John Nouwens &
Harry Bouwman
University of Amsterdam
This question can be interpreted in two ways. First, what kind of benefits can be expected from the use of telecommunication networks and services for the development and maintenance of inter-organizational coordination? This question will be answered by presenting a theoretical framework in which the concept of networks is used to describe both organizations and telecommunications and to show how these concepts are interrelated. We will argue that the traditional dichotomy between (electronic) markets and hierarchies will be nuanced by offering a third option, the development of network-organizations.
Secondly, we ask how telecommunication networks can be developed in order to facilitate the development and maintenance of inter-organizational coordination. We suggest that the way telecommunication networks and services are implemented will have significant impact on the way these networks are used. We will do so by focusing on the participating actors in the implementation phase of network development, and especially the role of system integrators in this process. Case studies have been done in the Dutch sectors of music retail, construction, agriculture and the hotel industry.
Powell (1990) has suggested that an alternative coordination structure is emerging: networks. Networks are groups of organizational actors who participate in a general pattern of interaction (Kreps, 1990). Networks can be groups of organizations, but also groups within organizations. Network-organizations stress the interdependence between organizational actors and thus pay a lot of attention to the development and maintenance of (communicative) relationships. At the same time, the different organizational actors have their own particular interests, and can be allied to different network-organizations. Thus, network-relationships can always be characterized by a tension between autonomy and interdependence, between team loyalty and individuality, between competition and cooperation. Traditionally, these networks are considered to be a hybrid form of market and hierarchies but Powell argues that this is "historically inaccurate, overly static, and it detracts from our ability to explain many forms of collaboration that are viable means of exchange." (Powell, 1990, p. 298). That is, network forms of exchange have completely different modes of coordination that is neither price nor supervision, but mutual interest and interdependence (see Table 1).
| Table 1. Comparison of Forms of Economic Organization (based on Powell, 1990) | |||
|---|---|---|---|
| Key Features | Market | Hierarchy | Network | Normative Basis | Contract/Propert y Rights | Employment Relationship | Complementary Strengths |
| Means of Communication | Prices | Routines | Relational |
| Methods of Conflict Resolution | Haggling - resort to courts | Supervision | Norm of reciprocity Reputational concerns |
| Degree of Flexibility | High | Low | Medium |
| Amount of Commitment | Low | Medium to High | Medium to High |
| Tone or Climate | Precision/Suspicion | Formal/bureaucratic | Open-ended, mutual benefits |
| Actor preferences or choices | Independent | Dependent | Interdependent |
| Mixing of forms | Repeat transactions | Contracts as hierarchical documents | Informal organization |
| Market-like features | Status hierarchies | Multiple Partners | Formal Rules |
In line with Powell, we argue that network organizations are not equal to markets, since "central to the conceptualizations of the electronic marketplace is the ability of any buyer or seller to interconnect with a network to offer wares or shop for goods and services. Hence, ubiquity is by definition a prerequisite"(Steinfield, Plummer & Kraut, 1995). Ubiquity is - again, by definition - not a feature of a network organization, since interdependence has to exist; network organizations are built around general patterns of interaction. It is the relationship that counts: A relationship that is dependent on clear communication patterns in order to achieve a mutual understanding. Information and communication can determine whether these autonomous actors (individuals, groups or organizations as a whole) are able to work together. "Communication is defined as a process in which the participants create and share information with one another in order to reach a mutual understanding (....). In other words, communication always implies relationships" (Rogers & Kincaid, 1981). All inter-organizational relationships are characterized both by autonomy and interdependency, self-interest and team-spirit, competition and cooperation.
These relationships are often described as value-added partnerships, that is, a set of independent organizations who cooperate to manage (information about) the flow of products and services in the value chain. The partnerships or inter-organizational networks can be either based on horizontal, vertical or symbiotic relationships. Within horizontal relationships, the organizations are one another's competitors. Organizations in vertical relationships follow each other in a value chain (sequential) and the rationale behind symbiotic relationships is that the different organizations offer complementary services and products to the market. The primary goal of all these partnerships is to achieve - through cooperation - competitive advantage in relation to companies outside this network. Porter (1980) has identified five competitive forces that structure the position of any firm (or group of firms): the rivalry between existing competitors, the threat of new entrants, the threat of substitute products and services, the bargaining power of suppliers and the bargaining power of clients. Value-added partnerships are, on one the hand, means to neutralize any rivalry between these different forces - by means of cooperation between buyers, sellers and even competitors - and, on the other hand, means to improve the competitive position of the whole network organization in relation to organizations not belonging to this network.
