Networks in Action

Extract (1): Chapter 3: The Telecommunications Decision Sequence

Extract's Table of Contents:

• Chapter Overview
  
  
• The Four Core Frameworks for the Telecommunications/Business Decision Sequence
  
  
• Step 1: Define the Right Opportunity: The Telecommunications Business Opportunity Checklist (Core Framework 1)
  • Run the Business Better
  • Manage Distributed Inventories
  • Link Field Staff to Head Office
  • Improve Internal Communications
  • Improve Decision Information
  • Reengineer Processes and Simplify Organizational Complexity
  • Gain an Edge in Existing Markets
  • Provide Workstation Access in the Customer's Home, Office, or on the Street
  • Differentiate a Standard Product
  • Create Market and Organizational Innovations
  • Launch Preemptive Strikes
  • Piggyback Services onto an Existing Platform
• Summary of Step 1: Think Opportunity, Not Technology
  
  
• Step 2: Identify the Business Capability of the Telecommunications Services Platform Map (Core Framework 2)
  • Reach
  • Range
  • Responsiveness
  • The Implications of Reach-Range-Responsiveness Interactions
    
    
• Step 3: Identify the Network Design Priorities and Trade-offs (Core Framework 3)
  
  
• Step 4: Make the Economic Case: Quality Profit Engineering (Core Framework 4)
  • Profit Management and Alerting Systems
  • Traditional Costs
  • Quality Premium Costs
  • Service Premium Costs
  • Long-term Business Infrastructure Costs
  • Revenue Improvements
    
    
• Summary: Seeing the Steps as a Process

Chapter Overview

This chapter brings together the topics of Chapters 1 and 2 and completes Part I of Networks in Action. Chapter 1 addressed the business opportunities of telecommunications and the nature of an effective dialog among client, designer, and implementer; Chapter 2 addressed the technical fundamentals of telecommunications. This chapter fits these two pieces together, linking business opportunities and technical choices and presenting a telecommunications/ business decision sequence that has the following four steps: 

1. Bring together a team to define the business opportunity
   
   
2. Identify the business criteria for the telecommunications platform needed to deliver the required services
   
   
3. Assess network design priorities and trade-offs
   
   
4. Make the economic case for the investment 

At the end of the telecommunications decision sequence, the implementer can select the specific products and equipment needed to turn the opportunity into action with a clear statement of the business priorities, the business criteria for technical choices, and the economic priorities to drive those choices.

Each step in the telecommunications decision sequence applies one of the four core frameworks developed in Networks in Action. Together, they provide a systematic approach to linking business opportunities and technical choices. This is not a planning "methodology" or a cookbook, nor will you find it practiced as such in any company; there is no standard established methodology for telecommunications planning. That said, the decision sequence has been derived from studies of the best of current practice, and all four core frameworks have been applied in a range of organizations.1 The frameworks are a vehicle to help you create a style of thinking and analysis that matches what companies look for in their telecommunications planners and designers.

1 Earlier versions of several of the frameworks appear in Peter G. W. Keen, Competing in Time: Using Telecommunications for Competitive Advantage, 1986; Shaping the Future, 1990; and Eric R. Clemons, Peter Keen, and Steven Kimborough, Network Design Variables, 1986. The best test of frameworks is that organizations apply them and report that they work. Companies that have applied some of these frameworks in major projects include Ford of Europe, The Royal Bank of Canada, IBM, United Airlines, British Airways, Citibank Latino, Glaxo, and about 50 other organizations in Europe, Latin America, and North America. They are thus not "concepts" but guides to action that have both an academic and a real-world foundation.

It has not been at all easy for firms to find people who can span business and technology in this way. The technology itself provides little (if any) clear guidance about how to identify business opportunities to apply it. Knowing about each of the basic building blocks of telecommunications discussed in Chapter 2 suggests some potential applications-for instance, the very concept of a local area network suggests ways in which departments in a company can link personal computers or share databases-but knowing this does not in itself indicate where exactly to focus the technology. Equally, knowing that fiber optics offers the chance to move masses of information quickly does not in itself say anything about what information to move and why.

Similarly, although the business topics discussed in Chapter 1 highlight some ways in which telecommunications may open up major business opportunities, they do not give any sense of which technical building blocks to use, how to design the network to turn opportunity into action, or whether the opportunity is practical (or one in which the technical problems, risks, or costs make it unrealistic).

Chapters 1 and 2 provided a broad understanding of both the business context of telecommunications and the core technology. Chapter 3 provides the broad understanding of how to bring this knowledge together, with a detailed case illustration that applies the decision sequence.

The Four Core Frameworks for the Telecommunications/Business Decision Sequence

The four core frameworks used in the telecommunications decision sequence (see Figure 3-1) are a template for learning and, more importantly, for applying that knowledge to, first, the cases and assignments in this book, and, later, to a job as a client, designer, or implementer. The four steps in the decision sequence are as follows:

Step 1: Define the Business Opportunity. 

The telecommunications business opportunity checklist (core framework 1) identifies three practical and proven high-payoff strategies for exploiting telecommunications: 

(1) run the business better, 

(2) gain an edge in existing markets, and 

(3) create market and organizational innovation. 

The checklist is based on an analysis of over 300 real-life cases. The logic of the checklist is to focus on proven generic uses of telecommunications across private-and public-sector organizations and across different industries, sizes of company, and countries. This focus helps clients understand telecommunications as a business opportunity and provides a simple structure for brainstorming and thinking both innovatively and practically. In addition, it provides a framework for explaining telecommunications in business terms.

Step 2: Identify the Business Criteria for the Platform. 

The telecommunications services platform map (core framework 2) defines three dimensions of business capability needed in the telecommunications delivery base, which in this book is termed the telecommunications services platform. The business dimensions the platform addresses are: 

1. Its reach: What locations, people, and/or other organizations need to be connected to the telecommunications services?
   
   
2. Its range: What information and transactions must be shared directly and automatically across business functions and processes?
   
   
3. Its responsiveness: What level of service-in terms of speed, reliability, and security-must be guaranteed? 

The telecommunications services platform map helps explain in business terms the degree of integration the organization needs in its platform, and it helps the designer develop and justify the technical architecture and standards needed to ensure compatibility among individual telecommunications, computing, and information systems.

Step 3: Identify the Network Design Priorities and Trade-offs.

The network design variables checklist (core framework 3) helps the client and designer set priorities and provide clear guidelines for the implementer. It identifies four main categories of design variable relevant to selecting network building blocks: 

(1) capability-the technical applications and services the platform provides, 

(2) flexibility-how easily it can accommodate change and growth, 

(3) certification-how reliable it is and what level of service it guarantees, and 

(4) cost-fixed, variable development, and operating costs. 

There will always be trade-offs among these variables, especially between cost and flexibility.

