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Abstract:
In this article we take a first hand look at e-business organizational design issues from the perspective of the managers who are currently leading the e-business efforts at legacy firms. It is far too early in the history of the e-business phenomenon to declare winners and losers, and even if the idea is too tempting to resist, no one has come up with clear evidence indicating which e-business transformation strategy can deliver greater chances of success. Yet, by reporting on what is happening in the field and by challenging some of the myths surrounding e-business, we hope to give managers of legacy firms a clearer picture of the choices they have in organizing themselves for e-business and the key factors they should weigh in making these important choices.

Abstract:
The Internet has made auctions a common and integral part of the way commerce is conducted today. In both the consumer and business markets the applicability of auction-based
trading mechanisms has been expanded by the computational power and flexibility the Internet makes available. There is currently multi-billion dollar annual activity in the online auction
market with a growing variety of sophisticated trading mechanisms. The broader range of applications for auctions and implementation choices means that there is a need for more
scientific research on online auctions that can be used to optimize their design. In this paper we seek to characterize the current state of management science research on online auctions, present some new empirical research results, and develop a broad research agenda around many open business issues. We find that the research in this area is still at an early stage and there remain many opportunities to do interesting applied and theoretical work spanning the disciplines of
management science, economics, and information systems. Such work will better inform managers about the proper design and use of online auctions.

Online Auctions

Abstract:
The Internet provides an unprecedented capability for sellers to learn about their customers and offer custom products at special prices. Advanced manufacturing technologies have improved sellers' manufacturing flexibility. To examine how these advances affect sellers' products and pricing,we first develop a model of product customization and flexible pricing to incorporate the salient roles of the Internet and flexible manufacturing technologies in reducing the costs of designing and producing tailored consumer goods. A monopoly seller may earn the highest profits by producing both standard and custom products. Surprisingly, the monopoly can raise his prices for both standard and customized products as customization and information collection technologies improve.

Simultaneous adoption of customization in a duopoly reduces the differentiation between their standard products but does not intensify price competition. Compared with a two-facility monopolist, each duopolist may under-invest in customization. Consumer surplus improves after sellers adopt customization but does not always increase as technologies advance. When firms
face a fixed entry cost and adopt customization sequentially, the first entrant always achieves a profit advantage and may even deter the entry of the late entrant by choosing his customization scope strategically.

Mass Customization, Price Discrimination, Product Differentiation, Internet Economics

Abstract:
Internet auctions for consumers' goods are an increasingly popular selling venue. Many sellers, instead of offering their entire inventory in a single auction, split it into sequential auctions of smaller lots, thereby reducing the negative market impact of large lots. Information technology also makes it possible to collect and analyze detailed bid data from online auctions. In this paper, we develop and test a new model of sequential online auctions to explore the potential benefits of using real bid data from earlier auctions to improve the management of future auctions.

Assuming a truth-revealing auction model, we quantify the effect of the lot size on the closing price. We then develop a model for allocating inventory across multiple auctions that dynamically incorporates the results of previous auctions as feedback into the management of subsequent auctions, updating the lot size and number of auctions. We demonstrate that information signals from previous auctions can be used to update the auctioneer's beliefs about the customers' valuation distribution, and then to significantly increase the seller's profit potential. We use several examples to show how the benefits of using detailed transaction data for the management of sequential, multi-unit, online auctions are influenced by the inventory holding costs, the number of bidders, and the dispersion of consumers' valuations.

Information Technology, Information Systems, Internet, Auctions, Dynamic Programming

Abstract:
Technology adoption has become an important management issue in today's decentralized organizations. Disparate systems and the attendant incompatibility costs between users and departments within an organization can create inefficiencies and reduce productivity. Fortunately,the managers of the organization have a rich tool-set - incentives and standards that they can use to manage technology adoption. We show that simple incentive plans, even ones that only provide bonuses for selection of standard technology or only provide penalties for non-standard selections suffice. Further, it is even possible to devise incentive plans which have zero expected costs to users and organizations and yet induce the users to pick common systems. We also examine technology adoption with communication between managers and users.

