no security policies and procedures as most of the activities in the department lacked formality. There was no evidence of a physical security mechanism in the server farm. Additionally, there were no mechanisms for network security in place. Moreover, technology manuals, warranties, and certificates were dispersed in various areas in the IT office.

CASE DESCRIPTION

In late 2002, KU experienced a cyber attack to its e-learning system that resulted in the server that hosted the e-learning system application shutting down in the middle of the semester, putting a halt to students' and faculty members' academic work. In order to assist in understanding the issues addressed in this case, the following section will provide an overview of insider cyber attacks, followed by a description of the approach to the problem proposed by Ms. Maya in the days following the cyber attack. Moreover, a review of the e-learning security audit process conducted, as well as the audit results and action plans, are discussed.

Insider Cyber Threats and Attacks

The knowledge-based economy has been mainly powered by technology-enabled communication and systems (Zang, Zhao, Zhou & Nunamaker, 2004). Additionally, enterprisewide systems and global communication have increasingly become an integral part of today's organizations (Hamin, 2000). Corporations have increased their dependency on enterprisewide systems and global communication networks (Garfinkel, Gopal & Goes, 2002; Magklaras & Furnell, 2002). E-learning systems have been getting increased attention and have become center-stage systems in many organizations (Levy, 2006). Hamin (2002) noted that the dependency on information systems has caused organizations to "become more exposed and vulnerable to an expanding array of computer security risks or harms and inevitably to various kinds of computer misuse" (p. 105). At the same time, newer technologies along with industry regulations (i.e., Sarbanes-Oxley Act) promote substantial investment in IT security products and such investment is predicted to reach $13.5 billion by 2006 (Hale & Brusil, 2004; Schultz, 2003). However, it has been observed that most small to mid-size business organizations do not employ a security management program (Keller, Powell, Horstmann, Predmore, & Crawford, 2005). Moreover, the latest report of the Computer Security Institute (CSI/FBI) (Gordon, Martin, William, & Richardson, 2004) states that nearly 66% of all cyber-security breach incidents, in the 280 organizations who responded to the survey, were conducted from inside the organization by authorized users. Additionally, an overwhelming 72% of organizations reported that they have no policy insurance to help them manage cyber-security risks (Gordon et al., 2004). However, most literature in the area of cyber security has been focusing on threats and attacks caused by an outsider imposed on the organization's network or systems (Magklaras & Furnell, 2002). Hamin (2002) defines insider threats as "threats from computer misuse within the workplace ... [as] it is generally concerned with the harms committed by employees against organizations for which they work" (p. 106). He further elaborates that under this definition the term employees actually refers to current, former, and temporary workers, as well as other individuals with close knowledge of the computer systems of the organization. For example, such individuals may include consultants or independent contractors working for the organization, system maintenance technicians from outside vendors who maintain the organization's network and/or systems, or suppliers (Hamin, 2002). Magklaras and Furnell (2002) provided a definition of the term misuse as "to use (something) in a wrong way or for a wrong purpose" (p. 63). By extending this definition, they defined IT misuser as an individual who is using the available resources in an unacceptable way and for an unapproved purpose (Magklaras & Furnell, 2002). Moreover, the term insider is not classified by the physical sense of the term, rather by its logical sense. As such, this study will define an insider cyber misuser (or insider cyber attacker) as a current, former, and/or temporary employee (including consultants, contractors, suppliers, maintenance technicians, etc.) who is using available computing resources either from inside the organization's networks or via the Internet in an unacceptable way and for an unapproved purpose in order to intentionally cause harm to the organization's networks or systems. This definition is also in full agreement with the description of insider cyber attacker provided by the former FBI director, Mr. Freeh, in his congressional testimony on "cybercrime" before the U.S. Senate Committee on Judiciary, Subcommittee for the Technology, Terrorism, and Government Information (Freeh, 2000).

The Days Following the Cyber Attack...

Within one day of the cyber attack against KU's e-learning system, faculty members and students mounted complaints to KU's IT department and eventually to the institution's president. During an emergency president's meeting, Dr. Lopez demanded from Mrs. Rodriguez an immediate audit of the technology network and a comprehensive report about the status of the e-learning system, along with immediate actions to restore the system. Following the meeting, Dr. Lopez assured both students and faculty members that a ramification plan was underway to save the semester's work and bring the e-learning system back to operation.

Mrs. Rodriguez solicited a proposal for a security audit from the IS consultant, Ms. Maya, who specialized in e-learning systems as well as crisis recovery management. Ms. Maya interviewed the IT director about the recent sequence of events, basic facts about the institution's network components, and types of hardware/software comprising the e-learning system. The following day, Ms. Maya submitted a proposal to Mrs. Rodriguez that included details about the scope of a proposed audit, a general outline of the proposed audit process, and a projected timetable as well as a projected report about the network audit and status of the e-learning system. Several days following KU's cyber attack, Ms. Maya was invited to perform the security audit.

During the audit phase that lasted a week, Ms. Maya visited KU's campus several times. Some of her activities included:

* Interviews of numerous personnel from KU's IT department and faculty members who have used the e-learning system as part of forensic computing. Also, interview Mrs. Rodriguez about past and present incidents with employees related to negative performance, low morale, or other employee behavioral issues.

* Visit to KU's server farm in order to observe the network physical space, review relevant manuals, and technology-related documents provided by Mrs. Rodriguez, and perform some tests on the server hosting the e-learning system application.

* Perform a security audit on the server hosting the e-learning system application.

* Create a comprehensive report about the security audit outcomes.

* Create a two-phase comprehensive action plan and recommendations for further action based on two criteria: (a) mission-critical issues, and (b) non-mission-critical issues.

The E-Learning Security Audit Process

Goan (1999) discussed various issues related to cyber attack processes. He provided a set of recommendations which were followed in this audit process. He advocated the use of audit trains in which logs of system activities are reviewed. Additional audit mechanisms that Goan (1999) recommended include monitoring operating system commands: "Looking for hidden processes, checking log files, and testing for known backdoor passwords are among the multitudes of manual techniques that system administrators may engage in via available system commands" (p. 50). Sandhu and Samarati (1996) also proposed an audit methodology similar to the one proposed by Goan (1999) that includes collection of data about the system's activities to find traces of the intruder or perpetrator. Furthermore, Goan (1999) maintained that "evidence must be gathered and analyzed in a timely fashion so as to improve the chances of detecting an intrusion before significant damage is done or before the trail left by the intruder becomes cold" (p. 50). This recommendation is effective in enabling early detection of cyber threats before damage is inflicted, or before a threat materializes as an attack. Oftentimes the cyber-attacker may survey the network over a period of time before setting up a malicious action (Hamin, 2000). Therefore, the audit methodology employed in this case also included collecting data about the system activities and analyses following the methodologies proposed by Goan (1999) as well as Sandhu and Samarati (1996).

The audit performed by Ms. Maya attempted to uncover the attacker's activities after the fact. As in this case, cyber attack audit is often used to provide legal evidence to the court system (Hamin, 2000). Consequently, cyber attack audit mechanisms can be utilized forensically in order to apply severe penalties to criminals, rather than as a preventative measure (Hamin, 2000; Schneier & Kelsey, 1999). In line with the recommendations provided by Goan (1999) as well as Sandhu and Samarati (1996), a number of system tools, log files (event logs) and access control mechanisms were reviewed on the server hosting the e-learning system. The findings were reported to Mrs. Rodriguez and Dr. Lopez.

The Audit Results

The security audit findings and the two recommended action plans were presented by Ms. Maya, the IS consultant, to KU's president, Dr. Lopez, and KU's IT director, Mrs. Rodriguez, about two weeks following the discovery of a cyber attack against KU's e-learning system. During an interview with Mrs. Rodriguez, it was revealed that the network administrator had been dismissed a few weeks prior to the cyber attack. Consequently, Mrs. Rodriguez was filling in the network administrator position. Not having had formal training in server and network administration, Mrs. Rodriguez did not maintain the current functions of the network. Although the former network administrator, Mr. Perez, had provided the administrator account usernames and passwords to Mrs. Rodriguez, no effort had been made to remove them from the systems-to change passwords or alter access permissions on the systems. Neither the server nor the network was protected by a firewall mechanism. The server farm did not appear to have a physical security system to its entrance. Servers were not securely attached to a server rack and server screens were not systemically locked down.

The server hosting the e-learning system application appeared to be unlocked on the system level. The http server application, Microsoft's Internet Information Server (MS-IIS), appeared intact. The server operating system was functioning and appeared to be intact as well. During the assessment of the e-learning server, Ms. Maya was able to log in using the "admin" information provided by Mrs. Rodriguez, which was the same information as used by the former network administrator, Mr. Perez. It appeared that the e-learning system application had been uninstalled from the server (on the C drive) remotely. The whole C drive had only 2GB disk space, while three other partitions of the hard drive (F, G, and H) were found empty with 1GB of free space on the F drive and 2GB of free space on the G and H drives. There were backups of only two of the 84 courses, dating back six weeks, according to Mrs. Rodriguez. It appears that there was a tape backup software installed on the server, but no scheduled backup was set. There were records of several previous manual backups done up to a few days before Mr. Perez left KU.

Based on the account of Mrs. Rodriguez, there were approximately 84 courses using the e-learning system. Additionally, 42 faculty members were regularly using the e-learning system. It was unknown how many students were enrolled in these courses or had access to the e-learning system; however, that information could be retrieved from the student information system that was running on another server and had not been attacked. The e-learning system application's centralized user database was fully corrupted on the 8989 port, and could not be recovered. Additional observations included the server settings on port 8989 that were not configured properly and the administrator e-mail for errors, which was not configured at all. There was no license key set for the e-learning system on the existing server. Also, there was no virus scan or net shield on the server. It appears that there was no uninterrupted power supply (UPS) system on the server in case the power was to shut down.

An inspection of the server system log files showed numerous entries for the "admin" account logging remotely via the Internet. The log files also confirmed the suspicion that the user of the "admin" account had uninstalled the e-learning system application remotely and a time stamp for this activity was present in the log files. A trace of the IP number was performed to the source perpetrator who used the "admin" user. Based on this information, it was concluded that Mr. Perez, the former network administrator, was associated with the intentional cyber attack on KU's e-learning system.

Following a massive search by Ms. Maya and the two technicians in KU's IT department, several tapes of manual backups were found. Some of the backup tapes included specific backups of the e-learning system performed by Mr. Perez several weeks before his departure from KU. It appeared that these tapes included backups of the 84 online courses lost during the cyber attack. However, these backups had been done about three weeks prior to the day of the cyber attack. As such, if restored properly on a new e-learning system, three weeks' worth of academic work (from the date of the backup to the date of the cyber attack) would be lost, aside from the delays and slowing of student productivity during the two weeks of the security assessment and recovery.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIzATION

Can KU Save the Term?

Based on the security audit and development of the audit outcomes report it was evident that KU was challenged to bring the e-learning program back on track. During a meeting with KU's president, Dr. Lopez, and KU's IT director, Mrs. Rodriguez, Ms. Maya expressed some reservations on KU's ability to rebound quickly from this incident. She noted that it might take some time to develop an action plan in order to reinstate the e-learning system. Additionally, Ms. Maya, noted that it may take longer to order new equipment, receive it, install it, and bring it up to a production level. Moreover, the backups that were found for the e-learning courses could be restorable. However, these backup copies were several weeks old and would require additional time to restore. As such, KU was facing major challenges as part of their recovery process. What are the different action plans Ms. Maya can propose to help KU recover the e-learning system? What actions will be needed in the short run and what actions will be needed in the long run to help KU recover? Will they be able to save the current academic term?

Will KU Reorganize the IT Department?

It appears that KU's IT department currently may lack the knowledge and skills needed to operate this department. Although understaffing of universities' IT departments appears to be a major issue for small and medium higher educational institutions (Ross, Tyran, Auer, Junell, & Williams, 2005), KU's current situation is not limited to staff shortage only. KU's president, Dr. Lopez, noted that a reorganization of their university's IT department is indispensable. However, given the long history of KU's IT director, Mrs. Rodriguez and her dedication to work, reorganization of the department may bring some new challenges both for Mrs. Rodriguez and Dr. Lopez. Additionally, Dr. Lopez does believe that Mrs. Rodriguez is a trusted and devoted employee. However, evidently her ability and skills to serve in the capacity of overseeing KU's whole IT operation may be questionable. Moreover, the overall reputation of KU's IT department was drastically eroded over the course of this incident. Furthermore, faculty members and students were discussing other potential failures. Concerns about privacy of students' records were conveyed by the faculty senate to the president. Will KU's president, Dr. Lopez, be able to reorganize the IT department without losing a trusted and devoted individual such as Mrs. Rodriguez? What policies and procedural changes will KU's IT department need to undertake as a result of this incident? Will this incident impact other KU's departments? Should KU file charges or seek legal actions against the former employee that conducted these acts?

The Lessons Learned

This case illustrates the importance of proper policies and procedures as well as proper IT knowledge by key individuals in the IT department of small universities. Moreover, although most attacks reported in the U.S. are performed by insiders, most of the security attention has been given in previous literature to attacks performed by outside perpetrators. This case addresses the issue of insider cyber attacks by providing some theoretical background on the term including clarification of the term "insider attacker." This case also highlights the need for formal policies and procedures in the IT department. In order to avoid such devastating consequences, IT departments should have clear policies and procedures (e.g., ones provided by CERT.org or US-CERT.gov) for various threats as well as for attack types.

Finally, this case supports the need for academic institutions to engage in creating proactive security safeguards for e-learning systems. Literature already noted that academic institutions should develop strategies to overcome challenges unique to e-learning systems (Zhang et al., 2004). However, very few institutions actually do so due to various challenges. One of these challenges relates to the limited security of e-learning systems resulting from untrained IT personnel in academic institutions, as seen in this case study. Another challenge related to the limited security of such systems is the tight budget under which IT departments of some academic institutions operate. Often, academic institutions are "too busy handling day-to-day IT operations to devote [adequate] resources to disaster planning" (Ross et al., 2005, p. 47). Moreover, lack of proper funding to academic institutions' IT departments has been causing IT directors to cut down on the number of qualified employees, that is, reduce overall staff, or hire unqualified employees. Levy and Ramim (2004) proposed eight key elements that are needed for successful e-learning programs. Three of these key elements are budget and funding, a high quality support and development team, as well as policies and procedures (Levy & Ramim, 2004). As this case study demonstrates, the consequences of limited IT knowledge combined with a lack of proper policies and procedures for IT-related issues such as employee discharge can be devastating to small academic institutions. Nevertheless, academic institutions should be open to embracing changes related to their current e-learning system's security strategy even though they are renowned for their resistance to IT changes (Chae & Poole, 2005; Wang, & Paper, 2005).

ACKNOWLEDGMENTS

The authors would like to thank the editor-in-chief, Dr. Mehdi Khosrow-Pour, the accepting associate editor Dr. Ira Yermish, and the four anonymous referees for their careful review, constructive comments, and valuable suggestions.

Footnote

ENDNOTES

1 The name of the university discussed in this case is concealed due to the sensitivity of the issues addressed. A fictitious name is used.

2 Names of specific individuals discussed in this case are concealed due to the sensitivity of the issues addressed. Fictitious names are used.

References

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AuthorAffiliation

Michelle Ramim, Nova Southeastern University, USA

Yair Levy, Nova Southeastern University, USA

AuthorAffiliation

Michelle Ramim is an adjunct professor at the Huizenga School of Business at Nova Southeastern University teaching MIS courses. She earned her bachelor's degree from Barry University in Miami, Florida and received her Executive MBA from Florida International University. Ms. Ramim is currently finishing her PhD in information systems at Nova Southeastern University. In the past few years, she has been teaching varieties of on-campus, hybrid, and online management as well as MIS courses in several local universities. She is also an MIS consultant helping corporations and educational institutions on diverse information system implementations issues. Her current research interests include information systems success, online learning systems, e-learning systems security, and academic misconduct in e-learning environments. She has published in several conference proceedings, an invited book chapter, and encyclopedias. She served as a co-chair of the education track for the IEEE SoutheastCon 2005 conference. Ms. Ramim has been serving as a referee research reviewer for several national and international scientific conference proceedings and MIS textbooks. She is a frequent speaker at national and international meetings on management information systems and online learning topics.

Dr. Yair Levy is an assistant professor of management information systems (MIS) at the Graduate School of Computer and Information Sciences at Nova Southeastern University. Prior to joining the school, Dr. Levy was instructor and director of online learning at the College of Business Administration at Florida International University. During the mid to late 1990s, Dr. Levy assisted NASA to develop e-learning platforms as well as manage Internet and web infrastructures. He earned his bachelor's degree in aerospace engineering from the Technion (Israel Institute of Technology). He received his MBA with MIS concentration and PhD in management information

Subject: Internet crime; Online instruction; Computer security; Information systems; Colleges & universities; Systems management; Studies

Location: United States--US

Classification: 5140: Security management; 8306: Schools and educational services; 9130: Experiment/theoretical treatment; 9190: United States; 5220: Information technology management

Publication title: Journal of Cases on Information Technology

Volume: 8

Issue: 4

Pages: 24-34

Number of pages: 11

Publication year: 2006

Publication date: Oct-Dec 2006

Year: 2006

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Diagrams References

ProQuest document ID: 198718613

Document URL: http://search.proquest.com/docview/198718613?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 88 of 100

Developing a Telecommunication Operation Support Systems (OSS): The Impact of a Change in Network Technology

Author: Williams, James G; Olsen, Kai A

ProQuest document link

Abstract:

The Telecommunications Act of 1996 opened competition in the telecommunications market in the U.S. and forced the incumbent telecommunications companies to open both their physical and logical infrastructure for Competitive Local Exchange Carriers (CLECs). In this case study we focus on the problems that face a CLEC with regard to designing an information system and getting a back office system, called an Operations Support Systems (OSS), operational in a highly competitive, complex, fast-paced market in a compressed time frame when a change in a critical telecommunications network component, namely the central office switch, is made after 75% of the system implementation was completed. This case deals with the factors that led to this change in central office switches, its impact on the IT department, its impact on the company, and the alternatives considered by the IT department as possible solutions to the many problems created by this change. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: business process planning; implementation and management; information resources management; information system design; information systems; IS integration; IS risk management; IS strategic planning; IT influence; operational support systems; organizational culture; software development; telecommunications and networking

ORGANIZATIONAL BACKGROUND

Starting in the 1970s, there have been many deregulation efforts in many sectors of the U.S. economy as well as internationally. The basic objectives have been to increase competition, improve service, and lower prices (Perez, 1994).

In the telecommunications sector, an abundance of new firms have emerged since the Telecommunications Act of 1996, both to provide new services such as data networks and wireless, but also to compete with established wire line telephone services. While deregulation opened the telecommunications sector for competition in these areas, many of the new services were made possible by the advent of new technologies: wireless services, broadband on a twisted wire pair (DSL), optical fiber, digital switchboards, the Internet and the Web standards. In many cases, the new entrants (CLECS) were the first to apply these newer technologies.

In the telecommunications sector, the Telecommunications Act of 1996 opened up competition for local voice and data services. The incumbents in the U.S., the Regional Bell Operating Companies (RBOC) called Incumbent Local Exchange Carriers (ILECs), were forced to lease infrastructure to the new entrants, namely, Competitive Local Exchange Carriers (CLECs). Many CLECs managed to get their business and associated networks installed and running in a remarkably short period of time. However, as Martin F. McDermott discusses in his book CLEC (McDermott, 2002), problems occurred primarily in other areas. One area that caused major problems was operations support systems (OSS) and its associated provisioning and billing related functions.

Thus, by 1999, there were political rulings, court rulings, and FCC orders that laid a foundation for competition in the local exchange (CLEC) telecommunications sector in the U.S. This was a go-ahead signal for many new companies. By 2000, there were more than 700 CLECs. Some of these were sales only companies (Total Resale) and owned no infrastructure but used the ILEC infrastructure to sell telecommunications services using different market plans and lower prices since the ILECS had to sell services to the CLECS at a discounted (wholesale) price. Other CLECs were facility based and developed a network and switching infrastructure; in many cases using new types of equipment and technologies. For example, they used DSL (digital subscriber line) to provide both data and phone services on the standard local loop (2-wire pair).

Broadstreet Communications, Inc., an entrant into the facilities based CLEC arena in February, 2000, was formed by eight individuals who had experience working for ILECS, CLECS, cable companies, or teaching and consulting for the telecommunications industry. The founders determined that there was a reasonable market for combined voice and data services for small and medium sized businesses over broadband facilities using DSL technology and formulated a business plan based on this technology as a foundation for the company. Small and medium sized businesses were defined as having between 1 and 100 employees. Based on the business plan, the founders were able to acquire 62 million dollars in venture capital from 3 different venture capitalist companies. In addition, Lucent Technologies provided $120 million dollars in financing for a total of $182 million dollars of available capital. The company was headquartered in an industrial park about 30 miles southeast of Pittsburgh, Pennsylvania and established its service area as the mid-Atlantic states of Pennsylvania, Maryland, and Virginia, as well as Washington, DC.

A major part of the business plan was the utilization of information technology to contain costs and provide a high level of service to internal users as well as customers. This was the ultimate goal of the information system design but with the need to remain within the boundaries of the business plan. The difficulties of building an information system that would integrate all aspects of the highly complex telecommunications industry are well known but the task becomes even more difficult when, after 9 months of system development on a 12 month completion schedule, a major change is made in the most critical component of the telecommunications network, namely the central office switch. The impact of this change in network components is the focus of this case study and includes the technological, organizational, managerial, industry, and economic issues that all interact in making system design decisions when a major change occurs in the environment that impacts many of the originally envisioned system requirements. This includes issues related to hardware, system software, application software, networking, scalability, reliability, buy vs. make decisions, requirements engineering, Flow through Provisioning, interfaces with the public telephone network (PSTN), reciprocal relationships with other telephone companies, and the difficulties associated with adopting new packet switched technologies for voice.

Products/Services Provided

Broadstreet Communications, Inc. was a telecommunications company offering voice and data services to small and medium sized businesses employing packet switched, broadband, digital subscriber line (DSL) technologies. This technology offered significant cost and service advantages over the traditional analog loops and leased lines traditionally used to provide voice and data services to a customer's premise.

BroadStreet provided an integrated suite of business communications services including high-speed data, local and long distance voice, voice messaging, e-mail, Internet, as well as Web and application hosting. Through the development of a next generation network, BroadStreet was among the first service providers to deliver voice and data solutions over an Internet Protocol (IP) network, and leverage digital subscriber line (DSL) technologies for last mile connectivity to customers. Local and long distance voice services included all the services provided by a commercial central office switch such as caller ID, call forwarding, conference calling, voice messaging, E911, 800 numbers, and so forth. Data services included Local Area Network (LAN) services, Internet access, e-mail, Web site hosting, and application hosting.

Management Structure

Broadstreet Communications had a fairly flat but hierarchical organizational structure as shown in Figure 1.

