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Implementing New

Business Models in
For-Profit and Non-Profit
Organizations:
Technologies and Applications

Te Fu Chen
Lunghwa University of Science and Technology, Taiwan

BUSINESS SCIENCE REFERENCE


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Library of Congress Cataloging-in-Publication Data

Implementing new business models in for-profit and non-profit organizations :


technologies and applications / Te Fu Chen, editor.
p. cm.
Includes bibliographical references and index.
Summary: "This book provides relevant theoretical frameworks and the latest
empirical research findings on a new platform of business models and explores
the relationship between the new Business 2.0 alliance and Web 2.0"--Provided
by publisher.
ISBN 978-1-60960-129-4 (hbk.) -- ISBN 978-1-60960-131-7 (ebook) 1.
Information technology--Management. 2. Web 2.0. 3. Online social networks--
Economic aspects. 4. Management--Social aspects. 5. Business planning. I.
Chen, Te Fu
HD30.2.I485 2011
658.4'012--dc22
2010051773

British Cataloguing in Publication Data


A Cataloguing in Publication record for this book is available from the British Library.

All work contributed to this book is new, previously-unpublished material. The views expressed in this book are those of the
authors, but not necessarily of the publisher.
Table of Contents

Foreword . ............................................................................................................................................ xii

Preface . .............................................................................................................................................. xvii

Acknowledgment...............................................................................................................................xxiii

Section 1
Implementing New Business Models in For-Profit Organizations

Chapter 1
Emerging Business Models: Value Drivers in E-Business 2.0 and towards Enterprise 2.0.................... 1
Te Fu Chen, Lunghwa University of Science and Technology, Taiwan

Chapter 2
Management 2.0: Managing Knowledge Workers in the 21st Century................................................. 29
Moria Levy, Israeli Knowledge Management Forum, Israel

Chapter 3
The CSFs Methodology and Modified DEA Approach to Construct a New Business
Model to Evaluate Operational Performance of all International Tourist Hotels in Taiwan................. 46
Chieh-Heng Ko, Chung Hua University, Taiwan

Chapter 4
Knowledge Management Approach as Business Model: Service Industry Prospective........................ 73
Viju Mathew, College of Applied Sciences Salalah (MOHE), Sultanate of Oman

Chapter 5
Role of Small and Medium Sized Enterprises in E-Supply Chain Management: A Case Study........... 97
Fang Zhao, American University of Sharjah, UAE
Chapter 6
Taiwans Corporate Governance: Explorations from the Ethical Corporate Governance Model............110
Hsiang-Yi Lin, Ching Yun University, Taiwan
Li Lin, Tamkang University, Taiwan

Section 2
Implementing New Business Models in Non-Profit Organizations

Chapter 7
Adopting Web 2.0 in English Writing Courses: A Collaborative Learning Approach
in NPO Universities in Taiwan............................................................................................................ 133
Yuan-Chu Hwang, National United University, Taiwan
Min-Ching Chen, National Chiao Tung University, Taiwan

Chapter 8
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan........... 155
Te Fu Chen, Lunghwa University of Science and Technology, Taiwan

Chapter 9
An Innovative Business Model in NPOs: From Venture Philanthropy 1.0 to 2.0............................... 184
Te Fu Chen, Lunghwa University of Science and Technology, Taiwan

Section 3
Implementing New Business Models: Technology and Applications

Chapter 10
Rethinking Business Process Reengineering: The Empirical Modelling Approach............................ 215
Yih-Chang Chen, Chang Jung Christian University, Taiwan

Chapter 11
Modeling Multi-Criteria Promotional Strategy Based on Fuzzy Goal Programming......................... 246
B. K. Mangaraj, Xavier Labour Relations Institute, India

Chapter 12
Implementing an Electronic Infrastructure: Developments in Banking in Germany and Finland...........266
Reima Suomi, University of Turku, Finland

Chapter 13
Employee Attitudes towards Business-to-Employee (B2E) Portals Use: Analysing
the Role of Demographic Characteristics............................................................................................ 277
Md Mahbubur Rahim, Monash University, Australia
Mohini Singh, RMIT University, Australia
Mohammad Quaddus, Curtin University, Australia
Chapter 14
Assessing Empirical Relations of Music Piracy Behaviors with Lifestyle and Internet
Self-Efficacy of Taiwans Web Users.................................................................................................. 298
Ti Hsu, Chinese Culture University, Taiwan
Weng Wong, Chinese Culture University, Taiwan
Chien-Chih Wang, Chinese Culture University, Taiwan
Yeen Ni Li, Chinese Culture University, Taiwan
Pu Chuan Li, Chinese Culture University, Taiwan
Min Chi Tsai, Chinese Culture University, Taiwan
Yu Kai Tsai, Chinese Culture University, Taiwan
Sheng Hong Su, Chinese Culture University, Taiwan

Chapter 15
Validity and Reliability Evidence of a New Version of the Internet Self-Efficacy Scale.................... 314
Ti Hsu, Chinese Culture University, Taiwan
Liang Cheng Huang, National Taiwan University, Taiwan

Compilation of References ............................................................................................................... 333

About the Contributors .................................................................................................................... 360

Index.................................................................................................................................................... 366
Detailed Table of Contents

Foreword . ............................................................................................................................................ xii

Preface . .............................................................................................................................................. xvii

Acknowledgment...............................................................................................................................xxiii

Section 1
Implementing New Business Models in For-Profit Organizations

Chapter 1
Emerging Business Models: Value Drivers in e-Business 2.0 and towards Enterprise 2.0..................... 1
Te Fu Chen, Lunghwa University of Science and Technology, Taiwan

This chapter introduces and develops a concept of e-Business 2.0 and having it implemented in the out-
most circle of the figure helps provide a better overview and framework for this research. This research
also makes a distinction between an internal and external focus. This research looks at e-Business 2.0
and has an external focus. E-Business 2.0 pure players depend on Web 2.0 to create and appropriate
value with a focus to external customers, instead of internal organisations. Enterprise 2.0 looks at Web
2.0 technologies and practices within organisations and businesses and is therefore, referred to as in-
ternal focus. Enterprise 2.0 is the term used to describe how a Web 2.0 approach can be used to work
more collaboratively together in business. However Enterprise 2.0 is much more than just Web 2.0 for
business. It will provide the infrastructure for technologies and application of new business model.

Chapter 2
Management 2.0: Managing Knowledge Workers in the 21st Century................................................. 29
Moria Levy, Israeli Knowledge Management Forum, Israel

This chapter suggests a new management framework for managing todays knowledge workers. This
framework is based on three perspectives: analyzing the managers tasks, observing the knowledge
workers behaviors and expectations, and management recommendations via suggested underlying
guiding principles. Together, these construct a framework for the new eras manager, defined here as
the 2.0 manager.
Chapter 3
The CSFs Methodology and Modified DEA Approach to Construct a New Business
Model to Evaluate Operational Performance of all International Tourist Hotels in Taiwan................. 46
Chieh-Heng Ko, Chung Hua University, Taiwan

This chapter adopted modified data envelopment analysis (DEA) to measure the relative operational
efficiency of international tourist hotels in Taiwan. After using DEA to evaluate hotels operational
efficiency this research used a qualitative approach to further explore the critical success factors that
contribute to hotels having good performance in Taiwan. Through determination of these factors, this
research provides hotel managers with a list of advice and recommendations to develop effective strate-
gies and a new business model to meet a highly competitive environment.

Chapter 4
Knowledge Management Approach as Business Model: Service Industry Prospective........................ 73
Viju Mathew, College of Applied Sciences Salalah (MOHE), Sultanate of Oman

This chapter intended to bring forward various KM strategies specially framed for the service industries
looking forward for the global market and need to create advantage in providing customer satisfaction
and enhancing the growth prospects, applications in organizations, indicate how to improve knowl-
edge based performance and act a base for the service industry for developing innovation, creating
global opportunities for better service. The case study highlighting knowledge strategies is designed
to achieve the required knowledge sharing and output. Open ended and closed ended strategies plays a
significant role in collaborative learning, development, building the potential and providing the knowl-
edge-creation and sharing capacities needed for strategic formulation and decision-making to create
competitiveness.

Chapter 5
Role of Small and Medium Sized Enterprises in E-Supply Chain Management: A Case Study........... 97
Fang Zhao, American University of Sharjah, UAE

This chapter studies the role that small and medium-sized enterprises (SMEs) play in the e-supply chain
management. It has two objectives: (1) it explores how a SME embraces and implements electronic
supply chain management (e-SCM) and the challenges facing it, and (2) it develops strategy to deal
with the challenges. The chapter draws upon a case study of IFC Global Logistics (IFC), a small-to-
medium-sized third party logistics provider. The case study illustrates how the SME embraces enabling
technologies, the Internet, and modern business practices to integrate its supply chain management pro-
cesses and to create for itself differentiation and a competitive advantage in the tough logistics industry.
Based upon a literature review and the case study, the chapter explores effective strategy for SMEs in
e-supply chain management.

Chapter 6
Taiwans Corporate Governance: Explorations from the Ethical Corporate Governance Model............110
Hsiang-Yi Lin, Ching Yun University, Taiwan
Li Lin, Tamkang University, Taiwan
This chapter discusses the meaning and internal and external mechanisms of Taiwans corporate gover-
nance, explains why this kind of mechanism cannot prevent the agency problem, and demonstrates the
importance of business ethics by looking at the flaws in Taiwans corporate governance. Other ques-
tions addressed in this study include what limitations are in the internal and external mechanisms of
Taiwans corporate governance, what makes the agency problem seem inevitable, and whether business
ethics may compensate for the shortcomings in Taiwans corporate governance. The findings of the new
business model are discussed.

Section 2
Implementing New Business Models in Non-Profit Organizations

Chapter 7
Adopting Web 2.0 in English Writing Courses: A Collaborative Learning Approach
in NPO Universities in Taiwan............................................................................................................ 133
Yuan-Chu Hwang, National United University, Taiwan
Min-Ching Chen, National Chiao Tung University, Taiwan

This chapter discusses how the emerging Web 2.0 collaborative approach is applied to English writing
courses and its performance. In this chapter, it will introduce a collaborative learning approach based on
Web 2.0 that facilitates the collaborative English learning for universities in Taiwan. Teaching English
writing for universities in Taiwan focuses on traditional writing teaching methods. Usually, teachers try
to explain the rules and use the textbooks, and students are just listeners during the writing class. The
writing course may lack interactions between students and teachers. How teachers utilize the Internet
in writing course and encourage collaboration between students becomes an important issue in NPOs
performance.

Chapter 8
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan........... 155
Te Fu Chen, Lunghwa University of Science and Technology, Taiwan

This chapter indicates the development of the cultural innovation industry, and encompasses culture,
art, technology, and local traditions. It also describes the procedures of promotions formulated for the
development of the cultural and creative industry, including definition, scope, development, strategies
and government assistance. This chapter is intended to give the general public an idea of the chain ef-
fects expected to bring for the society by the development of the cultural and creative industry. And
it was focused on case study based on qualitative analysis, literature review and in-depth interview,
discussing inner management and external relations in Liuli Gongfang, in order to offer the concrete
suggestion of development in the future.

Chapter 9
An Innovative Business Model in NPOs: From Venture Philanthropy 1.0 to 2.0............................... 184
Te Fu Chen, Lunghwa University of Science and Technology, Taiwan
This chapter integrates a different, new business model of venture philanthropists with different theo-
ries of worldwide scholars, practitioners, undeveloped, developing and developed countries to con-
struct an innovative business model: Philanthropy 2.0. It integrates Web 2.0 technology with trust and
relationships to build a network platform of Philanthropy. 2.0 is the key to successfully connect VP with
donors, charities and funders. It hopes to help NPOs to connect supporters, donors with other donors
and supporters and with charities, NPOs, and organizations to share knowledge and experiences, and
finally, to help the people who are most in need. Meanwhile, charities, NPOs, and organizations all are
able to achieve self-growth and sustainable operation to reach triple win.

Section 3
Implementing New Business Models: Technology and Applications

Chapter 10
Rethinking Business Process Reengineering: The Empirical Modelling Approach............................ 215
Yih-Chang Chen, Chang Jung Christian University, Taiwan

The chapter introduces a new approachEmpirical Modellingto computing and business modelling.
Today most business processes rely on informal knowledge and social behavior, but these are areas
which have not, so far, been well suited for modelling with computer-based techniques. For this, we
introduce Empirical Modelling to modelling with computers, which has natural application to busi-
ness process modelling. This chapter proposes a way of applying this approach to integrated system
development with BPR. A framework using this approach, SPORE (situated process of requirements
engineering), is extended to encompass applications to participative BPR (i.e. supporting many users in
a distributed environment). An outline of an application of these methods to a warehouse management
system is included.

Chapter 11
Modeling Multi-Criteria Promotional Strategy Based on Fuzzy Goal Programming......................... 246
B. K. Mangaraj, Xavier Labour Relations Institute, India

This chapter presents a multi-criteria promotional model for a rural product of a co-operative society
in TV channels through popular programmes. An interactive fuzzy goal programming model has been
developed for the purpose of handling this problem for selection of TV programmes in some networks
for communicating the message of the product. A case study in Indian context has been considered for
highlighting the promotion of handloom products by the bottom-of-pyramid producers of the Indian
economy to be marketed in all segments through an optimal media selection process.

Chapter 12
Implementing an Electronic Infrastructure: Developments in Banking in Germany
and Finland........................................................................................................................................... 266
Reima Suomi, University of Turku, Finland
This chapter discusses the banking industry as a user of Internet and other modern information and
communication technology (ICT). Author uses Germany and Finland as case examples and make com-
parisons between them. His research idea is that the banking industry has utilized several technologies
of computer networking over several decades, and also got a flying start to the Internet technologies,
that nowadays are a backbone of the banking industry. This chapter makes a comparison between the
developments in Germany and in Finland.

Chapter 13
Employee Attitudes Towards Business-to-Employee (B2E) Portals Use: Analysing
the Role of Demographic Characteristics............................................................................................ 277
Md Mahbubur Rahim, Monash University, Australia
Mohini Singh, RMIT University, Australia
Mohammad Quaddus, Curtin University, Australia

This chapter reports a study on B2E portal use and employee attitudes from a large Australian univer-
sity, and highlights that employees attitudes towards portal use are only somewhat positive, and not
overwhelmingly favourable. Although not statistically significant, attitudes of employee varied based
on age and educational background. Senior management of organisations should thus formulate strate-
gies to develop positive attitudes for portal use to accelerate its diffusion among employee community.
Such strategies should take into consideration of the possible effect of employees age and educational
characteristics.

Chapter 14
Assessing Empirical Relations of Music Piracy Behaviors with Lifestyle and Internet
Self-Efficacy of Taiwans Web Users.................................................................................................. 298
Ti Hsu, Chinese Culture University, Taiwan
Weng Wong, Chinese Culture University, Taiwan
Chien-Chih Wang, Chinese Culture University, Taiwan
Yeen Ni Li, Chinese Culture University, Taiwan
Pu Chuan Li, Chinese Culture University, Taiwan
Min Chi Tsai, Chinese Culture University, Taiwan
Yu Kai Tsai, Chinese Culture University, Taiwan
Sheng Hong Su, Chinese Culture University, Taiwan

This chapter indicates the present study was designed to evaluate Web users behaviors related to the
music piracy empirically. In light of the newly ratified copyright law in Taiwan, the behavioral inten-
tions of Web users towards the music downloading and/or P2P file sharing were studied using a sample
of 317 of Taiwans Internet users. Results indicated that Web users were likely to reduce or modify their
behaviors in order not to be in conflict with the new law. Results also showed that methods of music
piracy used by respondents had nothing to do with lifestyle, but were more correlated to Internet self-
efficacy.
Chapter 15
Validity and Reliability Evidence of a New Version of the Internet Self-Efficacy Scale.................... 314
Ti Hsu, Chinese Culture University, Taiwan
Liang Cheng Huang, National Taiwan University, Taiwan

The purpose of the chapter was designed to bridge the gap and to update the Internet self-efficacy
scale. Based on a sample of 1123 college students with 10 different majors in the northern, central, and
southern portions of Taiwan, a new Internet self-efficacy scale based on 26 items was developed and
validated statistically. The new version of the Internet self-efficacy scale was composed of five domains
including: blogs, auction, video sharing, photo albums, and wiki.

Compilation of References ............................................................................................................... 333

About the Contributors .................................................................................................................... 360

Index.................................................................................................................................................... 366
xii

Foreword

I am delighted to write the foreword to this new book, Implementing New Business Models in For-Profit
and Non-Profit Organizations: Technologies and Applications.
This is a very timely book as new business models of technologies and applications will increasingly
impact almost all aspects of organizational profit.
This book examines the implications of new business models in For-Profit and Non-Profit Organiza-
tions from technologies and applications perspectives so that current and future managers could make
better decisions regarding where, when and how to utilize these technologies and how to apply the new
business model. It includes the theories and practices of leading experts and practitioners from global
related disciplines regarding to technologies and applications of new business models.
The scope and content of this book provide For-Profit and Non-Profit Organizations with the essential
ingredients for planning, constructing and implementing new business models, as well as ensuring the
anticipated benefits are realized.
This book begins with Emerging Business Models: Value Drivers in e-Business 2.0 and towards
Enterprise 2.0, covering the foundations of business models, technology, and application from theoreti-
cal and practical perspectives. It introduces Forresters perspective on Web 2.0. It allows this research
to clearly define the enabler aspect of Web 2.0 technologies that influence companies in e-Business, and
allows a development of the concept e-Business 2.0. Many writers and researchers use the term Web
2.0 as the next stage of the Internet and of e-Business. These researchers do not make a clear distinction
between the technological enabler aspect and the social aspect. Introducing and developing a concept
of e-Business 2.0 and having it implemented in the outmost circle of the figure help provide a better
overview and framework for this research.
This research also makes a distinction between an internal and external focus. This research looks
at e-Business 2.0 and has an external focus. E-Business 2.0 pure players depend on Web 2.0 to create
and appropriate value with a focus to external customers, instead of internal organisations. The latter
focus is called Enterprise 2.0, where there is a new wave of business communication tools including
blogs, wikis and group messaging. There are new digital platforms for generating, sharing and refining
information that are already popular on the Internet. These platforms are collectively labeled Web 2.0
technologies.
The term Enterprise 2.0 focuses only on those platforms in which companies can buy or build in
order to make the practices and outputs of their knowledgeable workers visible. Enterprise 2.0 looks at
Web 2.0 technologies and practices within organisations and businesses and is therefore, referred to as
internal focus. Enterprise 2.0 is the term used to describe how a Web 2.0 approach can be used to work
more collaboratively together in business. Harvard professor Andrew McAfee coined the phrase En-
terprise 2.0, defining it as the use of emergent social software platforms within companies or between
companies and their partner or customers. However Enterprise 2.0 is much more than just Web 2.0
xiii

for business. It will provide the infrastructure for technologies and application of new business model,
the infrastructure includes Section 1: Implementing New Business Models in For-Profit Organizations
(Emerging Business Models: Value Drivers in E-Business 2.0 and towards Enterprise 2.0; Management
2.0: Managing Knowledge Workers in the 21st Century; The CSFs Methodology and Modified DEA Ap-
proach to Construct a New Business Model to Evaluate Operational Performance of all International
Tourist Hotels in Taiwan; Knowledge Management Approach as Business Model: Service Industry
Prospective; The Role of Small and Medium Sized Enterprises in E-Supply Chain Management: A Case
Study; Taiwans Corporate Governance-Explorations from the Ethical Corporate Governance Model).
Section 2: Implementing New Business Models in Non-Profit Organizations (Adopting Web 2.0 in
English Writing Course: A Collaborative Learning Approach in NPO Universities in Taiwan; A Case
Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan; An Innovative
Business Model in NPOs: From Venture Philanthropy 1.0 to 2.0).
Section 3: Implementing New Business Models: Technology and Applications (Rethinking Business
Process Reengineering: The Empirical Modelling Approach; Modeling Multi-Criteria Promotional
Strategy Based on Fuzzy Goal Programming; Implementing an Electronic Infrastructure: Developments
in Banking in Germany and Finland; Employee Attitudes towards Business-to-Employee (B2E) Portals
Use: Analysing the Role of Demographic Characteristics; Assessing Empirical Relations of Music Pi-
racy Behaviors with Lifestyle and Internet Self-Efficacy of Taiwans Web Users; Validity and Reliability
Evidence of a New Version of the Internet Self-Efficacy Scale)
A chapter on Management 2.0: Managing Knowledge Workers in the 21st Century suggests a new
management framework for managing todays knowledge workers. This framework is based on three
perspectives: analyzing the managers tasks, observing the knowledge workers behaviors and expecta-
tions, and management recommendations via suggested underlying guiding principles. Together, these
construct a framework for the new eras manager, defined here as the 2.0 manager.
A case study on The CSFs Methodology and Modified DEA Approach to Construct a New Busi-
ness Model to Evaluate Operational Performance of All International Tourist Hotels in Taiwan adopts
modified data envelopment analysis (DEA) to measure the relative operational efficiency of international
tourist hotels in Taiwan. After using DEA to evaluate hotels operational efficiency, this research used a
qualitative approach to further explore the critical success factors that contribute to hotels having good
performance in Taiwan. Through determination of these factors, this research provides hotel managers
with a list of advice and recommendations to develop effective strategies and new business model to
meet a highly competitive environment.
A case study on Knowledge Management Approach as Business Model: Service Industry Prospec-
tive intends to bring forward various KM strategies specially framed for the service industries look-
ing forward for the global market and need to create advantage in providing customer satisfaction and
enhancing the growth prospects, applications in organizations, indicate how to improve knowledge
based performance and act a base for the service industry for developing innovation, creating global
opportunities for better service. The case study highlighting knowledge strategies is designed to achieve
the required knowledge sharing and output. Open-ended and closed-ended strategies play a significant
role in collaborative learning, development, building the potential and providing the knowledge-creation
and sharing capacities needed for strategic formulation and decision making to create competitiveness.
The case study on Role of Small and Medium Sized Enterprises in E-Supply Chain Management: A
Case Study studies the role that small and medium-sized enterprises (SMEs) play in the e-supply chain
management. It has two objectives: (1) it explores how a SME embraces and implements electronic sup-
ply chain management (e-SCM) and the challenges facing it, and (2) it develops strategy to deal with the
xiv

challenges. The chapter draws upon a case study of IFC Global Logistics (IFC), a small-to-medium-sized
third party logistics provider. The case study illustrates how the SME embraces enabling technologies,
the Internet, and modern business practices to integrate its supply chain management processes, and to
create for itself differentiation and a competitive advantage in the tough logistics industry. Based upon
a literature review and the case study, the chapter explores effective strategy for SMEs in e-supply chain
management.
The chapter on Taiwans Corporate Governance-Explorations from the Ethical Corporate Gov-
ernance Model discusses the meaning and internal and external mechanisms of Taiwans corporate
governance, explains why this kind of mechanism cannot prevent the agency problem, and demonstrates
the importance of business ethics by looking at the flaws in Taiwans corporate governance. Other ques-
tions addressed in this study include what limitations are in the internal and external mechanisms of
Taiwans corporate governance, what makes the agency problem seem inevitable, and whether business
ethics may compensate for the shortcomings in Taiwans corporate governance. The findings of the new
business model are discussed.
The chapter on Adopting Web 2.0 in English Writing Courses: A Collaborative Learning Approach
in NPO Universities in Taiwan discusses how the emerging Web 2.0 collaborative approach is applied
to English writing courses and their performance. This paper will introduce a collaborative learning
approach based on Web 2.0 that facilitates the collaborative English learning for universities in Taiwan.
Teaching English writing for universities in Taiwan focuses on traditional writing teaching methods.
Usually, teachers try to explain the rules and use the textbooks, and students are just listeners during the
writing class. The writing course may lack interactions between students and teachers. How teachers
utilize the Internet in writing courses and encourage collaboration between students becomes an impor-
tant issue in NPOs performance.
A case study on Integrated Innovation Model in the Cultural Innovation Industry in Taiwan in-
dicates the development of the cultural innovation industry, and encompasses culture, art, technology,
and local traditions. This paper describes the procedures of promotions formulated for the development
of the cultural and creative industry, including definition, scope, development, strategies and govern-
ment assistance. The chapter is intended to give the general public an idea of the chain effects expected
to bring for the society by the development of the cultural and creative industry. This research was
focused on case study based on qualitative analysis, literature review and depth interview, discussing
inner management and external relations in Liuli Gongfang, in order to offer the concrete suggestion of
development in the future.
The chapter on An Innovative Business Model in NPOs: From Venture Philanthropy 1.0 to 2.0
indicates that there is a need for charities, NPOs, and organizations to look at new types of relationships
with benefactors. The new philanthropist wants to be involved and emerge with self-gratification on a
job well done. These relationships need to be cultivated and built into long-term partnerships, not just
one-offs satisfying someones individual desire to do well. In addition, to operationalize the concept of
business model innovation, this paper proposes a new method that can be applied to assist innovation
managers and entrepreneurs in identifying the unique attributes and designing an innovative business
model in order to capture the full benefits of Venture Philanthropy. Moreover, this paper also proposes a
new system that utilizes the concept of the web 2.0 and Venture Philanthropy to produce new knowledge,
services or outlets for users to advance their needs.
The purpose of the chapter Rethinking Business Process Reengineering: The Empirical Modelling
Approach is to introduce a new approachEmpirical Modellingto computing and business model-
ling. Today, most business processes rely on informal knowledge and social behavior, but these are
xv

areas which have not, so far, been well suited for modelling with computer-based techniques. For this,
the author introduces Empirical Modelling to modelling with computers which has natural applica-
tion to business process modelling. We propose a way of applying this approach to integrated system
development with BPR. A framework using this approach, SPORE (situated process of requirements
engineering), is extended to encompass applications to participative BPR (i.e. supporting many users
in a distributed environment). An outline of an application of our methods to a warehouse management
system is also included.
A chapter on Modeling Multi-Criteria Promotional Strategy Based on Fuzzy Goal Programming
indicates knowing how the target customer likes a thing can greatly influence the type of promotional item
that they consider and how well the promotion performs in the marketing domain. Apart from designing
advertising messages, the problem lies with selecting suitable advertising media vehicles to communicate
the message to the right segment in right time. At the same time, it should have specific and measurable
marketing objectives. This chapter presents a multi-criteria promotional model for a rural product of a
co-operative society in TV channels through popular programmes. An interactive fuzzy goal programming
model has been developed for the purpose of handling this problem for a selection of TV programmes
in some networks to communicate the message of the product. A case study in Indian context has been
considered for highlighting the promotion of handloom products by the bottom-of-pyramid producers
of the Indian economy to be marketed in all segments through an optimal media selection process.
A case study on Implementing an Electronic Infrastructure: Developments in Banking in Germany
and Finland indicates the Internet has already now revolutionized many industries. The biggest changes
are perhaps yet to come in many industries, but the banking field can be seen as a pioneer in the ap-
plication of modern Information Technology in general, and of the Internet in particular. For example,
in banking, hardly anyone speaks about e-Banking; e-activity is banking as normal, no especial e is
needed. This chapter discusses the banking industry as a user of Internet and other modern information
and communication technology (ICT). We use Germany and Finland as case examples and make com-
parisons between them. Our research idea is that the banking industry has utilized several technologies
of computer networking over several decades, and also got a flying start to the Internet technologies,
that nowadays are a backbone of the banking industry. In the article we make a comparison of the de-
velopments in Germany and in Finland.
The chapter on Employee Attitudes towards Business-to-Employee (B2E) Portals Use: Analysing the
Role of Demographic Characteristics points out that B2E portals represent a state of the art technology
for organisations (businesses) to deal with employees using electronic communication, access and data
management. B2E portals enable reduced operation costs for organisations and satisfied employees by
offering them convenience, flexibility and agility. However, adoption, continued use, and eventual suc-
cess of portals depend to a large extent on employees attitudes towards portal use, and generally impinge
on demographic characteristics of employees. To establish the influence of demographic characteristics
on employee attitudes towards portal use, this chapter reports a study on B2E portal use and employee
attitudes from a large Australian university. This chapter highlights that employees attitudes towards
portal use are only somewhat positive, and not overwhelmingly favorable. Although not statistically
significant, attitudes of employees varied, based on age and educational background. Senior manage-
ment of organisations should thus formulate strategies to develop positive attitudes for portal use to ac-
celerate its diffusion among their employee community. Such strategies should take into consideration
the possible effect of employees age and educational characteristics. E-commerce researchers could
undertake further research to find out whether demographic characteristics become more significant
once the portals are in use for some time.
xvi

Unlike past research on online music piracy with a focus on the economic or the legal perspective,
the chapter on Assessing Empirical Relations of Music Piracy Behaviors with Lifestyle and Internet
Self-Efficacy of Taiwans Web Users indicated the present study was designed to evaluate Web users
behaviors related to the music piracy empirically. In light of the newly ratified Copyright Law in Tai-
wan, the behavioral intentions of Web users towards music downloading and/or P2P file sharing were
studied using a sample of 317 of Taiwans Internet users. Results indicated that Web users were likely
to reduce or modify their behaviors in order not to be in conflict with the new law. Results also showed
that methods of music piracy used by respondents had nothing to do with lifestyle, but were more cor-
related to the Internet self-efficacy.
Applying the Internet self-efficacy scale, many studies have found significantly positive relationships
between the Internet self-efficacy and behaviors under various settings. However, some late empirical
researches have failed to support the strongly positive correlations involving the Internet self-efficacy
(Mbengue & Hsu, 2006; Hsu, 2009). This might be attributed to two factors: self-efficacy is, as Bandura
(2006) indicated, context-specific and/or domain specific, and the earlier Internet self-efficacy scales
were out-of-date due to a drastic advancement of Internet technology. The purpose of the chapter on
Validity and Reliability Evidence of a New Version of the Internet Self-Efficacy Scale was designed
to bridge the gap and to update the Internet self-efficacy scale. Based on a sample of 1123 college stu-
dents with 10 different majors in the northern, central, and southern portions of Taiwan, a new Internet
self-efficacy scale based on 26 items was developed and validated statistically. The new version of the
Internet self-efficacy scale was composed of five domains: including blogs, auction, video sharing,
photo albums, and wiki.
This book cuts through a lot of the excitement and panache associated with marketing of technolo-
gies and applications of new business models. It provides a thorough examination of business contexts
and provides a framework for requirements analysis, along with case studies to assist with analysis and
specification. This book also integrates the academic rigour and the practical knowledge of the authors
to assist professionals and organizations in gaining benefits from both perspectives.
I am pleased to be able to recommend this book to readers, be they those looking for substantive
material on strategy, or those looking to understand an important aspect of new business model. I wish
you the very best success with the implementations and realization of the many benefits of this technolo-
gies and applications.

Tsungting Chung

Tsungting Chungis a professor at the Department of Business Administration and Dean of International Affairs
Office, National Yunlin University of Science and Technology, Yunlin, Taiwan, where he teaches International Management
(MBA/EMBA, Ph.D. level), Cross-Culture Management, International Negotiation Theory and Practice (MBA/EMBA, Ph.D.
level), and Cross Taiwan Strait Commercial Relations. He was the Chairman of Business Administration Department and
Provost at Providence University, Taichung, Taiwan. Most of his research and publications are in the fields of negotiation and
international management. Other than journal articles, he published two books, International Negotiation Theory and Practice
and Research Methodology: Quantitative and Qualitative Approaches with co-author Chi-Shiun Lai. He is also a licensed
mediator at Taichung District Court, and has served as Board member of Chamber of Commerce at Taichung City Government
and Yunlin County Government, Taiwan, Republic of China. He received his Ph.D. from Graduate School of International Stud-
ies, University of Denver, USA and a certificate on Case Method and Participant-Centered Learning Program from Harvard
Business School, Harvard University, USA.
xvii

Preface

What is the difference between a business model and revenue model? E-Business Strategies, Inc. (2008)
indicated that a Business Model is the umbrella term used to describe the methodposition in the value
chain, customer selection, products, pricingof doing business. A Revenue Model lays-out the process
by which a company actually makes money by specifying how it is going to charge for the services
provided. The business model lays out the strategy-what should be done or how to create value? The
revenue model spells out the execution-how to convert the value creation into cash-flow.
As Michael Rappa (2008) indicated, business models are perhaps the most discussed and least un-
derstood aspect of the Web; a business model is the method of doing business by which a company can
sustain itself, that is, generate revenue. The business model spells out how a company makes money by
specifying where it is positioned in the value chain (Porter, 1985).
Why new business models? Often the innovation rests not in the technology or product, but in the
business model itself. The old principles no longer work in the new economy. Businesses have reached
the old models limits with respect to complexity and speed. Great shiftsgenuine and radical trans-
formationhave been shaping the economy and business environment in recent decades. Technology,
especially information and communication technology, has radically altered the requirements for building
and managing a successful business. Disruptive technologies require new business models.
The progress of Information Technology and the network tendency brings the commercial opportu-
nity of industry of globalisation; this includes the enterprise to the enterprise, as well as the enterprise
to individual, and moreover, includes satisfying of personalization demand. In the future 10 to 20 years,
the enterprise with individual productive forces and the height of working efficiency will be decided
by whether or not they can utilize the emerging technology and the auxiliary manpower. Given by the
technology, the more convenient communication tool lets the people reduce the barrier of time differ-
ence, shortens life and the work custom difference between each other, and therefore will have more
potential of the emerging commercial opportunity of industry.
The core value of next generation innovation industry will lie in satisfying the explicit and tacit de-
mand from each person in different times and different life conditions. The industry must properly utilize
emerging technology, and the right technology and wireless creativity content to provide individuals
and the industry a simple start and fast use. Therefore, an appropriate fusion between the infrastructure
of industry innovation and the business process will promote frequency and effectiveness. Developing
each industry is necessary to have to be able to cover end-to-end process, and must be able to utilize
the same principle at heart by clearly understanding industry object and demand, and thinking complete
process and operation mechanism. The key successful factors of next generation innovation industries
are: credible content, effective communication, and congenial experience.
xviii

Under the tendency of globalisation, technologicalization, and virtualization, the commercial oppor-
tunity for industrial business model innovation is extremely lucrative. Four great traits of the innovation
industry are: professional, intimate, immediate and touching. If enterprises can provides these values at
right time and right place, the customers greatest needs, it is the successful key factor. Moreover, the
ability to suitably utilize the web technology will pour into the new vigour for the innovation industries.
Advanced countries gradually took the innovation industry as the core of their industrial structure, and
observed global population structure change as well as the life condition transformation, developing the
cross-regional innovation life support gradually to clarify situations of using the service. How well the
industry grasps the new turning point of the innovation and urges the service content to trend to fine,
high value-added and internationalisation development is actually the current, important topic. There-
fore, under the life condition and the environmental variation, the study discusses the business model
innovation, and might provide reference for innovative thought and developmental visions.
Google paved the way of a succession of Peer production, they carried on the business model in-
novation, and their performance and profits are striking. Google obviously positively utilized the ICT
tool to carry on the business model innovation of new generation web application, which has become
the only way of industrial innovation for raising competitiveness.
Web 2.0 is the newest global network development; global hardware has quite high strength in the
international market, but the question is how to unify the hardware superiority and coordination between
the global software talent. Meanwhile, integrating hardware industry, existing network industry, as well
as the newly created Web information service with resources integration, leveraging industry economy
synergy is the key point which the future will develop. In the future, any organizations could become
the best environment of empirical network innovation service in global area, developing so-called open-
ing spirit of Web 2.0, recruiting more international talents, and, with some creativity, unifying global
superiority of information hardware industry. All this will create positive, cooperative circulation among
cross-industry. Finally, it will become concurrently IT base of both the software and hardware of
the world.
There is a whole aspect of Web 2.0 that can drive genuine business value and significant competitive
advantage in online software that encourages social collaboration, two-way use of the Web, services
that are open and repurposable, Web-based applications, and more. But can we build and grow a real
business with these ideas? To these concerns, the book points out that this is only one end of a spec-
trum. To illustrate this argument, the book has collected real-world Web 2.0 business success stories
that demonstrate this point.
Although Web 2.0 is known as take the network as a platform, but OReilly actually thought this
concept should not limit to moves on the homepage, but is extends the homepage activity to all kinds
of installment, therefore, OReilly has also stressed, the Web 2.0 keys do not lie in it how newly, but lie
in whether it has developed the true potential of network platform.
The book is aimed to explore how for-profit and non-profit organizations create and implement a
platform of new business model; it is for making related industry join Business 2.0 platform to quickly
response to global trend and large opportunity for emerging new business model.
Moreover, it is able to promote more commercial opportunities for other industries such as airline,
traffic, transportation, hotel, restaurant and ICT industries etc. to form economic scale and even output to
the world via this business 2.0 platform.
In addition, it also can be used to facilitate commercial opportu-
nities for high-tech industries, SMEs, Non-profit Organizations (such as education and cultural industry).
In brief, the importance of each of the chapter submissions is described as follows:
xix

1. Enterprise 2.0 is an evolutionary step forward releasing employees from the constraints and limi-
tations of the legacy communication and productivity tools. If people feel like they can make a
difference, they will. The Enterprise 2.0 approach promotes open communications that encourage
respect and participation, even across geographic and cultural boundaries. Access to knowledge
empowers and motivates people to strive towards common goals together. Enterprise 2.0 addresses
knowledge silos by enabling a common space for knowledge capture and sharing. Enterprise 2.0
still suffers from a couple of myths coming from the 2.0 label. But, far from being a hype word
applying Web 2.0 concepts to professional organisations, it refers to a tangible reality.
2. Management 2.0 is a management paradigm, based on the employee occupying the focal spot.
Thus, the management 2.is a challenge, by definition, as management is defined serving organiza-
tions needs. 2.0 Managers have to balance between these two polar aspects of organization and
individual. The suggested framework includes specific techniques for handling the challenge, and
these were emphasized in the chapter. In addition, supporting technologies were suggested, eas-
ing the 2.0 manager as s/he handles the management 2.0 challenge. The new management 2.0
is employee-centric, yet retains responsibility of the manager for the employee, for the work and
for external relations. To summarize all in one sentence, one might say: Management 2.0 has to
do with transforming from a boss into a leader.
3. This chapter adopted the DEA to measure the operational efficiency of 57 international tourist
hotels in Taiwan. By comparing relative efficiency, the benchmarking hotels and an individual
hotels competitiveness can be identified. Further analysis of the critical success factors contrib-
uting to hotels having good performance help managers understand the factors determining the
good operational performance. In this chapter, the linkage between performance measurement and
critical success factors were illustrated by Taiwanese international tourist hotels. It was expected
that this thesis would provide useful information for future related research as well as identifying
hotel management needs.
4. Knowledge is high-value resource that is integrated to apply for making organizational decisions
and taking productive actions. It includes data, information, ideas, experience, insights and aware-
ness. It is the combination of information or what we know or the state of knowing in-depth. The
critical success factors for KM in a service organisation can be broadly classified as into four divi-
sions- People, Processes, Technology & Sustainable development. Various principles, techniques,
obstacles, strategies have been used for implementing KM. The case of KYC explains the effective
knowledge use for development. This chapter highlights the implementation of KM in education
providing KM strategies for organization change for effective implementation and achievement
of organizational objectives.
5. By exploring the role that SMEs play in the e-supply chain management through a case study, this
chapter contributes to a better understanding of the crucial issues in SMEs adoption and imple-
mentation of e-SCM system and processes, and to effective strategy development to deal with the
challenges. In spite of the contribution and significance stemming from this study, limitations need
to be acknowledged in terms of being a single case study and relying largely on the information
provided by the senior managers and the company. In view of the limitations, this study treated
the data as illustrative rather than definitive. The author wishes to see more rigourous empirical
studies on how to help SMEs, specifically and in practice, take on e-SCM to benefit their business
in the literature.
xx

6. This chapter indicated certain norms in business ethics and the values they reflect can help reduce
the agency problem, thus ethical values such as trust, loyalty, honesty, consistency, and openness
have all been emphasized. The idea of ethic climate is thus proposed when the above ethical values
are treated as a part of the organizational culture. The chapter tries to use the concept and means
of corporate governance under ethic climate to build a new business model.
7. This chapter combines Web 2.0 to English writing courses, and it may be a good method for the
future writing course, particularly for college writing course. Because most writing course is two
to four hours a week in Taiwan, the teacher can use the class blog to motivate students to write the
article. In addition, from learning other classmates writing, students can write better according to
read more articles. Students also can imitate other classmates writing to improve their own writing
skills. In developing cooperative partnerships with cultural enterprises, governments must bear a
heavy burden of responsibility for pressing forward systematization of their commercial operations.
In this regard, they must bring together and organize their various administrative agencies in an
effort to assure the effectiveness of cultural enterprise operations.
8. This chapter examines the case firm: Liuli Gongfang due to an integrated innovation model in the
cultural innovation industry, explore how it grew from a small workshop into one of the worlds
leading glassware makers. Development of Liuli Gongfang: through sheer perseverance and con-
stant willingness to learn, the Liuli Gongfang gradually found its feet. The company had played
a leading role in the development of modern Chinese glassware making, and had succeeded in
developing its own distinctive brand image.
9. This chapter indicates donors have always gathered in various communities, but today there are
more and more people thinking about co-funding, funder collaborative and other ways that they
can leverage their giving through interacting with other donors. In addition, as NPOs move from
fundraising (philanthropy 1.0) to friend raising (philanthropy 2.0), they are recognizing the power
of building a Web 2.0 community of supporters and donors are beginning to see the value of this
community as well. Nonprofits and charities have a strong opportunity to engage in meaningful
conversations (that may lead to contributions) with the social media savvy especially those who
are uncultivated. This indicates a growing market for distribution of information via social net-
works. Trust in social media is significant among social media savvy would-be donors. They trust
social networks and blogs to provide important information. Social media use is also very high
with users participating in social networks, participating in blogs, participating in message boards.
Social Networking: Its about relationships and trust.
10. This chapter has introduced a novel approach to modelling that is based on a view of computation
and programming that is significantly broader than conventional views. Empirical Modelling (EM)
is a new and radically different approach to complex systems design and business modelling. The
primary focus of EM is on the comprehension and on the use of computer-based interactive situation
models (ISMs) that represent the way in which the aspects of systems behaviour are constructed
in terms of agencies, observables and dependencies. On this EM view, computer-based models of
business processes can be built in a way similar to that in which human beings make conceptual
models of such processes. Author can then specialise and circumscribe our models to derive soft-
ware systems. In this way EM can offer both cognitive and operational support to BPR from the
very early, conceptual stages of modelling.
11. Several applications of this approach in the design of business models, viz., product planning,
product design, marketing-mix, portfolio-selection, capital budgeting, resource allocation, etc. are
xxi

possible when such systems are modeled in MCDM format. When probability theory can handle
imprecision due to randomness, fuzzy logic is an alternative to tackle problems with imprecision
due to fuzziness. Business models for profit and non-profit sectors due to their socio-economic
contexts can never be stated precisely and for that reason precise computational tools have limita-
tions in handling them. However, some of these can be nicely captured and sorted out when the
problems are viewed in a soft computing framework which can not only give a valid and reliable
result but also with a meaning in socio-economic perspective. This empowers FGP with the ability
for designing as well as solving complex business situations for meaningful decisions.
12. Electronic banking has a good soil to grow in both in Germany and Finland. Though differences
can be found in many aspects through a detailed scanning of statistics, both countries are well off
to prepare themselves for the electronic banking business. This analysis of the chapter on banking
history should confirm the idea that the banking industry had prepared itself for the Internet era over
decades. Innovations such as bank giro transfers and the SWIFT network paved the banks way to
the Internet world. However, much remains still to be done for example in the field of international
harmonization, for example before we can really talk about a Single European Payment Area.
13. Drawing on the findings, this chapter however advises that management of organisations should
formulate strategies to develop positive attitudes for portal use to accelerate its diffusion among
employee community. Such strategies should take into consideration of the possible effect of
employees age and educational characteristics. E-commerce researchers should further examine
ways to improve the attitudes of employees for portal use by addressing the requirements unique to
various employee groups who may vary based on their age and academic orientations. This study
even contributes to theory construction by developing an empirical foundation based on which
operationalisation and analysis of employee attitudes towards B2E portal can be further extended.
14. The correlation between music downloading methods and the Internet self-efficacy is somewhat
a different story. Three skills (factors) of the Internet self-efficacy were found statistically to be
correlated to three methods of music downloading, thus upholding the second hypothesis regard-
ing the Internet self-efficacy. The three skills were video functions, photo albums, and video
sharing. However, the three correlations, two positive and one negative, were all low, meaning
while the correlations were statistically significant, their relationships were all weak. Since the P2P
file sharing has a lot to do with the use of the instant messenger, the identification of the instant
messenger skill in this case is justifiable and understandable. The existence of the correlation be-
tween the video sharing and the method of using Web forums to download and/or share music files
does make sense. The skill of the file sharing is a necessary, though not a sufficient, skill to do the
video sharing on the Web. Therefore, a person who is equipped with the skill of the video sharing
online, he/she definitely will be able to carry out file sharing activities. Web privacy is the only
variable that was found to carry a negative correlation with methods of downloading music. The
negative sign between Web privacy and music downloading methods in theory may be interpreted
as follows: The more concern a Web user has toward the privacy, the less likely he/she will be
involved in the music downloading activities, whether they use the special downloading software
or the Web forums to do the downloading.
15. This chapter presents a signal which is loud and clear. That signal is that the Internet self-efficacy
instrument needs periodically update because self-efficacy is after all a context, and/or domain-
specific, and because the Internet usage applications evolve so rapidly, so drastically, and so
fundamentally. As such, it may be a good idea to revise the instrument once every few years. In
xxii

addition, mobile technology including 3G and 3.5G is gaining a lot attention lately. It may explain
why on the development of a mobile computer self-efficacy scale is not a surprise at all and may
be a new trend for future research as well.

In summary, the book may be the first book for introducing the whole aspects of business model
2.0 and for implementing new business models in for-profit organizations (Especially is in high-tech
industries, SMEs, service industries and
ICT industries), n
on-profit organizations (Especially is in edu-
cation and cultural innovation industry), it will contribute scholarly value and potential contribution for
practitioners. In addition, the book will focus on the implement of Web 2.0 and new business models
in information science, technology and management fields. Definitely, it will make some contributions
in these literatures.
The target audiences for this book are such as PhD and master students, scholars, managers, research-
ers, et cetera. The availability of such literature will aid this target audience to combine the theories
and practices of business model 2.0. The potential uses for this book is that this book will be utilized
by library reference, upper-level course supplement (such as Ph.D. and master courses), resource for
instructors (academics and enterprises), research units, etc.
The potential benefits readers will gain from this book and benefits to enhance available literature
are the book proposes to integrate the resources of innovative technology applications and innovative
service to accelerate the growth of highly value-added Web-based industry. The platform will continu-
ously play a critical role to drive global businesses to actively involve in business model innovation:
technologies and applications with demonstrative, commonality, or integrative features with technologi-
cal endowments. Such diversified development of novel operation model should stimulate new business
opportunity for the industry. Successfully help companies from a variety of industries to develop new
operating models and establish benchmarking for other companies to follow. Promote companies to
invest self-raised funding and staffs in not only advanced technologies and applications but also manage-
ment innovation. In addition, successfully plot the roadmap of global novel organizations in for-profit
and non-profit. Other major contributions of the book include: collaboration innovation of Web 2.0 and
innovation service models.
In summary, the book will explore business model, business model on the web, Web 2.0 business
models, the technologies and applications of Web 2.0 and how these various business models can create
real business value with Web 2.0 through building a platform of Business 2.0 to accelerate the growth
of highly value-added industries whether they are for-profit or non-profit organizations.

Te Fu Chen
Lunghwa University of Science and Technology, Taiwan
xxiii

Acknowledgment

First of all, many thanks for the submissions from global scholars including EU, UK, USA, Australia,
NZ, West Asia, Middle East, India, China, HK, Singapore and Taiwan et cetera. Many of them are in-
terdisciplinary experts and some of them are chief editors of international journals. I wish to establish a
sustainable interpersonal network of academics via publishing this book, and as my motto is Impossible
= I am possible, finally, I made it come true! A cooperative book by global academics and practitioners
was born.
Secondly, during the past one year, I deeply appreciated everyone who worked with me as a reviewer
and contributed chapters to the success of this book. Though some scholars couldnt finish their chapters
owing to personal factors, I still thank everyone for everything you have dedicated to this book.
Finally, I felt an immense gratitude to my family; if I havent their care, attention, toleration and
understanding, this book wouldnt be born.