One frequent complaint by telecommunications managers is that they are unable to justify major investments in telecommunications infrastructures because of the focus on short-term cost savings of business executives who are increasingly concerned with controlling telecommunications costs. The network design variables checklist provides client, designer, and implementer a simple approach to exploring costs in terms of trade-offs-"If you want to cut costs, here's what you have to give up on flexibility. How important is that to you?" or "If you want to ensure rapid disaster recovery (one element of certification) in case of some breakdown, here's the impact on cost. Are we ready to take the risk of not having this because it is too expensive?"

Step 4: Make the Economic Case. 

The quality profit engineering framework (core framework 4) identifies where and how the proposed services will contribute to the organization's economic health. It identifies six targets of economic opportunity: 

(1) profit management and alerting systems, 

(2) traditional costs, 

(3) quality premium costs, 

(4) service premium costs, 

(5) long-term business infrastructure costs, and 

(6) revenues. 

Historically, telecommunications has been viewed in most companies as a cost, mainly part of overhead. When telecommunications meant a telephone and telex utility that was part of the organization's overhead, the economic focus was naturally on cost displacement. Now that telecommunications is both a rapidly growing component of business capital and a central element of business innovation, it demands a far broader financial justification.

Each core framework is described in detail in a separate chapter in Part III. The next sections of this chapter briefly explain each step in the business sequence and outline the relevant core framework, providing real-world illustrations. The main aim of this chapter is to give you the "Big Picture." As you read it, we suggest you focus on the overall decision sequence, how each step leads into the next, and how they ensure a true dialogue among client, designer, and implementer.

Step 1: Define the Right Opportunity: The Telecommunications Business Opportunity Checklist (Core Framework 1)

With respect to the opportunities firms have used to exploit telecommunications to significantly enhance their competitive strengths, the patterns are remarkably consistent across industries, size and type of company, and era. Figure 3-2 summarizes these opportunities in the telecommunications business opportunity checklist and provides some specific company examples. The next three sections discusses these opportunities in turn.

Run the Business Better

There are five proven "must do's" for running a business better: 

1. Manage distributed inventories - speed up all aspects of ordering and distribution by moving to "just-in-time" ordering, manufacturing, marketing, and delivery.
   
   
2. Link field staff to head office - use laptop computers so that personnel can send and receive messages and transactions wherever they are, instead of having to wait until they get back to their office.
   
   
3. Improve internal communications - speed up information flows and make it easy for people to contact each other, regardless of time and place.
   
   
4. Improve decision information - provide managers with up-to-date information about what is happening in the marketplace early enough for them to be able to take action.
   
   
5.  Reengineer business processes and simplify organizational complexity - use telecommunications to reduce the many steps, documents, and people that clutter up many aspects of organizational life. 

Each of these five "must do's" is examined in the following subsections.

Manage Distributed Inventories

Although inventory is listed on a firm's balance sheet as an asset, the world of just-in-time business treats it as a liability.² The goal is to carry just the right amount of goods needed to meet expected or scheduled needs and at the same time be able to respond quickly to unanticipated shifts in demand. Typically, firms that have telecommunications- based information, scheduling, and ordering systems to monitor and match demand cut their inventory levels by 15-40 percent.

² The origin of just-in-time, which was invented by Toyota in Japan, was the American supermarket. After its defeat in World War II, when Japan was short of money and materials, a Toyota executive observed how supermarkets kept the shelves full by constantly replenishing them as consumers removed goods. He also saw that this could be applied to manufacturing. More recently, through telecommunications Wal-Mart has eliminated a storage area in the shop for holding its inventory; instead goods arrive by truck just-in-time.

Levi-Strauss provides a typical example of how streamlining customer-supplier links can reduce inventory levels. Levi's jeans are so famous worldwide-they are a form of currency in many Eastern European countries-that many people have no idea of how close the company came to disaster in the mid-1980s, with sales slipping and costs rising. A management team made a leveraged buyout of the company and made information technology a key element in their new plans. It introduced Levilink, an electronic data interchange (EDI) service for handling all aspects of orders and delivery. Customers can place even small orders as needed, say, every week. Goods are delivered by UPS within two days. Using Levilink, one of Levi-Strauss's customers, Design Inc., a chain of 60 stores, was able to entirely eliminate its warehouses, which act as a buffer supply to deal with shifts in demand and the long lead times for ordering and delivery.

Many car dealers use simple telecommunications services to locate spare parts or vehicles. They can dial up a host computer, either accessing a private leased line or using the public phone system, to tap into a master database; when they find the items they need, they place an order on-line. This service reduces the inventory they must keep and avoids out-of-stock situations, which generally mean lost sales.

High levels of inventory represent an unnecessary expense. Low levels of inventory can lead to stockouts, which create either a breakdown in operations or a loss of sales. Clearly, the only way in which inventory can be matched to demand is by eliminating delay, and telecommunications is the most powerful way to do this. The simplest tool is a fax machine for ordering goods that are then delivered by Federal Express the next day or by UPS in two days; the most complex tools are the integrated systems that connect nearly every link in the supply chain, with point-of-sale or point-of-manufacturing software automatically updating central databases and with software systems automatically placing orders using EDI links to the suppliers' systems. In turn those systems link to the freight forwarder's, insurer's, bank's, and trucker's systems.

The technology base for systems that aim at streamlining ordering and delivery typically rely on EDI, with the main standards being industry-specific agreements on terminology and types of transaction. Most industries, however, have based their standards on either ANSI's X12 or on EDIFACT. X12 is the EDI standard that describes how firms can send documents to each other without having to adopt one or the other's formats; EDIFACT is the international X12-based standard for electronic trade.3 X12 is a new business language that does not require a complex technical infrastructure; it can be implemented using a plug-in board on a personal computer and dial-up links either to the supplier's computers or to a node in its telecommunications network. This means that small as well as large firms can exploit EDI to streamline key elements in their management of inventory.

³ X12 is a U.S. standard. EDIFACT, defined by a committee sponsored by the United Nations, is more widely used in Europe for the obvious reason that there is far more movement of goods across national borders there. In the United States, industries drive EDI; elsewhere, shippers and customs organizations do.

Link Field Staff to Head Office

Without telecommunications, field staff such as sales reps, maintenance engineers, and branch office employees often find it difficult to keep up-to-date and in touch with the head office where most corporate information is stored, most records are kept, and most administrative processes are coordinated. A sales rep, for instance, may need to go into the office every morning to deal with all three of these constraints on his or her ability to get out and meet customers.

With telecommunications, more and more companies are providing their field staff with portable computers that can link to the head office This helps them handle paperwork; get access to inventory, product, and price information; send and receive electronic mail messages; and respond more quickly to customers' requests and questions instead of having to say, "Oh, sorry. I'll have to wait till I'm back in the office to find out about that for you."