The board of directors was composed of representatives from the Venture Capitalist groups (3) and 2 members of Broadstreet Communications, namely, the CEO and president, plus one outside members agreed upon by those members. The CEO was also the Chairman of the Board of Directors. The two anomalies in the structure were that the CIO and the VP of Sales had junior VPs for information systems and regional sales offices based on the demands of the individuals who fulfilled those roles.

Financial Status

At startup, Broadstreet Communications had $62 million dollars of venture capital from three different venture capital firms and $120 million dollars of financing from Lucent Technologies. The original business plan called for Broadstreet to begin delivering services and realizing revenue after one year of development. But, it took Broadstreet approximately 18 months to become fully operational and during that time it operated on the venture capital and finance funding provided with no revenue from products or services. After 18 months of developing an infrastructure of personnel, sales offices, networks, and information systems; Broadstreet began to offer products and services to small and medium sized business customers. This began in the Pittsburgh, Pennsylvania area and then expanded to Baltimore, Maryland; Washington, DC; Richmond, Virginia; and Norfolk, Virginia. Within 7 months of offering services to customers, Broadstreet had approximately 1,400 customers with revenues of slightly over $1 million per month. Broadstreet was growing at approximately 20% per month. Based on covenants agreed to between Lucent Technologies and Broadstreet, as well as operating costs, the company needed to have revenues of approximately $2 million per month to cover costs. It was quite clear that had Broadstreet started offering services and realizing revenue 4 to 6 months earlier, the finance covenants and operating costs could have been met. Had the Back-office OSS system been operational 4 to 6 months earlier, Broadstreet would have survived the economic downturn that began in 2000, but the delay caused by the introduction of a new central office switch did not make this possible. It was late in 2001 when the "dot com" bust and the telecom sector's severe downturn caused Lucent Technologies to terminate the financing agreement based on the covenants, and one of the venture capitalist that suffered large losses in the "dot com" bust also decided to terminate their investment. This made operating impossible due the lack of resources and Broadstreet made a decision to close the business after approximately 2 1⁄2 years. At that point in time Broadstreet had over 180 employees as well as a number of subcontractors who were dependent upon BroadStreet for their livelihood.

Strategic Planning

In early 1999, the VP of operations for Adelphia Business Solutions decided that the Telecom Act of 1996, the advent of DSL technologies, and the telecommunications needs of small and medium sized businesses made the telecommunications market an attractive investment with large revenue opportunities (New Paradigm Resources Group, Inc., 2002). He contacted individuals who had special expertise in the areas of telecommunications technologies and networking, sales, marketing, finance and accounting, human resources, and information systems and technologies (IT). He asked the IT expert to gather data related to potential customers in major cities along the east coast of the U.S. as well as data on ILECS and other CLECs serving the same region. This data was used to determine the potential revenue for offering telecommunications services. At a meeting convened by this individual, all of the recruited individuals expressed an interest in leaving their current positions and forming a startup company to offer voice and data services over DSL to small and medium sized businesses

Each individual in this group was assigned the task of documenting a plan for getting their area of responsibility operational. This included the activities that needed to be accomplished, the schedule for completing the activities, the resources required to become operational, the cost of operating, and policies and procedures that would be followed in their area of responsibility. The marketing individual was tasked with defining the products and services, market service areas, the expected number of customers, and the estimated revenue. The individual in charge of sales was tasked with determining where sales offices would be located, the staffing required for each office, the sales methods to be used, and the policies and procedures from the time a sales order was acquired, to provisioning the service, to billing, and finally to customer follow-up. The telecommunications technology expert was tasked with determining what technologies would be used to offer the DSL service and interface with the Public Switched Telephone Network, how these technologies would be networked together, how the network would be monitored and controlled, how the products and services would be provisioned after a sale, and how repairs would be made when an outage occurred. The Human Resources expert was charged with determining the policies and procedures for managing the personnel issues related to hiring, termination, benefits, payroll, expense reimbursement, and work place safety and health issues. The finance and accounting expert was tasked with exploring sources of revenue including venture capitalists, bank loans, and other financing options, as well as establishing an accounting system with appropriate policies and procedures. The information systems expert was tasked with developing a plan for what information technologies were required to support and integrate all the other plans. This, of course, meant that the IT plan could not be fully formulated until all the other plans had been developed and required working closely with all the other groups to assess needs and offer advice as to what technologies could be used to support their areas. While others were getting started on their plans, the IT expert began to examine what operations support systems other CLECs and ILECS had either developed or acquired from software vendors. A major effort was to evaluate how competitors were offering converged local voice, long distance voice, data, and Internet services (Emre, 2001).

One of the strategic decisions made by the IT expert was to minimize the number of hardware, software, and network vendors involved and attempt to make sure that the interfaces between information system components were at the database level and minimize application program interfaces (APIs) at the program module level. This would provide flexibility in acquiring the best of breed or developing applications in-house, since the data needed by an application was available at the database level. Another strategic decision was to only use technologies that adhered to standards such as SQL compliant databases, TCP/IP protocols, telecommunications industry standard formats, and so forth. Outsourcing was also considered and rejected as an approach to getting the OSS functional, (Bhandari & Mania, 2005).

The decision to buy or build applications was decided by several factors:

1. The amount of time available to build an application that was known and controlled vs. the amount of time to install, configure, and learn a purchased application.

2. The level of knowledge required to build an application such as billing that was reliable and stable vs. the amount of time to install, configure, and learn how to control a purchased application.

3. The resources required to build, operate, and maintain an application vs. the resources required to purchase, install, configure, operate, and maintain a purchased application.

4. Whether the functional capabilities as determined by the organization could be fulfilled by a purchased application or whether the application needed to be built with desired customized features.

Organizational Culture

The organization had a culture where micro-management was typically not done and where individuals were valued for their capabilities and the results produced. Of course, there were exceptions. The CEO was a charismatic person who liked people but also valued hard work and honesty. He was a good motivational leader and knew all aspects of the telecommunications business better than anyone else in the organization. His charisma was demonstrated by getting personnel who were well established in their careers with established companies to take a career risk by resigning their position and joining a startup company. He also had the ability to boost employee morale when situations became difficult by giving highly motivational speeches and offering sound advice and additional resources where needed. The turnover in personnel was nearly zero. The CEO had many years of experience in the telecommunications business and had started two other telecommunications companies before joining Adelphia Cable's Business Solutions division after one of the companies he started was purchased by Adelphia Cable. Broadstreet had an executive committee that met on a weekly basis and made recommendations regarding resource allocations, policies and procedures, as well as business strategies.

The organization was driven by the sales and marketing people who were longtime friends of the CEO. This caused many IT decisions to be based on look and feel and resulted, in some cases, of selecting form over functionality. For example, the president spent over $400,000 on furniture and decorating the headquarters office so that customers would be impressed when they visited the company. Of course, this almost never happens with telephone companies. Another "form over functionality" decision that cost the IT department time and money was the president's decision to have the format of the customer bill changed so that it was more aesthetically pleasing since he viewed this as an important medium of communication from the company to the customer. Since the billing system was a purchased system, the vendor had to be contracted to make the changes. This took 60 days and $200,000. One other example of "form over functionality" was that the VP for marketing was determined to present the DSL technology model in sales presentations, service/product offerings, costing, and billing so as to impress the customers with this new broadband technology utilizing the standard telephone line. Nearly all the billing systems on the market had an underlying model of one line, one device (telephone, fax, PC) based on the old technology, and to make any of the billing systems accommodate the one line, multiple devices model of the DSL technology required either having the vendors modify their systems or finding work arounds in their models. This caused several months delay and nearly a million dollars in professional service charges from the billing system vendor.

Overall, the organizational environment was, on one hand, relaxed, but on the other hand, fast paced and highly stressful for task-oriented people like engineers and software developers. For example, it took over six months for marketing and sales to get the products and services defined and prices established which made order entry, flow through provisioning, and billing applications difficult to get underway by IT in a timely manner. Except for a few individuals, people cooperated with one another and strived to make the company a success. An example of the relaxed yet stressful nature of the company is that the entire headquarters staff frequently played softball on Friday afternoons but worked seven days a week, 12-16 hours a day. All employees were granted stock in the company and therefore had a vested interest in making the company successful.

Not all technology related decisions were made based on good technical criteria. For example, the central office switching technology initially selected by the Chief Technology Officer (CTO) was a new product from Lucent Technologies called a PathStar. This switch cost approximately 50% of the older, but proven, 5ESS switch used by other telephone companies. After nine months of struggling to get the PathStar switch to function correctly and reliably, Lucent decided to remove it as a central office replacement switch for the 5ESS due to lack of functionality, scalability, and reliability. After nine months, Broadstreet replaced the Pathstar switch with the 5ESS switch. The industry standard 5ESS switches were installed and functioning in approximately two months. This left Broadstreet's IT/IS department in the difficult position of having to completely reengineer, reconfigure, redesign, and rewrite software used to perform functions such as capturing call detail records for billing, controlling flow-through provisioning, performing network monitoring and control, as well as making changes to Order Entry, Sales Force Automation, inventory management, and other smaller applications.

Economic Climate

The economic climate going into 1999 appeared to be extremely good since the technology sector stocks were continuing to increase dramatically, and new technology based products and services in the e-commerce area were being created on an almost daily basis. Also, telecommunications was a critical component of nearly all the new technology products and services and was growing in demand. Thus, in 1999, it was relatively easy to get the venture capital and financing necessary to start a company, especially with the experience and charisma of the CEO and highly experienced management team. By the time all the financing agreements had been signed in early 2000, the "dot com" crisis was starting to become a reality and the telecommunications industry was a prime victim of the overvalued companies and stocks. By mid-2001, CLECS were going bankrupt at an alarming rate, but Broadstreet was gaining momentum in terms of acquiring customers and increasing revenue.

By mid-2001, the company had grown to more than 160 employees in six markets and Broadstreet had become more proficient in its internal processes and dealing with its external partners and customers. Things were looking very positive for the company, but Lucent Technologies stock was decreasing in value at an alarming rate, and one of the venture capitalist who had invested in several of the overvalued "dot com" companies had taken large losses and was under pressure to get out of the telecommunications sector. Almost simultaneously, Lucent Technologies and this venture capitalist announced that they were terminating their agreements. The other venture capitalists could not provide additional funding and refused several others who wanted to invest because these potential investors wanted too large a share of the company.

After nine months of design, development, and testing of the telecommunications network, OSS software, and other software systems, a decision was made to change the central office switch because the one initially selected could not be made to function adequately and lacked many features needed by potential customers. This became a major factor in the survival of the company. The change in central office switches caused a nine month delay as network and software system personnel reworked all systems to accommodate the new central switch with its added capabilities and features. This delay consumed financial resources without the benefit of planned income and forced Broadstreet to close its doors in late 2001 because it could not meet the finance covenant agreements with Lucent Technologies and the declining confidence the investors had in the telecommunications industry.

Setting the Stage

While the U.S. Federal Communications Commission (FCC) orders based on the Telecommunications Act of 1996 seemed reasonable enough from a CLEC's point of view, the implementation of these orders was not simple and straightforward. Telecommunications is an extremely complex business. On the plain old telephone network, customers expect to be able to pick up any phone, at any time, and call anybody, within the country or internationally, independent of which phone company they or the recipient uses. While the technical issues of this connection are most often handled by the central office switches and network routers of the incumbent telephone companies, the OSS system of the CLEC must at least handle the provisioning, 911 access, call detail record processing, network monitoring, controls, alarms, and repairs as well as billing. This is quite a complex matter as many different companies and an abundance of procedures, data exchanges, standards, service level agreements, and price policies are involved.

Billing is a critical and extremely complex part of the functionality that OSS systems must provide and CLECs must also have functionality in place for provisioning new customers (often customers that earlier were connected to an ILEC), or for de-provisioning, when they lose a customer to a competitor as well as monitoring and controlling telecommunications network components, switches, routers, circuits, and so forth. While deregulation has opened up competition, there are other regulations in place that must be followed. For example, all telephone provider companies must provide 911 (emergency) services. This includes the ability to tell the emergency facility where the caller is located. Other services, such as "caller ID" and "800 numbers" also involve the ability to access and update national databases. This would be an easy task if all the standards were in place and followed, but the standards are compromised by the incumbents and the CLEC must accommodate many different formats and processes.

To perform all these services, a CLEC needs reliable back office systems. In principle, these can be developed in-house, or be leased or bought from vendors. In practice, only the latter two alternatives are feasible if a CLEC wants to be operational in a very short period of time. One of the keys to the success of a telecommunications company that offers a range of narrow and broadband voice and data services is how effectively and efficiently the back office operations support system functions. This system has been defined as the set of hardware, software, procedures, policies, and personnel that support the following main activities:

* Network Design and Inventory

* Network Monitoring and Control

* Provisioning and Activation of Services

* Service Assurance

* Interconnection Management

* Customer Care & Billing

* Work and Workforce Management

One of the more obvious characteristics that stand out from the list presented above is the widely diverse but highly interrelated nature of these activities. But there are many details associated with of each of these functions and their relationships. Understanding the technology of telecommunications is one thing, understanding the business of telecommunications is quite another. Appendix A illustrates the technology architecture for DSL technology and Appendix B illustrates the business of telecommunications.

The "natural monopoly" of telecommunications, that is, the idea that there are advantages to having only one company, has been challenged (Perez, 1994), and the business complexity of having many companies "sharing" parts of a common infrastructure has perhaps not been fully understood.

New entrants into the telecommunications market see the potential for using new technologies to take customers from the incumbents and make huge profits. The number of CLECs that have failed show that most of those who are involved with these new companies do not understand the details of the business and consistently underestimate the cost, time, skill, and knowledge that it takes to offer and maintain a wide array of telecommunications services with an adequate Quality of Service and fulfill Service Level Agreements.

CASE DESCRIPTION

In order to design, implement and operate an OSS, it is necessary to understand not only the technology of telecommunications and the technology of information systems, but the business of telecommunications as well. This includes understanding the requirements of every technology, function, service, and product involved and incorporating these requirements into every design, development, testing, and documentation decision. One of the critical components in a telecommunications network is the central office switch because it dictates the services and associated features that can be offered, how provisioning is done, how network monitoring and control is performed, the interconnection with the PSTN, and what data is collected about each call for rating and billing purposes. When a decision was made to change the type of central office switch after 75% of the OSS has been developed, tested, and documented, it caused a major disruption to the IT implementation plan. Broadstreet Communications experienced such an event 9 months into a 12 month IT implementation schedule which caused IT to develop a new plan to evaluate what information system and associated OSS components were impacted and what measures were necessary to change its acquired and in-house developed software to be compatible with the new central office switch and the new services and features provided by the new switch that sales and marketing now wanted to offer potential customers. The issue facing IT was how to recover from such a decision and still try to meet budgetary and schedule constraints imposed by management.

Technology Concerns

In attempting to recover from a change in a critical component in the telecommunications network that not only provides services to customers and interfaces with trading partners (ILECS) but also captures critical data for billing, network monitoring, network control, and provisioning, a complete halt in current system development occurred. All components in the OSS and related systems had to be evaluated to determine what, if any, impact the new switch would have. But, of course, this change in central office switches also caused marketing, sales, engineering, help desk, and so forth to all reexamine how their functions would be impacted. The following describes some of the areas of concern related to the change in central office switches.

When a CLEC acquires a customer from an incumbent (ILEC), an exchange of information between the incumbent's OSS and the competitor's OSS must take place to order facilities. The ordering process (Local Service Request [LSR] and Access Service Request [ASR]) requires knowledge of how the telephone business operates, the business rules used by the incumbent, and the special language used by the ILEC and the industry as a whole (Garifo, 2001). For instance, when ordering a local loop, you must know the CLLI (Common Language Location Identifier) code of the central office to which the customer will be connected (Telcordia Technologies, Inc., 2000). A new switch introduces new terminology as well as new port and jack labels which are critical for the ILEC to connect a local loop to the CLECs switch.

The ordering of Unbundled Network Elements (UNE's), their installation by the incumbent, the installation of equipment at the customer's premise, disconnecting the current incumbent's service, and the testing and activation of the new service must be scheduled and monitored carefully so as not to leave a customer without any service. For example, a telephone service must provide 911 capabilities. This requires a trunk from a telephone company's local central office to a 911 center (called a PSAP-Public Safety Answering Point) and this, in turn, requires that the telephone company maintain a database of addresses where telephone lines are terminated along with the telephone number associated with each line. Since telephone numbers can be "ported" (i.e., customers can take their telephone numbers with them when they move within a region), there is a national database that must be updated with this porting information. If a customer wants an 800 number (dial free), this also requires interactions with other vendors and updating a national database. Likewise, if caller ID is desired by the customer, this requires yet another national database be updated as well. A new switch changes the flow-through provisioning components of an OSS to accommodate these features.

If a calling card service is to be offered to customers, then an agreement with the Centralized Message Distribution Service (CMDS) must be established and Call Detail Records (CDR) or billing records must be exchanged on a timely basis. Since most customers want a long distance service, interconnection arrangements must be made with the long distance carriers and if convergent billing is offered, the ability to acquire and exchange CDRs with the inter-exchange carriers (IXC or long distance-LD) is a must. Likewise, the equal access regulation requires the exchange of CARE information (Customer Account Record Exchange) to notify the LD carriers when they are losing or gaining a customer. This provisioning of services is one of the most complex components for an OSS to accommodate (Jethi, 2005) and a new switch can change the procedures and data formats necessary for this provisioning.

Although there are data exchange standards for the format of these records, every vendor has its own interpretation or use of various fields within the record which causes back office systems to have many translation software packages for transforming call detail and billing records into a format that can be processed by their own OSS. A new switch can have a different format and data element interpretation that have to be accommodated.

When a service is sold to a customer, the network devices and associated logical attributes must be installed or allocated, interconnected, configured, activated, and tested. This is the service provisioning and activation process. Any specific attributes associated with these components must also be tracked, for example, data speed, and calling features. Tracking what has been allocated to a customer and being able to trace the path from the customer premise is critical to managing and maintaining the service. A new switch can differ considerably from the previous switch in terms of components, labels, functionality, and terminology.

One of the most complex aspects of an OSS is billing. It is complex because rating calls (determining the class of call and associated billing rate) accurately can be a logical nightmare because a caller can theoretically call from anywhere in the world to anywhere in the world at anytime. The second is that the United States has divided its geographical area into LATAs (Local Access Transport Areas) over which a call is considered a long distance call. Unfortunately, LATAs cross state boundaries which make determining the type of call more difficult. Then, there are the message unit charges for local calls that extend over certain distances (zones) from the caller's central office. A call may come from a ship at sea, an airplane, a hotel, a prison, a pay phone, an educational institution, and so forth, all of which are rated differently. The billing system must not only determine what type of call was made but also what plan a customer has and how the charge must be computed, for example, was it a week day or weekend day, after 9:00 pm, over 1,000 minutes of usage, and so forth? This data is derived from the Call Detail Records (CDRs) captured at the central office switch, and a new switch may differ significantly in terms of the data it captures about calls and the format of the data as well as the procedures needed to bring this data into a billing system.

In order to configure and activate services for a customer, local loops must be acquired and installed, devices such as switches, multiplexers, routers, and customer premise interface access devices must be configured by setting device parameters to meet the attributes of the services purchased; and databases must be updated for porting numbers, 800 numbers, caller ID, 911, and so forth. For example, a last mile DSL provider of voice and data may need to access and configure the following devices to activate the service for a customer:

1. Interface Access Device (IAD) at the customer premise

2. DSL Multiplexer at the Local Service Office

3. ATM Router at the Central Office

4. Internet Router at the Central Office

5. Switch at the Central Office

6. Internet server

7. VPN server

8. Voice Mail server

Entering any local telecommunications market is not a simple thing to do, and a change in the central office switch may cause unforeseen problems (The Competitive Telecommunications Association, 2005).

Technology Components

Many of the OSS components run on systems with clustering capabilities, a database management system, and application software written in a programming language such as C or C++. The system architecture is usually client server where the desktop client uses TCP/IP over an Ethernet network. The Server CPUs are networked for high availability and reliability with multiple network connections. The network disk storage is usually RAID 5 or higher to guarantee data integrity. The database is replicated to ensure a fault tolerant data environment. A hot backup or a cluster is used to guarantee continuous operation. A disaster recovery plan and associated resources are in place. The internal network has redundant paths between remote offices and the OSS system location as well as the disaster recovery location.

Much of the OSS software commercially available does not scale, is not reliable, and is not flexible which, in turn, can cause a new company to struggle with commercial OSS software. It is important to balance what services and functions the Back-office system will provide (Tombes, 2003).

The basic system design for Broadstreet's OSS is shown in the diagram in Figure 2. It is obvious that the OSS is comprised of many different DBMSs, software packages, hardware platforms, operating systems, and networking components. The introduction of a new switch has side effects on many of these components.

Scalability and Reliability

To be successful, a telecommunications company needs to acquire customers and lots of them. The capital, circuit, and labor cost for a telecommunications company is very high and therefore the need to utilize the available capacity to produce revenue is essential for survival. The OSS, like the customer service network, must be highly reliable. The OSS must be able to scale with the business and must be available at all times. The scaling can only be accomplished by using efficient application software, database management systems, operating systems, and hardware as well as adequate network bandwidth for users of the OSS.

Management

The management of such a diverse set of technology resources and the people who design, implement, operate and use them requires a formal set of policies and procedures such as strict change control and a team of talented individuals who are not only dedicated but loyal, motivated, and able to withstand high levels of stress. The difficult management issue related to personnel is that it is very rare to find all these traits in a single individual. The management approach at Broadstreet was to have a detailed model of the systems and processes needed to design, code, test, install, implement, and operate either purchased or developed software. The management challenge was to make sure everyone involved understood the technologies, the business model, the business rules, the technology models, the policies, procedures, and to implement systems within time and budget constraints. The IT department was organized around major functionality components as shown in Figure 3.

Advisory Committee

The advisory committee was composed of representatives from each of the major components of the organization such as sales, marketing, finance, provisioning, engineering, human resources, and so forth. This committee met once a week and was provided updates on progress, asked for advice on implementation and operational issues, and helped defined requirements for functionality, interfaces, and interrelationships. There was an attempt to use sound software engineering principles based on those in publications such as Thayer (2005).

The CIO was part of an executive management committee that met each week to discuss issues, schedules, plans, and resource allocation. The CIO expressed concern with many of the delays and mid-stream changes that marketing and sales advocated since it not only caused delays, consumed unplanned-for resources, and required reworking or acquiring new software, but it also caused morale issues among the IT and engineering staff who seemed to never get anything completed. Typically, the CTO and engineering were aligned with the CIO in objecting to requested changes or lack of specificity in requirements for new features, functionality, or services. The question typically posed by these concerned individuals was: Will this change significantly to improve the service or the revenue stream? The answer was usually, "we don't know for sure but it will make us look good." For example, marketing wanted to significantly change the Web site with more graphics and animation so they could compete for an award for the most attractive Web site. The CIO objected because it would take personnel resources away from more critical software development areas such as billing, provisioning, sales force automation, and so forth. The project was approved anyway. This was a typical pattern at the management meetings.

