BAI 2004 (International Workshop on Business and Information)
COLLABORATING TO WIN - CREATING AN EFFECTIVE VIRTUAL ORGANISATION Athula Ginige AeIMS Research Group, School of Computing and Information Technology University of Western Sydney, Australia
[email protected]
ABSTRACT Advances in Information and Communication technologies are breaking down geographical barriers in relation to sharing and accessing information. Breakdown of these barriers are creating a global market. Organisations now need to offer products at globally competitive prices or carter for niche markets. The niche can be based on the uniqueness of the product, quality of the product, ability to undertake complex manufacturing tasks that require a wide range of capabilities, ability to carry out large tasks that require a large capacity, or high quality customer relationships. Small and Medium size Enterprises (SMES) can collaborate to undertake complex or large tasks. Further, organisations need to be adaptive and responsive to meet the dynamic nature of the today’s market. Thus by working as virtual organisations they can achieve a marketing edge. These collaborations need to be of a dynamic nature to respond to ever changing market. We are now beginning to observe the emergence of dynamic eCollaboration among SMEs. Key Words: dynamic eCollaboration, Virtual Organisations, eTransformation CHANGING BUSINESS WORLD Today Information and Communication Technologies (ICT) are impacting the way businesses operate. We have been studying the impact of ICT on Small and Medium size Enterprises (SMEs) in Western Sydney region of Australia. There are over 72,000 businesses in this region, of which over 80 % are SMEs. As a part of our study we conducted a survey of these SMEs in 2000 and found that they are beginning to make use of ICT to enhance their business processes (Ginige, Murugesan et al. 2001). Then we studied various published literature and case studies detailing impact of ICT on businesses. Based on our findings we formulated hypothesis as to how SMEs can benefit from ICT. Then we used action research (Kock, McQueen et al. 1997; Kazanis 2003) to validate our hypothesis. So far most of our work has been with manufacturing organisations. These include sheet metal manufactures, plastic component manufactures and toolmakers that develop dies, moulds and tools for other manufactures. In the last few years we have observed that the market share and the revenue stream for some of these manufactures are shrinking. Their regular clients are now importing products from overseas at a reduced price.
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This is not surprising. Any advantage an organisation had due to its geographical proximity to the buyer when it comes to selling a product is fast diminishing due to advances in ICT. Using the Web, organisations can now advertise their capabilities, services and pricing to a global market in a very cost effective way. Further using the same technologies they can link up with their clients to exchange relevant design information and to provide information such as order tracking, expected delivery time, shipping details etc. Reduction in transportation costs through streamlining of associated business processes further help to create this global market. Thus in this emerging global market either the seller has to reduce the costs and offer the product at a price that is competitive on a global scale or identify a niche market segment and cater for it. Further it is useful to note that any advantage a seller has due to competitive pricing or being able to cater for a niche market can change rapidly due to new entrants to the market offering a similar product at a lower price or new innovations making existing products obsolete. One good example is the recent changes that happened in the books based encyclopaedia market. The introduction of multimedia CDs completely destroyed the books based encyclopaedia market. As a result, not only organisations need to be competitive on pricing on a global scale and / or carter for a niche market, but they also should be able to respond to dynamic market conditions, by being adaptable and responsive to changes in the market. In a dynamic market an organisation’s ability to accept customer designs as opposed to mass-produced items in small batch sizes and full-fill the orders rapidly can make the organisation highly competitive. It became clear to us that the SMEs in the region need to transform the way they carry out their business activities such as marketing, order processing, responding to inquires, managing customer relationships etc., to be competitive in a dynamic market. This paper describes the process that we used to assist the SMEs to transform their organisations to respond to the changing business world. We will present the conceptual framework that we have developed through our research to assist SMEs to eTransform and how we are validating it using action research (Kock, McQueen et al. 1997). Also we will highlight how we arrived at the conclusion that one important aspect of the eTransformation process is to develop their ability to collaborate.