In order for network organizations to be successful - and thus to realize competitive advantage - they heavily depend on relationships based on communication.
"In a network firm the conditions of access to the communications networks (...) can be as important as the conditions of ownership and the system of incentives. Communication networks enable cooperative coordination among specialized firms and can become a substitute for hierarchical coordination" (Antonelli 1992, pp. 22).
We argue that telecommunication networks and services can support the formation and maintenance of these value-added partnerships because they facilitate the way organizations communicate.
TELECOMMUNICATIONS AND ADDED VALUE
As important as the concept of relationships is in cooperative
strategies to achieve competitive advantage, it is quintessential
for telecommunication technologies. "The use of any
telecommunications service implies (at least) two parties,
consequently (...) the advantages (or disadvantages) to be
connected to the network derive from the capability to call and
to receive calls" between actors (Antonelli 1992, pp. 11).
Telecommunication networks and services can strengthen
relationships within a value-added partnership, because
communication is optimized or because a more efficient exchange
of information becomes possible. These services allow users to
access information gathered by other organizations, or connect
information systems with those of other organizations. As a
consequence, some information flows may be added to the network
of inter-organizational relationships. Other information flows
may be replaced by electronic ones or will become redundant and
will disappear entirely. Hammer and Mangurian (1987) offer a
model for the analysis of the advantages that can be attained on
the basis of telecommunications. This impact-value-framework (see
Table 2) combines potential impact of telecommunications in terms
of time compression (time), overcoming distances (geography) and
the altering of the structure of organizational relationships
(relationships). The objectives are efficiency (the optimal
allocation of resources), effectiveness (the optimal realization
of goals) and innovation (the realization of new, more attractive
goals by improving products and/or services or by entering new
markets). The combination of the impacts and values offers an
overview of possible advantages organizations can achieve when
they introduce telecommunication technology.
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| Table 2. Impact/value - framework (based on Hammer & Mangurian, 1987) | |||
|---|---|---|---|
| Impact/Value | Efficiency | Effectiveness | Innovation |
| Time | Accelerate business process | Reduce information float | Create service excellence |
| Geography | Recapture size | Ensure global management control | Penetrate new markets |
| Relationships | Bypass intermediaries | Replicate scarce knowledge | Build umbilical cords |
In general, information technology and telecommunications are helping firms to overcome problems of coordination and control and thus help to restructure inter-organizational relationships, especially over time and distance. Although these technologies can be used to create and support electronic markets, as can be seen on the Internet with electronic shopping malls such as CommerceNet, and electronic hierarchies (as is the case with most bi-lateral EDI-networks), the main advantages of these technologies lie in the development and maintenance of network organizations. Network organizations have become increasingly more feasible because of the developments in information- and communication technology (ICT).
Since communication is the only clear coordination mechanism available to these organizations, it is obvious that the use of ICT can support these communication patterns. One of the main advantages of network organizations is that they are probably better equipped to provide efficient and reliable information (Miles & Snow, 1993). Or, as Powell (1990) has stated, information passed through networks is "thicker" than information obtained in the market (since the price mechanism tends to treat information as a commodity and thus tries to make it as scarce as possible) and "freer" than communicated in a hierarchy (since information is not filtered as clearly through power relationships). The end-result may be that network organizations combine the advantages of vertical integration (or hierarchies), such as better control and coordination of actors one is dependent upon and economies of scale and scope, with the advantages of small, independent companies - who have more innovative abilities, tend to be in closer contact with the market, are more flexible with smaller staffs, fewer intermediaries and lower overhead.
This is not to say that we have finally found the "one best way" to organize. Contingency approaches in organizational theories have shown that organizations have to adapt to their particular circumstances in the market. Equally so, network organizations are more suitable for some than for others. They are especially useful for the exchange of commodities of which the value is hard to measure, such as know-how, technological skills, culture products, etc. These commodities are also very information-intensive. In terms of Mintzberg's (1979) typology of organizational structures, a network organization looks most like a specific kind of an adhocracy. Adhocracies are most likely to be found in complex and dynamic environments. A dynamic and thus unpredictable environment requires an organic structure; a complex environment requires a decentralized structure. Only network organizations can offer both. But, network organizations are also relatively unstable and they require active involvement of participants. Thus, although organizations who use ICT for the formation of network organizations profit the most from these technologies, it is not to be said that everyone should use ICT in this way. Network organizations have considerable advantages over other coordination structures, but they are also relatively cumbersome. So, it has to be worth it. The use of ICT for electronic markets and electronic hierarchies is - under specific circumstances (see e.g. Steinfield et al, 1995) - just as viable.