The fact that sales personnel did not have any customers to call on meant that they had plenty of time to think up interesting data analysis, data presentation, order entry, customer care, and product and service packaging schemes which impacted many parts of the back-office system. The software was under continual enhancement and revision, which made it difficult to complete software to meet the unmet functional requirements of the originally designed OSS and information systems.

Eventually, the CIO was only invited to management meetings where there were technical issues that needed his expertise, and requests for changes, enhancements, and additional functionality were sent to him via e-mail or paper documents. The CIO then implemented an on-line service request system that not only guided the requestor through a set of questions that detailed the requirements for the requested change or enhancement but also required schedule, cost, and benefit estimates. This quickly reduced the number of requests.

When it was announced, after nine months of system development, that the current Path- Star central office switch was being replaced by the 5ESS switch, everything came to a halt, and the CIO was invited to all the management meetings once again because the central office switch impacted nearly everything. The CIO and CTO presented a plan for accommodating the new switch into the physical network and the software environment. The impact on the physical network was much less than the impact on the software since the 5ESS switch was not only a well known device but the network engineers were experienced in its installation, configuration, usage, and provisioning. That was not the case for the software engineers who now had to reexamine nine months of software development and software configurations for purchased packages. This also meant that the professional services personnel who had helped configure purchased software had to be called back.

Technology Resources and Constraints

The major constraints for overcoming the introduction of a new switch were time, budget, and finding highly competent personnel and consultants (professional service personnel) who had the interests of the organization's success as a priority rather than their own personal benefit.

Budgetary constraints placed limits on hiring more high priced personnel, equipment with capacity for the future, and software packages to perform every needed function.

Every individual in the organization had either a laptop or desktop computer. All sales personnel had laptop computers and most management personnel had both a laptop and a desktop computer. Each of the six regional offices had two servers, namely, a primary and a backup, with a DS1 channel back to the headquarters in Pittsburgh. Headquarters had two servers for the billing, provisioning, and ILEC interface systems and two servers for network monitoring and diagnosis. There were also two systems running purchasing, accounting, human resources and other business functions, two systems running order entry, customer relations, marketing, helpdesk, inventory control, GIS, Web Site, and interfaces to the provisioning, order management, billing, trading partners (for ordering lines, 800 numbers, etc.), and 911 centers and one e-mail server. The servers were all connected via an Ethernet network using Ethernet switches as well as routers for the regional offices. The Internet connection was a DS1 line connected via a router to the internal network and was available to every user.

The OSS and other application software was a combination of purchased packages and in-house developed packages. There were four different database management systems involved with the purchased software. The constraints associated with purchased software are simply those of control over how they function and the interfaces they provide. Some software systems provide configuration model parameters but once they are established and used to initialize the system, they cannot be easily changed. In many cases, the configuration must be done by professional services personnel from the provider since they provide little or no documentation on how to configure the software.

Since more full-time personnel could not be hired, the IT department had to approach the new switch problem using existing personnel, professional service personnel from the providers of the purchased software, and some contract programmers. The problem with contract programmers is that they typically have a long learning curve concerning the application's policies, procedures, and business rules. Professional service personnel also have some learning time about the particular configuration parameters used at an installation. Their services are also quite expensive and the budget for this new development was not extensive.

Organizational Concerns

The concerns that the organization had as the OSS was developed and put into operation were inadequate documentation, failure to follow standards, reliability, stability, configuration limitations, limited integration of components, and adequate functionality to provide flow-through provisioning. Of course, the integrity of data and the security aspects of the OSS were major concerns as well. Hiring experienced IT personnel in adequate numbers who had a wide range of skills was a primary concern. The most personnel IT ever had during the two and a half years of Broadstreet's existence was nine people serving over 180 personnel at six locations. This was due to budgetary constraints as well as the inability to find highly qualified, experienced, and motivated personnel.

With the introduction of a new switch, it was necessary to evaluate its impact on all the Back-office (OSS) software already developed as well as the physical network and determine what changes were necessary. It also was necessary to determine the impact on software not yet completely developed. This caused major concerns among everyone including Broadstreet personnel, the venture capitalists, and the financier, Lucent Technologies.

The major concerns revolved around resources and schedules. It was quite clear that the 12 months originally estimated in the business plan to start selling services to customers was never going to be met. The question was whether the resources that remained would be enough to allow Broadstreet to start realizing revenue, not only to meet its financial covenants, but to remain a viable company capable of meeting its operating cost obligations. It was estimated by the CTO and his network engineers that once the 5ESS switches were on-site it would take about 30-45 days to get them installed and configured and about 30-45 days before the 5ESS switches could be delivered to Broadstreet.

The software effort was estimated to take much longer than the switch installations since marketing and sales now had a much wider array of services than the PathStar switch offered, and they wanted to incorporate them into the products and services offered. Marketing and sales estimated it would take about 30 days to redesign their service and product packages. The CIO estimated it would take about 30-45 days to evaluate the impact the new switch had on existing purchased and developed software and another 10 days to evaluate the impact of the new switch on the redesign of software not yet developed. The CIO would then be in a position to provide a time and resources estimate for changing the existing software and completing the development of the unfinished software. Asked to give a ballpark estimate of time, the CIO estimated it would take another four to six months to complete the Back-office system if adequate resources were available.

Challenges/Problems Facing the Organization

The major challenge facing Broadstreet at the point when a new switch was introduced was the impact it had on operational functionality such as processing orders; provisioning customers; installing devices; configuring devices and software; testing devices and software; activating devices and software; collecting and processing call detail records; calculating and sending bills; monitoring and controlling the physical networks; answering help desk calls; paying personnel; paying taxes; paying for purchases; reconciling reciprocal billing with trading partners; distributing 911 address changes; acquiring 800 numbers; acquiring and managing telephone numbers; managing and distributing IP addresses; as well as acquiring, processing, and presenting sales and marketing data.

Another problem that became evident early in the development of the OSS was that the purchased software configured by the vendor's professional service personnel did not always work correctly because the model that the software was built around was not based on DSL technology where 1 line is used for multiple services, for example Voice and Data but was based on the typical 1 line 1 service model. This, of course, caused a number of last minute changes to make it work correctly. This, in turn, affected many other software packages that either used the data or that provided data feeds to such a package. The vendor, of course, recommended that more professional service personnel needed to be brought on board that had special, niche expertise needed to configure the system. The concern was whether the underlying models for the OSS components were configured incorrectly and were producing incorrect data and interfaces to other system components.

In evaluating the OSS purchased software it was discovered that the product/system documentation was poorly done, was incorrect in many instances, and outdated. Broadstreet had sent IT personnel to training classes on all the purchased software so that the IT personnel who attended the classes would be able to support, maintain, and change the configuration of the system. It was discovered that the training, for the most part, was superficial and introductory. In fact, the trainers, in some cases, were not technically trained but simply followed a lesson plan with canned examples that teach the students how to navigate menus and complete data fields for the simplest cases. The concern was that reliance on a vendor's professional service personnel was not only expensive but unreliable.

Since the OSS must interface with many external systems for exchanging Call Detail Records, 911 data, 800 numbers, porting numbers, SS7 services, and so forth, it was important that standards were followed so that data exchanges occurred flawlessly. It became evident during the evaluation for the new switch that participants in the industry compromise the standards to meet their legacy systems or for other unexplained reasons. The concern was whether billing data, customer data, 911 and other crucial data were being transferred correctly so as to avoid loss of service or liability issues.

The ability to account for every CDR in the billing process without losing potential revenue is critical. Billing is complex because all calls must be typed/classed and rated correctly and unfortunately there are hundreds of call types. The concern was whether or not call records for the new switch were formatted and data elements defined in the same way as the PathStar switch so that calls could be rated and billed correctly.

The new 5ESS switch had a much greater capacity than the PathStar switch. The OSS, like the customer service network, must be highly reliable. The OSS must be able to scale with the business and must be available at all times. The concern was whether or not the systems would scale with the capacity of the new switch.

The requirement for a Web site that allows marketing and sales to advertise products and services, provide customer care, take orders on-line, track the status of orders, track the status of installation, and allows human resources to provide information to employees and prospective employees was also a major initiative for the company. Marketing wanted changes to the Web site almost every other day to incorporate a great new marketing idea, which consumed valuable resources that were needed for more problem and operationally oriented functions. The concern was that the IT resources consumed by Marketing and Sales reduced the IT resources available for other aspects of the OSS that were in need of changes.

Hiring the right kind of IT personnel and enough of them was a major concern of the organization. Because of limited budget, there were not enough resources to hire another 5-10 personnel and because of the need to have personnel with multiple areas of expertise and with the appropriate experience, work ethic and motivation, it was difficult to find personnel to complete the needed work on the OSS.

Of course, the overwhelming challenge was to recover from the change in the central office switches so that Broadstreet could begin acquiring customers, realizing revenue, and meeting its covenants with its funding partners and financier.

Possible IT Options

The options identified by the IT department when a decision was made to replace all the central office switches with a different switch after 75% of the system had been developed and implemented were:

1. Make a case to management for keeping the existing central switches for a period of time and only installing the new switches in new central offices, thus preserving the back-office systems that had already been developed and would permit acquiring customers, offering services, and realizing income from the existing central offices while performing a redesign, reconfiguration, and rewrite of systems for the new switch which would not only be placed in new central offices but eventually replace the old switches

2. Evaluate the impact that the new switch would have on the existing back-office system and develop a new plan for retrofitting the back-office systems already developed by either:

a. using only existing IT resources at Broadstreet

b. using existing IT resources plus professional services from vendors

c. using existing IT resources and vendor professional services personnel plus outsourcing work to a professional programming services company

d. outsource the entire back-office application to an Application Service Provider (ASP) firm that supports DSL network technology and the new switch technology until the IT department can redesign, reconfigure, rewrite, and implement a back-office system

e. partner with an ILEC or other CLEC who has a back-office system using the new switch (5ESS) (which nearly all of them have) while the IT department can redesign, reconfigure, rewrite, and implement a back-office system

References

REFERENCES

Bhandari, N., & Mania, V. (2005). Business process outsourcing for telecom service providers. Retrieved April 29, 2006, from http://www.dmreview.com/whitepaper/WID527.pdf

Emre, O. (2001). Delivering converged services. Retrieved April 29, 2006, from http://infocus. telephonyonline.com/ar/telecom_delivering_converged_services/index.htm

Garifo, C. (2001). A pain in the ASOG: Managing changes in ordering guidelines presents challenges. Retrieved April 29, 2006, from http://www.xchangemag.com/articles/171back1. html

Jethi, R. (2005). Getting what you wish for: New OSS keeps Northpoint on top Of DSL demand. Retrieved April 29, 2006, from http://www.xchangemag.com/articles/0a1sec8.html

McDermott, M. F. (2002). CLEC: An insiders look at the rise and fall of competition in the local exchange competition. Rockport, ME: Penobscot Press.

New Paradigm Resources Group, Inc. (2002). Measuring the economic impact of the Telecommunications Act of 1996: Telecommunication capital expenditures. Chicago: Author.

Perez, F. (1994). The case for a deregulated free market telecommunications industry. IEEE Communications Magazine, 32(12), 63-70.

Telcordia Technologies, Inc. (2000). COMMON LANGUAGE(R) general codes-telecommunications service providers IAC Codes, exchange carrier names, company codes - Telcordia and region number: BR-751-100-112. Morristown, NJ: Author.

Thayer, R.H. (2005). Software engineering project management (2nd ed.). Alamitos, CA: IEEE Computer Society Press.

The Competitive Telecommunications Association. (2005). Entering the local market: A primer for competitors. Retrieved April 29, 2006, from http://www.comptelascent.org/publicpolicy/ position-papers/documents/CLECPrimerReport.pdf

Tombes, J. (2003, October). Cooking up OSS: Balancing your Back-office diet. Communications Technology. Retrieved May 8, 2006, from http://www.ct-magazine.com/archives/ ct/1003/1003_oss.html

AuthorAffiliation

James G. Williams, University of Pittsburgh, USA

Kai A. Olsen, Molde College and University of Bergen, Norway

AuthorAffiliation

James G. Williams is professor emeritus in the School of Information Sciences at the University of Pittsburgh and an adjunct professor at Molde College in Norway and Siam University in Thailand. He was the CIO of Broadstreet Communications, Inc.; a broadband telecommunications company from 1999-2002. He is also president of Automated Systems Research and Development, Inc., which develops software systems for hospitals, courts of law, manufacturers, libraries, educational institutions, and retailers. Dr. Williams has authored or co-authored eight books and nearly 100 journal articles and conference proceedings.

Kai A. Olsen is a professor of Informatics (Computing Science) at Molde College and at the University of Bergen, Norway. He is an adjunct professor at the School of Information Sciences, University of Pittsburgh. His main research interests are user interfaces, man-machine communication, and logistic systems. He has been a pioneer in developing software systems for PCs, information systems for primary health care, and systems for visualization. He acts as a consultant for Norwegian and U.S. organizations. He is the author of a recent book for Scarecrow Press, The Internet, the Web and eBusiness: Formalizing Applications for the Real World.

Appendix

(ProQuest Information and Learning: Appendix omitted.)

Subject: Telecommunications industry; Competitive local exchange carriers; Information systems; Operation support systems; Systems integration; Telecommunications Act 1996-US; Studies

Location: United States--US

Classification: 8330: Broadcasting & telecommunications industry; 5240: Software & systems; 4320: Legislation; 9190: United States; 9130: Experiment/theoretical treatment

Publication title: Journal of Cases on Information Technology

Volume: 8

Issue: 4

Pages: 35-54

Number of pages: 20

Publication year: 2006

Publication date: Oct-Dec 2006

Year: 2006

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Diagrams References

ProQuest document ID: 198670664

Document URL: http://search.proquest.com/docview/198670664?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 89 of 100

Cyber-Learning in Cyberworlds

Author: Sourin, Alexei; Sourina, Olga; Prasolova-Førland, Ekaterina

ProQuest document link

Abstract:

This article discusses the problems of teaching computer graphics and shape modeling in large and distributed classes using visual cyberworlds-shared information worlds on the Web. Cyberworlds allow for providing personal mentoring to the students with different cultural and educational backgrounds. The Virtual Campus of Nanyang Technological University is such a cyberworld, which is being used for teaching computer graphics and shape modeling. A part of this cyberworld is the Virtual Shape Modeling Laboratory. It is used by the computer graphics students for designing geometric shapes defined with analytical formulas. Augmenting the existing ways of electronic education with cyberworlds appears to be useful which was proved by the final exam results and overall attitude of the students. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: collaborative learning; computer-based training; computer science education; course Web site; distance education; distance learning; Internet-based instruction; online classroom; virtual campus; virtual communities; Web-based courses; Web-based learning; Web-based teaching; Web-delivered education

ORGANIZATIONAL BACKGROUND

"Nanyang" in Chinese means "south seas"-a reference to the Southeast Asian region. Back in the 1940s and 1950s, many Chinese from mainland China ventured south to seek their fortunes in new lands. Malaya-now Singapore and Malaysia-was then known as "Nanyang" to the Chinese. After World War II, it was decided to start a university in Singapore that would provide tertiary education in Chinese in the region. On March 23, 1953, 523 acres of land was donated to the new Nanyang University, which was known as "Nan Tah" in Chinese. The modern Nanyang Technological University (NTU) (http://www.ntu.edu.sg) originated from Nan Tah. It is a comprehensive university designed to meet the needs of Singapore and the region. The university offers undergraduate and graduate courses in different areas of accountancy and business; art, design and media; bioengineering; biological sciences; chemical and biomedical engineering; chemical and biomolecular engineering; civil and environmental engineering; communication and information; computer engineering and computer science; electrical and electronic engineering; humanities and social sciences; materials science and engineering; mechanical and aerospace engineering; physical and mathematical sciences; and secondary school education.

NTU occupies a large beautiful Jurong Campus with very hilly terrain, located in the western part of Singapore. The campus has many buildings with quite sophisticated futuristic architecture, some of them designed by the famous Japanese architect, Kenzo Tange.

All the university's facilities and resources are freely available over the Internet and can be accessed by everyone on the campus network (fixed line and wireless) and from outside the campus through the Internet. By using the university's mobile service one can connect to the selected e-services from virtually anywhere with mobile phones and PDAs. This existing hightech infrastructure and the university's commitment to its permanent improvement, as well as a very great number of local and international students (near 17,000 undergraduate and 7,500 graduate students), there is motivation for rapid development of electronic education at NTU to augment and enrich the traditional ways of teaching in the classrooms.

Computer graphics is one of the flagship areas of research of the School of Computer Engineering (SCE) at NTU (http://www.ntu.edu.sg/sce). SCE has three research centers oriented to and around solving problems of computer graphics. These are Center for Graphics and Imaging Technologies (CGIT), Center for Advanced Media Technologies (CAMTech), and GameLab. CGIT (http://www.cgit.ntu.edu.sg) serves as the focal point for graphics and imaging related research and development activities among the university, industry, and business. Projects which CIGIT runs are computer and animation, geometric modeling, scientific and medical visualization, multimedia and training system, computer vision and imaging processing, and intelligent agents for visual computing. CAMTech (http://www.camtech.ntu.edu.sg) is a joint research and development center between the Fraunhofer Institute for Computer Graphics (IGD) of Darmstadt, Germany (http://www.igd.fhg.de) and NTU. Projects which CAMTech runs include but are not limited to multimedia in education and commerce, geographical information systems, scientific and medical visualization, virtual engineering, virtual and augmented environments for medical applications, new media for cultural heritage, mixed reality for engineering, next generation learning, and environments for life sciences. Finally, the GameLab's (http://www.gamelab.ntu. edu.sg) mission is to continually explore and extend frontiers of game technology to create highly immersive and experiential games for the widest range of applications. The university's strength in the area of computer graphics has been reinforced by the series of international conferences on cyberworlds organized by SCE in Singapore and in other countries. The topic of cyberworlds and their application to education is discussed in this article.

SETTING THE STAGE

Electronic education is one of the priority directions at NTU. The university's e-learning platform, edveNTUre (http://edventure.ntu.edu.sg), is based on the BlackBoard Academic Suite software (http://www.blackboard.com), and several other companion software tools, such as AcuLearn video streaming software tools (http://www.aculearn.com). It is extensively used by the NTU professors to enhance their lectures, tutorials, and labs. Since its introduction in 2001, edveNTUre has developed from a rather exotic way of publishing lecture materials and occasional visits by the students to the present time, when it has become a mandatory and important part of each course with thousands of visits each day. Besides providing teaching materials such as lecture notes, slides, streaming audio/video presentations, and extra materials, it can be used for setting up online quizzes, discussion groups, and uploading assignments. This is done in line with the present common electronic education technology which assumes putting on the Web course materials that can be further fortified with elements of interaction such as discussion groups and quizzes. However, it was noticed that this approach, which was quite successful and inspiring for the students at the beginning, appears to lose its initial appeal and attraction. Apparently, the temptation to provide more and more information electronically for each course far exceeded the pace and information workload of conventional teaching and thus resulted in disorientation and exhaustion of the students whose abilities significantly vary. As such, there is a need in new ways to augment and improve the existing technologies of electronic education.

In this connection, the ultimate goal of electronic education should be to provide personal mentoring to each student through smart virtual instructors, media rich course content, and online experiences, rather than just through publishing the course materials on the Web. This becomes especially essential when large or distributed classes are being taught. In particular, there is a strong need in such advanced electronic education for teaching computer graphics, which requires both background in mathematics and geometric mentality. Traditional projectbased ways of teaching computer graphics often appear boring and not really motivating for the students, since many of them do not necessarily see their future professional career in designing and developing sophisticated graphics tools. Also, quite often the course work offered to them assumes using laboratory-based equipment and software, which may not be available in other labs and at home. This also contributes towards a negative attitude and strain due to the possible problems with accessing these facilities. Distant students located outside the university, even in other countries, may have no way at all of working with other students on the projects and thus will feel left behind.

Using and creating cyberworlds appears to be an excellent educational tool for achieving personal mentoring when teaching large classes of students. Cyberworlds are information worlds built on the Web. These shared cyberspaces may be designed both with visual appearances and without it. Cyberworlds have been widely used in educational settings of different types and have promising potential for supporting learning communities because of their capability to provide a social arena where students and teachers can meet, thus overcoming the barriers of the physical world (Neal, 1997). In addition, the virtual space provides a dynamic and flexible environment where learners, especially distributed ones, can share information and form the environment according to their needs (Prasolova-Førland & Divitini, 2002). Currently, cyberworlds are successfully used for science (Shin, 2003), children (Gerval, 2003) and archeological education (Green, 2003). Creating cyberworlds as an educational tool for teaching computer science is described in (Gutiérrez, 2004).

The following section presents three cases of using cyberworlds for teaching computer graphics. In order to put the presentation of these cases into a bigger perspective, we will provide a short overview of the existing design solutions within educational cyberworlds, especially 3D ones. Positioning the cases within the body of related work will allow for showing the contribution and novelty more clearly, as well as providing an additional ground for discussions. It will also allow for comparing these cases with the similar ones in other educational institutions.

There exists a wide range of 3D educational cyberworlds, for example, within the Active Worlds Educational Universe (AWEDU, http://www.activeworlds.com/edu/index.asp). The metaphors behind the design of virtual places are quite diverse: from replication of real universities to other planets. The worlds are also used for different purposes: from demonstrations of art and scientific concepts to meetings between physically remote students. In order to be able to analyze and describe different cases and design metaphors in a systematic way, as well as to see more clearly the connection between different design metaphors and the underlying learning goals, we have developed a characterization framework, which is presented in more detail in Prasolova-Førland (2005).

Shortly, we characterize 3D educational cyberworlds in terms of outlook, structure and roles. We consider outlook in terms of to what extent the virtual place resembles a real one and to what extent the place looks like a "frontier." The former consideration is particularly relevant to the cases presented later. Several universities and schools introduced virtual representations of themselves, often providing an analogy of the corresponding places in the real world. Examples include iUni representing Indiana University (http://iuni.slis.indiana.edu), eCollege (see, i.e., http://www.vlearn3d.org/collaboration), Virtual Design Studio (Maher, 2000), and worlds in Active Worlds Educational Universe (AWEDU, http://www.activeworlds.com/edu/index.asp). The rooms and the buildings of virtual campuses give an idea about the social environment, personal office space and available equipment and provide a "familiar" atmosphere for the visitors (Maher, 1999). This also applies to the Virtual Campus of NTU as it will be described later. Other examples include "realistic" virtual laboratories (e.g., virtual vet clinic in Vetumuni; see, for example, http://www.vlearn3d.org/collaboration), museums, hospitals and so forth. The "frontier" in this context denotes the ability to "conquer" new virtual space and extend its horizons (Schroeder, Huxor, & Smith, 2001), for example, adding new buildings as opposed to the corresponding limitations of doing this in reality.

