(i. l hrukidis, Ii. Gallters, 1'. Jelussi, II. Krcmarand F Land, (lids.

)

!'rm.:eeJing.\· ofthe 31''' European Conference on in/ormation Systems, Athens/Greece, June J -3 1995.

EDI ADOPTION AND STANDARD CHOICE A CONCEPTUAL MODEL

Renaud DELHA YE and Claire LOBET-MARIS

UER Meta-Informatique - Cellule Interfacultaire de Technology Assessment (CIT A) Computer Science Department - FUNDP

21, rue Grandgagnage, B - 5000, Namur, Belgium E-mail: {rdelhaye.clobet}@info.fundp.ac.be

With the collaboration of Paul BELLEFLAMME, Marie D'UDEKEMGEVERS, Tien N'GUYEN & Beatrice v AN BASTELAER

Abstract

Numerous surveys show a strong disparity between economic sectors and between firms concerning EDI diffusion in trading practices and ED! standards choices. Starting from these statements, our main goal is to build a conceptual model allowing to understand interfums disparities concerning ED! adoption and strategies disparities coricerning message standard choice.

Though a brief presentation of ED! characteristics, it appears clearly that two fundamental dimensions of interfirm relationships must be taken into account in order to explain ED! adoption and the choice of a standard. These dimensions are the coordination structure regulating the relations between firms and the cooperation ("governance") structure linking the partners.

We argue that these factors generate specific informational needs which in turn require specific technological solutions, These key factors will be determined, on the one hand, by the production structures of the firm (product perspective) and on the other hand, by the nature of the commercial relations between the firm and its suppliers, buyers or competitors (market environment perspective),

From a decision-making perspective, the model should help a firm (its decision-makers) to make more enlightened choices regarding ED! adoption and appropriate standards. By analysing the specificities of his firm and positioning it into its economic environment, the decision-maker should be able to assess his coordination needs and strategic interests in order to select the most relevant solutions.

1. Introduction

As many other new technologies, ED! generates a radically optimistic discourse about its diffusion among firms and about its ability to transform interfirm relationships, Reality, as it appears in theoretical and empirical researches, seems rather different from this technocratic optimism.

Indeed, numerous European and North American surveys show a strong disparity between economic sectors and between firms concerning EDI diffusion in trading practices. Sectors like automotive, retail or pharmaceutics are generally considered as first movers and proactive, while others stay rather passive, as the construction or energy sectors.

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Another basic question in this domain concerns the explanation of the EDI standard! choice. Here again, a strong disparity can be observed among firms' behaviours. Some adopt an opening strategy by implementing a widely agreed standard while others prefer a lockcin strategy by developing proprietary standards.

Starting from these statements, om main goal is to establish structured and operational tools allowing to understand:

• Interfinns disparities concerning EDI adoption;

• Strategies disparities concerning message standard choice.

To fulfill these objectives, we will proceed in four steps. In a first step, we will briefly state the main characteristics of EDl, not only on a technical level, but also in a broader perspective, as an organisational technology. In a second step, we will present different theoretical approaches, each of them bringing partial enlightenment to the questions raised above. In a third step, relying on this theoretical framework, we will elaborate a conceptual model helping us to understand the firms' behaviours concerning EDI adoption and standardization. The last part of om paper will be devoted to the application of the model to short case studies. These cases should enable us to validate the model and reveal its limits.

2. EDI: Opening the «Black Box»

When trying to characterize a technology, one must at first define its shapes and limits; EDI can only SUppOIt highly structured information communication, that is to say a connnunication without contradictions or ambiguity. Indeed, EDl is a dialogue between Information Systems, theoretically without human intervention.

Looking at the technology from an organizational viewpoint, EDI can be defined as a coordination technology between firms. Considering the technical limits described above,' it appears clearly that the type of informational interdependency between firms will have a strong influence on their ability to adopt and successfully integrate this technology as a coordination support-.

A second characteristic of EDI is related to its ability to allow exchange of data between independent information systems: the necessity to use message standards to structure the transmitted data. This is unavoidable, as the standards will play the role of common language between different IS by defining syntactic and semantic common rules for the partners involved in the EDI relation.

A widely shared opinion sees standards as a set of generally admitted and technically justified rules- However, the political analysis of standardization shows that standards are not only a technical construct, but also a social construct resulting from conflicts wherein the different and often incompatible interests of the concerned parties fight against each other-'. Various types of interests can be identified in the literature. First, there are the purely operational interests linked to the existing informational structures, each partner promoting a solution minimising the changes to apply to his own information system. Second, there are more strategic considerations, for example conceming the opening or the closing of a cooperation network. The will to grasp these potential benefits can lead to the promotion of

I Or message standard.

2 BROUSSEAU E. (1994), L'economie des contrats: technologies de l'infonnation et coordination inter-entreprises, Economie en liberte, PUF, Paris.

3 SWATMAN Paula, SW ATMAN Paul (1994), "Les standards ne sont pas (necessairernent) des standards: une approche technique et manageriale de l'EDl en Australie", Technologies de l'Intormationet SociJIJ, 11I11nero special "Standardisation: de la production aux usages - Ie cas de I'EDI (Echange de donnees infonuatisees)". volume 6, numero 2, Dunod, Paris. juin 1004. pp, 147-167.

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standards whose definition goes beyond the partners' interests (sectorial or generic standards, as EDIFACT4 or ANSI5 X 12) or to the definition - sometimes the imposition - by a single patiner of a standard raisi~lg the bani~rs to entry or to exi~ for ~ ~ooperation network (~s it is the case, for example, WIth a propnetary standard). 11l1s political game could explain the present profilsion of standards, as standards multiplicity reveals, as explained by Webster't, that "ED! message standardization is a critical and highly political process" (p. 126).