The relationships between telecommunications and organizations should be seen as reciprocal. Not only can telecommunication technologies and services have a significant impact on how inter-organizational relationships are developed, but the structure and culture of the existing network of organizations itself also seems to have considerable predictive power for the way in which the telecommunication network is developed, implemented and used. For the development of telecommunication networks it is important to identify the relevant actors outside the boundaries of an organization, who are involved in the development of telecommunication networks and services. Government, branch or trade organizations, financial institutions and other intermediating organizations play a role. Furthermore, hardware and software providers, service providers and network operators become important actors. All these players have an interest in the provision of network facilities and services. However, the most important but also the most neglected actors are the user groups; the businesses and organizations that make use of the information and communication networks. Each of these actors will have their motives to participate in the aforementioned telecommunications projects. Our interest is focused on the motives of the different actors, their primary goals, the dependency of others, their strategies and the roles they play in the decision making processes about the development, implementation and use of telecommunication networks (see Table 3).
| Table 3. Actors and their roles in network-organizations (based on Breed, 1992) | ||||||
|---|---|---|---|---|---|---|
| Information providers | Network provider | Hardware/ software | Project management | Finance | Users | |
| Incentives | Primary goal | Relationship | ||||
| Strategy | ||||||
| Control/ policy-making |
Different strategies are open for the users involved in the development of telecommunication networks in economic sectors, such as cooperative, disruptive, manipulative or authoritarian strategies. Cooperative strategies are based on negotiations between actors within a network. The result will be a compromise. Actors who make use of disruptive strategies deliberately try to weaken the position of some of the other actors within the network, for instance by entering the domain of another actor or by acquiring resources with the intention to undermine the position of another actor. Manipulative strategies are directed towards changes in the network and the priorities within the network by manipulating resources of the network. An actor who uses a manipulative strategy tries to eliminate other actors, for instance by by-passing an actor within the value chain. Finally, authoritarian strategies are used by a dominant actor which controls the resources. Relationships are formalized. This strategy only works for a very powerful player in the field. All these strategies are an option, depending on present relationships, customs and culture. Relationships that have proved to be most effective in the long run have developed into more trusting partnerships through cooperative strategies (Breed, 1992).
In order for every participating actor to benefit from the aforementioned competitive advantages a more or less independent organization has to act as the system integrator; a network organization who makes sure that the development and maintenance of a telecommunication network will run smoothly and in everyone's best interest. Depending on the present market structure this can be a network organization consisting of different representatives of participating parties or an independent third party (such as a consulting firm, the hardware or software provider, maybe even the government). The main task of system integrators is to develop and maintain relationships with the actors involved. In particular the concept of system integration shows that network organizations are completely different from electronic markets or electronic hierarchies. They are definitely not markets, since the openness of the network is not unlimited; only a selective group of actors (forming the network) are involved. Also, they are not hierarchies because the system integrator is only a facilitator; it has no direct control on the behavior of the otherwise independent organizations. Furthermore, the organizations can be interdependent only for a specific purpose. That is, the different organizations can participate in different networks for which they perform different functions.
The Department of Economic Affairs plays a stimulating role by subsidizing projects in which specific branches or companies participate in the introduction of telecommunications systems. These projects are supposed to have a spin-off both in terms of a learning effect with regard to technology and with regard to advantages that might be obtained by the involved companies, stimulating others to copy their strategic behavior. On the other hand the department also supports studies in this field. For instance a study was done to determine which economic sectors, especially small firms within these sectors, would be best suited to use videotex (Bertens, Doorn, Henselmans & Vogelesang, 1991). Amongst others it was concluded that videotex would be viable and feasible for the construction sector and florists. Horizontal applications would be advisable for the florist's business. Vertical applications for instance in the record retail sector seemed to offer successful applications. Also the construction sector was expected to be successful, especially where vertical applications were concerned. Before we deal with our study of the record retail sector and the construction branch we want to deal with a comparable study from Ten Horn and Oppendijk van Veen (1990).