By structure, in this context, we understand mutual relations between different parts of the virtual environment, for example, the mutual position of rooms within a virtual campus or the spatial organization of buildings in a 3D world. The structure can be rigid and predefined by teachers/administrators or flexibly created and modified by the users. The factors defining the structure of a cyberworld could be quite different: from the existing social structures, as in, for example, Viras (Prasolova-Førland & Divitini, 2003), and structure of the "physical counterpart" of a virtual university to the structure of a certain course, for example, Virtual Syllabus (Dickey, 2000). The components constituting the structure can be "visible" such as buildings or "topological," such as connecting teleportation links between different parts of the place.

Also, a cyberworld can play several, often overlapping roles, such as meeting place, for example, meeting areas and classrooms in eCollege/AWEDU; information space, for example, collaborative Document Space (Borner, 2001); virtual stage, for example, scenography design classes in Cybergen/AWEDU (http://www.activeworlds.com/edu/index.asp); demonstrations/exhibitions and workplace, such as areas for science education and for creating and demonstrating student projects in SciCentr and SciFair (Corbit & DeVarco, 2000). For a deeper characterization and analysis of each role, we identify the creator of the world (e.g., teacher or students), the major purpose (e.g., formal meetings or socializing, demonstration of art, or scientific concepts) and the corresponding design features and facilities to support this purpose, such as design elements to create corresponding atmosphere (e.g., a "vet clinic" theme in Vetumini), roads and walks to support user navigation and interactive elements.

CASE DESCRIPTION

In this article we describe three projects contributing to developing cyberworlds while teaching computer graphics. These are Virtual Campus of Nanyang Technological University (http://www.ntu.edu.sg/home/assourin/vircampus.html), Function-based Web Visualization (http:// www.ntu.edu.sg/home/assourin/FVRML.htm), and Interactive Function-based Shape Modeling (http://www.ntu.edu.sg/home/assourin/Intshape.html).

The main idea of using our approach to teaching computer graphics is that the students are able to use simple mathematical formulas for defining complex geometric shapes, appearances, and transformations. Using any Internet connected personal computer, they are able to connect to the cyberworld, which allows them to design sophisticated shapes as well as discuss and share with other students the created models. Other ways of teaching including online lectures and interactive consultations with the robot-instructor and real lecturers are available for the students as well. This approach, in fact, combining fun and education, allowed us to create more motivation and achieve better results when teaching computer graphics to some 450 students per semester with very different educational and cultural backgrounds.

Case 1: Virtual Campus as a Place for Collaborative Learning and Socializing

The Virtual Campus was created to address the problems in connection with traditional modes of education identified in the previous section. The Virtual Campus of NTU is a shared virtual world built with Virtual Reality Modeling Language and Blaxxun Contact 7 communication platform (http://www.blaxxun.com). It is a virtual model of the real campus of Nanyang Technological University. The whole Virtual Campus including VRML models of the land, buildings, interiors, avatars, and texture images is stored in only about 15 Mb of files and can be accessed from any Internet-connected personal computer (Figure 1). In this cyberspace, visitors can turn themselves into virtually anything. Some choose to look like fancy-dressed people, some turn themselves into sports cars, and some appear as sparkling clouds or fire balls.

Among the users visiting the Virtual Campus, the following major groups can be identified. Most visitors to the Virtual Campus are computer graphics students, who come to study concepts of virtual reality and shape modeling. There are also local students who easily navigate the familiar 3D environment, go to their favorite places, or meet with friends in their hostel rooms (Figure 2). The third group consists of strangers from around the world, including potential new students, meeting together on this hospitable land. Foreign guests usually just wander around and chat, astonished by the size of what is probably the biggest shared cyberspace of this kind. The Virtual Campus often serves as a guide for the foreign students who consider studying at the university. By visiting the Virtual Campus they can familiarize themselves with the real campus and its facilities before coming to Singapore.

Features supporting the given educational goals include those providing the illusion of the real campus. For example, there are dusks and dawns in this cyberspace, which follow Singapore time, but the Virtual Campus never sleeps. Since the Virtual Campus is also a place for research on crowd simulation and shared cyberspaces, it, like the "real" one, is not static, and its content changes frequently. Many bots (robots) populate it. These are so-called avatars of students and professors who walk back and fourth between lecture theatres, libraries, and student hostels. There are also birds hovering in the sky and cars riding on the roads. The bots are programmed to behave realistically for the visitors. Some of these activities are stochastic, and some follow the real class time tables. Visitors can come across an avatar, which is in fact a bot, and it will take time before they understand it. Sometimes it may be a real person disguised as a bot to test human reaction on some avatar activities to be programmed.

Communication support is another important feature supporting collaborative learning and social activities as well as providing an enhanced learning experience. Virtual Campus is not only for wandering around and looking at other avatars. The visitors can talk to them. Blaxxun Contact provides the communication platform for it. It also allows for text-to-voice synthesis so that the visitors can hear their computer-simulated voices. These chats may involve all the visitors or can be organized into private chat groups. The first bot, which the visitors meet, will greet them immediately upon arrival (Figure 3). This bot is an avatar of one of the project students who contributed a lot to the Virtual Campus. Its "brain" is developed using AIML language, ALICE files (http://www.alicebot.org), and computer graphics terms from the textbook (Sourin, 2006), which this bot is incidentally selling to the current computer graphics students. Besides maintaining simple conversations, this cyber-instructor can quickly answer questions about computer graphics and virtual reality. This is an alternative to the 2D text consultation discussion group, which is a part of the respective course-site in the edveNTUre. There are also a few other agents wandering around. They are also "clones" of the former project students. In fact, each of the project students has a personal avatar copy in the Virtual Campus, thus contributing to the social environment.

The third important feature of the Virtual Campus aims at supplementing the shortages of the existing e-learning platform by creating a rich social context around the learning process. The e-learning platform used in NTU (edveNTUre), being based on html Web pages, gives rather a "two-dimensional look" to the teaching process. In contrast and in addition to it, on the Virtual Campus, NTU professors are able to meet with their students in virtual 3D classrooms, "see" and communicate with each other, and so add more immersion and fun to education. Besides that, distant overseas students get a feeling of really being on the campus. Many features available in edveNTUre are also available on the Virtual Campus. Thus, some of the virtual lecture theaters and other places are linked to streaming multimedia presentations of current and pre-recorded lectures and events (Figure 4).

In addition to serving as a supplement to the "physical" campus and the 2D e-learning platform, Virtual Campus serves as a learning tool for computer graphics students, illustrating to them theoretical concepts of virtual reality, real time rendering, and shape modeling, as described in Case 2 and 3 below. It is used during lectures, as well as after classes for consultations.

Case 2: Interactive Function-Based Shape Modeling

One of the student assignments is "Implicit Fantasies." The students have to design sophisticated shapes using implicit functions, and to make them available in their virtual homes in the Virtual Campus. A part of this assignment is to be done in the Collaborative Shape Modeling Laboratory, which is one of the places of the Virtual Campus. This virtual laboratory can be entered either from the lobby of the School of Computer Engineering of the Virtual Campus or by a direct link from the list of the community places. Before going there, the visitors have to install a small software plug-in. This plug-in is an extension of VRML, which allows for defining geometric shapes by formulas-analytical definitions with parametric, implicit, and explicit functions. All these formulas are functions of three coordinates, which are either parametric or Cartesian coordinates of 3D shapes. When using our plug-in, these different representations can be used concurrently for defining geometry and appearance of shapes. The shape's geometry can be defined by a basic geometric shape and its geometric texture, each defined with either parametric, implicit, or explicit functions. The appearance of the shape can be defined by either function-defined or fixed colors. Similar to the shape's geometry, parametric, implicit, or explicit functions can be used for defining the shape's color on its surface and inside it. This approach helps the students to easier understand the concepts of function-based shape modeling. Also, the synergy of using the three different representations results in the advanced quality and efficient solutions, which are impossible to achieve when these representations are used on their own. The theoretical foundations and further details of this hybrid approach to function-based shape modeling can be found in Levinski and Sourin (2004) and Liu and Sourin (2005), as well as in the project Web pages.

After the plug-in is installed, besides the regular VRML objects, function-defined shapes will become visible as well. There will be one big shape hovering in the middle of the room, as well as a few smaller fancy shapes displayed in different parts of the room (Figure 5).

The big shape is the one which the visitors can interactively modify. The smaller functiondefined shapes are examples of the best works created by the students. The function-defined shapes can be placed at other part of the Virtual Campus, for example, to private virtual homes of the members. Several visitors may discuss the design in the chat box, type individual shape modeling commands or command scripts, and immediately see how the shape changes accordingly. The VRML description of the shape being modeled can be displayed at any time and saved for future use. The example of a 3D scene, totally defined by a student with analytical implicit functions and rendered with POV-Ray (http://www.povray.org), is shown in Figure 6.

Case 3: Function-Based Web Visualization

Another student assignment, "Parametric Metamorphoses," is also based on the functionbased VRML. In this exercise, the students have to define analytically how one shape defined by parametric formulas transforms into another one. This transformation, or morphing, is to be modeled as an animated shape conversion. Being liberated from writing any computer graphics codes besides a short fragment of VRML defining analytical formulas for two shapes and a formula for their morphing, the students are able to concentrate on the principal part of the shape modeling with parametric functions. The resulting VRML code is to be made a part of a 3D scene, which then will be included in the Virtual Campus as one of its meeting places, thus expanding the Virtual Campus to new horizons.

Besides the method of using analytical formulas with an immediate visual feedback, more complex function-based shape modeling can be done with the interactive shape modeling program developed for this project. The program offers an advanced set of interactive operations such as cutting, sculpting, embossing, engraving, and carving. It also allows for interactive painting both on the surface and inside the object. The colors become an integral part of the shape's model. As a result, the program allows for making realistic looking shapes, which are defined with very small function-defined models that can be rendered with any desired precision. The initial basic shape for modeling can be either defined analytically, or created interactively with simple basic shapes (Figure 7). The initial shape is then gradually modified by applying different interactive shape modeling and/or painting operations. The result of the modeling can be either saved in the proprietary function-based data format or in the function-based VRML code for further use in the Collaborative Shape Modeling Laboratory or in other shared virtual worlds.

Technological Resources and Constraints in the Organizational Context of the NTU

The presented cases provide an overview of the technological resources of the Virtual Campus as well as functionalities for a number of educational purposes. We will now make a short characterization of the Virtual Campus and its major design features according to the framework described in the previous section, thus highlighting the associated technological constraints in the given organizational context in a systematic manner. In terms of the outlook, the Virtual Campus is a very typical example of a very realistic, almost "photographic" resemblance of the real place-the real campus of NTU, as described above. For obvious reasons, it is impossible to recreate all the details, so there are certain limits to how "realistic" the environment looks, though it is still one of the most realistic educational environments at the moment. Also, some additional elements, not having direct counterparts in reality, such as the Collaborative Shape Modeling Laboratory, are added for enhanced educational experience. The "frontier element" is clearly less prominent here as the possible expansion, though not limited in terms of technology, is bounded by the physical layout of the university the world represents. The adopted metaphor is thus setting a standard for further expansions and alternations.

The structure of the Virtual Campus is rather rigid, due to the corresponding defining factors, such as the structure of the corresponding "physical" university, but also the existing affordances of the Blaxxun platform, which originally provides much less flexibility than analogous environments based on, for example, Active Worlds technology. The structure is mostly created by the teacher and project students as a planned activity and to a very small extent can be altered by other users, thus providing a certain constraint to the flexible Virtual Campus development in accordance with the changing educational and organizational needs. The major structural components, that is, the buildings of the campus, are connected in two ways: through the virtual doors, walks and roads, allowing the users to "walk," as well as with a set of teleportation links available through an integrated menu.

As mentioned before, most educational cyberworlds can play many roles at once, with some major roles and other peripheral. The most prominent role of the Virtual Campus is the "demonstration," both of the campus itself (e.g., for new or distant students) and of the possibilities and concepts of computer graphics and virtual reality. At the same time, it is a workplace for students working on computer graphics projects and courses, including the development and design of the campus itself, as well as a meeting place for students (both distant and local) and teachers for consultations and socializing. The "virtual stage" role is present, as in other virtual worlds, mostly due to the fact that the visitors express their identity in a different way than in real world and are "disguised" behind avatars and nicks. This role is also partly supported by the bots that play the roles of virtual humans, simulating conversations and providing a "crowd" effect. The role of information space is rather peripheral. The Virtual Campus can be seen as a place displaying general information about the campus organization, probably for new students, and contains otherwise some community resources such as links to lectures, some resources on modeling as well as materials in the computer graphics course, including student projects such as the models of dormitories. It is worth noting that the teacher and a number of project students play the major role in shaping the design and developing the metaphors. This might affect the balance between the intentions behind the different design choices and the actual usage of the virtual place.

A number of facilities and design features are used to support the metaphors and corresponding educational goals. For example, there are dedicated areas for formal meetings and work, such as lecture halls and labs with corresponding tools for shape modeling. There are also meeting places for more informal use and socializing, designed as "parks," "mingling" areas, and dormitories. The mechanisms for information finding and retrieval are analogous to those in reality, for example, positioning and design of offices and other units where students can find different resources while walking around as on the real campus. Interactive functions such as the possibilities in certain cases to open virtual doors and move furniture, contribute to the demonstrational effect of the presented models. Also, the existing intelligent agents provide facilities for supporting different kinds of metaphors, for example, answering curriculum questions (workplace) or guiding the user around the campus (demonstration and information space). Still, the tools and resources provided are predominantly targeted at computer graphics students, only to a limited degree supporting the needs of students taking other courses.

Preliminary Results

Using the Virtual Campus in a one-semester course of computer graphics at NTU has resulted in a 14% increase of the mean exam mark and demonstrated that understanding of shape modeling concepts by the students has significantly improved. According to the students' feedback, the explanation for this phenomenon is in the ability of the cyberworlds to involve students in virtual discussions and collaborative works without the necessity of their physical presence in a classroom or lab. The students can easily share their works in cyberworlds and thus contribute to their expansion. In Figure 8, an example of a room developed by one of the undergraduate student is shown. This virtual room is used both as private meeting space of this student and as a showcase for his assignment "Parametric Metamorphoses," which is placed on the table in front of the television. Students can work on their assignments online from homes wherever these homes are physically located. Also, when a conventional way of teaching computer graphics is used, there is always a certain inconsistency between the theoretical concepts studied and their practical applications, since only a limited part of the course is normally covered by the coursework. Our observations show that when the students work on their coursework in the cyberworld, which itself is created using computer graphics tools, then, gradually and without making any extra efforts, they get immersed in many concepts of computer graphics and can feel and touch real-time rendering, visualization and virtual reality. For example, on a number of occasions when consulting students on different modes of visualization, the instructor could ask them to switch the rendering mode of the VRML browser from smooth textured mode to flat polygons, wire-frame, or point modes. When creating their own environments, the students have to define the viewing distance and level-of-details for shapes with complex geometry - rather abstract concepts if they are only lectured. This everyday activity in the cyberworld, reinforced by the assignments, leads to better understanding through fun, and with a readily available option to ask for help from any other visitors or virtual instructors.

CURRENT CHALLENGES

Cyber-learning has already become an important and vital part of university education since conventional ways of teaching, when only lectures and practical exercises in a class are used, no longer satisfy the growing demands and challenges of modern education. Shared cyberworlds are efficient tools, which both illustrate how computer graphics, shape modeling, and virtual reality work and provide the students hands-on experiences by allowing them to contribute to these worlds. However, a number of challenges can be identified in connection with the introduction of cyberworlds as educational means at Nanyang Technological University:

Computational power. Function-based Web visualization is an efficient way of expanding shared VRML worlds. Many large VRML models, which require a big number of polygons, can be replaced with compact function-based models where shapes and their appearances are defined with small parametric, implicit, and explicit formulas. However, function-based approach to shape modeling assumes that the client computers are to be quite powerful since visualization of functions is computationally expensive. Modern off-the-shelf computers can easily visualize function-defined shapes with a moderate resolution; however, higher photo-realistic appearance may require either longer calculation times or an ability to use advance processor power of Grid computing. The challenge in this context is finding the balance between the cost and visualization efficiency in an educational context.

Choosing appropriate design metaphors. When using cyberworlds in different educational situations at NTU, it is important to choose appropriate design metaphors to meet the concrete educational goals. We have provided a short overview of the existing variety of educational cyberworlds as a background and framework for our cases. The challenge in this context is two-fold. First, it is necessary to analyze the adopted design metaphors and provided facilities in terms of to what extent they are suitable for teaching computer graphics and in general for creating a social and working environment for teachers and students of NTU. This also implies performing an iterative revision of the design according to the evolving user needs. Second, it is necessary to explore the possibilities for using VC in other educational situations, for example, for teaching other courses or various campus events.

Addressing limited student usage and attendance. Though the adopted design facilitates extensive meeting and information sharing activities, these functionalities are currently not exploited fully due to the limited student "attendance" and involvement of the different research and educational environments of the university (as the major visiting group are computer graphics students). This issue needs to be addressed as active student involvement and participation in the VC project will motivate them to contribute more actively to this community and in this way participate in shaping the design in the way it is most appropriate for their concrete needs.

Enriching Virtual Campus with resources. An important challenge in terms of integrating VC into the overall educational and organizational infrastructure is enriching it with resources of various kinds, for example, educational, informational, and entertainment-related. In this context, two sub-challenges can be identified. First, it is necessary to find out what resources will be most appropriate in the given situation for providing an adequate representation and support for common university activities and thus for motivating more active student participation. Second, it is necessary to identify the most appropriate ways of presenting these resources in VC in terms of associated design and functionality.

Insuring flexibility and simplicity of development. The flexibility and simplicity of the development is still limited and can be an inhibiting factor for broader student masses of NTU to use VC, as creating new objects require certain skills in computer graphics. A challenge in this context is to identify and provide the appropriate technical possibilities available for all employees and students of NTU, at the same time enforcing certain overall guidelines and rules to ensure a harmonic and consequent development of the VC.

Providing personal virtual mentors. With reference to the virtual instructors, it was noticed that though the students knew that they were talking to chat robots, some were still trying to share their personal problems with them, expecting to hear advice from somebody who is not a real person but still had a nice "trustworthy" visual appearance. This proved that it is worth developing a bank of virtual instructors with basically the same "brain" but different appearances such as different genders, voices, paces of speech, and so forth, to suit different audiences and cultural backgrounds. This will allow the students to have their own personal instructors to help them feel more comfortable in the educational cyberworld. Mixing up fun with education is yet another important concept to consider here.

Developing generic collaborative learning environments. Another challenge is to develop generic collaborative virtual laboratories, classrooms, and lecture theaters which can be used for teaching different subjects to distributed groups of students at NTU and other universities. This includes making user-friendly Web-based interfaces for tuning virtual instructors to different teaching areas and environments, based on the existing Virtual Campus of NTU.

References

REFERENCES

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AuthorAffiliation

Alexei Sourin, Nanyang Technological University, Singapore

Olga Sourina, Nanyang Technological University, Singapore

Ekaterina Prasolova-Førland, Norwegian University of Science and Technology, Norway

AuthorAffiliation

Dr. Alexei Sourin is an associate professor in the School of Computer Engineering at Nanyang Technological University, Singapore. He received his MSc and PhD degrees in computer science (computer graphics) from the Moscow Engineering Physics Institute in 1983 and 1988 respectively. From 1983 to 1993 he worked at the Moscow Engineering Physics Institute, and since 1993 he is a professor at the Nanyang Technological University. He is a member of the IEEE Computer Society and ACM SIGGRAPH. His research interests include computer graphics, shape modeling, shared virtual environments, Web visualization, and scientific visualization. More details are available at http://www.ntu.edu.sg/home/assourin.

Dr. Olga Sourina is an assistant professor in the School of Electrical and Electronic Engineering at Nanyang Technological University (NTU), Singapore. She received her MSc degree in computer science from the Moscow Engineering Physics Institute (MEPhI) in 1983 and her PhD degree from NTU in 1998. From 1983 to 2000 she worked as a researcher at MEPhI, Institute of Computing for Physics and Technology (Russia) and NTU. Since 2001 she is a professor at the NTU. She is a member of the IEEE Computer Society. Her research interests include data mining, computer graphics, Web visualization, and virtual reality. More details are available at http://www.ntu.edu.sg/home/eosourina.

Dr. Ekaterina Prasolova-Førland is currently a researcher and project coordinator at the Progam for learning with ICT, Norwegian University of Science and Technology (NTNU). She received her MSc degree in technical cybernetics and her PhD degree in computer science from NTNU in 2000 and 2004 respectively. Since 2000 she worked as a researcher at NTNU. Her research interests include educational and social aspects of 3D collaborative virtual environments and augmented environments as well as virtual universities. More details are available at http://www. idi.ntnu.no/~ekaterip/CV.doc.

Subject: Online instruction; Computer assisted instruction--CAI; Computer graphics; Teaching methods; Colleges & universities; Cooperative learning; Studies

Location: Singapore

Company / organization: Name: Nanyang Technological University-Singapore; NAICS: 611310

Classification: 8306: Schools and educational services; 5250: Telecommunications systems & Internet communications; 9179: Asia & the Pacific; 9130: Experiment/theoretical treatment

Publication title: Journal of Cases on Information Technology

Volume: 8

Issue: 4

Pages: 55-63,65-70

Number of pages: 15

Publication year: 2006

Publication date: Oct-Dec 2006

Year: 2006

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Illustrations References

ProQuest document ID: 198738022

Document URL: http://search.proquest.com/docview/198738022?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 93 of 100

CHANGES IN ACCOUNTING FOR DEFINED BENEFIT RETIREMENT PLANS AND THE EFFECT ON COMPANIES' FINANCIAL STATEMENTS AND STAKEHOLDERS

Author: James, Marianne L

ProQuest document link

Abstract:

Accounting for pensions evolved from the "pay-as-you-go" basis to the full accrual basis. The currently pertinent primary accounting standard, Statement of Financial Accounting Standards No. 87 (SFAS 87), "Employers' Accounting for Defined Benefit Pensions," requires that a minimum liability is accrued if the present value of pension obligation at current salary levels (ABO) exceeds pension assets. The currently pertinent accounting standard for accounting for nonpension retirement plans, (such as retiree health care plans), Statement of Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions," requires that companies accrue an annual expense for retiree plans, such as health care, but does not require the recognition of a minimum liability, even if the plan is underfunded. Recently, FASB decided to reevaluate accounting for both defined benefit pensions and other postretirement benefit plans. To date an exposure draft has been issued as part one of a two-phase project. The proposed and expected changes to accounting for these plans may significantly affect companies' balance sheets if their plans are underfunded. In addition, income also may be affected by investment return volatility. These changes may lead some companies to curtail their plans and thus potentially adversely affect employees and retirees. The case presented below highlights and examines the effect of accounting changes on financial results and potentially employers' willingness to provide retirement benefits to their employees.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns changes in accounting for defined benefit pensions and other postretirement benefit plans proposed by the Financial Accounting Standards Board (FASB) and their effects on the financial statements of companies that currently sponsor these plans. Secondary, yet important issues are the potential effects of these changes on companies' willingness to offer these plans to their employees, and the resulting potential economic impact on the companies' stakeholders. This case has a difficulty level of three to four and can be taught in about 45 minutes. Approximately two hours of outside preparation is necessary to fully address the issues and concepts. This case can be utilized in intermediate accounting as part of the coverage of pensions, or in a more advanced graduate class focusing more extensively on underlying conceptual and economic issues. The case has conceptual, analytical, and research components. Both oral and written communication skills can be enhanced using this case.