The key need in linking mobile staff to the head office is making telecommunications access cheap and simple. Notebook computers now are powerful and inexpensive and fit into a briefcase. With a modem, their users can simply unplug the standard wire from the back of a phone, plug it into the PC, and then use the public phone system to dial up a remote host computer or electronic mail service. This provides a simple but very limited capability. Users cannot download large amounts of data, cannot get access to their own or their department's files on an office LAN, and cannot run most transaction processing software (to place an order, for example). For these functions they need more complex tools that connect them directly to the corporate network.

Linking field personnel to the head office is a major challenge to the implementer. According to Network Computing magazine, "Connecting mobile computers can be expensive, a support nightmare and frustrating to both the user and the network manager.... Laptops have grown up in an era where connections were rarely if ever considered in a purchase decision, and indeed where often the entire purchase process was geared against connecting them to corporate networks." (Magidson 1992) Restated, this means that the client wants a cheap, easy to use device, but also one with access to more and more information resources. The designer can offer the first option, and whereas the implementer can offer the second, it comes at a high cost for everyone. To resolve this dilemma and frustration, more and more vendors are offering laptop add-on devices that improve ease of connection, including high-speed modems with error detection and error correction, plug-in adapters for connecting to LANs, fax modems, cellular data transmission, and software and hardware for file transfer. Figure 3-3 illustrates some of these devices.

Distributed computing systems that are accessed from a desktop computer in the office are far easier to implement because they use standard terminals, transmission links, and fixed connections. Although they lack the advantage of complete mobility, they are helping organizations become more decentralized and less bureaucratic. Historically, computer applications are handled on large central computers with limited (if any) telecommunications links to field offices, which helped to create layers of administration and delays in processing. Two government agencies show how distributing computer power through telecommunications can dramatically change this.

The State of Virginia can authorize income tax refunds on the spot from its local field offices. Staff quickly enter a few key figures from your tax return into an intelligent workstation. A software system screens the data, and the workstation both automatically links to the central state computer to check historical records and sends electronic authorization for issuing the refund. The refund is processed overnight on the mainframe computer. It would be far too expensive to use dumb terminals to process the full return on-line. The intelligent workstation thus uses an expert system to estimate from a few figures whether the return is complete and accurate.

Merced County, California, has similarly used distributed workstations, LANs, and expert systems to reduce the time required for new welfare applicants to get their first check. The former reliance on central mainframe processing of the application meant an average delay of six weeks: A new applicant had to fill in a minimum of 15 pages of forms, wait until the central system checked them against the more than 2,500 federal, state, and local government rules on welfare, be interviewed by a welfare officer who generally needed additional data that had to be processed by the central system, and wait again. In many instances, the applicant had to visit several agencies and fill out many extra forms.

Today, the maximum wait is three days, and often it is just one day. Applicants fill in a single form, which is processed immediately through an expert system on a LAN, via a file server. As in the Virginia tax example, it would be prohibitively expensive to process the full application on-line to the host; the distributed system handles the main steps, accessing the host only at the end. Figure 3-4 shows the main features of the Merced County system, which has become a model for state and local government.

Improve Internal Communications

Telecommunications is by definition a medium for communication, and more and more uses of it are designed to enhance teamwork, personalize management, and coordinate activities scattered across many locations. The main tools for improving internal communications are:

• Videoconferencing - two-way telecommunications transmission between two cameras in separate locations that provides electronic "face-to-face" meetings. Until recently, it required an expensive investment, but systems coming onto the market now provide low-cost videoconferencing via desktop PCs.⁴
  
  
• Groupware - a generic term for tools for coordinating work. All are PC-based and include calendaring, workflow management, bulletin boards, schedules, anonymous voting, and the like.⁵
  
  
• Electronic Mail - a simple tool for sending and accessing messages; the two parties neither need to know where the other is located nor need to make direct contact.

⁴ In 1992 and 1993, PictureTel and Hitachi seemed to be in an almost monthly competition to offer the lowest ever price for a videoconferencing system; their prices dropped in 18 months from around $100,000 to under $20,000. The key technology here has been data compression and a special type of chip, called digital signal processor (DSP), that has the speed to handle multimedia applications on PCs. Data compression speeds up the transfer of the picture, and DSPs speed up its processing and display.

⁵ Lotus Notes and Microsoft's Windows for Workgroups are among the market leaders in groupware software. Groupware is a PC application that depends entirely on telecommunications; without it, there is no group to coordinate.

• Business Television - broadcast of TV programs that are for reception only by a specified audience within or outside the company.6 It is growing in use as a way of personalizing senior management, ensuring that employees are kept up to date and well-informed, and providing training.

⁶ All a firm needs is either a satellite link that can be rented by the hour or a private link that uses a specific frequency and satellite transponder. Business TV can also be carried over the firm's existing private network at off-peak hours. Kmart, for example, uses its VSAT network, whose main purpose is point of sale, credit card authorization, and voice transmission for its chairman to "meet", with employees daily. The total cost is just 50 cents per store per hour. The network is effectively free when the store is closed.

One problem in the evolution of many of these tools has been the lack of standards, which limits their use. They need special equipment, may or may not be compatible with existing systems, and cannot communicate except with a subpart of the target community-which is contrary to their major purpose. The technical blockages to progress are being surmounted. The H.261 standard, which defines the protocol for coding and decoding a high-speed digital video signal, is making it practical to link videoconferencing systems.7 X.400, the international standard for electronic messages, including E-mail, fax, and telex, links different electronic mail services. Lotus Notes, a PC software package that organizes and coordinates the messages, schedules, and specified workflows of individuals and groups, is becoming a quasi-standard for groupware, but until late 1993 it was available only for MS.DOS and Windows, not for Apple Macintosh or Powerbook computers. Business television can use a wide range of standard transmission links, including T1 and satellites, and, because it is not interactive, it does not pose problems of incompatibility.

⁷ Another key standard for compressing slower signals is V.21 bis, which is an extension of the V.21 standard for modems. It increases data transfer by a factor of four.

More significant than the technical limitations are the social and psychological ones.8 Communication is among the most personal of activities, and people are naturally somewhat unwilling to shift away from the tools and procedures with which they are most comfortable. Many are reluctant, for instance, to try out videoconferencing, expecting it to be impersonal; groupware software often seems to them to be restrictive and awkward to use, and electronic mail seems impersonal and clumsy. But there is plenty of evidence that most people don't fear using technology; the growth of fax machines demonstrates that. Fax is easy to use because it requires the same actions and corresponding skills as dialing a phone and inserting a document into a photocopier. Still, computers remain far more difficult to use.

⁸ There is a rich literature on the human context of computers and telecommunications. One of its constant themes is that technical innovations too often neglect the human context and that technical professionals are ignorant of and/or uninterested in these issues. Unfortunately, too much of the literature is in academic journals and remains unread by professionals. A landmark book was Shoshana Zuboff's In the Age of the Smart Machine (1988); it is tough, but essential, reading.