The sector is described as a network of relations transporting information (see Figure 1). The most important vertical relationship exists between suppliers of raw materials, equipment and so on, the gardeners, transport, the auction markets, and the buyers. Some of these relationships are mainly indirect, for instance between the gardeners and bankers. Weaker relationships exist between these central actors and others such as banks, accountants, public utility companies, especially providers of energy, research institutes, sector organizations, government and extension officers.
Information is most critical for the value chain and is mainly related to the logistic processes from the gardener via the auction market to the buyers and retail trade. The information in this chain is easy to standardize and hardly requires personal interference. Personal communication is important in all other relations, especially communication with regard to policy. Overall information is exchanged in 32 relationships. Fifteen of them are related to the primary process in the value chain, but 38 different types of communication channels are used, from face-to-face to EDI. In general problems could be solved by using computer-mediated communication.
Several initiatives with regard to telematics from different players in the field, including greenhouse gardeners, therefore, are underway. However, there was no generally supported vision on how telematics in the sector should be used. Coordination of the initiatives and a more explicit policy seemed to be required. Two actors, the auction markets and the Foundation Information Processing Market Gardening (SITU) play a central role, as well as some specialized software houses with long experience in the sector. Some applications like telebanking are developed outside the sector, mainly by merchant banks. The public utility company was interested in introducing a fiber-optic network. The fiber-optic network would make several different applications possible for the user, such as electronic mail, energy management, teleshopping and telebanking, information exchange and telemarkets, expert systems and expert consultation, retrieval of information, environmental scanning, process-surveillance, remote sensing and so on. The public utility company is more interested in applications directly related to energy management. They prefer an incremental approach. An additional reason for this incremental approach has to do with the regulation of telecommunications in the Netherlands.
At the time this project was launched, provision of most services was restricted to the telecom operator, PTT Telecom. Therefore only an energy management control system was introduced. This application hardly influenced the value chain or the horizontal relationships between the most important actors. This example makes it quite clear that a restricted telecommunication law hinders further development of telecommunication services and the government plays a conservative role. However, the law is under revision and it recently became possible for other parties than PTT Telecom to offer services. Further development of services, which are underway, might affect the existing network. Research in this area continues.
The recorded music industry is a prime example of a tightly connected inter-organizational network. The record companies invest considerable amounts of capital in the creativity and services of affiliated organizations and individuals at its input (product selection) and output (marketing) boundaries. Because of relatively unpredictable shifts in consumer tastes and a more or less cheap technology which allows for a surplus of products, record companies face high levels of uncertainty concerning the commercial prospects of goods shipped out to national networks of promoters and distributors (Hirsch, 1972). The choice of a CD title is specific and not interchangeable. Furthermore, approximately 13,000 new releases are brought to the market each year. Most CD's have a lead-time of ten weeks. Competitive advantages lie thus with firms best able to link available input to reliable and established distribution channels. The consequence is a constant tendency towards vertical integration: the record industry acquires financial interests in wholesale and retail. Wholesale companies on the other hand are starting retail chains or they are purchasing sales agencies which might be joined by retail shops. Because of the demand uncertainty retailers have to keep their stocks as small as possible.
Other important characteristics of the industry are the strong revival it has experienced with the introduction of the audio-CD (although the expectations are that the growth figures will decrease due to the saturation of the market and new technological developments). Also, the degree of computerization in retail is still rather limited (45%), mainly because small shops don't own a computer.
The most central actors are the music producers, such as BMG/Ariola, Sony, Polydor and Warner (organized in the NVPI), wholesalers (the biggest three are Discourier, Music Store, Ear & Eye Music), the 1250 retailers organized in NVGD (Dutch Organization of Record Retailers), two organizations which are involved in the production of national charts, a general promotion organization which works for the entire sector (CPG) and two organizations of copyright holders (Buma and Stemra). The sector is stable and dominated by the main music industry companies.
In 1984 the music producer segment (Sony, EMI, Warner, Polydor and Phonogram) launched an electronic catalogue and ordering system based on videotex. Next to this catalogue and the ordering system, general information with regard to charts and concerts, for example, is offered as well.
Initially (1984-1989), the music producer segment was the driving force behind the system and it was managed by a service bureau. However, growth in use was slow mainly because the videotex system was not an appropriate technology. The service bureau (a technology-oriented system integrator) model apparently was not suitable so the music producer group acquired ownership once more. In 1989 Begotel installed EDI into the system. Because the actors involved applied for a government subsidization, the project had to be offered industry-wide; the retailers, i.e., NVGD, had to be involved in the project. A new management organization (Stichting Begotel) was established, in which producers, wholesalers and retailers participated on an equal basis, chaired by an impartial person. Thus, one can argue that Begotel is now a true system integrator, or a network organization, not only connecting organizations technically but also creating a value-added partnership for everyone involved.