CASE SYNOPSIS

Since the introduction of the first pension plan by American Express in 1875, traditional (defined benefit) pension plans have become an important source of millions of employees' retirement income. At one time, defined benefit pensions, which promise employees a specific amount of retirement income, represented the most common type of employer-sponsored plan. Legislation, especially the ERISA ACT of 1974 and the creation of the Pensions Benefit Guarantee Corporation (PBGC) added security to these benefits. Sadly, these traditional pensions have become less popular. In 1981, 81 % of employees who were covered by employer-sponsored retirement plan were covered by a traditional pension plan; by 2003, that percentage decreased to 38% (Clements, 2006). This trend appears to be continuing. For example, recently, several large well-known public companies have announced that they are freezing their existing pension plans. Reasons for this reduction in traditional pension plans include the financial risk to the employer, and the uncertainty created by negative or low -performing stock markets. Other postretirement plans (e.g., postretirement health care) also have become less popular, primarily due to rising costs.

Expected changes in accounting for traditional pensions and other postretirement benefit plans may sharply increase the liabilities and expenses shown on companies' financial statements and may further increase the risk and cost of these types of plans. These changes may affect employers' willingness to continue offering these plans.

The primary focus of this case is to examine the potential short-term and long-term effects of the expected accounting change on companies ' (1) financial statements, (2) stakeholders, and (3) willingness to offer these plans. The case can be taught at the same time that retirement benefits are covered in an intermediate accounting class, or in an advanced accounting class focusing primarily on underlying concepts. The case has analytical, communication, and research components.

INTRODUCTION

Recently, FASB decided to reevaluate accounting for both defined benefit pensions and other postretirement benefit plans. To date an exposure draft has been issued as part one of a two-phase project. The proposed and expected changes to accounting for these plans may significantly affect companies' balance sheets if their plans are underfunded. In addition, income also may be affected by investment return volatility. These changes may lead some companies to curtail their plans and thus potentially adversely affect employees and retirees. The case presented below highlights and examines the effect of accounting changes on financial results and potentially employers' willingness to provide retirement benefits to their employees.

CASE DESCRIPTION

On August 2, 2006, Jackie McKiern, Controller of Neuman Corp., an automotive parts supplier, walked into her office to find her new boss, Chief Financial Officer (CFO) John Millern waiting for her. John, who just has joined the company on July 16, 2006 has spent most of the past few weeks familiarizing himself with all financial aspects of the company. While reviewing the company's financial statements, he noticed that pension and other postretirement benefits represented a significant amount of the company's expense. John recalls hearing at the end of the previous year that the Financial Accounting Standards Board (FASB) has decided to review and revise accounting for defined benefit pensions and other postretirement benefit plans. At that time, he wasn't concerned about this, because his previous firm sponsored a 401(k) plan, which does not fall under the requirements of FASB's pension standards. Now, that he has joined a company that sponsors a defined benefit pension and a postretirement health care plan, he feels that he must consider the potential effect of any accounting change on his new company.

John also recalls reading an article about the potentially detrimental effects that a change in the accounting standard could have on General Motors' (GM) financial statements. He quickly researches the original article and finds that on December 29, 2005, the Wall Street Journal reported that the expected change in the accounting rules may virtually eliminate GM's current net worth. He is aware that GM, one of Neuman Corp.'s customers, is experiencing serious financial difficulties. Although Neuman Corp. is financially sound, John now is quite concerned about the potential effect of the expected accounting changes on Neuman Company's financial statements. He is determined that the company preform well under his financial guidance. After considering these facts, John is concerned about both the short and long-term effect of the expected accounting change on the company' s financial statements. He asks Jackie to compile information that will help the company plan for the future, and allow it to select the most advantageous strategy. John feels that in light of the company's plans to raise additional capital within the next three years by issuing corporate bonds, steps may need to be taken to avoid a negative impact of any accounting change on the company's ability to inexpensively raise capital.

John asks Jackie to compile information that will help answer the following questions regarding the expected changes in accounting for the company's defined benefit pension plan and its retiree health care plan:

ASSIGNMENTS AND QUESTIONS

Company-Specific Questions

1. What would be the short-term impact on Neuman Company's a) balance sheet, b) income statement, and c) statement of cash flows?

2. What would be the long-term impact on Neuman Company's a) balance sheet, b) income statement, and c) statement of cash flows?

3. What options does the company have?

4. How would implementing each of these options affect the company's 1) balance sheet, 2) income statement, and 3) statement of cash flows?

5. Who are the stakeholders? Who would benefit by each option?

6. How would the employees be affected by each of these potential options?

7. What are the ethical issues involved?

8. How would each of these options affect the perceptions of people outside the company?

9. What do you recommend that we, company's executives should do?

Jackie also decides to research some related questions that may contribute to the decision making process.

Researchable Questions:

1. How have other companies reacted to this proposed change?

2. Is there any historical evidence that new accounting proposals may lead to decreases in of employee retirement benefits?

3. Are other companies' pension and other retirement plans currently funded?

4. How does recent legislation impact on traditional pension plans?

John expects a briefing on the results of this research in four days. Jackie asks you, her assistant to answer/research these questions for her. You are an accounting major, and currently are enrolled in Intermediate Accounting II. You currently are discussing pensions and other deferred employee retirement benefits in class. You are excited about the prospect of applying what you are learning in class to your position of accounting assistant. You are anxious to complete the assignment to the full satisfaction of the company ' s controller and CFO. Your first step is to review information regarding the expected changes in the accounting rules and the company's financial statements and notes for the year ended December 31, 2005.

Jackie, a licensed CPA has already familiarized herself with the anticipated changes when FASB's intentions first had been publicized. She had prepared a short summary of the expected changes, which is shown below.

SUMMARY OF EXPECTED CHANGES IN ACCOUNTING FOR DEFINED BENEFIT PENSIONS AND OTHER POSTRETIREMENT BENEFITS

FASB expects to complete its comprehensive project in two phases, the first to be finalized by the end of 2006. On March 31, 2006, the FASB issued an exposure draft titled, "Employers' Accounting for Defined Benefit Pensions and Other Postretirement Plans," which proposes changes under phase I of the FASB project (FASB, 2006).

Phase 1 (FASB exposure draft, FASB, 2006):

1. Entities with underfunded pension plans would be required to recognize a liability equal to the unfunded amount of the pension and other postretirement obligations on the sponsoring company's balance sheet. This unfunded pension obligation would be calculated based on the projected benefit obligation (in the case of pensions) and the accumulated benefit obligation (in the case of other postretirement benefits). For pensions, currently, the accumulated benefit obligation, which does not take into consideration future salary levels, is utilized to calculate and recognize an additional minimum liability. For other postretirement benefits plans, no minimum liability has to be recognized under current accounting rules. Benefit plan assets and benefit obligations would be measured at the balance sheet date.

2. Unrecognized actuarial gains and losses and prior service costs arising during the current period would have to be recognized as a component of other comprehensive income. Currently these costs are deferred until amortized and recognized as components of expense. Additional disclosure of the effect of deferred recognition is required.

3. Any unrecognized transition obligation would have to be recognized as an adjustment to the beginning balance of retained earnings. Currently these costs are deferred until recognized in expense. The expected effective date for phase I is for fiscal periods starting after December 15, 2006; earlier application is encouraged by FASB.

Phase 2 Expected Changes:

FASB also is planning to further review the recognition and disclosure rules for pensions and other postretirement benefit costs in income and comprehensive income. Furthermore, its guidance on measurement assumptions (e.g., the rate assumptions) and the measurement of the obligations will be reassessed, potentially requiring the use of actual rates of return. This phase is conducted jointly with the International Accounting Standards Board. Thus, within the next few years, companies may have to utilize the actual return on pension plan assets (instead of the estimated return) when calculating pensions and other postretirement cost (expense). This return may well be negative for some of the years, which could increase expenses sharply and create income volatility.

SELECTED INFORMATION FROM THE 2005 FINANCIAL STATEMENT NOTES

On January 1, 1986, the Company established a defined benefit pension plan covering substantially all of its full-time employees. The net periodic pension cost was $76,000 in 2005. On December 31, 2005, the pension PBO was $2,170,000 and the related plan assets were 1,877,000. The unrecognized prior service cost was $145,000 and the unrecognized net loss was $135,000.

On January 1, 1988, the Company also established a retirement health care plan. The net periodic retirement health care cost was $54,000 for 2005. The health care plan currently is unfunded. The company pays the exact amount necessary to meet the health care premiums for its current retirees. That amount was $26,000 for 2005 and $24,000 for 2004. As of December 31, 2005, the plan's accumulated benefit obligation exceeds the plan assets by $1,100,000; its unrecognized transition obligation was $63,000.

REQUIRED

Answer the questions listed in the Assignment/Question section of this case as assigned by your instructor. Provide concise answers.

References

REFERENCES

Clements, J. (2006, March 8). The debt Bubble Threatens to Derail Many Baby Boomers' Retirement Plans. The Wall Street Journal, Dl.

Financial Accounting Standards Board (1990, December). Statement of Financial Accounting Standards No. 87. Employers' Accounting for Postretirement Benefits Other Than Pensions. Norwalk, CT.

Financial Accounting Standards Board (1985, December). Statement of Financial Accounting Standards No. 106. Employers ' Accounting for Defined Benefit Pensions. Norwalk, CT.

Financial Accounting Standards Board (2006, March 31). Employers 'Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statement No. 87, 88, 106, and 132 R. Proposed Statement of Financial Accounting Standards. Retrieved on April 4, 2006 from http://www.fasb.org.

Rapoport M. (2005, December 29). Outside Audit: GM Faces a New Threat to Its Books; Shareholder Equity Stands to Vanish if Pensions Become Liability via Proposed Rule. The Wall Street Journal, C3.

Wessel, D.E. E. Schultz, & L. McGinley. (2006, Feb. 8). Pressured GM Slashes Pay, Benefits. The Wall Street Journal, Al, 15.

AuthorAffiliation

Marianne L. James, California State University, Los Angeles

mjames2@calstatela.edu

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 13

Issue: 2

Pages: 11-15

Number of pages: 5

Publication year: 2006

Publication date: 2006

Year: 2006

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412098

Document URL: http://search.proquest.com/docview/192412098?accountid=38610

Last updated: 2013-09-16

Database: ABI/INFORM Complete

Document 98 of 100

Herding 3,000 Cats: Enabling Continuous Real Estate Transaction Processing

Author: Andriole, Stephen J; Charlton Monsanto

ProQuest document link

Abstract:

Prudential Fox & Roach Realtors, an independently owned and operated member of the Prudential Real Estate Affiliate, Inc., is the fourth-largest provider of real estate services in the U.S., with $15.5 billion in annual sales in 2004. The company operates 70 offices staffed by 900 employees. Prudential Fox & Roach also contracts with more than 3,300 independent agents who work on commission. Real estate companies and their sales agents face stiff competition for listings and clients. Finding new ways to expedite the complex sales cycle offers an important advantage to a real estate company. Prudential Fox & Roach sought a better way to give its mobile-sales agents and branch-office employees access to the myriad applications, forms, and databases, such as multiple-listing services, needed to list and sell properties. The company wanted to deliver applications and the corporate intranet over the Internet, which offered wide availability and a familiar browser interface for agents, many of whom are technologically unsophisticated. Prudential Fox & Roach implemented the Citrix MetaFrame Secure Access Manager to augment its existing MetaFrame Presentation Server environment with secure access to applications and information over the Internet.1 Independent agents and 900 employees now have a single point of access from any standard Web browser to applications, databases, forms and documents, and tools such as Web search engines. The impact of the remote access implementation project shortened the real estate sales cycle, provided data security for remote and mobile users, and reduced support requirements by 60%.2 The project also simplified computing for many nontechnical users. Perhaps just as importantly, the project has reduced the number of agents that have left the company for technology support reasons by more than 80%. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: application support; collaboration; extranet; intranet; real estate; real estate agents; remote access

ORGANIZATION BACKGROUND

Prudential Fox & Roach Realtors (http://prufoxroach.com/) is an independently owned and operated member of the Prudential Real Estate Affiliate, Inc. It is the fourth-largest provider of real estate services in the U.S., with $15.5 billion in annual sales. The company operates 70 offices in the Pennsylvania, Delaware, and New Jersey area; there are 900 employees. Prudential Fox & Roach also contracts with more than 3,300 independent sales agents who work on commission.

The company was founded in 1886. The company is a full-service or real estate "solutions provider." The value proposition is wrapped around services-for buying, selling, renting, or relocating-and reach-through its offices and sales associates and the larger Prudential network with over 1,400 national offices and 40,000 sales associates throughout the United States and Canada. Prudential Fox Roach also offers financing, settlement, and insurance through The Trident Group (http://www.thetridentgroup.com/).

According to the company's mission statement:

Prudential Fox & Roach Realtors/Trident Group is an innovative, home-related services company that dominates the markets we serve. We are a powerful team dedicated to providing the highest quality service and holding ourselves to a standard of excellence. Our relationships with our clients, sales associates, employees, strategic partners, and the communities we serve are built on trust and integrity.

SETTING THE STAGE

Up until the mid- to late 1990s, the processes that optimized production, sales, and service, including real estate processes, were relatively well bounded, with clear beginnings, middles, and ends. Today those processes are extended and continuous. One way to think about the change is to contrast discrete transactions with continuous ones (Alcaly, 2003; Malone, 2004; Smith & Fingar, 2003). Discrete transactions like selling insurance policies, buying disk drives to be included in PC manufacturing, or buying or selling stock, used to be transactions that one could begin in the morning and complete by afternoon or the next morning after running a transaction "batch." Today these transactions are continuous: one insurance policy is blended with another; cross- and up-selling-the desire to sell existing customers additional (and more expensive) products and services-are continuous goals; disk drive acquisition is integrated into PC manufacturing; and buying and selling stock is simultaneously linked to tax calculators and estate planners. Real estate professionals simultaneously sell homes, mortgages, and insurance; some of them even sell (and resell) home decorating, nanny, and shopping services; and they do all of this selling using digital technology at some point or another in the sales cycle. For example, socalled full-service real estate companies will list the house with the multiple listing service (MLS); advertise the house; offer open houses over weekends; help find financing; organize the settlement process; find vendors to perform whatever repairs are necessary; provide data about local and regional schools; and provide names of approved babysitters, and the names, addresses, and references for electricians, plumbers, and landscapers. Much of this is done using databases that the full-service realtor has developed over time; much of the communication is through email or through access to the company's Web site, which has a password-protected portal for customers.

Connectivity among employees, suppliers, customers, and partners, though far from complete, is enabling interactive customer relationships, integrated supply chains, and the business analytics that permit real-time adjustments to inventory, distribution, and pricing. The net effect is that time and distance have been compressed, and speed and agility have been accelerated. Perhaps no other market has experienced this compression more than real estate, which in some parts of the United States has seen price increases of over 500% during the last 5 years. In addition, the average number of days that houses stay on the market before sale has decreased by 50% in many markets. Some markets see houses selling in a matter of days or weeks rather than months, which was the norm in the 1980s and 1990s.

Figure 1 suggests what the overall trends look like and how transaction processing is increasingly enabled by communications, applications, security, and data. The red zone is of course where companies should not spend money; the green zone represents business technology optimization. Figure 1 further suggests that companies should invest to enhance collaboration among their employees, suppliers, and customers, and that their technology investment objectives should be defined around the extent to which their technology integrates and interoperates (to best support collaboration transaction processing).

The challenge is to define collaborative processes that improve efficiency, reduce cost, improve profitability, and increase market share. Our first steps toward employer/employee collaboration were enabled by e-mail and other workflow applications, but the story got interesting when we launched intranets, which were early internal portals to applications, data, news, benefits, operational processes, and communication (Andriole, 2005). Many companies built intranets to solve internal collaboration problems. Instant updates, immediate communication, and continuous documentation are all enabled with intranet technology.

The concept can be extended to customers and suppliers (Lee, 2004; Liker & Choi, 2004; Sloane, 2004). Obviously, this does not mean that companies will only touch their customers digitally, but that digital contact represents another way to stimulate and serve them. Convenience, from a customers' perspective, is the reward here; from a business perspective, it is costeffectiveness, and a way to extend communication with customers: communication that can be used to please them, up-sell them, and cross-sell them. In the real estate business, customers look for all sorts of property; the suppliers to the process are sellers, mortgage brokers, and other providers that support the pre- and post- real estate transaction-processing process.

Like all of the collaboration-driven business models, human collaboration is a process before it is a technology (Hansen & Nohira, 2004; McClellan, 2004). Customers, suppliers, employees, and partners all have "life cycles" that define how to monetize the relationships companies maintain with them. The sales and marketing expression of "cradle-to-grave" summarizes the approach. The objective is to become a full-service partner with this diverse group for as long as possible.

In the real estate world, it is all about seller data, customer data, and matching this data with the specifics of each transaction. In order to do this, real estate brokers and agents must have immediate and reliable access to data, processes, required forms, and information about regulatory requirements and changes. The "life cycle" concept is especially relevant to real estate customers, since a typical customer will buy and sell several homes, purchase several mortgages, and in the process obtain a great number of supporting services, like home inspection and insurance. Real estate buyers and sellers are near-perfect lifelong customers.

Collaboration has given rise to a whole new set of processing and communications requirements including those driven by changes in business models, processes, and communications devices such as (Andriole, 2003; Malone, 2004):

* Changing work models and processes, including:

* Telecommuting

* Mobile computing

* Small office/home office (SOHO) computing

* New customer, employee, supplier and marketplace connections (B2B, B2C, B2E, etc.)

* Letters, phones, faxes, face-to-face; online and off-line, synchronous and asynchronous communications

* Near real-time comparisons of vendor products and services

* Disintermediation and reintermediation

* "Whole employee management" and "whole customer management"

* Multipurpose access points: wired and wireless PCs, laptops, personal digital assistants (PDAs), smart cell phones, network computers, kiosks, local area networks, virtual private networks, wide area networks and the World Wide Web

* Anytime, anyplace information sharing

These requirements are driving a whole new generation of communication technologies and products as well as communication architectures and infrastructures, resulting in the need for more bandwidth (and bandwidth management), access points, security, reliability, scalability, and distributed systems management. This last area is especially relevant to the case described here: the challenge at Prudential Fox & Roach was to keep everyone linked in a network of sellers, buyers, brokers, agents, forms, and regulations, where no one has to worry about the management of the networks, the applications, or the communications devices. The challenge thus reduced to "How do we connect all of our stakeholders 24/7, reliably, securely, and cost-effectively?"

The use of intranets and extranets to conduct internal and external business, respectively, is increasing dramatically. In the late 1990s, there was serious debate about just how pervasive this technology might become; today there is no debate about the ultimate outcome. Whole aspects of many businesses will move completely to the Internet, just as those-like Amazon and eBay-will grow comfortably, existing only on the World Wide Web. Notwithstanding the expansion of intranets, companies of all sizes and from all vertical industries will continue to rely heavily upon e-mail and messaging, workflow tools, and groupware.

The real estate world has been relatively conservative in its exploitation of the Web and the online processes that Web-based applications enable. Companies like Lending Tree were actually established in the mid- to late 1990s, but their early revenues were slow to grow, until the roll out of broadband communications accelerated well into the general population. Real estate consumers (buyers and sellers) were also slow to embrace the Web, until it became relatively easy to list or find homes via the Web sites of specific or general-purpose realtors (such as Prufoxroach.com and Realtor.com, respectively). Now it is common practice to surf the Web for homes and then contact agents for visits, and for companies to troll for buyers and sellers via the Web sites of related and unrelated sites.

The agents at Prudential Fox & Roach were also relatively slow to adopt new technology, but since 2002, the adoption rate has skyrocketed. The challenge for the company was to make sure that their agents' use of the technology enhanced, not encumbered, all aspects of real estate transaction processing.

CASE DESCRIPTION

In the hot real estate market since the year 2000, with interest rates at 30-year lows, real estate companies and their sales agents face stiff competition for listings and clients. Finding new ways to expedite the complex property sales cycle offers an important advantage. Prudential Fox & Roach sought a better way to give its mobile sales agents and branch office employee's access to the myriad applications, forms, and databases, such as multiple-listing services, needed to list and sell a property. Specifically, the company wanted to deliver applications and the corporate intranet over the Internet, which offered wide availability and a familiar browser interface for agents, many of whom are not technologically sophisticated.

The agents are always on the move, and frequently work evenings and weekends so they can accommodate the schedules of buyers and sellers; the company needed a way to give these agents simple, real-time information access from any location, such as a home office, so they could make the most of their time with clients, and if required, provide quotes or calculations on the spot. However, because these realtors are independent contractors and work on computers and network connections Prudential does not control, it was vital to provide reliable and secure access to the company's and the industry's applications and data.

In terms of the requirements identified above, the real estate challenge proved formidable since it touched just about every type of communications requirement. Figure 2 particularizes the general collaborative communications requirements for the real estate field, listed previously. The problems, however, at Prudential Fox & Roach were wide and deep. The new communications requirements were generating too many alternative solutions. Prior to the implementation of the Citrix-based solution, the company attempted to deploy and support thousands of agents and office employees with a conventional hardware/software implementation model. Soon after the roll out of this solution, however, major problems began to arise.

Among the more troubling problems were:

* The inability to keep the applications that support the real estate transaction process current

* The inability to keep the process reliable or secure

* The inability to allow the process to rapidly scale

* The inability to keep ahead of the many "break and fix" requirements among computers that were "personal" or used for other than real estate business

* The inability to manage the process through distributed-but ungoverned-management policies and procedures

* A rising turnover rate among real estate agents that was, according to PFRT internal surveys, increasingly driven by the nature and quality of technology services provided (or denied) to agents by their brokers: in other words, without reliable, secure technology support some agents will leave a real estate brokerage in search of better technologyenabled real estate transaction processing (PRFT reports that their normal agent turnover rate is approximately 20% per year and that approximately 40% of those agents identify "technology" as a primary driver of their decision to leave the company)

In short, the traditional acquire/deploy/support technology model did not satisfy the collaborative communications requirements of real estate brokers or agents, or mortgage brokers. This was largely due to the relationship that agents have with their brokers. Agents are essentially independent contractors. At the same time, brokers must treat them as full-time employees with a suite of benefits, like technology support. If brokers fail to provide them with adequate technology support (among other benefits), they will find brokerage homes elsewhere.