Through this brief presentation of EDI characteristics, it appears clearly that two fundamental dimensions of interfirm relationships must be taken into account in our model to explain EDI adoption and the choice of a standard by firms, They are:

• The coordination structure regulating the relations between firms, which will reveal the operational interests of EDI for the partners;

• The cooperation ("govemance") structure linking the partners, which will enable us to take into account power disparities between partners and their influence on EDI adoption and standard choice.

Before developing the model, we will briefly present the various theoretical backgrounds which influenced its construction.

3. The Theoretical Framework

Our work was supported by various theoretical backgrounds, each of them helping us to reason about a distinct part of the problem.

At a very general level, as a framework structuring our reflections, there is the so-called theory of social shaping of technology/. Following this approach, a technology will never develop in a social vacuum. On the contrary, as underlined above, its conception and adoption are influenced by the existing operational structures and power patterns and by the conflicts between the actors' interests. This perspective has two major implications for our research. On the one hand, it becomes possible to explain the observed differences in the shape and content of the emerging technological solutions8. On the other hand, it allows to reject technological determinism when explaining firms' behaviour. In this view, we will emphasize the firms' actions on the conception and development processes of EDl, actions whose rationality relies once again on operational structures and power patterns "pre-existing to the technological

choices'i', .

Concerning the specific questions raised in this paper, three theoretical approaches seem relevant: the organizational theory, the industrial economics and the economics of transaction costs. We will not describe here these approaches in details as they have been abundantly analyzed and connnented elsewhere. As we will see later, some approaches enlighten only one question while others enlighten both.

4 Electronic Data Interchange for Administration, Commerce and Transport. 5 American National Standard Insitute.

6 WEBSTER Juliet (1994), "Etablissement de standards EDI: processus, intervention politique et pouvoir", Technologies de l'Information et Societe, numero special: "Standardisation: de la production aux usages -te cas de I'EDI", volume 6, n02, Dunod, Paris,juin 1994, pp. 125-145.

7 MAC KENZIE D., W AJCMAN J. (eds) (1985), The social shaping of technology, Milton Keynes, Open University Press.

8 WILLIAMS R., EDGE D. (1992), "The social shaping of technology: research, concepts and findings in Great Britain", in M. Dierkes and U. Hoffman (editors), Technology at the outset: social forces in the shaping of technological innovations, Frankfurt, Campus Verlag.

9 BROUSSEAUE. (1991), "Echanges de donnees inter-entreprises: une differenciation des trajectoires sectorielles", Contribution au colloque "Le management des Systemes d'Information" Grenoble, les 2 et 3 octobre 1991, Tire II part n042, Centre de Recherche en Economie Industrielle (CREI) Universite Paris-Nord, pp 114-145.

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3.1. Organizational Theory

The contribution of organizational theory to our research concerns essentially the analysis of the coordination structures between firms. Works lead by MintzberglO on coordination patterns between agents or by Porterll on value chain structuring modes, will enable us to:

• Differentiate the firms' situations according to their type of coordination structure;

• Understand, given the particular technical constraints of EDI (see above), that it can only develop where the coordination processes are sufficiently formalized.

3.2. Industrial Economics

A generally quoted weakness of organisational theory is that it defines very well the "How?" of coordination through various structure types without explaining the "Why?". Some of these determinants appear in other works related to industrial economics, as these of Brousseau 12 who shows that interfirms coordination structures are influenced by some fundamental factors among which production flow organisation and product structure.

3.3. Transaction Costs Economics

The theory of transaction costs mainly developed by Williamsonl3 interests us at two levels. First, starting from transaction costs analysis and from the factors influencing them (asset specificity, uncertainty and recurrence), the author presents a set of concepts allowing to analyse the transactional structure of interfirm relationships: ex ante information costs, negotiation costs, ex post behaviour costs. Second, one can deduce from this analysis the suitable governance structure for these relations, ranging from integrated hierarchical organisation to classical market relationship. Between these two extreme poles, numerous intermediate or hybrid forms exist, notably revealed in the works of Brousseau14 on contractual relations between firms. Conceming our research, this approach seems to be a powerful analysis tool for two reasons. First, it enlightens the EDI adoption process by informing us about the partners' freedom of choice and the cooperation stability. Then, the govemance structure regulating the interfirm relationships will be a basic determinant of message standard choice. Indeed, the imposition of a specific standard to partners could appear

10 MINTZBERG H. (1982). Structure et dynamique des organisations, Editions des organisations,

Paris.

II PORTER M.E. (1986), L'avantage concurrentiel , InterEditions, Paris.

12 BROUSSEAU E. (1991), "Echanges de donnees inter-entreprises: une differenciation des trajectoires sectorielles", Contribution au colloque "Le management des Systemes d'infonnation" Grenoble, les 2 et 3 octobre 1991, Tire a part n042, Centre de Recherche en Economie Industriel1e (CREI) Universite Paris-Nord,

pp 114-145 ..

BROUSSEAU E. (1994), L'economie des contrats: technologies de l'information et coordination

inter-entreprises, Economie en liberte, PUF, Paris.

13 WILLIAMSON O.E. (975), Markets and hierarchies: analysis and antitrust implications, The Free

Press, New York.

WILLIAMSON O.E. (1979), "Transaction costs economics: the governance of contractual

relations", Journal of Law and Hconomics, n" 22, pp. 233-261.

WILLIAMSON O.E. (1981), "The economics of organisations: the transaction costs approach",

.Imerican Journal ofSociology, n° 87, pp. 548-577.

WILLIAMSON O.E. (1991), "Strategizing, economizing, and economic organization", Strategic

.1/wwgemenIJournal, Vol. 12, pp. 75-94, 1991.

14 BROUSSEAU E. (1994), L'economie des contrats: technologies de l'informution et cnordinotion

inter-entreprises, Economie en liberte, PUF, Paris.

