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Effect of an Extranet

on an organisation

Subject:

Discuss the importance of organisational change in the implementation of large-scale information system projects

Introduction

"Information Technology and organisation influence on each other" (Laudon p75). Indeed, organisation and manager influence IT by choosing the change they want. On the other way round, IT will change organisation. For example, it can flatten the organisation. I will focused my essay on the effect on Internet/Intranet/Extranet on an organisation which offers internally and externally new opportunities in term of business as well as change in business process.

Information Technology

Traditionally, IT was regarded as a utility, which was used to support infrastructure for high-level strategy making. The resource allocation for IT was based on administrative expenses rather than business investment. However, nowadays more and more people think that IT plays a strategic role in organisations.

IT is a strategic resource of organisations. IT possesses the capabilities of redefining the boundaries of markets, changing rules of competition, redesigning the scope of business and bringing new competitive advantages. Technology push and competitive pull together decide that IT is a strategic resource in organisations (see below):

Figure 2: The Emergence of Strategic Role
for IT in Organisations (Morton, pp.135 )

Understanding the importance of IT is crucial. IT can be used to solve complicated problems, increase accuracy of information, improve quality of operation and save time and money.

IT not only improves the efficiency of working but also introduces a new creative way of working. It should not be simply designed for existing business processes but, as be a central lever of re-engineering. By redesigning the business processes and understanding the capabilities of IT, managers can invent a new way of working and change business operations dramatically.

Internet

Internet is becoming a very useful tool for business. Now 13M PCs are connected (about 60M users) and the commercial on-line service represents £1.5 billion (97). Approximately 150 million people will be using Internet and 14 million people will be buying products and services via the WWW by the year 2000, which will represent $6 billion (Gartner Group source).

Internet totally subsumes "raw" data connectivity schemes, becomes the underlying foundation within and between corporations, and rises much higher level of true interactive computing capabilities

The promise and appeal of universal connectivity and access to people and information are overwhelmingly compelling and will continue to drive Internet growth (+ 10-15%/month) in a rapid upward trend, despite the Internet's actual flaws.

The Web is evolving from a passive publishing medium to an interactive computing environment that subsumes client/server and expands into transaction process, electronic functionality.

Figure 3 (Forrester Group)

The Internet's broader impact also is an easing of communications. It is fundamentally altering the way companies create and disseminate information. Therefore, it will affect business processes.

New businesses' opportunities are emerging and unexpected competition as the market is becoming worldwide. The online customer service requirements are tougher. The response to inquiries has to be faster. The access to complete information is becoming the norm. Conflicts with the distribution channel are quite common. Indeed, some products can be ordered through Internet but not without rolling existing channel relationship. HP has this problem and can not sell in direct like Dell (3 millions of dollars of online sales per day) as it has an important distribution network, loosing potential sales.

Internet is becoming the basic communication tool. It provides lower-cost, more convenient and richer means to communicate with anyone who uses a PC. You can learn more about your customers. The Internet is the only medium where customers leave an electronic trail showing their interests and preferences. You can present yourselves now in a completely new way.

Figure 3 (Wood's Research)

This new medium offers a channel to convey messages, value and image. Customer support and information will be overhauled. This is not only cost saving; it is better for the client. It opens new opportunity like to offer a 24 hrs/days and 7-days/week low-cost service, worldwide accessible.

It cuts international business cost and simply the sales and marketing costs. It is very easy to correct a spelling error on a Web brochure, not a paper one. You can react quicker against the competition.

The Web is fundamentally changing and redefining the way to do business, in the following areas for business-to-business sales:

1. Accelerating business processes

2. Creating transparent markets

3. Redefining market boundaries

4. Altering the basis of competition: "pull" marketing

5. Reorganising the workflow

 

Accelerating business processes

The business workflow process is accelerated considerably by the use of electronic commerce. You have to be able to keep up with this rapid pace in order to stay competitive. Old business channels will feel threatened, and you need to give attention there and help old channels make the transition. From now, you have to face customers directly, including all the negative feedback that this entails. You can give customer service like never before; customers will become more demanding, and you will need to manage their expectations.

Markets can be penetrated much faster, and the first movers are rewarded. The business process is being speeded up so that responsiveness will be required for the winners in terms of hours, not days. Suppliers are appreciated by their responsiveness (in hours, not in days).