Given these pressures and problems, the traditional technology support approach had to be replaced by one that facilitated the secure connection of professionals, offices, branches, and partners. The Citrix® Access Infrastructure Solutions for Remote Office Connectivity enables organizations to securely deliver applications and information to remote offices and contact centers, and maintain those applications and information from a central location.

With diverse sets of networks and devices in offices, supporting and maintaining applications and information for remote offices can be overwhelming. Integrating new branch offices and supporting mergers and acquisitions with disparate systems and resources brings additional complexity and challenges. Providing a high level of support to these remote real estate professionals is critical to keep productivity and satisfaction high. Citrix Access Infrastructure Solutions simplify and streamline the deployment and maintenance of applications and information to remote offices, and offer secure communications over any network and device:

* Configure, manage and enable application access from one centralized location, reducing the cost of provisioning branch offices individually

* Improve time to value for business expansion with accelerated delivery of enterprise resource planning (ERP), customer relationship management (CRM), sales force automation (SFA) and office productivity applications

* Eliminate the need to dispatch technology staff to service remote locations with centralized applications management

* Use the Internet to deploy applications securely with less bandwidth at lower telecommunication and network costs

* Enhance customer service with centralized business-critical databases

* Protect data with a built-in disaster recovery system, and help eliminate costly downtime

Prudential Fox & Roach concluded that the Citrix MetaFrame Access Suite was the easiest way for it to provide secure, single points of access to its enterprise applications and information on demand, while ensuring a consistent user experience anywhere, anytime, using any device, over any connection.

Prudential Fox & Roach implemented Citrix MetaFrame Secure Access Manager to augment its existing MetaFrame Presentation Server environment with secure access to applications and information over the Internet.3 Over 3,000 independent agents and 900 employees now use a single point of access to multiple applications, databases, forms, and documents, and tools such as Web search engines from any standard Web browser. Applications deployed via the Citrix solution range from older 16-bit software to "homegrown" solutions. They include Neighborhood Locator, School Report, and PC Forms that are required for house closings.

A real estate transaction can be a lengthy process. By giving agents flexible Web-based access to all the information resources they need, Citrix access infrastructure helps accelerate the sales cycle and deliver commissions faster. The MetaFrame Secure Access Manager helps the company's mobile sales agents optimize their time and shorten the selling cycle. With secure access over the Web, agents can obtain MLS listings, forms, loan information, school reports, and all of the other tools they need while on the road, at a property, or working from their home offices.

Supporting independent agents involves supporting many users logging in from devices that Prudential Fox & Roach does not own, over connections it does not control, which raises security concerns. The MetaFrame Secure Access Manager provides a number of security measures that help the company protect corporate information. The approach delivers standardsbased encryption of data over the network, and allows Prudential Fox & Roach to provide access based on user roles, so it can control who sees which information. With three main groups of users-corporate employees, employees of a subsidiary that provides mortgage and title services, and independent agents-Prudential Fox & Roach can provide access tailored to each group's individual business needs.

One of the goals of the implementation was to simplify both the user experience and the technology administrator's job. Many of the agents are not technically savvy, so simplicity is critical; Citrix offers a consistent and simple interface no matter where the agent is logging on. In addition, it provides data backup for them. For administrators, Citrix enables efficient, centralized deployment of applications and updates. Under its former acquire/deploy/support model, Prudential Fox & Roach required three times as many field technical support staff to keep applications and systems up to date than it needed after the Citrix implementation.

The whole approach, with impact, can be summarized

* Applications deployed

* Multiple-listing service (MLS), a real estate database

* "School Report" by Homestore

* "PC Forms" by PCFORMATION

* "Know the Neighborhood" by eNeighborhoods

* "RealFA$T Forms"

* Networking environment

* Citrix® MetaFrame XP® Presentation Server, Feature Release 3 running on 7 HP DL380 servers

* Citrix MetaFrame Secure Access Manager

* Microsoft® Windows® 2000 Servers

* Frame Relay WAN, Internet

* Key benefits

* Shortened the sales cycle with Web-based access

* Provided data security for remote and mobile users

* Reduced support requirements by 60%

* Simplified computing for nontechnical users

* Reduced agent turnover due to technology support problems by 80%

The solution is the result of 6 months of planning, and then an almost equal number of months to pilot the technology and then roll it out to all of the agents and office professionals. Over the course of almost a year, the solution went from concept to reality, though there were problems. The company found itself between software releases of the primary vendor. This caused some delay in the piloting and implementation process. There were also some compatibility issues discovered during the piloting phase of the project. But once these issues were addressed, the roll out began, and met with almost instant success.

CURRENT CHALLENGES / PROBLEMS FACING THE ORGANIZATION

What happens when requirements outstrip our ability to satisfy them? We know from our experience that disaster soon follows. The initial agent technology support solution involved caring for each and every desktop and laptop computer for well over 3,000 agents. This approach failed on several levels. First, it was impossible to keep up with the demand. Each time an agent or employee had a problem, the company dispatched a technician. The number of problems quickly outstripped the company's ability to respond. Agents and employees were left waiting in an increasingly longer support queue. Secondly, the cost to maintain the approach was astronomical. Not only was the company responsible for "break and fix" for over 3,000 machines, it also had to keep all of the software applications current on all of the machines. This was difficult since it was impossible to control all of the versions of all of the applications on agent computers. Third, Prudential Fox & Roach wanted to begin to strategically leverage technology to support its agents, employees, and customers. The support model undermined this corporate objective.

In order to solve all of these problems, the Citrix solution was implemented. The initial results are more than just "promising." Cost savings in the support area are nearly 60%, and the number of agents that have defected for technology reasons from the company since the solution was implemented has fallen by 80%. The access solution that the company implemented has solved several problems simultaneously. There is every reason to believe that the solution will endure, and that the access portal that the company has created can be used for additional purposes over time.

Footnote

ENDNOTES

1 © 2004 Citrix Systems, Inc. All rights reserved. Citrix®, MetaFrame®, and MetaFrame XP® are registered trademarks or trademarks of Citrix Systems, Inc. in the United States and other countries. Microsoft®, Windows® and Windows Server(TM) are registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries. All other trademarks and registered trademarks are property of their respective owners.

2 Based on preliminary data collected at the company in 2005.

3 Citrix represents a solid solution to the problems at hand but certainly not the only solution available to Chief Information and Technology Officers (CIOs and CTOs). The key is to provide access to multiple applications and transaction processing capabilities in a way that minimizes support requirements for brokerage CIOs and CTOs.

References

REFERENCES

Alcaly, R. (2003). The new economy. New York, NY: Farrar, Straus and Giroux.

Andriole, S. J. (2003). Pervasive communications. Arlington, MA: Cutter Consortium.

Andriole, S. J. (2005). The 2nd digital revolution. Hershey, PA: IGI Publishing, Inc.

Hansen, M. T., & Nohira, N. (2004, Fall). How to build collaborative advantage. MIT Sloan Management Review.

Lee, H. L. (2004, October). The triple-A supply chain. Harvard Business Review.

Liker, J. K., & Choi, T. Y. (2004, October). Building deep supplier relationships. Harvard Business Review.

Malone, T. W. (2004). The future of work. Cambridge, MA: Harvard Business School Press.

McClellan, M. (2004, October 30). The collaborative effect. Intelligent Enterprise.

Murphy, A. (2002). Achieving business value from technology. New York, NY: John Wiley & Sons, Inc.

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Sloane, R. E. (2004, October). Leading a supply chain turnaround. Harvard Business Review.

AuthorAffiliation

Stephen J. Andriole, Villanova University, USA

Charlton Monsanto, Prudential Fox & Roach Realtors/Trident, USA

AuthorAffiliation

Stephen J. Andriole (steve@andriole.com) is the Thomas G. Labrecque professor of business technology at Villanova University where he teaches and directs applied research in business/technology alignment and pervasive computing. Dr. Andriole was the director of the Cybernetics Technology Office of the Defense Advanced Research Projects Agency (DARPA) where he managed a $50M program of research and development; he was also the chief technology officer and senior vice president of Safeguard Scientifics, Inc. and the chief technology officer and senior vice president for Technology Strategy at CIGNA Corporation. Dr. Andriole founded International Information Systems (IIS), Inc., TechVestCo, Inc. and co-founded Ascendigm, LLC. He is a columnist for Datamation Magazine and is the author or co-author of thirty books in analytical methodology and information technology. Dr. Andriole received his BA from LaSalle University and his master's and doctorate degrees from the University of Maryland.

Charlton Monsanto (cmonsanto@foxroach.com), a 16-year veteran in the IT industry, is currently senior vice president and chief information officer of Prudential Fox Roach/Trident in Devon, Pennsylvania, USA. Previously, he was partner and chief technology officer at LiquidHub, Inc., in Wayne, Pennsylvania, where he managed the firm's strategic direction for enterprise architecture, enterprise portals, information architecture, and vendor partnerships. In addition, he led business development initiatives and consulted with clients in the real estate, pharmaceutical, financial services, and manufacturing industries, assisting with analysis and strategy, integration and collaboration, portals, knowledge management, intranets, and elearning. He holds bachelors and master's degrees in information science and technology from Drexel University.

Subject: Real estate agents & brokers; Intranets; Competition; Internet access; Remote computing; Software upgrading; Case studies

Location: United States--US

Company / organization: Name: Prudential Fox Roach Inc; NAICS: 531210

Classification: 9190: United States; 8360: Real estate; 5250: Telecommunications systems & Internet communications; 9110: Company specific

Publication title: Journal of Cases on Information Technology

Volume: 8

Issue: 3

Pages: 1-10

Number of pages: 10

Publication year: 2006

Publication date: Jul-Sep 2006

Year: 2006

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Diagrams Tables References

ProQuest document ID: 198678643

Document URL: http://search.proquest.com/docview/198678643?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 99 of 100

Building an Online Undergraduate Module from a Graduate Module: A Case Study

Author: Darbyshire, Paul; Sandy, Geoffrey A

ProQuest document link

Abstract:

Online teaching has not as yet penetrated too deeply into the undergraduate culture, and most successful programs are targeted towards vocational learning or postgraduate courses. This case study details the experiences of translating a successful online teaching paradigm used in a fully online postgraduate degree to an undergraduate degree program. The main objective of this case study is to determine the appropriateness of using the postgraduate model at undergraduate level by examining the performance of three separate undergraduate groups studying a re-designed online undergraduate subject. As the graduate model is based on a semi-Socratic paradigm of initial discussion questions and follow-on weekly discussions, it was not at all clear that such a paradigm would be applicable at the undergraduate level. Given the limited working experience of undergraduates, a translation of the paradigm could loose its effectuality on the target student population. Yet the changing demographics of students suggests an online subject based on this paradigm may be successful. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: asynchronous discussion; asynchronous education; online teaching; virtual classroom; virtual learning

ORGANIZATION BACKGROUND

Victoria University is a relatively new university, being formed as recently as 1992 from the merger of two former Institutes of Technology. The recent addition of the Western Melbourne Institute of Technical and Further Education, which was previously involved primarily with industrial training, has made Victoria University into one of Australia's largest universities. It is one of only five dual-sector universities catering to a wide range of tertiary students from the central and western suburbs of Melbourne. Victoria University has over 50,000 students and over 3,000 staff, along with more than 2,300 international students studying both offshore and on-shore.

The School of Information Systems conducts undergraduate and graduate courses in a diverse range, including the core Bachelor of Business (Information Systems), Electronic Commerce, and specialist joint degrees in Arts Multimedia, Music Industry and Electronic Commerce, Marketing/ Electronic Commerce, and Law/Electronic Commerce. Graduate degrees include the Master degrees in Information Systems and Enterprise Resource Planning. Within these degrees, the school offers a very diverse range of subjects. Some are quite technical in nature while others are much more generally business-related. On average, students tend to mix electives across both ends of this spectrum. The latest technology is used in all information systems degrees and joint degrees.

As a new and rapidly changing technological institution, Victoria University has been very conscious of the need to continually reevaluate its curriculum, and to look for new ways of best providing for the needs of its students and the business community that it serves, in a costeffective manner. The location of the University and the general demographics of the students undertaking study often mean that many students, including full-time students, are engaged in part-time employment. Anecdotal evidence previously suggested a changing profile for undergraduate students, where many continue to work part-time while studying. However, the increasing level of student employment is now documented as a wider trend in the community (ABS, 2004). There are also many mature-age students returning to study to gain an undergraduate degree. Thus, the changing profile of the student population dictates a need for more flexibility.

Victoria University does not yet have a coherent approach to online learning. The University does have a Center for Educational Development and Support (CEDS) that has a small team promoting online learning initiatives throughout the University. However, at the "coal face," most efforts by academic staff are hybrid efforts consisting of traditional face-to-face teaching supported by Web sites with posted downloadable files, or further learning materials. This is not an indictment on the staff, but a reflection on busy schedules and the wider lack of penetration of online learning into undergraduate teaching.

Victoria University is currently engaged in a number of activities through CEDS (Center for Educational Development & Support) to promote and incorporate online teaching into the undergraduate curriculum. A number of small internal University grants were established to promote these activities, and the efforts described in this case study are a result of one such grant.

SETTING THE STAGE

We briefly outline some differences in academic terminology between Australia and North America. In Australia, students will study a particular course to gain an award, such as a degree. The course is made up of a number of subjects (or units/ modules). Confusion in terminology can arise because what Australians would refer to as a "subject" would be referred to in North America as a "course." These are summarized in Table 1.

The dominant paradigm for teaching and learning at Universities has been described as pedagogy (Heuer & King, 2004; Laureate Online Education, 2003). An emerging paradigm suitable for online teaching and learning has been referred to as andragogy (Heuer & King, 2004; Laureate Online Education, 2003). The major differences between the paradigms are summarized in Table 2: Two teaching and learning paradigms (Laureate Online Education, 2003; Pelz, 2004). The emerging paradigm prefers the term facilitator or moderator to that of teacher or instructor. In an online environment, the term is e-facilitator or e-moderator (Heuer & King, 2004; Salmon, 2000).

There are a number of approaches to the facilitation or moderation of an online class. Bedore et al. (Bedore, Bedore, & Bedore, 1998) suggest a useful classification of interactive, bounded interactive, consultative, independent, and special configuration. The role of the facilitator varies with each approach principally because of the different levels of interactivity required. In the case of the interactive approach, where a class size is about 10-15 students and each student is expected to send 10-12 meaningful messages a week, high-level skills are required of the facilitator. However, for the consultative approach, where there are about 40-60 students, the facilitator's role is primarily used by the students as a subject-matter expert. Such a model has greater similarity to some approaches belonging to the pedagogy paradigm.

Despite initial opposition to online teaching and learning, it is increasingly being adopted by universities. Opposition usually criticizes the high demands and commitment, together with the need for excellent time-management skills required by both facilitator and students (DiPaolo, 1999; Haddad, 2000). Again, criticism is also made about the need for students to work independently and in isolation, and with a lack of face-to-face personal interaction that results in impaired teaching and learning (DiPaolo, 1999; Haddad, 2000). Finally, criticism is made that students must be technologically literate, and have access to the relevant technology (DiPaolo, 1999; Haddad, 2000).

In contrast, the major benefits claimed for online teaching and learning stress the convenience and flexibility for the students, and less interruption to careers from the learning (Davis, 2001; FCIT, 1999). Indeed, students are encouraged to use their work experience with the material delivered online to enrich the learning experience. Further, it is claimed that online classes are richly diverse in terms of age and ethnicity, and students are usually highly motivated (Davis, 2001; FCIT, 1999). Proponents of online teaching and learning freely acknowledge that it is not suitable for everyone, but will provide educational outcomes at least equal to a similar off-line environment (Dutton, Dutton, & Perry, 2002; Neuhauser, 2002).

The online teaching and learning approach used in this case study is based on a semi-Socratic ontology and is largely constructivist in epistemology. In terms of the approaches referred to previously, it is a hybrid of the interactive and bounded interactive. The approach is successfully used in the largest international fully online Master of Computer Science course of the University of Liverpool and its partner Laureate Online Learning. It targets working professionals who find it difficult to attend the traditional classroom off-line environment. These students are usually highly motivated, technologically literate, and are willing to work independently and meet the high demand of time to be successful in the learning. They welcome the convenience and flexibility such an approach gives them, and view the interaction with a rich diversity of classmates as a positive experience. The Masters course adopts best-practice criteria as outlined in MSACHE (2001)

The main features of the approach adopted here are described in Bedore et al. (1998). The approach limits the class size to 15-20 students so as to achieve a high level of dialog. However, the level of dialog should be such that it does not impose an unreasonable load on the students, and is at a level that can be processed by the facilitator. As a rule of thumb, if the message rate is in excess of 200 messages per workshop then this limit is reached. Messages represent a student's individual input including papers/project work, assignments, responses to discussion questions, as well as comments related to other students' input. Each student is expected to read all messages. This is a major reading and response load for students and for the facilitator who must manage this load while providing appropriate leadership and comments. This requires high-level facilitation skills.

Because of the strong partnership between Laureate Online Education and the University, there is a strong commitment to the students' success. Each student is assigned a Program Manager who acts as a personal contact throughout the course. The University exercises close quality control over the course content, quality of students, and quality of facilitators. Faculty staff (facilitators) are supported by both Laureate and the University on both academic and technical dimensions. All facilitators must undertake and perform satisfactorily in an online training module before they can take a module. The first time a staff member takes a module, the facilitator is mentored and evaluated. An unsatisfactory performance means no certification.

Students are admitted to the course after extensive consultation, verification of previous studies, and a 2-week orientation period where an online class is simulated. Students are clearly informed of assessment procedures as they are well documented, and a thorough, transparent, and fair grading process is used. Both student and staff are formally involved in the evaluation of each subject module given, and a process is in place to evaluate the feedback and act to improve all aspects relating to course delivery. The implementation of this approach is depicted in the model shown in Figure 1 (Darbyshire, 2004).

The model in Figure 1 is based on a total quality management approach to the implementation of the paradigm described previously. The student features prominently in both feedback loops, where they are viewed as both the consumer and the product. The feedback loops represent the essence of the total quality management approach, and current best practice must be applied to the initial design and administration of the subject/course itself. The timeliness of the feedback between facilitator and student is important, as it allows the student to improve as they go, and may also affect the feedback to the developer. As with all feedback from consumers, it must be considered with the overall quality of the product in mind.

CASE DESCRIPTION

This successful approach was used by the authors from the School of Information Systems at Victoria University for a group of part-time students undertaking the core business subject titled "Information Systems for Business." All students of the Bachelor of Business must take this core subject, along with a number of other core subjects like Economics, Accounting, and Management. This was a pilot study that deliberately targeted part-time students who were selfmotivated and willing to share work and life experiences to make a success of the opportunity to learn with this approach. However, the authors were conscious that there were differences between this group and those normally taking the Master of Computer Science. Specifically, they were younger and consequently had less work (and life) experience to draw upon, together with the obvious differences and expectations associated with undergraduate and postgraduate studies.

However, not all undergraduate students are alike, and there is a large cross-section who would find benefits in the flexibility of online delivery, and possess the skills necessary to successfully complete online courses. Given the changing profile for undergraduate students and the many mature age students returning to study to gain an undergraduate degree, the flexibility offered by fully online courses can relieve the pressure of time constraints for such students. In addition, the work experience gained by these students can give them experiences that can be used to construct their learning experience in a synergistic manner by utilization of an appropriate online paradigm.

The online learning software is WebCT Campus Edition, which is licensed to Victoria University and mandated for use by recipients of a Curriculum Innovation Grant (CIG), of which this case study was conducted under. Although restricted to the use of WebCT for this case study, the authors are also experienced in the delivery of PG courses using FirstClass software through the University of Liverpool, England. WebCT is a Web-based solution to the virtual classroom. Although being Web-based does impose certain constructural design limitations, it is a solution that provides a consistent interface to students through a standard Web browser from virtually any Internet connection. Other solutions utilizing client-server technology provide further advantages, but do require the installation of client software on the student's computer, somewhat limiting the flexibility.

The existing undergraduate subject lectures were extensively rewritten to construct 10, self-contained textual-based seminars to relay the subject matter. Discussion questions were written for each of the seminars to initiate discussion on the seminar topics. Additionally, assignments were selected from the on-ground subject to complement the seminars. The length of the online pilot was reduced from the normal 12 week semester to 10 weeks, as online subjects are typically more intensive and of shorter duration. Additionally, the online subject assessment was based solely on three components of assessment: initial discussion questions, follow-on participation, and hand-in exercises, with all three given equal weighting. The exam component for the online class was removed. During the reenrollment period, a self-evaluation survey was distributed to part-time students to enable them to determine if they were suitable for online learning. Finally, 20 students were selected from the respondents on a first-come first-serve basis, and the group was brought together for one meeting. During this meeting, all details of the conduct of the online class were explained, and an orientation was conducted on the use of the virtual class software.

There are a number of differences between the developed undergraduate online subject and the existing postgraduate subject. Although essentially similar in nature, it was believed the differences were necessary for reasons of both the university's bureaucracy, and the undergraduate student load. These differences are summarized in Table 3.

The technical features available in the virtual classroom software used in both programs are similar, though Firstclass (software used by the graduate program) does include a clientserver software platform that offers some extended functionality. In both cases, lecture content is delivered as text (with some embedded graphics). All discussions take place asynchronously as threaded messages, over a period of a week. Threading can be turned off and discussions are then presented in submission order. Assessment is provided on a weekly basis based solely on the responses to the initial discussion questions, weekly participation in discussions, and answers to the hand-in exercises each week. All discussion questions and participation occurs during the seminar week and cannot be extended. Thus, it is not possible for a student to post late (within another seminar week) in order to gain marks for the previous week.

Pilot Program Results

The pilot online subject ran in semester 1, 2004, in a fully online asynchronous mode. The initial class size of 20 students stabilized to 14 students after the first 3 weeks. This represented a retention rate of 70%, which is reasonable in a fully online class where the participants had not experienced the online paradigm previously. Only part-time students were actively recruited into the pilot online class, though the class did include two full-time undergraduate students. The class ran for 10 weeks, and a 2-week break was inserted after week 5 to break the online semester into manageable tasks. At the end of week 10, each student was sent a subject feedback form so data could be gathered concerning satisfaction with various components of the online subject.