FACING UP TO GLOBAL COMPETITION From the above discussion on changing business world we can gather that to be competitive in a dynamic global economy, an organisation, especially manufacturing organisations, need to: a)
Offer the product at a price that is globally competitive,
AND / OR b)
Cater for a niche market
AND c)
Be adaptive and responsive to changing market conditions.
To understand how above can be achieved it is useful to first analyse a typical value chain for a manufactured product as shown in Figure 1. Ⅵ-2
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Supplier
Manufacturer
Distributor
Customer
Figure 1: Typical Value Chain for a Manufactured Product Once established these value chains are fairly static. Manufactures tend to buy their raw materials from the same suppliers and use the same distributor network to sell the product. Customers tend to stick to known brand names that they can trust. The reason for this is it takes some time to build the trust and to set up the business processes that go across the organisations such as ordering raw materials so as to minimise the inventory cost as well as out of stock situations. As long as demand is predictable and items are mass-produced these types of static value chains tend to work quite well. Next we will discuss what needs to happen to these static supply chains to meet the needs specified above. Globally Competitive Pricing Today due to automation manufacturing cost has greatly reduced. To achieve a globally competitive pricing now the emphasis is on other parts of the value chain. Some of the strategies are to minimise the inventory, marketing and distribution costs. People have researched and widely published in areas such as Supply Chain Management (SCM), Logistics Management and Internet based marketing approaches that can be used to reduce the costs. Advances in ICT have opened up many new possibilities to minimise the cost associated with various parts of the supply chain. There are many manufactures now selling to the customers directly through the Web eliminating the distributors and the retail shops. Some distributors such as Amazone.com use the Web to reach a global market to sell the books disrupting other established distribution channels. Organisations such as Priceline.com use the trust that they have established through selling a single product and start selling many other products through the same Web based channels. Thus by changing the static value chains many organisations are keeping the costs to a minimum as well as growing their market share. Thus it is beneficial for SMEs to have the ability to quickly enter into the most cost effective value chain configuration and change when that configuration is no longer the optimum. Differentiation to cater for a niche market Another strategy to maintain and grow the market share is to differentiate from the competitors. Some possibilities are; a) To have a unique product by getting access to a specific technology that competitors do not have access to. b) To provide a high quality product by having good quality control procedures.
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c) To be able to undertake a complex task by having access to a range of capabilities and appropriate processes. d) To have the capacity to undertake large tasks that are not possible for most organisations to do due to lack of capacity. e) To be able to provide a very high quality customer service. In the context of the value chain most of these needs to be achieved within a manufacturing organisation. But some of these strategies, especially c) and d) above are difficult for an SME to achieve on its own. But if a group of SMEs decide to collaborate, provided that they have complementary strengths or capabilities, they can undertake complex tasks. For example if a tour operator, a hotel or a motel and a conference organiser decide to work together they can offer a complete conference package. We see this type of collaboration in retail trade where a retailer and a finance company work together to provide easy payment terms for the consumer. For this to happen effectively it should be possible to seamlessly integrate IT systems of both organisations that support the relevant business processes. Similarly if SMEs with same capabilities decide to work together they can take a large task and divide it among themselves. They as a virtual entity can now cater for a niche market. One such example is a study we did recently involving about 120 SMEs. Boeing is in the process of developing a new aircraft named7E7. To manufacture this aircraft it requires about 26 million toolmaking hours. Boeing is planning to get this work done through a tiered supply chain structure (Everett 2003). About 120 SMEs engage in toolmaking in Australia are keen to get some of this work. In order to undertake part of this large project these SMEs need work as a virtual organisation. All of these companies together have the appropriate know how and equipment to undertake the toolmaking task, but what they lack is a framework to effectively collaborate.
Become adaptive and responsive To capitalise on dynamic market conditions the organisations need to change their approach from “make and sell” to “sense and respond”(Barabba 1998). The following table adapted from (Barabba 1998) compares the two approaches.