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as a cheap altemative solution to thorough integration of the partners activities. It also appears that firms facing more or less balanced market situations will encounter strong resistance when trying to impose a proprietary standard to their partners.

4. Conceptual Modelling of the EDI Adoption and Standard Choice

4.1. Objectives and General Principles

Let us recall that the main goal of our model is to understand and explain the diversity of firms' strategies concerning EDI adoption and standards from the fundamental characteristics of various structures of production systems. These choices will also be influenced by other factors considered as exogenous.

Our objective is not to build a formal model able to predict quantitatively the firms' choices concerning EDI adoption and standardisation for the coming years but to p.oint out the relevant variables, to test ow' model's validity and to use it as a help for decision-making at firm's leveL With the conceptual tools developed in this paper, we search to help the decisionmaker to represent his trading enviromnent and to position his firm into it. This reflection will help him to select the most appropriate solutions for his specific situation, first concerning technology adoption and then with regards to standard choice.

The proposed model is organised into layers of concepts and variables. We think that the factors directly influencing the adoption and standard choice decisions are the governance and coordination pattems regulating interfirm relationships. Indeed, we argue that these factors generate specific informational needs which in tum require specific technological solutions. The key factors will be determined, on the one hand, by the production structures of the firm (product perspective) and on the other hand, by the nature of the commercial relations between the fum and its suppliers, buyers or competitorslf (market enviromnent perspective). Globally, we will analyse the partnership relations between firms from the point of view of one firm at a time. Our analysis level is thus clearly the firm and its interactions with its economic enviromnent.

4.2. EDI and Message Standard Choices

The model considers EDI and standard choices in a 'sequential way. This means that before choosing a standard, the firm will decide to adopt EDI or not, according to its coordination and governance structures. The existence of alternative technologies could, of course, influence this choice. At this stage, we can point out that the firm will not express a global response like "EDI adoption for every firms' transaction". On the contrary, this response can be differentiated depending on the target: it is possible to adopt EDI with some partners (suppliers, buyers) and not with others. IfEDI is adopted, the firm will choose one or several standard(s) for its EDI links according to the governance mode regulating the cooperation relationships with its partners and to some factors considered as exogenous. These factors are the state of EDI-related legislation, the use and development costs of a universal standard 16 and network externalities. We already mentioned that the technology choice could be differentiated. In the same way, the model allows the standard choice to be different depending on the partners. It can be verified in the real world where some firms use several standards (for example, an EDIFACT subset with the buyers and a proprietary standard with the suppliers).

15 The nature of these relations is in turn determined by economic and political variables inherited, among others, from transaction costs theory. They will be detailed further.

16 As EDIF ACT is designed to be, for example.

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The fum's attitude with regards to EDI standards can thus be seen as a function of multiplicity (number of standards in use) and specificity (compatibility of the adopted standards with others). Of course, these two indicators are theoretically measurable, but this could be a particularly heavy and complex task to deal with. At this stage of the model development, the notion of standard specificity should rather be considered conceptually. Thus, from the decision-maker's viewpoint, the question will be: will my standard be easily adaptable to communication with partners using presently another one 177

4.3. Definition of the Concepts and Variables

As already said above, the model uses different layers of concepts and variables (see Fig. I. ). Indeed, it is possible to classify them in three groups according to their influence on the fum's technological choices (the exogenous factors being probably the less deciding).

4.3.1. Layer 1: Structural Factors

These factors are grouped into two categories: those which are linked to production activities {and thus to the characteristics of the product( s)} and those linked to the market environment.

a.-Product.

Two factors are taken to characterise the concept of product: the flow organisation and the product structure.

a.l. The flow organisation

TIle organisation of production flow describes the specificity of the production process in a value chain perspective. The organisation of this chain is indeed heavily (when not, completely) determined by the product's nature. Three types can be distinguished {Brousseau (1991 )}:

• Flow shop production. This organisation is a sequential production mode standard product is produced without flow discontinuity. The production is based on established and unchanging processes and logistics are pre-planned. Indeed, from conception, the processes are pre-optimised by the partners. Such an organisation is

but easy to coordinate, as the partners are stable and work in a repetitive way, pre-defined sequences.

• Job shop production. This organisation can be found in industries devoted production of various standard products realised from a general "pool" of

capacities whose production rates are not necessarily compatible. Logistics are complex and vary depending on the choice of the final output, necessitating the of significant inventories. TIlUS, the success of such an organisation requires a heavy of information exchanges between partners.

17 It is clear that this notion of incompatibility is less due to technical reasons than to economic Indeed. the inter-standards translation softwares are theoretically able to guarantee a satisfactory COI'lVc,rSI'OIL However. a problem will subsist at the level of an agreement negociation between partners using standards We can reasonably assume that the more different are the standards. the longer is the OlP"OC I." IlL" , and the higher are the costs.

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Assets Specificity Uncertainty

Transactions Recurrence Homogeneity

Market Power Competition Level

Market Environment Product

Flow Product

Structure

EDI Legislation

Development and use costs of universal standard

Fig. 1.: The Model

• Production by projects. This organisation fits to the production of a unique product. TIle production process is specific and will not be renewed. Here, there is 110 stable specialisation or long term-dedicated resources. In such a situation, the routine-operations ~re seldom and the success often depends 011 the will of the partners to exchange important ~nfoll1l.ation. These associations being temporary by nature, there is a strong reluctance to tnvest 111 common projects.

<1.2. The product structure

. This concept describes the structure of the inputs flow entering the production process 01 the outputs flow coming out. the transformation process being considered as a "black

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box". Brousseau18 distinguishes three product structures. We complete his typology with a fourth type.