Abstract:
Many firms in the business to consumer market sell identical products online using auctions and posted prices at the same time. In this paper, we develop and analyze a model of the key tradeoffs sellers face in such a dual-channel setting that is built around the interplay of three design parameters, the posted price, the auction lot size, and the auction duration. Our results show that a monopolist seller can increase his revenues by offering auctions and a fixed price concurrently, and we identify when either a posted price only or a dual channel strategy is optimal for the seller. We model consumer choice of channels, and thus market segmentation, and find that consumers who value the item for more than its posted price use a threshold policy to choose between the two channels. The threshold defines an upper bound on the remaining time of the auction. We explain how optimizing the design parameters enables the seller to effectively segment the market so that the two channels reinforce each other and cannibalization is mitigated. Our findings also demonstrate that there are two dominant auction design strategies in this setting: one-unit auctions that tend to be short and long multi-unit auctions. Which of these two strategies is optimal for the seller depends on the consumer arrival rate and the disutility of delivery delay incurred by high valuation consumers. In either case, the optimal auction design of the dual channel can significantly outperform a single posted price channel. Our results indicate that the seller's surplus from offering auctions is lower when consumers are more sophisticated in estimating their expected discount from participating in the auction.

Abstract:
The integration of electronic patient data records with digital images in PACS is the only way today to provide high-quality clinical services. Such integration enables clinicians to access both systems' data reliably and consistently, as part of their regular working environment. We present a general framework for capturing the actual tangible and intangible benefits of RIS/PACS implementation at a major hospital. Prior to the implementation, we looked at 150,000 studies in terms of charges and revenues collected, and for a sample we identified report turn-around times (TAT) and process bottlenecks. We repeated these inquiries after the RIS/PACS implementation. In addition, we used a survey instrument to measure the changes in the satisfaction levels of radiologists, technology staff, and referring physicians.

We found a phenomenon 63% year-long learning rate that was observed after the systems were implemented. During that period, TAT shrunk by 80%, indicating that most of the benefits of RIS/PACS take time and added effort to be fully realized. The billing process became more authentic and reliable as all preps, procedures and exams could be captured, and lost studies rates have decreased from 10% to less that 1%. We documented a steady increase in revenue per procedure of more than $3 per procedure per month. On top of the above, the satisfaction level of both referring physicians and employees went up dramatically from around 3 to 6 in a seven-point Likert scale! We also present some operational recommendations resulting from an econometric study, and documented and elaborated on the virtual tools now available for more accurate, easy to use teaching purposes. Future paths are process bottleneck identification for continuous improvement, and improved scheduling models for both patients and staff. Our results may lead to fuller utilization of RIS/PACS functionality, to a significant return on investment (ROI), and to improved patient care and acceptance by referring physicians.

Abstract:
Previous studies suggested that a monopoly durable goods seller can use leasing to effectively avoid the time-inconsistent problem raised by Coase Conjecture. This paper extends those previous works by examining the monopoly seller's selling and leasing strategy for a special type of durable good - software. We look at a software vendor that can sell (at a posted price) or lease his product where as a lesser he guarantees that the lessees will always have the latest version of the software. We address some of the specific issues of implementing the selling and/or leasing policies at the packaged software market, including the impact of network externality, upgrade compatibility, and commitment on pricing in a dynamic environment. We show that by properly defining their pricing structure, software vendors can segment the market and second-degree price discriminate the consumers. We also demonstrate how software vendors can manage the trade-offs of selling and leasing to achieve a higher profit as well as the corresponding welfare effect on the consumers.

Software licensing, Coarse Conjecture, Price discrimination, Network externality, Commitment, Upgrade, Compatibility, Risk

Abstract:
As software ages, it is increasingly unable to leverage new technologies and fulfill evolving user requirements. Firms producing software products therefore get an opportunity to introduce and sell upgrades. Our research looks at the optimal intervals between upgrades, and whether these intervals should increase or decrease over the product's life cycle. Although the accelerating pace of hardware and software developments (e.g. Moore's law) suggests decreasing intervals between upgrades, real business data for several commonly used commercial software products shows the opposite. To investigate this discrepancy, we set up model incorporating the costs and revenues from upgrades for a monopoly software producer. Our analysis confirms that the optimal upgrade intervals are monotonically increasing along the product's life cycle. Understanding of the optimal upgrade intervals allows managers to infer the upgrade costs involved and thus helps them to allocate budgets for managing these upgrades.

new product development, software upgrades, upgrade timing, upgrade strategy, upgrade costs

Abstract:
Application Service Providers (ASPs) deliver on-demand information processing services to user firms via the Internet. They have been an attractive alternative to purchasing, installing, and maintaining modifiable off-the-shelf (MOTS) software solutions. We study several critical aspects of a user firm's choice between an ASP and MOTS software. The competitive model considers heterogeneous users who differ in terms of their expected transaction volume, while ASPs and MOTS vendors differ in terms of their pricing structure, setup cost, system customization, and service level arrangement. Our results identify and characterize the equilibrium conditions under which ASPs and MOTS vendors can coexist in a competitive market, and they explain which firms could be the primary beneficiaries of each vendor type. We show that the value added by ASPs comes as much from the efficient pooling of transaction volatility risks as from the reduction in IT implementation costs. As users' transaction volatility increases, the competitive advantage of the ASP approach increases significantly. Our findings predict that the existence of ASPs would not be a temporary phenomenon. These new software deliverers are likely to compete, survive, and coexist with the traditional software vendors in the market.