Te Fu Chen
Lunghwa University of Science and Technology, Taiwan
June 2010
Section 1
Implementing New Business
Models in For-Profit
Organizations
1

Chapter 1
Emerging Business Models:
Value Drivers in E-Business 2.0
and towards Enterprise 2.0

Te Fu Chen
Lunghwa University of Science and Technology, Taiwan

ABSTRACT
Many writers and researchers do not make a clear distinction between the technological enabler aspect
and the social aspect. Introducing and developing a concept of e-Business 2.0 and having it implemented
in the outmost circle of the figure help provide a better overview and framework for this research. The
objective of this research is to further develop Entrepreneurship and strategic management theory on
value creation in e-Business, by providing first insights in value drivers in e-business companies that use
Web 2.0. To reach this goal this research tries to give first answers to the central research question: are
value drivers associated with Web 2.0 different from known value drivers in e-business? This research
clearly defines the enabler aspect of Web 2.0 technologies that influence companies in e-Business, and
allows a development of the concept e-Business 2.0. Since the Internet bubble, Web 2.0 with its core
applications and enabling technologies has become popular and successful influencing e-Business.
Successful start-ups created a new area in e-Business where Web 2.0 was a key factor in creating value.
The focus in this research is on these companies that embrace Web 2.0 enabling technologies and core
applications that cause a behavioural shift.

This chapter, therefore, develops in scientific literature, the concept of e-Business 2.0 where e-Business
companies are actively using Web 2.0 to create and appropriate value from, for, and with stakeholders.
This research also makes a distinction between an internal and external focus. This research looks at

DOI: 10.4018/978-1-60960-129-4.ch001

Copyright 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Emerging Business Models

e-Business 2.0 and has an external focus. E-Business 2.0 pure players depend on Web 2.0 to create and
appropriate value with a focus to external customers, instead of internal organisations. There is a new
wave of business communication tools including blogs, wikis and group messaging. There are new digital
platforms for generating, sharing and refining information that are already popular on the Internet.
These platforms are collectively labeled Web 2.0 technologies. The term Enterprise 2.0 focuses only
on those platforms in which companies can buy or build in order to make the practices and outputs
of their knowledgeable workers visible. Enterprise 2.0 looks at Web 2.0 technologies and practices
within organisations and businesses and is therefore, referred to as internal focus. Enterprise 2.0 is the
term used to describe how a Web 2.0 approach can be used to work more collaboratively together in
business. Enterprise 2.0 is the use of emergent social software platforms within companies or between
companies and their partner or customers. However Enterprise 2.0 is much more than just Web 2.0
for business. Moreover, the study proposed a case study of Enterprise 2.0 to demonstrate by a detailed
KPI analysis, how collaboration platforms (and related HR management) can drastically improve the
global performance of an international group. Furthermore, the study was to further propose another
case study of e-gov 2.0. Enterprise 2.0 is an evolutionary step forward releasing employees from the
constraints and limitations of the legacy communication and productivity tools. The study concludes the
challenges of the Enterprise 2.0: ten facts and Six Enterprise 2.0 - Myths. Enterprise 2.0, being more a
philosophy than a technology, can truly create huge added value for organizations in any sector and it
is often remarkable to see in what way the Enterprise 2.0 methods are used to solve specific problems.

INTRODUCTION when making major strategic moves, allocating


scarce resources, and managing risk. Why? Be-
Market volatility makes understandinglet alone cause the large old economy companies from
predicting strategic movementsvery difficult. consumer products to industrial manufacturing
Practicing managers, consultants, investors, and have begun to see relatively small pieces of their
students all face the problems associated with markets taken away by new, Web-enabled firms.
analyzing a dynamic market environment. As the As a result, theyre waking up to the e-business
environment changes, it becomes important to ask threat (and opportunity) and have started to push
the following fundamental questions: toward more efficient digital strategies based on
optimizing customer experiences, integrating their
1. Do we understand the emerging business value chains, and accelerating information flow.
models? Clearly, were in the early stages of a revolution
2. Are we investing in the right business thats changing the business landscape. As with
opportunities? any revolution, there will be moments of extreme
3. Are we attacking these opportunities using optimism when the potential reveals itself; there
the right business model? will also be moments of extreme pessimism when
4. Are these opportunities ever going to be skepticism rules. However, one thing is certain.
profitable? E-business is creating new opportunities for com-
panies willing to adapt. For other companies, this
In todays environment more than ever, manag- same revolution represents a destabilizing threat
ers of old economy companies need the right to the status quo of business as usual.
tools to support and improve their effectiveness

2
Emerging Business Models

Therefore, the general research question is was a feeling that innovation online had failed to
Are the value drivers associated with e-Business emerge from the doldrums of the dot-com boom
2.0 different from the known value drivers in e- and bust cycle and had hit something of a dead
Business?, the research sub-questions are: end, but now innovation is arguably at its most
frenetic level ever (Sturgeon, 2006). The bursting
1. How is value created and how is value cap- of the dot-com bubble in the Fall of 2001 marked
tured as a competitive advantage? a turning point for the web. Many people con-
2. What are the value drivers in e-Business? cluded that the web was over hyped, when in fact
3. What are differences between e-Business bubbles and consequent shakeouts appear to be a
and e-Business 2.0? common feature of all technological revolutions
(Perez, 2002). Shakeouts typically mark the point
According to abovementioned, the objective of at which an ascendant technology is ready to take
this research is to further develop Entrepreneur- its place at Center stage. The pretenders are given
ship and Strategic Management Theory on Value the bums rush, the real success stories show their
Creation in e-Business, by providing first insights strength, and there begins to be an understanding
in Value Drivers in e-Business 2.0. of what separates one from the other (OReilly,
2005). Looking back at the beginning of Web 2.0,
a core of theories and aspects, are mentioned by
LITERATURE REVIEW OReilly, which he calls the seven principles of
Web 2.0 (OReilly, 2005).
New Web Mainstream Web 2.0
Does Traffic Equal Money?
What is Web 2.0?
Before start their E-business, many people just
The concept of Web 2.0, it is just the summary of think about one thing: get traffic first. No mat-
all common characters of the websites still survive ter which methods this website plan to adopt in
in these few years. In other word, nowadays, the the future to gain profit, if there is great traffic
concept of E-business should also evolve from there will be the great chances. This thinking is
one-side Web1.0 to two-side Web 2.0. Website not wrong, however, you can do much more and
administration is evolving while the web users plan more precisely before simply consider about
are evolving as well. Web is like a real body, and this. When we make the website, firstly we have
all the technologies and other web elements are to set the scheme of all the services your website
flesh and blood. This newborn baby with infinite will provide. For example, if the scheme of the
potential and infinite amazed now start to open website services is to provide shopping infor-
his eye to see this world (Yin, 2009). mation and fashion news, then we can assume
The definitions of relatively new concepts of that the one visits this website suppose to be the
Web 2.0 will be given in this Research: In the consumer has great potential purchasing power.
simplest terms Web 2.0 is the phrase being applied At the same time, if we highly categorize all the
to the second coming of the Internet. The 2.0 shopping information into different sections in
name is a clear allusion to the naming convention order to bring convenient to the web users, then
of software updates; this is the Internet version at the same time, web master will clearly define
2.0 (Sturgeon, 2006). Two or three years ago there the shopping intention of the web users. If a web

3
Emerging Business Models

user were checking the information of facemask, Web as a Platform


the web master would not only knew that he want
to buy something, but also clearly knew what he Software as a Service (SaaS)
wants to buy is facemask. When you can clearly
define your business target and service mode, Web 2.0 services are a combination of software
your design concept of the whole website will be and data. Individual, the software and the databases
different. You wont strive to boost traffic just for are of limited value, but together they create a
having great traffic. Meaningless traffic will just new type of service. In this context, the value of
waste your management resources, the same as software lies in being able to manage the (vast
meaningless members. The time when you start amounts of) data. The better it can do, the more
to charge users money is the time your business is valuable the software becomes.
on the decline. Successful website never actively
asks web users to be their paid members. Although Harnessing the Long Tail
they provide different level services, only when
the users need these specific services then they The Long Tail refers to the vast number of small
can choose to be members. All the information of sites that make up the Web as apposed to the few
the website is public, even you are not a member, important sites (Jaokar, 2006).
but you still can read all the articles (Yin, 2009).
Many website starts to lock the articles or some Harnessing Collective Intelligence
basic functions when they develop into certain
stage. In order to find a way to earn money, they This principle deals with the metadata/content
ask users to pay for some basic services. In my created by users that collectively adds value to
opinion, this is not the way to run the website for the. To understand Collective Intelligence one
long-term development. Website running cost sup- should understand three aspects:
poses to be covered by advertisers or the sponsors.
Just as we mentioned before, if we can define the A. Peer Production: Is defined as a new model
need of the web users so clearly, definitely we can of economic production, different from both
find the related supporters or sponsors. Therefore, markets and firms, in which the creative
we can see how important it is to have a clear energy of large numbers of people is coor-
plan to design the whole website. If you dont dinated (usually with the aid of the Internet)
plan well in the first place, later on you will lose into large, meaningful projects, largely
the direction. Because there are no sponsors, so without traditional hierarchical organiza-
the website has to sacrifice the benefit of the web tional or financial compensation (Benkler,
users. When the websites start to do in this way, 2002). An Example are reviews on Amazon:
this is the time they start to be on the declines. Collectively, these small contributions lay
Web 2.0 & social networking technologies are the foundation for the Intelligence of Web
increasing enterprise profitability and changing 2.0 also called the wisdom of crowds
the face of modern business more rapidly than B. The Wisdom of crowds: Large groups of
ever. At E-Business 2.0, the study specializes in people are smarter than an elite few, now
keeping business competitive with the latest tools matter how brilliant the elite few may be.
& services to ensure that business remain relevant The wisdom of crowds is better at solving
in todays uncertain marketplace. The study fo- problems, fostering innovation, coming to
cuses on fundamental enabling technologies for wise decisions, and even predicting the future
e- business & web business (Yin, 2009). (Surowiecki, 2005).

4
Emerging Business Models

C. Network effects from user contributions: lightweight programming models are oriented
The ability for users to add value (knowl- towards syndicating data, they are contrary to
edge) easily and then the ability for their the traditional mindset of controlling access data.
contributions to flow seamlessly across the They are also designed for reuse. As a result of this
whole community, thereby enriching the architecture, innovation is given a boost because a
whole body of knowledge. new service can be created using existing services
through mashups. This is one other important
Data is the Next Intel Inside aspect of Web 2.0, called Innovation in assembly:
When commodity components are abundant, you
Data is the key differentiator between a Web 2.0 can create value simply by assembling them in
service and non-Web 2.0 services. A Web 2.0 novel or effective ways. Web 2.0 will provide op-
service always combines function (software) and portunities for companies to beat the competition
data (which is managed by the software). Database by getting better at harnessing and integrating
management is a core competency of Web 2.0 services provided by others.
companies. While data is valuable, the company
needs not necessarily own the data. Although in Software above the Level
most cases, the company serving the data also of a Single Device
owns the data (e.g., Google Maps, Google does
not own the data, which are maps and information. One other feature of Web 2.0 is the fact that it is
Web 2.0 website are often a combination of data no longer limited to the PC platform. This prin-
from two or more sources into one experience, this ciple is not new but rather a fuller realization of
is called a mashup. According to OReilly (2005) the true potential of the web platform, this phrase
the race is on to own certain classes of core data. gives key insight into how to design applications
and services for the new platform. iTunes is the
End of Software Release Cycle best exemplar of this principle. This application
seamlessly reaches from the handheld device to
A. Operations must become a core competency a massive web back-end (platform), with the PC
acting as a control station. There have been many
The shift from software as artifact to software previous attempts to bring web content to portable
as service causes that the software will cease to devices, but the iPod/iTunes combination is one
perform unless it is maintained on a daily basis. of the first such applications designed from the
ground up to span multiple devices. OReilly
B. Users must be treated as co-developers (2005) expects to see some of the greatest change
in this area of Web 2.0, as more and more devices
The open source dictum, release early and are connected to the new platform. Real time traf-
release often has morphed into an even more fic monitoring, flash mobs, and citizen journalism
radical position, the perpetual beta, in which are only a few of the early warning signs of the
the product is developed in the open, with new capabilities of the new platform.
features slipstreamed in on a regular basis.
Rich User Experience
Lightweight Programming Models
The competitive opportunity for new entrants is
Simpler technologies like RSS and Ajax are the to fully embrace the potential of Web 2.0. Com-
driving force behind Web 2.0 services. Because panies that succeed will create applications that

5
Emerging Business Models

learn from their users, using an architecture of MacManus (2005) explains Web 2.0 as Platform.
participation to build a commanding advantage For corporate people, the Web is a platform for
not just in the software interface, but also in the business. For marketers, the Web is a platform
richness of the shared data. In exploring the seven for communications. For journalists, the Web is
principles, OReilly (2005) highlighted some of a platform for new media. For geeks, the Web is
the principal features of Web 2.0: Services, not a platform for software development.
packaged software, with cost-effective scalability; According to Hinchcliffe (Hinchcliffe, 2006a)
Control over unique, hard-to-recreate data sources the Web itself has become a vast landscape of
that get richer as more people use them; Trusting information services that can be wired together to
users as co-developers; Harnessing collective reuse and take advantage of aggregated data and
intelligence; Leveraging the long tail through functionality. The hallmarks of these online ap-
customer self-service; Software above the level plications are their pervasive availability, interac-
of a single device; Lightweight user interfaces, tivity, social immersion, user-driven organization,
development models, and business models. In community contribution, and particularly their
October 2005 one definition of Web 2.0 is given reusable, remixable services. Web 2.0 also refers
(OReilly, 2005): It is the network as platform, to the creation of far greater levels of interactiv-
spanning all connected devices; Web 2.0 applica- ity, not just between users, or between users and
tions are those that make the most of the intrinsic the Internet but between complementary online
advantages of that platform: delivering software services through mash-ups and web services
as a continually-updated service that gets better (Sturgeon, 2006). Web 2.0 is either a collabora-
the more people use it, consuming and remixing tive web where the content is created by the users
data from multiple sources, including individual (this aspect is often called the social layer of Web
users, while providing their own data and services 2.0), or a web where the network is the platform
in a form that allows remixing by others, creating or web that uses funky technologies such as Ajax
network effects through an architecture of par- or ruby on Rails (this one is called the technical
ticipation, and going beyond the page metaphor layer of Web 2.0) (van der Vlist & Vernet et al,
of Web 1.0 to deliver rich user experiences. 2007). The focus in this study is on the social
Joakar and Fish (2006) state a unified view layer of Web 2.0 and the technical layer can be
of Web 2.0 based on the seven principles of Web seen as an enabler for the social side of Web 2.0.
2.0 by OReilly (2005) by which the second Before the burst of new ideas that we call
principle (harnessing collective intelligence) Web 2.0, the web seemed to have reached a stage
encompasses the other six. Web 1.0 was hijacked where its growth would slowly start declining.
by the marketers, advertisers and the people who The production of web content seemed deemed
wanted to push content into the market. The dot to be increasingly controlled by traditional media
com bubble was the end of many who took this producers, and the alliance between AOL and Time
approach of the broadcast content. What is left is Warner was showing that the web industry had
the Web as it was originally meant to be a global started its consolidation phase. Socially, the Web
means of communication. The intelligence attrib- had become a read-only medium where most of
uted to the Web (Web 2.0) arises from us (i.e. the the content was published and broadcast pretty
collective/people) as we begin to communicate. much like in conventional media. This hadnt
This approach focuses on the Intelligent Web always been the case: the Web was originally
or Harnessing Collective Intelligence and deals designed as a medium where scientist could eas-
with the principle of wisdom of crowds (Sur- ily share their documents. This was still the case
owiecki, 2005). A more simple definition from in the early 1990s, when the Web was largely

6
Emerging Business Models

composed of home pages and link pages edited to publish tips such as the What do customers
and published by web users from the benefit of ultimately buy after viewing items like this? that
other web users. This was possible because the is currently displayed if you browse the description
technology was simple, and because the target of this book on amazon.com. This is perhaps the
audience was able and willing to edit web pages most convincing example if a low entry barriers
without much tool support. During the next it- to contributing to a sites content! (van der Vlist
erations of web technologies more difficult tools & Vernet, et al., 2007)
where used and the audience expanded beyond Dion Hinchcliffe rather talks about social
the small circle of people willing to learn these media: Social media describes the online tools
technologies to publish their own content. As a and platforms that people use to share opinions,
result, the web became for most of its users a read insights, experiences, and perspectives with
only web, rather than the cooperative venture it each other. Social media can take many different
had been originally. forms, including text, images, audio, and video.
The social layer of Web 2.0 is about making Popular social mediums include blogs, message
the Web a read/write web again. For some, this boards, podcasts, wikis, and vlogs (Hinchcliffe,
goal is motivated by philanthropic or political 2007). Some ground rules of social media are
reasons: everyone should be able to express his or (Hinchcliffe, 2007): Communication in the form
her ideas. For others, the motivation is financial: if of conversation, not monologue. This implies that
the growth of the number of web readers is deemed social media must facilitate two-way discussion,
to slow down, the growth of the web can only be discourse, and debate with little or no moderation
fuelled by the growth of the number of people that or censorship. In other words, the increasingly
create content on the web. The technical layer is a ubiquitous comments section of your local blog
consequence of the social layer: the ability to write or media-sharing site is NOT optional and must
on the web that has been limited by the growing be open to everyone. Participants in social media
complexity of the web technology can only be are people, not organizations. Third-person voice
given back to web users by using more technology. is discouraged and the source of ideas and par-
In other words, the flurry of Ajax, JavaScript, and ticipation is clearly identified and associated with
XML technologies that characterize most of Web the individuals that contributed them. Anonymity
2.0 applications are needed to lower the barrier to is also discouraged but permissible in some very
entry in the circle of web publisher that web 2.0 limited situations. Honesty and transparency
applications try to enlarge. It is important to note are core values. Spin and attempting to control,
that content here is meant to be content at large. manipulate, or even Spam the conversation are
Many web 2.0 sites do not rely on their users for thoroughly discouraged. Social media is an often
creating all their content but only to enrich their painfully candid forum and traditional organiza-
content. A significant example is amazon.com. Of tions -- which arent part of the conversation other
course, the main content on the amazon.com web than through their people -- will often have a hard
sites comes from the companys own database, time adjusting to this.
however, what makes the difference between the Its all about pull, not push. Like McKinsey
amazon.com site and other similar sites is how & Company noted a year ago or so, push-based
it integrates content from amazon.com partners systems, of which one-way marketing and adver-
and users. Users are not only welcome to publish tising and command-and-control management are
reviews, they contribute to the site each time they typical examples are no where near as efficient
buy a new item and even by browsing the site: as pull systems where people bring to them the
the simple actions are analyzed and they are used content and relationships that they want, instead

7
Emerging Business Models

of having them forced on themselves. Far from therefore introduces the concept e-Business 2.0,
being a management theory, much of what we by which the study means: e-Business companies
see in Web 2.0 shows the power of pull-based that use Web 2.0 to create and appropriate value
systems with extremely large audiences. As you from, for and with stakeholders. This research will
shape a social media community, understanding look at pure e-Business 2.0 companies with an
how to make embrace pull instead of push is one external approach. The focus is on the customer,
of the core techniques. In social media, people are instead of an internal organisation (Enterprise 2.0)
in control of their conversations, not the pushers. and the company is fully dependent on the web
Distribution instead of centralization. One 2.0 technologies. Reason for this is that business-
often overlooked aspect of social media is the fact to-consumer developments occur often earlier
that the interlocutors are so many and varied. Gone than business-to-business developments. What is
are the biases that inevitably creep into informa- important to notice is that besides e-Business 2.0
tion when only a few organizations control the pure players, also companies that acquire parts
creation and distribution of information. Social of e-Business 2.0 and regular e-Business (e.g.
media is highly distributed and made up of tens e-Commerce) companies are active? Companies
of millions of voices making it far more textured, can learn from these often-smaller e-Business 2.0
rich, and heterogeneous than old media could ever companies (start-ups) and use it to adopt to market
be (or want to be). Encouraging conversations on changes and/or to enterprise 2.0 (de la Mar, 2007).
the vast edges of our networks, rather than in the
middle, is what this point is all about. E-Business 2.0 Emerging
Business Models
Value Drivers in Web 2.0
E-commerce experts Ravi Kalakota and Marcia
Vincent de la Mar (2007) indicated with Web Robinson highlight several emerging e-business
2.0 new features of the Internet transactions and models, including Net markets, collaborative
participations are taking place. More and different click-and-brick, and mobile portals. Asking your-
stakeholders add value in e-business. This raises self which of these emerging business patterns your
questions which (new) value drivers we can find company is attempting to compete with. Answer-
in Web 2.0 and which ones are more important. By ing this question will help you get started assessing
looking at these factors we are indirectly looking technology enablers and what opportunities they
at the business models that are important in the may present. E-business is tricky business. In
New Internet. Providing more insight in value these turbulent times, how should management
drivers and business models in Web 2.0 enables respond? They should begin by asking the right
companies and entrepreneurs to adopt and prepare questions. By focusing on the right transition,
to take advantage of opportunities in this next companies can proactively alter the nature of
stage of the Internet. competition. What are the transitions that are tak-
ing place? Traditional market channels are giving
E-Business 2.0 way to new channels, production-centric processes
are yielding to customer-centric processes, old
The focus in this research is on the companies that business models are morphing to new models,
embrace the web 2.0 enabling technologies and information is replacing inventory, and physical
core applications that cause a behaviour shift (the goods are being replaced by digital products.
outmost circle of Forresters figure). This research Before you jump into the deep end of e-business

8
Emerging Business Models

change and begin shifting your operation toward to achieve greater productivity. An increasing
the future, its important to stop and consider the number of BAM companies, such as Williams
emerging structural patterns that characterize the Sonoma, Circuit City, and Wal-Mart, are attempt-
new economy, including e-channels, click-and- ing to transform their operations to support a
brick patterns, e-portals, e-market makers, and digital business model. At the same time, several
pure e and mobile portals. E-channels, or exten- Internet-based companies are looking to build a
sion models of large companies, have evolved real-world physical channel in addition to their
considerably. The first step was developing a virtual channel. The hottest trends in e-tail going
stand-alone channel, or spin-off.com, independent forward probably wont be pure-play companies
of the parent company (for example, Proctor and selling strictly through the Net. The next trend is
Gamble spin-off venture Reflect.com); the second toward the click-and-brick pattern, a hybrid online/
step was a stand-alone channel with some connec- offline business model incorporating both physical
tion to the mother ship (for example, Wal-Mart. and online business practices. The C&B model
com). The new phase, channel synchronization, allows an existing offline business to profit from
is a tightly integrated click-and-brick strategy, partnering with an emerging online presence. A
like CVS.com, that serves customers seamlessly great example of C&B is discount stockbroker
no matter what the entry point is (Kalakota & Charles Schwab. Schwabs success has proven
Robinson, 2001). that storefronts can drive traffic to their Web sites.
At the same time, e-portals, or business-to- The firm continues to open new storefront offices
consumer models, have evolved in three phases every year, because thats where customers feel
in the last few years. The first was developing most comfortable signing up for their accounts. But
appropriate traffic (for example, Yahoo!); the once the relationship is established, the majority
second was fighting for transactions (for example, of the customers use Schwabs Web site to moni-
Amazon.com). Now in the third phase, companies tor and manage their accounts, where Schwabs
are beginning to battle for margins with click-and- customer-service costs are lower. This lesson has
brick partnerships such as Amazon.com and Toys not been lost on other retailers, who are finally
R Us. Expect to see more partnerships like this. Its starting to see benefits of combining e-commerce
interesting that both the e-channels and e-portals with old-fashioned department store service. An
are converging on what appears to be the same established retailers name has tangible advantages
business model: collaborative click-and-brick. in cyberspace in a world where consumers are
The following sections discuss three e-business swamped with too many choices.
patterns that are fairly newnet markets, collab-
orative click-and-brick, and Pure Eto help you Business-to-Business
better understand the next set of e-wars (Kalakota (B2B) Net Markets
& Robinson, 2001).
Business-to-business (B2B) business models are
Collaborative Click-and-Brick (C&B) fairly young. But theyre also evolving rather furi-
ously. This section addresses some of the changes
Heres a formula for the electronic age: (brick- that are taking place in the area of net markets.
and-mortar) + (click-and-order) = click-and-brick However, a basic classification of the various
(C&B). So-called brick-and-mortar (BAM) types has already emerged. Broadly speaking,
companies are looking increasingly like new business-to-business applications can be further
economy companies as they harness technology divided into the following categories:

9
Emerging Business Models

A. Corporate Procurement Portals tors generally dont carry inventory, nor do they
directly supply products, but instead assist buyers
Corporations with substantial buying power in arranging for third-party carriers to transport
are racing to create private portals for the pro- the order goods. The jury is out on this model.
curement of both production-related goods and
nonproduction-related goods. Production goods C. Industry Consortiums: Joint Venture Industry
include raw materials, components, assemblies, Procurement Hubs
and other items needed to produce a finished good.
Non-production goods are items that businesses In response to startups, large companies are
need to run day-to-day business operations: capital using their clout to create industry consortiums,
equipment; MRO (maintenance, repair, and opera- of two types: buyer consortiums and supplier
tions) products; office, computer, scientific, and consortiums. In a buyer consortium, a group of
industrial supplies; and travel and entertainment. large companies aggregate their buying power,
However, for many companies, development of a the premise being that more buying power drives
truly effective integrated procurement strategy is down price. Traditional industry players have a big
still a long way off. For all but a relative few, there advantage over Net-born startups when it comes
is no clear vision of what needs to be achieved to starting exchanges for high-volume commodity
through reengineering and integrating the pro- goods: instant commercial activity and liquidity.
curement process, nor is there a good roadmap of An example is MetalSpectrum, which plans to
how to get thereor even an idea of what there be the online neutral marketplace for aluminum,
should look like. stainless steel, and other specialty metals.
In response to exchanges and buyer con-
B. Net Markets: Virtual Distributors, Auction sortiums, supplier consortiums have begun to
Hubs emerge. Similar to their buyer-centric cousins,
these consortiums are forming in industries where
The first generation of Net markets (for ex- a few firms comprise a high concentration of
ample, VerticalNet) provided community features market power. The big difference is that supplier
alone. However, in the second-generation, trans- consortiums must give sponsors the opportunity
action revenue derived from buying and selling to promote and differentiate their products. They
products is becoming crucial. An example of this must provide the most compelling environment
genre of trading exchanges is virtual distributors. for buyers by aggregating the key industry suppli-
Virtual distributors offer one-stop shopping for a ers, and offering a compelling amount of product
fragmented buyer and seller community by ag- depth, breadth, and selection and service. The
gregating disparate product information, primarily future of industry consortiums is not clear. There
associated with multiple catalogs, from multiple are many issues to overcome around the areas
suppliers (that is, manufacturers) into one mega- of governance, technology, and antitrust. On the
catalog. Virtual distributors help streamline the governance front, traditional competitors must
systematic sourcing of direct goods and lower form an independent company that promotes the
transaction costs by issuing a single purchase order interests of all the participants. The second big
and parsing the order to each relevant supplier that hurdle follows closely behind the first: technology
ships the product direct. Many are starting to add selection. Again, with a cast of strong, powerful
richer services, such as meshing with software that players, each with its own technology standards
handles a companys back-end operationfrom and systems, it will be difficult for the new entity
order-taking to tracking inventory. Virtual distribu- to satisfy the requirements of all the members. The

10
Emerging Business Models

third hurdle is antitrust. In short, technology is no sold online, delivered online, and consumed on-
replacement for management or governance. And line. Some first-generation examples are digital
these issues have to be worked out. music, software, books, and photos. How digital
goods will be delivered is already changing. In
D. Collaboration Hubs the future, delivery will come, in many cases, as
a service across the Internet (for example, via
Types of collaboration efforts can include streaming media) instead of as a packaged prod-
product planning and design, demand forecasting, uct. Even the means for creating digital content
replenishment planning, and pricing and promo- is changing. Contributing to the growth of digital
tional strategies. Importantly, these platforms products are the proliferation of Internet-access
record historical trading data that can be analyzed devices (such as set-top boxes, WebTV, and video
in an effort to further improve future planning and game consoles), cheap and abundant availability
forecasting, in turn enabling further compression of bandwidth, sub-$500 PCs, growing free PC
of design and development cycles. These emerging programs, and industry standardization of appli-
exchanges go far beyond the transaction phase to cation programming interfaces (APIs).
help companies manage the supply chain end-
to-end. Collaboration hubs seek to create one Mobile Portals: New Platforms
common Web platform that enables participants for Digital Media Delivery
throughout an entire industry supply chain (for
example, raw-material providers, manufactur- Seemingly overnight, the wireless revolution
ers, importers/exporters, distributors, dealers) exploded, intensifying the movement toward
to share information, execute transactions, and mobile commerce. New programming languages,
collaborate on strategic and operational planning. platforms, and protocols are embraced almost with
Not only should this common platform facilitate abandon, or at least little consideration, while new
new trading partnerships, but it should enable partnerships and wireless portals are announced
channel participants to better match production daily. The market for the delivery of Internet
with demand (thereby reducing excess invento- services through handheld devices is new and
ries in the channel) and help speed cycle times. evolving rapidly. The business strategy behind
Value-added services are the premium services the handheld computing marketing is straightfor-
that collaborative hubs provide to continuously ward. If you take control of the operating system
drive market liquidity. By providing these services, infrastructure, you also control the software ap-
collaborative hubs can increase site stickiness, plications developed to run on it. As handheld
generate multiple revenue streams, and increase devices are adopted in greater numbers and
competitive barriers to entry. Providing these ser- handheld device applications become integrated
vices is an essential component of a collaborative into other information appliances, an opportunity
hub strategy if the collaboration expects to develop exists for these operating-system developers to
a sustainable advantage and be the market leader. extend their platforms for use on other handheld
devices. The wireless revolution isnt only about
Pure E: Digital Products handheld devices, though. Its also about the new
and Mobile Portals generation of software infrastructure, which will
soon enable the convergence of the Internet and
Clearly, we are entering the Pure E decadean mobile telephony. The next-generation mobile
era of digital products. A digital product is one for delivery systems include voice browsers and te-
which the product is made online, stored online, lephony-based speech-recognition systems. Now

11
Emerging Business Models

telephony-based speech recognition is extending and tools for your specific business. If your a CEO,
to the Web. The business models in this area are President or some other upper management, and
in their infancy (Charron, et al., 2009) are serious about exploring how e-Business can be
for your business, then e-Business 2.0: Roadmap
This is Real e-Business for Success is a must read (Ray, 2000).

Kalakota and Robinson have put together a literal Value Drivers in e-Business 2.0
blue print for e-Business success. Not, its not 1.0,
but 2.0! As more and more real or brick n Vincent (2007) researched nine e-Business 2.0
mortar businesses put their businesses online, examples--nine Dutch (e-Business 2.0) cases, that
there needs to be a clear delineation of what is were selected from companies listed in the Dutch
hype and fiction. Whats a fly by night Internet Web 2.0 Awards that was held in January 2006;
start up and what truly is a distinct e-Business? over 50.000 people could nominate and select
E-Business 2.0 leads the way. This is for companies Web 2.0 initiatives. Very interesting companies
that want to completely embrace all the Internet to have a look at:
has to offer and ensure that their business lever-
ages the opportunities it can provide. To compete Wakoopa
effectively in the e-commerce world, a company
must structurally transform its internal foundation. Wakoopa is a social network site for software.
This structural change requires a company to de- People can track what kind of software they use
velop an innovative e-business strategy, focusing and share it with others and find (better) applica-
on speed to market and breakthrough exercises tions. With Wakoopa users acquire information on
What sets the truly great organizations apart is what software they use and can share software and
their ability to use state-of-the-art e-commerce opinions. The real value that is created using this
processes to transform themselves (Ray, 2000). site is the sharing experience users get when they
They do the following three things well. share software and (new) applications. Wakoopa
has made a platform and tracker to use for this
1. They redefine value for their customers site. The technique is only one part of Wakoopas
2. They build powerful e-business designs that function. The other part is the community platform
outperform the competition and the incentives to people to contribute on the
3. They understand customer priorities and platform. Wakoopa is not only a creator of the
consistently raise customer expectations to technology and facilitator of the platform, but
new heights. also a motivator and stimulator in a way it wants
people to help collaborate by sharing experiences
E-Business 2.0 is a business manual for stra- and knowledge.
tegically using the tool of the Internet to radically
transform how you do business. In Constructing Swoot
the e-Business Architecture: Enterprise Apps,
Chapter 5 of e-Business 2.0: Roadmap for Success, Swoot is an innovative leader in skinning and
the authors talk about applications and integra- transforming web enabled applications for the
tion - the technology bedrock of e-Business. By desktop. Users can build their own browser
using case studies and examples, e-Business 2.0: and can participate in building a new website.
Roadmap for Success will give you a birds eye There is a Swoot portal where all the developed
view of how to acquire e-Business applications browsers on many topics can be found, which

12
Emerging Business Models

can be accessed when people install a one time neighbours to participate and in creating a stronger
plug-in. Swoot offers a technology platform for, collaboration, Buurtlink.nl gives incentives to
what they call, ultimate freedom in design and Buurtlinkers by yearly activities and free gadgets.
marketing in a fun online experience. The idea is Besides Buurtlinkers, there are users that live
that everybody can create and control their own in the neighbourhood who can also participate
Internet browser, instead of using standard ones, and generate content on the platform. Everyone
like Firefox and Explorer. can give their opinion on the website or can talk/
work together with their neighbours. The found-
Boomr ers of Buurtlink.nl try to deliver less content as
possible on the platform; they have a facilitating
Boomr is a platform where artists from all genres and motivating task. Besides collaboration with
can share their music with everyone who has ac- the users of the website, Buurtlink.nl works to-
cess to the Internet. Boomr is also a place where gether with several partners. These partnerships
people can get to know their favourite artists music can have local goals, but also national goals, like
and personal matters. Value is created for the art- regional news stations, digital marketplaces, and
ists on Boomr by enabling a connection to exist local weather forecast agencies.
with potential supporters and vice versa, value is
created for the listener who is able to find music Watvindenwijover.nl
they like. Boomr is free to use and focuses on the
non-familiar artists, as well. The value is created Watvindenwijover.nl is a free service platform to
by users and artists who contribute and participate easily save interesting web pages on the Internet.
on the platform. There is an artist community and There are several features of the site that are new
a user community. The user community is based and related to Web 2.0 technologies. For example,
on voluntary contributions, like reporters (enthu- users can make their own notes on the site while
siastic fans of an artist) that write about concerts. easily organizing results by tagging and can share
Boomrs artist and user communities are growing favourite sites and topics with other users. The
and are of significant value to this initiative and activities on the platform are also recognized as
helps create a lock-in. social browsing, which means social searching
and sharing. There are several clusters of commu-
Buurtlink.nl nities based on interest and Watvindenwijover.nl
tries to link people actively by giving recommen-
Buurtlink.nl is part of the Buurtlink foundation dations. In this manner, people can collaborate to
and its goal is to increase social cohesion within find more or better information on certain topics.
the Netherlands and to become the largest district Watvindenwijover.nl is a subset of Winkwaves and
website based on zip codes. Buurtlink.nl creates is used as a marketing tool and as a playground
its own value by having a large base of active us- to experiment. The actual value appropriation
ers. Neighbours can communicate on Buurtlink. with these platforms is done by Winkwaves in a
nl and can keep their own district website active Business-to-Business context and relates more
and relevant. Since facilitating the platform alone to Enterprise 2.0.
is not enough, Buurtlink.nl makes a distinction
between Buurtlinkers and users. A Buurtlinker YelloYello
is an active user, like an ambassador or corre-
spondent, and delivers content and promotes the Traditional guides (in this research referred to as
website in the neighbourhood. This motivates e-Business e.g. Goudengids.nl and iLocal.nl) do

13
Emerging Business Models

not answer questions like; where can I find a good focus more on collaboration and the Long Tail
plumber? What is the best lawyer in the district? by increasing the discovery factor. According
As a user of this website, you often ask recom- to the founders of Fleck, there is a huge potential
mendations from friends and family. YelloYello for collaboration with Fleck and it will become
is a company that fills this gap with help of Web the most important driver. Fleck tries to enable
2.0 by social local search: YelloYello has local knowledge sharing within the community. In this
communities and is a social network and guide way people can efficiently use the information and
in one. Everyone can contribute easily by giv- knowledge other users contributed on websites.
ing reviews, tagging, and upload locations. The All these contributions on websites are collected
company stimulates people to share experiences in a database. Not only will the popular website
so the company can create a recommendation be collected in this database, but also smaller and
list of companies. The community and cluster unfamiliar WebPages, referred to as the Long Tail,
aspect can be found in the case of YelloYello. The are collected. Fleck uses the collective intelligence
company focus is on places and people. Based to create value that is contributed by its users.
on places and interest there are clusters of com-
munities that contribute and add value for other Hyves
users. The value is created by the users and is a
combination of content and the social aspect of Hyves is one of the most used e-Business 2.0
the website. Since the business information is pure players in the Netherlands and is the most
already familiar, the new data contributed by the popular social network (Ruigrok NetPanel, 2007).
community adds new value. The focus for Hyves is on establishing an online
platform, in which people can (re)connect with
Fleck each other, as they say: Always in touch with your
friends. Users can share photos, videos, blogs,
Fleck.com wants to add a new layer of interactiv- and recommendations, but the most added values
ity to the web by adding new tools that allow its for users of Hyves are to get reconnected with old
users to add information rather than just consum- friends (Ruigrok NetPanel, 2007). Hyves tries to
ing it. Fleck allows users to interact with pages be the place on the Internet where users share his
on the web just as if it were pages in a magazine; or her information. Not only can you connect with
People can save annotated page for own purposes, people, but you can also collaborate and share by
send it to friends or colleagues or use it in their using a weblog or gadgets. Integration is also very
blog. The value, appropriated on the platform important to Hyves, like importing an existing
by its users, is created by the users because weblog on your Hyves page by Web 2.0 technol-
data on top of the existing webpage is collected ogy (RSS), which makes it easy and efficient for
by a collaboration of Internet users. When this users to share. In the near future, Hyves is going
data is aggregated correctly, new opportunities to increase their use of AJAX-tools to integrate
for value creation arise, but also appropriation more easy-to-use applications to create increased
may appear, for instance, more efficient search value for its users.
methods, recommendations, and suggestions on
websites. Efficiency and complementarities are Favr
the most important drivers for Fleck. People use
the platform and technology for several purposes, Favr is a website platform on which you can
like bookmarking, communication, and page save and share your favourites, like websites
sharing. In the second half of 2007, Fleck will and articles. Users can review and recommend

14
Emerging Business Models

Figure 1. Value drivers in e-Business 2.0. Source: Vincent (2007)

favourites in order to establish a top ranking of in e-Business, and allows a development of the
favourites. The company wants to create a unique concept e-Business 2.0. According to Forrester
social bookmarking platform, that looks like Deli- Research Inc., a renowned technology and market
cious, since interest is focused on website level. research company,Web 2.0 is a set of technologies
The community creates value and Favrs role is and applications that enable efficient interaction
an intermediary one by which it gives incentives among people, content, and data in support of
and tools for users to contribute. The community collectively fostering new businesses, technol-
decides what ranking certain websites and articles ogy offerings, and social structures (Koplowitz
get and is not influenced by the company. The & Young, 2007). Koplowitz and Young (2007)
founder of Favr is also the founder of web-log.nl point out that there are three lenses through which
that was sold successfully to Ilse Media in 2004 to view Web 2.0:
(Wiersma, 2004), who started both companies
as an experiment. In summarize above, Vincent 1. Enabling technologies - provide the infra-
(2007) proposed a Value Drivers in e-Business structure and building blocks for Web 2.0
2.0 model as figure 1. applications. These supporting technologies
are often not as important for marketers, by a
What Does the Study Means with an lack of knowledge of techniques like AJAX
e-Business 2.0? and XML (Derksen, 2007a).
2. Core applications and features - enable
This research adopts Forresters perspective on people to efficiently interact with other
Web 2.0 (Koplowitz and Young 2007). It allows people, as well as, content and data.
this research to clearly define the enabler aspect 3. Forrester Research Inc. calls this social
of Web 2.0 technologies that influence companies computing: Social computing refers to easy

15
Emerging Business Models

Figure 2. Enterprise 2.0. Source: Vincent de la Mar (2007)

connections brought about by cheap devices, in e-Business where Web 2.0 was a key factor in
modular content, and shared computing re- creating value. The focus in this research is on
sources, that are having a profound impact these companies that embrace Web 2.0 enabling
on our global economy and social structure technologies and core applications that cause a be-
(Koplowitz &Young, 2007). havioural shift. This research, therefore, develops
in scientific literature, the concept of e-Business
Individuals increasingly take cues from one 2.0 where e-Business companies are actively us-
another rather than from institutional sources like ing Web 2.0 to create and appropriate value from,
corporations, media outlets, religions, and political for, and with stakeholders. Although e-Business
bodies. To thrive in an era of Social Computing, 2.0 is used in a book from Robinson et al. (1999),
companies must abandon top-down management the meaning is different. A perspective of van der
and communication tactics, weave communities Sleen (2007) who refers to contact with customers
into their products and services, use employees and suppliers, is more related. However, scientific
and partners as marketers, and become part of a theory on Web 2.0, let alone e-Business 2.0, is
living fabric of brand loyalists (Charron, Favier scarce. As can be seen in the figure, this research
et al., 2006). also makes a distinction between an internal and
Many writers and researchers use the term external focus (figure 2).
Web 2.0 as the next stage of the Internet and of This research looks at e-Business 2.0 and has
e-Business. These researchers do not make a clear an external focus, e-Business 2.0 pure players
distinction between the technological enabler depend on Web 2.0 to create and appropriate
aspect and the social aspect. Introducing and de- value with a focus to external customers, instead
veloping a concept of e-Business 2.0 and having of internal organisations. The latter focus is called
it implemented in the outmost circle of the figure Enterprise 2.0 and is introduced by McAfee
help provide a better overview and framework (2006a). McAfee (2006a, p. 23) argues that there
for this research. is a new wave of business communication tools
including blogs, wikis and group messaging. There
E-Business 2.0 and Enterprise 2.0 are new digital platforms for generating, sharing
and refining information that are already popular
Since the Internet bubble, Web 2.0 with its core on the Internet. These platforms are collectively
applications and enabling technologies has labeled Web 2.0 technologies. The term Enterprise
become popular and successful influencing e- 2.0 focuses only on those platforms in which
Business. Successful start-ups created a new area companies can buy or build in order to make the

16
Emerging Business Models

practices and outputs of their knowledgeable write web again. Web 2.0 enables Internet users
workers visible. Enterprise 2.0 looks at Web 2.0 to participate and share contributions again in a
technologies and practices within organisations simple manner.
and businesses and is therefore, referred to as Recent research shows that this changed the
internal focus. McAfee (2007, p. 52) simply and way we use the Internet completely; nearly half
concisely defines Enterprise 2.0 as the emerging of online consumers participate in at least one Web
use of Web 2.0 technologies like blogs and wikis 2.0 activity with 13% coming from creators (e.g.
within the Intranet. publish WebPages or blogs, upload photos), 19%
Next to e-Business 2.0 pure players, companies from critics (e.g. comment rate or review), 15%
that acquire parts of e-Business 2.0 characteris- collectors (e.g. use RSS or tag WebPages), 19%
tics and regular e-Business (e.g. e-Commerce) from joiners (e.g. use social networking sites),
companies are also active on the Internet. Larger and 33% from spectators (e.g. read blogs, watch
companies can learn from these, often smaller, e- peer-generated videos and listen to podcasts)
Business 2.0 companies who display themselves (Forrester Research, 2006a). Although research
as early adopters (Rogers, 1995) and use it to reveals that a low number of Internet users are
adopt to market changes and/or to Enterprise familiar with the definition of Web 2.0, many
2.0. The concept of e-Business 2.0 highlights people do use it (Ruigrok, NetPanel 2007). By
that e-Business is evolving. E-Business 2.0 is a several experienced people, it is already pointed
part of e-Business and can also be referred to as out that Web 2.0 changes our economy and busi-
a new stage in e-Business that will become more ness perspective. For instance, Charron, Favier
prominent in the next few years. E-Business will et al. (2006a) argues that top down-management
adopt more e-Business 2.0 aspects and this is in must be abandoned; Hinchcliffe (2007) points out
correspondence with Van der Vlist et al. (2007), to focus on communication in the form of con-
who argue that the e-Business and the Internet have versation, instead of a monologue; and Sturgeon
reached a stage where its growth would slowly (2006) writes about new levels of interactivity.
start to decline. Traditional media producers con- This research tries to extend this by providing first
trolled the Internet and mergers and acquisitions insight in companies that already take advantage
signified that the Internet industry had started its of Web 2.0. (Vincent, 2007)
consolidation phase. From a social perspective, Vincent (2007) indicated this research tries to
the Internet was mostly used to read. This was give first answers to problems that are argued: Our
however, not the meaning of the World Wide Web first problem from a theoretical approach is that
(www) and was not the case at the beginning of theory on value creation in e-Business is relatively
the Internet. The Web was originally designed scarce. This is related to a more practical problem
as a medium where scientists could easily share that companies could make incorrect decisions,
their documents (Leiner & Cerf, et al., 2003). because of scarce theory. With the upcoming of
According to van der Vlist et al. (2007) this was new developments of Web 2.0 a second problem
still the case when publishing home pages and arises and results in the fact that extending theory
editing was still easy because of simple technol- on value drivers in e-Business becomes even
ogy and a smaller group of participants. In the last more relevant: Previous theory on value creation
decade, the Internet has had more difficult tools in e-Business might not be applicable anymore.
and technologies added and more people were Amit and Zott (2001) research value drivers in
interested in using the Internet, which resulted e-Business companies before 2001. With new
in a passive Internet usage. With simple Web aspects of Web 2.0 these results might not be up
2.0 technologies the Internet is becoming a read/ to date anymore. Therefore the objective of this

17
Emerging Business Models

research is to further develop Entrepreneurship and Its about enabling and encouraging participa-
Strategic Management Theory on value creation tion through open applications and services. By
in e-Business, by providing first insights in value open I mean technically open with appropriate
drivers in e-business companies that use Web 2.0. APIs but also, more importantly, socially open,
To reach this goal this research tries to give first with rights granted to use the content in new and
answers to the central research question, if value exciting contexts. Web 2.0 is indeed defined as
drivers associated with Web 2.0 are different from an attitude that can be personal or organizational.
known value drivers in e-business? A web 2.0 organization adds specific terms and
values to its code of conduct and sets priorities
Leveraging Enterprise Web 2.0 and incentives to promote them. The study sees
for Competitive Advantage web 2.0 attitudes, or to call the web 2.0 spirits, as
made of the following attitudes (Ori Fishler, 2008):
What is Enterprise Web 2.0?
A. Open: you dont have to share your source
For the last 3 years, web 2.0 and social networking code to be open but from the application
have been all the rage in the Internet community. to the users, the approach is open. Easy
This is where the VC money is going, the media to integrate with, easy to add to. Built on
attention is focused and users are spending much Sharing. Open to new ideas, Flexible, Agile,
of their time. Businesses are still trying to figure Simple, and Diverse. Interactive: the inter-
out what does it mean for them. Applying web action among users and active participation
2.0 principals and attitudes to business and the is a core element of Web 2.0. The ability of
enterprise can be called enterprise web 2.0. Many customer and partners to respond and engage
tend to think that becoming a 2.0 organization as in discussions, post reviews, comments,
the use of flashy interfaces, communities, blogs, thoughts and ideas. Agree and disagree.
wikis and user generated content and tried to Provide a different point of view. Support
jump on the bandwagon by adding these to their and promote.
sites without comprehending the deeper and more B. Transparent: Do not hide, lie, spin, manipu-
fundamental cultural changes that make these late, threat, or intimidate. The Internet walls
tools effective, and have seen little gain. Web are nonexistent and everything you say or
2.0 is about attitudes and a new way of interac- do, internally or externally will be exposed.
tion with all constituents, customers, employees, Therefore: Share as much information as
and partners. With all its hype, cool startups and possible, acknowledge mistakes, and explain
sexy conferences, web 2.0 still baffles many busi- decisions.
ness people who see it as a playground for kids C. Collaborative: Listen, encourage opinions
(MySpace, Facebook, YouTube) or a get-rich scam and group decisions. True collaboration is a
for young entrepreneurs and VCs. Many who tremendous thing producing a result much
have been through Bubble 1.0 would rather wait greater than the sum of the parts. It can
until the web 2.0 fads disappear to see what is left only flourish in a nurturing environment.
standing. Tim Oreilly has provided what many Social: Web 2.0 is about building relation-
see as the most comprehensive definition of web ships, trust, playing well with others, give
2.0. And while his explanation is very thorough, and take, respect of each player and of the
it is also technical in nature (Fishler, 2008). social order that is in place. Social corporate
The definition comes from Ian Davis who responsibility, caring about the environment
wrote: Web 2.0 is an attitude, not a technology.