Improve Decision Information

Traditional management information systems have been built on a firm's accounting system, with reports on sales, inventory, profit and loss statements, and the like being generated on paper at the end of the month. This means that the information managers get is often too old to allow prompt action. For instance, in retailing, purchase patterns can shift in days. Supermarkets' stock and pricing decisions may need to change daily because of weather. Airlines need to track flight reservations each day; they make their money on the last five seats on a flight-they are the difference between profit and loss.⁹ Manufacturers need to spot quality or production problems just-in-time.

⁹ One travel agent may be informed that no seat is available on a generally fully booked flight at exactly the same time as another agent learns of the availability of the final seat. Guess which computerized reservation system the latter is using-the airline's own or a competitor's? Walter Wriston, the former chairman of Citibank, once recommended that information about money (for example, in electronic foreign exchange trading) is now more important than money itself. Information about airplane seats is more important than airplane seats, too. The reality in both of these situations is the direct result of telecommunications.

In these situations, information that is 15-45 days old is of little value. More and more leading firms use their telecommunications network capability to capture information at its source-point of sale, reservation, ordering, delivery, and so on-and move it as frequently as is needed to a central computer, which screens and stores the data and makes automated decisions for ordering while simultaneously looking for any trends, anomalies, and news. When managers and planners log onto their workstations to access data, the executive information system draws their attention to such information.

A classic, well-known example of such management alerting systems illustrates the general principles. Frito-Lay was one of the first large firms to provide its delivery staff hand-held computers to handle invoicing and accounting. At the end of the day, the information is uploaded to Frito-Lay's head office computer complex. Managers can now spot trends in just a few days. The executive information system software alerts them to the implications of what happened yesterday so they can act today.

Reengineer Processes and Simplify Organizational Complexity

Business process reengineering combines fresh thinking about processes with the use of technology. It has become one of the rallying cries of the information services profession, mainly because it offers a way to use telecommunications and computers to do more than just automate the status quo. The basis of reengineering is taking a fresh look at work processes and removing as many documents, people, administrative procedures, and delays as possible. Telecommunications is a central part of this streamlining for the obvious reason that it replaces physical documents with electronic ones that move in millisecond speeds instead of days, allows on-line access to information wherever it is stored, and brings the work to the person.

Examples of effective reengineering include cutting the time to issue a life insurance policy from 22 days-during which there is typically just 11 minutes of decision making-to four hours. The masses of paper that move through departments and mailrooms are largely unneeded; information is moved electronically. Software screens the forms and applies standard rules of evaluation and pricing. Most applications are routine and are thus processed by a single agent at a workstation by accessing outside information via a WAN and/or a public network and by accessing software and other data via a LAN server. Shearson Lehman (see Minicase 1.2) uses the same approach and technology to a workflow, as does Merced County, California.

Reengineering, streamlining, simplifying, and redesigning workflows are closely aligned to the total quality management (TQM) movement that has become a core part of business innovation in the 1990s. In many respects, reengineering is a technology-focused version of TQM, for it is a conscious effort to shift the entire application of information technology away from automation-from technology as the driver and customers and people as the followers and secondary concern, and from efficiency of operations as the business rationale, toward a completely fresh view of work, with technology as the secondary element and customer service and workers as the drivers, and with service and quality as the core of the business case.

Figure 3-5 lists examples of successful reengineering projects. Although telecommunications is just one of the tools for reengineering, it is a key enabler because without telecommunications, there is no means of either cutting out paper and the delays and administration they create or of moving work and documents to a single contact point where they can be processed immediately, instead of step-by-step and department-by-department.

Gain an Edge in Existing Markets

The 1990s are a time of constant competitive stress, for there are no easy markets. Firms must control their costs aggressively. Service and quality are not special add-on features that can be charged for but are the entry fee for being in the game. In this context, telecommunications has been a key element in helping companies find an edge, however small, that gives them a chance of standing out among their many competitors. In more and more industries, telecommunications is a competitive necessity and firms must use it to achieve two goals: 

1. Provide workstation access in the customer's home, office, or on the street to create a new delivery base. 
   
   
2. Differentiate a standard product through speed of service, ease of access, and information byproducts. 

In the next subsection we examine each goal in turn.

Provide Workstation Access in the Customer's Home, Office, or on the Street

The term workstation covers a wide range of access tools, from the telephone to the personal computer to specialized computer terminals. The crux of telecommunications is to make it easy to do business with a supplier; simply pick up the phone or log on to the computer and get what you need when you need it. Consider the following examples of workstation access:

• Electronic Cash Management: Electronic cash management systems are software and telecommunications links that process corporate banking transactions electronically. These services include funds transfers, letters of credit, and foreign exchange. The bank provides software and network access; the workstation is generally a standard PC that exploits the available software to add reporting features, spreadsheet analysis, and access to corporate information.
  
  
• Federal Express: FedEx's legendary network-based services are built on mobile communications, tracking systems, the company's private fleet of airplanes, and its well-trained and proud culture. More recently, Federal Express has given its high-volume customers workstations they can use to initiate their own shipments without the need to phone the company for pickup. The workstations tie directly into FedEx's own systems, simplifying paperwork and administration for the customer.
  
  
• Dell: Many of the fastest-growing and most profitable retailers have turned the telephone into a workstation. Customers use a catalog to shop by phone, are served by an agent at the other end of the line who has access to inventory data and can complete a transaction in just a few minutes, and get next-day delivery. Although many companies provide this type of access, some, like Dell, complement it with voice messaging systems that route the call to the right person, whether for information, service, or technical assistance. Dell is under ten years old but has already reached annual sales of over $1 billion. It and the other mail- and phone-order companies now have over 20 percent of the personal computer market. ¹⁰

¹⁰ Traditionally, face-to-face service is thought of as being more "personal" than phone-or computer-based service. Today, however, there is a growing recognition that the reverse is often true. First, people are very comfortable talking over the phone and may be less comfortable in someone's office or store. Second, the technology Dell uses gets a customer to the correct person very quickly. As a result, Dell provides a high degree of "personal contact" and establishes continuing relationships, from sales to after-sale technical support, without a customer ever making any face-to-face contact with members of the firm.

Figure 3-6 provides other examples of using workstation access to provide customers a level of convenience and service that gives them little if any reason to go elsewhere. In these situations, customers increasingly concentrate their purchases with the on-line provider. Federal Express's aim is for customers to choose to use its package delivery services exclusively. A bank's aim with cash management systems is to capture more and more of the customer's business. The terminal becomes the basic contact point in the customer-bank relationship.