Technical matters are dealt with by a support group. The members of this group are drawn from the music producer group which finances Begotel. Retailers subscribe to the system (approx. 1000 guilders a year, depending on the use of the videotex-based service or the Begotel EDI application). Figure 2 offers an overview of actors involved and the information flows among them.
The music industry, and to a lesser degree the promotion organization (CPG), deliver information to the Begotel system. Wholesalers and retailers have access to the information in a traditional way: telephone and fax, or by means of videotex/EDI. A third option is the use of Begotel by means of a portable pc by sales managers (Begotel Outdoor Sales Support system). Most of the time, Begotel is integrated in more general software packages. When integrated in these general packages, EDI becomes possible. Only 40 of the 170 users used this application at the time this research was conducted. However, the figure of 40 is an underestimation because one subscription may represent a store chain. For instance, Free Record Shops represents over a hundred retailers. It is estimated that 500 out of the 1200 retailers use the system. These 40 retailers represent the biggest and the most financially viable record shops.
In general, the impression of Begotel is positive. The music producer group holds the opinion that costs are reduced and the ordering process has become more efficient. On the other hand, they feel that investments both in time and money are high. The break-even point had not been attained at the time of our case study. The main obstacle in the deployment of Begotel has to do with the position of the wholesalers. In principal the music producer segment and the wholesalers are direct competitors. Begotel makes it possible for the retailers to by-pass the wholesalers. Therefore the wholesale firms would prefer to be involved in the Begotel system. However, the music industry objects to the participation of wholesalers because they are seen as competitors and because they have not contributed in terms of investment. Wholesalers, on the other hand, consider the Begotel system to be less sophisticated than their own systems, though they do wish to continue their participation. The information provided by means of Begotel is sometimes inaccurate or incomplete. Producers and wholesalers nevertheless continue to build cooperation. The opinion of retailers depends strongly on the type of store they run (size, degree of specialization, independent or not). Most retailers hold the opinion that Begotel can fulfill a certain role. Small shopkeepers are more skeptical, mainly due to the to high investment costs. Thus, a network open for all retailers does not necessarily lead to an increasing role for smaller firms (as Steinfield et al. (1993) have suggested).
To the research question of whether Begotel benefits the producers, the answer is summarized in Table 4. In general it can be concluded that producers and retailers succeed in gaining competitive advantage by Just In Time management and the simplification of working practices. That is, not specifically in the relation between producers and retailers but more specifically within the producer group and for retailers themselves. A strong vertical network exists in the recorded music sector; the relations are symbiotic and concern the primary process: distribution and sale of audio-CD. The cooperation between the actors involved seems rather unproblematic, although the wholesalers follow development skeptically since their position is threatened. The strategy that was followed by the most actors is cooperative: the different actors depend on each other, although the music producer segment has a central dominant position. They are not able to force retailers to use the system, although that might benefit them strongly. Now they have to deal with a traditional as well as an electronic system. Markus (1990) has shown that this leads to higher cost and hinders the development of a critical mass. This is not really profitable for the music producers. Nevertheless, although the producer segment is a dominant party, they share the decision power with the other actors involved.
The network in this sector can be described as dense and complex. The music producer group and the wholesalers differ in point of view and have different goals. The information flow within the network differs (information provision and ordering process). The network is strongly centralized (communication between the different actors is possible without too many steps) and stable (Begotel has existed for several years and lately it is mainly involved in technical updates).
The most recent experimental development within Begotel has to do with the delivery of digital music via the network to the retailers so that they can print their own CD's. Physical distribution of CD's is no longer necessary and the production of CD's becomes possible in the retail shops. It is typical that competitive advantage is initially based on increased effectiveness or efficiency, but a second order effect is innovation in itself. Viewing Table 4, there is a shift from the upper left corner to the right corner at the bottom of the table.