Characteristic
Make and Sell
Sense and Respond
Mindset
Business as an efficient way of making and selling to a well defined market segment
Business as an adaptive system for responding to unanticipated requests in unpredictable environment
Example
Rail System
Taxi Company
Know-how
Embedded in products
Embedded in people and processes.
Process
Mass Production
Mass Customisation Ⅵ-2
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Organisation Priority
Efficiency and predictability
Flexibility and Responsiveness
Profit focus
Profit margins on products and economies of scale
Return on investment and economies of scope.
Table 1: Comparison between two approaches "Make and Sell" and "Sense and Respond" adopted from (Barabba 1998) The organisations need to change their manufacturing processes to rapidly and economically produce many different parts in a short time frame. We found that the SMEs in the region can now achieve this by having various computer controlled production tools. Another important aspect is to become a process-based organisation rather than a task based organisation. This requires an in depth study of the current business processes. From Static Value Chains to dynamic value chains From the above analysis we can conclude that to be competitive in a global market the static value chains need to be changed. Organisations need to be adaptive and responsive as they are competing in a dynamic market. Based on market opportunities organisations need to work with different suppliers and distributors. Also from time to time an organisation needs to work with other organisations that have complementary or similar capabilities. Thus fairly static value chain structures that exist in the past as shown in Figure 1 will get replaced with more dynamic value chain structures as shown in Figure 2.
Customers Suppliers T2
Suppliers T1
Manufacturers
Distributors
Figure 2: Dynamic Value Chain Structures
ESSENTIAL FEATURES OF SUCCESSFUL eCOLLABORATION Collaboration is defined as “to work together, especially in a joint intellectual effort” (The American Heritage® Dictionary of the English Language 2000). Collaboration has been well known to happen for many centuries among individuals and organisations. Collaboration among two or more organisations is a business decision that is made by the senior management of those organisations depending on their Ⅵ-2
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business goals and the trust they have on their collaboration partners. A typical example of such collaborative work would be two plastic manufacturing companies one specialising in plastic bottles and the other on caps for bottles, coming to an agreement to bring their products together and market them as one product. In order for this collaboration to be successful, some of the internal business processes, such as planning and development, marketing etc., need to cross the organisational boundaries. By enabling this collaboration to happen over the Web, these companies can benefit in many ways (Donnan 2002). We call this type of collaboration eCollaboration as it is facilitated by ICT. eCollaboration is gaining popularity as a common business practise, however there is some resistance in its uptake. This is primarily due to the fact that for two or more business partners to eCollaborate, there needs to be business level trust as well as considerable compatibility in several areas from their high level joint business processes to document formats and all the way to their ICT infrastructure and systems (Schuster 2002). Establishing the framework for eCollaborative work typically involves high setup and maintenance costs. As a result, the collaboration links established between business partners are typically few and rigid. The new key element added in the concept of eCollaboration is its dynamic nature. Dynamic eCollaboration is at its very early stages yet, waiting to realise its full potential. Contrary to eCollaboration as discussed previously, Dynamic eCollaboration involves very flexible relationships between business partners. It facilitates common work on typically short to medium term projects. New relationships can be created almost ad-hoc, and taken down just as fast. The focus here is to ensure that the organisations involved are not tied into long term, inflexible relationships, but instead they can realise a truly distributed “sense and respond” approach in their business operations. Thus traditional organisations now easily form into Virtual Organisations to respond to market opportunities.