Differentiate a Standard Product

Closely related to making the workstation the primary contact point is using telecommunications and information byproducts as a differentiator in commodity markets-markets in which the only two forms of differentiation are price and convenience. In competitive markets, price cuts are usually matched by all competitors; discounts, special deals, and promotions have only temporary impacts. Convenience in the form of speed and ease of access can have a more lasting impact, especially if it is based on a telecommunications and computer platform that competitors cannot quickly replicate.

For many standard transactions-ordering an airplane ticket, buying stationery, buying mutual funds, and applying for a car loan-dozens of suppliers are readily available; many can be quickly contacted by phone. Each of these routine transactions has been differentiated by leading firms through a combination of phone and data communications. CitiTravel, a Citibank subsidiary, has become a major provider of travel services by offering a five percent rebate on airline tickets once they have been used, plus delivery of the tickets to anywhere in the United States via Federal Express. Quill processes stationery orders sent by fax the same day. USAA can process a car loan application over the phone in under five minutes, fax the authorization and the insurance policy to the car dealer, and update police databases to indicate that the driver is covered. Charles Schwab provides customers day and night push-button phone access to make stock purchases and get account information.

American Airlines, for 20 years one of the most creative firms in applying information technology, initiated its telecommunications-dependent frequent flyer program and held a competitive edge for around seven years, until frequent flyer programs became so widespread that most passengers who travel often are enrolled in at least three. One American Airlines innovation created a new AAirpass program. In it, travelers pay a fee that buys them a given number of miles (between 5,000 and 100,000) a year; enrollment ranges from one year to the customer's lifetime. For example, for $102,000, a45-year-old traveler could get 40,000 miles of travel a year for the rest of his or her life. AAirpass travelers write their own tickets and make their reservations through a special phone number.

The AAirpass program involves complex telecommunications and database linkages for accounting and for recognizing the passenger in a variety of databases. Only a few airlines have the technology platform needed to incorporate these linkages; that is why the program has not been imitated.¹¹

¹¹ One of the authors of this book, who is an immensely satisfied customer of AAirpass, suggested to a major foreign airline that it implement such a program. The marketing staff was eager, and the CEO was even more eager. However, the airlines telecommunications and data management systems lacked just two vital interconnections. The project died.

In each of these examples, there is no grand "innovation," and there maybe no distinctive, sustainable competitive edge. That said, there is an almost certain competitive disadvantage for firms that fall behind the leaders in using telecommunications as the differentiator of service through ease of access and speed of response. In addition, firms such as Quill, CitiTravel, and USAA are also among the price leaders. The streamlining of service to create market differentiation (which falls under the heading of gaining an edge in existing markets) often also streamlines internal processes, which falls under the heading of running the business better.

Create Market and Organizational Innovations

The first two areas of opportunity-run the business better and gain an edge in existing markets-focus on today's activities. The third area of opportunity-market and organizational innovation-is far more radical and explicitly aims at inventing something new. Capitalizing on this opportunity demands very fresh thinking, but in many instances it does not need space-age technology, but only a careful application of existing technology. Telecommunications is a relatively new competitive weapon; the widespread availability of digital communications dates from the mid-l98Os. Thus firms have only just begun to explore what can be done to use telecommunications as a force for business innovation. The challenge is to build a dialogue that maximizes the chance to do two things:

1. Make Preemptive Strikes, the rare innovations that change the dynamics of competition and create a sustainable edge for a few leaders (and often a disastrous erosion for the laggards). The nature and duration of the competitive edge heavily depend on (1) whether it is built on simple technology that can be quickly copied or on a comprehensive technology platform that takes years to replicate, and (2) the nature of the business/technology dialogue.<sup>12
   
   12</sup> When every firm in an industry has access to the same technology, and yet a Wal-Mart, American Airlines, Federal Express, BancOne, or USAA consistently makes more effective use of it, there has to be some explanation. The evidence increasingly suggests that differences in management establish the competitive advantage. Those differences begin in the relationship between the senior management team and the leaders and planners in information services.
   
   These preemptive strikes do not suddenly and magically appear. It takes around seven years to create the business, organizational, and technical bases needed and for customer response to reach a critical mass. Generally, then, there is a seven-year window of opportunity for the innovator to exploit its lead. <sup>13
   
   13</sup> All the best-known examples of telecommunications as a source of a major competitive edge have included this seven-year window of advantage. Of course, because books and articles discussing innovation often appear about seven years after their implementation, there are many instances of erosion of the advantage at the very time it is hyped, leading business managers to doubt their original success. Max Hopper, the IT executive of American Airlines whose name is most associated with its successful use of technology, published a controversial article in 1990 claiming that there is no longer any competitive edge to be gained by IT. Many commentators concluded that his real message was, "We've got our value from Sabre and left the others behind. Let them buy pieces of what we have built-and let's move on and still keep our edge by knowing how to use technology as a business resource." (Hopper, 1990)
   
   
2. Create New Services by "Piggybacking" and network interconnection. Piggybacking involves using existing telecommunications delivery infrastructures. Once the telecommunications "highway system" is in place, it can be easy to add new services to it; many of these new services are the traditional territory of other firms and even of other industries. An airline can add hotel and car rental reservations to its airline reservation system, and a pharmacy supplier can add electronic processing of insurance claims to its customer ordering network.

Each of these two methods of innovation is discussed in more detail next.

Launch Preemptive Strikes

Preemptive strikes use telecommunications to redefine the basics of an industry. There is substantial debate in both academic and business circles as to whether or not the launchers of such strikes gain a sustainable competitive advantage. The argument is that, as with ATMs and airline reservation systems, competitive necessity forces laggards to catch up, and thus every firm ends up with the same market size but a higher cost base. The rebuttals to this argument are that even if it is true, it takes five to seven years for laggards to catch up, during which period up to half the firms in the industry disappear; that at least one of the losers will have been a previous leader; and that there are plenty of examples of firms that created their own leadership through their preemptive strike. Examples cited as evidence to support the rebuttals include the following:

• USAA brought together all customer information to create a level of service unequaled by all except a handful of firms.
  
  
• Citibank launched into telecommunications-based electronic banking and credit cards that provided it with around $800 million a year in profits and a dominant position in retail banking, even as late as 1992, when most of the rest of its core business was in a shambles. Viewed as a separate company, Citibank's electronic retail banking remains a star, with close to 20 years of sustained success.
  
  
• Wal-Mart, Dillards, Toys "R" Us, and a few other retailers did not simply carve out a lead through point of sale and quick response; they drove many of their previously strongest competitors out of business.
  
  
• Federal Express took over the package and small cargo market from the airlines and such well-established carriers as UPS.