| Table 4. Matrix of actors and factors which influence the cooperation in the record retail sector | ||||||
|---|---|---|---|---|---|---|
| Information providers | Network provider | Hardware/ software | Project management | Finance | Users | |
| Incentives | Services to trade | Delivery of services and products | Exploitation of Begotel system | Efficiency, cost reduction | Efficiency | Primary goal | Efficiency in sales department | Participation in network: sale of services and products | Increase of number of users; optimalization of use | Efficiency, cost reduction at sales department | Efficiency, time saving | Relationship | Dependent on users (retail) | Dependent on users (retail) | Dependent on users (retail) | Dependent on other users (retail) |
| Strategy | Cooperation | Cooperation | Cooperation | Cooperation | ||
| Control/ policy-making | Via Begotel | Via Begotel | Via Begotel | Via Begotel | ||
The music producer segment played the role of initiator of the Begotel network. The vertical integration within the music sector was already quite strong. Communication and information is well organized; Begotel only further facilitates these practices. The only actors that don't seem to be very happy with Begotel's development are the wholesalers. Their position is threatened the most. An important lesson from Begotel might be that the introduction of telecommunication technologies and services should not only be defined as a technical issue; the successful use depends strongly on the support of organizations within the industry. A strong central actor, such as the music producer group in the recorded music retail sector, can act as a system integrator and stimulate the implementation. But it will only be successful if the initiator defines the role of system integrator not just as one who tries to connect all actors technically. A successful system integrator has to create a partnership that adds value for everyone involved (even if this means that rival competitors are excluded). Furthermore, the success of the introduction of telecommunications services should not only be defined in terms of effectiveness and efficiency. Organizational consequences need to be assessed as well. In general, the value chain will evolve into electronic hierarchies in which central players are dominant and others are dependent on these organizations, both with regard to the primary process and with regard to investment in, knowledge of and use of telecommunication technologies and services. This does not change purely because a new technology is incorporated in the daily processes. Only if first order effects, such as effectiveness and efficiency, are followed by second order effects such as the innovative use of technology (e.g., the use of Begotel for audio- on-demand for retailers), will competitive advantages be realized.
Within the construction industry a number of different segments can be distinguished. In this case we will limit ourselves to that part of the industry that trades in building material. The structure of the sector is comparable with the structure of the recorded music industry. Vertically we can distinguish: producers of building material and importers; the wholesalers and the customers; the building contractors. The focus of our analysis is the sector-organization: Hibin, a firm which initiated an EDI project. In general the level of computerization is rather low; the same holds for the standardization of information within the sector (Krolis, Tordoir & Tanja, 1990).
Importers and producers deliver the goods to wholesalers. Approximately 280 wholesalers are active via 425 outlets. They deliver to the 5,000 small building contractors (1-20 employees), organized in the NVOB (Dutch Union of Building Employers). Next to these small contractors, there are about 10 big firms active in this field. Annually, 40 billion guilder are spent on building material, from which 25 percent is purchased by the 10 big contractors. The industry has to deal with stagnation and decreasing turn-over, especially in the private sector.
Hibin was established in 1905 but only became active as an industry player in 1987. One of the projects that was initiated was the Hibin Communication Project, an experiment with EDI. Next to the actors that have already been mentioned, a number of other actors became involved around the time EDI was implemented and introduced. For instance two consulting firms were brought in: IME and for the technical issues, ACTL (see Figure 3). Because the system also made use of the Uniform Article Coding (UAC), the EAN (International Article Numbering Association) is also a player in the field.
It was expected that HCP would lead to savings of cost and time, efficiency being the most important goal, especially in those cases where the internal computer systems and administrations were connected to the HCP system. Until now the integration of HCP within the already existing systems is most successful within industry. By using the UAC-code, the overview of the flow of goods becomes more transparent. In addition, within organizations, more information can be derived including the lead-time of products, the successful combination of products, what turn-over is made on the basis of small orders. For the wholesalers, the use of HCP becomes more interesting when a building contractor also makes use of telecommunications services, such as Bomatel which is a videotex system directed to contractors.
Next to HCP, other systems are being introduced, such as Cin- Bouw (videotex), the aforementioned Bomatel, EDI-Bouw, an initiative of the big contractors, and Nebic (EDI and PDI). In this industry, several initiatives and operational systems coexist. There is some tension between the involved parties; nobody wants to be forced into a specific concept or be obliged to use a system. Discussion toward integrating and reconciling all activities continues.