In semester 2, 2004 and semester 1, 2005, two follow-up classes were conducted to further gain experience with this delivery mode at the undergraduate level, and to continue to provide a flexible solution to students. Unlike the pilot class just described, the follow-up classes did not specifically target part-time students. Although these classes did contain some part-time students, the full-time/part-time ratios were more reflective of the standard off-line classroom. The follow-up classes were conducted in the same manner as the pilot. In the first follow-up class, an initial intake of 17 students eventually stabilized to 10 students after week 5 (retention rate of 58%). Interestingly, there were two students who persisted until week 5, with one of them getting passing grades: however, they did not return after the midsemester break. While those that remained received good passing grades, this class did not achieve the retention rate of the pilot class, possibly reflecting on the commitment of the part-time students? In the second follow-on class, an intake of 19 students stabilized to 17 after week 5 (retention rate of 89%). This class had a higher part-time ratio. Again, at the end of week 10, each student was sent a subject feedback questionnaire.

The feedback questionnaire consisted of 18 questions requiring a Likert-scaled response of a number from one to five. A response of one indicates a poor or negative opinion of the point raised in the question, a response of five indicates a strong positive opinion of the point raised. The 18 Likert-type questions are given in Table 4.

At the end of the feedback form, there are three open-ended questions where the students are invited to comment further on other aspects that they were either happy or unhappy about. These questions are:

* Please describe in a few words one aspect of the subject you were most satisfied with.

* Please describe in a few words one aspect of the subject you were least satisfied with

* Is there anything else you would like to add regarding the online program?

At the end of the pilot in semester 1, 2004, a total of five questionnaires were returned. While the number of returns was not large, it did represent a return rate of approximately 37%. Only four questionnaires were returned at the end of the follow-up class in semester 2, 2004, with seven returns from the semester 1, 2005 follow-on class. While overall the numbers of questionnaires were disappointing, the class sizes were small and the numbers were indicative of standard return rates. The average results from the Likert-scaled questions of the questionnaires for these classes are shown in Table 5, along with comparative data from four classes of a graduate subject. The averages for the undergraduate and comparative graduate classes, along with the variances of the individual classes from the average are shown in Table 6. The graduate subject is taught via Laureate Online Education through the University of Liverpool as part of the MSc in computer Science. The figures from Laureate were collected from the subject feedback throughout 2002. The shaded column represents the averages for the Likert-style questions for the undergraduate subject piloted at Victoria University. The same questionnaire was given to the undergraduate and masters students, except the undergraduate questionnaire had two extra questions. A brief analysis of the data displayed in Table 5 and Table 6 can quickly highlight some of the differences between the graduate and undergraduate experience.

Undergraduate Experience

The undergraduate students responded more negatively to questions four and six in the questionnaire, representing questions regarding the class assignments and the WebCT helpdesk system. As the online class received assignments from the same material as the equivalent on-ground students, the response may indicate a lack of confidence in performing assignments by remote instruction. However, unless the on-ground students are similarly polled, it is difficult to speculate. Additionally, as there is not yet an online teaching culture established at Victoria University, the help-desk aspect of the online experience is not mature, and a poor result would have been expected.

There were a number of questions where the undergraduate response represented a more positive experience than the postgraduate one. These included the instructor's involvement in the class, the convenience of WebCT, the instructor's help, the usefulness of the discussions, the flexibility of the subject, and the overall satisfaction of the subject. Of these points, question 12, "the flexibility of the subject," stood out as the most significant positive difference between the undergraduate and graduate feedback. This is surprising given the similarity in the demographics of the students from both programs. The MSc program conducted by Laureate Online Education and the University of Liverpool is specifically targeted to working professionals, while in the pilot undergraduate subject at Victoria University, we intentionally targeted part-time students. The part-time students are normally in paid full-time employment, and thus represent a group of students with similar demands on their time as the graduate students. However, as this pilot represents the first fully online class the students have participated in throughout their degree, the flexibility inherent in the subject design would have a great impact on their experience. The corresponding postgraduate subject would normally have been studied after a number of other online subjects, and thus at this stage, the postgraduate students would be more experienced and discerning of online class conduct.

As the undergraduate subject is designed around the online discussions, it is satisfying to see the relevant question ranking high in the student's perception. Above all else, it is the discussions from the paradigm we have adopted that drive the learning process. However, the difference in the responses for this question in the pilot class and the follow-up class should be noted. Perhaps this is a reflection of the different class demographics. The satisfaction with the usefulness of the discussions would also directly relate to the overall satisfaction with the subject. This question also ranked very highly. Again, the lack of experience in online classes would most likely artificially inflate these figures until more experience was gained. One of the more traditional methods of measuring the outcomes of the subject is, of course, the success rate of the students and the frequencies of the various grades received. This data is shown in Table 7 for the initial pilot class.

At first glance, the grades received seemed skewed towards the high end, but this reflects a common experience in online learning. Generally, online learning, while far more flexible, is also far more demanding. When the class numbers settle down after the initial drop outs have taken place, those left are usually in for the long-haul, and represent those students more suited to the online paradigm. Such students tend to be self-motivated and hard working, and will do well in the online or on-ground environment. This is usually reflected in the grades. It is interesting to note that although we intentionally targeted part-time students in the pilot online subject, we did have two full-time students participating. Two of the three pass (P) grades were allocated to those students. While we cannot draw conclusions based on two students, the follow-up online class in semester 2 is composed mainly of full-time undergraduates. It is interesting to compare the performance levels between the two classes.

Although the grades shown in Table 7 represent an overall good performance, this was also one of the points of contention raised a number of times in the pilot class. At the end of the questionnaire, students were asked to comment on the thing they were least satisfied with in the subject. A number of them raised the question of the marking scheme:

Each week a mark is allocated exactly as was done this semester however each grade has a value regardless of how many of them you get, this gives value to all the grades you get rather than the way it is now.

I was going to moan about the marking system, but I see that's already been done, so I won't bore you any more ... actually, I will... it was a bit of a pain when everybody handed in their DQs and stuff on the last night of the week.

The grading scheme seemed a bit harsh. You had to work very hard every week to have a hope of getting a HD, and the marking scheme made this very difficult.

In retrospect, we adopted the same grading scheme as the one used in the online MSc. This represented a requirement for a level of work that was overly harsh in order to receive a high grade in an undergraduate first-year subject. The grading scheme has been reviewed and adjusted, and the new scheme was subsequently used in the follow-up class in semester 2, 2004. The final grade frequencies for the follow-up class are shown in Table 8. The grade frequencies include the grades for students who persisted for more than 2 weeks.

The data in Table 8 overall indicates a poorer result than that indicated in Table 7. Although one HD grade result was achieved for the follow-up class, it must be remembered that these grades were obtained using the adjusted grading scheme, making it slightly easier to achieve higher grades. On the evidence apparent here, it seems that although full-time undergraduate students can benefit, part-time and mature-age students do fare better. However, given the size of the two classes involved in the initial program, more evidence is needed to support this. A further class was conducted in semester 1, 2005, and the corresponding grade frequencies are shown in Table 9.

This class had a much higher retention rate, however, the part-time student ratio was higher than in the semester 2, 2004 class, possibly reflecting a higher commitment by the students. No HD grades were allocated in this class, with the bulk of students centered on a "credit" grade. Of the three fail grades, two became inactive after week 4, with the third continually refusing to participate in the discussion component, being one of the essential components of assessment.

Instructor's Experience

The experience of an instructor is always subjective, but from an instructor's perspective, the online class seemed to perform well in comparison to the experience of the graduate class. There were a number of notable differences, but these were mainly at the beginning of the semester when the students were becoming familiar with the online paradigm. More motivation in terms of instructor postings was required to initiate discussions early in the semester. There was more reluctance to discuss personal experience; however as the semester progressed, the students became more responsive to the questions. Towards the end of the semester, the discussion frequencies and quality of the postings reached very satisfying levels.

One of the concepts that seemed more difficult for the undergraduate class to grasp was that of synergy generated from the postings. The paradigm works well when students discuss regularly over a period of days. In fact, while this was a requirement, it was difficult to impress on many that it was imperative for the paradigm to work effectively. There was a particular cohort that seemed to post everything on the last night of the week, and technically, while meeting the required number of postings, didn't add to the synergy of the group during the week. Unfortunately, the only thing to change the behavior pattern was the allocated mark for the week.

There was a difference between the pilot class and the follow-up classes that was apparent. In the pilot class, there was a particular group of approximately five to six students that were very active in postings and general chatter. There were also similar groups in the follow-up classes, but these tended to be smaller, with three to four students. Interestingly enough, most of these were among the part-time members of the class. The overall number of postings was also less per week, with minimal interaction in the first 4 days of each week. Facilitating this class required more instructor input, and thus more hands-on interaction. However, can these classes be flagged as a success, and thus the paradigm be classed as successful at the undergraduate level?

From the perspective of the students that persisted with the paradigm, these classes were successful in that the students passed, and received relatively reasonable grades, while gaining the flexibility of online learning. All except one of the fail grades awarded was to students who did not continue after a specific period, usually 3 to 4 weeks. Thus, those that committed to the paradigm achieved a passing grade, with most achieving a credit grade or above. The students worked harder during the semester, but then gained somewhat at the end of the semester by not having an exam to study for along with all the others. Students who failed to commit to the online paradigm either did not adapt to the paradigm well, or underestimated the work required in the online class. In order to minimize the fail grades allocated, and thus provide a better experience for all students, further work needs to be done in the selection of suitable students for the paradigm used.

CURRENT CHALLENGES / PROBLEMS FACING THE ORGANIZATION

Many of the successful online programs are directed towards the graduate market, with arguments that at the graduate level, students have the commitment and the skills necessary to survive in the online environment. There is no doubt that a properly constructed online subject can be more demanding than the equivalent on-ground subject. However, the flexibility inherent in the paradigm is attractive to people with busy life styles and demands made by family and career. While there has not been a deep penetration of online learning into undergraduate culture, it is important that Victoria University further investigate online paradigms that can be used at the undergraduate level. The changing demographics of the student population underlie the need for the University to investigate more flexible options. It is uncertain if many of the successful paradigms used in graduate programs will be successful in undergraduate programs. However, the online approach used in this case study was successfully adapted from a graduate model.

The online version of the subject adapted was specifically marketed to part-time undergraduate students in the first instance. This represented a section of the student population that would have a similar demographic to those undertaking the MSc, but with far less academic background. The outcomes for the students undertaking the online subject were promising, despite criticism of the marking scheme that was retained from the MSc program. The feedback from the end-of-subject questionnaires overall showed a more positive response to many of the aspects of the online subject, particularly the flexibility and overall satisfaction. However, given the number of returns and the first-time experience for the students, it may be difficult to draw concrete conclusions. But given the positive outcomes for the students and the flexibility offered to an often-neglected sector of the student population, the pilot subject seemed very successful.

However, to judge effectively the success of this particular paradigm for undergraduate teaching, more classes need to be conducted with a more representative cross section of the student population. The follow-up classes did represent such an attempt, and the tentative results do indicate less success. Far more results are needed to make more concrete conclusions. It does seem that in offering the flexibility of online learning to undergraduates, we need to carefully select the students. One of the challenges to Victoria University in pursuing this is to identify those students that not only have the most to gain from the flexibility of online learning, but will also have the best chance of being successful. The University cannot be seen channeling students into this form of learning where the success indicators do not seem to be positive.

During the conduct of the pilot and follow-up class, another challenge did present itself, which the University will need to face in the near future. The rules and regulations, university statutes, and procedures have been geared towards the traditional on-ground class. As such, there was difficulty in scheduling enrollments into the online class via the traditional lecture/tutorial enrollment system. These problems are generally bureaucratic in nature, but do require a commitment from the University at all levels. Also, current university regulations regarding grading and changes to courses made it difficult to offer an online subject where the grading scheme was different to the prescribed grading for the on-ground version of the subject. Consequently, the online subjects currently run as variations, with students having to sign forms acknowledging the differences.

Challenges now confront the University on the smoother integration of online learning into the mainstream business of the University. Currently, the management and recruitment of online students become the responsibility of those conducting the class. While the University is currently trying to establish online programs, the bureaucratic processes simply do not support these efforts. Established procedures and regulations need to be modified to provide the flexibility needed in offering online programs, both in recognizing and supporting the differences between on-ground and online subjects, and in the provision of the standard academic processes for online classes. Anecdotal evidence at Victoria University suggests that prolonged bureaucratic inactivity in establishing such support will derail any enthusiasm and interest academic staff have in the support of such programs.

It will also be desirable for the University to develop a uniform model for online teaching, if we are to pursue this paradigm with many of our offshore teaching programs. These programs are currently very successful, but do require many resources. Online offerings into these programs could solve some problems, but present many difficulties. There are challenges in negotiating partnership agreements with offshore universities who see multicultural face-to-face teaching as one of the major benefits of such programs. However, the SARS crisis did see many implementation difficulties during that time.

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AuthorAffiliation

Paul Darbyshire, Victoria University, Australia

Geoffrey A. Sandy, Victoria University, Australia

AuthorAffiliation

Paul Darbyshire is a lecturer in the School of Information Systems, Faculty of Business and Law at Victoria University , Melbourne, Australia. He lecturers in object oriented systems, C and Java programming, information systems and Internet technologies. He has research interests in the online learning and teaching models, complex systems and agent simulation of complex systems. His current research is into the use of AI based agents and communication in battlefield simulations. He has 20 years experience in lecturing at Victoria University. He is also an instructor of the University of Liverpool.

Dr. Geoff Sandy is associate professor in the School of Information Systems, Faculty of Business and Law at Victoria University, Melbourne, Australia. He holds a doctor of philosophy (computer science) from RMIT University. Dr. Sandy is a member of the Australian Computer Society (ACS), the Association for Information systems (AIS), the Australian Institute of Computer Ethics (AICE) and Electronic Frontiers Australia (EFA). He has 29 years experience in university teaching, research and consultancy and teaches at both the undergraduate and postgraduate levels including supervision of PhD and masters by research students. His research interests include online learning, enterprise modeling/ requirements engineering and societal and ethical issues related to the Internet.

Subject: Online instruction; College students; Instructional design; Studies

Location: Australia

Company: Victoria University of Technology-Australia

Classification: 9179: Asia & the Pacific; 9130: Experiment/theoretical treatment; 8306: Schools and educational services; 5250: Telecommunications systems & Internet communications

Publication title: Journal of Cases on Information Technology

Volume: 8

Issue: 3

Pages: 41-54

Number of pages: 14

Publication year: 2006

Publication date: Jul-Sep 2006

Year: 2006

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case, Case Study

Document feature: Tables Diagrams References

ProQuest document ID: 198718690

Document URL: http://search.proquest.com/docview/198718690?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 100 of 100

Make, Source, or Buy: The Decision to Acquire a New Reporting System

Author: Ross, Steven C; Burton, Brian K; Tyran, Craig K

ProQuest document link

Abstract:

The College of Business (COB) at Northern Washington University (NWU) needs new data systems to provide reports and information both internally and for its external accrediting body. Dewitt Brown, COB's associate dean, has been tasked with determining COB's needs and developing recommendations for sources of systems. COB could develop the systems internally since it has database expertise among its faculty and staff. Or, it could outsource to NWU's information technology staff. A third option, at least for some systems, is to purchase from an outside vendor. The decision is crucial: efficient, accurate reporting of data is key to COB's strategic plan to continue its accreditation as well as ensure that operations are smooth as possible. If COB were to lose its accreditation, it would lose status and likely lose funding and students as well. [PUBLICATION ABSTRACT]

Full text:

Headnote

EXECUTIVE SUMMARY

Keywords: academic administration IS, commercially available software, information technology adoption, IS development approaches, IS evaluation, IS project selection, outsourcing of IS, user needs assessment

ORGANIZATIONAL BACKGROUND

The setting for this case is the College of Business (COB) at Northern Washington University (NWU).1 COB has about 1,100 full majors at the undergraduate level, plus another 300 premajor students and a small MBA program of about 65 students. COB's primary mission is to graduate students who have a broad general background in business administration as well as indepth knowledge in a specialty area. Undergraduate majors include a BA in Business Administration, a BA in Accounting, and a BS in Manufacturing and Supply Chain Management. Concentrations within the business administration major include finance, human resource management, international business, management, management information systems, marketing, and operations management.

COB is one of seven colleges that form NWU. The university is a public institution, at the Masters I level of the Carnegie classification, and it holds a high reputation within the state and nationally for the quality of its undergraduate programs. NWU has about 12,000 students, including about 700 graduate students. Many NWU students have attended a community college in the state, and a large number come to the university with an associate's degree that may include some or all of COB's lower-division foundation courses. NWU is primarily a residential campus: most students live in the local community and attend class full-time in quarters in which they are enrolled. The university has few extension programs and a limited number of distance-learning course offerings.

COB has been accredited by AACSB International, the Association to Advance Collegiate Schools of Business, since 1990. It is due for review in 3 years (in 2007-the year of the case is 2004), and will be one of the first schools reviewed under new accreditation standards. Maintenance of accreditation is critical for a school like COB. Accredited status affects the school's ability to attract high-quality students and faculty, as well as funding from both state and private sources. The review process has changed from previous years, and the standards have been extensively revised under the new rules. Schools are expected to prepare relatively short annual reports and a more extensive fifth-year report, with data available to teams at the time of the maintenance visit. Three broad categories exist in the new standards: strategic management, participants (primarily faculty and students), and assurance of learning. The second category contains several items that require either reporting of data or easy availability of data, including faculty workload (courses and students taught), faculty qualifications (degree earned and recent activity in the field), and student admission and retention (incoming GPA and progress toward degree). The third category is completely new and focuses on assessment of student learning outcomes to determine if the school is fulfilling its mission. This category also requires data collection and dissemination either in a report or upon request. Data to compile these reports come from a number of sources, including university records, college records, and annual reports completed by the faculty.

COB's management structure is fairly simple. Peter O'Toole, the dean of COB, has two associate deans, one whose job responsibilities are more externally oriented and one whose job responsibilities are more internally oriented. The internally oriented associate dean, Dewitt Brown, has substantial responsibilities in the accreditation effort, including curriculum review, assurance of learning, and data reporting. Jennifer Wilkins, the dean's executive assistant, also plays an important part in the accreditation effort; she is assisted by Mildred Stinson, the COB program manager. Four department chairs make up another important part of the COB management structure. These chairs oversee the departments of accounting, decision sciences, finance and marketing, and management, and a total of 45 full-time, tenure-track faculty. Of particular importance in this case are the five full-time, tenure-track faculty who specialize in management information systems. They are housed in the decision sciences department. Each department has its own administrative assistant (secretary).

The strategic planning process at COB is informed by, but not driven by, AACSB mandates. The college's mission is to give students high-quality instruction within the limits imposed by its status as a college within a public university in times of tight state budgets. Strategic proposals are examined closely to see if they conform to the COB mission and can be accomplished within the resource constraints under which COB and NWU operate. Those constraints include partial legislative control over tuition rates, an initiative-mandated limit on the growth of state spending, and limits on the amount of tax increases (also imposed through the state's initiative process). COB operates with a $7 million annual budget. Maintenance of quality will be an important issue for COB. Business administration is consistently the single most popular area of interest among entering students, and the state is experiencing explosive growth in the college-age population as a result of the baby-boom echo. In general, the faculty do not wish to grow explosively; they see COB's competitive advantage as its small class sizes, and the fact that the vast majority of courses are taught by doctoral-qualified instructors. COB's growth historically has been slow but steady. It has not experienced the sharp rises and dips in enrollment experienced by some other business schools.

COB's culture is collegial and collaborative. Although politics are not totally absent from the College, political considerations are a relatively small factor in the decision-making process. Dean O'Toole operates by consensus. Ideas typically are given first hearing in meetings of the dean, associate deans, and department chairs. On favorable review, or after revision, worthy ideas come before the Policy Council, a body composed of the dean, associate deans, chairs, and elected representatives from each department. The Policy Council either makes decisions or takes proposals to college-wide faculty meetings for approval. Because of the dean's style, few proposals get wide circulation in COB without substantial support. For example, a college-wide reorganization was agreed upon 3 years ago with little opposition among the faculty, and changes to the policies and procedures concerning evaluation of faculty were approved last year with near-unanimous support.

SETTING THE STAGE

NWU has been recognized by Yahoo! Internet Life as one of America's "100 Most Wired Universities." It prides itself on providing technology to its students and faculty. Students study technology in majors such as management information systems (in COB) and computer science. Almost all classrooms contain computer projection equipment. Annually, the President provides funds for faculty workstation purchase and upgrades, and numerous innovations have been funded by a student technology fee. All NWU students are entitled to a computer account that provides e-mail, data and document storage, and a place for a Web site.

NWU Technology Systems and Support

NWU has a technology support structure that supports uses of technology for teaching (e.g., computers and projection systems in the classrooms, data storage for students and faculty) as well as technology support for the operation of the university (e.g., payroll, registration, academic records). The group that supports teaching is called academic technology (AT), while the group that supports administrative systems is called administrative computing services (ACS). Both AT and ACS report to a Vice Provost, who is the Chief Information Officer (CIO) of the university.

The ACS staff consists of a manager, 14 persons in technical roles (titles such as analyst, programmer, database administrator), and 6 persons in support and administrative roles. Functions assigned to the ACS staff include maintenance of the data and interfaces to the administrative computing systems as well as management of the "machine room," a centralized, secure, and protected facility that houses servers for both NWU and some of its academic units.

NWU maintains its administrative computing systems using Oracle database technology with an interface and control system developed by SCT, Inc. The trade name of that system is "Banner" (SunGard SCT, 2005). NWU has adopted several modules of the Banner system, including student, finance, and human resources. Like most "production" systems, the Banner system uses highly normalized tables, requiring multiple joins to yield a result such as a student transcript. This system works very well for applications where a single student is involved, for example, registering for classes or obtaining a transcript. The system is unacceptably slow and complex for reports that involve several students, for instance the determination of which students qualify for magna cum laude status at graduation.

The ACS staff has developed a data warehouse that contains a series of data sets, including student academic records and human resources data about faculty and staff. While tables in the Banner system are highly normalized, tables in the data warehouse are designed for easy query. Most of the data warehouse tables are combinations of multiple Banner tables and thus, not even in first normal form. NWU has adopted Hummingbird BI [business intelligence] products (Hummingbird BI, 2005) to provide users an easy interface for query of the data warehouse.

NWU has also developed specialized systems for one of its colleges-the Miller College of Education (MCE). The State of Washington, like most states, has imposed a number of recordkeeping requirements on institutions that certify teachers. The NWU administrative computing staff developed tables to hold information specific to MCE needs, and then developed a user interface (using Java technology) for the MCE faculty and staff.

COB Technology Systems and Support

COB has been a leader in technological innovation on the NWU campus. It was the first college in NWU to provide personal computers to its entire faculty, and operated the first networked PC lab on campus. COB originally provided a server for student data and documents and hosted its own e-mail system, but those services are now provided by NWU. However, COB still maintains its own servers for faculty data and documents, course materials, Web sites, and database systems. COB's systems are fully integrated into the NWU network system; in fact, many of its physical systems assets are collocated with NWU systems in a modern server room.