Abstract:
This paper highlights the importance of document workflow design when new workflow and electronic document management systems are adopted together. Merely replacing paper documents with electronic counterparts will not solve all the problems nor does it exploit fully the potential of this technology. We examine the support that the different document technologies take and the advantage of these technologies. Document composition, document technology, and routing of workflow are optimized to maximize the benefits to the organization.

Abstract:
Co-sourcing is a new type of inter-organizational relationship, that is broader, both in operational scope and in risk sharing, than traditional outsourcing relationships. Based on a number of case studies, we develop analytical models of co-sourcing which evaluate when it is optimal, and what form it should take in a particular business environment. Our models simultaneously incorporate operational, economic and information technology factors. We find that the intensity of transactions and the level of intrinsic incentive alignment are crucial to the business partner who is more risk-averse and may sometimes find it optimal to bear the larger portion of operational and market risk in the co-sourcing relationship.

Abstract:
Rapid technological developments and deregulation of the telecommunications industry have changed the way in which leading content providers distribute and price their goods and services. Instead of selling both content and access through proprietary networks, these firms are shifting their distribution channels to the Internet. Data customers can now select their Internet Service Providers to gain access to the Internet for a set monthly fee. The marginal charges for these Internet telecommunication services do not depend on distance, time and the content of the data. We study the economic and competitive impact of this vertical disintegration on the proprietary content providers, Internet Service Providers and the end consumers. We show that, despite the reduction in the scope of their service, the content providers may raise their prices to increase their profits. As a result, customers who are closer to the content provider's gateway may give up certain data services. On the other hand, new subscribers from remote locations will now enjoy the opportunity for additional data services because using the Internet will significantly reduce their telecommunication costs. Furthermore, as the number of access providers increases, their profits decrease and the fraction of customers who gain access to proprietary content increases. Some of the savings from the continuous reduction in telecommunication costs afforded by the Internet will be taken away by the proprietary data providers, who exploit their monopolistic market position. Consequently, a significant fraction of the potential customers may be priced out of the market.

Abstract:
Information technology has radically altered the management of supply chain operations; many business partners who are adjacent on the supply chain can gain from entering inter-organizational information sharing (IOIS) relationships and sharing information that was previously accessible to only one of them. This situation is typical in retailer-supplier logistics management relationships. The first part of our study analyzes different forms of virtual integration-relationships between independent companies that result in some of the operations resembling those of a single vertically integrated firm--and classifies them based on their models of information sharing across the supply chain. We find that there are four primary policies that firms adopt when they exchange information across the supply chain; these are EDI, vendor managed inventory (VMI), continuous replenishment (CR) and category management (CM).

Typically, corporations view the development of inter-organizational information systems and the sharing of information as being targeted at increasing operational efficiency by reducing ordering costs, inventory costs and supply lead times. Many studies have focused on studying IOIS technology issues and estimating the value generated from these arrangements using traditional models of inventory and ordering costs. However, we find that in a number of cases, the information shared can have cross-functional value--it can also be used to improve a supplier's production planning and to alter their marketing and sales strategies. Paradoxically, however, suppliers who receive such information feel that not only are their benefits minimal, but they often end up worse off than before the IOIS was implemented.

The second part of our study explains this paradox. We show how retailers and other buyers can successfully contract to end up with more value than is generated by the sharing of information. Using game-theoretic models of strategic interaction, we show that this effect intensifies as the competitive value of the information to the supplier's marketing and sales departments increases; we demonstrate how the supplier loses more and more value. Furthermore, the buyer need not actually share the information to derive these rents; we indicate why the possibility of sharing is sufficient, even when the buyer cannot independently create value from that information.

Abstract:
This paper presents a decision framework that captures the major tradeoffs a firm faces when a software acquisition decision is made. This framework and the method of empirical analysis differ significantly from previous work on software acquisition. The software acquisition problem is depicted as two-dimensional, with the firm deciding whether to custom develop the software or base it on a package and whether to insource acquisition tasks or outsource them. Multinomial logit analysis of extensive field data on actual business decisions (not stated rationales) identifies and measures the key factors affecting these two decisions. We present evidence that: A significant interaction exists between decisions on the two dimensions of the software acquisition problem. This "confounding effect" leads firms to make the custom/package and insource/outsource decisions simultaneously. Software acquisition decisions are strongly affected by application properties, technological characteristics and organizational considerations. Suprisingly, we find the software acquisition decision to be largely unaffected by whether or not the system is strategic. Finally, while there is support for the popular belief that software development outsourcing has increased over time, we do not find evidence of such a trend for packages. The framework and empirical results in this paper offer managers a basis for structuring and benchmarking their software acquisition decisions. The paper also characterizes the types of software projects that will be most beneficial for vendors to target.