18
Emerging Business Models

and about the local community are very Adoption Challenges


important as well.
So now, show of hands. Has your organization
Andrew McAfee at Harvard likes to add the embraced the web 2.0 spirit? Chances are that
term Emergent, noting that out of many local unless you are working for a web 2.0 startup,
interactions as web 2.0 facilitates, comes higher the most you have seen is the introduction of a
level structures. Ill expand that definition to limited corporate blog or a Wikis coming up on
include emergence of order and structure out of your intranet. Many companies have a deep-rooted
the seemed chaos that is online interaction. It is problem with the web 2.0 spirits. It contradicts
the transcendence of web 2.0 communities that some of the fundamental principles of corporate
created Wikipedia. mentality and therefore risky to undertake. In my
experience very few companies have truly bought
What can be Gained? into this attitude and at the most are paying lip
service by implementing some basic enterprise
Enterprise web 2.0 promises substantial incentives 2.0 applications to replace their failed and unused
for early adopters (Fishler, 2008): Intranets and KM systems. Bob Warfield provided
a very insightful discussion as to the reasons com-
A. Enhanced brand image, exposure and buzz. panies are wary of embracing web 2.0:
As influence circles expand, using new meth- The headlong rush the Web brings to expose
ods for communication and data distribution everything to everyone scares the heck out of most
will reach an ever-expanding user base. corporate types. Their two biggest requests for
B. Improved customer relationships and in- Web 2.0 initiatives are Governance and Security,
creased loyalty. Customers will appreciate and the reasons for it are exactly what weve been
the new approach that respects and listens discussing. It isnt just that they have control
to them. issues. There are sound business reasons why
C. Faster feedback cycle and agile response controls have to be in place (Ori Fishler, 2008).
to market opportunities. By providing real
avenues for customer collaboration and A. Morale: Do we really want everyone to
listening to chatter and monitoring usage, know how poorly some initiative is going?
companies can create faster release cycles How will it help to tell those who cant make
and quicker response methods. a difference and would only be depressed
D. Improved utilization of internal creativity by the knowledge? Is it fair to expose some
and innovation. When employees at all level internal squabble that was mostly sound and
are engaged is collaboration and discussion, fury signifying nothing? Wont that just un-
great ideas and solutions can quickly surface, fairly tarnish some otherwise good peoples
get reviewed and implemented reputations and make them less effective?
E. Better lead generation and inbound traffic. B. Governance: Is the information legal and
Beyond search, activity in the social web appropriate for everyone to know in this age
can be a great source of traffic and referrals. of SOX and Securities Laws?
F. New business channels. Whether it is finally C. Competitive Advantage: Do I want to
establishing a DTC channel to leveraging risk giving my competitors access to key
social commerce applications, the new information because Ive distributed it too
landscape provides new opportunities and broadly?
new potential partnerships.

19
Emerging Business Models

Still, the web 2.0 spirit as reflected in the ac- between the use of these two terms, and that
tions, habits and expectations of users will impact this differentiation is important to maintain, as it
the way companies do business. Some of the most enables a more meaningful discussion to be had
important trends include: when examining the future role of IT within the
business (butlergroup, 2008).
A. Loss of control: as mentioned above,
companies no longer have absolute control Enterprise 2.0
over their brand, products and services and
how they are portrayed. From rumor sites Professor McAfee at Harvard (2006) argues there
to product reviews and fake commercials, is a new wave of business communication tools
people have many more ways to learn about including blogs, wikis and group messaging.
you and form opinions. There are new digital platforms for generating,
B. Opinions matter: 68% of shoppers read sharing and refining information that are already
products reviews before making a purchase. popular on the Internet, where they are collec-
C. Wider influence circles: Information tively labeled Web 2.0 technologies. The term
(good and bad) can quickly spread through Enterprise 2.0 focus only on those platforms
influence and social circles. Transparency that companies can buy or build in order to make
is expected and recent cover-up attempts visible the practices and outputs of their knowl-
by companies like Merck and Bear Stearns edge workers. Enterprise 2.0 is all about Web
were not tolerated. Companies will have to 2.0 technologies and practices within organisa-
adapt because the old practices are getting tions and businesses. Andrew McAfee provides
them in trouble and new opportunities for a clear, clean explanation of Enterprise 2.0; the
leadership position are being lost due to lack emerging use of Web 2.0 technologies like blogs
of clear web 2.0 corporate strategy or what and wikis within the Intranet (McAfee, 2007).
we would call enterprise web 2.0 He has introduced his SLATES mnemonic to
help guide those creating or acquiring Enterprise
By embracing the new enterprise web 2.0 para- 2.0 software. SLATES describes the combined
digms, businesses can create long lasting changes use of effective enterprise search and discovery,
that will truly resonate with audiences beyond using links to connect information together into
the quick fix of adding a marketing blog to the a meaningful information ecosystem using the
web site and some promotional videos. As these model of the Web, providing low-barrier social
changes take time to implement, early adopters and tools for public authorship of enterprise content,
market leaders can create a significant competi- tags to let users create emergent organizational
tive advantage by differentiating themselves and structure, extensions to spontaneously provide
reaping the benefits (Ori Fishler, 2008). intelligent content suggestions similar to Ama-
zons recommendation system, and signals to let
Enterprise Web 2.0 users know when enterprise information they
care about has been published or updated, such
A Butler Group Report as when a corporate RSS feed of interest changes
In some circles, the terms Enterprise Web 2.0 (McAfee, 2006).
and Enterprise 2.0 are used interchangeably to As in previous innovation cycles, whenever
describe the application of Web 2.0 ideas and multiple point capabilities converge such as
technologies in the enterprise; however, Butler wireless, pervasive broadband, and online collabo-
Group believes that a clear distinction exists ration many new applications become possible.

20
Emerging Business Models

In these cases, consumers tend to adopt the new 5. An Enterprise 2.0 roadmap for the next 24
services and products before the enterprise, but in months
the end the enterprise market is usually far larger
and more profitable. In McKinseys and Sand Hill IBA is actually a challenging Enterprise 2.0
Groups Software Industry Report 2006 state that business case, for several reasons:
the hype around Web 2.0 for consumers with
its rapid innovation in content tools (e.g., blogs, 1. IBA is present on 4 continents and the top
wikis, user editing and tagging) heralds a much management must deal with different cul-
larger opportunity to put these innovations to work tures and work organisations
in the enterprise. Many innovations, collectively 2. The core business covers different activities
termed Web 2.0, will fully reach the enterprise around cancer diagnosis, and each one runs
as in previous cycles, innovation developed for its own methodology, serves its own market
individual users will translate into substantial and has its own legacy
enterprise opportunities (Berryman & Jones, et 3. The IBA staff is a mix of young engineers
al., 2006). (Generation Y) and experienced profession-
als (Generation X)

CASE STUDIES In this context, a few months after the launch,


Early Stage will be proud to demonstrate, thanks
Enterprise 2.0 for IBA, a Belgian to a detailed KPI analysis, how collaboration
Fast Growing Company platforms (and related HR management) can
drastically improve the global performance of an
IBA is a worldwide company based in Belgium and international group (Early Stage, 2009).
active in the cancer diagnosis. It currently counts
2500 employees and has doubled its staff in less Belgian Government:
than 2 years. This fast growth makes IBA facing E-Fov 2.0 Study
new organisational challenges around knowledge,
innovation and collaboration management. In that In 2008-09, Early Stage run an analysis of in-
context, Early Stage was in charge of auditing teractive tools used for eGov 2.0 projects for
the company structure and the way the multiple the Belgian Government together with the de-
BUs are currently collaborating. Through its velopment of a web governance model for the
proprietary methodology, made of workshops and new Belgian federal portal. This mission had as
internal structured analysis, Early Stage submit- ultimate goal the development of the basis for an
ted its recommendations on the following topics e-Government Maturity Model (eGMM) for the
(Early Stage, 2009): Belgian government and this on the following
levels: the interactivity in the service delivery,
1. IBAs maturity in terms of Enterprise 2.0 the multi-channel distribution and the compila-
2. The potential social software set that best tion of available data to deliver personalised
matches IBAs strategic objectives and en- information with added value. The most evolved
vironmental context layers of such a model foresee notions such as
3. The possible locations where pilot projects co-governance (participative democracy) and the
can be deployed legal dialogue in real time with the citizen. Early
4. The User Adoption Plan (UAP) around the Stage has developed his own maturity model for
pilot projects and the further deployments this project that is simple, flexible and adaptable.

21
Emerging Business Models

It can be used during benchmark and audit studies badly handled due to the public servants
but also to formulate recommendations and to intervention in the process).
develop roadmaps. The goal to apply this model 4. Align the e-Gov strategy with the existing
consisted in the development of a roadmap but infrastructure (make it so that the roadmap
also in an e-Governance that specified the road- is actually implementable on the current
maps founding principles and its sustainability. technical infrastructure).
If the roadmap was intended to evolve together
with the standards and best practices we know For this mission, Early Stage has analysed
in the web-universe then it was clear that it also over 200 sites oriented towards e-Gov 2.0 in the
had to follow a strategic course that would ensure whole world in order to find the best practices.
the validity of the model throughout the time and These practices have been filtered and adapted
that is exactly the goal that was achieved with this to the Belgian situation and finally led to a web
e-Governance model (Laurent, 2008). governance model for the future Belgian federal
The maturity model was also based on specific portal (Laurent, 2008).
fundamental values that were considered key in
a performing and globally adopted e-delivery of
the public service. These values commonly refer FUTURE RESEARCH DIRECTION
to the following goals:
Enterprise 2.0 is the term used to describe how
1. Simplification a Web 2.0 approach can be used to work more
2. Transparency collaboratively together in business. Harvard
3. Respect for the private life professor Andrew McAfee coined the phrase
4. Citizens engagement Enterprise 2.0, defining it: the use of emergent
5. Distribution of the information social software platforms within companies or
between companies and their partner or custom-
Another goal was also to align the different ers. However Enterprise 2.0 is much more than
relations: just Web 2.0 for business.
Enterprise 2.0, being more a philosophy than
1. Align the e-Gov strategy with the Gov a technology, can truly create huge added value
strategy (to avoid that one would not be for organizations in any sector and it is often
aligned with the other one so that both are remarkable to see in what way the Enterprise 2.0
aligned) methods are used to solve specific problems. In
2. Align the e-Gov strategy with the citizen the near future the study will to further propose
(Offer interactive services that take into ac- applications of Enterprise 2.0 projects in specific
count the current evolutions so that they are sectors.
accessible, understood and available for all
the citizens. Take into account the penetra-
tion of certain equipment and the evolution CONCLUSION AND
of the common habits in our country. What RECOMMENDATIONS
is OK for the States is not necessarily ok for
Belgium. Conclusion
3. Align the e-Gov strategy with the public
servant (to avoid that the public service This research adopts Forresters perspective on
delivery will be wrongly understood or Web 2.0 (Koplowitz and Young 2007). It allows

22
Emerging Business Models

this research to clearly define the enabler aspect able to use them in the workplace too. As with
of Web 2.0 technologies that influence companies many things, it takes the passing of the older
in e-Business, and allows a development of the generation from executive status into retirement
concept e-Business 2.0. According to Forrester before a true shift can occur. Over the next three
Research Inc., a renowned technology and market years, millions of baby boomers will retire and the
research company,Web 2.0 is a set of technologies younger workers brought in to fill the void will
and applications that enable efficient interaction not only want, but will expect similar tools in the
among people, content, and data in support of office as those they use at home in their personal
collectively fostering new businesses, technol- lives. The whole business world is about to face
ogy offerings, and social structures (Koplowitz a series of new fundamental challenges that go
&Young, 2007). deep into the companies DNA and organisation.
Enterprise 2.0 describes the introduction and Companies will need to be guided through the fog,
implementation of Web 2.0 technologies within turning their traditional e-business masterpieces
the enterprise, including rich Internet applications, into genuine interconnected systems. Organisa-
providing software as a service, and using the tions who disregard those fundamental changes,
web as a general platform. This topic will track dont take the necessary actions or underfund such
the latest Enterprise 2.0 developments. According projects will face huge corporate-wide problems.
to Earlystage (2009), businesses have incumbent The world is in constant evolution, everybody
technology platforms, multiple data sources and knows it. Most recent trends in the human behav-
many regulations and policies. Employees are iour and in the latest technological evolutions will
drowning in a sea of information and are often allow companies and organisations to leverage the
unable to access the people and knowledge they potential of a collective intelligence (and therefore
need. Enterprise 2.0 is an evolutionary step for- the overall efficiency) thanks to adapted tools,
ward releasing employees from the constraints processes and mindset. People whore about to
and limitations of the legacy communication and enter the business today have grown up digital,
productivity tools. If people feel like they can with connected computers and mobile phones
make a difference, they will. The Enterprise 2.0 in their young hands. Social Networks leverage
approach promotes open communications that Social Intelligence: Social Networks are both
encourage respect and participation, even across symptoms and results of the Digital Native de-
geographic and cultural boundaries. Access to mographic move, and they can be put to work for
knowledge empowers and motivates people to business. New trends of Web technology clearly
strive towards common goals together. Enterprise show the way towards the Web as a platform and
2.0 addresses knowledge silos by enabling a widespread SaaS. Enterprise 2.0 enables a diverse,
common space for knowledge capture and sharing. distributed workforce to work together efficiently
Unlike information locked-up in email and discrete on projects. Information is more accessible, and
documents, this centrally captured knowledge is subject-matter-experts can be found quickly. This
easier to find and use when people actually need avoids duplicated effort and saves time, leading
it. It is more likely to be up to date, and it can be to greater efficiency and improved productivity.
fully searched by all who have access. Enterprise 2.0 technologies are not really new
High calibre people are attracted to companies technologies but more the combination of already
using cutting edge technology. This is particularly existing ideas in a professional environment. The
true for Generation Y people (todays 1825 Enterprise 2.0 market (also known as the Social
year olds) who already use Enterprise 2.0 tech- software market) is fully exploited by established
nologies in their everyday lives and expect to be firms but also by start-ups who are trying to posi-

23
Emerging Business Models

tion themselves in this new market. However, at with existing frameworks on which implementa-
this time, there is no real leader yet. tion is layered on top. Most of the collaboration
Forrester Research predicts in a recent report and knowledge management concepts proposed
that enterprise spending on Web 2.0 technologies by recent traditional software are built-upon
will reach $4.6 billion by the year 2013. External features, while native Enterprise 2.0 tools put
Web 2.0 expenditure will dwarf internal spending, them at the heart of their philosophy. On top of
by 2013, by a billion dollars. Internally, companies that, they are most of the times compatible with
will spend money on internal social networking, existing major software.
blogs, wikis, and RSS; externally, the spending Enterprise 2.0 puts collaboration, knowledge
patterns will be very similar. Social networking sharing and social intelligence at the center of the
tools that provide customer interaction, allowing organisations relationships. Doing so, it refers to
customers the ability to create profiles, join dis- work organisation rather than to specific skills,
cussion boards, and company blogs, for example, processes or professions, and impacts any busi-
will receive more investment and development ness at any level.
over the next five years. One of the main chal- The different paradigms that lead to consider
lenges of getting Web 2.0 into the enterprise will Enterprise 2.0 solutions do not come from cor-
be getting past the gatekeepers of traditional I.T. porations strategic decisions: they come from
Businesses have been showing interest in these the evolutions of the human society and demog-
new technologies, but, ironically, the interest raphy, putting any organisation in the line of fire.
comes from departments outside of I.T. Instead, Enterprise 2.0 relies on SaaS principle, which
its the marketing department, R&D, and corporate is considered as the future of IT by most leader
communications pushing for the adoption of more analysts. Security and privacy is one of the most
Web 2.0-like tools. serious components of such tools. If needed, they
can even be installed on-site. Enterprise 2.0 tools
Recommendations are almost always cheaper than traditional products
whose license costs are often high. Besides, they
Enterprise 2.0 still suffers from a couple of myths allow scalability as they are often billed accord-
coming from the 2.0 label. But, far from being a ing to the number of users. On the other way, the
hype word applying Web 2.0 concepts to profes- overall cost for the organisation should include
sional organisations, it refers to a tangible reality. the productivity gain and loss, and the goodwill
Earlystage (2009) shatter a few myths as follows: it would gather while encouraging collaboration,
One tends to consider that any concept with knowledge sharing and collective intelligence.
a 2.0 timestamp refers to a hyped-buzz reality, The part of technology in the total balance is less
originating from young entrepreneurs creativity important than you can think.
but whose added-value is questionable or inappli- According to Earlystage (2009), Markets &
cable to existing infrastructures. However, Enter- Professions Although solutions such as Wikis,
prise 2.0 covers a tangible reality that goes beyond Blogs and collaboration spaces are often seen as
technology and tools: it answers some important generic solutions that can be implemented in
challenges for companies, such as collaboration any organization it is interesting to see how these
and sharing, knowledge management, mobility or tools can help organizations in specific sectors.
work-life balance and leverages the power of Some examples are as follows:
collective intelligence. Enterprise 2.0 is beyond
technology it is business-related. Most of the 1. Finance, Bank & Insurance: New collabo-
tools do not require big bangs and are compliant ration tools are improving the transparency

24
Emerging Business Models

of the internal workings and allow the orga- Charron, F. (2006a). Social computing: How
nization to keep better track of investment networks erode institutional power, and what to
portfolios and to improve risk management. do about it. Forrester Research.
2. Healthcare: R & D departments can use
de la Mar, V. (2007). Value drivers in e-Business
Enterprise 2.0 tools to improve knowledge
2.0: How Web 2.0 is changing the landscape of
sharing and shorten research cycles for new
e-Business. Retrieved from http://valueweb2.
products.
blogspot.com/2007_03_01_archive.html
3. Political Organisations: Often scattered on
the whole territory in local federations, E2.0 Derksen. (2007a). Update Web 2.0. Re-
tools will help them to better communicate trieved from http://www.upstream.nl/comments.
internally, synchronise actions, remotely php?id=496_0_1_0_C.
collaborate on dossiers, and make members
Earlystage. (2009). Enterprise 2.0: Myths.
relationships easier.
Retrieved from http://www.earlystage.be/enter-
4. Strategy & Watch: Concatenation of
prise20/myths.php
customized RSS feeds on monitored top-
ics, automatically imported in a strategy Fishler, O. (2008). Leveraging Enterprise Web 2.0
dashboard, makes strategic watches easier. for competitive advantage. Edgewater Technol-
5. Universities: Enterprise 2.0 techniques ogy Weblog. Retrieved May 1, 2008, from http://
facilitate fundamental research within and edgewatertech.wordpress.com
between universities through collaboration
Hinchcliffe, D. (2006a). Welcome to the Web 2.0
authoring tools or by creating students
world of Flickr,del.icio.us, Writely, Basecamp,
project teams around courses.
Digg, and many others. Retrieved October
13, 2006, from http://www.web2journal.com/
read/178008.htm
REFERENCES
Hinchcliffe, D. (2007). Social media goes main-
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social production transforms markets and free- web2.socialcomputingmagazine.com/social_me-
dom. Yale University Press. Retrieved from http:// dia_goes_mainstream.htm
www.benkler.org/Benkler_Wealth_Of_Networks.
pdf Jaokar, A., & Fish, T. (2006). Mobile Web 2.0 - The
innovators guide to developing and marketing
BlogSpot. (2009). Value drivers in Web 2.0. Re- the next generation wireless/mobile applications.
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Butlergroup. (2008). Enterprise Web 2.0: Build- Kalakota, R., & Robinson, M. (2001). e-Business
ing the next generation workplace. Retrieved 2.0: Roadmap for success (2nd ed.). Addison-Wes-
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reportHomepages/EntWeb.asp.
Kalakota, R., & Robinson, M. (2009). e-Business
Charron, C., Favier, J., & Li, C. Joseph, J., 2.0: Emerging business models. Indianapolis:
Neurauter, M., Cohen, S.M., et al. (2006). D. Informit.
Richard Dance, a book review: CPA and prin-
cipal of Soft Resources LLC. Retrieved from
http://www.forrester.com/Research/Document/
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Koplowitz & Young. (2007). What is Web 2.0? Ruigrok NetPanel. (2007). Web WHAT? - Web
And how are businesses making use Of Web 2.0 2.0 research. SlideShare Inc.
tools and techniques? Retrieved from http://
Stage, E. (2009a). Enterprise 2.0 for IBA, a Bel-
www.forrester.com/rb/teleconference/what_is_
gian fast growing company. Retrieved from http://
web_20_and_how_are/q/id/1846/t/1
www.earlystage.be/success-stories/
Laurent. (2008). Belgian government: e-gov 2.0
Stage, E. (2009b). Challenges of the Enterprise
study. Retrieved October 2, 2008, from http://
2.0: Ten facts. Retrieved from http://www.ear-
www.earlystage.be/belgian-government-e-gov-
lystage.be/challenges/
20-study
Sturgeon, W. (2006). Cheat sheet: Web 2.0.
Leiner, B. M., Cerf, V. G., Clark, D. D., Kahn,
What on earth is it and should you care? Re-
R. E., Kleinrock, L., & Lynch, D. C. (2003). A
trieved from http://networks.silicon.com/web-
brief history of the Internet, version 3.32. Internet
watch/0,39024667,39161662,00.htm
Society.
Surowiecki, J. (2005). The wisdom of crowds:
MacManus, R., & Porter, J. (2005). Web 2.0 for
Why the many Are smarter than the few, and how
designers. Digital Web Magazine.
collective wisdom shapes business, economies,
McAfee, A. (Spring 2007). The future of the Web. societies. Random House.
MIT Sloan Management Review, 49-64.
van der Sleen, G. (2007). Nu alles 2.0! Web,
McAfee, A. P. (2006). Enterprise 2.0: The dawn e-Business, enterprise en meer? Retrieved Au-
of emergent collaboration. MIT Sloan Manage- gust 19, 2007, from http://the-efuture.blogspot.
ment Review. com/2007/03/nu-alles-20-web-e-business-enter-
prise.html
McAfee, A. P. (2006a). I can quote them. The
Business Impact of IT. van der Vlist, E., & Vernet, A. (2007). Profes-
sional Web 2.0 programming. Indianapolis: Wiley
OReilly, T. (2005). What is Web 2.0: Design pat-
Publishing, Inc.
terns and business models for the next generation
of software. Retrieved September 12, 2006, from Yin, V. (2009). New Web: mainstream Web 2.0.
http://www.oreillynet.com/pub/a/oreilly/tim/ Verecom Web design blog. Retrieved from http://
news/2005/09/30/what-is-web-20.html www.verecom.com.au/verecomblog/wordpress/
new-web-mainstream-web-20-what-is-e-busi-
Perez, C. (2002). Technological revolutions and
ness-20/2009/02/
financial capital: The dynamics of bubbles and
golden ages. Cheltenham, UK: Edward Elgar.
Ray, R. (2000). This is real e-Business.
ADDITIONAL READING
Robinson, M., Tapscott, D., et al. (1999). e-
Business 2.0: Roadmap for success. Boston: Allindialive. (2009). Enterprise 2.0: e-busi-
Addison-Wesley Professional. ness transformation. Retrieved from http://
toostep.com/insight/enterprise-2-0-ebusiness-
Rogers, E. M. (1995). Diffusion of innovations transformation?t=online-business
(5th ed.). NY: Free Press, Simon & Schuster.

26
Emerging Business Models

Cawthorne, J. (2010). Evaluating SharePoint Thompson, M. (2010). Creating a typol-


2010 as an Enterprise 2.0 platform. Retrieved ogy of Enterprise 2.0 use cases. Retrieved from
from http://bx.businessweek.com/enterprise-20/ http://bx.businessweek.com/enterprise-20/
view?url=http%3A%2F%2Fwww.cmswire. view?url=http%3A%2F%2Fwww.headshift.co
com%2Fcms%2Fenterprise-20%2Fevaluating- m%2Fblog%2F2010%2F04%2Funderstanding-
sharepoint-2010-as-an-enterprise-20-plat- enterprise-20-us.php
form-007417.php
Viscio, A. J., & Pasternack, B. A. (1996). Toward
Davila, T., Epstein, M. J., & Shelton, R. (2006). a new business model: Strategy & business, global
Innovation: Creating long-term value in new commercial consulting firm. Booz & Company.
business models and technology. Wharton School
Publishing.
de Pasquale, F. & Siemens (2010). Innovation KEY TERMS AND DEFINITIONS
in an Enterprise 2.0 world. Retrieved from
http://bx.businessweek.com/enterprise-20/ Web 2.0: In the simplest terms Web 2.0 is the
view?url=http%3A%2F%2Ffeedproxy.google. phrase being applied to the second coming of
com%2F~r%2FFrontEndOfInnovationBlog%2 the Internet. The 2.0 name is a clear allusion to
F~3%2Fwct4x6YMbX0%2Ffei2010-innovation- the naming convention of software updates; this
in-enterprise-20.html is the Internet version 2.0 (Sturgeon 2006).
Software as a Service (SaaS): Web 2.0 service
Elphick, K. (2010). Approaching Enterprise is a combination of software and data. Individual,
2.0, beware your mindset. Retrieved from http:// the software and the databases are of limited value,
bx.businessweek.com/enterprise-20/view?url=htt but together they create a new type of service. In
p%3A%2F%2Fdigitalbridges.wordpress.com%2 this context, the value of software lies in being
F2010%2F05%2F04%2Fapproaching-enterprise- able to manage the (vast amounts of) data. The
2-0-beware-your-mindset%2F better it can do, the more valuable the software
Haque, U. (2009). Why ideals are the new business becomes.
models. Harvard Business Publishing. Mashup: Web 2.0 website are often a combi-
nation of data from two or more sources into one
Morgan, J. (2010a). Implementing Enterprise experience, this is called a mashup. According
2.0 at Oc, part one: Business, drivers, http. to OReilly (2005) the race is on to own certain
Retrieved from //www.jmorganmarketing.com/ classes of core data.
implementing-enterprise-2-0-at-oce-part-one- E-Business 2.0: Although e-Business 2.0 is
business-drivers/ used in a book from Robinson et al. (1999), the
Morgan, J. (2010b). Implementing Enterprise 2.0 meaning is different. A perspective of van der Sleen
at Oc, part two: Making the push. Retrieved from (2007) who refers to contact with customers and
http://www.cloudave.com/link/implementing- suppliers, is more related. e-Business 2.0 has an
enterprise-2-0-at-oce-part-two-making-the-push external focus, e-Business 2.0 pure players depend
on Web 2.0 to create and appropriate value with
Scarpazza, D. P. (2009). High performance com- a focus to external customers, instead of internal
puting: Is Larrabee for the rest of us? Retrieved organisations. The concept of e-Business 2.0
from http://www.drdobbs.com/high-performance- highlights that e-Business is evolving. e-Business
computing/221601028;jsessionid=RLHRYH3UZ 2.0 is a part of e-Business and can also be referred
FBKNQE1GHRSKHWATMY32JVN to as a new stage in e-Business that will become
more prominent in the next few years.

27
Emerging Business Models

Enterprise 2.0: The term Enterprise 2.0 lectively labeled Web 2.0 technologies. The term
focus only on those platforms that companies can Enterprise 2.0 focuses only on those platforms in
buy or build in order to make visible the practices which companies can buy or build in order to make
and outputs of their knowledge workers. Enterprise the practices and outputs of their knowledgeable
2.0 is all about Web 2.0 technologies and practices workers visible. Enterprise 2.0 looks at Web 2.0
within organisations and businesses. Andrew technologies and practices within organisations
McAfee provides a clear, clean explanation of and businesses and is therefore, referred to as
Enterprise 2.0; the emerging use of Web 2.0 tech- internal focus.
nologies like blogs and wikis within the Intranet Social Computing: Orrester Research Inc.
(McAfee 2007). McAfee (2006a: 23) argues that refers social computing to easy connections
there is a new wave of business communication brought about by cheap devices, modular content,
tools including blogs, wikis and group messaging. and shared computing resources, that are having
There are new digital platforms for generating, a profound impact on our global economy and
sharing and refining information that are already social structure (Koplowitz and Young 2007).
popular on the Internet. These platforms are col-

28
29

Chapter 2
Management 2.0:
Managing Knowledge Workers
in the 21st Century

Moria Levy
Israeli Knowledge Management Forum, Israel

ABSTRACT
The most important, and indeed the truly unique, contribution of management in the 20th Century
was the fifty-fold increase in the productivity of the manual work in manufacturing. The most important
contribution management needs to make in the 21st Century is similarly to increase the productivity of
knowledge work and the knowledge worker.
Peter Drucker, 1999

The world has changed a great deal since modern management principles were established one hun-
dred years ago, at the turn of the 20th century. This chapter suggests a new management framework
for managing todays knowledge workers. This framework is based on three perspectives: analyzing
the managers tasks; observing the knowledge workers behaviors and expectations; and management
recommendations via suggested underlying guiding principles. Together these construct a framework
for the new eras manager, defined here as the 2.0 manager.

DOI: 10.4018/978-1-60960-129-4.ch002

Copyright 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Management 2.0

WHY IS A NEW MANAGEMENT a person that thinks for a living (Davenport,


FRAMEWORK REQUIRED? 2005, p. 10), a person whose knowledge is central
to the job. A knowledge worker does not have to
Background work solely with brainpower, but can also, like a
surgeon or furnishing designer, perform manual
While implementing new business models in or- work. What makes these people knowledge work-
ganizations may always have seemed like a good ers is both the portion and the importance of
idea, nowadays it is a must. What has changed? information, knowledge and thinking to their job.
Why do we need new business models? If we examine the emergence of job definitions,
Modern management paths date back to the 18th we will probably find that most job definitions
century, when Adam Smith (1776) in The Wealth have changed over the past ten years. There are
of Nations set out the first theory of management professions - like teaching - that were always
principles, dealing with labor specialization. Much knowledge, information and thinking oriented.
later, at the turn of the 20th century, the world was Teaching involves knowing and thinking about
fascinated by the new management and business how to best pass the knowledge on to the student.
ideas presented by Frederick Taylor (1911) in In many other jobs, however, computers and robots
The Principles of Scientific Management. Both took over the manual production portions of the
books, and many publications in between, focus work. The new worker has to know how to oper-
on production organizations and posit efficiency of ate these in different modes for different needs,
production work as the main goal of the manager how to understand why they do not work when
in these organizations (Drucker, 1954). they malfunction, and how to fill in the gaps with
thinking that machines cannot do.
Era of Information and Knowledge
Knowledge Workers Characteristics
Where do we stand today? What makes the 21st cen-
tury different from preceding decades? A simple Volumes can be written about the knowledge
tour in any organization, observing the overload worker (e.g. Thinking for a Living by Tom Dav-
of computer workstations, provides a glimpse of enport (2005)). Of all the attributes describing the
the new organization. We are now in an era of knowledge worker, the following were chosen,
information and knowledge. Production work is emphasizing the need for a new management
no longer the primary job in many organizations; paradigm:
more and more organizations work and wealth is The knowledge worker chooses where to work
based on knowledge workers. and when to leave one place of work in order to
start somewhere else. The manager is no more
The Knowledge Worker the big boss who will have the last word no
matter what he/she says and does. He/she has to
The term knowledge worker was first coined be aware that people will not stay regardless of
by Drucker already in 1957, as he identified the the conditions. Alternatives exist, and it is normal
new developing worker in The Landmarks of to see people moving from job to job and even
Tomorrow. A knowledge worker is no more a changing careers. Drucker (1999) claims that these
sub-ordinate, as managers and organization were employees, the new knowledge workers, have to
used to handling them. A knowledge worker is be managed as if they were volunteers (pp. 20-21).
nowadays an associate (Drucker, 1999, p. 18),

30
Management 2.0

People seek meaning and significance in life managing, yet should find new alternatives for
and in work. [We are in] a gradual shift from controlling decisions and managing the knowledge
materialist values (emphasizing economic and workers making them.
physical security above all) towards post-ma-
terialist priorities (emphasizing self expression The Need for New Management
and the quality of life). Whatever we call it - the Paradigms and Frameworks
Fourth Great Awakening, post-materialist
values, meaning want- the consequences are In the past few years, we find more discussion
the same. Meaning has become a central aspect about these changes and the corresponding new
of our work and our lives1 (Pink, 2005, p.219). management paradigms and frameworks required.
Maslow in his 1943 paper A Theory of Human Some speak of ending the era of management,
Motivation, based on generalizations made about others about a revolution. The modest, like Hamel,
exemplary people such as Albert Einstein, Jane Ad- speak about the need of climbing and reaching a
dams, Eleanor Roosevelt and Frederick Douglass, new peak in modern management (Hamel, 2007,
described the grounds for human motivation that pp. 7-8).
enable extraordinary achievements: People seek Hamel, in Moon shots for Management,
more than physical solutions, such as making a describes the gathering of renowned scholars and
living. They seek love and belonging, self-esteem, business leaders in May 2008, as they aimed to lay
achievement, respect, and self-actualization. Once out an agenda of reinventing management in the
this theory included extraordinary people, who 21st century. The group came to several conclu-
would seek these needs in other places; nowadays, sions, the main one being that that the management
this is a concern of most knowledge workers. methods used today, invented back at the end of
These needs must be fulfilled not only in life but the 19th century, are now seriously out-of-date.
also specifically at work. Fulfilling these needs The group therefore set a goal of reinventing
is one of the managers tasks. management so as to make large organizations
Knowledge workers consume knowledge and fundamentally more adaptable, more innovative
information in order to perform their jobs. For and more inspiring places to work (Hamel, 2009).
the knowledge worker in general, and especially To accomplish these goals, a new manage-
for executives, information is their key resource ment methodology and framework should be
(Drucker, 1999, p. 123). They are exposed to devised, which suggests methods that take into
massive volumes of knowledge and information consideration the knowledge workers behavior
available in many channels, above all on the web. and expectations. It should be a framework for
These workers can, and sometimes do, know managing, where a new relationship is forged
more than their managers regarding their jobs. between managers and employees; a framework
The authority of the manager is no longer based that gives the manager tools for empowering the
on knowledge, even though we are dealing with knowledge worker even though that worker may
knowledge workers. know more than the manager may and desires
One more attribute, interesting in the manage- autonomy. Indeed, despite his/her knowledge,
ment perspective, has to do with the autonomy this employee should be trained, developed pro-
of knowledge workers. Knowledge workers like fessionally, and be guided in finding the path for
autonomy in their work, and like to be indepen- self-esteem, confidence, achievement, respect and
dent in their decision-making (Davenport, 2005, maybe even for self-actualization.
pp. 15-16). Managers cannot give up the role of

31
Management 2.0

THE NEW 2.0 MANAGER focal spot, and management taking into account
the employees enhanced needs, behaviors and
Management 2.0 expectations.

The term 2.0 is well-known today, and has its root Framework
in the term Web2.0. The concept of Web2.0
began with a conference brainstorming session Management functions include three major-level
between OReilly and MediaLive International interconnected management issues, which have
back in 2004, two years after the dot-com bubble not changed over the years, illustrated below:
crash, which, from March 2000 to October 2002, Managers must concern themselves wit three
wiped out $5 trillion in market value of technology major-level issues:
companies. The public did not believe the Web
could ever return to its glory days. A change in Managing the employees.
mindset, one may say a revolution, was needed. Managing the work, ensuring that it is ac-
The term Web2.0 was coined symbolizing a new complished (within budget) and that tar-
era: what was, should remain in the past. Now is gets are reached.
the time for a new concept, a new future. Web2.0 Managing the relations with external
turned out to be the revival of the Web. groups, people and entities.
Web2.0 is based on a set of concepts and
tools. Concepts as user centric; the wisdom of the All three aspects are influenced by the huge
crowds; and harnessing collective intelligence; changes in the economy, by the technology leap
Tools as social networks; blogs; wikis; and twit- and by the information and knowledge presently
ters (Oreilly, 2005). required for success. This article focuses on a
The term 2.0 was first used out of the context of management framework reflecting on all three
Web2.0 to symbolize the use of Web2.0 concepts aspects.
and/or tools in other contexts: Enterprise2.0, for
example, deals with use of blogs, wikis and social
networks within the enterprise for organizational MANAGING EMPLOYEES
needs. Knowledge Management2.0 involves both
usage of tools and concepts for sharing purposes The renewed framework can be designed dealing
within the organization (Levy, 2009, p. 131). with management through various perspectives.
However, the term 2.0 is currently used to also
express a broader idea of revival of paradigms, Figure 1. Management major functions
especially, but not only, being user centric. Web1.0
spoke about content (content is the king (Walsh,
2006)); Web2.0 is about users. It is common to find
terms like Management2.0, Sales management 2.0,
Marketing2.0. Some even speak about love2.0.
Management2.0 is the expression for a renewed
way of thinking about management, in contrast
to the existing Taylor etc. paradigm (hereby re-
ferred to as Management1.0). Management2.0
is a revival management paradigm, based on the
employee (the knowledge worker) occupying the

32
Management 2.0

one perspective includes analyzing the desired The Managers Functions and Tasks
behavior of the new manager in his/her routine
functions: hiring a new employee; risk manage- No single article can cover all of the managers
ment; employee evaluation and feedback; and functions and tasks; thus this work focuses on
employees leaving work. one of the three major management functions,
A different perspective involves analyzing employee management, leaving the others out.
the characteristics of the knowledge worker, Furthermore, managers differ each from each
and, in response, recommending actions for the other, based on the specific profession, organi-
manager. Examples of the knowledge workers zational structure, employees knowledge and
characteristics include: the desire for autonomy; seniority, etc., and, therefore, it is not pertinent
having certain knowledge that exceeds that of to cover all management tasks. The suggested
the manager, etc. framework covers universal core functions and
A third perspective entails examining the un- tasks, shared by most managers in most organiza-
derlying guiding principles of management, and tions. These functions include:
how these are reflected in the relations between the
manager and the knowledge worker. Examples of 1. Hiring: Examining potential new employees
underlying guiding principles include: democracy for job.
in management; the place of values in manage- 2. Recruiting and absorption.
ment; emotional vs. rational management, etc. 3. Controlling work of employee.
Interconnections between the three perspec- 4. Rewarding
tives do exist. Describing all three in the suggested 5. Yearly Evaluation
management framework, however, provides a 6. Employee Leaving work
richer understanding of management in the new
era. For each management function or task, a
The three perspectives and their interrelations concise comparison emphasizes the differences
are illustrated in the following figure: between the typical actions of a Management
As defined above, all three perspectives are 1.0 manager and those actions recommended in
focused within this work on managing the em- Management 2.0: (Table 1)
ployee. The table emphasizes the complexity of the
managers functions and tasks. We live in a dy-
namic era of information and knowledge. The
knowledge worker has to know how to learn, and
Figure 2. Management perspective and inter- the manager has to understand that he/she will
relations not be able to know all that their employees know.
Therefore, choosing a new employee is not an
easy task, and involves anticipating not only what
the potential knowledge worker knows now, but
also what s/he will know in the future. Managing
the progress in work achieved by the knowledge
worker is even more challenging. Feedback and
questioning techniques are offered. When the user
leaves, accumulated information and knowledge
have to be transferred. As these become more
essential to business success, and, as the knowl-

33
Management 2.0

Table 1. Management 2.0 recommendations for fulfilling functions and tasks

Function / task Management 1.0 Management 2.0


Hiring: Examining potential Main parameters for choosing the new In addition:
new employees for job employee: o Ability of K.W.2 to learn (Davenport, 2005, pp. 159-
o Knowledge and skills. 160).
o Salary and social security conditions o Ability of K.W. to work in a team (Davenport, 2005,
pp. 12, 168).
o Fit between K.W.s desires for self esteem and self-
actualization to the companys organizational culture and
values (Maslow, 1943, pp. 379-380).
Recruiting and absorption Includes: In addition:
o Absorption - as short as possible. o Matching expectations with employee as to a length of
o Training absorption (in many cases, one year).
o Continually coaching, and understanding and filling
knowledge gaps (Leonard & Swap, 2005, pp. 192-199).
Controlling work of em- o Telling the employee how to do things o Using questioning technique to understand why deci-
ployee correctly. sions were taken by K.W., and further guiding him/her
o Explaining. how to better do the job.
Rewarding o Salary was the main incentive component. o People seek meaning in work. Incentives and rewards
Rewarding existed, and was not to compli- are some of the most powerful management tools avail-
cate to decide who deserves it. able (Davila, Epstein & Shelton, 2006, p. 179).
o Putting efforts in the decision who to reward: Under-
standing who is to be rewarded can be a complicated
task, as the managers knowledge of ones work and
success is partially depended on what the K.W. updates.
Rewarding is not simple as measurement of work and
success are not trivial. Nevertheless, rewarding should be
clear and regarded as fair in order to be organizational
effective.
o Rewarding should be more soft oriented, answering
needs of honor, esteem, respect and appreciation of the
K.W. (Maslow, 1943, p. 379).
Yearly Evaluation o Reflective evaluation as to strengths and o Feedback concentrating on 2-3 topics, in which man-
weaknesses. ager decides that change is required and applicable.
Employee Leaving work o Appointment of tasks to other people. In addition:
o Knowledge transfer. o Knowledge retention program, especially for retiring
K.W.s (Delong, 2004).
Notes:
a. The main management functions or tasks have not changed as society has moved from the production era to the knowledge and information era.
b. In some areas, the change involves the addition of new actions and is a sub-task to previous actions.

edge becomes more complicated (Delong, 2004, The Knowledge Workers


pp. 16-18), this task is not as easy as one might Characteristics
wish.
The above table does not provide the full, rich The knowledge workers characteristics are
picture of Management2.0. In order to understand influenced by the changes that accompany the
the suggested framework, two additional perspec- information and knowledge era. These changes
tives of management are described. are no revolution; they have occurred gradually
over the past twenty to thirty years. The accumu-
lative shift, though, is significant. Management

34
Management 2.0

techniques, which were designed by Taylor etc. This table analyzes the 2.0 managers recom-
and served us all, are not sufficient in the 2.0 era. mended actions and behaviors from the perspec-
Main characteristics of the employee in the tive of the knowledge worker and his/her charac-
2.0 era, include: teristics. The main change the manager has to deal
with can be summarized in one sentence: If in the
1. The knowledge worker chooses where to past the managers main concern was the work,
work and when to leave. nowadays the 2.0 managers concern is both the
2. The knowledge worker seeks meaning and work as well as the knowledge workers. Manag-
significance in work. ers that deal with workers as a technical resource
3. The knowledge worker consumes knowledge only will find it hard to survive in the long term.
and information in order to perform his/ Managing the knowledge worker is not only es-
her job. Information volume is high, and sential, it is complicated, It is complicated as the
knowledge and information are significant knowledge worker has needs other than money
to organizational and business success. (requiring the manager to deal with resources with
4. The knowledge worker knows more than which /she he is less familiar); as the knowledge
the manager regarding the job. worker knows many times more than the man-
5. The knowledge worker likes autonomy. ager; and as the knowledge worker wants his/her
autonomy in work. Management has to be per-
Management 2.0 techniques dealing with these formed differently than in the past. Management
characteristics include: (see Table 2) underlying guiding principles hold a significant
role in the difference.

Table 2. Management 2.0 recommendations as to knowledge workers characteristics

Employee in the 2.0 era- K.W. Employee in the 1.0 era Management 2.0
characteristics
The K.W. chooses where to work Employees usually worked in one The manager has to focus not only on achieving work and con-
and when to leave (Davenport, place and rarely had more than one trolling its accomplishment on time, on budget and according
2005, p. 198) career to quality standards, but also s/he must verify that the K.W. is
satisfied with doing the work. Drucker defines new manage-
ment in this context as volunteer management (Drucker, 1999.
pp. 20-21).
The K.W. seeks meaning and Employees regarded the organiza- The manager has to develop ways to empower the K.W.,
significance in work (Maslow, tion as a place that only supplies enabling the fulfillment of the K.W.s needs:
1943, p.378-380); (Dychtwald, money and means for earning a 1. Love and belonging- providing a sense of team and organi-
Erickson & Morison, 2006, pp. living. zation loyalty, and place for each employee to feel part of it.
207-227) 2. Esteem- providing the K.W. with feedback that not only
advances tasks, but also gives the employee a sense of respect
and self-esteem. Making decisions in a way that employees
feel respected; etc.
3. Self actualization- helping the K.W. find a path for fulfilling
her/his personal vision, while still advancing the organiza-
tional vision.
Dychtwald, Erickson and Morison (2006) suggest providing
the K.W. with stimulation, variety, edification, connection,
control and value. These can help in the development of mean-
ingful work and engaged workers (pp. 207-227).

continued on following page

35
Management 2.0

Table 2. continued
Employee in the 2.0 era- K.W. Employee in the 1.0 era Management 2.0
characteristics
The K.W. consumes knowledge Employees did consume informa- The manager:
and information in order to tion and even knowledge, yet: 1. Has to provide time for reading and learning.
perform his/her job. Information 1. Not all employees consumed 2. Has to enable social networking of the K.W. outside the
volume is high, and knowledge information and knowledge for team and/or organization boundaries, enabling him/her to ask
and information are significant to their job. but also to answer others queries and requests (Leonard &
organizational and business suc- 2. The information and knowledge Swap, 2005, pp. 230-244)
cess (Davenport, 2005, p. 124) were rather static. 3. Has to provide means for documentation and content
3. The volumes of information and organization.
knowledge were not high.
4. The information and knowledge
were not as significant to organiza-
tional and business success.
The K.W. knows more than the In many cases, the manager Rapid change of knowledge and information influence the 2.0
manager regarding the job performed similar work to that managers ability to remain a professional authority if s/he is
of the employee in his/her past. not connected to field work. The manager:
The information and knowledge 1. Should continue performing limited, focused fieldwork as
required for performing the job means for maintaining professionalism.
rarely changed, and the manager 2. Should recognize and admit that the K.W. may know more
therefore knew all the employee than him/herself.
knew, and even more (being more 3. Should seek alternative sources of authority, as knowledge
senior). The manager was often a based authority is no longer sufficient.
professional authority. 4. Should develop alternative techniques for controlling the
work and worker; should develop techniques for empower-
ing the K.W. professionally. All this should be done in the
paradoxical situation where the manager has less specific
knowledge than the K.W.
The K.W. likes autonomy Employees had no or very limited The 2.0 manager has to respect the desire for autonomy, yet
(Drucker, 1999, pp.145-146); autonomy in their work. is not less responsible for the work and its accomplishment
(Davenport, 2005, pp. 15-17). on time, on budget and according to quality standards. It is
recommended that the 2.0 manager should:
1. Delegate limited responsibility to the K.W. as a condition
for receiving the desired autonomy.
2. Distribute autonomy where risk is not too high and can be
controlled, understanding this is not only a wish of the K.W.
but also a way of empowering him/her professionally.
3. In appropriate places, centralize the decision of what to do
(leaving it to the manager) and distribute the decision of how
to carry it out to the K.W.

Underlying Guiding Principles added, none can be spared. The main differences
between the 1.0 manager and the 2.0 manager are
In the previous paragraph, the knowledge worker in the how. The list of guiding principles is long.
was described as one that likes autonomy. One of The following includes representative guiding
the corresponding recommendations was to con- principles on how to manage in the 21 century:
tinue centralizing the what, while distributing the
how. Distinguishing the what from the how 1. Combined emotional and rational
may serve as a useful tool for explaining the sug- management.
gested changes in the management2.0 framework. 2. Democracy.
Most of the managers traditional functions and 3. Innovation encouragement
responsibilities have remained; some have been 4. Social involvement.