Creating transparent markets

Internet and Electronic Commerce create transparent and highly competitive markets, where differentiation is essential to survive. You have to be able to communicate how you are different from your competitors. Here is a list of how you can differentiate yourself, as market boundaries are redefined:

Redefining market boundaries

The lack of geographic limitations for electronic commerce redefines what boundaries are: prepare yourself to go global. You are no longer limited by geography: you have a global reach, thanks to logistic service providers (DHL, UPS). Products successful in one market can quickly be sold worldwide (ex: Amazon.com - www.amazon.com).

Altering the basis of competition: "pull" marketing

Electronic commerce turns the business world upside down. The business model is also changing, in that marketing is transformed from "push" to "pull": attracting clients and enticing them to make an order. "Push" marketing will be refused, and the marketing model will turn to responsiveness.

Customers are really becoming kings, and have to be treated accordingly if you want to stay in business. Customers will no longer accept fixed prices: even price negotiation will most likely come into electronic commerce more often than in the physical world in the past. Customers also become aware quickly of product strengths/weaknesses and pricing, which are well known in the market, and can be quickly determined by forums and newsgroups. They demand protection through all-included warranties, valid worldwide.

Reorganising the workflow

It radically changes organisation. As it is easier to communicate with this system, internally and externally, it improves the quality of work. You have more time to analyse the information instead to look for it: Intranet concept (see after)

Internal communications are simplified. We can forget incompatible computer systems or software, as it is now. You will simply use secured Web sites (Intranet/Internet) for posting workgroup information or keeping suppliers, distributors, and buyers informed.

Intranet

Intranet uses the same technology as Internet. The main difference is that an Intranet is a private zone accessible by only a limited number of users: the company’s employees for example. The access from the public is protected by firewalls to allow selected access to the company’s data. It is a very popular information system project Indeed, it is easy to implement this kind of system and is cheap if the company has an installed network infrastructure. Furthermore the maintaining cost is quite minimal.

"The Intranet provides an universal e-mail system, a remote access method, a set of group collaboration tools, an electronic library, an application sharing system, and a company communications network" (Laudon & Laudon p 363). Intranet allows group collaboration and co-ordination at a worldwide level.

Indeed, the main use of an Intranet is communication of information, but in a different way. Most of the time, the information will be available on the Intranet. You will not "push" the information like a paper memo but you will have to "pull" the employees to the information. It implies a cultural change and increases greatly the productivity of a company. It decreases cost. You do not need any more to "use paper". It also is quicker and facilitates communication between departments, and makes irrelevant the distance. Therefore, Intranet system is of a great use for international company as it allows to increase the communication between countries.

Example

Booz Allen & Hamilton (IT strategy consultancy) in Europe has a practice based organisation and is not based in country. It has been made possible by an extensive use of the lasted possibilities offered by this new technology (voicemail, videoconferencing, internal newsgroup, data- sharing,..). According to Booz, Allen, creating a medium for knowledge transfer was the easiest challenge. Indeed, the greatest barrier to change is often human being. Therefore, in conjunction with the Intranet implementation, Booz, Allen had to create an organisation and culture that would support the sharing of knowledge on a regular basis. It is one of the main problems of this kind of project: resistance to change & information sharing.

The company managed to overcome both organisational and human barriers to change by building a culture where everyone was interested in the content: the firm's best ideas, which the new system would provide. Over time, incentives were put in place to encourage the sharing of knowledge: first publicising the value of the knowledge base, then rewarding participation, and finally recognising knowledge creation as part of consultants' performance appraisals.

Indeed, you have to motivate people to make work this kind of system. Obviously, top-management has to spend an important time on the project, and to not see it as a once-and-for-all project, but as a system which need continuous improvement. They have to overcome the obstacles and convinced employees of the need of change. With this strong leadership commitment from all levels of the organisation, the success of an Intranet implementation will far greater.

