IOIS Benefits | Inter-Organizational Information Systems in the Internet Age

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Companies are looking for ways to find a competitive edge in the global marketplace. The IOISs have been embraced as strategic ways to gain that edge and provide potential benefits. Cash and Konsynski (1985) suggested that IOISs can facilitate cost leadership and differentiation. Product and service differentiation is attained through value-added components. These authors pointed out that IOISs impact business processes, skill and staff requirements, and business strategies. Cash, Eccles, Nohria, and Nolan (1994) identified the following benefits of inter-organizational systems:

Reduced paperwork and improved transaction efficiency
Improved control of inventories and suppliers
Strengthened channel control
Improved customer relationships
Shared resources and risks

Other researchers indicated further benefits that may accrue due to the following:

Raising or lowering barriers to entry in an industry
Achieving network economies of scale and scope

The IOISs, including EDI and Web-based systems, improved transaction efficiency by reducing paperwork and eliminating duplicate data entry. A further benefit of the reduced data entry is fewer data entry errors. Also, integrating IOISs with an organization’s core systems provides timely information for improved decision making.

Information technology advancements in IOISs have provided significant improvements to supply chain management, including improved information flows, and opportunities for process improvement through reengineering supply chains (Morrell & Ezingeard, 2002). According to Kumar (2001, p. 58), a supply chain “is a network of organizations and their associated activities that work together, usually in a sequential manner to produce value for the consumer.” Web-based IOISs enable improved information flow through seamless transmission of information between buyers. These communication capabilities enable buyers and suppliers to better plan supply chain demand and to have the agility to respond quickly and effectively to fluctuations in demand. Furthermore, buyers and suppliers have reduced supply chain costs and cycle times by reengineering processes that leverage the benefit of Web-based IOISs.

More specifically, modern business practices, such as vendor-managed inventories, allow retailers to maintain lower inventory levels, while suppliers gain a better understanding of their retailers’ demands. Under vendor-managed inventories, the supplier monitors the retailer’s inventory levels through the IOIS and replenishes the retailer’s inventory as needed. Vendor-managed inventory can be accomplished through the supplier using the buyer’s extranet.

Use of an IOIS for collaborative forecasting of supply chain demand and production scheduling benefits manufacturers and suppliers (Raghunathan, 1999). This method of forecasting involves business partners working together to forecast their combined needs. Supply chain members who do not participate in collaborative forecasting and production create additional costs to the supply chain that are borne by the manufacturer or retailer (Raghunathan, 1999). In the situation of global competition, consumers are less likely to bear the excess cost of an inefficient supply chain. Therefore, manufacturers and suppliers may be forced to absorb the cost of inefficiency, which would result in reduced profitability, and in extreme cases, cause the organization to cease operations in that supply chain. A possible downside of collaborative forecasting is the potential for proprietary information to be used by the business partner in a way that harms the organization.

According to Kumar (2001, p. 59), “The availability of modern information and communication technologies [of an IOIS] make it possible to obtain an overview of the entire supply chain and to redesign and manage it in order to meet [customer] demand.” This is especially true in the case of the B2B virtual market, where the transactions are going through a centralized system supported by the network facilitator. A further requirement for an IOIS is the complexity involved in global sourcing that increases the complexity and geographic distance of the supply chain (Kumar, 2001). Kumar (2001, p. 60) suggested that, “in the current environment of dynamic demand-driven supply networks temporary supply chains regularly emerge, operate for the lifetime of the opportunity, and then dissolve again. Such temporary partnerships require flexible communication and processing platforms.” Both extranet and B2B virtual market IOISs provide flexible technology platforms. The extranet could quickly accommodate the creation of a supply chain through a series of partnerships between suppliers and buyers. The B2B virtual market can easily be used to create new supply chains as long as the necessary business partners are market members. The B2B virtual markets are structured so that organizations can efficiently change business members. However, inflexibility issues may arise if a nonmarket member is needed to complete the supply chain. In such cases, the organization may need to use a combination of extranet and B2B virtual market partners. Alternatively, the B2B virtual market may need to provide the agility to quickly add nonmembers to its market.