36
Management 2.0

5. Social involvement. established, we find the same fields exist: Doctors


and teachers existed in the past and will continue
Explanation of these guiding principles: (see to exist in the future; this is true also of factory
Table 3) workers. Engineers, scientists, builders, judges,
Five guiding principles for the 2.0 manager bankers, consultants and most other professions
were described: combined emotional and rational have served society for hundreds and even thou-
management; democracy; innovation encourage- sands of years. We are exposed to new professions,
ment; values; and social involvement. Each guid- such as high-tech professionals, but these are in
ing principle can be adopted by all managers, the minority; management as a paradigm will
even those without knowledge workers to manage. not change just because several new professions
Each guiding principle is a representative ex- have emerged.
ample, guiding the manager as to the distance However, the work in each profession has
management has come, and the revolutionary way developed, and, more importantly, the managers
of thinking that the 2.0 manager should adopt, as knowledge of each and every topic and assignment
compared to the period in which management 1.0 is far less deep than in the past. Employees know
frameworks and methods were published. more and have more autonomy in their work; this
To summarize the renewed framework for man- means that the manager knows less. Nevertheless,
aging employees, management can be described the manager remains responsible for completing
and defined through various perspectives. Three the work. This may seem contradictory. On one
perspectives were chosen here, and the issue of hand, the manager lacks some levels of understand-
employee management was defined accordingly: ing, as opposed to the past, when s/he knew and
experienced the field. Even if the manager grew
1. Understanding management through exam- from the same position as his/her employees,
ining universal, typical employees manage- the field constantly and rapidly changes, and the
ment tasks; knowledge grows greater every year, leaving the
2. Understanding management through analyz- managers knowledge incomplete. Furthermore,
ing knowledge workers characteristics, and knowledge workers enjoy autonomy in their work
deriving recommendations for managing and like to be independent (Davenport, 2005, pp.
them. 15-16). The managers task of knowing what is
3. Understanding management through under- happening and actually managing the work is not
lying guiding principles for the 2.0 manager. simple. On the other hand, the level of responsibil-
ity has not changed at all. The manager must make
decisions and ensure that work is completed within
MANAGING WORK the given resources (time, money and personnel)
and with the highest quality.
The previous sections defined a renewed frame- The 2.0 manager has to emphasize some aspects
work for managing the employees - the knowledge of the known techniques, enabling achievement
workers. Managing, however, involves more than of classic management goals while having limited
managing employees. Management functions knowledge. Following are the managers main
include three major-level interconnected man- functions:
agement issues: managing employees; managing
work; and managing external relations. 1. Decision making
If we compare work areas to one hundred years 2. Time management
ago, when existing management 1.0 methods were 3. Budget management

37
Management 2.0

Table 3. Management 2.0 underlying management principles

Guiding principle Explanation


Combined emotional and Importance of rational decision making is well known and understood; less understood is the place and
rational management significance of emotional decision making. Tversky and Kahneman (1981) have suggested the prospect
theory as a way to understand how people take decisions in conditions of uncertainty, proving that subjec-
tive judging is common (especially when low probabilities exist).
Leonard and Swap (2004) explain that what we consider gut-feeling decision making may be expressed
as intuition or insight that might accurately reflect the experts knowledge (pp. 60-62).
The 2.0 manager, who deals not only with work but also with workers:
1. Must understand that pattern recognition, observed as intuition, is a technique assisting the expert to
best handle the mass volumes of knowledge and information (Leonard & Swap, 2004, pp. 195-196).
2. Can benefit from combining the emotional and rational decision-making about work and workers,
recognizing that intuition is more than gut feeling.
3. Can benefit from combining the emotional and rational decision-making about work and workers,
recognizing the place of emotional intelligence in business and life (Goleman, 1995).
Democracy Organizations are not democracies, although it may be wise for the 2.0 manager to include democracy in
his/her guiding principles, used selectively where appropriate:
1. Democracy can play a positive role in engaging the employee to work. As stated earlier, the K.W.
chooses where to work and when to leave, and the K.W. seeks meaning and significance in work. Having
the K.W. share in decision making processes can have a positive influence on his/her sense of self-esteem,
confidence, achievement, respect and self-actualization.
2. Professionally, it is better to make some decisions after consulting with many people. This claim is
known as the wisdom of the crowds, a term coined by James Surowiecki in 2004. The idea is that, in
defined conditions, consulting more people and asking for their opinion, results in better decisions. It is
important to understand the conditions under which this claim proves to be true:
a. Asking people with diverse knowledge and opinions.
b. Independence of each person consulted (no or minimal tribe and herding effects).
c. Aggregation mechanism of collecting the various opinions and integrating them into one deci-
sion (Surowiecki, 2004, pp. 78-79).
It must be noted that democratic decisions are resource consuming (mainly time consuming) and can
potentially put the managers authority at risk. It is therefore recommended to prefer democracy when
time is not significant and/ or in strategic and innovative situations where decisions are neither critical nor
trivial.
Innovation encouragement For many years, innovation was the property of focused groups in organizations: marketing, strategies
and R&D. In the knowledge and information era, innovation can and should develop everywhere in the
company (Davila, Epstein & Shelton, 2006, p. 10). The 2.0 manager should:
1. Know that innovation may be operational, but may also be connected to products and/ or services, strat-
egy and even to management itself (Hamel, 2007, p. 32); integrate innovation into the companys basic
business mentality (Davila, Epstein & Shelton, 2006, p. 11).
2. Understand that innovation can stem from each worker. The manager should enable it to develop, and
communicate these expectations to the knowledge workers.
3. Enable and nurture working in teams. Small teams facilitate discussion and strengthen innovation
(Davila, Epstein & Shelton, 2006, p.137).
4. Work with temporary constellations of people: Mixed heterogeneous teams, assigning different people
to different tasks with different teammates. (Surowiecki, 2004, pp. 40-65); (Hedlund, 1994).
Values Volumes have been written on the importance of vision, mission and values. Collins and Porras (1997)
have researched eighteen visionary companies, seeking the cooperative elements that turn them to lasting,
excellent companies. Our research showed that a fundamental element in the ticking clock of a vision-
ary company, is a core ideology - core values and sense of purpose beyond just making money, that guides
and inspires people the organization and remains relatively fixed for long periods of time (pp. 46-79).
Values were important to business success before the knowledge and information era; their significance,
however, has increased as the K.W. seeks meaning and significance in work. The 2.0 manager should:
1. Ensure values exist and are incorporated into business processes and decision-making.
2. Try promoting combined organizational and personal vision and values (Senge, 1990, pp. 191-215).

continued on following page

38
Management 2.0

Table 3. continued
Guiding principle Explanation
Social involvement Social involvement is an important value in life, but is naturally tagged with after work hours, as a
decision of the individual rather than of the organization. In the past few years, many organizations have
joined the social involvement movement and are contributing money or employees time to assist those
people or causes needing help.
Social involvement of organizations is a win-win-win situation. Those who need the help obviously win.
However, the organization also benefits. Knowledge workers are seeking meaning and significance, and
social involvement is a noble instrument through which the organization can provide this meaning. The
K.W. benefits as well. Pink, in A Whole New Mind, explains how volunteering is a great way to develop
empathy. Empathy- defined by Pink as one of the six senses possessed by right-brainers is a factor in the
success of those people in and out of the business world with exceptional abilities and leadership qualities
(Pink, 2005, p. 184).

4. Quality management External relationships always existed and will


5. Planning always exist. The boundaries between the differ-
6. Risk management ent types of external groups are not as sharply
7. Measuring drawn as in the past. 2.0 managers have to invest
more effort in customers as well as in non-cus-
The following table explains the type of em- tomers, trying to add them to customer lists.
phasis needed for each task in the 2.0 management
era: (see Table 4)
Management work has not changed. Change TECHNOLOGY
is driven by the softness of tasks and of defining
business success, by the manager not always be- Technology has a great impact on the 2.0 man-
ing proficient in details and by rapid changes in agers capabilities. Below are a few examples of
the market These turn the classic management software technologies and a description of their
tasks of decision making, time management, benefit to the 2.0 manager. It should be noted
budget management, quality management, plan- that some software technologies are new (web2.0
ning, risk management and measuring into so- oriented), while others may be serving already for
phisticated tasks. The 2.0 manager has to think several decades, yet remain important.
wisely in order to perform them properly.
1. Email: The most popular channel for trans-
ferring and sharing knowledge. The cc
MANAGING EXTERNAL option added to every email client software
RELATIONSHIPS enables managers to be more informed and
involved compared to other knowledge
Managers always had to manage relations with transfer alternatives.
customers and suppliers, but certain characteristics 2. Business Intelligence platforms and ap-
of the 21st century are changing the way organiza- plications: Enabling the 2.0 manager to
tions observe external relationships: manage the huge masses of data, and make
decisions based on thereon (Davenport,
1. Customers. 2005, pp. 89-90).
2. Noncustomers. 3. Knowledge Management enterprise solu-
3. Competitors. tions (portals, ECM systems3, communi-

39
Management 2.0

Table 4. Management functions: Emphasis in the 2.0 era

Management Function Emphasis


Decision making The manager cannot make all decisions alone. Furthermore, s/he cannot even be involved in all
decision making processes. In the knowledge era, many decisions have to be made almost every
day, and the 2.0 manager does not possess all knowledge. The manager has to decide in which
areas and at which levels decisions will be made by the K.W. and where s/he as a manager will
intervene. This was true in the past century for high-level managers (managing other managers);
today it is true also for line managers (managing knowledge workers).
As to decisions taken by the manager, it is almost impossible to know all the relevant informa-
tion influencing the decision making process. Accepting the recommendation of the K.W. is not
an alternative either, as it brings the manager to a place of not making the decision independently
at all. Managers should request that employees describe the pros and cons of each alternative.
These advantages and disadvantages, even if described by a subjective employee, can provide
the manager with the tools to objectively understand the complexity of the issue, and make the
proper decision.
Drucker (1999) describes the new decisions to be made as risk-taking decisions. Thus, as busi-
ness success is nowadays based on the creation of value and wealth, it requires strategic deci-
sions based on new certainties.... These decisions are the true top management tasks (Drucker,
1999, p. 85).
Time Management As described earlier, knowledge oriented tasks are not as easily defined as industrial classic ones.
Allocating time for each mission is not always possible. Furthermore, there is evidence that dif-
ferences exist in knowledge workers efficiency and in their ability to handle several projects or
tasks simultaneously.
As K.W.s are fond of autonomy (Davenport, 2005, pp. 15-16) and seek self-esteem (Maslow,
1943, pp. 379-380), the new 2.0 manager may decide to ask the K.W. to define the time needed
for every task. The manager will control performance in time, synchronization between various
K.W.s and their tasks, and solve conflicts when these do not line up together.
Budget Management Budget management techniques do not seem to be affected by the knowledge era and the work
of knowledge workers. This new century, though, is characterized as a fast-changing market,
making it difficult to congregate within a defined budget. 2.0 organizations and managers should
consider changing the budget planning routine:
1. Defining long-term plans for no more than three years.
2. Working with six-month budgets, instead of annual budgets.
Quality Management Business success drives are changing over the years. Drucker claims, business success is nowa-
days based on the creation of value and wealth (Drucker, 1999, p. 85).
Pink writes about the importance of design: where once we seized functionality, we now seek
design (Pink, 2006, pp. 68-99).
Quality, in these terms, may be subjective, and quality management is less obvious. Quality para-
digms have been dealing with these issues over the past twenty years, suggesting frameworks for
quality ISO, CMMI, etc.), yet leaving the decision of what comprises quality to the organization
itself. 2.0 managers can adopt the same idea: define the framework for quality, yet leave the
knowledge workers the autonomy to interpret quality in their job, and to decide how quality is
to be obtained. K.W.s seek meaning in their work and their incentive for quality might be higher
than that of the industrial employees of the past century, thus easing the task of the manager.
Planning Planning takes place as part of organizations and peoples efforts to ensure that targets can be
reached. Without planning, success may be coincidental. Planning in the 21st century, however, is
less trivial than in the past:
Technology has turned the global business market into one huge market. Changes on one side of
the globe affect businesses everywhere. Furthermore, the world is rapidly and frequently chang-
ing..
All this makes the planning process one of the more difficult tasks of the 2.0 manager.
As with budget management, planning can be dealt with through time definitions. Handling
frequent audits and discussions regarding current plans and future changes is a possible solution
for the 2.0 manager. Organizations should enable the updating process of the plan as part of the
regular organizational plan process. Flexible plans should be standard rather than exceptional.

continued on following page

40
Management 2.0

Table 4. continued
Management Function Emphasis
Risk Management The 21st century may be regarded as a century of risks: On one hand, information and knowledge
are available, easing the ability of the 2.0 manager to objectively make decisions based on facts
(Davenport & Harris, 2007). On the other hand, rapid changes and subjectivity of value increase
the risk level. Furthermore, many of the managers do not yet make enough decisions based on
facts, and the number of managers competing on data and its analytics is still small (Davenport
& Harris, 2007).
Risk may seem increased as managers are unaware of all details of the work performed by the
knowledge workers, leaving them in uncertainty.
Risks need to be managed by the 2.0 manager. The techniques may be those used for decades,
yet the manager cannot absorb this task alone; risk management should be performed by the
manager with the assistance of the K.W.s.
Measuring Measurement is an essential task of management: What gets measured gets done (Davila,
Epstein & Shelton, 2006, p. 144).
Measurement is, in many cases, however, a complicated task, as neither the knowledge workers
tasks nor the organizations business success can always be defined sharply.
The 2.0 manager should not abandon the measurement task, rather develop techniques for mea-
suring work with which s/he may not be completely familiar, while the work may be defined as
soft or as having soft value. One technique, for example, involves focusing more on qualita-
tive measuring. Another technique, relevant for measuring the process of pre-evaluations, is the
measurement of the cost of error (Hubard, 2007).

Table 5. External relationships in the 2.0 era

Group Relationship
Customers Drucker discusses the growing importance of customer in the 21st century: The starting point
has to be what customers consider value What customers consider value is always something
quite different from what is value or quality to the supplier. (Drucker, 1999, p. 25).
This implies close relationships - far closer than in the past - with the market, with potential
customers and with customers.
One technique for handling such relationships is via shared social networks, having both the
manager, the customers and knowledge workers share these networks.
Noncustomers Organizations have many more noncustomers than customers. Even the biggest enterprise
(other than a government monopoly) has many more no-customers than it has customers And
yet very few institutions know anything about the noncustomers- very few of them even know
that they exist, let alone know who they are. Even fewer know why they are not customers. Yet it
is with the noncustomers that change always starts. (Drucker, 1999, p. 25)
Noncustomers were always important. The changes of the 21st century, turning us all into one
global market, bring organizations to a new situation: more noncustomers, with the potential
to be customers, and more far away, unknown noncustomers. The 2.0 manager has to define a
strategy how to wisely know these noncustomers and turn them into customers.
Competitors Competition has changed its flavor in the past 20 years. In the past, a competitor was always
a competitor. Nowadays, managers find themselves competing with some organization on one
project, yet having an alliance with the same organization on a different project, whether as a
supplier, a partner or even a customer.
The partial mergers and acquisitions of companies bring about a new situation in which two
competing companies find themselves helped by the same mother company, which holds a 51
percent share.
All these situations are possible and even common, and the 2.0 manager has to know how to
handle them.
There is no one right strategy for handling these situations. 2.0 managers have to be aware of
them and of the possibility that they may occur at any time...

41
Management 2.0

ties of practice, etc.): (Davenport, 2005, pp. 7. Twitters: Twitters are technically micro
90-91, 193): These platforms are designed blogs, yet they serve differently from blogs.
mainly for the knowledge worker. The 2.0 Twitters are a convenient tool for sending
manager must recommend constructing mini messages as an alternative to the or-
these solutions that improve both the effi- ganizational bulletin board placed on the
ciency and quality of the knowledge workers organizational or professional portal. The
s/he manages. The 2.0 manager also has the twitter can serve 2.0 managers of large
responsibility to encourage the knowledge organizations. In small to medium organiza-
workers to start using new knowledge man- tions, the alternative channels for messages
agement enterprise solutions. are often simpler and more efficient.
4. Social Networks: Social networks serve as
a main channel of relationships between the Technologies do indeed play a role in assist-
knowledge worker and his/her colleagues ing the 2.0 manager manage knowledge workers
outside the organizational (or division) under his/her responsibility, and in helping them
boundaries (Davenport, 2005, p. 206); work more efficiently. Every 2.0 manager should
(Leonard & Swap, 2005, pp. 230-244). If remember, however, that this potential enabler can
enterprise communities of practice deal with backfire when data overflow (in case of BI tech-
the enterprise (closer) colleagues, the social nologies) or information and knowledge overflow
network is based on weekly connections with (in case of other mentioned technologies) occur.
larger groups of interest, mainly outside the One of the managers responsibilities is to see to
organization. The managers responsibility that data, information and knowledge are well
is to encourage the knowledge worker to use organized and utilized (Davenport, 2005, p. 135).
this channel to share knowledge and consult. It must also be noted that technology is only an
Social networks can serve also within very enabler. The challenge of the 2.0 manager involves
large enterprises. managing people and their emotions, needs and
5. Blogs: Blogs are a productive way for man- desires, as well as managing the work conducted
agers to communicate ideas, thoughts and by these knowledge workers and managing the
messages to their employees. They are more external relations with suppliers, customers and
popular within large enterprises where there other partners. In these areas, technology may be
is no direct contact between the manager helpful, yet not main.
and the employees. However, even in small
organizations, these types of messages can
often only be passed through this channel. CHALLENGES
The daily routine dictates concentrating on
operational and professional issues, and less Management2.0 is a management paradigm, based
on managerial ones (Scoble & Israel, 2006). on the employee occupying the focal spot. Thus,
6. WIKIs: Enterprise WIKIs are a part of the the management 2.is a challenge, by definition,
knowledge management tools each orga- as management is defined serving organizations
nization may choose to build according to needs. 2.0 Managers have to balance between these
specific business needs. WIKIs are useful in two polar aspects of organization and individual.
areas such as collective wisdom and content- The suggested framework includes specific tech-
entities-and-relations management. WIKIs niques for handling the challenge, and these were
should be dealt with like all other knowledge emphasized in the sections above. In addition,
management solutions. supporting technologies were suggested, easing

42
Management 2.0

the 2.0 manager as s/he handles the manage- influence the relations between the typical knowl-
ment2.0 challenge. edge worker and his/her manager, influence the
Yet, these do not supply a full solution, as more way work is controlled, and influences the way
challenges do exist. Hereby are three examples managers develop and maintain external relations.
of possible challenges and how 2.0 managers can All these result in having new paradigms to define
deal with them: management necessary. The new management,
called management 2.0, is employee-centric,
1. There is and probably cannot be any pre- yet retains responsibility of the manager for the
defined cookbook for management. Every employee, for the work and for external relations.
manager has to be aware of the guidelines, To summarize all in one sentence, one might
and learn for him/herself, through self- say: Management 2.0 has to do with transforming
experiencing, how to correctly manage their from a boss into a leader.
employees.
2. In life, contradictions may appear, as
situations are multi-dimensional, not flat. FURTHER RESEARCH DIRECTIONS
Contradictions can take place between plan-
ning and rapid changes of information and Naturally, more research in this field is required.
knowledge; between democracy and asking Further research directions may include man-
questions as a supervision technique, etc. agement2.0 focused on productive work (as in
Common sense is the most effective way Davenports (2005)Thinking for a living); man-
to decide among contradicting guidelines. agement2.0 should be further researched focused
3. The manager operates in a defined environ- on the relationships with directorates, potential
ment, yet does not obtain all information on customers, customers, suppliers, colleagues and
each situation, and therefore cannot always the public. This area is now in first stages of re-
know what the right recommendation is at search, and much yet has to be learned in order
each specific scenario. Furthermore, the to maximize the potential profits as from these
manager cannot control all partners, only relations.
him/herself. In many cases, the employee or In this work, Management2.0 was researched
customer can act in an un-expected manner, reflecting one of the main changes: us living in an
whether on a rational or emotional basis. The information and knowledge era. Further research
manager has to consider and re-consider his/ can be conducted, reflecting other changes, as new
her behavior as to the partners one. technology, dynamics of changes, wealth, etc..
These can shed more light on the management2.0
issue, adding new insights and implementation
SUMMARY recommendations, teaching us how to better live
and work in this new era.
One hundred years ago, management started
to flourish, and management frameworks and
methodologies arose. The world has dramatically REFERENCES
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further, and many of the employees turned to be Successful habits of visionary companies. NY:
knowledge workers. These workers are different HarperCollins Publishing Inc.
to employees of the past, and these differences

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Management 2.0

Davenport, T. H. (2005). Thinking for a living: Leonard, D., & Swap, W. C. (2005). Deep smarts:
How to get better performance and results from How to cultivate and transfer enduring business
knowledge workers. Boston: Harvard Business wisdom. Boston: Harvard Business School Publish-
School Press. ing Corporation.
Davenport, T. H., & Harris, J. G. (2007). Competing Levy, M. (2009). WEB2.0 Implications on
on analytics: The new science of winning. Boston: Knowledge Management. Journal of
Harvard Business School Press. Knowledge Management, 13(1), 120134.
doi:10.1108/13673270910931215
Davila, T., Epstein, M. J., & Shelton, R. (2006).
Making innovation work: How to manage it, mea- Maslow, A. H. (1943). A theory of human moti-
sure it, and profit from it. Pearson Education Ltd. vation. Psychological Review, 50(4), 370396.
doi:10.1037/h0054346
Delong, D. W. (2004). Lost knowledge: Confronting
the treat of an aging workforce. New York: Oxford Oreilly, T. (2005). What is WEB2.0- design pat-
University Press. terns and business models for the next generation
of software. Retrieved August 12, 2009, from http://
Drucker, P. F. (1954). The practice of management.
oreilly.com/web2/archive/what-is-web-20.html
New York: Harper & Row, Publishers Inc.
Pink, D. H. (2005). A whole new mind: Why right-
Drucker, P. F. (1957). The landmarks of tomorrow.
brainers will rule the future. New York: Riverhead
New York: Harper & Row, Publishers Inc.
Books.
Drucker, P. F. (1999). Management challenges
Scoble, R., & Israel, S. (2006). Naked conversa-
for the 21st century. New York: HarperCollins
tions: How bogs are changing the way businesses
Publishers, Inc.
talk with customers. Hoboken, NJ: John Wiley &
Dychtwald, K., Erickson, T. J., & Morison, R. Sons, Inc.
(2006). Workforce crisis: How to beat the coming
Senge, P. M. (1990). The fifth discipline: The art &
shortage of skills and talent. Self-published.
practice of the learning organization. Doubleday,
Goleman, D. (1995). Emotional intelligence. New Random House, Inc.
York: Bantam Books.
Smith, A. (1776). The wealth of nations. New York:
Hamel, G. (2007). The future of management. Classic House Books.
Self-published.
Surowiecki, J. (2004). The wisdom of the crowds:
Hamel, G. (2009). Moon shots for management. Why the many Are smarter than the few and how
Harvard Business Review, (February): 2009. collective wisdom shapes business, economies,
societies and nations. New York: Anchor Books,
Hedlund, G. (1994). A model of knowledge man-
Random House.
agement and the n-form corporation. Strategic
Management Journal, 15(2), 7390. doi:10.1002/ Taylor, F. W. (1911). The principles of scientific
smj.4250151006 management. New York: W.W. Norton & Company.
Hubard, D. W. (2007). How to measure anything: Tversky, A., & Kahneman, D. (1981). The framing
Finding the value of intangibles in business. Hobo- of decisions and the psychology of choice, Science.
ken, NJ: John Wiley & Sons, Inc. New Series, 211(4481), 453458.

44
Management 2.0

Walsh, B. (2006). Content isnt King. Retrieved KEY TERMS AND DEFINITONS
August 12, 2009, from http://thepartycow.
com/2006/10/content-isnt-king.html Knowledge Worker: A person whose knowl-
edge is central to his/her job.
Management 2.0: Renewed paradigms regard-
ing management.
ADDITIONAL READING Knowledge Management: Retaining, sharing,
developing and structuring knowledge using meth-
Emotional Intelligence (Goleman, 1995).
odologies and tools, while focusing on improving
http://managing-knowledge.blogspot.com organizational and business targets.
Management Challenges for the 21st century
(Drucker, 1999).
ENDNOTES
The Fifth Discipline. (1990). The Art & Practice
of the Learning Organization. Senge. 1
It should be noted that Pink refers to the
present era as a post knowledge worker era.
The future of Management (Hamel, 2007). In this work the present is defined as part of
Thinking for a living: How to get better per- the same developing era.
formance and results from knowledge workers
2
K.W: Knowledge Worker
(Davenport, 2005).
3
ECM- Enterprise Content Management;
advanced document management systems.
Whole New Mind, A. (2005). Why Right-Brainers
Will Rule the Future. Pink.

45
46

Chapter 3
The CSFs Methodology and
Modified DEA Approach to
Construct a New Business
Model to Evaluate Operational
Performance of all International
Tourist Hotels in Taiwan
Chieh-Heng Ko
Chung Hua University, Taiwan

ABSTRACT
This chapter evaluates the operational performance of International Tourist Hotels in Taiwan, and ex-
plores the critical success factors that contribute to good performance. This research initially adopted
data envelopment analysis (DEA) to measure the relative operational efficiency of 57 international tourist
hotels in Taiwan. However, the DEA approach can only determine relative operational efficiency but
does not identify the factors that give rise to inefficiency or lead to efficiency. Furthermore, DEA only
calls attention to those hotels in which efficiency and inefficiency exist, but cannot provide suggestions
on how to improve operational efficiency. A qualitative approach is a good way to address this limitation
of DEA. Thus, after using DEA to evaluate hotels operational efficiency, this research used a qualitative
approach to further explore the critical success factors that contribute to hotels having good performance
in Taiwan. Through determination of these factors, this research provides hotel managers with a list of
advice and recommendations to develop effective strategies to meet a highly competitive environment.

DOI: 10.4018/978-1-60960-129-4.ch003

Copyright 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

INTRODUCTION knowledge of the operating efficiency of a given


hotel relative to the entire industry (Hwang,
The hotel industry in Taiwan is encountering a Chang, 2003).
highly competitive environment due to the rapid Efficiency was defined by Jones and George
expansion of hotels. For example, the total num- (2003) as a measure of how well or how produc-
ber of international tourist hotels has increased tively resources are used to achieve a goal. Or-
from 44 in 1985 to 60 in 2005 (Taiwan Tourism ganisations are efficient when managers minimize
Bureau, 2007). However, due to inappropriate the amount of input resource or the amount of
hotel management (Sun & Lu, 2005; Hwang & time needed to produce a given output of goods
Chang, 2003), eight international tourist hotels or service. A managers responsibility is to ensure
have closed down over the last six years. Average that an organisation and its members perform
occupancy rate has decreased from 73% to 69% as efficiently as possible. The fewer the inputs
between 2005 and 2006 which is surprising given required to produce a given output, the higher
the surge in new demand entering the market. will be the efficiency of the production system.
Hwang and Chang (2003) noted that Taiwan- Therefore, it is very important for managers to
ese hotels have adopted two ways to respond evaluate organisational efficiency, and a number
to competition. First, by targeting international of different approaches and techniques have been
travelers and domestic tourists to increase the employed to conduct such evaluations. However,
source of customers. Second, to join franchise- the often-used mechanisms for measuring and
chains, outsourced management and acquired analyzing efficiency of organisations have re-
membership in international hotel associations mained too narrow in their focus to capture the
to introduce international management systems broad spectrum of factors that actually contribute
and improve their managerial capacities. Even so, to an organisations success (Reynold, 2003). One
it has still been hard for these hotels to improve approach that has been successful is data envelop-
their performance. According to monthly report ment analysis (DEA), used in this research as it
on international tourist hotel operations in Taiwan can integrate multiple input and output variables
in 2006, the occupancy rate and average room and remedy this shortcoming.
rate of international hotels in 2006 were 69% and Moreover, one of the issues which hotel man-
US$ 95 respectively, (Taiwan Tourism Bureau, agers are most concerned about is the differences
2007a). Compared with Hong Kong (87%, US$ in performance levels that exist between different
140) (Hong Kong Tourism Board, 2007), the oc- hotels and what possible factors may justify those
cupancy rate and average room rate in Taiwan is differences. Therefore, based on the results of ef-
much lower. Most of the hotel owners were not ficiency evaluation, this study will use a qualitative
satisfied with this result. Furthermore, according approach to identify the critical success factors
to Taiwan Tourism Bureau, 43 hotels and ap- contributing to efficient hotel operations to assist
proximately 12165 rooms have been scheduled hotel managers to develop strategy and enhance
to open between 2007 and 2010. This will make operational performance. The objectives of this
the hotel industry in Taiwan encounter a highly study are:
competitive environment.
Facing this situation, the formulation of 1. To evaluate the operational efficiency of
competition strategy, strengthening operational international tourist hotels in Taiwan.
efficiency, and developing corporate advantage 2. To identify the critical success factors con-
are essential for hotel operations. When formulat- tributing to good performance.
ing any strategy, it is necessary to have a sound

47
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

3. To identify which hotels have good perfor- ity faces additional difficulties due to the specific
mance and have become a benchmark for characteristics of service and that in turn creates
other hotels; and which hotels are inefficient problems such as labour and process scheduling,
and should improve their operation. consistency and demand (Sigala, 2004; Witt &
4. To analyze the reasons why benchmarking Witt, 1989). Indeed, several researchers (Sassers,
hotels are doing well and how inefficient Olsen & Wyckoff, 1978; Jones & Lockwood,
hotels can improve their performance. 1989; Witt & Witt, 1989) argue that productivity
5. To determine the strategies that are management and measurement has been limited
more effective in the highly competitive in the hospitality sector by the features and char-
environment. acteristics of services. Specifically, the intangible
nature of hospitality service suggests that it is
difficult to define objectively and measure the
LITERATURE REVIEW service output being provided such as number of
guest-nights versus number of satisfied guests.
Performance Measurement The measurement and management of hospitality
in the Hotel Industry input and output is also complicated because of
the simultaneous production and consumption of
As with other industries, the hotel industry has its the hospitality services, along with their perish-
own particular characteristics associated with the ability and heterogeneity, as service encounters
provision of the hotel product and, therefore, are experienced differently by people or even by
the measures used to assess hotel performance the same people in different circumstances.
should reflect the specific activities and kinds of
products and services offered. Similarly, although Traditional Performance
performance measures have an important role in Measurement
monitoring past achievements and providing the
basis for planning and control decisions, unless Conventionally, average occupancy rates and aver-
they are related to the particular kind of business, age room rates have been used as indicators of hotel
performance evaluation is undermined. Thus, performance. Coltman (1978) and Fay, Rhoads
when reviewing performance management sys- and Rosenblatt (1971) used a cost-volume-profit
tems, it is critical to recognise the fundamental approach to analyse individual hotel performance.
orientation and industry context of an organi- Kimes (1989) employed the perishable asset
sation (Kotas, 1975; Fitzgerald et al., 1991). In revenue management concept to evaluate hotel
addition, it is also vital for performance measure- industry performance. Weatherford and Bodily
ment systems to reflect the complex nature of the (1992) developed a classification for length of
service delivery process within hotels including stay and Weatherford (1995) provided a length
such typical characteristics as high degrees of of stay decision rate for perishable asset revenue
perishability, intangibility, heterogeneity and si- management. Van Doren and Gustke (1982) used
multaneity (Jones and Lockwood, 1989; Fitzgerald lodging industry sales receipt information to assess
et al., 1991). hotel industry performance. Wijeysinghe (1993)
Additionally, productivity is used to reflect applied a method for calculating breakeven room
company performance, because productivity occupancy that provided accurate calculations
determines the ratio of outputs over inputs, with together with a system of effective management.
larger values indicating better performance. Despite the above research which attempted to
However, productivity measurement in hospital- accurately assess the efficiency of the hotel indus-

48
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

try and provide robust firm-specific performance analysts to identify which unit is most efficient
measures, managers are still faced with a dilemma given its own set of variables, which are then
when making strategic decisions. The major compared with others in the set (Raynolds, 2003).
reason is that most previous studies employed Apart from the measure of the relative effi-
ratio analysis and aggregated indices to evaluate ciency of each unit, DEA also distinguishes the
performance. Ratio analysis is an effective method most productive unit or units within the competi-
for evaluating the relationship between just two tive set, describes the relatively less-productive
variables, but it is inadequate in the multi-output, units, and calculates the excess resources used
multi-input setting that characterizes real-world by each of those less-productive operations (An-
organizations. In such a situation, ratio analysis derson et al., 2000). As such DEA has become
results in a nebulous set of ratios that, at best, increasingly popular as a tool for assessing the
provide no clear indication of true efficiency relative productivity efficiency of companies,
and, at worst, produce conflicting indications including hotels.
(Sexton, 1986). Morey and Ditmam (1995) were the first
Financial performance measures are com- researchers to apply the DEA approach in the
monly used measures of managerial performance. hotel industry. They employed DEA to analyze
Whilst there is nothing inherently wrong with the efficiency of 54 hotels in the United States,
the use of earning and profitability as determi- and found that managers were operating at 89%
nants of business performance, over emphasis efficiency and the least efficient hotels were 64%.
on financial measures such as earnings per share Consequently, the results deemed the lodging
(EPS), return on investment (ROI), and return on market to be operating efficiently in U.S.A. Us-
capital employed (ROCE), can produce myopic ing the DEA approach, Anderson et al. (2000)
behavior (Phillips, 1999). Atkinson and Brown measured the managerial efficiency of 48 hotels
(2001) also noted that financial performance in the United States and provided evidence that
measures have limitations in their accuracy and the hotel industry was operating inefficiently with
neutrality, causing a focus dominated by results a mean overall efficiency measure of 42%. Huang
rather than determinants and only stress past and Chang (2003) also adopted DEA to analyze
achievements while largely ignoring the drivers the efficiency of 45 international tourist hotels in
of future performance. Taiwan in 1998. The results indicated that manag-
ers were operating at 79.16% efficiency with only
Data Envelopment Analysis (DEA) 20 of the 45 hotels improving their managerial
efficiency over time. Consequently, the market
To overcome the shortcomings mentioned above for lodging services seemed to be operating ef-
new techniques have been developed that have ficiently in Taiwan.
the ability to compare the efficiency of similar
service organizations by explicitly considering Research Gap
the use of multiple inputs to produce multiple
outputs. This new efficiency technique is data Although DEA has been used in previous research
envelopment analysis (DEA). to evaluate hotel operational efficiency, the results
DEA is a linear programming based method that only focus on efficiency scores; benchmarking
integrates several relatively disparate input and hotels and inefficient hotels; the research thus far
output variables simultaneously. It then produces does not explore the reason why benchmarking
a single productivity index that compares all units hotels are doing well. In other words, they only
to the most-efficient units in the sample, helping answer how well a hotel is doing; and which

49
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

hotel is doing well; but they ignored the most Critical Success Factors
important question why are certain hotels doing
well. The real aim of applying DEA is to identify Critical success factors (CSFs) were first proposed
what factors contribute to efficiency and what by Daniel in 1961 as a means to classify critical
factors result in inefficiency. Berro (2005) also information needs of managers, but it is gener-
noted that DEA does not identify the factors that ally considered that Rockart (1979) popularized
give rise to inefficiency and only calls attention the CSFs approach in the field of management
to those units in which inefficiency exists. That information systems. Indeed, CSFs has a long
is the limitation of DEA and most of the previous history of application to the information systems
research that did not further explore the causes field (Ghym & King, 1976; Rockart, 1979; Da-
of inefficiency. vis, 1979; Brotherton & Leslie, 1991; Robson,
Evaluating hotel efficiency is to develop ef- 1994). Until the last 20 years its application has
fective strategies to improve hotel operational been extended beyond this field as a more generic
performance. Johns and Wheeler (1991) pro- approach to management, particularly within the
posed expansive and contractive productivity strategic and operational management fields (Dev-
management strategies. The aim of the latter is lin, 1989; Grunert & Ellegaard, 1993). Now the
to reduce inputs while increasing or maintaining identification of CSFs has been used to identify
output, while the aim of expansive strategy is to information needs, to list and describe elements
improve output while trying to keep inputs fixed. critical to system success, and help define and
However, most of the previous DEA research focus managements responsibilities and efforts
did not discuss these issues and that will reduce (Munro & Wheeler, 1980).
the value of the research results. In fact, if these CSFs are defined as the limited number of areas
strategies are adopted, contractive strategies may in which results, if they are satisfactory, will ensure
be suitable for the back of the house in hotels successful competitive performance (Rockart,
such as housekeeping and executive office; and 1979). Digman (1990) also defined CSFs as the
expansive strategies are better applied to front of areas where things must go right for the business
the house such as front office and restaurants, to to flourish. Oakland (1995) regarded them as what
increase hotel sales and revenues. the organization must accomplish to achieve the
Furthermore, most of the previous studies using mission by examination and categorization of the
the DEA approach only measured physical items. impacts. He adds that they are the minimum key
As a result, many of the other features of the hotel factors or sub-goals that the organization must
sector, such as service and atmosphere have been have or need, and which together will achieve
ignored. In addition, because each transaction the mission. Kanji & Tambi (1999) stated that
with each customer can be regarded as unique, a CSFs are the few things that must go well to en-
quality factor should also be considered. In fact, sure success for a manager and/or organization.
performance measurement becomes more com- They represent those managerial areas that must
plex when one also examines the array of hotel be given special and continual attention to cause
characteristics such as the simultaneous produc- high performance. These definitions see CSFs
tion and consumption of the hospitality service as points, areas, or goals that have to be given
as well as their perishability and heterogeneity. extensive attention and support by the manage-
Consequently, this research further investigates ment to achieve the mission, quality and high
the critical success factors (CSFs) contributing performance. Consequently, these areas have to
to good hotel performance in Taiwan in order to be defined and measured before the organisation
determine why the hotel is doing well. starts implementing any project.

50
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

Figure 1. Research model for hotel performance measurement

Attraction of the CSFs approaches is its prag- Kolter (1984) indicated performance measure-
matic benefits. Researchers and consultants have ment could be regarded as the process of quanti-
often found direct and immediate applications fying the efficiency and effectiveness of action.
for the results of their investigations (Brotherton Organisations achieve good performance by sat-
& Shaw, 1996). Jenster (1987) found companies isfying their customers with greater efficiency
that identified CSFs and implemented their us- and effectiveness than their competitors. In this
age, through proper measurement, feedback and context, effectiveness refers to the extent to which
management, received a higher return on equity customer requirements are met, while efficiency
when compared to companies that did not employ is a measure of how economically the firms re-
CSFs methodology. Owing to the advantages of sources are utilized when providing a given
CSFs mentioned above, this research does not only level of customer satisfaction.
evaluate the efficiency of Taiwan international Hotels were divided into three groups: good
tourist hotels but further investigate the CSFs efficiency, average efficiency and poor effi-
contributing to good performance hotels to find ciency due to the results of DEA. A selection of
out the reason why these hotels are doing well. hotels was chosen from each group as sampled
hotels, then semi-structured personal interviews
Construction of the Research Model were conducted with managers of each sampled
hotel. The data collected from interviews were
According to abovementioned, this research analysed by qualitative approach to identify the
will construct a new business model to evaluate critical success factors leading to hotels with good
operational efficiency of all international tourist performance and to further develop strategies to
hotels in Taiwan. The model of this research is enhance hotel operational performance.
depicted in Figure 1.

51
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

Therefore, this research model utilized the DEA better and easier understanding. With the positive
(efficiency) and the factors in previous researches feedback, the researcher was able to proceed with
satisfying customers requirements (effectiveness) the research.
to explore the critical success factors contribut-
ing Taiwanese hotels to have good performance. Stage 2: Efficiency Evaluation

To understand the operational efficiency of


METHODOLOGY Taiwan international tourist hotels, this research
will adopt DEA, developed by Charnes, A. et
Research Design al. (1978), using multiple inputs and outputs to
measure the relative operational efficiency of 60
This research will be conducted in five stages. international hotels in Taiwan. At the same time,
the research will use the Malmquist productivity
Stage 1: Pilot Testing approach expressed by Fre, R. et al (1992) to
measure the operational efficiency change of these
Prior to conducting this research, a pilot testing international tourist hotels. By comparing annual
was carried out to test the relevance of the language changes in the operational efficiency of individual
of the interview protocol, and the appropriateness hotels, it is possible to identify general trends in
and completeness of the contents of the inter- the efficiency of the hotel industry as a whole and
view protocol in relation to its subject domain to identify individual hotel exhibiting pattern of
and purpose. The researcher was unsure about change in efficiency that differ from the rest of
the responses obtainable, and therefore felt that the industry. The data necessary for this analysis
the pilot testing could serve as a guide. The pilot is to be collected from The Annual Operation
testing was conducted in a way that would allow Report of the International Tourist Hotels in Tai-
for refinement of the language and procedures as wan published by the Taiwan Tourism Bureau.
the testing proceeded.
Six hotel managers and two university assistant Stage 3: Efficiency Analysis
professors from a hospitality faculty were recruited
to participate in the study as the pilot testing. In According to the results of DEA, 60 hotels will
the beginning, they were asked to review the be divided into three groups. The first group is
draft interview protocol without help from the the hotels with good efficiency. Their efficient
researcher. They were first asked to comment on score is high and become best practice hotels. The
their understanding of the interview questions and second group is comprised of hotels with an aver-
to comment on the relevance of the questions to the age efficiency score. The last group is comprised
research issues. Then, they were asked to answer of hotels which are scored as inefficient and need
the questions to test whether respondents could to improve their efficiency.
and would answer the questions asked during the
course of the interview and whether the interview Stage 4: In-Depth Interviews
protocol appeared to be appropriate for examin-
ing the research questions. After interviewing the Based on the three groups categorized above,
participants, feedback was obtained pertaining to this study will chose two hotels as sample from
the nature of the questions asked, so as to help the each group, then conducting the semi-structure
researcher refine the interview protocol. A few personal interview with managers of each sample
of the interview questions had been modified for hotel. This interview will use open-ended ques-

52
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

tions to identify the perceptions of manager as inefficient one when evaluated in another set of
to what they believe are important in increasing organisations.
operational efficiency. There are different mathematical forms of the
DEA model. The model used in this study is CCR
Stage 5: Qualitative Analysis input-oriented model developed by Charners, Coo-
per and Rhodes in 1978. According to their model,
Interview data was analysed by way of constant the formulation is based on the following form:
comparative method. In this approach to the
analysis of qualitative data, the theory is gener- s

ated from the data, or if existing theories seem u y r rk

appropriate, then these may be elaborated and Maximize Ek = r =1


m

modified as incoming data are compared against v x i ik
i =1
them (Denzin & Lincoln, 1994, p. 643). Research-
ers can also carry into current studies any theory Subject to:
based on their previous research, being careful to
constantly match their a priori theories against the s

incoming data (Glaser, 1965). Through the analy- u y r rj

sis of qualitative data, critical successful factors


r =1
m
1 for j=1,2,.,n
contributing to hotels having good performance v x i jk
i =1
have been identified.

Data Envelopment Analysis (DEA) ur , vi 0 r=1,..,si=1,..,m

The Concept of DEA


Where yrj = observed quantity of output r pro-
DEA is a linear-programming-based benchmark-
ing technique initially developed by Charners, duced by hotel j
Cooper and Rhodes (1978) to evaluate multiple
outputs and inputs, producing a single measure of xij = observed quantity of input i produced by
performance. In contrast to parametric approaches hotel j
whose purpose is to optimize a single regression
plane through the data DEA optimizes on each ur = the weight given to output r by the hotel j
individual observation with an objective of cal-
culating a discrete piecewise frontier occupied
vi = the weight given to input i by the hotel j
by the most efficient units. This frontierand
the associated measure for each unit, which is
generally referred to as relative efficiency or = non-Archimedean quantity, a sufficiently
productivityhas particular managerial relevance small positive number
in that it allows for comparison of disparate oper-
ating units (Reynolds & Thompson, 2007). The The linear fractional programming model
term relative is rather important here since an above can be transformed into an ordinary linear
organisation identified by the DEA technique as programming model by letting ur =t ur and vi =t
an efficient unit in a given set may become an

53
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

m n

vi , where t 1 = vi x jk . Then the equivalent j


yrj sr+ = yrk , r= 1,..,s
i =1 j =1

DEA model can be stated as follows.

s
j , si, sr+ 0 j= 1,..,ni= 1,..,mr=1,..,s
Maximize Ek = ur yrk
r =1
q unconstrained

Subject to An analysis provides the following type of


information for decision making purposes.
m

v x i ik
=1 (1)
1. Each hotel being evaluated will have a value
i =1
Ek , 0 < Ek 1, obtained from the DEA
s m model indicating its efficiency level. If Ek
ur yrj vi xij 0 for j=1,2,..,n <1, the hotel is inefficient compared to best
r =1 i =1
practice units in the observation set K. If
Ek =1, this is a relatively best practice hotel
ur , vi 0 r=1,..,si=1,..,m
and therefore is identified as an efficient
one.
The DEA model above has the following in- 2. The DEA model will identify, from the
terpretation within the context of hotels. There viewpoint of a hotel k, the efficiency refer-
are n hotels in the observation set K, each of which ence set K k or efficient frontier which is
producing r different outputs using i different a subset of K that includes only those hotels
inputs and we are interested in determining the with E=1 from the observation set K. The
relative efficiency Ek of hotel k K with respect hotel k is compared against the hotels in K k
to all other hotels in the set K. The relative effi- to find the sources of its inefficiency. This
ciency Ek is nothing but the ratio of outputs of is allows a hotel manager to locate and
the hotel k to its inputs. Such a definition of ef- understand the nature of the existing inef-
ficiency transforms the multidimensional nature ficiencies by comparing his/her hotel with
of input and outputs into a single scalar ratio of a select subset of more efficient hotels. It
single output to a single input. therefore avoids the need to investigate all
For computational convenience, the efficiency hotels to understand the existing inefficien-
of any hotel, j, can be solved by the dual of (1). cies, and consequently helps allocate limited
The dual of (1) can be written as follows: managerial resources to areas where effi-
ciency improvements are most likely to be
m s achieved.
Minimize Ek = si + sr+ (2)
i=1 r =1
3. The above model hence produces informa-
tion with which managerial measures (reduc-
ing the inputs used, or increasing the outputs
Subject to produced) can be formulated to make an
inefficient hotel relatively efficient. For
n
example, the necessary and sufficient condi-
x xik + si = 0, i= 1,..,m
j ij tions for any hotel, j, to reach efficiency are
j =1

54
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

K j = q =1, sij = srj+ = 0; therefore, the ef- On the other hand, input resources for interna-
ficiency score is 1, and there are no input tional tourist hotels management include input ma-
surpluses or output shortfalls. On the con- terial, staff, capital and equipment. These resources
trary, if a hotel j does not achieve 100% produce tangible and intangible services through
efficiency, then an improvement, front office and back office operations. Therefore,
among input factors, numbers of employees are
xij = xij sij, yrj = yrj + srj+ , could be
used to represent input manpower, total floor area
applied so that a 100% efficient hotel can of food and beverage department, and the number
be achieved. That is, the input is decreased of rooms is used to represent capital investments
by xij = xij xij and the output is increased of hotel and operating expenses are used to rep-
by yrj = yrj yrj . resent cost of input changes. Therefore, the four
input data used in this research are as following:
Input and Output Data
Guest rooms: the number of each hotel
Using DEA to evaluate efficiency requires data rooms.
that measures each of the relevant outputs and Food and beverage capacity: the total
each of the inputs used to produce these outputs space of all food and beverage outlets in
over a common time period. The outputs would each hotel.
include those outcomes that management believes Number of full-time employees: refers to
are basic to the purpose of the organization, such hired employees.
as revenue. The inputs should reflect the resources Operating expenses: including employee
that are required to produce the outputs such that salaries, rooms costs, food and beverage
an increase (decrease) in output levels is expected cost and other relevant operating costs.
to result in an increase (decrease) in the amount
of inputs used (Charnes, et al. 1978). The data used in this study was collected from
The primary output of a hotel is revenue. the Annual Operation Report of the International
There are two kinds of revenue for international Tourist Hotels in Taiwan 2005 published by Taiwan
tourist hotels in Taiwan: accommodation and Tourism Bureau (2007a). The reason for covering
meals. These constitute more than 80% of total the year 2005 is that this was the most recently
hotel revenue. Other revenue includes revenue published data available prior to the collection of
from laundry, lease of store space, night clubs, the interview data in 2007.
service fee, all of which do not exceed 20% of
total revenue. The three revenue output data used Qualitative Methods
in this research are:
Using DEA to measure the operational efficiency
Room revenue: refers to revenue from of hotels can only reveal the efficiency score and
lease of rooms. cannot identify what factors lead to efficiency and
Food and beverage revenue: the total what factors result in inefficiency. Therefore a
revenue generated from all food and bev- qualitative approach was adopted to address this
erage revenue. limitation. The emphasis in this research is on
Other revenue: the total revenue exclud- identifying critical success factors contributing
ing the room and food and beverage rev- to hotels having good performance via semi-
enue (e.g. laundry, telephone, conference structured personal interviews with senior hotel
room). executives. This research has tended to be ex-

55
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

ploratory and descriptive because the researcher by comparing the Malmquist Index, it is possible
wanted to understand the critical factors in the to identify general trends in the efficiency of the
hotel operation in Taiwan as seen through the hotel sector as a whole and to identify individual
eyes of managers in the industry, rather than only hotel exhibiting pattern of change in efficiency
through the lens of macro analysis of industry that differ from the rest of the industry.
statistics and profiles. This research asked a
series of questions which were open-ended and Critical Success Factors Leading
which the respondents could answer in any way to Hotel Performance
they wished. While their descriptions may be in-
complete when put in the macro context, they are To explore critical success factors contributing
important because the perception and ideas that a hotel to have good performance, this research
are in the minds of managers in the industry are utilizes qualitative in-depth interview with ho-
what drive their actions and their responses to the tel managers to identify the perceptions of the
challenges surrounding them. Their understand- managers on what they believed are important
ing and perceptions are critical in developing a to increasing operational efficiency. Interview
more complete picture about hotel operational data was analysed through constant comparative
performance compared with the recommendations method (CCM) developed by Glaser and Strauss
and advice contained in academic and industry (1967). CCM is an analysis tool in grounded
research and commentary. theory. By comparing, the researcher is able to
do what is necessary to develop a theory more
Data Analysis or less inductively, namely categorizing, cod-
ing, delineating categories and connecting them
Efficiency Evaluation (Boeije, 2002).