In each of these and comparable examples, a distinguishing feature of the company is the fusion between the thinking of its business leaders and of its information technology managers, to the extent that it is almost impossible to sort out which of them created the innovation. They both did, through a dialogue that both maximized the chance of the business leaders spotting where telecommunications could make a major competitive difference and linked the information technology managers into the business strategy, so that their contribution would be considered as well. And in each instance, competitors were pushed onto a long defensive effort to catch up. Sears, Kmart, Delta, Bank of America, UPS, Aetna, and many other previously well-positioned firms have had to spend literally billions to close the gap.¹⁴

¹⁴ Wal-Mart had just a four-year lead over Kmart. That advantage was a major factor in pushing Kmart into a race for survival-and into a $2.2 billion investment in store refurbishment and in information technology.

Preemptive strikes take a long time to launch. If they depend on small-scale software packages and standard telecommunications links, there is no sustainable edge; but if they require a comprehensive integrated platform, then time, skill, and dialog to design, build, and operate them are required as well.

Piggyback Services onto an Existing Platform

Piggybacking refers to adding a new service often traditionally supplied by another industry-onto an existing telecommunications capability at low incremental cost. Examples of piggybacking include the following:

British Airways added international hotel reservations to its international airline reservation system at a time when the major U.S. hotel chains lacked an international reservation capability. Travelers do not make their hotel reservations before they have first booked their flight, so a natural byproduct of doing so is to ask, "Can I help you with a hotel?" BA was able to command large commissions from hotels and pushed several of them, including Marriott and Hilton, into a catch-up effort that turned out to be a disaster, costing around $125 million before it was abandoned.

McKesson added insurance claims processing to its pharmacist order-entry system, thereby becoming the third largest processor in the country and taking business away from insurers.

Some of the most striking recent examples of innovation through piggybacking come from the public rather than the private sector. State government agencies, for instance, are looking to find ways of providing a new level of customer service by using existing telecommunications delivery bases at minimal incremental cost. As mentioned in Chapter 1, Maryland allows use of ATMs for making welfare benefit payments, and New Jersey enables car owners to renew their auto registration through ATMs.

Piggybacking provides a source of revenue that offers unusually high margins, even at low volumes, because the delivery base is already paid for. Of course, piggybacking is successful only if customers want the service. Hotel reservations are a natural cross-selling opportunity for an airline, as is insurance claims processing for a pharmacy goods supplier. But offering a car loan or a chance to buy mutual funds is not a sensible effort at piggybacking for either type or firm-or is it? The customer decides.

Summary of Step 1: Think Opportunity, Not Technology

Chapter 10 goes into greater detail about each of the categories on the telecommunications business opportunity checklist. Each of the examples given here has been illustrative; each points toward particular choices of telecommunications and computers, and in many cases each is enabled by specific technical building blocks. But the technology is not the opportunity. By focusing on the categories in the checklist, the dialog among the client, designer, and implementer is centered on the client and is carried out in the client's language. At the same time, because the categories have been derived from proven examples of telecommunications, the dialog positions the designer to move forward to Step 2-to identify the business criteria for the telecommunications platform, shifting the language toward issues of connectivity, integration, architecture, and standards. Step 1 also positions the implementer, who can draw on a range of proven blueprints and recall that Company XYZ used this technology to meet this type of opportunity and that most companies are using these standards to meet that opportunity.

Step 2: Identify the Business Capability of the Telecommunications Services Platform Map (Core Framework 2)

The business opportunity checklist does not directly address technology; instead, it zeroes in on where telecommunications can offer a major chance either to run the business better, gain an edge in existing markets, or change the rules of competition. Before the technical design of the network can be defined, the obvious question to answer is: "What are the business requirements for the technical platform that delivers the service(s) identified as targets of opportunity?" The second core framework of Networks in Action - the telecommunications services platform map (see Figure 3-7)-has proven to be useful for translating business to technology along three dimensions of business functionality (that is, the nature of business services that can be delivered by the technical platform). Each dimension-reach, range, and responsiveness-runs in a different direction on the map and varies from simple to complex. The greater the complexity along dimensions, the greater the need for integration of business and technology.

Next we examine each of the dimensions of business functionality in turn.

Reach

The dimension of reach concerns whom we need to connect our network and business processes to, and where:

• Within a Single Location, such as a head office department: This situation requires only local telecommunications facilities that need not be compatible with other departments' facilities.
  
  
• Across a Firm's Domestic Locations: This degree of reach requires compatibility between the various local and wide area facilities. Shearson Lehman, Merced County, and New York State's Empirenet have this degree of reach, which is essential when the main aim is to use telecommunications to run the business better.
  
  
• Across International Locations: International and telecommunications is a morass of regulatory, economic, political, and technical uncertainties and constraints. Minicase 2.4, "International Telecommunications: The View from Volkswagen," listed many of these problems and also made it clear that they must be resolved by any company that needs to coordinate its worldwide operations. THEi's network is international, but it faces far fewer problems than Volkswagen because its main nodes are in countries with both responsive PTTs and strong national telecommunications infrastructures.
  
  
• To Customers and Suppliers with the Same Technology Base as the firm's: This degree of reach makes it essential that the firm adopt an architecture that is in the business mainstream. Companies such as Levi-Strauss, and many retailers and manufacturers, have made electronic links to customers and/or suppliers a cornerstone of their business. The architecture used must adopt standards that ensure interoperability of telecommunications for interoperation of business functions.
  
  
• To all Customers and Suppliers, regardless of technology base: This degree of reach requires a level of integration that today is close to impossible to guarantee across all services. Emerging standards for EDI and electronic messages are, however, rapidly improving the situation; in more and more industries, electronic customer-supplier links are becoming the norm, not the exception.
  
  
• To Anyone, Anywhere: This degree of reach is the ideal. Although it remains impractical today, it is not impractical to prepare for. The phone link is one base for this, as is cable TV. The needed technology is becoming available, though the investment cost will be huge.
  
  

Range

Range involves the information and transactions that we must be able to share directly and automatically across business functions and processes:

• Simple Messages: These require the simplest form of computer operating systems and telecommunications transmission. Laptop computers with a modem can send and receive electronic mail messages through a dial-up connection to the public phone network. The California telecommuters can do this (see Minicase 1.3). 
  
  
• Access to Data Stores: In this degree of range, a single workstation or business application can access data from different databases. This requires an operating system on an intelligent workstation that is either compatible with the operating system of the host computer that stores the data, or routers, smart hubs, and gateways that can ensure that the receiving and sending devices do not just connect to each other but also format the bit stream into meaningful data. The California telecommuter's laptop computer, for instance, cannot directly access mainframe database. THEi's point-of-sale terminals can send and receive data only from specific types of computer systems. Many companies with IBM PCs need software or hardware that emulates IBM 3270 dumb terminals for them to be able to access databases on an IBM mainframe. (Emulation is a software and/or hardware technique that converts the PC's protocols into those used by the relevant device.)
  