THE eTRANSFORMATION PROCESS For organisations to face the challenges of the changing business world they need to change their internal business processes as well as how they link up with other organisations in the value chain. One important aspect of this is to enhance the business processes using ICT. Thus to change from being in a static value chain to a dynamic value chain the organisations need to under go a transformation process. We call this process eTransformation. This phased approach to form Virtual Organisations is shown in Figure 3. For eTransformation phase to be successful, organisations need to overcome many challenges. In the context of SMEs we have discovered the main challenge is to change the organisation culture and the IT skills of the employees from CEOs to people that work at the shop floor (Kazanis 2003). Next we need to understand the existing business processes and find out ways to do these processes better using ICT to capture, store, process, access and communicate information. The next challenge is to develop and deploy a suitable information system at an affordable price and within Ⅵ-2
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a reasonable timeframe. Another challenge is to have an effective change management programme in place to train employees to use the re-engineered business processes and the supporting information system. Traditional Value Chain Phase 1 Supplier
Manufacturer
Distributor
Customer
eTransformation Phase 2
¾ Reengineering ¾ IT enabling of internal and external processes ¾ New relationships Dynamic Value Chain
Phase 3
Customers Suppliers T2
Suppliers T1
Manufacturers
Distributors
Figure 3: Phased approach to form Virtual Organisations We have now developed a roadmap and a methodology that addresses these challenges. SMEs can use these to eTransform their organisations (Ginige, Murugesan et al. 2001; Arunatileka and Ginige 2003). This methodology is shown in Figure 4. Business Strategy
Business Goals
Change Management
Business Processes Workflow, Technology, People
Enhanced Using IT
Business Process Re-engineering
Figure 4: eTransformation Methodology Ⅵ-2
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We have seen many failed attempts to eTransform SMEs on a project basis. Our research has shown that this has to be a continuos process rather than a one off project. This gives employees time to understand the changing global environment, identify how they can respond to the challenges as these arise and take ownership of the change. Iterative process also allows SMEs to better manage their cash flow and get the benefits of diminishing cost of ICT infrastructure. The first step of the eTransformation process is to develop a Business Strategy. In deciding a business strategy, among other things, it should take into consideration, current and future market capitalisation and potential, competition, new business threats and opportunities, as well as experiences and lessons from earlier transformation and changes, if any. This would enable the enterprise to come up with its overall vision and goals, which will in turn lead and guide the eTransformation. The second stage identifies and prioritises the business goals (in the context of etransformation) that are to be met within framework of the business strategy. The business goals need to be tangible and for each goal we need to come up with appropriate performance measures, such as key performance indicators (KPI). Following specification of business goals and the performance measures, specific business processes that influences and/or contributes to achievement of those goals are identified. These processes, as they are currently being practiced, are modelled and analysed. The goal of process analysis and modelling is to show the various steps involved and the effort and time taken for each step. It would also reveal interactions among individuals, departments and/or customers and suppliers, and other processes, as well as the limitations and constraints. Once the existing processes are modelled then we need to look at whether these can be done in a more efficient way, especially if we can make use of ICT to enhance access, storage, processing and distribution of information. The next step is to IT enabled the re-engineered business processes. For this we have developed a Component Based E Application Deployment Shell (CBEADS©) that can be used to deploy various software applications that are required to support the business processes of the organisation (Ginige 2001; Ginige 2003). CBEADS© was specially designed to support an incremental eTransformation Process. Critical factor determining the success of eTransformation is how the changes are managed. In fact, sound principles of change management need to be considered throughout the process. It must consider reactions of all the stakeholders, especially the attitude of the employees towards the change. The change management process considers the people that will be affected, their existing skill levels and any training they would require to be positioned in the new structure. Training and appropriate placement of people should be an integral part of the eTransformation process.