To understand the performance of international


tourist hotels in Taiwan, this research used DEA DATA ENVELOPMENT
to evaluate operational efficiency of 57 interna- ANALYSIS (DEA) FINDING
tional tourist hotels. To find the DEA results, one
computer software, DEAP 2.1 developed by Tim To estimate the operational efficiency of 57 inter-
Coelli (1996), was used to handle the data in this national tourist hotels in Taiwan, this study used
research. This program was used to construct DEA input-output data on 57 hotels for the year 2005.
frontier for the calculation of efficiency and also for The data was obtained from Annual Operation
the calculation of Malmquist productivity index. Report of the International Tourist Hotels in Tai-
As DEAP 2.1 is a DOS program, to make it easier wan (2005) published by Taiwan Tourism Bureau.
use in the Windows environment, this research Results, in order of relative operational efficiency,
also used a program, Win4DEAP, which provides reference hotel and frequency with which each
a convivial Windows front end for DEAP. This hotel is in the reference hotel groups, are shown in
program provides a spreadsheet-like interface to Table 1. A hotel with the value of 1 is a relatively
enter input and output data which DEA requires. best practice hotel, and therefore is identified as
After entering all data, the executive function was an efficient one. On the contrary, a hotel with a
used to calculate the DEA score and Malquest value of less than one is inefficient compared to
productivity index. Through the DEA analysis, the best practice hotels. The efficiency score of
the benchmarking hotels and an individual hotels the Howard Hotel Taipei, for example, is 0.916,
operational efficiency can be identified. Moreover, which means that the Howard Hotel Taipei has

56
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

Table 1. Operational efficiency of international tourist hotel in 2005 through DEA

No Hotel Efficiency Reference Hotels Frequency as Rank


Reference Hotels
H21 Grand Formosa Hotel Taipei 1.000 H21 37 1
H7 Caesar Park Hotel Taipei 1.000 H7 23 1
H20 Grand Hyatt Hotel 1.000 H20 9 1
H22 Sherwood Hotel 1.000 H22 7 1
H2 Ambassador Hotel Taipei 1.000 H2 5 1
H54 Tainan Hotel 1.000 H54 4 1
H43 Lalu Hotel 1.000 H43 2 1
H23 Shangri-Las Hotel 1.000 H23 1 1
H10 Brother Hotel 1.000 H10 1 1
H24 Westin Hotel 1.000 H24 0 1
H48 Royal Hotel Chipen 1.000 H48 0 1
H46 Caesar Park Hotel Kenting 1.000 H46 0 12
H14 Sheraton Hotel 0.990 H20 H21 H10 0 13
H4 Gloria Prince Hotel 0.987 H21 0 14
H12 Landis Hotel Taipei 0.960 H2 H22 H20 0 15
H18 Howard Hotel Taipei 0.916 H21 H20 H22 0 16
H34 Evergreen Laurel Hotel 0.876 H21 H20 0 17
H47 Howard Hotel Kenting 0.871 H48 H20 0 18
H35 Howard Hotel Taichung 0.860 H21 H54 H7 0 19
H29 Howard Hotel Kaohsiung 0.844 H7 H21 0 20
H17 Royal Hotel Taipei 0.838 H7 H21 0 21
H8 Golden China Hotel 0.837 H21 H7 0 22
H50 Taoyuan Hotel 0.835 H22 H20 H7 0 23
H38 Marshal Hotel 0.821 H21 H7 0 24
H27 Ambassador Hotel Kaohsiung 0.818 H21 H2 0 25
H28 Grand Hi-Lai Hotel 0.802 H21 0 26
H6 Riverview Hotel 0.800 H21 H7 0 27
H42 Landies Resort Yanminsan 0.788 H22 H43 H21 0 28
H9 San Want Hotel 0.788 H2 H22 H21 0 28
H13 United Hotel 0.783 H2 H22 0 30
H5 Emperor Hotel 0.779 H13 0 31
H33 Plaza Intl Hotel 0.776 H21 H7 0 32
H55 Tayih Landis Hotel Tainan 0.771 H7 H21 0 33
H36 Splendor Hotel Taichung 0.767 H21 0 34
H31 Han-Hsien Hotel 0.760 H21 0 35
H1 Grand Hotel Taipei 0.753 H21 H23 0 36
H39 China Trust Hotel Hwaleng 0.750 H21 H20 0 37
H41 Farglory Hotel 0.749 H7 H21 H20 0 38
H51 Ta Shee Resort 0.742 H21 H43 0 39

continued on following page

57
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

Table 1. continued
No Hotel Efficiency Reference Hotels Frequency as Rank
Reference Hotels
H3 Imperial Hotel 0.729 H21 H7 0 40
H16 Holiday Inn Hotel 0.719 H48 H21 H20 0 41
H53 Ambassador Hotel Hsinchu 0.716 H21 0 42
H52 Royal Hotel Hsinchu 0.716 H48 H7 H21 0 42
H30 Splendor Hotel Kaohsiung 0.712 H21 H7 0 44
H26 Holiday Garden 0.708 H21 H7 H13 0 45
H40 Parkview Hotel 0.679 H21 H13 H7 0 46
H32 Hotel National 0.665 H7 H54 H21 0 47
H25 Kingdom Hotel 0.660 H7 H54 H21 0 48
H56 Evergreen Plaza Hotel 0.659 H7 H21 0 49
H45 Grand Hotel Kaohsiung 0.658 H2 H21 0 50
H15 Fortuna Hotel 0.652 H7 H13 0 51
H57 Naruwan Hotel 0.632 H21 H13 H7 H18 0 52
H19 Crown Plaza Hotel 0.627 H13 H22 H21 0 53
H37 Astar Hotel 0.621 H46 H54 0 54
H11 Santos Hotel 0.603 H7 H13 0 55
H49 Grand Formosa Taroko 0.594 H7 H21 H13 0 56
H44 Hibiscus Resort 0.477 H21 H13 H7 0 57

only attained about 92% efficiency in relation to 1991). Merely contrasting the input/output levels
the most efficient hotels. of the relatively inefficient hotel with those of its
Due to the DEA results coming from compar- reference hotels often helps to highlight inadequa-
ing different units, for each inefficient unit DEA cies in the performance of the relatively inefficient
can identify a set of corresponding efficient units hotel. Also, given the fact that the reference hotels
that are said to form a reference group for the are relatively efficient and have a similar input/
inefficient unit. Each reference unit will become output orientation, they can provide examples of
the exemplar for the corresponding inefficient good operating practice for the inefficient hotel
unit. For example, through DEA, we find that the to study. They may also provide suitable targets
reference groups of the Landies Hotel Taipei in- for it, particularly where some reference hotels
clude the Caesar Park Hotel Taipei, Sherwood are of a similar size to the inefficient hotel. The
Hotel and Grand Hyatt Hotel, and these three higher the frequency a relatively efficiency hotel
hotels become the benchmark for the Landies has been referred to by other hotels, the higher is
Hotel Taipei. its chance of being a benchmark hotel.
In many practical DEA assessments one needs The DEA results show that there are 12 hotels
more than the mere mathematical results to com- with an efficiency score of 1, including the Grand
municate to a relatively inefficient unit that their Formosa Hotel Taipei, Caesar Park Hotel Taipei,
performance could improve. Reference units can Royal Hotel Chipen, Grand Hyatt Hotel, Sherwood
prove helpful in this respect (Boussofiane et al, Hotel, Ambassador Hotel, Tainan Hotel, Lalu

58
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

Hotel, Shangri-Las Hotel, Brother Hotel, Wes- resources and ultimate decisions. Implementation
tin Hotel and Caesar Park Hotel Kenting. These of all investment plans or significant decisions
were the most efficient hotels in Taiwan in 2005. should still be approved by the hotel owners. If
Among these hotels, the Grand Formosa Hotel is the owner is reluctant to provide support, even a
referred by hotels with poor efficiency 37 times, good program or a highly competent manager can-
and became the best hotel with good efficiency. not effectively improve the hotels performance.
Moreover, among the hotels with good efficiency, Thus, the owners attitude and emphasis play a
9 are business hotel and 3 resort hotels. As for key role to hotel performance.
location, 8 hotels are located in Taipei and 4 are This research indicated that Taiwanese hotel
located in other areas in Taiwan. The primary owners were unwilling to accept the advice of
sources of customers for 9 hotels are foreign cus- professional managers, and insisted on their own
tomers, and the remaining 3 are local customers. personal views. Moreover, some Taiwanese hotel
11 hotels focus on individual customers and only owners tend to be short-term profit oriented. If they
one hotel has a focus on groups of customers. cannot gain profits or as much as expected from
Eight hotels are the members of chain operation their hotel business, they will begin to intervene in
while 4 hotels are independently managed and the management; start cutting on service and will
operated (see Table 2). not spend enough for maintenance and improving
Among these hotels, 5 hotels are also members customer service. This kind of management model
of the Top 10 hotels with the highest average room does not only hurt the hotels image, but also at-
rate in Taiwan (see Table 3). tacks the hotels performance. To hotel owners,
From these analyses, it can be concluded that great service without profit is nothing. However,
hotels with good operational efficiency have the running a hotel is a long-term and persistent invest-
following common features: ment. To make profits, hotels need to persistently
improve their services and maintain a comfortable
business hotels environment. Only by doing so can they attract
located in Taipei customers at all times. Without understanding of
focusing on foreign customers and indi- this characteristic of the hotel sector, they can
vidual customers hardly make their operations run on a right track.
chain operations
providing top level, luxurious facilities and Respect and Support for
charging expensive room rates. Professional Knowledge is
an Indispensable Element
in Hotel Management
INTERVIEW FINDING
In Taiwan, most hotels are not run by hotel owners
Owners Attitude and Emphasis Play with professional knowledge. Some entrepreneurs
a Key Role to Hotel Performance established hotels simply because they have lands
and sufficient capital, and these hotel owners are
Research results showed that there are 13 critical very involved in management and are character-
success factors for enhancement of hotel perfor- ized by stringent supervision and control. This
mance. However, whether every factor can be tendency of hotel owners to rely on their past
supported and effectively executed still depends on experience as the platform for management, and
the owners attitude. No matter what management therefore accepting advice from professional
model, the hotel owners always dominate financial managers is something they are reluctant to do.

59
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

Table 2. Comparing DEA with location, hotel type, management type and major source of customer

No Hotel Efficiency Location Hotel Type Management Major Customer Type


Type Source of
FIT Group
Customer
H21 Grand Formosa 1.000 Taipei Business Local Chain Foreign 61% 39%
Taipei
H7 Caesar Park Hotel 1.000 Taipei Business Local Chain Foreign 60% 40%
Taipei
H20 Grand Hyatt Hotel 1.000 Taipei Business Intl Chain Foreign 67% 33%
H22 Sherwood Hotel 1.000 Taipei Business Independent Foreign 100% 0%
H2 Ambassador Hotel 1.000 Taipei Business Local Chain Foreign 41% 59%
Taipei
H54 Tainan Hotel 1.000 Tainan Business Independent Foreign 93% 7%
H23 Shangri-Las Ho- 1.000 Taipei Business Intl Chain Foreign 70% 30%
tel
H10 Brother Hotel 1.000 Taipei Business Independent Foreign 72% 28%
H24 Westin Hotel 1.000 Taipei Business Intl Chain Foreign 69% 31%
H48 Royal Hotel 1.000 Taitung Resort Local Chain Local 83% 17%
Chipen
H43 Lalu Hotel 1.000 Sun Moon Lake Resort Independent Local 78% 22%
H46 Caesar Park Hotel 1.000 Kengting Resort Local Chain Local 70% 30%
Kenting
H14 Sheraton Hotel 0.990 Taipei Business Intl Chain Foreign 62% 38%
H4 Gloria Prince 0.987 Taipei Business Intl Franchise Foreign 52% 48%
Hotel
H12 Landies Hotel 0.960 Taipei Business Local Franchise Foreign 100% 0%
Taipei
H18 H ow ar d H o t e l 0.916 Taipei Business Local Chain Foreign 87% 13%
Taipei
H34 Evergreen Laurel 0.876 Taichung Business Local Chain Local 86% 14%
Hotel
H47 H ow ar d H o t e l 0.871 Kenting Resort Local Chain Local 61% 39%
Kenting
H35 Howard Hotel Tai- 0.860 Taichung Business Local Chain Local 85% 15%
chung
H29 H ow ar d H o t e l 0.844 Kaohsiung Business Local Chain Foreign 65% 35%
Kaohsiung
H17 Royal Hotel Taipei 0.838 Taipei Business Local Chain Foreign 100% 0%
H8 Golden China 0.837 Taipei Business Independent Foreign 31% 69%
Hotel
H50 Taoyuan Hote 0.835 Taoyuan Business Independent Foreign 18% 82%
H38 Marshal Hotel 0.821 Hwaleng Resort Independent Local 26% 74%
H27 Ambassador 0.818 Kaohsiung Business Local Chain Local 59% 41%
Kaohsiung
H28 Grand Hi-Lai 0.802 Kaohsiung Business Independent Local 74% 26%
Hotel
H6 Riverview Hotel 0.800 Taipei Business Independent Foreign 7% 93%
continued on following page

60
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

Table 2. continued
No Hotel Efficiency Location Hotel Type Management Major Customer Type
Type Source of
FIT Group
Customer
H42 Landies Resort 0.788 Yanminsan Resort Local Franchise Local 73% 27%
Yanminsan
H9 San Want Hotel 0.788 Taipei Business Independent Foreign 79% 21%
H13 United Hotel 0.783 Taipei Business Independent Foreign 65% 35%
H5 Emperor Hotel 0.779 Taipei Business Independent Foreign 100% 0%
H33 Plaza Intl Hotel 0.776 Taichung Business Independent Local 73% 27%
H55 Tayih Landis Ho- 0.771 Tainan Business Local Franchise Local 85% 15%
tel Tainan
H36 Splendor Hotel 0.767 Taichung Business Local Franchise Local 76% 24%
Taichung
H31 Han-Hsien Hotel 0.760 Kaohsiung Business Independent Local 65% 35%
H1 Grand Hotel Tai- 0.753 Taipei Business Local Chain Foreign 31% 69%
pei
H39 China Trust Hotel 0.750 Hwaleng Resort Local Franchise Local 62% 38%
Hwaleng
H41 Farglory Hotel 0.749 Hwaleng Resort Independent Local 63% 37%
H51 Ta Shee Resort 0.742 Ta Shee Resort Independent Local 49% 51%
H3 Imperial Hotel 0.729 Taipei Business Independent Foreign 47% 53%
H16 Holiday Inn Hotel 0.719 Taipei Business Intl Franchise Foreign 59% 41%
H53 Ambassador Hotel 0.716 Hsinchu Business Local Chain Foreign 94% 6%
Hsinchu
H52 Royal Hotel Hsin- 0.716 Hsinchu Business Local Chain Foreign 93% 7%
chu
H30 Splendor Hotel 0.712 Kaohsiung Business Local Franchise Local 65% 35%
Kaohsiung
H26 Holiday Garden 0.708 Kaohsiung Business Independent Local 27% 73%
H40 Parkview Hotel 0.679 Hwaleng Resort Independent Local 57% 43%
H32 Hotel National 0.665 Taichung Business Independent Local 63% 37%
H25 Kingdom Hotel 0.660 Kaohsiung Business Independent Local 48% 52%
H56 Evergreen Plaza 0.659 Tainan Business Local Franchise Local 77% 23%
Hotel
H45 Grand Hotel 0.658 Kaohsiung Resort Local Chain Local 60% 40%
Kaohsiung
H15 Fortuna Hotel 0.652 Taipei Business Independent Foreign 69% 31%
H57 Naruwan Hotel 0.632 Taitung Resort Independent Local 81% 19%
H19 Crown Plaza Hotel 0.627 Taipei Business Intl Franchise Foreign 76% 24%
H37 Astar Hotel 0.621 Hwaleng Resort Independent Local 46% 54%
H11 Santos Hotel 0.603 Taipei Business Independent Foreign 10% 90%
H49 Grand Formosa 0.594 Taroko Resort Local Chain Local 65% 35%
Taroko
H44 Hibiscus Resort 0.477 Nansi Resort Independent Local 57% 43%

Source: Taiwan Tourism Bureau 2007a

61
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

Table 3. Top 10 hotels with the highest average


and skills. Owners still have to rely on professional
room rate
managers. Running a hotel, after all, is profes-
Rank Hotel Efficiency Average sional and complicated. It cannot be done simply
Room with the owners personal ideas or reliance on
Rate
Unit:
trustworthy family members. The research results
US$ indicated that most owners of high-performance
1 Lalu Hotel 1.000 253 hotels are clear with their limits and willing to
2 Shangri-Las Hotel 1.000 172 delegate their power to professional managers.
3 Westin Hotel 1.000 171 Therefore, respect for professional knowledge and
4 Grand Hyatt Hotel 1.000 163 management experience is still an indispensable
5 Landies Resort Yanminsan 0.788 159 element in hotel management.
6 Farglory Hotel 0.749 135
7 Royal Hotel Chipen 1.000 130
Positive Corporate Culture
8 Sheraton Hotel 0.990 125
is a Motivating Power to
9 Landies Hotel Taipei 0.960 119
Enhance Hotel Performance
10 Howard Hotel Taipei 0.916 117
This research revealed that a strong positive corpo-
Source: Taiwan Tourism Bureau 2007a
rate culture is one of the key factors contributing
to hotels having a sustained high performance.
As a result, most professional managers would A special phenomenon is that in Taiwan, hotel
rather follow an owners opinion than create a owners concepts of and attitudes toward hotel
new idea. In this era of emphasizing profession- management can significantly influence the de-
alism and efficiency, such an approach will have velopment of hotels corporate culture. As most
negative impacts on hotel operations. Moreover, Taiwanese hotels belong to independent opera-
the management team in some hotels is composed tors, hotel owners are usually deeply involved
of the owners family members, close relatives or in hotel operation including operative strategy,
friends. It was observed through the interviews management style and personnel matters. In this
that these people have high loyalty and can be situation, even though professional managers may
trusted by the owners. However, these people have their own views, they are constrained and
have no professional background and there is not can only follow the owners ideas. Otherwise,
a sound management system in this kind of hotels. they cannot work in this hotel. After a period of
Management is highly dependent on people, not time, this situation makes a strong influence on
systems. All the decisions are in the hands of fam- hotels corporate culture. Thus, if a hotel owner
ily members and many have been made without has innovative ideas and proactive attitudes, it
appropriate attention to the facts. Professional is easy for this hotel to have positive corporate
knowledge is not respected in these hotels. As a culture. On the contrary, if hotel owners mind
result, the operational performance is poor. is negative, hotels corporate culture will turn to
Hotels are a highly professionalised and deli- negative. The reason for this is that owners with
cate business. Hotel owners do not necessarily a proactive attitude will naturally form a force
have to be experts on hotel management, because propelling employees to work hard. If any em-
they can get out of conventional frameworks and ployee cannot attain standard, they are not likely
introduce new ideas into this industry. However, to survive in the hotel. This attitude has a positive
operating a hotel requires professional knowledge effect on hotel performance. In contrast, passive
and conservative owners seldom show support

62
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

to their managers, even if they have done certain According to the research, a number of custom-
jobs that contribute to hotel performance. In the ers come to a hotel for more than accommodation
long run, employees will also become passive or dining. They also come to experience the at-
and conservative. The hotels performance will mosphere presented in the hotel. Therefore, hotels
certainly be affected. This implies that corporate need to constantly be innovative to maintain the
culture is an important factor affecting hotel design of their environment to retain customers.
performance, but formation of corporate culture Moreover, with the elapse of time, physical facili-
is critically affected by hotel owners attitude. ties will gradually become old, consumers feeling
Therefore, hotel owners should shape a posi- of freshness will naturally fade, and the hotels
tive corporate culture and internalise it into the revenue and profits will be influenced. Therefore,
mind of employees. This corporate culture, once physical facilities should be renewed on a regular
internalized, becomes a motivating power, which basis. Although it is necessary for hotel to conduct
drives employees to be more devoted to their jobs innovation and renovation, this research indicated
to enhance hotel performance. that only a small portion of hotels in Taiwan are
proactively engaged in innovation and renovation,
Innovation and Renovation are and this is mainly due to the reluctance of hotel
Important Strategies for Hotel owners. No matter what innovation or renovation,
to Enhance Competitiveness hotel requires a considerable amount of invest-
ment, but issues such as whether this investment
When asked about the strategies to increase ho- can generate more revenue and when it can be
tels competitive advantage, many interviewees repaid are not foreseeable. Thus, many owners are
revealed that innovation, physical facilities and unwilling to undertake this risk. Senior owners,
renovation are the key factors to attract custom- in particular, always think that broken facilities
ers. The main reason is that in the face of a hotel should be repaired rather than directly renewed.
environment where customer preferences are Some even argue that the best facilities should
changing rapidly, where competition is intense, be used in the beginning, believing that they can
and where differentiation is limited, innovation be more durable and problem-free in the future.
seems to be an important strategy for hotels However, modern society does not renew a facil-
to stay competitive. Moreover, compared with ity because it is broken but because it is out of
intangible service, service quality is a subjective style. Consequently, Taiwanese hotel owners do
perception, which varies from one customer to not fully realize the importance of renovation as
another. Services widely rated as satisfactory an effective marketing tool, and its potential to
may still induce customer compliants. However, attract new customers. In turn, renovation is used
physical facilities are tangible and can be more in the Taiwanese hotel on the maintenance level in
objectively evaluated. Through improvement of terms of extending the useful life of the property
physical facilities, an attractive environment can rather than to reposition the property and increase
be easily created. Customers today do not exhibit, its competitiveness.
as in past decades, a truly brand loyal behavior. It is revealed from the research that in the
Customers instead are choosing to patronize current competitive environment of Taiwanese
hotels that offer the best value proposition under international tourist hotels, it is hard to attract
existing budgetary constraints. The best way to customers just through intangible service. In
make customers feel their expenditure is justified this hotel market, competitors are numerous but
is to provide the innovative products and the best services are similar across competitors. Innova-
physical facilities. tive products and regular renovation seem to

63
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

have become indispensable factors that determine the employees personality can fit in the industry.
whether a hotel can outperform its rivals and win Long working hours, hard working loading, shifts,
customers trust. and relatively low payment make the hotel sector
Successful innovation and regular renovation an unattractive working environment. Employees
can raise awareness of the hotel, improve image must be happy and enjoy working in the hotel
of hotel, enhance customer loyalty, and attract sector, otherwise, they will exit quickly. Under
new customers. Moreover, they do not only of- this situation, this research found that the way to
fer a competitive advantage but also deliver their attract and retain the good employees is to provide
benefits and unique features to establish a distinct them with opportunities for continuous learning
positioning in the customers mind. Therefore, and growth and create a work environment where
to maintain competitive advantages, hotels need they are allowed a space to fulfill their ideals and
to have prospective visions to accurately predict feel taken care of by the hotel.
customer expectations and satisfy them with
creativity. Then, they can prosper in the highly Well-Trained Employees can
competitive market. Increase Hotels Productivity

Quality Employees are the In terms of providing opportunities for continuous


Important Assets to Increase learning and growth, training can be viewed as
Hotel Performance an indication that the hotel is willing to invest in
its employees and cares about them; thus training
From a strategic perspective, hotels are not just in may enhance their commitment to the hotel. In ad-
the business of selling accommodation, food and dition, hotels need high-levels of professionalism
beverages, but rather in the business of providing and care about details. Employees who have not
people with memorable experiences of service. received stringent training are unable to provide
This experience is enhanced by hotel employees. professional services. Today, customers expec-
Although high technology and information system tations are more unpredictable. Hotel attendants
have replaced many traditional and administra- need to please customers holding more critical
tive functions, it is not possible to replace service standards, and the difficulty of delivering service
employees in an intensive hands on customer value is much higher. Employee training is thought
service culture in the hotel sector. Therefore, qual- to be critical in improving the level of service and
ity employees will continue to be an important operational efficiency, and to increase customer
factor to enhance hotel operational performance. satisfaction and loyalty. Well-trained employees
However, many hotel owners in Taiwan are can increase the productivity of a hotel, because
product-oriented and regard physical facilities as they can finish their works fast with fewer mis-
the way to gain competitive advantage when they takes and they can indirectly reduce the burden
reluctantly invest in hotel improvements. They on managers.
are more likely to make investments in physical Since training is necessary and significant for
facilities because they are more likely to think hotel operation, we expect to see the hotel sector
luxurious amenity is attractive to customers. It spending relatively high levels on training in Tai-
seems that they do not realise that physical facili- wan. However, several Taiwanese hotels still do
ties can be imitated easily and usually results in not put emphasis on training. The reason for this is
many similar, often easily substitutable service that the costs of training are upfront and obvious,
offerings. Moreover, due to the particular char- while the benefits appear to be remote and im-
acteristics of the hotel sector, it is important that measurable. In Taiwan, a number of hotel owners

64
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

regard training as an operating expense rather than efficiency. In addition, empowerment can increase
an investment. They rationalize large investment employees sense of responsibility. Because when
in physical assets such as new technology and employees are given the information and authority
product development which can generate money required to handle customer issues, they cannot
directly, yet it is hard for them to see spending in avoid assuming responsibility. Such an increase
employee training as an investment. To convince in responsibility will give them a sense of hav-
hotel owners to implement employee training, ing ownership in the hotel. The result of which
there must be a recognisable benefit to the training may create more positive employees and enhance
activity, and if direct benefit and value cannot be operational performance.
identified then hotel owners will not spend money Although empowerment can increase hotels
in training. In fact, the money spent on training service quality, customers satisfaction and opera-
can be earned from training effect and even create tional efficiency, several of Taiwanese hotels still
more profit. Moreover, training can save labour, avoid empowering their employees. The major
hire less employees and at the same time provide reason is that hotel owners are afraid that due to
efficient customer service. In addition, although employees promising more than it is cost-effective
training is costly, through technology applica- for the hotel to deliver, the hotel will suffer a loss.
tion, training cost can be reduced and increase In fact, this problem can be prevented through
efficiency. Therefore, hotel cannot stop training proper design of the system and employee train-
employees simply because training is costly and ing. Through system design, the power of each
not likely to bring immediate return. The loss of level of employees can be clearly defined, and
not providing training will be much greater. employees are also trained to properly use their
power. Therefore, if there is an urgent need, em-
Empowerment Allows Employees ployees can help customers solve problems in the
to Quickly Respond to first time without the decision of the supervisor.
Consumer Needs and Increase This decentralized decision-making will help
Customer Satisfaction employees develop and grow in the job, and is
claimed to be a technique which will both en-
Empowerment is a substantial way to allow em- courage the necessary level of commitment to
ployees to demonstrate their capabilities and fulfill organisational goals and provide the necessary
their ideals. Findings from this research suggested discretion and autonomy to generate the level
that empowerment is a kind of recognition of em- of customer service required (Lashley, 1995).
ployees competence. Employees know that they Hotels should make good use of empowerment
are empowered because they are trusted. Likewise, and become their advantage to increase their
empowerment allows employees to win customer operational performance.
trust, because customers know their problems can
be immediately addressed by employees. For hotel Providing Good Work Environment
employees, it is the highest honor to win the trust Will Make Employees Present
of hotel and customers at the same time. the Best in Return
In the hotel sector where speed and efficiency
are critical, empowerment is absolutely necessary. In the hotel sector, most of the operations and
In the handling of customer compliant, if the cus- services rely on employees. Since employees are
tomers needs can be immediately satisfied, hotel involved in hotel operation, the performance of
may potentially overturn the customers negative these operations may be easily affected by hu-
attitude and even receive compliment on service man emotions. If a hotel manages to look after

65
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

employees sincerely then employees will serve view employees as an important asset, and give
customers wholeheartedly, and customers may full support and a good work environment with
have a positive experience and feed that back to proper care for them. Then, they will be pleased
the hotel. This would be a virtuous circle. There- to present their best to the hotels in return.
fore, employees should be regarded as one of the
important assets, and a hotel should take good
care of its employees. FUTURE RESEARCH DIRECTIONS
The managers interviewed indicated that
employees are internal customers of the hotels. As mentioned earlier in this research, the policy
A hotel should build a work environment where that allows Chinese tourists to come to Taiwan has
employees are treated like customers, and employ- been concerned by local hotel operators but de-
ees personal affairs are viewed as matters of high layed for a long time. This policy finally took effect
importance by the hotel. The more concern the in July 2008. However, since implementation of
hotel shows in taking care of employees personal this policy, there has been a large gap between the
affairs, the more they can perceive the concern actual number and the expected number of Chinese
of the hotel. Employees will also have a stronger visitors to Taiwan. Whether this policy can really
sense of cohesion, which is contributive to hotel bring positive effects on local hotels performance
performance. Only happy employees will generate as many have expected should be continuously
more happy customers. This relationship is the followed in future research. In addition, in the last
fundamental principle needed in an effective and five years, motels and home-stays in Taiwan have
sustainable customer service culture. Therefore, become the favorite of many consumers due to
hotel cannot ignore the importance of providing their creative features and operating model. Their
its employees with good working environment. rapid growth has even threatened the business
This research revealed that those hotels suffer- of international tourist hotels. Thus, the critical
ing from low performance, usually treat employ- success factors of Taiwanese motels and home-
ees as simply people hired to work for the hotel stays can also be a focus of future researchers.
owners. These hotel owners do not deem taking Through research of their success factors, some
care of employees and providing a good work useful information might be obtained as tips for
environment as important. Some of them even international tourist hotels.
regarded employees as substituent labour and do
not mind if employees dislike their jobs, because
they think a long line of applicants are waiting for CONCLUSION
their positions. If the hotel treats employees like
this, its employees may take a passive attitude The main objective of measuring hotel operational
toward their jobs and hotels performance will efficiency was to gain an insight into how a hotel is
be influenced. evaluated and how it can improve efficiency with
Although superior facilities are the foundation its current resource base or a change of resource
of a quality delivery system, it is the front-line allocation. The major problem in measuring lies
employees who deliver the competence, conve- on the incommensurability of different output
nience, respect, care, and integrity that convert measurements as well as input measurements.
the facility into true value for the customer. With This problem can be solved by the DEA approach.
competent and motivated employees, great service However, DEA approach can only determine
is possible; without it great service is a pipe- relative operational efficiency but cannot identify
dream (LeBoeuf, 1987). To sum up, hotels should the factors that give rise to inefficiency or lead to

66
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

efficiency. Furthermore, DEA only calls attention chains. If the hotel is located elsewhere, the number
to those hotels in which efficiency and inefficiency of foreign guests is small, and local customers
exist, but cannot provide suggestions on how to usually have no brand awareness. Therefore, the
improve operational efficiency. In other words, effect of an international chain membership will be
DEA only answers how well a hotel is doing; minimal. This implies that even international chain
which hotel is doing well; but it ignores the most hotels have sounder management system, better
important question why this hotel is doing well. brand image. It cannot be denied that the location
The real aim of applying DEA is to identify what factor has a great influence on hotel operation
factors cause efficiency and what factors result and are outside the control of hotel management.
in inefficiency. Taiwan is small, but customer type, consumer
In addition, using DEA to evaluate hotel op- habit, market characteristic, and even competitive
erational efficiency can only measure quantitative situations all vary from one region to another.
data and often overlook intangible issues such as It is not possible to apply a fixed management
hotel location, employees ability or hotel age. model to all the regions. This is also the reason
These issues may be external to the control of why several chain hotels have good performance
management but can crucially affect hotel opera- only in their Taipei branch. Therefore, all hotels
tional efficiency. As Morey and Dittman (1995, should thoroughly evaluate the characteristics
p.21) observed, sometimes one must look past of their market and make use of their exclusive
the numbers and take into account qualitative fac- conditions and resources to develop strategies that
tors. Lucas and Deery (2004) also indicated that meet the needs of their local markets.
qualitative research inquires have great potential This research was intended to generate data
when exploring issues in the field of hospitality. and insights that are relevant to operational per-
Therefore, qualitative approach may be a good formance of Taiwanese international tourist hotels.
way to address this limitation of DEA. This would However, there are some limitations regarding the
involve the collection and analysis of verbal data generalisation of the results presented here. The
by in-depth interviews with hotel managers, and target of this research was international tourist
to develop critical success factors contributing hotel, which total 57 establishments in Taiwan.
to hotels having good performance. Through the However, in Taiwan, a large number of hotels
exploration of critical success factors, this research do not apply to Taiwan Tourism Bureau to be
helps managers understand the factors determin- recognised as an international tourist hotel. These
ing the operational efficiency; develop effective hotels are not necessarily inferior to international
strategies to meet a highly competitive environ- tourist hotels whether in terms of scale, facilities
ment; and provide hotel managers with a list of or services. Some of them are even superior.
recommendations to enhance hotel performance. However, they were not included in the sample
It is noted that previous research demonstrated of this research, because unlike international tour-
that in Taiwan, hotels belonging to an international ist hotels, their business data, such as occupancy
chain have better performance than independent rate, average room rate, business income, busi-
hotels (Hwang and Chang, 2003). However, this ness expenditure could not be accessed from the
research found that joining an international chain annual operation report published by Taiwans
is only effective in Taipei, because there are many Tourism Bureau. Without sufficient data of these
foreign travelers in Taipei, they have higher brand hotels, we had no choice but to exclude them in
loyalty, and they will choose familiar international the DEA analysis.

67
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

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Teng, J., Cheon, M., & Grover, V. (1995). service levels provided by many different em-
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71
The CSFs Methodology and Modified DEA Approach to Construct a New Business Model

dustry in Taiwan can be divided into international performance such as service quality, customer
tourist hotels and standard tourist hotels. The satisfaction (Eccles, 1991).
plum-grading system is issued by TTB for hotel Perishability: The life cycle of the hospitality
grading. This plum-grading system is similar to the service. For example, a room is only available for
star-grading system used by many countries in the a 24-hour period and cannot be stored and sold the
world. A hotel with more plums means that it has next day. If is not sold on a particular night, the
more quantity of hotel facilities. An international opportunity to sell it is gone forever (Shoemaker
tourist hotel is a hotel with five or four plums. et al., 2000).
Intangibility: The attribute of services that the Performance Measurement: The process
customer cannot grasp with any of the five senses; of quantifying action, where measurement is
that is, customers cannot taste, feel, see, smell, or the process of quantification and action leads
hear a service until they have consumed it, and one to performance. In other words, performance
cannot easily grasp it. Services are experienced, measurement can be regarded as the process of
rather than possessed. There is no passing of title quantifying the efficiency and effectiveness of
when service is purchased. Buyers have nothing action (Neely, Gregory and Platts, 1995).
to be displayed, to be shown to friends or fam- Productivity: Gummesson (1998) defined
ily, to put on the shelf, or ever to use again. In the productivity as a ratio between output and
sum, buyers leave the transaction empty-handed. input; but further referred to the interconnection
They do not, however, go away empty-headed. between productivity, quality and profitability
They have memories of the experience that they and discussed the role of customers in impacting
can recall and share with associates and friends productivity and quality.
(Shoemaker et al., 2000).
Non-Financial Performance: Is using the
factors not relative to finance to evaluate business

72
73

Chapter 4
Knowledge Management
Approach as Business Model:
Service Industry Prospective

Viju Mathew
College of Applied Sciences Salalah (MOHE), Sultanate of Oman

ABSTRACT
Knowledge management (KM) has been sprouting as one of the outstanding conversant factor strongly
in trust, and trust is a critical precondition to knowledge learning and sharing management concepts
(Mathew, 2008). The chapter intended to bring forward various KM strategies specially framed for the
service industries looking forward for the global market and need to create advantage in providing
customer satisfaction and enhancing the growth prospects, applications in organizations, indicate how
to improve knowledge based performance and act a base for the service industry for developing inno-
vation, creating global opportunities for better service. The case study highlighting knowledge strate-
gies is designed to achieve the required knowledge sharing and output. Open-ended and closed-ended
strategies plays a significant role in collaborative learning, development, building the potential and
providing the knowledge creation and sharing capacities needed for strategic formulation and decision
making to create competitiveness.

INTRODUCTION various means and method enabling to depend


on its own sources. Knowledge sharing within
Sharing of knowledge is extremely important that the organization enables the employers to share
the organization should be encouraged through insight which help them to adopt appropriate faster
and cost effective move towards the achievement
DOI: 10.4018/978-1-60960-129-4.ch004 of organizational goals. Organization exist due

Copyright 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Knowledge Management Approach as Business Model

to people, process and profit which are the most BACKGROUND


essential elements guiding different terms like
organizational growth, competitive advantage, Importance of KM Initiatives
and development. Some of the analysts believe
that the information and technology are the key The increasing globalization, efficiency in process,
drivers for the todays business and plays a vital competitive advantage, organizational learning,
role affecting both individual and organization. and development of technology (Davenport &
Ages back, information has been extremely Prusak, 1998) has pressured to gain knowledge
important that creates benefits to the organiza- assets within the organization for improving its
tion. The organization looks for the information system. It has been said knowledge has become
which can be used by the people, for the process the key economic resource and the dominant
to gain profit and advantage. Information system source of competitive advantage (Drucker, 1995).
transformed to knowledge system in last decades Salleh and Gohs (2002) defined knowledge
where knowledge are the source for gaining ad- management as process of leveraging knowledge
vantages. Knowledge and its management is not as means of achieving innovation in process and
just technology based but also have human factor. products/services, effective decision-making, and
Information technology is a key driver for knowl- organizational adaptation to the market for creat-
edge management (Soliman & Spooner, 2000). ing business value and generating a competitive
Knowledge management has become an advantage to organizations. If the above state-
important area of focus for many organizations ment is true, then it is extremely important that
in order to be successful in todays business en- an efficient knowledge-intensive process must
vironment. There are many reasons for this; the be established to meet the demands of improved
foremost is the difficulty in establishing regular enterprise performance (Quinn et al., 1996).
improvement system and loss of knowledge in Knowledge is considered to possess key
an undertaking. Secondly, finding the cause and properties like experience, truth and decision
effect about the management process and finding making, and is typically associated with so-
business outcome. The number of steps required called knowledge- intensive firms (Alvesson,
to show a connection to relate the knowledge 1995, p. 6). Sharing of knowledge is considered
management benefits and business outcomes can as the most important in KM process. Effective
be highlighted as: flow of knowledge is only possible through the
people through appropriate technology and mu-
1. Need to be a strategy assessment with respect tual understanding (Egan, 2003; Geraint, 1998).
to knowledge management People remain vital in the knowledge sharing and
2. Knowledge audit because lack of these factor knowledge manage-
3. Strategy needs to be aligned with the busi- ment initiatives fail (Carter & Scarborough, 2001).
ness strategy Knowledge based business establishment tries to
4. Identify any gaps. create a knowledge culture where learning through
5. Searching new opportunities for knowledge various methods has been established. The people
programs and technology are combined to share and flow of
6. Build justification knowledge. KM is dependent directly on people
and at some percent on technology. Knowledge
officers play a major role in contribution of knowl-
edge process and determine the knowledge flow.
Hislop (2003); Greengard (1998b) recommended

74
Knowledge Management Approach as Business Model

that each functional departments have their own The capability of an organization to create new
responsibility in knowledge flow, transfer and knowledge, disseminate it throughout the orga-
process. It has been tremendously important that nization and embody it in products, services and
the organization should be encouraged through systems. Nonaka & Takeuchi, 1995
various means and method for knowledge sharing
which will enable the organization to depend on An integrated systematic approach to identify-
its own sources. Information and communication ing, managing and sharing an organizations
technology plays a crucial role in organizing knowledge and enabling persons to create new
knowledge, both in order to enable sharing and knowledge collectively and thereby help achiev-
collaboration, categorizing, disseminating and ing the objectives of organization (Mathew et
storing of different knowledge which can later al. 2008).
be retrieved and accessible as meaningful across
different contexts. The following definitions might help to gain
Individuals knowledge (termed as tacit knowl- the perspectives of knowledge:
edge by Nonaka & Takeuchi, 1995) came from
various factor can be means of problem solving 1. Awareness, consciousness or familiarity
criteria or organizational knowledge which can gained by experience or learning. (Collins
be combined with explicit knowledge for KM English Dictionary)
process. The storage of explicit knowledge in 2. Information and skills acquired through
form of meeting minutes, committee, discussion experience and education. (Oxford English
and other forums should be transmitted in the Dictionary, Oxford University Press, 2002,
form of filtered documents and shared within the p. 786)
organization. 3. Knowledge is understanding of why, what,
how, who, when, and relative to taking some
action. Knowledge is the product of orga-
KNOWLEDGE AND KNOWLEDGE nization and reasoning applied to raw data
MANAGEMENT (Knowledge Management in ADB, Asian
Development Bank, June 2004, p. 3)
Knowledge sharing within the organization en- 4. Knowledge is a fluid mix of framed experi-
ables the employers to share insight (Mathew et ence, values, contextual information, and
al. 2008) which help them to adopt appropriate expert insight that provides a framework
ideas and allows faster and cost effective move for evaluating and incorporating new ex-
towards the achievement of organizational goals. periences and information. It originates
Employees coming from the different background and is applied in the minds of knowers. In
and experience create cost effective and time organizations, it often becomes embedded
saving process which can be captured, stored and not only in documents and repositories but
shared by much other recreating better process. also an organizational routines, processes,
Appropriate knowledge transfer culture will sup- practices and norms. (Davenport, T and
port the organization to draw up the experience Prusak, L. Working Knowledge: How
of other in their pursuit of finding cost effective Organizations Manage What They Know.
and result oriented solution to the organizational Cambridge, MA Harvard University Press,
problems. Various strategies and policy will mo- 1998, p. 5)
tivate the organization to support organizational 5. Knowledge is intrinsically a human char-
culture in practice. acteristics manifested in the thinking,

75
Knowledge Management Approach as Business Model

learning, artistic, behavioral, and problem generally thought of as being know how, or
solving capabilities of human beings act- applied action or know what.
ing in a social context (Sami AlBanna Dennings (2000) Knowledge Management
Knowledge Management and Strategies for framework reviews of the work originally done
Development in a Rapidly Changing Global by Van der Spek and de Hood in which he covers
Environment) such issues as:

The components of knowledge management Identifying what knowledge assets a com-


(Binwal, 2001) are: pany possesses
Analyzing how the knowledge can add
1. People management: recognition of the value
skills of people Specifying what actions are necessary to
2. Process management: links into the achieve better usability and added value
identification and deployment of practices Reviewing the use of the knowledge to en-
may be associated with business process sure added value.
reengineering.
3. Information management: knowledge, Sveiby (2001) considers that KM is the added
and not just information and data, should be value creation capability through organization
available from wherever it is needed to all intangible assets. He explained that the basic com-
those authorized to receive it. The language ponents of KM are the people, process, information
should be simple and appropriate making and technology that turn into knowledge data and
both input and output easy. information. Andreu and Sieber (1999) explained
knowledge management as a continuous process
Knowledge Management is a systematic to ensure practical development at the organization
process that uses knowledge and continuously in order to improve organization problems solution
transfers knowledge from individual, groups, func- capability and contribute competitive advantages
tional units and other related areas for the benefit support. Waltz (2003) argues that KM refers to
of the entire organization creating learning and different organizational disciplines, processes and
knowledge sharing culture (Mathew, 2008). It is technology information applied to acquire, create
the systematic capture, sharing, dissemination and and spread knowledge to get companies mission
use of various applications to maximize organiza- and its strategies and targets business. Gurteen
tional performance and effectiveness. The core of (1998) reflected Knowledge Management is
knowledge management is to leverage knowledge an emerging set of organizational design and
resources into best practices for competitive and operational principles, processes, organizational
other advantages. Knowledge can be acquired. It structures, applications and technologies that helps
includes understanding, familiarity, awareness and knowledge workers dramatically leverage their
perceptive gained through experience or study, creativity and ability to deliver business value.
and results from making comparisons, identifying Knowledge sharing Is the exchange of knowl-
consequences, and making connections. KM can edge and information which the people has gained
also be explained as systematic arrangement of of experiences, education, training, thoughts and
information which provide and support organiza- sharing through social interaction, coordination
tion development and decision making creating and cooperation. Three basic prerequisites of
value. In organizational terms, knowledge is knowledge sharing are: people related factor in-
cludes people attitude, motivation, values, skills,

76
Knowledge Management Approach as Business Model

trust, and roles etc. Second, organizational related dination and growth (Mathew, 2008); Reducing
factor includes policies, strategies, structure, cost, maximize organizations potential; supports
systems, and style and shared values in organiza- strategic planning, policy formulation, forecasting
tions. Thirdly, resource factor includes human, and generating viable alternatives for measured
technology, knowledge repository, collaboration, activities to achieve desired results are the other
knowledge route map, and cooperation strategies advantages of KM in an organisation.
for sharing knowledge. The main features of KM are as follows:
Knowledge transfer Knowledge transfer
can be explained as the process of transferring 1. KM adds value to the organizational goals
knowledge through sharing and collaboration. It through constant review and updates
involves the use of resources and technological 2. KM depends on the competencies, organiza-
aid supporting the transfer process. It involves tional culture, learning, motivation, attitude
sharing of knowledge to a potential recipient, and and trust among human resources.
understanding the send knowledge for contributing 3. KM is continuous and flexible in nature.
and enhancing recipients performance. 4. KM is systematic process which enhances
organizational efficiency and effectiveness
of organization.
KM ADVANTAGES 5. KM supports organizations to achieve
their goal by managing and using infor-
Other than capturing, sharing knowledge of best mation (creating, obtaining, analyzing,
practices, training, collaboration, corporate learn- verifying, storing, preserving, retrieving and
ing, effectively managing customer relationships, disseminating)
and delivering competitive intelligence. Attain 6. KM supports the management by supplying
level of performance by ensuring continuity and critical knowledge for decision making
consistency; promote transparency in decision
making; disseminating the information in various
functional units; focuses on enabling, empower- FUNCTIONS OF KNOWLEDGE
ing, directing, and energizing employees (Wing, MANAGEMENT
1999); creates networking to enable people to
access knowledge resources developed by others; The function of knowledge is to make a change in
provides flexible sustainable information base the overall organizational performance and leads
and protects capital resources, support in decision to higher productivity. Knowledge is high-value
making, problem solving; developing the level of resource that is integrated to apply for making
performance; future forecasting improvement and organizational decisions and taking productive
productivity; Less error, less redundancy, quicker actions. It includes data, information, ideas, experi-
problem solving, better decision making, reduced ence, insights and awareness. It is the combination
R&D costs; learning; forming group decision and of information or what we know or the state of
opinions; optimize resources in making decisions; knowing in-depth.
increased worker independence, enhanced cus- The main features include:
tomer relations, and improved service (Fernandes
& Usher, 1999); system of management decision Collective capabilities to understand, apply
making by supporting the functional activities to skills and accessing knowledge resources
make use of existing information and link with and experience.
other functional department for the overall coor-

77
Knowledge Management Approach as Business Model

The core function of knowledge manage- People: Major contribution in KM process


ment in an organization is the ability to is based on people for Knowledge-hoarding
identify critical knowledge resources and to knowledge-sharing and knowledge de-
use them objectively in improving compe- velopment. People are considered as the major
tency, creating efficiency, developing self- participant contributing through knowledge shar-
confidence; enhance competitiveness and ing, collaboration and re-use to achieve business
leads to productivity. results. This is achieved through a combination
Enhancement of knowledge support con- of motivation / recognition & rewards perfor-
tinuous and meaningful application of mance appraisal systems, and other measurement
skill, continuous learning, social interac- systems.
tion and analyzing performance results. Technology: KM technology (both informa-
KM is significant in problem solving, deci- tion technology and communication) solutions
sion making, integrating, goal accomplish- provide functional support for knowledge-sharing,
ment and improving and evaluating the collaboration, workflow, document-management,
performance. etc. across the enterprise and beyond into the
Knowledge Management process function extended enterprise. Technology is a key enabler
is to gain through sharing, education, train- to KM ensuring technological solution and focus
ing, work experience, dialogue, participa- business issues and is user-friendly used for ex-
tion and group interactions both internally change information, share knowledge and guide
and externally. each other and the organization to better decisions.
Knowledge should be regularly reviewed Sustainable development: KM supports
and updated to make it relevant and success and provides sustainable development
effective. committed to continuous improvement.
Knowledge supports solving problems and Davenport et al. (1998) have identified eight
contributes to productivity and sustainable knowledge management success factors such
development and improvement. as: technology infrastructure; organizational
infrastructure; balance of flexibility, evolution
and ease-of-accessibility to knowledge; shared
CRITICAL SUCCESS FACTORS knowledge; knowledge-friendly culture; moti-
FOR KNOWLEDGE MANAGEMENT vated worker who develop, share and use knowl-
edge; means of knowledge transfer using various
The critical success factors for KM in a service information technology infrastructures; and senior
organisation can be broadly classified as into management support and commitment. The most
four divisions- People, Processes, Technology & comprehensive list of success factors by Moffett
Sustainable development. et al. (2003) has presented ten key components to
Standardized Processes: includes standard successful knowledge management as: a friendly
procedure for knowledge-contribution, content organizational culture; senior management
management, retrieval, communities of practice, leadership and commitment; employee involve-
implementation, project management, meth- ment; employee training; trustworthy teamwork;
odology & standard formats to document best- employee empowerment; information systems
practices & case studies, etc. It is necessary by infrastructure; performance measurement; bench-
various stakeholders to understand and support marking and knowledge structure.
the implementation of standard procedure of KM

78
Knowledge Management Approach as Business Model

PREREQUISITES FOR to KM processes in terms of collaboration, coop-


KNOWLEDGE TRANSFER eration and teamwork for knowledge sharing and
transfer within the organization and other related
Building Trust in the Organization components.