  
• Independent Transactions: In this degree of range, workstations can make transactions, but each transaction is independent of any other, with no cross-linking or knowledge of each other. For example, when a travel agent makes a plane reservation, then a car rental reservation, and then a hotel reservation, each transaction is entirely separate and specific to an operating system. Thus, an Apple Macintosh cannot substitute for an IBM PS/2 for ATM transactions and at the same time process a transaction on an UNIX processor. Intelligent networking devices and software are needed to ensure that a single terminal can carry out all of them.
  
  
• Cooperative Transactions: In this degree of range, services are interdependent. If the travel agent in the previous example wants to change the date of the traveler's departure, then the airline, car rental, and hotel applications each knows about the others and makes the adjustment accordingly. The two developments that make this new level of service practical, though technically difficult to implement, are client/server computing and cooperative processing. Both these similar innovations divide the processing required to deliver a service among a range of distributed systems; the "client" workstation transfers control to "servers" as needed; whether the "servers" are mainframe host computers, departmental machines that store needed data and additional software, or other workstations.

Responsiveness

Responsiveness refers to the level of service-in terms of speed, reliability, and security-that we must guarantee:

• Non-immediate Response: In this case, services and information need not be on-line and can be processed at the end of the day, week, or month. This both minimizes telecommunications requirements and simplifies computer needs. The State of California telecommuters' payroll checks are processed off-line, and, provided they arrive on payday, it does not matter if they are processed at 9 A.M. or 3 P.M.
  
  
• Immediate Response: Transactions are processed on-line, in a few seconds, but only within specified time periods, such as office hours. Merced County's on-line system operates only during the day; in the evening, the mainframe computer processes transactions and updates the databases.
  
  
• On-demand Response: In this degree of responsiveness, a transaction or service is handled immediately 24 hours a day. Merced County's police force needs to access state and national databases around the clock. If you are ever stopped for speeding, you will find that the officer does not get out of the car immediately; he or she first accesses databases via mobile communications in the police cruiser to find out if your car is reported as stolen; and the data must be available at all times. Customers who do not expect their bank branch office to be open at 3 P.M. on Sunday expect its ATM to be "up" at that time.
  
  
• Perfect Service: In this degree of responsiveness, a firm adds resources for backup, "hot restart" facilities, security, and reliability, so that if there is any problem such as a telecommunications switch being out of service or a line being cut, processing still continues. There is a fine line (and an expensive one) between guaranteed on-demand service and perfect service. An ATM network may be down half an hour a week, or routinely taken down for maintenance between 2 A.M. and 4 A.M. on Sunday; that can be an occasional inconvenience. But if the Federal Aviation Agency's Air Traffic Control network is down for only 15 minutes, it is a disaster.

The Implications of Reach-Range-Responsiveness Interactions

The reach, range, and responsiveness of a firm's platform determine the variety and quality of telecommunications-dependent services it can provide and hence, in an increasingly telecommunications-dependent world, its "business degrees of freedom"-the range of business strategies it can consider. 

Developments in local area and wide area telecommunications transmission have made it increasingly easier to increase the reach of an organization's platform. Increasing range has been far slower and remains complex because of the lack of open standards, the complexity of existing computer operating systems, investment in existing software, and the as yet largely unproven tools for large scale client/server applications in a multi-vendor computer environment. 

Federal Express's network has about as much reach as any business in the world, with mobile communications reach to trucks, satellites to most countries around the world, and phones to its business and processing centers. THEi's network reaches to stores in all the countries in which it operates but not to its suppliers or customers. Shearson Lehman's is the classic corporate network that reaches across all domestic locations. 

Very few companies have extensive range in their platforms. Consider two insurance companies, the first of which is merely average in its use of telecommunications (and will remain anonymous), and USAA, which is outstanding. Company X has separate processing bases for its three main consumer products: home, life, and auto insurance. As a result, customers must deal with three different units, and the firm does not know which of its customers who have car insurance also have home owner coverage. Even though its entire business strategy rests on cross-selling to meet a customer's total insurance needs, it cannot do this because it lacks range for marketing, service, billing, and pricing. USAA, in contrast, knows exactly which products a customer has, and with a single phone call a customer can contact an agent who can address any issue and handle any product. The agent accesses both databases and image processing files from a single workstation. 

The level of responsiveness of the telecommunications services platform varies widely across firms, even those within the same industry. Most securities brokers are open for trading only when their offices are open, but Charles Schwab is open all night via touch-tone phone; buy and sell orders can be placed any time. Most banks require customers to get forms for a mortgage application from their office, fill them out, and wait up to three months while the application is processed; several banks offer approval in 15 minutes. This on-line service is location-independent, for you can phone in from anywhere, and it represents the new baseline for service in more and more industries. Dell, Lands End, and other telephone-based retailers get all their revenues without any physical stores. Most of them are "open" only during office hours, however.

Only when the public phone network is down or a fiber optic has been cut is the difference between guaranteed on-line service and perfect service apparent. When a fire destroyed an Illinois Bell switching center, travel agency business dropped by 95 percent, and floral orders completed by phone ceased. Several insurance companies had to send their staff home for weeks, but Metropolitan Life Insurance was back up in under an hour. Its telecommunications designer and implementer deserve congratulations, as does its senior management, for recognizing that the extra level of responsiveness provided through backup facilities and redundant circuits was not an "expense" but a key business need.

Step 3: Identify the Network Design Priorities and Trade-offs (Core Framework 3)

Step 3 in the telecommunications/business decision sequence begins either the technical design of the platform or the incorporation of the service into an existing platform. There are literally thousands of potential technical choices that vary in capability, features, and costs. Picking among them should occur only when client, designer, and implementer are sure about the relative priorities and trade-offs. Figure 3-8 shows the network design variables worksheet, which has four main categories, each of which breaks down into subcategories:

• Capability: This is the technical applications and services the facility provides. The subcategories are variety of applications, degree of integration of the services, and the range of volumes anticipated.
  
  
• Flexibility. This defines how easily the platform can accommodate growth and change; includes speed of change in adding capacity, ease of increasing reach, ease of increasing range, and ease of increasing responsiveness.
  
  
• Certification: This category defines how reliable the platform is and what guarantees of service it provides; includes operating reliability, ease of access, security, and response time.
  
  
• Cost: This category defines fixed and variable development and operating costs; includes fixed costs of equipment and software, development costs, operations costs, maintenance, support, and education.

The main trade-offs that all designers must address are between flexibility and cost, capability and flexibility, and certification and cost. The skilled designer will always look for standards that permit maximum flexibility without adding cost, that meet today's specific needs while ensuring that the platform can evolve to exploit tomorrow's business opportunities and technology, and that ensure the lowest practical operating costs without putting the firm at risk. This is not an easy task, but it is one that can have a major impact on the business's success or failure.