Abstract:
Custom software development projects have special information attributes that have challenged managers for many years; they are associated with information asymmetries regarding user valuation and developer costs, relationship- specific investments, and a resulting likelihood of externalities for the user or the developer from the other party's investment. Furthermore, in the custom project, market prices for software are not helpful in solving either the valuation or the cost problems. In this paper we analyze the unique nature of the software development agreements that can be reached between the user and the developer, with the goal of better understanding the factors relevant to the outsourcing decision. For internal development, we identify a new mechanism that achieves the first-best system whenever the project has positive expected net value, while achieving ex ante budget balance. In contrast, the optimal mechanism for an outsourcer will not in general yield the first-best system, so that when an internal developer and outsourcer have the same cost functions, internal development definitely yields larger net value. Numerical experiments indicate that this difference in net values can be very large, as much as an 100% increase of internal development over outsourcing. We also explain why the efficient levels of investment can be achieved only when there are no externalities, and show that the presence of externalities results in underinvestment. Since using an external developer will typically yield a system that is not first-best, inefficient investments result with or without externalties. Numerical experiments indicate that uncertainty about system value is not a significant factor in choosing between internal development and outsourcing. However, uncertainty about the developers costs is highly significant, with greater uncertainty making outsourcing less attractive.

Abstract:
Our paper studies the line-leasing decision and the circuit- routing problem in the design of reconfigurable private networks. These networks can automatically modify their logical configurations when necessary by employing digital connections. By exploiting the economies of scale available when using higher-capacity circuits, we develop an efficient method for determining a line-leasing policy that minimizes the packet delay and line-leasing costs. In addition, we also show how to derive efficient cross connection schemes and traffic-routing decisions for various short-run input traffic patterns. The various decision problems are formulated as non-linear mixed integer programs. We use Lagrangean relaxation and subgradient optimization to get near-optimal solutions with duality gaps ranging between 3 percent and 14 percent. We develop two distinct approaches for solving the line-leasing problem as a function of the potential input traffic patterns. One approach uses the average daily traffic and the other uses the more detailed intra-day traffic flow patterns. Numerical experiments indicate that the average traffic level can serve as a simple basis for deriving a near-optimal topology for reconfigurable networks. This finding allows network managers to reduce the costs involved in designing networks that exploit the flexibility of Digital Crossconnect Systems. We also show that it is economically beneficial for managers of large-scale private data networks to incorporate the logical design and traffic routing problems into their long-run line-leasing problems.

Abstract:
The effective design of business processes is a subject of considerable importance to corporations today. Our research focuses on developing a theoretical framework for process design in order to provide some guidelines for mangers. The abundant context-specific case studies which exist today share many success stories but provide little in terms of a general methodological approach. In this paper we describe our general framework for the analysis and design of business processes. We outline a typical business process and critically evaluate typical pre- and post-reengineering process designs. Explicit aspects of our analysis address workflow design and task bundling, technological enabelers, and performance based incentives. We examine the effects of task size asymmetry and information, and performance control asymmetry on the optimal process design. Our results indicate that, with increased asymmetry, certain types of process designs become more desirable. Furthermore, we look at the interaction between job asymmetry and other process design factors such as knowledge intensity and level of job customization. Finally, we show how asymmetry causes process redesign to complement performance based incentive compensation. The practical implications of these results are illustrated for a variety of process design environments.

Abstract:
Many companies use successful WIP limiting strategies such as CONWIP, kanban or drum-buffer-rope to control parts flows in complex production systems. This paper analyzes assembly systems with a tree structure, random processing times and a constant WIP control system. A heuristic version of the exact aggregation-disaggregation theory for finite Markov chains is developed here for performance evaluation of these closed Kanban-controlled assembly systems. It computes accurate estimates of the plant through-put but not of mean queue length, a common phenomenon in single-node decomposition of queuing networks. Because the approximation is theory-based, it provides a framework for further model development, with some possible extensions described in the paper. The approximation has the novel feature of doing simultaneous multiple partitions of the state space in such a way that the associated aggregate transition rates are mutually consistent. The methodology is a novel approach towards extending aggregation ideas to fork-and-join queuing networks, and it provides several useful operational and analytical insights.