Knowledge transfer is directly linked on trust


among the people building confidence about shar- FACTORS FOR KNOWLEDGE
ing experiences, ideas, and relationships within MANAGEMENT IMPLEMENTATION
the organization
Employee Involvement
Creating the Culture to
Accommodate Change Employee involvement for sharing knowledge
contributes to meet organizational objectives.
Creating the organization culture through mis- Employee involvement is a sequential process
sion, values, policies, strategies and developing aimed at sharing information, knowledge, rewards
practices to accommodate changes will support and authority (Steinecke, 1993). The focus of KM
the organization to achieve performance. Leader- application is to provide a surrounding in which
ship, operational practices, policies, structure and knowledge workers can create new knowledge
management plays a vital role in accommodating and share.
change.
Information Systems Infrastructure
Infrastructure for KM
Well developed information systems infrastructure
The organization need to have KM supporting is necessary for the organization to implement
infrastructure to gather, process, storage, retrieval, the knowledge management process. Information
dissemination and collaboration system and network technology infrastructure
supports storage, analysis, dissemination, and
Knowledge Workers sharing of knowledge which forms an important
element of KM process.
The people are the base line of KM process and
teamwork required for effective functioning of Employee Training
the process. The organization need knowledge
workers supporting the implementation of KM Greco (1999) explains that the key elements of
policies and strategies, gather, process, storage, successful KM is education to help employees
retrieval, disseminate, collaborates and regularly recognize what knowledge is valuable, and there-
improve the knowledge within the organization fore merits sharing. The training capabilities for
for achieving knowledge result. any organizations should be well recognized,
especially for those agents concerned with preserv-
Collaboration, Cooperation ing intellectual capital (Carneiro, 2001). Training
and Teamwork provides skills and necessary knowledge to fulfill
their responsibilities.
The organizational functional department, units,
employees and organization need to be supportive

79
Knowledge Management Approach as Business Model

Teamwork developing knowledge strategy in order to capture,


share and manage organizational knowledge.
Teamwork is an essential source of the knowledge
generation process (Choi, 2000). Teams are the Knowledge-Friendly Culture
units that actually carry out the work in many
knowledge-intensive organizations (Mohrman Organizational culture acts as fundamental con-
et al., 1995). A well-staffed team is crucial for cept managing organizational development and
successful implementation of knowledge manage- change. Organizational culture reflect organiza-
ment (Civi, 2000). tional outlook facilitating both learning, innova-
tion and change encouraging organization to adopt
Performance Measurement KM process building knowledge as support for
adding value and change.
KM process should be measured in terms of per-
formance understanding expansion, innovation, Principles of Knowledge Management
development, quantity of intellectual capital and
productivity. Measuring intangible assets help the 1. Connectivity and collaboration can be used
organization to develop efficiency. as the major tool for KM
2. Knowledge process should be linked and
Employee Empowerment hold together:
3. Knowledge systems should include collec-
Employee empowerment is one of the critical tive knowledge contents
factors for knowledge management implemen- 4. Knowledge management systems should
tation success. Employees empowerment will focus on both individual and group within
enable them to comprehend and contribute to the same system.
the performance of the organization (Bowen & 5. Knowledge should be pulledfrom its source
Lawler, 1992) and this fact initiate to take extra re- using various KM techniques, rather than
sponsibilities to solve organizational problems by pushed to central repositories.
learning new skills in their jobs (Anahotu, 1998). 6. Knowledge process systems should capture
and develop in usable form
Leadership of Top Management 7. Knowledge processes add value
8. Knowledge should be provided in the context
Leadership is very essential for successful KM of existing business processes
process. Leadership is responsible for creating the 9. Knowledge should be self-managed by its
knowledge vision of the organization, and build- authors and users.
ing a knowledge culture maintaining employees 10. Knowledge systems should adapt themselves
morale for KM process. to the organizations culture and information
11. Knowledge systems should enable users/
Benchmarking customers to find needed experts and con-
nect with them expediently:
Benchmarking is the most effective tools for devel- 12. Knowledge change management need to
oping knowledge management process. Effective acquire knowledge based on need of the
and continuous application of benchmarking in organization
KM process will help the organization to support 13. Knowledge management tools should be
competitive advantage. Benchmarking insists on simple and provide insight

80
Knowledge Management Approach as Business Model

14. Knowledge needs should be specified in 4. Knowledge sharing is time consuming &
terms of requirement of the user costly.
5. Competition among different functional unit
leads to unwilling to share their knowledge
TECHNIQUES TO ADMINISTER 6. Lack of technology, infrastructure
KNOWLEDGE 7. Lack of motivation
8. Lack of open communication
Literature related to the KM suggests various 9. Lack of trustworthiness
techniques for managing knowledge within the 10. Lack of top management support
organization are as follows:

1. Balanced scorecards (Kaplan & Norton, KNOWLEDGE SHARING


1996), STRATEGIES: DESIGNED
2. Modeling languages (Mayer, Cullinane, de AS SOLUTION
Witte, Knappernberger, Perakath, & Wells,
1992) Knowledge sharing among the employees and
3. Other knowledge-based applications (Benus, to develop a knowledge sharing culture needs
1993; Schreiber, Akkermans, Anjewierden, strategies. The strategies include:
De Hoog, Van De Velde, & Wielinga, 1998)
4. Role Activity Diagrams (Ould, 1993); 1. Open strategies
5. SWOT (Strengths Weaknesses Opportunities 2. Closed strategies
Threats) analysis,
1. Open strategies: Organization have defined
Knowledge sharing is one of the most difficult set of rules and regulation guiding commu-
and time consuming activity. The employees in nication, knowledge sharing, transfer and
fear of losing advantage are less incline to share other purposes. The open strategies have
their knowledge with others. It is also difficult to been described as the strategies adopted by
determine the solution on which the organization the organization including rules and policies
tries to solve the problems. which will be open to all and can be used
Various obstacles for sharing knowledge in an for getting connected for the organizational
organization are: resources and reasons. This includes:
a. Interaction among employees (Smith,
1. Lack of knowledge sharing strategies to 2003)
encourage individual, group, functional b. Mentorship (Cope, 1998)
and organizational knowledge sharing and c. Management support (Geraint, 1998;
exploring employees related to knowledge. Goman, 2002)
2. Knowledge among the employees which d. Technological usage (Smith, 2003)
are hindered (Gonam, 2002) reducing their e. Knowledge sharing and culture
advantage and can impede their ability 2. Closed strategies: The limited activities in
(Bender & Fish, 2000). which employees are involved and specified
3. Lack of trust, understanding & collaboration based on certain criteria providing sharing of
among employees. knowledge in an organization. This includes:

81
Knowledge Management Approach as Business Model

a. Reward system (Desouza & Awazn, KYC Learning


2003)
b. HR development (Hislop, 2003) After eight years of opening the medical centre
c. Structural matching (Bhatt, 2001; the KYC board has recognized that the doctors
Hwang, 2003) who are performing well and known to be lead-
ing practitioners in there respective specialization
are not much inclined towards the sharing of
KNOWLEDGE MANAGEMENT: the knowledge to their subordinate doctors and
CASE ANALYSIS reluctant to discuss various cases in general and
specific. Most of the doctors under the same line
Collaborative Learning: Knowledge have in-depth experience in their own special-
Strategies of KYC1 Medical Centre ization. Also, the handful of doctors plays major
role in the KYC reputation and has great market
Medical activities are recognized as one of the acceptability among patience and honored with
most crucial task world over. This field and its number of awards.
activities are related to collaborative work and During the same period KYC board has made
many other including trust, dedication, motiva- policy decision to install ultra modern micro
tion, experience, service, care so on. It is entirely cameras with voice recognition facility and record
different from that of general task in service in- inside the operation theatre, doctor patience con-
dustry, business, art, domestic etc and involves sultation room to gather knowledge and develop
a sequence of anticipated tasks at the right time. knowledge sharing process. The board was aware
Medical field is the chain of tasks and the knowl- that this will cost high and requires additional staff.
edge associated with the course of infirmity of a The policy started to be implemented arranging
patient. Factor that influences the complexity of all areas in collaboration with the suppliers and
medical work is its richness and muddled character separated a block to administer the technological
includes patients case work and keeping patients advancement.
continuous improvement. Early phases of the instrument installation
doctors and nurses are very reluctant and put
KYC Medical Centre forward the issue of privacy and confidential-
ity of the issues and thought for the checking
KYC medical centre has gained high repute in their activity inside the medical centre. This has
various specializations and receives thousand become major issue for more than 25 days and
of patience within and outside the country for affected the medical centre working [Refer above
the treatment. The medical centre has formal obstacle 2, 4, 7, 10]. The Chairman addressed the
structure which is directly two steps to reach the doctors with the advantages and implication for
board. The medical centre have collaborative link installation [refer Open strategy b, c]. The basic
with organization in Malaysia, Australia, UAE, objective of the installation of the technology is to
USA, Canada, Philippines and other countries for assist the doctors and nurses thousand kilometers
consultancy and sharing. The centre extends the far and have collaboration and learning with the
supportive help to other medical centre within the KYC [refer Open strategy a) and e)]. The doctors
country and offers all type of specialization to the were addressed by the top management [refer
patiences with high standards. Open strategy b, c] every week end related to

82
Knowledge Management Approach as Business Model

various issues and addressing the future scope for for the tacit knowledge being transferred itself
technological advancement. while in other tacit knowledge being transferred
To support the staff and motivate the em- as explicit also. The shift of the manual based
ployees, the management has decided to provide storage to the technological based storage has
the increment [refer Closed strategy a] for the been the great achievement. The later stage doctor
members for external consultation, discussion also realized the importance by looking the videos
and collaborative learning. The doctors were and the footage of operation from the specialized
provided with all sort of technological equip- doctors gained important insight and started giv-
ment [refer Open strategy d] and supportive staff ing valuable comments to improve the process of
in information and communication technology operation and process of handling.
(ITC). The medical centre spends huge cost and
approximately years of time [refer obstacle 5] to Collaboration, Sharing
get the thing started for collaboration learning. and Learning in KYC
The management has yet to do lot of work on the
basic level to get the problem solved and achieve Knowledge Sharing
the objectives. The technological mistake can cost
the life of patient and reputation within the col- Knowledge sharing is integrating of activities
laboration and market. The fundamental activity is within the organization taking place when the
to capture the tacit knowledge which is provided components related in the organization share
by the doctors during operation, consultation and experience and problems. Knowledge sharing in
other daily activities [refer Open strategy e]. To KYC is considered crucial within organizational
capture the service provided by the nurses creat- settings characterized with the division of activi-
ing the competitiveness being very important in ties based on structure. The knowledge generated
the service industry. The technological support from members within and outside, KYC facilitates
provides help to capture the operation and the the integration, specialized, and asymmetrically
procedure while consultation and prescription distributed among various components [refer
being given by the doctors are recorded first hand. Closed strategy c] in the network.
What next? For effective integration and knowledge
This tacit knowledge is to be converted into sharing KYC organizes annual conferences in
explicit knowledge support the learning for the various field of medicine which will extends the
subordinates within and outside. The management sharing among different components associated
has appointed intern doctors for doing translating with KYC. Also various workshops, seminars
the operation code into simple explicit technical and other related knowledge sharing programs
language. The intern doctors being trained [refer are conducted within the system for transfer of
Closed strategy b] for adopting the high level knowledge among the employees, improve ef-
operation and learn the lesson being carried out by ficiency and effectiveness related to managing
the process. The knowledge is being transferred the knowledge for sharing; and value issues. The
from the doctors to doctors at different levels. collaboration among the components provides
Interns are supposed to be shifted to the wards for effective implementation and feedback. The cru-
normal routine and next interns have been put in cial feedback between the internal and external
the place on regular basis. The application of the partners supports improvement in function. Col-
case is done with the specialized doctors assist- laboration will determine the components that are
ing them in the similar type of job. The process most useful and have maximum market value.
of rotation of interns and other staff maintained

83
Knowledge Management Approach as Business Model

KM Problems Faced by KYC 2. KM initiatives are mostly framed but re-


quired amount of efforts have not been put
KYC faces many challenges connected with for effectiveness both in terms of time, money
identifying knowledge and implementing KM and specialization.
process. KYC take maximum care for the need to: 3. KM relies on technology, information sys-
tem and communication in the organization
Create an organization culture that encour- which may fails to address the common issue
ages knowledge sharing among different of knowledge sharing
people involved 4. Design and strategic formulation and em-
Create knowledge sharing culture which bedding it in the policy are not integrated
will support the overall improvement and in case of KYC in such a way that allowed
development stakeholders to access and analyze the
Ensure that the correct knowledge should implementation.
be created, stored and used.
Identify, model and explicitly represent the Since the installation of KM application the
knowledge to its employees. knowledge has been greatly captured, transformed
Implement support that identify, capture, and transferred to the subordinates by the process
analyze, represent, verify, store and dis- reduces the risk of getting knowledge loss and
seminate and reuse of the knowledge in the purpose of achieving competitive advantage.
organization day to day applications. KYC achieve the competitive advantage over the
Produce systematic approaches to de- other in terms of effectiveness and efficiency in
signing and building knowledge-based the field of health care.
application.
Share and re-use their knowledge among Knowledge Development as
its employee for the achievement of it Strategic Solution at KYC
objectives and also for future strategic
formulations The KYC implementing the KM deals with the
organisations most imperative issues to synchro-
KM is supportive and is capable to address nizing the KM goals with the organizational strate-
the issue of improvement and development in gies. This creates a close coordination between
the organisation. Knowledge in an organisation the KM strategies and the organization objective
is formed from various inputs and executed de- which is directly and indirectly affected by the
spite massive investments in the process. KYC process. The knowledge sharing in the network
implemented KM to get better pay back for the acts as the major solution for the effective flow
opportunity. There are various reasons that KYC and transfer of knowledge leading to learning and
revealed about the precaution they took from effective implementation of knowledge strategies
various reasons they perceived for the failure of at KYC. It has also been found that the KM initia-
KM despite: tives in the KYC are combined with the overall
organizational strategies and framed to undertake
1. The past few years KYC lack behind to take and articulate with the objectives in the long run.
the initiative because of the organization This advantage of linkage of knowledge strategy
have no alternative and implementation dur- and the organizational strategy show the way to
ing the introduction stage will create extra create the advantage for becoming a learning
efforts and cost. and development organization using knowledge

84
Knowledge Management Approach as Business Model

for the improvement and also to develop the Analyses: Knowledge based process will
goals into strategic action. This has been a great help the organization to analyze and un-
achievement that the collaborative knowledge and derstand the change within the internal
learning within the network achieves results in and external factor. These factors which
long run. Organizational learning and knowledge are affecting the organization can be deter-
management at KYC facilitates trust, interest, and mined and design to provide productivity.
shared language fostering access to knowledge Competition being the major contributor
and a culture marked by autonomy, redundancy, to change can be analyzes and appropriate
requisite variety, intention, and fluctuation which steps can be taken for advantage.
stays true in case of KYC within the network. Strategic Intent: Becoming more analyti-
cal, adaptive, flexible help KYC to innovate
Knowledge as Solution for the the product and services. KYC develops
Business Strategy and Development the strategic intent to determine the future
objectives which can be achieved effec-
Strategies at KYC are the guiding factor for the tively and efficiently. Creating new knowl-
achievement of the objectives. KM and its applica- edge about technological change, markets,
tion play a significant role in building the potential society, proposes strategies and process
and providing the knowledge creation and sharing changes, developing new competencies.
capacities to build knowledge organization needed
to support the ongoing strategy formulation. KM KYC addresses the major purpose of knowl-
based strategy at KYC supports and seeks to cre- edge management at KYC is to:
ate sustainable competitive advantage developing
the organization for competency (learning) and Capture knowledge from experts giving
improving the performance. KM strategy develops subjects accessibility and in-depth research
and improves core capabilities (Martin, 2000) development.
build capabilities to develop market, product and Collect input data and deliver the output to
services adapting innovation needed for the future. the end user, update data records; check for
This strategic knowledge designed for the prob- the process through collected data. This al-
lem solving and decision making at KYC support lows the user to access the information in a
to gain strategic advantage in following forms: quick and easy way.
Connect each component of knowledge
Innovation: KM process at KYC identifies with a set of experts and develop an active
new opportunities for innovation, improve- database of such experts for problem solv-
ment in value by solving the problems and ing, collaborative research and supporting
redefining business to innovate and add decision making.
strength to the core capabilities. Process Develop collaborative links with resources
innovation enables the KYC to support both physical through institutions and in-
the knowledge flow and transfer among dividuals either electronically or through
individuals, groups, functional units and data transfer.
network as a whole. Innovative knowl- Develop strategy, structure, and culture of
edge based process with the external and the enterprise into a learning system.
internal support collaborative learning and Encourages double loop learning (practice
provides customized solutions to unique and literature learning) in which learning
medical problems. informs and impacts on strategic directions

85
Knowledge Management Approach as Business Model

Facilitates participative and innovative de- strategic position support knowledge sharing;
velopment with and between people and systematic application of knowledge for strategic
institutions commercially, technologically, planning;
and socially.
Gain significant returns from the data and KYC Case Summary
information which they produce during
various processes and utilizing this infor- The knowledge in an organization is vital for
mation for further improvement. organizational change and development. The
Has as its primary aim rapid and continual knowledge sharing in an organization depends on
regeneration of the total organization de- various factors and ensures appropriate transfer of
pending on rapid and continual learning. knowledge. The obstacles for the knowledge flow
Responds to changes in the internal and ex- and transfer can be removed by various strategies.
ternal environment of the organization by The strategies include open ended and closed
detecting and correcting error. ended strategies which give particular solution to
Retrieving as much knowledge needed for the organization and fasten the knowledge flow
future research. and sharing. KM at KYC initiatives linked with
Support learning of all its members and the overall organizational strategies and framed to
continuously transforming itself, undertake and articulate the objectives in the long
Train subordinates and staff accessing run. The case study of KYC being implementing
knowledge and guide them to the appropri- knowledge management based strategies achieves
ate resource. higher level of performance and productivity. The
KM process at KYC supports the organization for
Knowledge Management Acting the strategic decision making and solution to cre-
as a Support for Strategic ate advantage. The KM strategic solution creates
Service Management collaboration, learning, improves performance,
process development, productivity, product and
KM and knowledge based strategies addresses service facility which creates the sustainable
specific business needs and focus on adding value competitive advantage over the factor which is
and innovation with the capability of knowledge affecting directly and indirectly in the organiza-
support which enhances the stand for creating tion and its goals.
enhanced products and services for added advan-
tage. These advantages in terms of the case can be
represented in terms of performance and produc- KM IN EDUCATION
tivity by: develop trust, interest and motivation;
development by capturing, sharing and delivery of The application of KM tools and techniques can
required knowledge; encourage learning culture; be used education scenario as a success factor as
facilitate information linkages throughout many in the corporate and business. Despite the short
processes and functions; facilitate processes by coming KM application can be used for creating
ensuring the right knowledge transfer; facilities competitive advantage for education system.
innovation; focuses on the creation of knowledge; The system should adopt various models and
improve quality; improved customer information techniques for success in global competition.
and networking; improved customer service; KM has become a strategic tool for academics
promote sharing; reduce duplication by provid- development in most of the developed countries
ing required informational support; strengthening and adopted by developing countries based on

86
Knowledge Management Approach as Business Model

improved information system and technology usage and sharing of resources and experi-
which help the industry to store, retrieve and assess ences in much education institution.
to resources effectively from inside and outside
the organisation. This transmission of knowledge The education institution looks for improving
with the idea has developed and transforms the overall ranking affecting students placements, ac-
academic organisation and the system. The tra- creditation, performance, admission, brand name
ditional system of knowledge transfer through which are evaluated by the regulatory body to
classroom teaching has been changed in many ensure efficiency and quality. Main reason among
other form easy to accessed and gain. Due to the the institution making significant investments
increasing cost, expenditure and maintenance in infrastructure and information technologies
of IT infrastructure some have adopted other initiatives is to meet the future objectives of the
way solution. The infrastructure and access to institution and to improve efficiency and effective-
the information technology, communication ness in the system. Infrastructure development in
technology and knowledge resources should be terms of technological development will help the
developed. Simultaneously, the mode of knowl- management institution for creating cutting edge
edge transfers and management in educational in the rapid changing competition.
institution has been changing with the industry
concentrating more on knowledge management Administrative reason: Administrative
and the reuse for competitive advantage. In reasons includes: Planning; administra-
much of the knowledge management research, tive issues; collaboration; customer focus;
the term learning organization and knowledge employees development; information de-
organization are used interchangeably to reflect velopment; internal documentation; opera-
workplaces that are continuously seeking data tion management; process management;
from the environment, are fluid and adaptable, program development; research and pub-
and learn from their previous experiences. They lication; strategy formulation; teaching-
share knowledge and contain systems and process learning excellence; others. Administrative
for sharing knowledge (Johnson, 2002, pp. 242). issues also includes processed knowledge
about students, faculty and staff, research,
project, collaboration, system, infrastruc-
KM PRINCIPLES IN ture, organizational human resources, pro-
MANAGEMENT EDUCATION grams, courses, lectures details, changes,
competition, appraisal and so on serves
Some of the reasons for applying KM in Manage- as a strategic input for improving overall
ment Education in India are: teaching learning education

1. Competitive reason
2. Administrative reasons FACTORS AFFECTING
KNOWLEDGE MANAGEMENT IN
Competitive reason: The adoption of KM EDUCATIONAL INSTITUTION
tools and techniques will help the overall
competitive stand among national and in- Various factors affecting knowledge management
ternational stand. Knowledge management in educational institution affecting the process is-
strategies will be adopted to facilitate the sues are: integration and balancing of leadership,
organization, learning and technology; culture and

87
Knowledge Management Approach as Business Model

management; organizational innovation; organi- setting all components and common elements
zational culture, process, technology; knowledge for sharing and dissemination of knowledge will
sharing process etc create cost constraints (Mathew, 2009).

Face to Face Learning


CHALLENGES OF KM
APPLICATION IN EDUCATION Face to face interaction related to trust and ambi-
guity that surrounds identity in the virtual world
Knowledge sharing within the educational orga- are most easily overcome (Hildreth et al, 1998;
nization enables the employers and employees Kimble et al, 2000). The psychological effect that
to share insight (Mathew, 2009) helping them face to face learning create deeper and long term
to adopt appropriate ideas and allows faster and effect on the learner and encourages to discussion
cost effective move towards the achievement of inclining towards more learning and understand-
organizational objectives. Various challenges ing. Reducing the distance between he teacher and
which are predicted of applying KM in education learner but face to face interaction will be rarely
institutions are: possible as that of classroom teaching.

Personal Constraints Differentiation and Integration

Despite the revolution in information and com- The community among the learner having the
munication technology, the social background has consequences of being differential based on
not yet changed. Social system of greeting, face system, culture, language, social setup, personal
to face interaction, discussing, and environmental interaction etc leading to be constraints for sharing
condition are common elements of the society knowledge among distance learners.
which has not got the momentum to change which The integration among different group of
restrict the KM process acting as constraints people having different background, specializa-
within the individual level. The dynamic change tion, experience etc will be difficult to serve under
in information, technology and communication, same programs give only the technical aspects
appears drastically in terms of KM technology trough distance learning.
has not occurred in personal customs and culture
constraints. People working in the organization are Trust, Collaboration and
not inclined to disseminate the information due Cooperation Constraints
to various reasons acting as personal constraints
to implement KM process. Lack trust, collaboration and cooperation, virtual
interaction among the employees in the orga-
Cost Constraint nization and potential knowledge provider and
learners leads to constraints and restrict sharing
The implementation of KM at initial stages needs of knowledge.
to have knowledge workers, resources and infra-
structures which insure high cost. Also, people are
rigid to transfer knowledge due to various factors KM AS TOOL
which need to be solved using different tools and
techniques like incentive leads to cost constraints. KM tool allows the learners to gain access to
Creating infrastructure for the application and the source of knowledge beyond the boundaries

88
Knowledge Management Approach as Business Model

Figure 1. Modified KM integration for change


and context creating favorable environment that
improve shared understanding among different
user in the teaching learning process of distance
education. Various combinations of technological
advances like video conferencing, online video
chatting, will help the user to be interacting with
concern department and experts and facilitate
access to source of knowledge and enables in-
teraction among teacher and learner. KM tool
allows the institution to solve the constraints at
maximum level by establishing trust and allows
collaboration with the potential learner.
organization creates such an innovative culture
to bridge the gap. The adoption of knowledge
transfer culture helps the organization to improve
ORGANIZATIONAL KM
value issues in marketing, production, research
CULTURE AND CHANGE
and so on can be captured and used for adding
value contributing to the overall value creation.
The KM culture in an organization has been ex-
Knowledge Management is influenced by hu-
plained from various researchers and practitioners
man factor and technological aspect will support
with model. Alavi & Leidner, 2001; Karlsen &
and perform function contributing to the KM
Gottschalk, 2004 explained it in three basis in
implementation having accountability as HR
KM process. They are: (a) Information-based;
factor. The use of information and technology
(b) technology-based; and (c) culture-based.
(IT) will support adopting the KM approach as
Wilkins and Dyer (1988) put forward that culture
prerequisite for capturing, sharing, disseminating
is [composed] of the values, competencies, and
and innovating and retrieval for the further use.
beliefs of a group of people that strongly influ-
Various factor integrating (Mathew, 2008) the KM
ence whether and how organizational strategies
for adopting with the change can be collaboration,
are implemented. (p. 522).
process Management, innovation, e- transfer, and
other KM tools as shown in Figure 1.
KNOWLEDGE MANAGEMENT
SYSTEM FOR ORGANIZATIONAL
KNOWLEDGE MANAGEMENT TO
CHANGE
CHANGE MANAGEMENT
The major challenge for the organization is to
Adopting technology and knowledge workers
adapt to the constantly changing environment
resources will not suffice and solve the KM issues
in terms of innovation. Most of the organization
to adopt change in the organization. Knowledge
innovate with the input taken from the environ-
culture need to be imbibed and should be created
mental factors and constantly deliver the product
within the organization. The top management
and services. It is relatively long term and every
should motivate human resource to transfer
functional unit in an organization play vital role
knowledge. The management should emphasis
for knowledge management process. Adopting
innovation with the application of knowledge in
knowledge transfer will reduce the knowledge
daily process as Change is continuous. The orga-
gap within the organization. KM system in an

89
Knowledge Management Approach as Business Model

Figure 2. Process systems to change system with KM (Mathew, 2008)

nization should look for the change factors using nological and functional change for required
the knowledge management tools and techniques gaining competencies. This change incorporating
for the process evaluating existing and required the environmental factor will support the organi-
competencies. The system incorporate the value zation to create knowledge transfer culture. At
addition with innovation and builds the structural this point of transaction incorporating the change
framework for active innovation actively use and and developing the knowledge transfer culture,
practice innovation as organizational culture to organization achieves the objective with the set
adopt change and steer in the desired strategic criteria to take advantage of the available knowl-
direction of the organization (Mathew, 2008). edge for creating competencies. The complete
The Figure 2 highlights the process development. approach will be institutionalized for the change
in the organization. The positive change system
will focus on the innovation for further improve-
KNOWLEDGE MANAGEMENT AND ment of products, services and competitive ad-
ORGANIZATIONAL CULTURAL vantage.
CHANGE

Implementing knowledge management will sup- CONCLUSION


port the new change culture and strategic develop-
ment adopting the organizational objectives. The Knowledge management has become an important
knowledge gap can be reduced providing support area of focus in order to be successful in todays
to the organization change process as shown in business environment. Knowledge based business
Figure 3. establishment tries to create a knowledge culture
In most of the traditional organization, KM where learning through various methods has been
system is very rarely followed which leads to the established. Knowledge is high-value resource that
knowledge gap in different functional and man- is integrated to apply for making organizational
agement process. KM system is used by the decisions and taking productive actions. It includes
employees with the process change aimed for data, information, ideas, experience, insights and
improve the organizational performance and sup- awareness. It is the combination of information or
port innovation. The implementation of the KM what we know or the state of knowing in-depth.
tools and techniques will enable structural, tech- The critical success factors for KM in a service

90
Knowledge Management Approach as Business Model

Figure 3. Knowledge culture for organizational


financial policies, HR practices, etc giving hard
change
time to create advantage and to sustain that ad-
vantage. The emerging discipline of KM provides
systematic management of knowledge that evolves
with the enterprise for creating advantage among
the business and industry. Most of the organiza-
tions are taking innovative steps to develop its
knowledge for improving competitiveness, per-
formance and service delivery. The integration of
technologies into business processes has created
wide impact on the development and creating
efficiency in business performance creating new
paradigm shift leading to provide services and
pays crucial role in the industries
It can be further explored and developed that
the use of KM in other areas in new ways is an
opportunity which exists with the development of
business system and delivery. KM strategies can
now be used as basic framework focusing more on
organizational processes and the creation of new
knowledge in order to provide effective service
delivery and remain ahead of its competitors. Re-
searches have to play a greater role in identifying
effective ways for utilizing existing knowledge
and to create new knowledge using technological
organisation can be broadly classified as into advancement for improving process application.
four divisions- People, Processes, Technology Organizations have to find the ways and method
& Sustainable development. Various principles, for knowledge sharing and transfer externally
techniques, obstacles, strategies has been used for and internally more competently and learn to
implementing KM. The case of KYC explains the adapt the changes more quickly which occurs in
effective knowledge use for development. This order to retain their competitive advantage. KM
paper highlights the implementation of KM in process models and structure can be broken down
education providing KM strategies for organiza- into the simplest manageable parts that can cost
tion change for effective implementation and effective and influential to be used as essential
achievement of organizational objectives. feature of business system. While technology can
plays vital role in facilitating communication and
collaboration among knowledge workers which
FUTURE RESEARCH DIRECTIONS is essential for KM process. The future research
can explore comprehensive business drivers
In todays world of global competition and service adopting change within the process drivers and
delivery the managers are facing unprecedented create relationship with emerging knowledge
challenges caused due to change in the external management systems to compete in the new global
environment namely change in technologies, service delivery.

91
Knowledge Management Approach as Business Model

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doi:10.1108/13673270010315362

ENDNOTE
1
Identification code given for the organization

96
97

Chapter 5
Role of Small and Medium
Sized Enterprises in E-Supply
Chain Management:
A Case Study

Fang Zhao
American University of Sharjah, UAE

ABSTRACT
This chapter studies the role that small and medium-sized enterprises (SMEs) play in the e-supply chain
management. It has two objectives: (1) it explores how a SME embraces and implements electronic sup-
ply chain management (e-SCM) and the challenges facing it, and (2) it develops strategy to deal with the
challenges. The chapter draws upon a case study of IFC Global Logistics (IFC), a small-to-medium-sized
third party logistics provider. The case study illustrates how the SME embraces enabling technologies,
the Internet, and modern business practices to integrate its supply chain management processes and to
create for itself differentiation and a competitive advantage in the tough logistics industry. Based upon
a literature review and the case study, the chapter explores effective strategy for SMEs in e-supply chain
management.

INTRODUCTION important role in the technology-driven economy


of both developed and developing countries. The
There is a general census amongst practitioners old supply chains have evolved into electronically
and academia that SMEs are playing an increasing powered networked supply chains that rapidly link
optimal supply chain members with the right com-
DOI: 10.4018/978-1-60960-129-4.ch005

Copyright 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Role of Small and Medium Sized Enterprises in E-Supply Chain Management

ponents, technology, and services for customers son, 2006). The focus of management is placed
(McCormack et al., 2003). In this regard, infor- primarily on the application of the Internet to the
mation technology (IT) is an important enabler SCM concept and SCM synchronization. From
to achieve supply chain performance (Fawcett et an operational perspective, there are two major
al., 2007, Chandra et al., 2007, Yee, 2005). The activities in e-SCM: the flow of materials and the
issues in electronic supply chain management development of information systems. E-SCM is
(e-SCM) take on a different perspective when the likely to offer competitive advantage in better lead
enterprises involved are in the SME sector. The times, customer service and supply chain synergy
literature review for the present study found that (Burgess, 1998, Nguyen, 2004) and therefore it
research in the current literature tends to focus represents an effective strategy for many manu-
more on e-supply chain management of large firms facturers and service providers. Networked and
but not on SMEs from which they outsource raw multi-enterprise supply chains have become a
materials, intermediates, parts, components and popular organizational design. As Ross (2003,
services (Sastry, 1999; Hong and Jeong, 2006). p. 11) describes, SCM has evolved, through the
To fill the knowledge gap, this chapter studies application of e-business technologies, into a
the role of SMEs in the e-supply chain manage- powerful strategic function capable of engendering
ment. It has two objectives: (1) it explores how a radically new customer value propositions through
SME embraces and implements e-SCM and the the architecture of external, Internet-enabled col-
challenges facing it, and (2) it develops strategy laborative channel partnerships. In this regard,
to deal with the challenges. e-supply chain management is concerned largely
The chapter starts with background information with the management of such Internet-enabled
which provides definitions of the key concepts to collaborative channel partnerships called e-
be discussed in this chapter and reports the main collaboration (van Hoek, 2001).
themes in the study fields. Followed by that, the
chapter presents a case study which illustrates e-SCM and E-Collaboration
how a SME embraces enabling technologies, the
Internet, and modern business practices to integrate Generally speaking, e-collaboration refers to the
its supply chain management processes and to use of electronic technologies (like the Internet and/
create for itself differentiation and a competitive or Internet-based tools) among business partners
advantage in the tough logistics industry. Based beyond market transactions (Kock, 2007; Davis
upon a literature review and the case study, the and Spekman, 2004).The term is often used in
chapter explores effective strategy for SMEs in e- the context of supply chain. E-collaboration is
supply chain management. The chapter concludes identified as one of the new areas of optimizing
with proposing future directions for research. the relationship between suppliers and original
equipment manufacturers (OEM) via the Inter-
net (Radjou, 2004). It is an Internet-supported,
BACKGROUND enterprise-spanning cooperation which is seen as
crucial during the development and construction
E-Supply Chain process (the so called e-engineering process) (Ker-
Management (e-SCM) sten et al., 2004). E-collaboration aims to facilitate
coordination of various supply chain activities
E-supply chain management is viewed as the and decision-making processes. Therefore, the
most recent stage of development of the concept fundamental construct of e-SCM is to foster an
of supply chain management (Ross, 2003; Joh- e-collaboration environment where members in

98
Role of Small and Medium Sized Enterprises in E-Supply Chain Management

supply chains can work together in a more efficient Simplifying procurement, reducing inven-
and effective way by using Internet technology. In a tory costs and shortening product-develop-
Web-based supply chain environment, it is viewed ment cycles (Kuglin & Rosenbaum, 2001;
as one of the main players in achieving a sustain- Lagrosen, 2005);
able competitive edge (LeFefebvre et al., 2003). Giving customers access to a wide range of
E-collaboration and e-SCM often means mu- services and technologies that a single com-
tual exchange of information amongst members pany simply could never deliver by itself;
in the supply chain. In addition to information Helping leverage the combined strengths
sharing, e-collaboration provides opportunities and skills of multiple smaller companies
for collaborative planning and new product de- who often lack the critical mass to compete
velopment (Kock et al., 2006). By resorting to in the world market (Zhao, 2006);
e-collaboration and Web technologies, supply Serving customers in foreign markets
chain partners can exchange product forecasts and through local partners in the e-supply
replenishment plans and then develop new plans chain;
that meet market demand in a timely and effec- Expanding customer base and securing fu-
tive way. Ultimately, the primary goal of e-SCM ture markets; and
is to achieve, through effective e-collaboration, Facilitating the implementation of multi-
the overall efficiency and competitiveness of the channel strategies through horizontal inte-
supply chain and enhance customer satisfaction. gration in the e-supply chain (Kock, 2007;
Kock, et al., 2006).
Main Potential Benefits of e-SCM
to Businesses Including SMEs SMEs and e-SCM

There is a consensus among practitioners and It has been a well-known fact that the majority
industry experts that the real value and benefits of suppliers in the supply chain are SMEs, in
generated through e-business is not about automa- particular when it comes to the Fast Moving Con-
tion but the abundant opportunities that e-business sumer Goods (FMCG) sector and the automobile
provides for organizations and businesses to e- industry. Therefore, it is important to look into
collaborate (Ross, 2003; Lee & Whang, 2002). their role in the context of e-SCM.
As more and more integrated supply chain man- There are various definitions of small and
agement and collaborative commerce initiatives medium sized enterprises (SMEs). The common
are being implemented, the development and criteria for categorization of enterprises are based
management of long-term strategic supply chain on the maximum number of staff and annual
partnerships are becoming important (Angeles & turnover of a company. European Union defines
Nath, 2004). The following summarizes the main SMEs as enterprises with a workforce of 1-250
potential benefits that e-SCM and e-collaboration employees. Australian Bureau of Statistics defines
can bring to businesses including SMEs, accord- SMEs as companies employing between 1-199
ing to previous studies published in the literature. people, wherein companies with 5-19 staff are
The potential benefits are: termed small companies, while those with 20-
199 employees are termed medium companies.
Streamlining the supply chain by moving In this study, the Australian definition is used, as
business processes online; the case company is Australia-based.
Facilitating access to an extended network According to the literature review for the pres-
of suppliers, manufacturers, retailers and ent study, compared with large enterprises, SMEs
customers; demonstrate the following distinctive features

99
Role of Small and Medium Sized Enterprises in E-Supply Chain Management

and behavior in terms of embracing information A brief review of related literature helps better
technology and the e-SCM: understand the specific nature and operational
context of 3PL providers including small and
SMEs are often strongly associated with medium-sized 3PL companies. Over the past
the CEO/owners background, knowledge decade, to achieve logistics efficiency and cost-
and skills base. In such circumstance, the effectiveness, many companies started outsourc-
imperative remains in the marketplace, ing their logistics to specialized logistics service
while the question of whether the company providers, of whom the majority are SMEs (Hal-
embraces the latest technology and partici- ley & Guilhon, 1997, Gelinas & Bigras, 2004).
pates in the e-business evolution depends As a result, single-party self-managed logistics
largely on personal preferences of the has developed into multi-party logistics such as
CEO/owner (Zhao & Dalrymple, 2002). 3PL and 5PL which are powered by e-logistics
Many SMEs are struggling to see the busi- networks that expand to global operations. The
ness value of innovations of information study by Gunasekaran and Ngai (2003) found
technology to them and are often limited that although SMEs are playing a key role in the
their use of IT to the basic functions of trend of 3PL, there are few studies focusing on
word processing, accounting and stock small and medium-sized logistics companies.
management (Schlenker & Crocker, 2003, They also found that lack of strategic planning
Temperley et al,, 2004). This is largely and management capacity to take advantage of
due to difficulties in gaining access to ap- IT and e-logistics are the primary issues facing
propriate technologies and information on SMEs operating in the 3PL. Other than that, the
available techniques as well as constraints SMEs in the logistics industry exhibit the same
on their financial and skill/knowledge re- features in embracing IT and are constrained by
sources (Thakkar, Kanda & Deshmukh, their very limited resources as shown above.
2009). This is one of the key reasons
that SMEs are reluctant to participate in
e-SCM. METHODOLOGY
SMEs plans to exploit information tech-
nology are often directed towards the pro- This study follows a case study design by Yin
motional and market communications as- (2003), taking a SME as a unit of analysis. Al-
pects rather than the wider supply chain though it does not prelude a capacity for genera-
management aspects (Ritchie & Brindley, tion, case study can provide detailed illustration
2000; Schlenker & Crocker, 2003). of specific issues and answer specific questions
Individual SMEs often find it hard to of how and why. This is why case study
achieve economies of scale in the purchase method is chosen for the present study to ex-
of inputs such as software and other tech- amine and illustrate how a SME takes initiative
nologies for e-SCM and related consulting to implement e-SCM. The selection of the case
services (Thakkar et al., 2009). company is based largely on its success and rich
experience in e-SCM and the open support of the
Small- and Medium-Sized senior managers of the company for this study.
Logistics Companies Data was collected and triangulated from
various sources and methods for the case study.
The case company in this study is a small-to- By using triangulation, a generally commendable
medium-sized third party logistics (3PL) provider. mode of research, the weakness in a single method

100
Role of Small and Medium Sized Enterprises in E-Supply Chain Management

and single source of data can be compensated by tralia and abroad in the supply chain. To meet the
the strength of another method and/or another growing demands of its key clients in the supply
source of data (Creswell, 2003). Observation chain for real-time supply chain information and
through field visits to the case company as well end-to-end supply chain management services,
as semi-structured informant interviews with IFC developed its own web-based freight tracking
two senior managers in late 2008 form the major system known as Freight Supply Chain (FSC).
sources of data for this study. Complemented with Taking into account, in particular, the financial
that is the collection of the company documents constrains of SMEs in the supply chain, IFC Global
about the companys operations and in particular Logistics designed and developed the low-cost
its endeavours in implementing e-SCM. FSC. The FSC system has been integral in IFCs
To maintain originality and precision, content strategic pursuit for e-SCM, enabling its SME
analysis was employed to analyze the interview clients and partners to collaborate effectively and
data and company documents. To guard against have full visibility of their products throughout
superficial face validity of content analysis, this the supply chain. The FSC system speeds up the
researcher gave greater weight to the analysis of process of supply chain communication, linking
latent content or meaning conveyed rather than point of production with point of delivery, and
merely an interpretation of the surface or literal thus allowing supply chain members and their
contents (Berg, 1995). Furthermore, triangulation own trading partners to move from existing
of methods and sources of data for the present conventional supply chain activities and method-
study helps check out the consistency of the find- ologies to e-SCM. This e-SCM has engendered
ings and improves validity as multiple sources of continuous improvements of existing processes,
information were used to converge the inquiry. both internal and external to IFC, and has enabled
Triangulation also helps minimize the risks and higher levels of trust and longer term relationships
effects of the researcher and informants biases between stakeholders, according to the interviews
in this study. with the senior managers from the case company
(Interview data, 2008). The e-SCM provides the
integrated approach necessary for success when
CASE STUDY managing and executing end-to-end logistics
solutions for clients. The key benefits generated
This chapter draws upon a case study to illustrate from the e-SCM have enabled IFCs SME clients
how a SME embraces the concept of e-SCM to and partners to:
enhance its services and performance through e-
SCM. The case company, IFC Global Logistics address more effectively fluctuations in
(IFC) with a workforce of around 80 employees, supply and demand;
was established in 1991. It is a Melbourne-based leverage on information to learn and engi-
transport logistics company in Australia, special- neer their supply chains so to monitor sup-
izing in end-to-end planning and execution of plier responses and lead times, maximize
logistics services. The company offers a portfolio container loads, and shift volumes via the
of supply chain services that incorporates ocean best routes;
freight, airfreight, customs clearance, domestic create meaningful performance measure-
transportation and 3PL warehousing and distribu- ment indicators;
tion (IFC, 2008). help answer queries on status of orders and
IFCs service offerings rely largely on e- times of delivery;
collaboration amongst its key agents both in Aus-

101
Role of Small and Medium Sized Enterprises in E-Supply Chain Management

decrease to almost nil the level of paper- (for example, establishing a private portal
work required for legislative retention; where partners can co-plan and share in-
leverage on the information trail that fol- formation in real time) (Li et al., 2005);
lows the products physical trail; Effectiveness and efficiency of real-time
enjoy shorter cycle times; and reporting system;
help make better business decisions Building and sustaining an effective virtual
(Interview data, 2008). network structure amongst e-supply chain
partners; and
According to Dumas (2008), FSC plays a cen- Sustained IT support and resources.
tral role in connecting the supply chain members
of the case company and serves as a catalyst and Key Organizational and
a driver of the e-supply chain management. Management Challenges

Key Technology Challenges Compounded with the technological challenges


are the challenges of people and organizational
However, the case company and its SME partners management for the case company and other
in the supply chain face a number of issues and SMEs in the implementing e-SCM which include:
challenges in implementing the e-SCM. For ex-
ample, system failure is a main threat to e-collab- Higher investment risks associated with e-
oration amongst SME supply chain members and SCM implementation given the extremely
their e-business both in the short and long terms. tight resources available to SMEs;
According to the case company, the tremendous Fostering and maintaining an innova-
complexity of information technologies remains tion and forward-thinking organizational
a huge hurdle to SMEs implementation of e- culture;
SCM, affecting their entire management strategy, Individual and organizational (top man-
process, structure, and most importantly, business agement) commitment to e-SCM;
bottom line results (Interview data, 2008). This Taking e-SCM as a core element of a
study found that the main technological issues are SMEs business model or as a built-in cor-
associated with SMEs existing IT infrastructure, porate strategy;
and managers and operatives knowledge and Joint business planning and development
skills in e-SCM. The following constitutes some with supply chain partners for mutual in-
of the key technological issues facing SMEs in terest and benefit;
e-SCM in general: Educating and training employees to un-
derstand the concepts and goals of e-SCM;
Process and system alignment and Effective and efficient ongoing monitoring
integration; and measurement metrics and systems; and
Interoperability of systems; Quality and effective networking and con-
Accessibility and security of IT systems; tinuous improvement of communication
Investment in new e-SCM applications, for (Zhao, 2008; Zhuang, 2005).
example, collaborative technologies (i.e.
partner relationship management [PRM]
tools); STRATEGIES
Transferring and sharing technical infor-
mation and knowledge between SMEs and This section explores and develops effective
building integrated information systems strategies to address the above challenges identi-

102
Role of Small and Medium Sized Enterprises in E-Supply Chain Management

fied facing SMEs in e-supply chain management. be a simpler, faster, and far more efficient than
The author considers that the critical factors for integrating all the various data models.
e-SCM concern both IT and inter-organizational As noted in the chapter, the success of e-
interfaces. Although collaborative technology SCM is concerned largely with the management
infrastructure capacities required may vary in of e-collaboration in the supply chain. It often
different supply chains and e-collaboration con- involves sharing information and knowledge on
texts, along with the role and size of each SME, which joint supply chain decisions can be made.
the following presents fundamental and broad Information that needs to be shared amongst
strategies for establishing and maintaining an supply chain partners often include sales data,
effective e-infrastructure for e-collaboration in inventory status, production schedule, promo-
the supply chain. tion plans, demand forecasts, shipment schedule,
The author recommends that simplified and and new product introduction plans (Huang &
standardized solutions for e-supply chain col- Gangopadhyay, 2004). Therefore, it is important
laboration based on common technology archi- to develop high-level self-service technologies
tecture be instigated, which may include trading which enable supply chain members to not only
partner processes, multiple levels of connectivity track orders, obtaining logistics and billing infor-
amongst trading partners, internal infrastructure mation but also automatically configure products,
and system reengineering to ensure e-supply chain make payments and resolve disputes earlier on.
interoperability (that is, the ability to be fully Developing business intelligence technologies to
compatible and capable of being integrated with analyze the ongoing flow of information drawn
each other in e-collaboration), and e-application from the entire supply chain helps SMEs make
architecture (Ross, 2003; Kotzab, Skjoldager, & improvements in internal operations and collab-
Vinum, 2003). Given the fact that many SMEs orative capabilities on an ongoing basis. In fact,
now operate in more than one electronic supply applying business intelligence into e-business
chain, multiple IT integration becomes paramount processes provides enormous opportunity for
to their business operations. Interoperability can value creation in the supply chain and enhances
be achieved through process standardization and SCM practices (Horvath, 2001; Mattsson, 2003).
information standards (e.g. EDI and RosettaNet To address the organizational and management
Standards). Studies show that the achievement of challenges identified in this chapter, this author
multiple IT integration brings significant benefits considers that focus should be placed primarily on
to the companies that implement it (Davis & leadership of SMEs, considering the dominating
Spekman, 2004). role that CEO/owner plays in a SME. According
Given the constraints of SMEs in various to the studies of SME innovation, the CEO/owner
aspects, it is imperative to establish simple and is the key driver and factor to the success of SME
low-cost connectivity to ensure that smaller innovation (Laforet & Tann, 2006). The value,
firms are able to access, and participate fully in, belief, attitude and commitment of a CEO/manager
a collaborative infrastructure without having to and his/her management team have a direct impact
make a major investment. For example, SMEs on the organizational culture and behavior of their
should have access to networked SCM applica- company. For example, investment in skills and
tions which are browser-based through broadband people, and allocation of much-needed resources
Internet connections or virtual private networks. to support e-SCM initiative and implementation
This researcher recommends that a common data are all at the hands of CEC/owner of a SME. An
model for data storage across the supply chain effective and committed leader with vision, pas-
be established and implemented, which would sion and strategic thinking is the main resource