• Converging structures. These structures correspond to goods incorporating numerous components, while there is little diversity of the final product {p .124 } ;

• Divergent structures. These structures correspond to goods realised from a few raw materials, but used in many other downstream branches (id.);

• Simple parallel structures. These structures correspond to products whose production processes need relatively few inputs and which are devoted to few downstream branches (id.). Brousseau prefers to speak about "parallel" structures, but we chose to modify this term to avoid confusion with the fourth type of product structure;

• Complex parallel structures. These structures correspond to goods produced from numerous components and used in many downstream branches. This situation is obviously the one requiring the most complex logistics. It should thus generate the heaviest informational and coordination burden.

The different structures are schematically described in Fig.2.

-

-

~

Converging Structures

Complex Parallel Structures

Simple Parallel Structures

-

-

-

-

Diverging Structures

• firm (production process)

--

inputs, outputs

Fig.2.: Four Types of Product Structures

h. Market Environment.

Market environment can be described referring to two approaches. The first is essentially theoretical (and is based on the transaction costs theory) while the second is mainly descriptive. This option allows us to characterise a firm's situation with respect to its suppliers, buyers and competitors according to six variables: exchanged assets specificity, transactions uncertainty, transactions recurrence, partners homogeneity, market power and competition

18 BROUSSEAU E. (1991), "Echanges de donnees inter-entreprises: une differenciation des trajectoires sectorielles", Contribution au colloque "Le management des Systemes d'infonnation" Grenoble. les 2 et 3 octobre 1991, Tire a part n042, Centre de Recherche en Economie Industrielle (eREI) Uuiversite Paris-Nord. pp 114-145.

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level. The confrontation of these factors with the three perspectives quoted above (suppliers, buyers and competitors) allows to identify:

• The detenninants of firm's attitude towards its suppliers. For example, a finn facing high asset specificity, transactions recurrence and uncertainty in its relations with a supplier will have strong incentives to integrate the production of this partner. In other respects, a finn facing homogeneous suppliers will benefit from a rather simple logistical coordination, as it can deal with each one in a (quasi-) similar way. If the suppliers are heterogeneous, the finn will be unable to adopt a global structured coordination system. When the firm has sufficient market power, it could exert direct control upon suppliers' production.

• The determinants of finn's attitude towards its buyers. The examples quoted above still apply here, as the firm is placed in the supplier's position. Market power will be a crucial concept here, as it will determine the firm's degree of freedom.

• The determinants of firm's attitude towards its competitors. TIle relations of the firm with its competitors will be influenced by the respective market powers of the firms, the competition level and the homogeneity of competitors. For example, if competitors are homogenous and have comparable market powers, they will have strong incentives to set up common projects on a one-off and balanced basis. However, it seems irrelevant to analyse the coordination patterns between competitors.

4.3.2. Layer 2: Coordination/Cooperation Modes

Ideally, we should define here an operational and representative typology of the different relational forms likely to appear between firms, We chose to characterise these relations according to two dimensions, inherited from the transaction costs theory of Williamson (interfirms cooperation) and from the organisational theory of Mintzberg (interfirms coordination).

a. Interfirms Cooperation: Governance Modes

This factor can be described by a "conventional" Market/Hierarchy scale. When accepting Williamson's theory, it is possible to put the different relational forms between two firms on a cooperation scale showing the strength of their Iinks and ranging from classical market relationship to thorough hierarchical integration.

By one-off cooperation, we mean for example a temporary relation between two finns aiming at the realisation of a common project, without a-dditional commitment for the future. This relation can be supported by temporary mutual investment or the supervision of a third party.

Classical Market

Durable

Hierarchical Integration

Cooperation

One-off Cooperation

Hierarchy without integration

Fig.3.: Market/Hierarchy Scale of the Cooperation Relations between Firms

By durable cooperation, we mean a medium- or long-term alliance between firms or preferential (but not necessarily balanced) relations between supplier and buyer, guaranteed by bilateral contracting. By hierarchy without integration, we mean unbalanced market relationship between firms whose market powers are very different and often supported by lock-in strategies from powerful partners towards smaller ones. These concepts will allow us

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to examine the cooperation relationship of a firm with its suppliers, buyers and competitors and to draw conclusions about the informational needs that they will generate.

b. Interfirms Coordination Modes

This is what Mintzbergl9 calls "interdependencies management patterns". This factor is related to the various coordination means at firms' disposal, able to ensure the effective realisation of the activity. Traditionally, five coordination mechanisms can be identified: mutual adjustment, relying on informal management of interdependencies between firms; direct supervision, wherein coordination relies on the authority of a partner on the others; processes standardisation, which guarantees coordination through a set of pre-defined formal procedures; results standardisation, wherein coordination is realised through the definition of the partners' awaited performances and results; qualifications standardisation, wherein coordination relies on each partner's knowledge.

4.3.3. Layer 3: Exogenous Variables

a. Alternative Technologies

Other technologies could serve the same purposes as EDI and are or will be proposed to firms (E-mail, Bulletin Board System, ... ). These technologies can be described according to two basic attributes: the functionalities (usefulness of technology) and profitability (with respect to EDI20).

b. ED! Legislation

This term regroups in fact two distinct concepts. On the one hand, we take into account the help from the legislator to electronic trade diffusion (for example legal recognition of electronic documents). Such an action will have an impact on EDI choice. On the other hand, we want to represent the possibility for Public Bodies to lead voluntary actions favouring specific message standards. For example, the State could choose to become an EDI actor (by permitting electronic transfer of data related to income taxes, VAT, ... ) but accept some standards only (for example, the standards recognised by the CEN21).

c. Development and Use oj a Universal Standard

A firm facing standard choice has in fact a wide range of options, from the most specific standard (proprietary, imposed or not) to the most generic. The advantages of a generic standard are well known and have been widely described in the literature related to normalisation+e. When speaking about EDI, the problem is that a universal standard is a too large common denominator, as it has to satisfy numerous and different requirements. In such a situation, the more a standard is generic, the more it is complex to use and difficult to make evolve. This clumsiness can fiighten potential users and push them towards more simple and

19 MINTZBERG H. (1982), Structure et dynamique des organisations. Editions des organisations,

Paris.