Outwardly focused organizations utilize systems that link them to other organizations. Supply chain and customer relationship management (CRM) systems provide these links (David, McCarthy, & Sommer, 2003). Improving customer relationships is accomplished through shorter product acquisition times, value- added services, and CRM capabilities. An electronic customer relationship management (e-CRM) system provides a unified view of the customer (Pan & Lee, 2003). An IOIS can be used for this purpose. Shared information can be used to build customer loyalty and to identify opportunities to increase sales through cross-selling to existing customers. Use of an IOIS, such as EDI, reduces product procurement cycle times through automated ordering of goods and electronic sharing of product designs. The IOIS can be used to electronically distribute marketing materials and product information to customers.

Another benefit of an IOIS is to share resources and risks through joint ventures such as research and development projects. An IOIS may provide integration and synergy without ownership. Ownership of assets may lead to loss of flexibility or use of resources for less profitable initiatives. An IOIS increases the capability to communicate between businesses and encourage outsourcing of noncore business operations to reduce costs. Application service providers (ASPs) facilitate outsourcing by hosting an organization’s systems on its own hardware through Web-based technology. Access to ASP applications is made possible through extranets.

Firms strive to be agile in a competitive industry. A Web-based IOIS provides opportunities for an efficient and flexible supply chain, improving customer relationship management, and sharing resources across organizations. Extranets and B2B virtual markets provide capabilities to create and dissolve supplier– buyer partnerships, even for a limited one-time business opportunity. The extranet requires the organization to approach another organization for partner- ship, while the B2B virtual market has a readily available group of members using a common system for inter-organizational communication. Researchers should understand the advantages and disadvantage of extranets and virtual markets in creating supplier–buyer relationships. In regard to inter-organizational resource sharing, extranets support the use of ASPs. Further research regarding IOIS support of other outsourcing activities is needed.

The IOISs facilitate four types of business information partnerships in e- commerce (Applegate, McFarlan, & McKenney, 1996). The first type involves joint marketing partnerships, where companies coordinate with rivals to gain access to new customers and territories. IOIS partnerships using extranets are able to enter into these joint partnerships, while EDI would provide little assistance in this area. Second, intra-industry partnerships involve partnerships of companies providing complementary services. Take, for example, the automated teller machine (ATM) network used to process interbank transactions. The B2B virtual market creates a network for processing electronic transactions as a complementary service. Third, buyer–seller partnerships are established by sellers to service their customers. Extranets, B2B electronic markets, and EDI are structured to support this initiative. Finally, information technology (IT) vender-driven partnerships bring the vendor’s technology to new markets. For example, major accounting firms and accounting software vendors partner to provide accounting package implementations to firms’ customers. Covisint is an example of this type of partnership, where a software company, Oracle, an e- commerce market provider, Ecommerce One, and a major automobile company joined together to create an electronic marketplace. EDI is less capable of supporting this type of partnership. Further analysis of Web-based IOISs would clarify their roles in maintaining these four types of e-commerce partnerships.

With the origin of IOISs, companies strengthened channel control through the use of proprietary systems to raise distributor-product awareness or raise entry barriers to the industry. For example, the American Airlines SABRE reservation system was provided to travel agents for making reservations and to other carriers. American Airline controlled a direct link with travel agents. However, an Internet-based IOIS is open system architecture, rather than proprietary, thus allowing channel participants to easily move between IOISs. Some researchers suggest that channel control can be maintained through a virtual community of dominant channel members (suppliers and buyers) (Applegate et al., 2002). A B2B virtual market that includes the dominant channel members allows the IOIS to be used to differentiate the supply chain. Therefore, the IOIS should be capable of implementing proprietary strategies and capabilities for competitive advantage without having proprietary technology (Applegate et al., 2002).

Inter-organizational system processes and structures are critical to successful coordination and control of business partnerships in the B2B e-commerce environment (Applegate et al., 2002). The Internet provides a nonproprietary and networked infrastructure that significantly decreases the cost and time needed to connect, transact business, and share information (Applegate et al., 2002). The use of Internet technologies allows consortiums of organizations to achieve network economies of scale and network economies of scope. Network economies of scale are achieved when a community of firms uses a common infrastructure and capabilities to produce and distribute products and services faster, better, and cheaper. Network economies of scope occur when a community of firms uses a common infrastructure and capabilities to launch new products and services, enter new markets, or build new businesses (Applegate et al., 2002). Electronic B2B increases opportunities for research investigating adoption of electronic markets.

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