At the time of this study, only a limited number of firms was working with HCP and sometimes even then on a stand-alone basis. HCP is based on PTT-Telecom's E-mail system, Memocom. PTT- Telecom serves as network provider. The project is subsidized by the government but the main costs are covered by contributions from the contractors themselves: 11,000 guilders for big firms, 5,000 for small ones. The expectations are that HCP will contribute to increased efficiency and the implementation of just- in-time management and improved stock management. However the Bomtel concept has to be implemented for HCP to be successful. The improvement of service from wholesalers to small contractors will contribute to a reinforcement of their position; otherwise the wholesalers will be by-passed by the contractors who will make use of other electronic information and order systems like CIN-Bouw. Wholesalers are forced to offer added value. The industry stimulates the use by wholesalers for standardization reasons.
The answer to the central question is summarized in Table 5. The actors have different reasons for participating in the HCP project. In general the importance of EDI is emphasized. The ultimate goal is the optimization of transaction communication. For the organizations themselves, internal processes can be optimized, while processes can possibly be tuned to others. This will lead to lower costs, smaller stocks and better service.
The network is vertically integrated in the value chain. HCP is only partly concerned with the primary process (the administration of orders) of industry. For the wholesalers it is more important, but depends on the development of Bomatel, the videotex system that will connect wholesalers with contractors. The unique character of the HCP project is that all the actors decided to participate at the same time. In that sense there are no dependency relationships between the actors that are now involved, but there will be with future participants. The strategy that was used by the different actors can be described as cooperative. Producers and wholesalers have an equal say.
The industry cannot be characterized as a very dense network. Wholesalers view one another as competitors, their relationships with producers are strong, contractors are seen as consumers and no special relationships are developed between wholesalers and contractors. In the value chain, wholesalers have the most powerful position. Suppliers are specialized and depend on the distribution of their goods via wholesalers. The wholesalers deliver products of several producers and are therefore less dependent on their suppliers. EDI can contribute to stronger interlocked relations, especially between producers and wholesalers. The advantages EDI offers are more efficiency because the overview of transactions becomes more clear, risks are reduced through quality control, logistics, design, and continuity is guaranteed. Opportunistic behavior is reduced by the development of mutual trust. The network itself is rather simple: only exchange of information in the order-track occurs. HCP is not really hierarchical, although the producers are a central and powerful actor, but this group doesn't strive for a dominant position: cooperation is central. The network around HCP is rather small and not yet very stable, mainly because it is relatively new.
| Table 5. Matrix of actors and factors which influence the cooperation in the construction sector | |||||
|---|---|---|---|---|---|
| PTT Telecom | IME | Hibin | Industry & Government | Trade | |
| Network providers | Hard- & software providers | Service provider/ project management | Finance | Users | |
| Incentives | Providing the infra-structure | Development of the system | Providing new services to members | Anticipation on future developments. Strengthen own position. Prestige | |
| Primary goal | Providing services | Providing services and products | Strengthen the position of wholesalers and industry | Optimalization of transaction communication. Costs savings, efficiency | |
| Type of Relationship | - | - | Dependent on participants | Dependent on other business partners. Main question will be if EDI will be used | |
| Strategy | - | - | Cooperation | Cooperation | |
| Control/ Policy-making | - | Technical know-how | Coordination of project management and support teams | In project management and support teams | |
The HCP project is rather immature and still has to compete with other initiatives. Therefore it is still too early to draw very strong conclusions. It can be noted that due to the number of involved actors, options for other systems are still open and the integration of HCP in the primary business process has yet to occur. The Hibin network guarantees the wholesalers a strong position in the value chain both in the direction of their suppliers and in the direction of their buyers: the contractors.
Central activity within the hotel industry is the offering of lodging and services to Dutch and international tourists and business people. Seasonal influences are strong and correlate with the group to which the services are offered: tourists or business people. On average, about 14.5 million stays are booked throughout the year, half by Dutch and half by tourists and business people from other countries. The purposes of stays are equally divided: half business-oriented and half for pleasure and tourism. In general, the trend is toward hotels with more luxury and more accommodations. However, the number of beds is greater than the number of stays, resulting in overcapacity. The number of hotels is shrinking. An increase in scale can be noted in this industry. One of the decisive factors in hotel survival is the degree to which they succeed in integrating information technology into business procedures. In general the degree of computerization is high for the big established, international hotels while smaller and mid-class hotels lag behind. Some specialized computer programs have been developed on a modular basis which make it possible to connect front-office applications with back-office administration. Room reservation plays an important role in this system, but until recently it was not connected to major reservation systems. Increasingly, guests themselves, particularly business men, are requesting more sophisticated services, including telecommunications services.