Extranet

In plus of allowing access to internal users, it is possible to give selective access to the company’s Intranet to external users like providers and customers. In fact, we are talking here of the Networked Entreprise concept who extends the corporate Intranet to all the entities the company does business with, like prospects, customers, providers, distributors,..:

Networked Entreprise or virtual organisation

Netscape vision of the Network Enterprise

(www.netscape.com/comprod/at_work/white_paper/vision/images/1.gif

The Networked Enterprise offers two main benefits:

It creates new type of service by changing the business process completely. It allows companies to have a direct interactive relationship with the customers, Therefore, it would be much easier to get what they want exactly and in with the most convenient way for them (when, how,…). The overall results would be a stronger customer relationship

On the same trend, it suppresses the communication barriers between the company and its environment. It allows the company to involve partners and customers into the business process. The consequences would be to bring products or services to market far more quickly. Therefore to be more reactive and flexible to a change in its environment

Crossware

To say it in an another way, it allows involving its environment more into business processes. This technology concept is called crossware. "Crossware describes on-demand applications that run across networks" (Marc Andreessen, The Networked Enterprise, www.netscape.com/comprod/ at_work/white_paper/vision/print.html). They can easily be used by partners and customers and can span people and networks for a specific process (see figure below):

Netscape vision of the crossware

(www.netscape.com/comprod/at_work/white_paper/vision/images/2.gif)

Middleman role & resistance to change

However, to make really successful this kind of project, you will have to manage efficiently this change. It might imply to reengineered business processes to achieve the full potential of Intranet. It will have several issues like staff, function, power, and organisational culture. Indeed, some positions can be suppressed (clerks for example). The power of manager also can be changed. One of the main effects of MIS on management is the suppression total or partial of the role of the internal middleman.

The traditional role of the middleman was the transmission of information. This role is becoming obsolete. For example, the consequence is the bank was the suppression of the branch manager position. What does Internet is, this time, to suppress the role of the external middleman. The Web is a very good way to put in touch people. Therefore, professions like brokers or agent are in jeopardy. IT may imply for the organisation to suppress this kind of role. But not all the middlemen will disappear. Indeed, some will survive if they give a real added value to the customer or to the company.

One of the best examples is insurance. It is really an area where the middleman does not bring a great added value (branch or agents) who only "fill the form" with the customer. But, he can do it on his own. Furthermore, it is cost saving for the company. And, indeed, insurance companies offer substantial discount if you buy your policies online. The organisation is really becoming virtual.

Virtual organisation

As we have seen before locations become not really relevant anymore. It allows to have an organisation spreads over several countries and to work as efficiently as it was in the office or nearly! For normal employees, it implies the possibilities to work remotely from their homes, and for the companies to decrease the office space. Both sides gain something in this change.

On the other side, you can set up this kind of system with partners to create a virtual corporation. For example, Federal Express offer customers to handle all their logistics (inventory, stock, delivering) of products sold online through the customer’s Web site. In practice, the customer will make an order of, let say, a couple of books at the online bookseller’s Web site. The information will be automatically transferred to Federal Express who will deliver the product. The consequence for the organisation is a simplification of its business processes. It includes outsourcing, which is made possible by information technology. Also, it makes the company much more flexible (smaller structure, decrease finance need,..)

In fact, information technology helps large as well as small company to offset partially their deficiencies coming from their size. For small companies, Internet allows them to have word-wide visibility and easy access to the information. For the large companies, it allows to do mass customised production to satisfy the need of the customer and to communicate easier internally.

Mass customised production can be applied to jeans, for example. Women are generally unsatisfied when they buy a jeans as it does not fit perfectly to her. The solution could be to ask them to take their measures in a Levis shop, to fill an online form with theses measures. This information will be send to the cutter who will cut the jeans. The product will be send to the sticher, to be stiched, and after to the lundry, who, then, will send the product to the customer. All the different part of the organisation or network of organisation will know at any time the situation of the orders as the data will be kept common & replicated. The result will have a tremendous impact on the organisation: no need of shelf space, warehouse, shipping and inventories, no problem anymore of theft and disposal. 75%of the costs will be removed.

Furthermore, the customer satisfaction will be very high and they will expect to pay a premium price for this service. Finally, you will have access to a precious customer database. The virtual organisation concept imposes a new kind of business model and completely change the business processes.

Conclusion

Internet and information technology are moving and changing very fast, faster than are changing organisation. Organisations need to be redesigned to stay to sustain their competitive advantages. IT can be useful for this purposes by making easier communication and co-ordination inside the company and with its environment (partners, customers,…). It also helps to improve its productivity as well as its efficiency (cost and differentiation objectives). In others words, it helps to innovate and redesign its business processes / business model.

The implication on the organisation are obvious and numerous, and, for example, implies change from automation of task, rationalisation of process, BPR, to paradigm shift which implies the rethink of the whole organisation opposed to BPR which looks only at certain part of the business.

References

[ Word 6 file (366 Ko) ]

Published in March 1998