Bartlett Smith is COB's Director of Information Technology. He reports to Peter O'Toole, the Dean of COB. Smith's duties include management of a small staff-one systems manager and several student assistants-and liaison with university technology services. The systems manager position was added three years ago; Smith would like to add a half-time position directed toward systems development. Smith and his staff provide support for faculty and staff hardware and software, operate an instructional lab that contains 55 workstations, and manage a dozen servers. The servers are used for tasks ranging from administrative support and record keeping for the college to instructional uses such as supporting classes in network management and database administration.

Devin Elkins, Professor of MIS, and Sterling Kelley, Assistant Professor of MIS, were instrumental in developing the Web site for the college. The site uses active server page (ASP) technology to draw information, such as lists of professors and class information, from a SQL server database. Both the Web server and the database are hosted by COB on its own machines, which are maintained by Smith and his staff. Elkins, whose specialty is database systems, designed the database and wrote the stored procedures used in the system. Kelley, a specialist in ASP, developed both public pages that display the data as well as an administrative interface that allows department secretaries to maintain the data.

COB must develop a series of reports as part of its application for maintenance of accreditation. In 1989, COB developed a data system to support its initial accreditation effort. That system contained both student and faculty data (see Table 1). The developers of that system, who are no longer with COB, employed a number of clever techniques to enable the system to be used by multiple persons. Over time, however, the faculty portion of the system became unusable, and the student portion was restricted to a single user. The last entries in the faculty portion of the system were made in June 2000. The student data are still being maintained, but Dean O'Toole has grave doubts about the system's ability to support the college's upcoming accreditation review. He has shared his concerns with Smith and also with the members of the MIS faculty (five professors in all, including Elkins and Kelley). To address the requirements of the accreditation agency, it has become evident that COB will need to develop a new information system to aid with data collection and reporting. The necessity to acquire new systems to address the mandate of external agencies is not unusual. In addition to organizational units at NWU such as COB and the Miller College of Education, it is common for university, government, and commercial organizations to be faced with a requirement to update or replace systems to meet new reporting requirements (e.g., Chae & Poole, 2005).

CASE DESCRIPTION

Dewitt Brown, Associate Dean of COB, is responsible for assembling the data to present to the accreditation review team. The standards are explained on the AACSB Web site (AACSB, 2005), which also contains templates for reports. The data pertain to three general entities: students, faculty, and classes. Brown has made a list of the items important to each (see Table 2). He notes that some of these items are in the old system and some are in NWU systems, but many are new.

In consultation with O'Toole and Elkins, Brown has divided the college's data reporting and management requirements into five systems (not listed in any order of priority): faculty management, faculty activities, student management, course objectives, and student planning (see Table 3). He has made notes about each of the systems to help in his search for solutions.

COB needs a faculty management system to record and report on a faculty member's workload-the number of classes and students a faculty member teaches-and other characteristics such as the role (full- or part-time), degrees, rank and salary history, level of qualification, and personal data such as name, address, and birth date. Some of these items can be calculated by summarizing university data, while other items are in college files. The determination of whether a person is academically qualified is made by the Dean and the person's department chair after a review of the person's activities during the past 5 years. The COB office staff will make any necessary data entries into this system. Reports from this system are required for the accreditation review (see the definition of Table I in the AACSB 2005 documentation).

A faculty activities system is needed to allow faculty members to record their publication and other nonteaching activities (e.g., speeches, consulting). Most of the data input for this system will be done by the individual faculty member. Reports from this system are required for the accreditation review (see the definition of Table II in the AACSB 2005 documentation) and are used in the determination of academic qualification.

A college's means of tracking student progress is another of the items reviewed for accreditation. The student management system developed by COB in 1989 enabled the college to track academic progress of COB students from initial acceptance into the program until graduation. The old system, still in use, requires a lot of maintenance, and duplicates much information that is also maintained in the NWU systems. For instance, Bartlett Smith downloads student grades and course registrations each quarter from the NWU system into the COB system. Although this data is relatively stable, grade and registration changes do occur that make the data in the COB system out-of-date later in the quarter. Most of the data maintained by COB in its old system is available in the university system. There are some data elements however, such as business transfer classes (e.g., financial accounting and microeconomics), that are not maintained in the NWU systems and must, therefore, be input and maintained by COB. Dean O'Toole would like a new system that eliminates the need for downloading and input of data that is already stored by NWU.

"Assurance of learning" is another aspect of accreditation. To demonstrate assurance of learning, schools develop a set of student learning objectives, record the courses to which the objectives apply, and then test whether students have achieved those objectives. Currently, COB has no formal means for recording and summarizing student learning objectives. A course objectives system would enable COB to track which objectives are covered in which courses. Combined with results of objective assessment such as test scores, this system would enable COB to document its efforts at assurance of learning. Input to this system would be accomplished by faculty members indicating which objectives are covered in each of their courses.

The final system identified by Brown is a student planning system. With this system, students may plan their program of studies in COB: ensuring that they take all required and necessary elective courses and that they do not violate prerequisites. Currently, students in COB majors complete a "plan of study" (paper) worksheet that is reviewed by their advisor. Although advisors usually notice when required classes are omitted, they often fail to catch violations of course prerequisite rules. These documents are filed in department offices, but no attempt is made to plan course offerings based on student plans. A well-designed student planning system would combine information from university, college, and student sources; it would store data that could be queried to determine course demand; and would check plans to ensure they were valid.

Dewitt Brown worked with the MIS faculty to develop system specifications and sample interfaces for each of these five systems. Brown's specialty is management, not MIS, so he turned to Joseph Cameron, the MIS professor specializing in analysis and design, for help in determining the best approach to take to acquire these systems.

Approaches to Software Acquisition

In his discussions with Joseph Cameron, Associate Dean Brown learned that there were three primary approaches for acquiring information systems: in-house software development, outsourcing, and purchase of a packaged software solution. Each of these options is summarized as follows:

In-house software development: This approach would entail software development by members of COB (primarily the MIS faculty members). A number of software development activities would need to be completed. These steps would include design, programming, testing, installation, training, and maintenance. Developing the systems in-house would require oversight and management of the system development, as well as the maintenance of the system over time.

Outsourcing: This option would entail having a third-party handle system development. Outsourcing has become a very large segment of the information system industry, with many vendor organizations providing outsourcing services ranging from small consulting firms to very large corporations (e.g., IBM). Outsourcing services can include the initial systems development, as well as ongoing system operation and maintenance.

Packaged software: The third option would be to purchase a packaged software product. Software vendors have developed software applications to fit almost all types of organizational niches, including administrative systems in higher education. The viability of this option typically hinges on whether or not there is a software product that will fit the specific requirements of the desired system. If a system has specifications that are not unique to any one organization (e.g., a basic registration system), then it is quite possible that a useful system can be purchased "off the shelf" from a vendor. However, if the system specifications are unusual or unique, then it can be more difficult to locate a packaged system that will be suitable.

Software Acquisition and the Decision-Making Process

After learning about the different ways that an organization may acquire software, Associate Dean Brown asked Joseph Cameron for a recommendation on how to approach the decision process. Cameron (who does research and teaching on decision making) suggested that a useful technique adopted by many decision makers is to follow a structured process. For the software acquisition decision, Cameron recommended that Brown follow a decision-making "stage model" based on the well-known model developed by the late Nobel Laureate Herbert Simon (1960). In particular, Cameron suggested a modified version of Simon's model that had recently been published (see Dibbern, Goles, Hirschheim, & Jayatilaka, 2004). While the Dibbern model had been developed for outsourcing decisions, it could be adapted to help managers to understand the decision-making process for the more general scenario of software acquisition. Cameron drew a sketch of the decision-making model for Associate Dean Brown that is shown in Figure 1. As indicated in the figure, there are five stages to the model: the first three stages involve the decision process itself, while the final two stages address the implementation of the decision. A summary of each of the stages is discussed next.

Why stage: In this stage, the decision maker considers the reasons "why," or "why not," it may be useful to go outside the organization to acquire an information system (IS) (i.e., outsource or buy packaged software). In this stage, the decision maker gathers background information and perspectives that will be relevant to the subsequent decision. In the context of software acquisition decision making, it is during the Why stage that the decision maker examines the advantages and disadvantages of different approaches to software acquisition. The decision maker has a number of issues to consider such as costs, service quality, and ability to take advantage of the expertise of specialized suppliers.

What stage: This stage concerns the question of identifying "what" may be the acquisition options to consider for the new system. As discussed earlier, options may come from different sources such as in-house development, outsourcing, or packaged software. A key task for this stage is to identify what specific options will be considered for the decision (i.e., what specific outsourcer(s), what specific packaged software package(s)). The decision maker's findings from the Why stage can serve as the criteria for generating the options considered in the What stage. For example, if technical innovation issues are central to the decision process, then it will be important to explore third-party options for an IS project that will require technical skills not found in the organization.

Which stage: The decision regarding "which" option to implement is made in the Which stage. In some cases, the decision may be based on objective criteria such as costs and benefits (Marakas, 1999). For example, the decision on whether or not to build a system in-house may be handled by conducting a quantitative analysis for the various options under consideration. This process involves estimation of project costs and benefits over a specified time horizon (Hoffer, George, & Valacich, 2005). Estimation of benefits may include both tangible and intangible elements. Examples of tangible benefits are savings related to manpower and operating costs. Examples of intangible benefits (some of which may be quantified over time) are enhanced customer service, competitive or operational necessity, and improved management decision making and planning (Lederer & Prasad, 1992). In addition to financial factors, there are other issues that a decision maker may take into account when deciding which option to choose. These factors may include software functionality, quality of vendor support, and the "fit" that may exist between the vendor and client (Michell & Fitzgerald, 1997). To promote a good working relationship, it is useful for the vendor and client to share similar values and work practices.

How stage: This stage is concerned with "how" to implement the acquisition decision that was made in the previous stage. The issues confronting the decision maker at this stage will vary depending on whether or not the software will be acquired internally or externally. If the decision is to build in-house, then it will be necessary to manage the various activities associated with software development (e.g., programming, testing, and maintenance). Even for smaller-scale projects, it can be a complex task to manage these activities (Ensworth, 2001). If the decision is made to go outside the organization to acquire the system, then a third party will be responsible for systems development. While this may relieve the client organization of some headaches, the use of a third party introduces a new set of challenges. For example, the organization will need to pay attention to issues such as how to structure the relationship with the third party, how to manage the arrangement, and lack of flexibility and responsiveness on the part of the vendor (Marciniak & Reifer, 1990; Michell & Fitzgerald, 1997).

Outcomes stage: The outcomes stage is concerned with the consequences of the decision and the evaluation of the decision outcomes. In this stage, management monitors the decision outcomes to determine whether or not changes should be made with respect to the implementation of the decision, or whether the decision itself needs to be modified. Performance aspects of the project to evaluate may include factors such as economic, technical, strategic, and user-satisfaction performance (Saunders, Gebelt, & Hu, 1997).

Alternatives Available to COB

Dean O'Toole has given Associate Dean Brown the task of recommending how COB can acquire the data systems it needs. The decision as to how to develop the old system had been simple: either do the reports by hand or develop a system using COB assets. According to O'Toole:

This is a whole new ball game. Commercial options are available that weren't available when we developed our first system. NWU's computing staff is now able to offer services that weren't possible in the past. Your task is to sift through these options and decide how best to deliver the solutions.

Brown has collected information about the various means by which COB could acquire the systems. Based on his discussions with Cameron and Elkins, he realizes that the three general strategies translate to develop internally (to COB) by faculty and IT staff; outsource development to NWU IT staff; or purchase a commercially available system. It is possible for COB to mix and match options depending on the particular issues associated with each of the five system projects. Brown has asked Elkins to help him assemble the facts necessary to make a decision.

Develop internally: The COB IT support staff and MIS faculty have been investigating the feasibility of developing the five systems. They would be able to develop a set of integrated systems on COB's SQL and WWW servers that would store data about students and faculty that are not kept on the NWU systems, and then join that with data drawn on an ad hoc basis from the NWU Banner or Data Warehouse systems. They would develop user interfaces in Microsoft Access or Active Server Pages, two technologies with which they are familiar. In fact, Kelley and Elkins used these technologies in 2002 to develop a Web site for COB.

Smith, COB's Director of Information Technology, is an advocate of internal development. He points out that internal development leads to greater control of both system features and data stored in the system. He is concerned that outsourcing the project will lead to a loss of control over data and systems assets. According to Smith, "When ACS took over the Miller College of Education (MCE) project, several [MCE] systems personnel were reassigned or let go. MCE faculty do not enjoy the same level of support they once did." To support development of this and other systems, Smith would like to hire a half-time staff person (the other half of the person's time to be paid by another unit on campus). COB's portion of the person's salary would be approximately $20,000 per year.

Elkins is less sure that COB should undertake the full project and hire a staff programmer. MIS faculty in universities rarely undertake substantial systems-development projects because such projects would interfere with their other duties in teaching and research. Dean O'Toole has committed a total of $5,000 in summer grants to Elkins and Kelley to fund their initial design and development work. Elkins proposes that he and Kelley develop prototype systems, using part of their summer grant funding to employ a student. Once the prototypes are developed, COB can make decisions concerning further internal development or other alternatives. Elkins has mixed opinions regarding the advisability of internal-to-COB development:

On the one hand, we have plenty of control and learn a lot of interesting things while developing projects, the downside is that such projects always take more time and effort than expected and can interfere with both academic and recreational pursuits. Work on the Web site interfered with my summer salmon fishing trip!

Outsource to NWU/ACS staff: For the software acquisition decision confronting Brown, the most realistic outsourcing option would be the NWU's Administrative Computing Services group. The ACS staff is eager to provide support to any and all units of NWU, including COB. David Albion, Director of Administrative Computing, and Dominique Good, one of ACS's project managers, have been briefed on COB's needs. Good has been tasked to work with Elkins as he develops systems specifications. John Buskin, ACS database specialist, has also been assigned to work with Elkins.

Good is an advocate of outsourcing to ACS as soon as possible. ACS developed a similar system for NWU's Miller College of Education (MCE). The MCE staff had started to develop a system and ran into technical issues beyond their expertise. According to Good, "ACS staff did quite a bit of rewriting of both code and database structure when they took over the MCE system. This made the project more complicated than if ACS had worked on it from the start." Good acknowledges that COB has more experience and expertise in its staff and faculty, but she also notes that there are operational differences between COB's platform of SQL Server and Windows ASP on the one hand, and ACS's platform of Oracle and Java. She expects that the COB systems will eventually come under the control of ACS, certainly within the next 10 years when both Elkins and Smith are due to retire. Good's is very direct in expressing her opinion, "The sooner our staff takes over the development and operation of a system, the better." Because some of the data used in the COB system will come from the Oracle databases managed by ACS, Good expects that there will be some challenging interface issues.

Elkins is impressed by the quality of the system developed by ACS for MCE. He is a bit concerned, however, about the "distance" between ACS and the ultimate users of the system: COB staff, faculty, and students. In discussions with Albion and Good, he has noted that they do not always understand what is being requested, and the urgency of COB's requests. He noted that "[ACS managers] are constantly challenging the need for the systems we discuss-trying to make existing systems meet our needs and simplifying our requests." Although ACS would be committed to delivering what COB needs and Elkins is certain these discrepancies can be overcome, he feels that internal development would expedite the process.

Many organizations have some sort of transfer pricing in effect to account for IT support of operational units. Although NWU has no formal system in place, David Albion suggested to Dean O'Toole that some reallocation of funds would be appropriate. Albion pointed out that COB was prepared to spend a certain amount for design and development of the system: if ACS were to accomplish that feat then at least some of the funds COB had planned to dedicate to the system should be shifted to ACS's budget.

Purchase a commercially-available system: Brown and Elkins attended a seminar sponsored by AACSB, the accrediting agency, dealing with data management and other accreditationrelated topics. While at that seminar, they learned of two commercial products. Both SEDONA (Sedona Systems, 2005) and Digital Measures (Digital Measures, 2005) offer products that would accomplish some, but not all, of COB's data management needs.

While waiting at Seattle-Tacoma airport for a connecting flight, Brown and Elkins had a long discussion about the commercial products. Brown had discussed one of the systems with his counterpart at another university who was using the software. According to that person, "[the software] is a really neat system and does a lot of stuff." Elkins had viewed the demonstrations. He observed that:

The commercially-available systems present both plusses and minuses. They are available immediately, and appear to be sufficiently customizable to meet COB's specific needs. All data in the systems is stored at the vendor's central location-not on the NWU campus-although both offer the ability to download data for analysis. The subscription cost for the first three or four years of operation (for the 'faculty' parts) would be approximately the same as the cost to develop all systems within COB, or the amount transferred to ACS. These systems do not meet all COB needs, however, and COB would have to spend additional funds to acquire systems meeting the remainder of its needs.

Shortly after Brown and Elkins returned from the conference, Dean O'Toole received information from both companies. One of their e-mail messages is displayed in Figure 2.

Based on what they learned at the conference, Brown and Elkins feel that SEDONA and Digital Measures are quite similar in features and pricing. Either system would track and report on the items in both the proposed faculty management system and the faculty activities system. Neither system would accomplish the student management or student planning requirements. The Digital Measures system does include an objective mapping component that might meet COB's needs for a course objectives system.

CURRENT CHALLENGES / PROBLEMS FACING THE ORGANIZATION

Associate Dean Brown has decided to follow the five-stage model. Later this week, he must brief the College Policy Council on his progress toward a decision, presenting what he knows and what he still needs to learn to make his recommendation whether, for each system, to develop within COB, outsource to NWU, or purchase from an outside vendor.

In preparing for the Policy Council meeting, Brown has considered certain framing questions to guide his presentation to the council.

* What information do we need to know to proceed with the decision-making process? Do we have this information readily available?

* What options are available for each of the five subsystems? Brown will create a matrix illustrating the choices.

* What are the pros and cons of each available option for each subsystem? What should be the most important factor in making each decision?

* What important issues can be foreseen as arising during the implementation process?

* How should progress toward the system's complete implementation and operation be monitored?

Brown must make his final recommendations to Dean O'Toole one week after the Policy Council meeting. For each system, he will recommend a source, priority, and (if possible) a contingency plan in case the preferred source cannot be employed. Several of these systems are critical to the accreditation effort, and all are important to COB's mission. Once Dean O'Toole makes his decision, time will be needed for implementation and practice to ensure the systems are working before reports to AACSB must be made and the review team arrives on campus. The systems must be completed within the next two years.

Footnote

ENDNOTE

1 The facts described in this case accurately reflect an actual decision process that occurred at a university located in the United States. For purposes of anonymity, the name of the organization and the names of individuals involved have been disguised.

References

REFERENCES

AACSB. (2005). Maintenance of accreditation handbook. Retrieved February 19, 2005, from http://www.aacsb.edu/accreditation/maintenance/handbook.pdf

Chae, B., & Poole, M. S. (2005). Enterprise system development in higher education. Journal of Cases on Information Technology, 7(2), 82-101.

Dibbern, J., Goles, T., Hirschheim, R., & Jayatilaka, B. (2004). Information systems outsourcing: A survey and analysis of the literature. DATA BASE for Advances in Information Systems, 53(4), 6-102.

Digital Measures. (2005). Retrieved February 20, 2005, from http://www.digitalmeasures.com/

Ensworth, P. (2001). The accidental project manager: Surviving the transition from techie to manager. New York: Wiley and Sons.

Hoffer, J. A., George, J. F., & Valacich, J. S. (2005). Modern systems analysis and design (4th ed.). Upper Saddler River, NJ: Pearson-Prentice Hall.

Hummingbird BI. (2005). Retrieved February 19, 2005, from http://www.hummingbird.com/products/bi/index.html

Lederer, A. L., & Prasad, J. (1992). Nine management guidelines for better cost estimating. Communications of the ACM, 35(2), 51-59.

Marakas, G. M. (1999). Decision support systems in the 21st century. Upper Saddle River, NJ: Prentice Hall.

Marciniak, J. J., & Reifer, D. J. (1990). Software acquisition management. New York: John Wiley & Sons.

Michell, V., & Fitzgerald, G. (1997). The IT outsourcing market-place: Vendors and their selection. Journal of Information Technology, 12(3), 223-237.

Saunders, C., Gebelt, M., & Hu, Q. (1997). Achieving success in information systems outsourcing. California Management Review, 39(2), 63-79.

Sedona Systems. (2005). Retrieved February 20, 2005, from https://www.sedona.bz/

Simon, H. A. (1960). The new science of management decision. New York, NY: Harper.

SunGard SCT. (2005). Main page. Retrieved February 19, 2005, from http://www.sct.com/Education/

AuthorAffiliation

Steven C. Ross, Western Washington University, USA

Brian K. Burton, Western Washington University, USA

Craig K. Tyran, Western Washington University, USA

AuthorAffiliation

Steven C. Ross is a professor in the department of decision sciences at Western Washington University. He received MS and PhD degrees in business from The University of Utah, and a BS in history from Oregon State University. Prior to joining Western Washington University, he was a faculty member at Marquette University and Montana State University. He is the author or coauthor of 35 books and 23 published articles. His publications have appeared in Journal of Cases on Information Technology, Communications of the AIS, Journal of Applied Business Research, and Journal of Computer Information Systems, among others. His teaching and research interests include systems development, database management, and intranets.

Brian Burton is an associate professor of management, associate dean of the College of Business & Economics, and director of the MBA program at Western Washington University. He holds BA, MBA, and PhD degrees from Indiana University. He has published papers in Business Ethics Quarterly, Journal of Business Ethics, Business & Society, and Teaching Business Ethics, and has presented papers at the Academy of Management, International Association for Business and Society, International Federation of Scholarly Associations of Management, Society for Business Ethics, and Midwest Academy of Management conferences. He has also published cases and pedagogical papers in the Case Research Journal and Journal of Management Education, and presented at the North American Case Research Association Conference.

Craig K. Tyran is an associate professor of management information systems at Western Washington University and was previously on the faculties of Oregon State and Washington State Universities. He has published numerous articles and made presentations at a variety of international professional conferences. His publications have appeared in Journal of Cases on Information Technology, MIS Quarterly, Communications of the AIS, and Communications of the ACM, and others. He holds degrees from Stanford (BS, MS), UCLA (MBA), and the University of Arizona (PhD), and conducts research in the areas of technology support for collaboration and learning.

Subject: Business schools; Accreditation; MIS; Software; Technological planning; Studies

Location: United States--US

Company / organization: Name: University of Northern Washington; NAICS: 611310

Classification: 9190: United States; 8306: Schools and educational services; 5240: Software & systems; 9130: Experiment/theoretical treatment

Publication title: Journal of Cases on Information Technology

Volume: 8

Issue: 3

Pages: 55-70

Number of pages: 16

Publication year: 2006

Publication date: Jul-Sep 2006

Year: 2006

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 15487717

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: Tables Diagrams References

ProQuest document ID: 198650460

Document URL: http://search.proquest.com/docview/198650460?accountid=38610

Last updated: 2011-07-21

Database: ABI/INFORM Complete

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