TOWARDS VIRTUAL ORGANISATIONS We started with one organisation that was willing to under go the eTransformation process. Now many more has joined the project. Most organisations wanted us to look at how to make their marketing process more effective. For this we analysed their existing marketing channels and the type of inquires that they get through fax and Ⅵ-2
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phone. To analyse the type of questions sales and marketing people often have to answer we developed a call monitor. Using this information we designed Web sites for them. Then we added the product catalogues to the Web sites. At this stage two plastic manufactures one producing bottles and the other producing caps realised that they can create a single virtual store in cyber space that people can order both the bottle and the cap. Both these companies are mainly catering for the food packaging organisations. Now they are looking at collaborating with other relevant packaging material suppliers to provide a one-stop cyber store for someone looking for a food packaging solution. The shrinkage of market share is a major issue for manufacturing organisations in Western Sydney region. This has now being recognised by relevant industry bodies. They have now applied for funding to assist these manufacturing organisations by enhancing their ICT infrastructure so that they can effectively form dynamic clusters to respond the specific market opportunities. How toolmakers got together to bid for some toolmaking work related to Boeing 7E7 is an example of the activities happening in the region. CONCLUSIONS We have demonstrated that for SMEs to face up to the global completion it is a good strategy to collaborate by forming into virtual organisations. These collaborations are dynamic and should be supported by appropriate ICT and systems. There are two ways this collaboration can happen. One is to collaborate along a value chain. Due to automation cost of manufacturing has reduced drastically. To be globally competitive in terms of pricing now it is important to reduce the costs associated with other activities in the value chain. This can be achieved by collaborating along value chain activities. The second approach is to collaborate vertically. If the collaborating organisations have the same capabilities, they can now undertake a much larger task together. If the collaborating organisations have complementary capabilities they can undertake a more complex or diverse task. Either way this type of collaboration provides an edge when competing with others. Because of the dynamic nature of the today’s market these collaborations cannot be static. They need to be dynamic. The organisations need to come together rapidly to respond to a market opportunity and tear down the collaboration when the task is completed. For this, organisations need to transform how they carry out their business processes. We presented a methodology SMEs can use to eTransform their organisations. We have been working with SMEs in the Western Sydney region of Australia to enhance their understanding of the changes happening in the business world due to global competition and how they can face up to this competition. We do this through action research. We are now beginning to observe early stages of dynamic eCollaboration happening in the region.
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ACKNOWLEDGEMENTS The research work presented in this paper evolved over many years. Many research students and few academics have contributed to this work at different times. Also we had strong support from many originations in the region for this work. I like to acknowledge and thank them all for their valuable contribution. From time to time we have received funding for this work from Australia Federal Government, New South Wales State Government, various state organisations in the region, from various industries and from the University of Western Sydney. I like to acknowledge their support as well and thank all of them. REFERENCES (2000). The American Heritage® Dictionary of the English Language, Houghton Mifflin Company. 2004. Arunatileka, S. and A. Ginige (2003). The Seven E'S in eTransformation - A Strategic eTransformation Model. IADIS International Conference - e-Society 2003, Lisbon, Portugal, International Association for Development of Information Society. Barabba, V. (1998). Revisiting Plato's Cave - Business Design in an Age of Uncertainty. Blueprint to the Digital Economy. D. Ticoll. new York, McGraw Hill. Donnan, D. (2002). CEO/Presidents' Forum - Action Plan for Trading Partner ecollaboration, GMA CEO/Presidents’ Forum: 8. Everett, W. (2003). Boeing Announces Work Share for 7E7 Structures Team, http://www.boeing.com/news/releases/2003/q4/nr_031120g.html. 2004. Ginige, A. (2001). New Paradigm for Developing Software for E-Buisness. IEEE Symposia on Human-Centric Computing Languages and Environments, Stresa, Italy, IEEE. Ginige, A. (2003). Re Engineering Software Development Process for eBusiness Application Development. Fifteenth International Conference on Software Engineering and Knowledge Engineering, San Francisco Bay, USA. Ginige, A., S. Murugesan, et al. (2001). "A Road Map for Successfully Transforming SMEs into E-Businesses." Cutter IT Journal 14(5). Ginige, A., S. Murugesan, et al. (2001). Information Technology in Western Sydney: Status and Potential. Western Sydney, University of Western Sydney. Kazanis, P. (2003). Methodologies and Tools for eTransformaing Small to Medium size Enterprises. Ph.D. thesis, University of Western Sydney. Kock, N., R. J. McQueen, et al. (1997). "Can action research be made more rigorous in a positivist sense? The contribution of an iterative approach." Journal of Systems & Information Technology 1(1): 1–24. Schuster, K. (2002). Cross-Industry Standard Key to eCollaboration Success. News Release issued by Ticona. Philadelphia.
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