One of the main points that underlies the network design variables framework is that there is no such thing as "the best design," any more than there is such a thing as "the best car." Just as auto enthusiasts rate cars in terms of speed, power, safety, reliability, and repair record (and as Consumer Reports rates them on value for the money), technical specialists judge network options in terms of speed, technical elegance, and sophistication. The network design variables framework enables designers and clients to focus more clearly on what "the best" and "value for the money" really mean.

Step 4: Make the Economic Case: Quality Profit Engineering (Core Framework 4)

The final step in the decision sequence is to make the business case in terms that are meaningful to business managers. The quality profit engineering framework, which identifies exactly how the proposed investment contributes to improving the firm's profit and cost structures, includes the following elements:

• Profit Management and Alerting Systems: These systems capture information at what is here termed "point of event"-point of sale, reservation, ordering, delivery, and so on-so that planners and managers have timely data on what is happening in the marketplace.
  
  
• Traditional Costs: These costs are the standard components of a firm's activities, most obviously labor costs, materials, real estate, administration, and expenditures on information technology.
  
  
• Quality Premium Costs: These are the costs a firm must pay to ensure quality, which has become a basic requirement for all firms and not something they can charge extra for.
  
  
• Service Premium Costs: These costs are equivalent to the premium a firm must pay to ensure higher and higher levels of service.
  
  
• Long-term Business Infrastructure Costs: These costs include research and development (R&D), education, market and product development, and investments in the telecommunications platform. They cannot be justified on the basis of cost displacement. They are a planned profit loss; R&D, for instance, cuts this year's operating profits in order to preserve profits five to 15 years later.
  
  
• Revenue Improvements: This element is not the same as revenue growth, but refers instead to opportunities to add revenues without eroding profit margins. This is a major problem for firms in all industries, as deregulation, global competition, new technology, and overcapacity push margins per unit of sales down and down. Piggybacking new sources of revenue onto an existing platform can generate high margin products because there is no added cost of delivery.

Let's consider each element of quality profit engineering in turn.

Profit Management and Alerting Systems

A classic example of profit management and alerting systems is "yield management" systems used by airlines. Yield management is the term for the net profit on a given flight. The logic is to adjust prices so that when the plane takes off, it has no empty seats, and no full-fare passengers have been turned away because too many discount seats were sold earlier. The leading airlines monitor sales for a flight a year ahead, fine-tuning prices sometimes several times a day. The key to being able to do this is the capturing of reservations data, which the yield management systems track and analyze as needed. Yield management is increasingly being used by hotels, car rental companies, and other businesses that have a "perishable" product-once a flight takes off, empty seats cannot be filled.

The retailing equivalent of yield management is the use of point-of-sale data to alert managers to trends, problems, and discrepancies. The same principle applies: capture information at point of event-where the activities that determine profits occur-and move it quickly to the managers who need it.

Traditional Costs

The three main elements of traditional costs-those that have always been basic to companies' operations-are labor, inventory, and real estate. In the 1970s and 1980s there were many promises that computers would increase productivity and thereby improve labor costs as a fraction of revenues; that did not happen. In general, computers have had little impact on white-collar productivity, though they have reduced manufacturing labor costs.¹⁵ Adding telecommunications to computers has had a significant impact on all three elements of traditional cost through such applications as the streamlining and reengineering of work, location independence of back-office facilities, and electronic data interchange.

¹⁵ Whether or not you personally believe this or even care about it, reducing costs is the concern of almost every senior business executive. Just about every company today is looking to cut costs, and most do not see computers as doing so. As one CEO told an author of this book, "IT people are in the business of asking for money They do not feel they have to produce value for money. When productivity doesn't go up, they blame the business people, not themselves." The governor of a large state asserted to that author that "To me, computers are bureaucracy. How can I lead a fight against bureaucracy through computers!"

Quality Premium Costs

Quality is not something companies can charge an extra for, except in very special contexts. In retailing, consumer electronics, computers, furnishings, financial services, and many other industries, the customer has a wide range alternatives and expects a good price and first-rate quality. In the 1970s, "discount" really meant "crummy"; now, the top discount stores offer excellent products. In manufacturing, total quality management has become one of the central priorities simply because it has to be if the firm is to survive.

Telecommunications contributes to improvements in quality mainly by helping streamline activities. It is a core element of CAD/CAM (computer aided design/computer-aided manufacturing), customer-supplier linkages, and the creation of and access to databases that provide timely information needed to ensure quality.

Service Premium Costs

Telecommunications and service are almost interchangeable terms. Many of the applications listed in the telecommunications business opportunity checklist create new levels of customer service through ease of access and convenience. Examples include workstations for electronic ordering and cash management, telephone services for information and ordering, 15-minute mortgage approval, electronic data interchange to ordering and delivery, and many others.

Service is as much a basic requirement now as quality, even for public sector organizations. There are only three practical ways to ensure service; charge extra for it and provide customers with attention that they do not get except by paying for it, pay additional people to provide service, and use technology to ensure service without adding cost and staff; the third is the only practical option today. As with quality, service is not an add-on to be charged for in most industries, and companies are struggling to cut staff and costs. Using information technology does not guarantee service, but there is no other major option.

Long-term Business Infrastructure Costs

Telecommunications is a growing fraction of large organizations' capital investment. Building a large-scale telecommunications platform does not pay off quickly, but then the costs of a new office building are not recovered immediately, and investment in R&D does not generate profits in its first year. Justifying the telecommunications infrastructure must be based on a convincing long-term analysis of the firm's opportunities and necessities. The three business dimensions of reach, range, and responsiveness provide a framework here for assessing a business's degrees of freedom-that is, the range of practical strategies a company can choose and the ones it cannot select if it lacks capability in its platform. For example, if the industry is moving toward EDI as the basis for choosing suppliers, reach is essential. If a firm is committed to cross-linking products and services, it must have the range to do so.

Revenue Improvements

Several examples of piggybacking to improve revenues were given earlier. In piggybacking, the firm reuses information or adds a new service to its existing telecommunications delivery base. That base is largely a fixed cost, except when a public data network and public voice network is used. British Airways can add hotel reservations to its platform for very little cost; by contrast, hotel chains must invest heavily to build the required platform infrastructure. McKesson already has terminals in pharmacies across the country, so it can easily add insurance claims processing to them. More and more organizations are recognizing that telecommunications opens up new sources of revenue in this way.

Summary: Seeing the Steps as a Process

At the end of these four steps, client, designer, and implementer worked together to ensure that business opportunity and technical choices have been meshed together. The next step is to begin the implementation sequence, which will involve detailed technical analysis, budgeting, project design, vendor proposals, analysis of outsourcing options, software development, and so on. It will be followed by the operations sequence, which includes installation and testing, network management, disaster recovery, and many other functions and procedures. Part IV of Networks in Action reviews implementation and operations.

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