103
Role of Small and Medium Sized Enterprises in E-Supply Chain Management

for a SME to succeed in addressing the challenges cial, commercial and legal risks associated with
of embracing e-SCM and gaining a competitive e-SCM implementation exceed the complexities
advantage from it. In addition to the effective of information and communication technologies in
leadership and innovative organizational culture building and supporting e-collaboration amongst
of SMEs, effective processes and mechanisms supply chain members. Thus, managing e-SCM
should be in place to manage and monitor e-SCM requires more than the navigation of technological
implementation systematically. hurdles and complexity. It also requires strategy to
Compared with large companies, SMEs have deal with soft issues of how to manage a high-tech
the advantages of flexibility, short communica- and high-touch international e-supply chain. This
tion lines, close relations with customers, and less study is only the first step towards solutions to
bureaucracy. All of these advantages can facilitate the issues. More empirical and theoretical studies
the implementation and integration of e-SCM. are needed to study the issues facing SMEs in the
This study found that one of the key success fac- inexorable trends of e-supply chain management.
tors of the case company lies in its closeness to,
and agility in responding to, its clients and other
supply chain members needs. CONCLUSION

With the rapid development of e-supply chain,


FUTURE RESEARCH DIRECTIONS taking up, and participating in, e-SCM is no lon-
ger an option but an imperative for SMEs to be
The future trends for e-supply chain management competitive and sustainable in todays digitalized
concerning SMEs will be characterized largely by: economy. Compared with traditional supply
chains, e-supply chains are extremely dynamic,
More needs for devising and popularizing allowing for companies including SMEs to be
e-supply chains due to the needs for inte- included or excluded based upon technologi-
grating the flow of information with the cal advances, product life cycles, and customer
flow of goods; and preferences (Kuglin & Rosenbaum, 2000). These
Greater pressure for SMEs to achieve busi- complex and volatile supply networks call for
ness sustainability through information businesses to seek greater flexibility, agility and
technology, due to a more competitive and responsiveness. As shown in the case study of
uncertain economic environment, the in- this chapter, in order to survive, SMEs are more
creasing complexities of new technologies, likely and willing to meet the demand by taking
and the more globalised economy. advantage of their small size which makes them
more flexible and responsive to the environmental
The implication is that SMEs need to incor- changes.
porate e-SCM concept into their overall business By exploring the role that SMEs play in the
strategy. The alignment and integration of infor- e-supply chain management through a case study,
mation systems and processes and the effective this chapter contributes to a better understand-
use of various inter-organizational information ing of the crucial issues in SMEs adoption and
systems and Web technologies amongst SME sup- implementation of e-SCM system and processes,
ply chain members are only part of the challenges and to effective strategy development to deal with
to make e-SCM work. Effectively dealing with the challenges.
flexibility, innovation, entrepreneurship, human, In spite of the contribution and significance
and cultural factors and reducing potential finan- stemming from this study, limitations need to be

104
Role of Small and Medium Sized Enterprises in E-Supply Chain Management

acknowledged in terms of being a single case study Chandra, C., Grabis, A., & Tumanyan, A. (2007).
and relying largely on the information provided Problem taxonomy: a step towards effective infor-
by the senior managers and the company. In view mation sharing in supply chain management. Inter-
of the limitations, this study treated the data as national Journal of Production Research, 45(11),
illustrative rather than definitive. The next stage 25072544. doi:10.1080/00207540601020486
of the study will focus on how to implement the
Creswell, J. W. (2003). Research design: Qualita-
strategies proposed by this study. Multi-case
tive, quantitative, and mixed method approaches
studies and quantitative methodology will be
(2nd ed.). Thousand Oaks, CA: Sage.
taken to identify specific issues raised in the
implementation. The author wishes to see more Davis, E. W., & Spekman, R. E. (2004). The ex-
rigourous empirical studies on how to help SMEs, tended enterprise: gaining competitive advantage
specifically and in practice, take on e-SCM to through collaborative supply chains. Upper Saddle
benefit their business in the literature. River, NJ: Prentice Hall.
Dumas, J. (2008). IFC Global Logistics: Our suc-
cessful story. International Journal of e-Business
ACKNOWLEDGMENT
Management, 2(2), 47-51.
This author wishes to acknowledge the contri- Fawcett, S. E., Osterhaus, P., Magnan, G.
butions made by Joe Dumas, the Head of the M., Brau, J. C., & McCarter, M. W. (2007).
IT Division at IFC Global Logistics to the case Information sharing and supply chain perfor-
study in this chapter. An extended case study of mance: The role of connectivity and willing-
IFC Global Logistics can be located in Volume 2, ness. Supply Chain Management, 12(5), 358.
Issue 2 of the International Journal of e-Business doi:10.1108/13598540710776935
Management (ISSN: 1835-5412) at http://www.
Gelinas, R., & Bigras, Y. (2004). The charac-
rmitpublishing.com.au/ijebm.htm.
teristics and features of SMEs: Favorable or
unfavorable to logistics integration? Journal of
Small Business Management, 42(3), 263278.
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Role of Small and Medium Sized Enterprises in E-Supply Chain Management

KEY TERMS AND DEFINITIONS fers to a firm that provides multiple logistics
services for use by customers. Preferably, these
E-Supply Chain Management (e-SCM): E- services are integrated, or bundled together, by
supply chain management is viewed as the most the provider. Among the services 3PLs provide
recent stage of development of the concept of sup- are transportation, warehousing, cross-docking,
ply chain management (Ross, 2003, Johson, 2006). inventory management, packaging, and freight
The focus of management is placed primarily on forwarding. Over the past decade, to achieve
the application of the Internet to the SCM concept logistics efficiency and cost-effectiveness, many
and SCM synchronization. Networked and multi- companies started outsourcing their logistics to
enterprise supply chains have become a popular specialized logistics service providers, of whom
organizational design in the e-SCM. It is concerned the majority are SMEs (Halley and Guilhon, 1997,
largely with the management of Internet-enabled Gelinas and Bigras, 2004). As a result, single-
collaborative channel partnerships. party self-managed logistics has developed into
E-Collaboration: Generally speaking, e- multi-party logistics such as 3PL and 5PL which
collaboration refers to the use of electronic tech- are powered by e-logistics networks that expand
nologies (like the Internet and/or Internet-based to global operations.
tools) among business partners beyond market Business Intelligence (BI): Business intelli-
transactions (Kock, 2007; Davis and Spekman, gence is often defined as capturing and analyzing
2004).The term is often used in the context of hidden, inherent and decision-relevant contexts
supply chain. E-collaboration is identified as in stored data warehouses, operational databases,
one of the new areas of optimizing the relation- and/or ERP systems (Hameed, 2004). Develop-
ship between suppliers and original equipment ing business intelligence technologies to analyze
manufacturers (OEM) via the Internet (Radjou, the ongoing flow of information drawn from the
2004). It is an Internet-supported, enterprise- entire supply chain helps make improvements in
spanning cooperation which is seen as crucial internal operations and collaborative capabilities
during the development and construction process on an ongoing basis.
(the so called e-engineering process) (Kersten et Integration: Integration refers to collaborative
al., 2004). planning and control, decision integration, infor-
Small and Medium Sized Enterprises mation integration and business process integra-
(SMEs): There are various definitions of small tion between inter-firm partners, using information
and medium sized enterprises (SMEs). The com- technologies and systems. With an e-procurement
mon criteria for categorization of enterprises are system, for example, it is important that the system
based on the maximum number of staff and annual should be integrated with the internal systems of
turnover of a company. European Union defines the buyer partners and external order information
SMEs as enterprises with a workforce of 1-250 from this system would be easily transferable to
employees. Australian Bureau of Statistics defines the supplier partners (Zhao, 2006).
SMEs as companies employing between 1-199 Interoperability: Interoperability refers to
people, wherein companies with 5-19 staff are the ability to be fully compatible and capable of
termed small companies, while those with 20- being integrated with each other in the e-supply
199 employees are termed medium companies. chain. Interoperability requires enhancement of
Third Party Logistics Provider (3PL): the existing systems to transfer them into a cross-
According to the definition of the Council of firm mode.
Supply Chain Management Professionals (http://
cscmp.org/), a third party logistics provider re-

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110

Chapter 6
Taiwans Corporate Governance:
Explorations from the Ethical
Corporate Governance Model

Hsiang-Yi Lin
Ching Yun University, Taiwan

Li Lin
Tamkang University, Taiwan

ABSTRACT
This chapter discusses the meaning and internal and external mechanisms of Taiwans corporate gov-
ernance, explains why this kind of mechanism cannot prevent the agency problem, and demonstrates
the importance of business ethics by looking at the flaws in Taiwans corporate governance. Other
questions addressed in this study include what limitations are in the internal and external mechanisms
of Taiwans corporate governance, what makes the agency problem seem inevitable, and whether busi-
ness ethics may compensate for the shortcomings in Taiwans corporate governance. In this chapter,
the correlation between business ethics and corporate governance is reviewed and organized in order
to demonstrate how this topic was viewed by previous scholars along with a proposal of how these two
topics can be joined together. The question of how the agency problem in corporate governance emerges
is then examined, followed by a literature review of past studies on the influences of introducing busi-
ness ethics on the agency problem as well as their relationship. The findings of the new business model
are discussed in the section V.

DOI: 10.4018/978-1-60960-129-4.ch006

Copyright 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Taiwans Corporate Governance

INTRODUCTION may get slothful on their job (Stone, 1993, 162-


166). J. Bentham (1987) conducted an in-depth
The corporate problems revealed by the afore- discussion on what kinds of behavior should be
mentioned incidents indicate many major flaws intervened by the law and which behaviors should
with Taiwans enterprises. These problems not stay in the domain of morality and ethics. Ben-
only seriously undermine minor shareholders tham believes when the cost of law enforcement
interests but also hinder the publics confidence in outweighs the benefits to the society, intervention
investing in Taiwan. In modern corporations where should be done through the domain of morality
stock ownership is very scattered, an important and ethics instead of the law; the same goes for
task is to have complete corporate governance. offenses that cannot be clearly defined (Bentham,
Ye (2002) believes the purpose of corporate 1987, 62-63).
governance is to reinforce a corporations social Hsu (2004) further pointed out that though
obligations, and pointed out the cases of failed the law upholds the bottom-line of morality, it
corporate governance also demonstrate serious is also based on the moral foundation; therefore,
problems in corporate trust (B. Ye, 2002, 70-72). he defines the relationship between the law and
Further, Ye (2005) takes the business ethics and morality as interdependence and pushing and
personality trait approaches and stresses that pulling (Hsu, 2004). From the above discussions
more attention should be placed on a directors we can see that the law and the domain of morality
credentials and abilities. For the sake of complete and ethics are complementary and interdependent.
corporate governance, each director should be Therefore, a topic that interest many scholars is to
required to have relevant experiences and skills contemplate on the issue of corporate governance
and a broad perspective in order to effectively from the perspective of business ethics that is not
manage a company, make professional judgments a part of the corporate governance law (please see
and careful decisions, and lead the company to Table 1 for details).
grow and develop steadily. Therefore, a CEO must Hitt, Ireland, Hoskisson (2003) mentioned
have the traits of a leader and managerial skills as there are strong relationships between ethical
well as dignity and communication skills in order behaviors and corporate governance, thus the
to help the organization earn trust and develop board of directors should clearly instruct their
talents (B. Ye, 2005, p.239). authorized agents (high-level managers) on the
expectations of ethical business decisions and
looking after all stakeholders interests and ask
LITERATURE REVIEW the CEO to lead the employees by example in
terms of ethical behaviors(Hitt, Ireland and
C. Stone (1993) pointed out why law cannot Hoskisson, 2003, 332-333). S. P. Robbins (2005)
replace ethics through three aspects. The first believe the corporate governance incidents of
aspect is that the legislation of a new law often false accounts and manipulated financial reports
only takes place after a certain issue has emerged in Enron WorldCom demonstrate the importance
quite a while ago and thus lags behind. The second of trust, whose values include integrity, com-
aspect is with the legislative process, in which petence, consistency, loyalty, and openness --
legislatures may have different or insufficient important traits in a leader (Robbins, 2005, 356-
legislative knowledge, and passed bills are often 357). A. Davies (1999) also mentioned that the
compromised. Lastly, the procedures of reaching foundation and effective operation of all forms
a verdict and enforcing the law are all expensive of governance require trust, and thus classifies
expenditures, and even law enforcers themselves trust as a key topic in corporate governance (Da-

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Taiwans Corporate Governance

Table 1. Relationships between law and ethics and morality

Scholar Proposal
Bentham (1987) 1. When the cost of law enforcement outweighs the benefits to the society, intervention should be done
through the domain of morality and ethics instead of the law;
2. Offenses that cannot be clearly defined should also be handled by the domain of morality and ethics.
Stone (1993) 1. Legislation often lags behind.
2. In the legislative process, legislatures may have the legislative knowledge gap, and passed bills are
often compromised.
3. Reaching a verdict and enforcing the law are all expensive expenditures, and even law enforcers them-
selves may get slothful on their job.
Hsu (2004) 1. The law upholds the bottom-line of morality and is also based on the moral foundation
2. Defines the relationship between the law and morality as interdependence and pushing and pulling.
Source: Compiled by the Researcher of this Study

vies, 1999, 14-17). Though J. L. Colley, Jr., J. L. World Trade Organization all emphasize on ethi-
Doyle, G. W. Logan, W. Stettinius (2003) have cal norms in global business activities, thus the
not directly discussed the agency theory, they also Principles For Business introduced in The
treat those who are the opposite of shareholders Caux Round Table will receive more attention
as trustees and proposed that ethics and morality (Ferrell, Fraedrich, & Ferrell, 2005, pp. 9-14).
not only have to be included in national governance R. Kreitner & A. Kinicki (2004) also believe
but also in corporate governance as well, and organizational culture and ethic climate may
stressed the importance of values such as integ- help reduce problems such as the Enron scandal
rity in corporate governance (Colley, Doyle, (Kreitner and Kinicki, 2004, pp. 76-78). A. B.
Logan, & Stettinius, 2003: x, 6, 230). Carroll & A. K. Buchholtz (2006) take the social
Micklethwait & Wooldridge (2003) mentioned contract approach and treat corporations as cor-
that problems such as the Enron scandal will porate citizens who have the Corporate Social
only repeat themselves, and the rule of regularly Responsibility (CSR). In the topic of business
changing accountants specified in The Sarbanes- ethics, the approach is how social stakeholder can
Oxley Act of 2002 will not be as effective as regulate businesses behaviors that are harmful to
regularly changing accounting firms in terms the society. Regarding corporate governance, Car-
of eliminating financial scandals; in addition, roll & Buchholtz defined social stakeholders as
whether a corporate leader has a noble soul and owner stakeholders and believe the management
whether trust is established are also important levels most important duty is full disclosure
issues (Micklethwait & Wooldridge, 2003, pp. and information transparency, whereas owner
189-192). O. C. Ferrell, J. Fraedrich, L. Ferrell stakeholders should work as active supervisors
(2005) assigned one task to each decade of busi- such as actualizing shareholder activism in order
ness ethics since the 1960s and believe that the to reduce agency problems (Carroll and Buchholtz,
focus and task in the 21st century is the topic of 2006, pp. 19-20, 612-622).
business ethics in corporate governance and the R. W. Mondy & R. M. Noe (2005) also took
importance of loyalty and trust in ethical climate. the social contract and stakeholder approach to
They also mentioned that not only the New York observe corporate governance, and indicated that
Stock Exchange requires all publicly traded cor- due to the modern social atmosphere and publics
porations to formulate ethics rules, the European expectation, CSR and business ethics-related
Union, North American Free Trade Agreement, bills are passed, and there is a clear direction for
Common Market of the Southern Cone, and the the aforementioned legislation of business ethics

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Taiwans Corporate Governance

and moral norms (Mondy and Noe, 2005, p. 27). ethical conduct and encourages employees to
When discussing the issue of agency cost caused demonstrate moral conducts. In addition, Wu also
by agency problems in the cost of transaction, J. stated that the purpose of corporate governance
F. Hennart (1991) stated that cost increases when is to rebuild the publics trust in enterprises, which
employees demonstrate behaviors such as decep- can be achieved by improving existing flaws. Wu
tion, laziness, and dereliction of duty (Hennart, also proposed achieving business ethics through
1991). Lin (2004) suggested that agency problems corporate governance, and ethics is an essential
can be reduced if corporate managers have self- element in corporate governance. Wu used Shi-
discipline and self-control (Lin, 2004). In this seido (Japan) as an example: in this corporation,
present study, past literatures on the relationships corporate governance equals business ethics, the
between the agency problem and business ethics purpose of corporate governance is to improve
are listed in Table 2. employees qualities, and all employees are ex-
In Lins(2004) study of the board of directors pected to treat themselves as good citizens (Wu,
duties and entrepreneurship in three publicly- 2002, pp. 120-121).
traded companies in Taiwan TK3C, AUO, and Ye, Li, and Ke (2002) especially stress that a
Tong Lung Metal Industry, he stresses that a managers integrity is the key to the success of
corporate manager must have self-discipline and corporate governance since a lack of integrity
self-control in order to reduce the agency problem would result in corporate governance not being
caused by transaction costs and in turn protect the able to express its features in a timely fashion.
interests of shareholders and stakeholders (Lin, This is why the corporation law around the world
2004). Wu (2006) also stresses that good corporate requires company owners to exercise due care in
governance is achieved when a company fulfills order to ensure high-level managers would not
its social obligations through transparency and turn their backs on their fiduciary duty given by
trust (Wu, 2006). Wu (2002) also stresses that shareholders. The scholars believe the most ef-
corporate governance should be based on ethical fective way to achieve this is through a managers
leadership and include a mechanism that promotes self-discipline and self-integrity (Ye, Li, and Ke,

Table 2. Relationship between the agency problem and business ethics

Scholar Proposal
Katz (1964) A companys members may sometimes demonstrate behaviors that benefit the
organization when playing their designated roles.
Hennart (1991) The cost of transaction increases when employees demonstrate behaviors such as
deception, laziness, and dereliction of duty in the issue of agency.
Davies (1999) The foundation and effective operation of all forms of governance require trust,
and thus classifies trust as a key topic in corporate governance.
Donaldson & Dunfee (1994 & 1999) 1. In ISCT, the microsocial contract for special groups is based on the
mutually-agreed goals, values, and norms among community members (1994).
2. The loyalty demonstrated through the extra-role behaviors by an organizations
members is consistent with the authentic ethical norm defined by Donaldson &
Dunfee. It is not only the third principle in Kngs Global Ethic but also the source
of substantive hyper-norm in the macro-social contract (1999).
Hitt, Ireland, & Hoskisson, 2003) The board of directors should clearly instruct their authorized agents (high-level
managers) on the expectations of ethical business decisions and looking after all
stakeholders interests and ask the CEO to lead the employees by example in terms
of ethical behaviors.

continued on following page

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Taiwans Corporate Governance

Table 2. continued
Scholar Proposal
Colley, Doyle, Logan, & Stettinius (2003) 1. Treat those who are the opposite of shareholders as trustees.
2. Proposed that ethics and morality not only have to be included in national
governance but also corporate governance as well, and stressed the importance
of values such as integrity in corporate governance.
Micklethwait & Wooldridge (2003) 1. The rule of regularly changing accountants specified in The Sarbanes- Oxley
Act of 2002 will not be as effective as regularly changing accounting firms in
terms of eliminating financial scandals.
2. Whether a corporate leader has a noble soul and whether trust is established
are also important issues.
Lin, H. (2004). Agency problems can be reduced if corporate managers have self-discipline and
self-control.
Kreitner & Kinicki (2004) Organizational culture and ethic climate may help reduce problems such as the
Enron scandal.
Mondy & Noe (2005) The modern social atmosphere and publics expectation are the reason why CSR
and business ethics-related bills are passed and there is a clear direction for the
legislation of business ethics and moral norms.
Ferrell, Fraedrich, & Ferrell (2005) 1. The task at hand after entering the 21st century is business ethics and organi-
zational loyalty and trust.
2. New York Stock Exchange, European Union, North American Free Trade
Agreement, Common Market of the Southern Cone, and the World Trade Orga-
nization all emphasize on ethical norms and business ethics.
Robbins (2005) 1. The value of trust should be emphasized.
2. The values of trust include integrity, competence, consistency, loyalty, and
openness, and they are important traits in a leader.
Carroll & Buchholtz (2006) 1. Take the social contract approach and treat corporations as corporate citizens
who have the Corporate Social Responsibility (CSR).
2. In the topic of business ethics, the approach is how social stakeholder can
regulate businesses behaviors that are harmful to the society.
3. Regarding corporate governance, social stakeholders are defined as owner
stakeholders.
4. The management levels most important duty is full disclosure and in-
formation transparency, whereas owner stakeholders should work as active
supervisors.
Chiang, T., Cheng, B., Wu, T., and Cheng, C. (2006) Extra-role behaviors sometimes reduce agency problems, thus employee loyalty
is an alternative to the principals contract that regulates the agent.
Hill & Jones (2006) 1. When a companys manager puts his/her interests above those of the stake-
holders, immoral behaviors rooted in the agency problem may emerge and may
be reflected by his/her self- dealing and information manipulation.
2. Corporate managers should ensure ethical decision-making.
Pearce II & Robinson (2007) A manager with an ethic attitude would treat business ethics as the core values
when dealing with the interactions between the society and all the stakeholders,
and would reach a balance between shareholders interests and the interests of the
companys stakeholders.
Source: Compiled by the Researcher of this Study

2002, p.307). Tai (2006) also mentioned that to eliminating financial scandals still lies inside
Taiwans industries, government, and academic peoples minds. In other words, financial order
societies are coming up with regulations and can only be achieved through self-control, ethics
auditing systems to achieve improvements. How- management, and improving the social atmosphere
ever, even if such efforts are complete, the key (Tai, 2006, p.21). Sun (2000) believes the failure

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Taiwans Corporate Governance

of corporate governance involves three aspects: failure to fulfill its role as the general manager
morality and ethics, law and systems, and gov- (Fama and Jensen, 1983); therefore, Fama (1980)
ernmental interventions. A corporation can only believes that the agency problem is less likely to
have the same goals as the society when it obeys occur when the president of a company is able
the law and is operated properly, and only then to intervene in its managerial control while the
can an individuals pursuit of profits be supported general manager has less power (Fama, 1980). Ye
by ethics (Sun, 2000, p.4). et al. (2002) believe there are conflicts of interest
Wu believes the reason why a companys between a companys managerial level and the
controlling shareholders have the opportunity to stakeholders, which lead to problems in corporate
commit crimes for selfish gains is mostly because governance; when major shareholders also work
the companys internal control is mostly at the as managers, the problem of agency becomes a
disposal of the controlling shareholders. They part of the problem of corporate governance (Ye,
have control over the companys internal audits, Li and Ke, 2002, p.23). B. K. Boyd (1995) also
the board of directors functions, supervisors believes this practice of dual-identity would only
tasks, and even accountants certification. In cause the board of directors to lose the supervisory
other words, the supervision and monitoring in capacity and mechanism and does not help solve
corporate governance are under the grasp of the the agency problem (Boyd, 1995).
controlling shareholders, thus seriously under- In their work Observing the agency Issue
mining the interests of minor shareholders(Wu, from the Shareholder Structure in Corporate
2004, pp. 26-27). Governance, M. C. Jensen & W. Meckling (1976)
mentioned that when share ownership is concen-
trated on a few major shareholders, a companys
CORPORATE GOVERNANCE AND managerial decisions will have a tremendous
SHAPES OF VIOLATIONS AMONG amount of influences on these shareholders inter-
PUBLICLY-TRADED CORPORATIONS ests; therefore, they are more likely to heavily su-
pervise the companys managerial level (agency)
In the discussion on corporate governance, many and can better reduce the agency problem (Jensen
scholars also include the issue of agency and & Meckling, 1976). M. C. Jensen & R. S. Ruback
view it as the main cause behind problems in (1983) further argue that when shares are mostly
corporate governance. Chen (2004) pointed out owned by a handful of major shareholders, they
that the focus on corporate governance is not are able to pass resolutions that are in their favor
only to enhance shareholders long-term values at the expense of minor shareholders interests
and returns but also to look after the interests (Jensen & Ruback, 1983). Also examining the
of stakeholders and solve the agency problem agency problem from the perspective of the
in order to avoid the conflict of interest among shareholder, Huang (2001) pointed out that the
managers after the ownership and the manage- focus of future corporate governance problems
rial control over a business are separated (Chen, is not the scattered shareholder structure but the
2004, p.20). E. F. Fama & M. C. Jensen (1983) concentrated shareholder structure, and under the
and A. Schleifer & R. Vishny (1997) all believe spotlight is the relationship between powerful
the agency problem is inevitable in corporate major shareholders and the rest of the weaker
governance (Fama and Jensen, 1983; Shleifer and minority. An urgent issue to be addressed in Tai-
R. Vishny, 1997). Fama & Jensen (1983) further wan is how the corporate governance system can
argue that there is a close relationship between prevent moral hazard and keep a few controlling
the agency problem and the board of directors

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Taiwans Corporate Governance

shareholders from infringing the interests of the own interests (Hitt, Ireland & Hoskisson, 2003,
general shareholders (Huang, 2001, pp. 12-17, 24). p.312). J. Micklethwait & A. Wooldridge (2003)
In the discussion on the agency theory, Yang believe problems in the corporate governance
(2007) stressed that there is really no way for a in corporations such as Enron, WorldCom, and
company principal to be fully aware of the behav- Xerox imply the relapse of the agency problem
iors of the agent, and improving the information regarding the interests of managers and owners,
transparency can only solve half of the agency and pointed out the main contribution from The
problem. The only solution is having complete Sarbanes-Oxley Act of 2002 is to redefine the
and accurate information, and what Yang stressed duties and obligations of the accounting sector
is the quality of information. It is, however, very and to once again manifest the fundamental prin-
difficult to reach this goal. To allow better cor- ciples in the American capitalism (Micklethwait
porate governance, the board of directors has to & Wooldridge, 2003, 155-158).
invest more in the companys major managerial In the discussion on the agency problem, K. M.
decisions, and its decisions-making process also Eisenhardt (1989) pointed out that moral hazards,
needs to be more revealed to the shareholders reverse selection, and risk aversion may occur
(Yang, 2007, p.428). J. A. Pearce & R. B. Rob- between a principal and an agent, and thus believe
inson (2007) believe the agency relationship that the principal and the agent may a sign a con-
between a companys shareholders and the CEO tract that regulates the agent through behaviors or
leads to the following problems: (1). The CEO outcomes in order to fully stay on top of the agents
only pursues the companys growth and neglects behaviors and avoid agency problems (Eisenhardt,
the shareholders deserved returns, (2) the CEO 1989). D. Katz (1964), however, proposed that a
affected the shareholders returns when diversify- companys members may sometimes demonstrate
ing or avoiding risks for the company, and (3). behaviors that benefit the organization when play-
the CEO pursues maximum personal returns and ing their designated roles (Katz, 1964). This kind
strengthened personal status and does not care of extra-role behavior sometimes reduces agency
about the shareholders deserved returns. (PearceII problems. Therefore, Chiang, T., Cheng, B., Wu,
and Robinson, 2007, 37-38) T., and Cheng, C. (2006) mentioned that employee
C. W. L. Hill & G. R. Jones (2007) reminded loyalty is an alternative to the principals contract
that in corporate governance, the agency problem that regulates the agent. In this present study, the
is not limited to the relationship between a com- agency problems in corporate governance are
panys high-level managers and the shareholders listed in Table 3.
but may also occur in the relationship between Wu divides different shapes of corporate gov-
high-level managers and their subordinates, and ernance failure based on their characteristics along
even between the subordinates and their own with their solutions into 10 categories. Problems
subordinates. This is because a subordinate may caused by the failure of directors and supervisors
provide false performance reports through his/her to carry out their supervisory duties include Shape
grasp of information for the purpose of getting B, C, E, and D; those caused by accountants
more rewards or resources from the company (Hill failure to verify financial reports include Shape
& Jones, 2007, p.385). M. A. Hitt, R. D. Ireland, A, D, G, E, and I. Those due to a companys
R. E. Hoskisson (2003) pointed out that mana- management level hiding transactions and having
gerial opportunism often exists in the agency false financial reports include Shape E, F, G, I,
relationship in corporate governance, and many and J. Other shapes worth mentioning include
agency problems emerge as a result of fraud com- controlling shareholders embezzling corporate
mitted by this kind of agent who looks after their funds, controlling shareholders selling their per-

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Taiwans Corporate Governance

Table 3. Agency problems in corporate governance

Scholar Proposal
Jensen & Meckling (1976) When share ownership is concentrated on a few major shareholders, they are more likely to heavily
supervise the companys managerial level (agency) and thus reduce the agency problem.
Fama (1980) The agency problem is less likely to occur when the president of a company is able to intervene in its
managerial control while the general manager has less power.
Fama & Jensen, 1983) 1. The agency problem is inevitable in corporate governance.
2. There is a close relationship between the agency problem and the board of directors failure to fulfill
its role as the general manager.
Jensen & Ruback (1983) When shares are mostly owned by a handful of major shareholders, they are able to pass resolutions that
are in their favor at the expense of minor shareholders interests.
Eisenhardt (1989) 1. Moral hazards, reverse selection, and risk aversion may occur between a principal and an agent.
2. The principal should sign a contract with the agent that regulates the latter and avoid agency prob-
lems.
Boyd (1995) When major shareholders also work as managers, the board of directors will lose the supervisory capac-
ity and mechanism, which does not help solve the agency problem.
Schleifer & Vishny, 1997) The agency problem is inevitable in corporate governance.
Huang (2001) The key to solve problems in corporate governance lies in the concentrated shareholder structure. Moral
hazards need to be prevented in order to keep a few controlling shareholders from infringing the inter-
ests of the general shareholders.
Ye (2002) 1. There are conflicts of interest between a companys managerial level and the stakeholders, which lead
to problems in corporate governance
2. When major shareholders also work as managers, the problem of agency becomes a part of the prob-
lem of corporate governance.
Hitt, Ireland, & Hoskisson Managerial opportunism often exists in the agency relationship in corporate governance, and many
(2003) agency problems emerge as a result of fraud committed by this kind of agent who looks after their own
interests.
Micklethwait & Wooldridge, 1. Problems in the corporate governance in corporations such as Enron, WorldCom, and Xerox imply
2003) the relapse of the agency problem regarding the interests of managers and principals.
2. The main contribution from The Sarbanes-Oxley Act of 2002 is to re-define the duties and obligations
of the accounting sector and to once again manifest the fundamental principles in the American capital-
ism.
Chen (2004) The focus on corporate governance is not only to enhance shareholders
long-term values and returns but also to look after the interests of
stakeholders and solve the agency problem in order to avoid the conflict
of interest among managers after the ownership and the managerial
control over a business are separated.
Hill & Jones (2006) The agency problem exists between a companys high-level managers and the shareholders, between
high-level managers and their subordinates, and between the subordinates and their own subordinates. A
subordinate may provide false performance reports through his/her grasp of information for the purpose
of getting more rewards or resources from the company.
Yang (2007) 1. Improving the information transparency can only solve half of the agency problem. The key is the
quality of information.
2. The board of directors has to invest more in the companys major managerial decisions, and its
decisions-making process also needs to be more revealed to the shareholders.
Pearce & Robinson (2007) The agency relationship between a companys shareholders and the CEO leads to the following prob-
lems: (1) The CEO only pursues the companys growth and neglects the shareholders deserved returns,
(2) the CEO affected the shareholders returns when diversifying or avoiding risks for the company,
and (3) the CEO pursues maximum personal returns and strengthened personal status and does not care
about the shareholders deserved returns.
Source: Compiled by the Researcher of this Study

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Taiwans Corporate Governance

sonal properties to the company at high prices as earlier and demonstrates the accountants business
a way to seize corporate funds, controlling share- ethics is directly correlated with the success of
holders seizing corporate funds through forged corporate governance.
documents, the management level selling stocks
at low prices, and the management levels illogi-
cal and unnecessary advanced payments. The THE CASE STUDY: THE
above violations are listed in Table 4 (Wu, 2004, CHARACTERISTICS IN TAIWANS
pp. 17-20). CORPORATE GOVERNANCE
The solutions proposed by Wu indicate that
some problems are caused by the accountants When further considering the influences of cultures
failure to fully carry out an audit, and Wu has and regions on Taiwans corporate governance,
repeatedly stressed the importance of having an Liu also pointed out that corporate governance is
independent director/supervisor system. Of the closely connected to the cultural background and
ten cases of corporate governance violation (from geography. As a result, Taiwans corporate gov-
A to J), the main cause is the controlling share- ernance has diverse and complex characteristics.
holders having control over the board of directors/ Lu mentioned that Taiwans corporate governance
supervisors and prohibiting them from carrying may be influenced by the following: (1) A family-
out their duties, resulting in a total failure of the owned, publicly-traded corporation in the Chinese
corporate governance mechanisms. Whether a society. (2) The family-based stock ownership is
companys controlling shareholders have business deeply influenced by the U.S. when the high-tech
ethics and dignity is intertwined with the flaws industry is promoted through entrepreneurship and
in Taiwans corporate governance when the in- engineers are becoming the technology upstarts.
ternal mechanism is controlled by the former and (3) The government has led the financial system for
thus disabled. years and encourages people to save their money
When discussing the roles of and regulations at banks, yet banks development is suppressed due
over accountants in corporate governance, Huang to the concern for problems. The capital market
(2003) mentioned that an accountants social ob- that used to be treated as a casino now recovers
ligation is not only to comply with audit-related after the curfew is lifted, resulting in the trend of
standards but also to respect the interests of the direct finance taking over indirect finance. (4)
client and third-parties in order to maintain his/ While advertising the necessity and importance
her reputation. An accountants characteristics are of corporate governance, the government actually
critical since they affect his/her professional judg- intervenes in the stock market through the four
ments. Huang believes when making professional major funds and the National Stabilization Fund;
judgments, an accountant must stay independent, privatization is also lagging behind. (5) Taiwans
objective, and honest and must never succumb to legal workers undergo stringent and standard
the clients management level (Huang, 2003, pp. legal training and stress formalism. As a result,
30-33). Therefore, when an accountant can stay their understanding of the knowledge and actual
independent, objective, and honest and maintain practice of finance is not as strong. They stress
his/her role as the pillar of the external mechanism fairness and justice but lack the understanding of
of corporate governance despite the pressure from and confidence in the market. (6) Taking advantage
the companys controlling shareholders, the latter of Taiwans policy of avoiding direct contact with
would not be able to fully seize all the internal mainland China and reduced foreign exchange
and external mechanisms of corporate governance. control, Taiwanese enterprises have been invest-
This is consistent with Wus solutions as discussed ing in China through affiliated companies. This

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Taiwans Corporate Governance

Table 4. Shapes of violations among publicly-traded corporations and suggested solutions

Shape Characteristic Suggestion


A Removing corporate funds -- The company The accountant verifies fi- Establish an independent director/supervisor
owner transfers overseas branch offices nancial reports for problems. system.
losses to the parent company through uncon- The board of directors reso- Reinforce an accountants audits over major
ventional stock transactions. lution does not comply with stakeholders.
business norms.
B Removing corporate funds -- In order for a Major shareholders embez- Reinforce audits over stakeholders transactions
company to maintain its stock prices, its ma- zling corporate funds. and investments.
jor shareholders and the subsidiary company Major shareholders sell Reinforce a corporations internal control over its
intervene in the stock market and pur- their personal properties to stakeholders transactions.
chase the companys stocks through credit the company at high prices The account must carry out audits in an indepen-
expansion. The continued drop of stock in order to seize corporate dent and professional manner.
prices results in major losses for the major funds. Prompt corporations to value and actualize corpo-
shareholders and the subsidiary company Incomplete internal control. rate governance.
and major investment losses recognized by Directors and supervisors Actualize the Securities Investors Protection Act.
the parent company. fail to carry out supervisory
duties.
C Removing corporate funds The company The procedures of asset- Reinforce audits over stakeholders transactions
owner sells the company stocks owned by acquisition violate the rules. and investments.
him/herself and his/her family members that Insufficient asset-protection Establish the independent director/supervisor
have lost their values back to the company, measures. system.
resulting in the removal of corporate funds Directors and supervisors The account must carry out audits in an indepen-
and payments made by the companys fail to carry out supervisory dent and professional manner.
clients. duties. Prompt corporations to value and actualize corpo-
rate governance.
Actualize the Securities Investors Protection Act.
D Embezzling corporate funds The company The company owner embez- Establish an independent director/supervisor
owner embezzles corporate funds to manipu- zles corporate funds through system.
late stock prices; however, the stock prices forged documents. Reinforce the accountants audit duties.
continue to drop, and the company faces a The accountant fails to pay Reinforce audits over advanced payments and
financial crisis and is thus suspended due to professional attention. stakeholders transactions.
a lack of cash flow.
E Embezzling the funds of the company and Incomplete internal control. Establish an independent director/supervisor
affiliated companies The company owner The management level hides system.
transfers the corporate funds into the subsid- the transactions, resulting Reinforce the accountants audit duties.
iary company, and the subsidiary company in repeated financial report Reinforce the management of a corporations capi-
and the affiliated company then transfer revisions. tal loans and endorsement.
the funds to a private investment company Directors and supervisors
established by the owner. The company and fail to carry out supervisory
the subsidiary company then use short-term duties.
notes as collaterals for the owners private
investment company to issue commercial
promissory notes.
F Removing corporate funds A companys The group has crossing hold- Reinforce audits over stakeholders transactions
stocks are purchased through the groups ings and a high percentage of and investments.
cross holdings, stakeholders, or affiliated mortgage clause. Beware of the content of disclosed information
companies for the purpose of arranging the Provide false reports of outside the balance sheet.
groups capital for manipulating the stock bloated earnings. Establish the independent director/supervisor
prices, which in turn allows the manipulation Disclosure of off-balance system.
of the profits/losses of the groups corpora- sheet transactions. Prompt corporations to value and actualize corpo-
tions and illegal stock transactions by the rate governance.
groups members. Actualize the Securities Investors Protection Act.

continued on following page

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Taiwans Corporate Governance

Table 4. continued
Shape Characteristic Suggestion
G Removing corporate funds The company False prospectus. Reinforce audits over stakeholders transactions
conducts a capital increase, sells debenture False financial reports. and investments.
stocks to acquire capital, conducts actions The accountants negligence. Reinforce a corporations internal control over its
outside the planned capital-increase, or uses Directors and supervisors investments.
its assets to manipulate stock prices. fail to carry out supervisory Beware of the content of disclosed information
duties. outside the balance sheet.
The account must carry out audits in an indepen-
dent and professional manner.
Establish the independent director/supervisor
system.
Prompt corporations to value and actualize corpo-
rate governance.
Actualize the Securities Investors Protection Act.
H Capital embezzlement The company Selling goods to a stake- Actualize the Securities Investors Protection Act.
owner withdraws payments made by other holder at low prices.
companies through stakeholders trans- Embezzlement of corporate
actions, resulting in huge losses for the funds.
company; the company sells a large amount Having unconventional stock
of goods in stock to a stakeholder at low transactions with stakehold-
prices, committing offenses such as Non- ers.
arms Length Transaction or embezzlement
of corporate funds.
I An advanced payment is involved with Non- Improper capital flow. Reinforce audits over stakeholders.
arms Length Transaction The company Irrational decision-making The account must carry out audits in an indepen-
makes a large advanced payment for goods but process regarding the ad- dent and professional manner.
does not actually take them in, does not sign vanced payment. Prompt corporations to value and actualize corpo-
relevant contracts, or does not seem rational The advanced payment does rate governance.
in the decision-making process; the advanced not seem rational and/or
payment does not seem rational or necessary; necessary.
the authenticity of the transaction and the The cash-flow process seems
capital-flow seem suspicious. suspicious.
J The prospectus involves false/hidden or em- False prospectus. Reinforce the company managers legal education.
bezzled capital funds Information disclosure Corporate funds are em- Prompt corporations to value and actualize corpo-
does not comply with the regulations, and/or bezzled or diverted. rate governance.
the corporate funds are used to buy/sell stocks
through a subsidiary company.

.
Source: Based on the work by Wu (2004, 17-19)

kind of non-transparency is not consistent with independent directors but supervisors as well.
the principle of corporate governance, yet it is Taiwans unique corporate governance includes
a result of the national policies. Therefore, the a mixture of the British, American, German, and
competitions between Taiwan and China will be Japanese corporate governance systems and the
reflected by the corporate governance systems in British-American-French and the continental
the future (Liu, 2002, pp. 70-85). legal systems, thus often resulting in the issue of
Therefore, Liu believes it is inevitable for formalism, which is closely correlated with the
Taiwans corporate governance to take on the culture of dummy accounts (Liu, 2002, p.78).
characteristics of family-owned businesses, and Despite the efforts to improve Taiwans
the co-existence of socialism and capitalism is corporate governance (Table 5), incidents such
also rich in formalism. The system not only has as the embezzlement in Re-bar (occurred on

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Taiwans Corporate Governance

Table 5. Recent efforts to improve Taiwans corporate governance

Number Name/content of Measure Expected Results


Ask publicly-traded corporations to establish internal control
1 Helps improve internal supervision and provides early warning.
systems and reinforce management over investments.
Provides combined financial reports as requested by affili-
2 Improves information transparency in affiliated companies.
ated companies.
Revise the Corporation Law, the Securities Exchange Act, and
Promotes the legalization of ethics and prevents illegal stakeholder
3 the Merger and Acquisition Law, forcing company owners to
transactions.
exercise due care and prohibiting transmission of interests.
A company applying for incorporation must have 2 indepen-
4 Improves the independence of directors and supervisors.
dent directors and 1 independent supervisor.
Formulate rules over how the annual report and the prospec-
Methods such as co-operation and exposure push the estab-
5 tus should be prepared; mandatory disclosure of whether
lishment of independent directors/supervisors in corporations.
independent directors/supervisors are available.
Revise regulations over endorsement, handling of assets, ex-
6 Provides additional disclosure for investors to evaluate risks.
tensive financial products, and capital loans for corporations.
Establish the HR bank of independent directors/supervisors
Achieves qualitative changes through quantitative changes by
7 and ask corporate staff to take additional training before and
developing needed talents.
after the incorporation.
Following the U.S. SECs EDGAR
(Electronic Data Gathering and Retrieval) system, TWSE Avoids information blind spots and promotes transparency and
8
establishes a single-track financial report online system for accessibility.
corporations.
Reinforces diplomatic information and prevents foreign corporate
TWSE establishes an information observation station with governance research institutes (such as CLSA or S&P) from hav-
9
an English interface. ing too little information to correctly interpret the situation or to
implement changes.
Actively participate in international seminars such as OECD Helps the world understand the current status and future tasks of
10
and APEC. Taiwans corporate governance and clarifies misunderstandings.
Formulate the Merger and Acquisition Law, revise the Corpo-
Establishes the legal basis that facilitates business mergers, which
11 ration Law, the Fair Trade Act, and the Securities Exchange
in turn promotes corporate governance.
Act regarding restructuring, investments, and mergers.
Promotes the supervision over the information system and improves
12 Establish an information disclosure evaluation system.
the quality of disclosure.
Avoids hindering the tasks of independent directors/supervisors
Relax regulations over share ownership in independent
13 caused by regulations on the minimum share ownership in direc-
directors/supervisors.
tors/supervisors.
Assist in the establishment of private corporate governance TCGA has been established to promote the corporate governance
14
organizations. culture and the training of auditors, allowing future evaluations.
Regularly update the websites of SFB, TWSE, Gre-Tai Securi- Improves domestic and overseas promotion and communication.
15
ties Market, and Securities & Futures Institute.
Formulate plans to revise the Securities Exchange Act in Completely solves disputes such as whether a legal basis is lacking
16 order to have the legal basis for enforcing independent or whether the Constitution is violated.
directors/supervisors.
17 Revise the Corporation Law and prohibits cross holding. Avoids stock manipulation and increases transparency.
Revises rules regarding general companies and financial Investigations into individuals behind the curtain help promote
18 organizations prospectus, annual reports, incorporation corporate governance, bank governance, and financial reform.
standards, and the requirement for a substantial owner.
Formulate the Rules Governing the Actual Practice of Establishes a set of standards for the optimal actual practice of cor-
19
Corporate Governance in Corporations. porate governance that enhances the actual practice of governance.
Require investment and credit companies to specify and ex-
Improves transparency and responsibility that also enhance fund
20 plain the daily stock transactions and review the situation when
governance.
an investors stocks are suffering losses to a certain degree.
Source: Liu (2002:155)

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Taiwans Corporate Governance

2007/1/27) and false financial reports in YHi (oc- stated that when a companys manager puts his/
curred on 2007/3/21) make us further realize that her interests above those of the stakeholders,
the success and failure of corporate governance immoral behaviors rooted in the agency problem
is intertwined with the cultural background no may emerge and may be reflected by his/her
matter how complete the law and anti-corruption self-dealing and information manipulation two
measures may seem, and this further demonstrates common causes of accounting-related scandals in
the invaluable role of business ethics in Taiwans American enterprises. The scholars proposed that
corporate governance. corporate managers should meet the following
seven rules in order to ensure the implementa-
tion of ethic decision-making. The seven rules
THE NEW BUSINESS MODEL: are: (1) Ethic or moral individuals should have
ETHICAL CORPORATE the priority in being promoted, (2) establish an
GOVERNANCE MODEL organizational culture that highly acknowledges
business ethics, (3) corporate leaders must be as
It is natural for us to also think about business good as their words in terms of ethic behaviors,
ethics after discussing the importance of employee (4) appropriate, ethical decision-making models
loyalty and values in the previous sections. When should be considered, (5) hire ethical individuals
explaining their ISCT, Donaldson & Dunfee as managers, (6) improve corporate governance
(1994) mentioned that the microsocial contract procedures, and (7) encourage the moral courage
for special groups is based on the mutually-agreed (Hill & Jones, 2007, pp. 397-399, 403-406).
goals, values, and norms among community mem- Ye (2005) pointed out that although cases of
bers (Donaldson and Dunfee, 1994). The loyalty failed corporate governance in Taiwan and other
demonstrated through the extra-role behaviors countries also show reduced corporate competi-
by an organizations members is consistent with tiveness, most of the problems are caused by a
the authentic ethical norm (Donaldson and lack of honesty in the controlling shareholders (Y.
Dunfee, 1999, pp. 35-38) defined by Donaldson Ye, 2005, p.176). Ye thus determined 10 Warn-
& Dunfee (1999). Authentic ethical norm such as ing Signs of a company in financial distress:
loyalty is not only the third principle in Kngs (1) continued decline of the ratio of controlling
Global Ethic, the commitment to a culture of shareholders, (2) internalization of the board of
tolerance and a life of truthfulness, but also the directors, and a widening gap between the control-
source of substantive hyper-norm in the macro- ling shareholders power and their commitment,
social contract defined by Donaldson and Dunfee (3) major shareholders and investors selling their
(1999) (Donaldson and Dunfee, 1999, p.69; Kng, shares, (4) frequent resignation of the directors,
1998, pp. 110-111). supervisors, and financial managers, and frequent
Therefore, after discussing corporate gover- change of accountants, (5) having too many
nance and the agency problem, Pearce & Robinson long-term investments, investment companies,
(2007) discussed the importance of ethics manage- or complex overseas investments, (6) having too
ment and pointed out that a manager with an ethic many major and abnormal stakeholder transac-
attitude would treat business ethics as the core val- tions in the company, (7) major shareholders and
ues when dealing with the interactions between the directors having too many stock collaterals or
society and all the stakeholders, and would reach showing the tendency of intervening in the stock
a balance between shareholders interests and the market, (8) frequent changes of financial forecast,
interests of the companys stakeholders(PearceII & (9) the managers radically acknowledging profits,
Robinson, 2007, pp. 64-66). Hill & Jones (2006) and (10) an abnormally high percentage of stock