20 This attribute could be not very operational, as the EDI costslbenefits calculation is especially difficult. EDI adoption must be accompanied by process restructuration among partners to generate significant profits. In such a situation, it is nearly impossible to dissociate the costs and benefits related to EDI from those related to firm reorganization. Thus, we should only compare g/oha/ returns of interorganizational technologies, including the costs and benefits of the necessary organizational changes.

21 Comite Europeen de Normalisation.

22 TI ROLE J. (1988), the theory of industria! organisation. M IT Press. Cambridge USA.

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efficient solutions. For example, the majority of ED IFACT users are in fact users of ED IFACT

b 'ets23 su s

4.4. The Model

We investigate the case of a finn to which the following hypotheses apply:

• TIle firm can be considered as the member of a "network" of interfinns relations whose structure will be described by the basic indicators defined above;

• The finn will adopt a profit-maximising attitude, given its environmental and organisational constraints.

TIle basic functioning of the model can then be decomposed as follows:

4.4.1. Definition of Economic Environment

First, the finn defines the fundamental characteristics of its production process and its market environment (in the suppliers, buyers and competitors perspectives)24 This step allows it to clarify its situation regarding the coordination and cooperation modes with its various partners and, possibly, with its competitors.

4.4.2. EDI Choice

The governance and coordination modes will generate specific informational needs and thus determine the finn's attitude concerning EDI adoption, without considering standard choice yet. This technological choice whose result could be a partial EDI25 will also be influenced by the presence and characteristics of rival technologies of ED!.

Concerning the relations between governance mode and EDI choice, two main questions can be put forward.

• The first one refers to freedom of choice. If the firm is submitted to hierarchical relations, there is a risk that EDI will be imposed by a powerful partner, without real consideration for its needs. Thus, such a finn will often choose the "lesser evil" between EDI adoption and the loss of an important partner. On the contrary, if the firm is situated at the top of the hierarchy, it could define its interests freely and seek to impose its solution to less powerful partners. In more balanced cooperation situations, the firm will have to envisage EDI adoption in conjunction with its partners and negotiate the conditions.

• The second one refers to EDI profitability. In situations of durable cooperation, the partners will probably find operational advantages in EDI adoption26 In this case, everything will depend on the transactions volume which will be handled by EDI and on the negotiation costs between partners. In situations of one-off cooperation, it is less likely that the partners will see a real advantage to EDI adoption, as the necessary investments will not appear profitable. Concerning the "classical" market relationship, EDI advantages will essentially depend on the number and the homogeneity of participating partners. Indeed, the benefits will be found at the level of the information quality and quantity amelioration (this is the "electronic market case").

23 van BASTELAER B., LOBET-MARIS CI. (1994), "La standardisation en ED! contribue-t-elle it l'ouverture des entreprises?", Paper submitted toA11\/1, February 1995.

24 For the sake of simplicity, We will ignore the relations between the variables describing market environment and those describing production process.

25 That is to sayan adoption for the relations with the suppliers and not for those with the buyers, for example, or an adoption with some suppliers only.

26 To reduce transaction costs related to recurrent orders, for example. ·175-

With regards to the relations between coordination modes and EDI choice, the EDI advantages seem the highest if the partners are coordinated through process standardisation; Indeed, EDI will fit very well into the frame of this stable and structured coordination mode. Under specific forms, EDI could also play a role of rapid and efficient support to the transmission of information in the case of results standardisation. On the contrary, in the case of a coordination by mutual adjustment, EDI seems unsuited to such changing and unstructured mechanism. The same problem appears in the case of a coordination by direct supervision. Finally, qualification standardisation concerns interdependencies whose heuristics do not allow to resort to such formalised means as EDI.

Concerning the exogenous factors, it seems obvious to establish the following relations:

• The more the legislation is in favour of electronic trading, the more EDI becomes advantageous for economic agents and, thus, the more the firms will adopt this technology.

• The more the rival technologies of EDI are profitable and useful, the less EDI will be chosen.

At this stage, a possibility of feedback from ED! choice towards the structural factors could be considered (EDI adoption could, for example, transform the finn's relations with its suppliers). However, for the sake of simplicity, we will assume that such a feedback does not exist. We will nevertheless take a feedback into account, from the message standard choice.

4.4.3. Standard Choice

IfEDI is adopted, the finn will face the problem of choosing one (or more) standard(s).

This choice will be influenced, besides the governance mode, by the development and use costs of a universal standard and, probably, by existing legislation. The global state of standardisation will normally have a significant influence too, through the presence of network externalities. There is thus a strong incentive to adopt an already widely used standard.

The remarks related to ED! choice are globally applicable to the influence of governance modes on standard choice. So, a finn benefiting from a hierarchical power on its partners will seek to impose the standard which will fit the best to its interests. For example, the imposition of a proprietary standard by a powerful finn to its partners could increase their lock-in in a preferential relationship. TIle small partners' lack of power could even results in inefficient situations, for example the adoption of several different message standards. Such a situation results either of the small firms' will to keep a way-off in case of failure of the relationship with their preferred partner, or of an inability to refuse specific standards of several important partners. In case of more balanced relations, it is likely that the firms will agree on the choice of a more generic standard to dispose of sufficient latitude for the future and to keep benefiting of the competition advantages. Moreover, if a form of cooperation, even limited, exists between competitors because they share a common community of suppliers, they will have incentives to agree on the choice of a common standard. Such process has already induced sectorial negotiations between traditionally competing firms (automotive sector, retail, chemical sector, banking and insurance sectors, ... ).