There is one central industry organization in which both employers and employees participate, Het Bedrijfschap Horeca (Associated Companies in the Hotel and Catering Industry). One of the subsidiaries of this organization is the National Booking Office (NRC), which primarily performs bookings for international guests. Local tourist offices and the ANWB, the Dutch AA (Royal Dutch Touring Club) make reservations on local and national levels. Next to these organizations, international hotel chains such as Holiday Inn and travel agencies are major providers of hotel reservation services.
In general the information from a potential guest will flow via an organization like the local tourist boards, the ANWB or the NRC, to the hotel. At the moment, the national reservation system employs telephone and fax technology. Some hotel chains have their own reservation networks. NRC makes reservations mainly for international tourists and business people far in advance while the local tourist boards make reservations for the same day. They also work with confirmations by telephone or fax. A general network is considered to be important for the industry.
The task is to define the main reason for different interests of involved parties. The reservation systems which are already operational could be connected and upgraded so that on-line reservation becomes possible, but there seems to be a lot of opposition within the sector. This is not because it would be impossible to connect the already existing NRC-systems, but because there are mainly organizational differences. The NRC is the only actor allowed to make use of the system and they will not permit access for travel agencies, potential hotel guests or tour operators. Big international hotels already have their own systems that are connected to their international reservation systems. Small and mid-class hotels are reluctant to join a national reservation system because this will provide information about their performance to other parties (not least among them the tax authorities), information about prices, facilities and bookings. There are not enough clear benefits for potential users to join a national telecommunication system and there is not a dominant actor that can stimulate the development of a national network.
Some hotels are innovative in the sense that they make use of the functionality of their systems, such as booking and reservation, for other hotel services. By combining information, it is possible to offer other services, such as offering bonuses for regular customers, using the language of the guest, and so on. The system not only contributes to more effectiveness and efficiency but also to innovative use.
It is clear that due to the simple, unstable and rather weak network in the hotel industry, the development of a nationwide reservation system based on a telecommunication network will not emerge due to disruptive strategies from several actors, such as international hotels. The strong actors already have their own private networks and are not interested in supporting small and mid-sized hotels, especially in view of the overcapacity in the sector.
Case studies have been done in the recorded music retail, agricultural, construction and hotel industries. In general we find that the role of a system integrator is crucial, but at the same time a dominant actor, who is central in a network, can also hinder the development and effective use of telematic services (e.g., international hotel chains). An electronic hierarchy can lead to a suboptimum use of the telecommunication services (Begotel). An open non-hierarchical inter-organizational network results in an open telecommunication network in which participants have a choice of different types of services such as EDI, videotex, electronic mail or hybrid applications depending on the task the service facilitates (Hibin). Electronic hierarchies between organizations lead to interlocked relations, a limited use of telecommunications services and high switching costs (Begotel), while loosely organized networks can serve as an open market place (Hibin, NCO), where several different telecommunications services are being used and the switching costs are considerably lower. Information technology projects develop very slowly, mainly as a consequence of conflict in interest between involved parties. There is a lack of knowledge, not enough investment capital and hardly a long term vision on technological developments. Anecdotal evidence shows that the development time is considerably shortened with Internet applications, because of more opportunities for trial and error. Most importantly, however, the central problem is that the introduction of information technology and telecommunication services is defined as a technological issue and not an organizational one. The successful introduction of information technology and telecommunication services depends strongly on the support of organizations within the sector. A strong central actor, such as the music industry in the recorded music retail sector and wholesalers in the construction sector, can act as a system integrator and stimulate the implementation.
Organizational consequences are hardly assessed. Most actors do not see the consequences of the implementation of telecommunications services for their organization and for their primary processes. The short term success of increased effectiveness and efficiency leads to dependency and inflexibility in the long run. The introduction of information technology and telecommunication services will only rarely lead to open markets. It is clear that, in general, information and communication technology is used by dominant players in the value chain to develop electronic hierarchies. Other organizations in these hierarchies are dependent on the leading players, both with regard to the primary process and with regard to investment in, knowledge of and use of information technology and telecommunications services. Only if first order effects, such as increased effectiveness and efficiency, are followed by second order effects, such as innovative use of information technology and telecommunications services (for example, the use of Begotel for audio-on-demand for retailers or the use of information systems in the hotel industry), will competitive advantages be realized for all participants. Only then will electronic networks be within reach. Although ICT offers opportunities for the development of network organizations, especially with the increasing importance of the open Internet, organizational constraints can limit these opportunities.
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