Concerning the influence of the exogenous variables, the following relations are awaited:

• TIle more the development and use costs of a universal standard rise, the less generic standards will be adopted;

• The support of some standards by the State (if Public Bodies use exclusively these standards) will incite firms to choose them;

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other things being equal, the more a standard will be used in the Economy, the more firms

• will be incited to choose it.

Feed-back on governance mode can be awaited at this level. In general, adoption of a rietary standard will produce or consolidate lock-in situations and lead the partners to

prop . finn . . . f . d hi h ld

JIlore hierarchical relationship. However, a m a situation 0 integrate ~erarc y cou

lve to a form of hierarchy without integration through the use of a propnetary standard. ~s "disintegration" strategy will ~deed allo~ it .to ben:~t from c~o:dina~ion adva~t~~es related to hierarchical structure without bearmg Its traditional ad~str~tNe and ~gIdlty

sts27 The situation is then similar to what Malone, Yates and Benjamm28 descnbe as

co .

"electronic hierarchy". On the contrary, adoption of generic standards should open new

trading possibilities to firms traditionally locked into preferential relationship.

In order to illustrate and validate the model, two case studies are developed in the

following.

5. Case Studies

5.1. The Large Retailer

The first example illustrating om model is the case of a large finn belonging to the Belgian retail sector. Before analysing the case, it must be underlined that the sector is heavily concentrated in Belgium as the ten more important firms share some 68% of the market29. The finn is one of these ten leaders and will thus benefit from significant market power against its suppliers30.

The first step consists in evaluating the production activity of the retailer.

The flow organisation linking the finn to its suppliers can be compared to a job shop process. The product structure, in this case the service offered by the finn, corresponds to the characteristics of the converging structure, as the retailer use numerous inputs to produce a unique service: retailing. In terms of production process, it appears that the main problems of the finn will be found at the level of the supply chain logistics. Indeed, its coordination needs with the suppliers are important, given the number of firms hovering around it and the variety of the work rates among partners.

The second step consists in analysing the firm's market environment.

Concerning the relations with the suppliers, the market power of the finn is significant but can vary from a supplier to another and be balanced by the specificity of the exchanged assets. The finn is indeed forced to retail some well-known and monopolistic brands. On another way, the relations between suppliers and the retailer can be defined as recurrent. It follows that, given the logistical problems identified above, the firm should seek to establish partnership 'With its suppliers to define standard coordination processes and ensure their effective realisation. These various characteristics put our finn in a governance mode which differs from classical market relations and is close to a situation of durable cooperation. with

27 DELHAYE R. (1994). "ED! et organisations econorniques: ebauche d'un cadre theorique" .. Ietes du Colloque InlemalionaldeManagementdesReseauxd.Enlreprises.Ajaccio.maiI994. pp. 120-137.

28 MALONE T. W.. YATES J.,BENJAMIN R.I. (1987), "Electronic markets and electronic hierarchies". Communication of the ACAf, Vol 30. n06. pp 484-497.

29 VALENDUC G .• VENDRAMIN P. (1991), "Liquidation avant transformations (innovation. internationalisation et emploi dans Ie secteur du commerce)". Cahier de la Fonda/ion Travail-Universite ,,0 7. 30 We will also ignore the impacts of exogeneous variables for the sake of clarity and because they could appear rather as development conditions of EDI or message standards. We will thus assume in our case studies that the state of these variables is not likely to impede ED! adoption or particular standards choice.

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globally some relation imbalance in favour of the retailer. Regarding the reduction of its ccordination burden, the firm could use two strategic tools: on the one hand, the set-up of buffer inventories (a costly solution) and on the other hand, given transactional recurrence and the stability of comniercial relations, the use of standard processes.

To understand the relations with the competitors, besides the heavy concentration of the market, one has to take into account the homogeneity of the retailing firms and the asstit specificity. The Belgian retailers are bound to some brands in a comparable way and so they have to accept some one-off cooperation with their competitors when taking irnportari.t decisions about the suppliers.

The relations with buyers will not be analysed, as they seem not to directly intervene into EDI and standards choices.

Starting from this description, which will be the choices of our retailer?

ED! adoption seems a good choice at the level of the relations with the suppliers. T() understand this statement, we must recall that we defined the chosen coordination mode as based on processes standardisation inside a converging production structure whoin logistics are complex. This will have two fundamental impacts on EDI profitability. First, EDI, by allowing more frequent and rapid information exchanges between partners, will permit to reduce the coordination burden for the retailer, notably at the level of the lowering of buffer inventories. Second, the converging structure of the value chain is an additional element to motivate ED! implementation, because it allows to diminish the coordination administrative costs with the suppliers. Suppliers multiplicity will ensure to the retailer some economies .of scale in developing the project. Of course, these advantages will only be accessible ifa sufficient number of partners accept to adopt EDI. The examination of the interfirms cooperation mode make us leam that such an outcome is likely to happen, as the retailer keeps up durable relations with his suppliers, but often unbalanced in his favour. He should thus be able to incite numerous partners to follow him. Finally, as cooperation is durable and based on processes standardisation, the interfirm relationships have been structured as time passed This constitutes a facilitation factor for ED! development.

The set-up of ED! relations with competitors seems unlikely, as ED! cannot support one-off cooperation based on strategic motivation, that is to say, without standardisation.

The question of standard choice must be considered in the light of the cooperation modes between the firm and its suppliers and competitors. As numerous keep up durable relations with several retailers, our firm will meet with difficulties when to impose them a proprietary standard likely to lock them into a preferential relation or to

them to adopt a different technical solution with each of their important buyers. The will emerge from a negotiation between retailers and will probably be the definition common standard, given their common interests (a perfectly coherent solution with situation of one-off cooperation described above). The retailers will thus propose a standard, either sector-specific (as !COM in the Belgian retail sector) or a sectorial subset EDlFACT (as EANCOM in the same sector).

Concerning the feedback towards cooperation mode, we could await an increase partnership between the retailer and his suppliers and thus, a facilitation of the commercial exchanges in the sector as a whole. However, some suppliers dealing also with other sectors economic activity will probably not be able to use their standard(s) with partners outside the retail sector.

5.2. The Clothing Firm

The second example to illustrate the model is one of a clothing firm belonging to the textile industry. This firm produces and distributes a set of products which supply firms -178-

belonging to the automotive and retail sectors. Before analysing the case, one mus~ undelyne that the clothing market, at least in Belgium, is not very concentrated, numerous middle-sized

funJS sharing it. .

First, let us analyse the firm under the angle ofthe couple product - production mode.

The product structure is close to the simple form, the firm supplying a limited number of large regular buyers belonging to the automotive and retail sectors, in _Belgium a.s well as

broad, while its own supply relies on a limited number of partners, changrng according to the ;rices. The flow organisation evolved the last years, b.y reason ~f the difl_ils~o~ in th.e automotive sector of Just-in- Time methods and the will of retailers to diminish their inmIobilisations (buffer inventories). This evolution forced the firm to significantly increase its deliveries frequency, though it keeps a global job shop organisation. Logistics can thus be defined as moderately complex.

The market environment of the film is rather complex. With its competitors, the firm is submitted to strong competition conditions, by reason of the appearance on the market of new foreign rivals, offering more or less equivalent prodncts for lesser prices. The product's weak specificity will force the firm to attach particular interest to its relations with the customers, especially because its market is concentrated around some large regular buyers. Because of the high competition level inside the sector. these buyers have significant market power on the clothing finn. This stability. though in danger, can however benefit to the firm and compensate its weakness at prices' level through interfirms processes standardisation. However, the firm deals with heterogeneous customers belonging to different sectors. This, coupled with the new logistical requirements. make its downstream relations very complex and induce some coordination mechanisms by results standardisation. The relations between the finn and its suppliers are settled on a one-off basis and depend on the prices of the market, as the assets are in general not very specific and the suppliers rather homogeneons.

We can draw the following conclusions from these considerations.

With its suppliers. the firm relies on a cooperation mode very close to the pure market and thus on a coordination mode which can be compared to results standardisation. At the level of the relations with the customers, coordination is based on processes and results standardisation. The cooperation mode can be defined as hierarchical and favouring the buyers. Regarding its competitors. the firm does not keep up any coordination or cooperation relations with them.

What will be the firm's attitude regarding EDI choice?

Given the hierarchical character of the relation between the finn and its customers, it seems necessary to consider this problem under two distinct angles. Firstly, the finn's freedom of choice will be limited, as it is not in a position allowing it to refuse a proposition of ED! adoption by its regular customers. The more the finn can hope is that a proposition from it will receive positive answer among its buyers. This introduces us to the problem of EDI profitability, It seems that. in the specific case of this finn, all the partners will find advantageous to implement FDI. Indeed. EDI will correctly fit to the standardised relations between the firms and its buyers. especially if we take into account the increasing informational needs generated by the growing complexity of logistics. Moreover, provided critical mass of EDI transactions is reached. the linn could find an advantage in offering an additional service to its regular customers which will help it to protect from foreign competition. Of course, this competitive advantage will vanish when competitors will in turn implement ED!.

With regards to the linn's suppliers, the unstructured and short-living characters of the commercial relations seem to prohibit EDI implementation, at least in the technology present state ofdevelopment.

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Once ED! will be adopted for the relations with buyers, which will be the chosen standard( s)?

Once again, the hierarchical character of the relation will act heavily on the message standard choice. The firm. having a very limited negotiation power, the buyers will probably succeed in imposing their standard(s). As they belong to different sectors wherein sectOrial (when not proprietary) ED! standards are used, our firm. could be forced to adopt two (or more) rather specific and incompatible standards. This outcome is of course unsatisfactory, as it implies a waste of resources linked to redundant investments.

Concerning the influence of standards adoption upon cooperation mode between tli~ firm. and its clients, two possibilities can be considered. On the one hand, if sectorial standards have been imposed to the finn, ED! could possibly give it access to other markets inside the automotive and retail sectors. On the other hand, if proprietary standards have been imposed, it appears clearly that the hierarchical character of the relation will be strengthened, the finn getting locked into preferential relationship with a limited number of buyers.

6. Conclusion

It is our ambition to have developed an operational and useful model. From a decisionmaking perspective, the model should help a firm (its decision-makers) to make more enlightened choices regarding ED! adoption and appropriate standards. By analysingjhs specificities of the firm and positioning it into its economic environment, the decision-maker should be able to assess his coordination needs and strategic interests in order to selecltll..¢ most relevant solutions. From a research perspective, our model could constitute a useful starting point for a better understanding of the determinants of ED! diffusion and standards choices. It seems possible to fill out the model in order to build more refined analyses at firms' level or more global, for example at sectorial level.

In its present state of development, the validity of the model must still be confirmed.

Such a goal will only be achieved by the completion of additional case studies or confronting the model to alternative ones adopting a comparable level of analysis.

7. References

I. Antonelli C. (1992), "Information Economics and Industrial Organisation", Human Management, n" I I, pp. 53-60.

2. Belleflamme P. (1994), "EDllinks as a form of vertical restraints", Working Paper, des Sciences Economiqucs ct Socialcs, FUND]>, Namur.

3. Besen S.M., Farell 1. (1994), "Choosing how to compete: strategies and standardization", Journal of economic perspectives, Vo1.8, n° 2, pp. 117-131.

4. Brousseau E. (1991), "Echanges de donnees intcr-cntreprises: une differenciation trajectoires sectorielles", Contribution au colloque "Le management des d'information" Grenoble, les 2 et 3 octobre 1991, Tire II part n042, Centre de Economie Industrielle (CREI) Universite Paris-Nord, pp 114-145.

5. Brousseau E. (1992), "Couts de transaction et impacts organisationnels des d'information et de communication", Reseaux, n052, CNET, pp. 33-55.

6. Brousseau E. ( 1994), L 'economie des con/rats: technologies de l'iuformation coordination inter-entreprises, Economie en liberte, PUF, Paris.

7. d'Udekem-Gevers M. (1993), "Standards EDI de representation des donnees", Cahiers la CITA EDI 7, FUNDP, Namur, novembre 1993.

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D lhaye R. (1994), "EDI et organisations economiques: ebauche d'un cadre theorique",

8. A:tes du Col/oque International de Management des Reseaux d'Entreprises, Ajaccio, mai

1994 pp. 120-137.

9 Eckering C.F. (1992), "TIle relation between EDI, business cooperation and managerial . independence - a transaction costs approach", Scientific Research Oil EDI "Bringillg worlds

together", Samson Publishers, pp. 119-136. . . "

10. Katz M.L., Shapiro C. (1994), "Systems competrnon and Network Effects, Journal of Economic perspectives, pp. 93-115, Vo1.8, n02.

II. Liebowitz S.J., Margolis S.E. (1994), "Network Externality: an uncommon tragedy", Journal 0/ economic perspectives, pp.133- I 50, Vol. 8,11°2.

12. Lobet-Maris CI. (1994), "ED!, de la diffusion aux usages", Actes des .Iournees SST~, Atelier 4: "Innovation technologique dans J'entreprise, formation, organisation du travail, etnploi",9-19 octobre 1993, Bruxelles, SSTC, serie Technologie et Societe, pp. 79-104 ..

13. Mac Kenzie D., Wajcman J. (eds) (1985), The social shaping 0/ technology; MIlton Keynes, Open University Press.

14. Malone T.W., Yates J.,Benjiamin RI. (1987), "Electronic markets and electronic hierarchies", Communication of the ACM, Vol 30, n06, pp 484-497.

15. Mintzberg H. (1982), Structure et dynamique des organisations, Editions des organisations, Paris.

16. Pave F. (1990), L'illusion informaticienne, L'Harmattan, Paris.

·17. Porter M.E. (1986), L'avantage concurrentiel, InterEditions, Paris.

Reix R (1990), "L'impact organisationnel des nouvelles technologies de l'information", Revue Francaise de Gestion, janvier-fevrier 1990, pp. 100-106.

19. Tirole 1. (1988), The theory of industrial organisation, MIT Press, Cambridge USA

20. "Standardisation: de la production aux usages - Ie cas de l'EDI", Technologies de rlnformation et Societe, Numero special: volume 6, n02, Dunod, Paris, juin 1994.

21. Valenduc G. Vendramin P. (1991), "Liqnidation avant transformations (innovation, internationalisation et emploi dans le secteur du commerce)", Cahier de la Fondation Travall-Umversite n" 7.

22. van Bastelaer B., Lobet-Maris Cl. (1994), "La standardisation en ED! contribue-t-elle II l'ouverture des entreprises?", Paper submitted to AIM, February 1995.

23. van Bastelaer B. et alii (1994), "La diffusion de l'ED! en Belgique: etat des lieux et reflexion'', Cahiers de la CITA EDI 13, FUNDP, Namur.

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30. Williamson O.E. (1991), "Strategizing, economizing, and economic organization", Strategic Management Journal, Vol. 12, pp. 75-94, 1991.

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(i. t snnkidis, h. Gathers, T. .Ielassi, fl. Kramar and, V f .and, {Eds.}

1'/'IJ(:L'l'dlll,!!.s (!(the 3,-d liuropean Conierenece on Irformat ion Systems. Athens/Greece.June /-3 1995

MOVING BEYOND THE FIXED POINT THEOREM WITH T AILORABLE INFORMATION SYSTEMS

Lesley A. GARDNER and Ray J. PAUL

Nandish V. PATEL

Department of Computer Science and Information Systems at St. John's Brunei University Middlesex UB8 3PH, Uxbridge, United Kingdom

Department of Business Systems University of Luton

Park Square, Luton, LU I 3JU, United Kingdom

Abstract

This paper postulates a plausible theoretical framework for developing tailorable infonnation systems which move beyond the fixed point theorem. TIle fixed point theorem is the paradigm currently used for analysing, designing and developing information systems, but it has not been successful in delivering viable information systems which meet changing business users' requirements. Such requirements can be addressed by developing tailorable systems.

1. Introduction

Business information systems continue to be developed on the basis of ascertained managerial information requirements which have been determined at a temporally fixed point relative to a business's dynamic life. The success of these information systems and the computer systems used to run them has been questioned. Some spectacular failures such as Taurus, the London Stock Exchange's paperless shares transactions system, have occurred as well as some tragic failures, such as the London Ambulance Service's ambulance despatch computer system [17]. In all cases huge expenditure of time, labour and monies have been wasted. It is argued that these systems failed because of a fimdamental lack of understanding of business systems as living systems and that they are designed on the fallacious fixed point theorem [11].

Tailorable information systems and computer systems (hereafter jointly referred to as tailorable systems) which are compatible with living systems exist in real business organizations but are few in number, whereas business dynamics dictates that there should be a greater prevalence of them. The Rank Xerox EuroPARC research centre have developed a mainframe based tailorable system using Buttons object oriented technology [9]. Tailorable systems have been designed for workstation environments, as have developers' tools for designing such systems [7]. Other developed systems referred to as adaptable systems exhibit characteristics of tailorability and may fall into this category too [3]. Other systems are described as adaptable, but these cannot be classified as tailorable because they remove control over the systems operations from the user. Often such systems use expert systems technology to achieve their aims. Rather than encourage a greater use of a, system, automatically adapting systems remove control from a user. This may lead a user into dysfimctional behaviours such as disgnising personal goals and preferences when using the

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