122
Taiwans Corporate Governance

Figure 1. Evaluation of controlling shareholders trust structure. Source: Ye (2005, p.178)

dividends for employees (Y. Ye, 2005, pp. 179- people to trust in the controlling shareholders and
196). See Figure 1 for the above discussion. managers (Y. Ye, 2005, pp. 183-185).
Warning Sign 1 and 2 are elements through In the third level, Ye believes the honesty of
which the inner-most level influences the share- the controlling shareholders can be observed by
holders trust structure. The controlling sharehold- examining whether they are demonstrating be-
ers are no longer confident in the companys haviors that damage the companys values. For
growth or willing to go through the companys example, if a company has too many long-term
future growth or disasters. The board of directors investments, the controlling shareholders still in-
is now mostly consisted of the owners family sist on establish too many investment companies or
members or inner circles, meaning the board of engaging in complex overseas investments when
directors (principal) that is supposed to be the the companys profit is regressing and overseas
supervisor is now colluding with managers. At investments are yielding losses, it will be natural
this time, the internal mechanism of corporate for one to suspect whether they are embezzling the
governance is lost, the board of directors has companys capital at the cost of other shareholders
turned its back on the shareholders, thus violating interest. On the other hand, one may also suspect
the duty as a good manager as well as the duty of illegal transfers of capital when the company has
exercising due care (Y. Ye, 2005, pp. 179-182). too many major and abnormal transactions, as
Among the elements that reflect the controlling these could be used to transfer interests or make
shareholders trust structure, the major sharehold- false reports of profits, looses, and assets. Major
ers and investors are selling their stocks, and the shareholders and directors having too many stock
high turn-over rate of the directors, supervisors, collaterals or the tendency of intervening in the
financial managers, and accountants indicates the stock market indicate not only the companys
controlling shareholders and managers are no funds have been embezzled but its assets could
longer confident in the company and cannot ful- have been taken away by the controlling share-
fill their duties, and the companys financial holders and managers. Frequent changes made to
status may have problems, thus reducing its fi- financial forecast not only indicate problems of the
nancial transparency and making it difficult for managers honesty but also a lack of information

123
Taiwans Corporate Governance

Figure 2. The ethical corporate governance model. Source: Ye (2005, p.178) and compiled by the re-
searcher of this study

transparency (Y. Ye, 2005, pp. 189-192). As for and cross ownership, shareholders stock collateral
the fourth level, Ye believes that if the managers ratios. These indicators help us observe companies
radically acknowledge profits and give too many with failed corporate governance. In figure 2 the
stock dividends to their employees, this would ten above warning signs are discussed in order
not only result in bloated profit reports but the to analyze the cases selected for this study, and
after-tax profits will not be entirely given to the establish a new business model.
shareholders, thus damaging minor shareholders From the previous discussions we see that the
interests (Y. Ye, 2005, pp. 192-201). agency relationship will always exist in the current
Proposals by M. C. Jensen & W. Meckling corporate system of separated ownership and
(1976), R. La Porta, F. Lopez-de-Silanes & A. Sh- managerial control; therefore, the agency problem
leifer (1999), and Lin (2007) (Jensen & Meckling, in corporate governance has become an inevitable
1976, pp. 305-360; La Porta, Lopez-de-Silanes & challenge. Famas proposal of a president ac-
Shleifer, 1999, pp. 471-571; Lin, 2007, pp. 180- tively intervening in management will eliminate
183) also provide the following warning signs for the agency relationship, turn the system closer to
a company in financial distress: the percentages of single-principal, and the agency relationship is
stock ownership in major and minor shareholders, naturally removed. Eisenhardts proposal of a
managerial control reflected by stock ownership principal regulating the agent through a contract
and cash flow, asymmetrical information reflected deserves attention in the discussion on the feasi-
by the pyramid structure, overseas investments, bility of the most appropriate contract. In addition,

124
Taiwans Corporate Governance

Figure 3. The new business model- The corporate governance model under Business ethical climate.
Source: by the researcher of this study

although past studies all indicate that the agency tinius, 2003; Micklethwait & Wooldridge, 2003;
problem is inevitable in corporate governance, Lin, 2004; Kreitner & Kinicki, 2004; Mondy &
this problem is actually rare when corporate Noe, 2005; Ferrell, Fraedrich, & Ferrell, 2005;
governance is approached from transaction cost Robbins, 2005; Carroll & Buchholtz, 2006; Hill
and information asymmetry, and future research- & Jones, 2007; Pearce & Robinson, 2007) all
ers are encouraged to examine this issue. supported the idea that certain norms in business
Eisenhardt (1989) advised company principals ethics and the values they reflect can help reduce
to use conditions in their contracts to avoid the the agency problem, thus ethical values such as
agency problem (Eisenhardt, 1989). Regard- trust, loyalty, honesty, consistency, and openness
ing this practice, Cheng (2006) suggested that have all been emphasized. The idea of ethic climate
employee loyalty is an alternative to regulate is thus proposed when the above ethical values
agencies with contracts (Chiang, Cheng, Wu, & are treated as a part of the organizational culture.
Cheng, 2006, p.152). Besides Cheng, many other The study tries to use the concept and means of
scholars (Katz, 1964; Hennart, 1991; Davies, 1999; corporate governance under ethic climate to build
Donaldson & Dunfee, 1994 &1999; Hitt, Ireland, a new business model. Please see figure 3.
& Hoskisson, 2003; Colley, Doyle, Logan, & Stet-

125
Taiwans Corporate Governance

CONCLUSION reduce the agency problem (Fama, 1980). Since


most past studies focus on the agency relation-
Lius analysis of the functions of the board of di- ship between a companys entire owners and the
rectors and each directors duties and obligations managers rather than on the agency relationship
and the 10 warning signs proposed by Ye help us with the entire stakeholders, therefore Lin (2007a,
understand that the core of corporate governance is 2007b, 2009a, 2009b, 2009c) used the declaration
the board of directors, and cases of failed corporate and principles in Kngs Global Ethic as the source
governance are mostly due to major problems in for constructing the social responsibilities and
controlling shareholders honesty, suggesting the substantive hypernorm in the social contract for
inseparability between a companys system and business ethics, and the agency problem involving
its business ethics. stakeholders is also included in our discussion on
The above discussion reveals that the prob- the agency problem in corporate governance a
lems in the internal and external mechanisms of topic that has not been addressed in past studies
corporate governance are correlated to the agency and is the focus of Lin (2007, 2009). The discus-
costs such as morality hazards and agency risks sions in the future on the relationships between
in the agency problem. From the perspective of the agency problem and business ethics are based
stakeholders, the loss of auditor independence on the implications of stakeholder ethics.
and accountants failing to carry out duties given Mondy & Noe (2005) observed that the legal-
by their superiors and public investors are also a ization of business ethic norms makes this trend
form of the agency problem in a broad sense, and more prominent due to the social atmosphere
business ethics is correlated with reduced agency and public anticipation (Mondy & Noe, 2005,
cost to a certain degree. pp. 37-38). These two scholars, however, did not
In the previous discussions it is evident that explore deeper into the legalization of business
past studies have revealed the limitations of the ethics, and future researchers could examine
law, which is separated from, interdependent with, The Sarbanes-Oxley Act of 2002, through which
and pushes and pulls the domain of morality and moral norms are legalized and become a part of
ethics; therefore, morality and ethics have an corporate governance, in order to uncover other
irreplaceable role. Moreover, despite the width significant findings.
of the topic of corporate governance, the focus
of this present study is the agency problem; the
literature review indicates the agency problem in REFERENCES
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Agency Problem: In political science and
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a business environment. It applies to all aspects of

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business conduct and is relevant to the conduct of selection and moral hazard. Most commonly, in-
individuals and business organizations as a whole. formation asymmetries are studied in the context
Applied ethics is a field of ethics that deals with of principal-agent problems.
ethical questions in many fields such as medical, Organizational Culture: Organizational
technical, legal and business ethics. culture is an idea in the field of Organizational
Corporate Governance: Corporate gover- studies and management which describes the psy-
nance is the set of processes, customs, policies, chology, attitudes, experiences, beliefs and values
laws, and institutions affecting the way a corpo- (personal and cultural values) of an organization.
ration (or company) is directed, administered or It has been defined as the specific collection of
controlled. Corporate governance also includes values and norms that are shared by people and
the relationships among the many stakeholders groups in an organization and that control the way
involved and the goals for which the corpora- they interact with each other and with stakeholders
tion is governed. The principal stakeholders are outside the organization.
the shareholders, management, and the board of Shareholder: A mutual shareholder or stock-
directors. Other stakeholders include employees, holder is an individual or company (including a
customers, creditors, suppliers, regulators, and corporation) that legally owns one or more shares
the community at large. of stock in a joint stock company. A companys
Information Asymmetry: In economics and shareholders collectively own that company and
contract theory, information asymmetry deals with are the members of the company by signing the
the study of decisions in transactions where one memorandum of association. Thus, the typical goal
party has more or better information than the other. of such companies is to enhance shareholder value.
This creates an imbalance of power in transactions Stakeholder: A person, group, organization,
which can sometimes cause the transactions to or system who affects or can be affected by an
go awry. Examples of this problem are adverse organizations actions.

131
Section 2
Implementing New Business
Models in Non-Profit
Organizations
133

Chapter 7
Adopting Web 2.0 in
English Writing Course:
A Collaborative Learning Approach
in NPO Universities in Taiwan

Yuan-Chu Hwang
National United University, Taiwan

Min-Ching Chen
National Chiao Tung University, Taiwan

ABSTRACT
In this chapter, the authors present a Web 2.0 collaborative learning approach that facilitates the English
learning process for universities in Taiwan. In traditional English writing course, the lack of intensive
interactions between students and teacher may not provide sufficient information for students to im-
prove their writing content. In order to understand how web 2.0 and collaborative peer group facilitate
English learning, the authors elaborate the collaborative learning process in both micro view and
macro view. The micro view focuses on individual students viewpoint and their learning stages in web
2.0 collaborative learning. The macro view of learning approach focuses overall interactions between
students, teacher and student peer groups. The proposed web 2.0 learning model allows learners to ac-
cess abundant learning materials from their peer groups. Students can learn though peer interactions
and enhance the learning motivation in the collaborative learning environment. By peer learning and
competition, students can benefit from various learning resources by adopt web 2.0 concept in the col-
laborative English writing course.

DOI: 10.4018/978-1-60960-129-4.ch007

Copyright 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Adopting Web 2.0 in English Writing Course

INTRODUCTION Statement of the Problem

Advanced information technology has improved In the past, teaching English writing in the class-
the quality of our life in many ways. The Internet room might be limited by time. Teachers might
makes the information exchange rapidly in our only supply few writing samples to discuss in
daily life. The telecommunication technology class. Students may read only parts of writing
makes it possible for people to communicate works from classmates or textbooks, and imitate
with others crossing geographical distance. As writing from them. The lack of strong interaction
the development of new information technology, between students and teacher may cause students
our real world has integrated with the cyberspace to obtain limited information about how to write
and become a well-connected environment. The English well. Moreover, there may not be enough
relationships in current era are more complex than information for students to improve their content
the old days. Today, people can interact with others significantly.
through various information channels and con-
nected with each other easily, that helps peoples Problems of English Writing
social networking become a loosely connected Leaning in Current Era
environment.
Non-Profit organization (NPO) is an organiza- Currently, the model of English writing mainly
tion that does not distribute its surplus funds to focuses on the interaction between teachers and
owners or shareholders, but instead uses them to students. Imitation and learning between students
help pursue its goals. Educational institutions in is restricted by time and place. In addition, there
Taiwan are one kind of NPO. In this paper, we may be difficult in achieving the goal of peer
will introduce a collaborative learning approach learning. With the trend of combining informa-
based on Web 2.0 that facilitates the collaborative tion technology and English learning, the model
English learning for universities in Taiwan. of interaction and learning between teachers and
Teaching English writing for universities in students may overcome limitation by the use of
Taiwan focuses on traditional writing teaching information delivery. Moreover, there would be far
methods. Usually, teachers try to explain the rules more interaction between students and teachers.
and use the textbooks; and students are just listen- This model is called the Asynchronous Network
ers during the writing class. The writing course Collaborative Learning Model.
may be lack of interactions between students and In order to teach students to improve English
teachers. writing efficiently, the learning model combines
Today, the world is a global and high-tech era information technology with English writing.
that people utilize various kinds of information It emphasizes providing more opportunities for
communication technologies to improve their students and teachers to have more interaction
life quality. How teachers utilize the internet outside of classroom. Nevertheless, interaction
in writing course and encourage collaboration and cooperation between students may not be
between students becomes an important issue focused on and may not be managed properly in
in NPOs performance. In this chapter, we will the age of web1.0. In other words, during the age
discuss how the emerging Web 2.0 collaborative of web1.0, there might be a lack of interaction
approach is applied to English writing courses between groups. Therefore, the power of coopera-
and its performance. tion and competition between groups may not be
strengthened and not put it into practice.

134
Adopting Web 2.0 in English Writing Course

Power of Peer Review Group discussed and analyzed by peers. The weakness
of various English writing processes can also be
In the past, learning models for English writing criticized by peers. Capturing plentiful amounts
gave learners only writing evaluation from a of English writing samples from classmates can
teacher. Learners writing skills might be learned be references and information for English writ-
solely from a teachers evaluation. The students ing students.
could not have much time for peer responses (also In the sort of cooperative interactive model that
known as peer review groups) in class. (Reid, we are describing, we emphasize peer interaction,
1993) However, the peer review gives students and our learning model may therefore be quite dif-
opportunities to read other classmates writing. ferent from the previous English writing teaching
At the same time, the peer review can allow models. Interaction sequences may be adjusted by
readers interaction with the writer. (Freeman & the environment of web 2.0. Additionally, with a
Sperling, 1985; Hillocks, 1982; Nystand,1990; web 2.0 interaction learning model, a teachers role
Richard-Amato, 1988) Accordingly, peer review will be more important. Furthermore, in order to
gives students possibilities to observe classmates enhance students learning motivation, teachers
writing essays and evaluate each essay by the involvement with our interactive model will be
criterion of writing evaluation via email and blog. arranged significantly by the nature of the web
2.0 environment. The specific interaction model
Benefits of Web 2.0 Collaboration will be explained in the chapter concerning re-
search design.
Web 2.0 has already been applied in various in-
dustries and emphasizes the cooperation between Statement of Research Aim
users. How this helps to create an innovative Eng-
lish writing learning model will be well defined In this research, we are going to use the web 2.0
on this paper. concept in English writing teaching. We select
A learning model utilizing web 2.0 can allow two groups from two classes; in one class, teacher
learners to access abundant learning materials uses the concept of web 2.0 inside the English
throughout learning groups. Most importantly, writing class. The other class, the teacher uses the
the students can also learn though peer interac- traditional writing teaching; it means that teacher
tion to enhance the learning motivation. By peer uses the textbook and teaches students writing
learning and competition, a student can benefit skills according to the textbook.
from different learning resources; no matter if it In Web 2.0 period, students can learn or practice
is positive or negative information. Both can pro- English writing via blog. In this essay, the teacher
vide infinitive references to improve the students sets up a blog for students to write essays and
English writing, and may provide greater potential the teacher put the essays on the blog, and all the
for solving problems that students come across students have to give comments for all the articles.
when writing English content because they lack This is the way to help students to improve their
for information. English writing skills. The purpose of the writing
In addition, utilizing the concept of web2.0, blog helps students have opportunities to have
users are not only using the channel of media, interaction outside of classroom. In addition,
but also their essays can be read by all people. students can learn some writing skills according
Moreover, students writing works can be widely to students interaction.

135
Adopting Web 2.0 in English Writing Course

LITERATURE REVIEW social constructionist approach. In this method,


writing is a social act in a specific context. (Reid,
The Approaches of Teaching 1993, p. 261; Coe, 1987). It means that writing is
English Writing part of social action in academic purpose.
According to these four different approaches,
English writing teaching nowadays has changed we will try to combine the previous English writ-
due to the internet era. Students and teachers ing teaching into the web 2.0. And we will see
widely use the email, website and blog in their how it works in our research.
daily life; accordingly, how to utilize the internet
into English teaching is a current issue. Learning in Web 2.0 Era: The
However, in this paper, we are going to discuss Impact on Power of Users
the historical perspective to view English writing
teaching. There are four theoretical approaches Advanced information technology has improved
on English writing, its not only the methods the quality of our life in many ways. The Internet
utilized in Native English Speakers, but also its makes the information exchange rapidly in our
suitable for ESL students. (Johns, 1990) Firstly, daily life. The telecommunication technology
we will discuss The expressivist approach, in makes it possible for people to communicate
this approach, teachers are like the facilitator and with others crossing geographical distance. As
design the classroom activities to promote writ- the development of new information technology,
ing fluency and empower the students. (Reid, our real world has integrated with the cyberspace
1993, p. 260) The second writing approach is and become a well-connected environment. The
The cognitive approach. This approach is relationship in current era is more complex than
widely used in English for Academic Purpose the old days. Today, people can interact with others
(EAP) and English for Specific Purpose (ESP). through various information channels and con-
In cognitive classroom, students still focus on nected with each other easily, that helps peoples
pattern model tasks. (Reid, 1993, p. 261). In social networking become a loosely connected
this writing teaching method, strategy training is environment.
still the base in this approach. The Web 2.0 is one of the most popular topics
Next is The interactive approach; in this ap- that highlight the massive interaction between
proach, the writer and reader have to communicate users and their social network relationship. Web
with each other, both of them have responsibility 2.0 refers to the second generation of web devel-
on coherent communication. It means that the opment and web design that facilitates information
writer writes the articles from the readers expecta- sharing, interoperability, user-centered design and
tion, and the reader reads from writers intention collaboration on the World Wide Web. (Wikipedia)
(Shriver, 1992; Zamel, 1992). Nowadays, a lot There are several key ideas behind the term Web
of intensive writing course combine both read- 2.0, including: individual production and user
ing and writing. As I teach in college in Taiwan, generated content, Harness the power of the crowd,
Reading and Writing is one course, because Data on an epic scale, Architecture of participa-
the students can learn how to read through the tion, Network effect, and Openness. (Anderson,
writing class; at the same time, students also can 2007).Moreover, the Web 2.0 represents new user
learn how to write from reading a lot of writing oriented e-service that related to social networking
articles. Consequently, in this paper, we also will and collaborative interaction. The reformation of
use this method to teach students writing; just we information exchange in Web 2.0 era highlights
will combine the tool of web 2.0 . Finally, The the possibility of open collaboration for all indi-

136
Adopting Web 2.0 in English Writing Course

vidual participants. Users create digital content, 2.0 concept in collaborative learning. Before
contribute personal experience, and exchange adopting the web 2.0, the role for both teacher
their opinions with others autonomously. In web and students are quite different than traditional
2.0, users contributions are treated as valuable learning process. In web 2.0 collaborative learning
ingredients for performing collective wisdom environments, which highlights every individuals
(Hwang & Li, 2009). contribution and requires students interact with
The rich contributions from user groups bring other peers actively for massive information/
tremendous valuable contents, which also enrich knowledge exchange. Through the information
the information exchange within the user groups. exchanging process, students are encouraged
Today, the Web 2.0 concepts have been utilized by teacher and other peers to present their own
for many application domains. For example, the experience and skills they have, others could ac-
collaborative user generated content such as Wiki- cess these heterogeneous information to impact
pedia, the social interaction sites such as Facebook their own knowledge and make evaluations and
and MySpace. For example, wikis have been used judgments. Moreover, not all courses are suitable
at the University of Arizonas Learning Technolo- for collaborative learning, the collaborative course
gies Centre to help students on an information is more suitable for students are already learning
studies course who were enrolled remotely from something and would like to extend their ability
across the USA. These students worked together from information exchanging. Teachers should
to build a wiki-based glossary of technical terms select the suitable materials and organize the teach-
they learned while on the course (Glogoff, 2006). ing in separate lecture. Followings are the major
The concept of Web2.0 collaboration has already key features in web 2.0 collaborative learning.
used in the education domain. Wiki-style tech- In the learning process, all information is cre-
nology has also been used in a tool developed at ated by each participant. Unlike the traditional
Oxford University to support teachers with design learning that teacher plays the major role for
for learning. These collaborative applications delivering the knowledge to all students. The in-
are based on the concept of web 2.0 and utilize formation is usually the one-way that from teacher
the power of user groups that contributes huge to students, but there is lack of interaction between
unique content that make others could have the students. Instead, in the collaborative learning
opportunities to access these information. Users process, teachers are playing as a participant who
will learn new things from their peer groups and also join the information exchange and observe
improve the deficiency. Moreover, the quality and the interactive learning process. However, the
the quantity of information exchange for web2.0 teachers could also learn how students think and
e-learning interactions have been improved sig- feel via the interaction and this could become a
nificantly than traditional face-to-face education new feedback for teachers to improve the course
environment. and make it more suitable for their students.

Adopt Web 2.0 Concept in Active Participation


Collaborative Learning Approach
According to Savin-Williams & Berndt, student
In order to improve the learning outcomes us- peers plays an important role for teenagers,
ing web 2.0 concepts, the learning approaches which influences their character development,
should be modified to encourage and accelerate social adjustment, and behavior models (Savin-
the interactions among students. However, there Williams & Berndt, 1990). Peer acceptance has
are some key assumptions before adopting web been shown to be associated with greater feelings

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Adopting Web 2.0 in English Writing Course

of belonging (Brown & Lohr, 1987). The impact Motivation of Students in


between students is strong and students contribute Collaborative Learning
their ideas to the other classmates. For collabora-
tive learning, students are encouraged to present Sociologists and anthropologists have long recog-
what they think, how they feel, and provide their nized that people can feel close to distant others
personal opinions within the peer group. This and develop common identities with distant others
participating process provides unique information who they rarely or never meet (Anderson, 1983;
sources for the peer groups. Massive heteroge- Habermas, 1991). Besides geographical distance,
neous could bring the opportunities for students in the e-learning era, we emphasize on personal
to access others opinions and compare with their characteristics. Homophily describes the tendency
own ideas. Their friendship and participation are of individuals to associate and bond with similar
associated with self-esteem and contribute to form one. The principle of proximity and similarity
self-image (Azmitia, 2002). The self-adjustment provides the basis for numerous social interaction
could improve the self-evaluation and make stu- processes (Hwang, 2009). The basic idea is simple:
dents understand how others think. It also makes people like to associate with similar others. (Ar-
students to develop companionship skills through istotle & Rackham, 1934; Lazarsfeld & Merton,
various interactions. However, since students 1954; Plato, 1968) The collaborative e-learning
may lose the goal while they discuss with others, environment benefits from the collective efforts
teacher could intervene the interaction process of each student in the virtual education environ-
appropriately and guide the discussion. ment. Similar student groups are more likely to
combine the strength of different individuals to
Network Effect achieve specific objectives.
In the Web 2.0 e-learning environment, the
While adopting web 2.0 into collaborative learning roles in learning activities are quite different from
process, the social connections of each participants in the traditional classroom. Teachers are no lon-
are important factors. Network effect implies the ger the single knowledge source in the learning
phenomenon whereby a service becomes more environment. The student peer groups and other
valuable; therefore, the numbers of adopters learners from the cyberspace could provide alter-
are increased. The collaborative encyclopedia native incentives for students to address on their
Wikipedia is benefit from a network effect. The learning interactions. For example, in the study
theory goes that as the number of editors grows, of European project WebLabs, which applies a
the quality of information on the website improves, web-based learning environment for students
and it also encourages more users to turn to it as to learn with others. The teacher is seen as a fa-
a source of information; some of the new users cilitator and a guide in the knowledge discovery
in turn become editors, continuing the process process. (Sendova et. al, 2004). In the e-learning
(Wikipedia). Applying to learning environment, environment, if the participants are not only those
students could benefit from the network effect that familiar classmates, there may have some issues
their interaction targets are not merely limited to especially when the learning activity is freely open
the peer students in their classes but extend to all to all internet users. The typical issues include the
other students who take the same classes in the language as well as the communication capabil-
school. While the number of user exceeds the ity, these issues would slow the collaborative
critical mass peer group, students could benefit learning activity for students without suitable
from the network effect and get more information communication abilities. In order to facilitate
while they have interaction in peer groups. the collaborative learning interactions, learning

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should focus on specific topics with appropriate changed. As Jones, J.F. (2001) has stated that
communication ability for all participants. Since Language Centre throughout the world know
e-learning is generally based on ICT environment, that they cannot do without computer for learning
the operation of learning are related to students purposes.However, in the past, computer-assisted
computer operation abilities such as manipulat- language learning (CALL) has more focused on
ing the communication system, accessing rich self-learning. In one university I have taught in
multimedia information resources, handling the Taiwan, the English program is focused on grade
online social interactions. one and grade two students in university, the school
After concur the communication problems, the set a system which is called Elite English, stu-
interactions between students are quite interest- dents have to practice themselves at school or at
ing. During communication, students acquired home. After the end of semester, the teacher will
specific social experience and were stimulated give students scores which is according to how
to build valuable personal skills such as: ability many lessons the students do and also how many
to generate and verbalize ideas; to present their lessons students have passed a certain score.
results according to a concrete standard; to share Moreover, the beginning of CALL has fo-
their experience by means of electronic com- cused on drill and kill. It means that the students
munication; to discuss their work and work in a have just practiced the questions by listening to the
team; to be critical to the work published in the CD, or just watching DVD in classroom. Some-
virtual environment (Nikolov, 2007). times its good that teacher can prepare the DVD
Besides the support of individuals similarity, which is connected with the topic that students
there are some additional incentives encourage learn today. In my personal experience, students
students to learn collaboratively. According to feel fun at the beginning; nevertheless, students
McClintock (1992), when working in flexible have started to feel bored. Besides, students have
groupings, across ages and locations students less motivation to watch DVD in class. However,
can interact according to their interests, needs, at a World CALL conference that took place in
and curiosities and learning in the course of Melbourne in July, 199,8, Jones (2001, p. 361)
shared projects, become commonplace features has claimed that keynote speakers, distinguished
of educational work, cooperation becomes the by their long experience in the computers edu-
prime motivator. cated applications, made no extravagant claims.
In this chapter, we combine the learning and Ben Shneiderman has also stated that computers
the web 2.0 platform to create a collaborative are no more intelligent than a wooden pencil.
education environment. The similarity of indi-
viduals and the cooperation encourages students Learning English Writing by
to work together for their ultimate goals. Various Collaboration: A Peer Group
incentives motivate the collaborative interactions Collaborative Learning Approach
within student groups. It also enables the healthy
development of the collaborative education en- The term collaborative learning is widely
vironment. defined by many researchers. According to Dil-
lenbourg (1999), the most broadest (but unsatis-
The Role of the Teachers factory) definition is a situation in which two or
more people learn or attempt to learn something
In the 21st century, due to the high technology together. There are three key elements should
era, the language teaching has currently been be further determined in the definition. First,

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Adopting Web 2.0 in English Writing Course

the number of participants can be unfolded into Criteria of English Writing


several types, such as a pair, a small group (3-5
students), a class (20-30 students), a community How to Grade Scales
(few hundred students in school), or a society. The
term learning something could be as follow a Most English writing, no matter, IELTS or TOEFL,
course, study course material, and perform even the writing test GEPT in Taiwan, the exam-
learning activities such as problem solving. The iner usually scores the writing paper by these five
term together could be interpreted as different dimensions. Accordingly, in this paper, we use the
forms of interaction: face-to-face or computer same way to score the grade.
mediated, synchronous or asynchronous, etc. We In this research, we set the five dimensions
will explain our definition in the research design and sixteen criteria to give students scores. You
section. can see as follows:
Individual cognitive systems do not learn
because they are individual, but because they 1. Grammar
perform some activities (reading, building, etc.) Word form
which trigger some learning mechanisms (induc- The verb tense
tion, deduction, compilation,...). Similarly, peers S/V subject-verb agreement
do not learn because they are two, but because Fragment (If a sentence does not have
they perform some activities that trigger specific both a subject and a verb)
learning mechanisms (Dillenbourg, 1999). There- Ex; we hungry in the morning.
fore, in this paper, we adopt the web 2.0 concept (FRAGEMT)
to collaborative learning approach in the field of EX; We are hungry in the morn-
English writing course. The aim of this study is ing. (CORRECT)
to understand the impact on students learning 2. Vocabulary
outcome by comparing the Web-based computer Spelling correctly
mediated collaborative learning activities with Capitalization
traditional face-to-face collaborative learning Wrong words
activities. 3. Punctuation
Moreover, there are two issues should be cared Use the proper punctuation
about when process the peer group collaborative RO(round-on sentences happens
learning. First, teachers should specify the roles when two simple sentences are run
and its appropriate actions/behaviors in each col- together without correct punctuation
laboration scenario. By giving different visual to separate them)
viewpoints, students are able to follow some EX: I love Sunday, I can sleep
specific rules for interaction. Second, teacher late. (RO)
should monitor and regulate the interactions. This I love Sunday because I can
issue is more complex when the peer group size sleep late. (correct)
is increasing. Is there a comma after transition
In the next section, we will elaborate the re- words?
search design and describe the experiment process (Transitions: first/next/ then/
for web 2.0 collaborative learning. after that/later/finally/ in the
morning/at night/ at ten oclock)
4. Content
A variety of sentences

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Adopting Web 2.0 in English Writing Course

Have own opinions classmates. The advantages of peer editing is that


Topic sentence get a readers opinion about writing (Zemach,
Main idea is clear & Rumisek, 2003, p. 22). And the reader can
5. Organization tell you first, you should add more details or
Well organized explanation. Second, something is not organized
Logically order clearly. Third, you have some information that
is not relevant. Fourth, there is something that is
Evaluation Criteria hard to understand. Moreover, the other advan-
tage is to share writing with others is for you to
No matter in peer review or how teachers evaluate read more examples of writing. Reading others
students writing scores by using the criteria below. article can give you more ideas to use yourself
in the future (Zemach & Rumisek, 2003, p. 22)
Grammar-1=Is the word form accurate?
Grammar-2=Is the verb tense appropriate? Teachers Response and
Grammar-3=Is the subject-verb agreement? Teachers Attitude
Grammar-4=Is there any fragment sentence?
Vocabulary1=Is the spelling correct? Because of combining English writing teaching
Vocabulary3=Are there any wrong words? with Computer Assisted Language Learning,
Vocabulary2=Is the vocabulary using the correct language teachers have to change their attitude
capitalization? on teaching writing. In traditional English writing
Punctuation1= Does the author use the proper teaching and marking, teacher has only use the
punctuation? English material in the classroom, and the teacher
Punctuation 2= Are there any run-on sentences? has only one to give students the score. However,
Punctuation 3=Is there a comma after transition when we utilize the concept of web2.0 inside the
words? writing teaching, the teachers have to be interested
Content1= Are there a variety of sentences ? in computer assisted and also the group opinion.
Content2=Does the author have his/her own In other words, if the teachers dont have enough
opinion? knowledge, they couldnt use this approach in the
Content3=Is there any topic sentence? classroom. Moreover, teachers have to change
Content4=Is the any concluding sentence? their attitude on teacher centers classroom. That
Organization1=Is it well organized? is said teacher is not only the guide in this writing
Organization2=Does it have a logical order? classroom, all of the students can also participate
in classmates writing comments. In order to make
Peer Editing the comments fair and objective, in this research,
we also invite the other teacher to mark and give
Peer editing means showing your work to an- students comments on their articles.
other student is a very useful way to improve your
writing. (Zemach, & Rumisek, 2003, p. 21). And
throughout the process peer editing, students can RESEARCH METHODOLOGY
read various of writing articles from the classes.
In addition, students can find the strong and weak Research Aim
points in classmates articles. While they mark
other classmates writing articles, they also can In this paper, we adopt the web 2.0 concept to
find their own problems or learn the good points of collaborative learning approach in the field of

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English writing course. The aim of this study is channel; in another group, we use the traditional
to understand the impact on students learning FTF (face to face) teaching method in classroom.
outcome by comparing the Web-based computer We give the students in all groups with the same
mediated collaborative learning activities with teaching material and homework. In the first week
traditional face-to-face collaborative learning and last week of the English writing course, we
activities. Moreover, there are two issues should give both two classes students an essay tests to
be cared about when process the peer group col- evaluate their English writing ability. By compar-
laborative learning. First, teachers should specify ing the difference of student improvements, we try
the roles and its appropriate actions/behaviors in to explore the effect of the two teaching methods.
each collaboration scenario. By giving different In order to increase the inter-rater reliability on
visual viewpoints, students are able to follow this research, we ask a group of teachers evaluate
some specific rules for interaction. Second, teacher students writing. In addition, each essay is also
should monitor and regulate the interactions. This evaluated by students peer evaluations using the
issue is more complex when the peer group size given criteria of English writing evaluation.
increased.
Due to the impact of Web 2.0, utilizing the Exploring the Guideline to Adopt
information technology in learning has its new Web2.0 in English Writing Course
method. The cooperation between learner and
learner has become another new information To understand the guideline to adopt Web 2.0 in
resource in ICT learning model. In the Web 2.0 English writing course, we will explore the role
environment, the information consumers are also changes for both teacher and student. Also, the
the information producers. The aim of observation success or failure case utilizing web2.0 in learning
has focused on the interaction between learner environment can be further analysis. Through the
and leaner. In the past, the learning process has case study, we would like to give the guidelines of
emphasized on learner and teacher; however, utilizing Web2.0 collaborative learning approach
in the web 2.0 environments, it has focused on and improve students learning motivation and
the information exchanging and the interaction learning efficiency.
between leaner and learner.
By utilizing Web 2.0 collaborative leaning Research Design
platform to promote cooperation between learn-
ers, the collaborative peer groups may become the In order to understand how web 2.0 and collab-
alternative learning resource outside of language orative peer group facilitate English learning, we
teaching classroom. In this study, the observation will elaborate the learning process in both micro
focuses on the interaction between learners and view and macro view. The learning process in
its efficiency. Therefore, the goal of this research micro view and macro view tightly related with
will divide into two parts. each other. The micro view of learning approach
focuses on individual students viewpoint and their
The Learning Effect of Collaborative learning stages in web 2.0 collaborative learning.
Learning Approach The students cognition and the internal flow of the
individuals learning process are shown in micro
In order to understand the learning effect of our view process. The macro view of learning approach
proposed learning model, we choose two different focuses overall interactions between students,
groups for observation. In one group, we utilize teacher and student peer groups. All interactions
the web2.0 collaborative platform as the learning of student and other participants within the web

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Adopting Web 2.0 in English Writing Course

Figure 1. The Web 2.0 collaborative learning approach

2.0 collaborative learning approach are detailed the interactions between the individual and their
elaborated in macro view section. belonging communities.

Macro View The Micro View

The macro view of Web 2.0 collaborative learning Different to the macro view that highlights the
approach including four stages of cognitive and interactions between users, the micro view focuses
interaction processes. The micro view of Web 2.0 on individual cognition and the internal knowledge
collaborative learning approach focuses on five flow. The internal cognitive process of Web 2.0
internal processes of interactions, which is shown collaborative learning is consisted of five parts,
as upper part of Figure 1. including Observation, Interaction, Correction,
The macro view of Web 2.0 collaborative Collaboration, and Integration. The related learn-
learning approach is composed of four steps. The ing theory of each part described as follows.
first stage is an internal cognitive process noted
as Self-Learning stage, which is consisted of 1. Observation: Based on social cognitive
five processes. The following process is the in- theory (Miller & Dollard, 1941), an indi-
formation exchange stage noted as Web 2.0 viduals knowledge acquisition can be di-
Discussion stage. Through the cognitive process, rectly related to observing others within the
students will obtain rich information and try to context of social interactions, experiences,
adopt them appropriately in their learning process. and outside media influences. When students
The Rich Information stage provides suitable want to know their learning performance,
samples or cases evaluated by peer groups and they are seeking for a benchmark. The Web
teachers, those information will also help students 2.0 collaborative learning approach makes all
to enhance their capability of English writing. participating students to learn from their co-
Benefits from the previous stages of information operators. The first behavior is observations,
exchange, the highly frequent interactions between which make students find some appropriate
students will enable the Web 2.0 collaborative channels for new information surrounding
Learning stage that helps students stay in a healthy them and select suitable target for improv-
learning environment. The macro view highlights ing their own abilities. Observations are the

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Adopting Web 2.0 in English Writing Course

Figure 2. The collaborative learning process

usually belong to ones mental behavior that authority that provide accurate information
proceed internally. for student and guide them to the right way.
2. Interaction: According to social learning The intervention of teacher in collaborative
theory (Bandura, 1977), behavioral learning learning platform could monitor the develop-
assumes that peoples environment cause ment of collaborative learning process for
people to behave in certain ways. Interaction all participants.
between student and other student groups is 4. Collaboration: Since the Web 2.0 collab-
an important issue when adopting web 2.0 orative learning platform requires students
collaborative learning. Since the interaction participant in and cooperate with others, the
may establish some personal relationships atmosphere between all participants will
with others, students who could utilize the influence the interaction intensity within the
web 2.0 platform could obtain useful infor- collaborative learning group. Collaboration
mation and benefit from the highly connected requires some fundamental basis including
student peer groups. trustworthy, good intensions, harmonious
3. Correction: Based on social comparison interactions between all participants.
theory (Festinger, 1954), individuals evalu- 5. Integration: The student peer groups within
ate their own opinions and desires by com- the Web 2.0 collaborative learning platform
paring themselves to others. However, the could form a tight social group with correct-
benchmark must be accurate and appropriate ing mechanism that will help students ac-
evaluated by reliable authorities. In the Web quire rich useful information facilitate their
2.0 collaborative learning environment, the cognition process. Moreover, the integration
role of teacher should become the reliable of student peer groups could make the Web

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Adopting Web 2.0 in English Writing Course

2.0 collaborative learning group contribute says on the blog. The activity on this stage
their ideas and knowledge to the community is the students have to give each essay
continuously and form some kinds of col- the positive comment and negative com-
lective wisdom for all participants. ment. The outcome is that students may
improve the writing skills from each posi-
Collaborative Learning Process tive and negative comment. Therefore, on
this stage, students may learn some writing
In this research, we set the learning process into skills through reading classmates essays.
a six stages process of each class. The figure is On stage four: Intervention of Teacher.
shown as Figure 2. We will describe each stage The input is the teachers structured evalu-
as follows. ation. The activity is the suggestion from
the teachers. The outcome is the evaluation
On stage one: Writing Skills Practice, we result and suggestions.
call it writing skills practice. On this stage, On stage five: Collaborative Learning by
the input is teacher teaches students how to Using Web2.0. The input is that students
write an essay in class and students brain- view the teachers intervention, and also
storm and discuss in the small group first. group discussion from the blog. The activ-
The activity on this stage is writing prac- ity is the students discuss in blog and leave
tice: after going back home, each student the positive and negative comments, then
has to write a short essay by himself/her- students can learn writing skills through
self. Then the outcome is a short essay. It this kind of activity. The outcome is the
means all of the students have to put their feedback from the peer review and teach-
essays into the class blog. ers evaluation. The outcome is the posi-
On stage two: Collative Evaluation, the tive and negative of the essay.
input is teacher sends each student the On stage six: Analysis of Collative
evaluation sheet (please see the sub-sec- Learning Outcomes, the input on this stage
tion 2.7.2), and all students have to do the is the results from the teachers. It means
peer evaluation for all the articles written that the teacher gives the students com-
by all the classmates. The activity on this ments and scores according to the five
stage is blind peer review. It means the stu- dimensions---grammar, vocabulary, con-
dents give classmates the score, the scale is tent, organization and punctuation. The
from 1 to 7. After the students do the peer activity is the comparison of pre stage and
evaluation, each student sends the result to post stage evaluation. The outcome on this
teacher by email. The outcome is the blind stage is the improvements of writing skill
peer evaluation which scales by sixteen di- dimensions.
mensions. And students have to give each
dimension score from one to seven. From Utilizing ICT in English teaching has been
this peer evaluation, we will do the statis- several years. In the past, e-learning has focused
tics and the result will be discussed in the on exploring the impact in learning effect or
next chapter. learners himself/herself. The related research has
On stage three: Group Discussion via emphasized on learners individual effect and also
Web2.0. The input is an open discussion of focused on the interaction between the teacher and
writing skills on students articles. At the learners by utilizing ICT technology. There are
moment, students have to review all the es-

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Adopting Web 2.0 in English Writing Course

fewer research focuses on the interaction between searching for both classes. Through this research,
learners and learners. the teacher has to spend more time on marking
Due to the impact of Web 2.0, utilizing the students writing paper. Due to the teacher has
information technology in learning has its new to set a blog first, and then put all the articles on
method. The cooperation between learner and the blog. Furthermore, if some teachers have less
learner has become another new information experiences of using computer or set the blog,
resource in ICT learning model. In the environ- they may find its difficult for them
ment of Web2.0, the information customers are
also the information producers now. The aim of
observation has focused on the interaction between FINDINGS AND DISCUSSION
learner and leaner. In the past, the learning process
emphasized on learner and teacher; however, Introduction
in the web 2.0 environment, it has focused on
the information exchanging and the interaction In this section, the teacher will pick up several
between leaner and learner. students writing from two classes and see what
By utilizing the platform of Web2.0 to promote are the differences between one class which
the cooperation between learners, it may become teacher uses the concept of web2.0 in the writing
the extra learning resource outside of language class; and the other class, the teacher just give
teaching classroom. Owing to the internet learn- the lecture and let the students give the writing
ing circumstance, the observation focuses on the homework after the lesson. We will see which
interaction between learners and its efficiency. method the students will improve more in writing.
In next part Data Analysis, the first class, we
Data Collection Procedures have found out two teachers to evaluate students
writing and we will analyze how students get
In this section, in the first class, we use the concept improved according to teachers comments and
of web2.0 in this class. The teacher sets a class classmates comments. The other class, we will
blog for students and students give the comments also evaluate how students improve their writing
for classmates. The blog is as following: http:// skills according two teachers evaluation and one
afternoontea11.blogspot.com/. Teachers collect classmates comments.
students writing articles by email, then teacher
has to put all of the articles onto this blog. And the Analytical Result
same week, students have to leave the comments
on this class blog. In addition, teacher sends all The Class which the Teacher
of the students writing articles to the other co- Uses the Concept of Web 2.0
worker to check the students writing. Therefore,
the result of the students writing comments from Student A
classmates and two teachers.
The first writing of student A
Ethical Consideration & Limitations
My Favorite Vacation
In the beginning of class, the teacher had already
told the students that she would do a research for My favorite vacation was travelling in Japan from
this class. In addition, the teacher told to students August 16 to 20 last year. I went to Hokkaido
that she would use the students articles for re- because it had beautiful night view in Hakodate.

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Adopting Web 2.0 in English Writing Course

The night view of Hokaido was one of the most It was especially beautiful in winter because the
famous night views in the world. It was especially air was dignified and clear.(x)
beautiful in winter because the air was dignified It is especially beautiful in winter because the air
and clear. In addition, there were delicious sea- is dignified and clear.(o)
food, big crabs, milk ice cream and melons and so
on. They were eating and drinking what I thought. The second writing of student A
I expect that I can go abroad every winter and
summer vacation during the time I was studying The Most Important Person in My Life
in graduated school. I would like to go to Europe,
U.S.A., or New Zealand next time, and go to meet The most important person who has black hair,
the people who have different custom from us. brown eyes, and a caring touch in my life. Thats
my mom.
The comments and evaluation from the
first teacher First, my mom talks to me about many things. She
1. You write well in this article; moreover, talks to me about is what will happen when I grow
you explain why you like Hokkaido. up. One day I had a really bad day with my friends,
All the points are excellent. and she told me what to do about it. Second, my
2. Try to avoid the grammatical error, mom and I spend a lot of time together. We play
you can check the dictionary or use games, bake cookies, and make necklaces. But
the grammar book for your reference. our favorite thing to do is reading. Our favorite
3. You can use more transition words to book is If You Give a Mouse a Cookie.
make the article clearly.
4. You can try to divide the article into My mom always laughs, and when she laughs
three partsintroduction, body and she sounds like a hyena gone crazy! She doesnt
conclusion. laugh every day, but when she does, its hilarious,
The comments and evaluation from the and I laugh, too!
second teacher
1. You had a good beginning in developing My mom is the greatest. She always gives me great
your article. However, try to express advice. My mom is more than a mom; she is like
your idea once in one sentence. my best friend!
2. You may tell me what you did in
Hakodate. Did you see any gorgeous The comments and evaluation from the
views there? Or did you have any first teacher
special meals there? In that case you 1. Try to organize your writing more
can make your article more attractive clearly.
and organized. 2. Paying more attention to word usage
The comments from the classmates--cop- and sentence structure would surely
ied from class blog: http://afternoontea11. help to make your writing as good as
blogspot.com/2009/08/vacation-3.html your underlying ideas. Keep trying!!
1. Classmates comment The comments and evaluation from the
second teacher.
Grammar 1. You explain your feeling about your
My favorite vacation was travelling in Japan (x) mom quite well.
My favorite vacation had traveled in Japan (O)

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Adopting Web 2.0 in English Writing Course

2. You show your love with your mom. There are many vacations in a year. My favorite
You and your mom seem to have quite vacation is the graduated vacation.
good relationship, thats so nice.
3. Its a well organized article, but pay at- My classmates and I were graduated from National
tention to your verb tense. Keep going! Defense University in the summer of 2006 year.
The comments from the classmates(copied We have graduated vacation for two weeks, so we
from class blog: http://afternoontea11. went to PALAU. The dinner of first day was bat
blogspot.com/2009/08/vacation-1.html) soup. Dont be afraid. Actually, it tasted good. The
Classmates comment next day we went snorkeling. Trust me, it was the
1. The theme is to discuss people, but you most beautiful scenery I had ever seen. Many fishes
seem to discuss a person not existing. were swimming around you. You could discover
2. I propose that you could use the con- another world under the water. I will remember
junction in the paragraph and segment the PALAU journey of graduated vacation forever.
narration
The comments from the first teacher
Data Analysis of student As writings 1. You write a well organized article.
From the student As two writings, we can see the 2. You have to pay attention on your
student has improved the writing. From the aspect grammar and the verb tense.
of organization, students can write a well orga- 3. You seem to get a quite unforgettable
nized article. In addition, comparing the student trip in PALAU, dont you?
As first writing and second writing, we can see The comments and evaluation from the
this student can express more about the feeling second teacher
for her mom. Moreover, from the perspective of 1. It was a pleasant article.
grammar, student A makes less grammatical error 2. It will be a great travel note if you write
from the first article to second article. However, more details about the food and special
student A has still improved her vocabulary us- activities there.
age. Punctuation is all right in both two articles. Comments from the classmates (copy from
After the using the web 2.0 concept into English class blog: http://afternoontea11.blogspot.
writing course, the teacher has found that students com/2009/08/vacation-4.html)
have higher motivation to learn English writing,
especially the topic is what they are interested in. Grammar
In addition, while students do the peer review- 1. My favorite vacation is the graduated
ing, they have found that they have gained more vacation. (change to past tense)
thoughts about the same topics. At the same time, 2. We have graduated vacation for two
they also can receive classmates opinions toward weeks (change to: We had graduated
their articles. vacation for two weeks)

Student B Second writing of student B

First writing of student B The Most Important Person in My Life

My Favorite Vacation The most important person in my life is my enemy.


He is big, strong and invisible. I have never seen
him, but I know his existence. Every time I feel

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Adopting Web 2.0 in English Writing Course

tired or depressed, he always encourages me once can use proper words in the end of semester. The
and once again. He makes my heart stronger and punctuation viewpoint, the student seems to keep
hard to be destroyed. Let me relive from the hell the same. From the point of view of organization,
of pain and loneness. this student seems to improve a bit.
Moreover, students read more articles compar-
Not only in my losing time, but also in my suc- ing with the class that students read less classmates
cessful space he would attack me. Because people articles. Therefore, students get more input
say that Extreme pleasure is followed by sor- than the other class. In addition, students may
row. He would remind me to remain humble compare each others articles. They will learn
and polite. It makes me not to lose myself and go the grammar, sentence structure and how to use
toward my target. the different vocabulary from other classmates.
Furthermore, students also say that they can see
So my enemy is the most important person in my other classmates writing styles and learn from
life. Without him, I am nothing. Without me, he them. It is also a benefit.
is disappearing.
The Class which the Teacher Doesnt
The comments and evaluation from the use the Concept of Web 2.0
first teacher
1. Your writing has some good insights We also can view as following that the teacher
in it and is very creative. doesnt use the concept of web2.0 in the class.
2. Some sentences could be improved a
little bit to make it clearer. The first article of student A
The comments and evaluation from the
second teacher My favorite vacation
1. You use the vocabulary well and no
grammatical error, thats good. My favorite vacation is summer vacation. Because
2. Try to write more and make your whole this vacation have enough time to plan and play.
article be more organized. I went to the Yi Lan. I ride the motocycle go to
3. Pay attention to the punctuation. everywhere with my good friend. Guey Shan port
4. Anyway, its true that theres nothing is a central in the city. There are more people and
to fear, but fear itself. many water activity. Its very fun and enjoy in it.
Comments from the classmates (copy from Summer vacation can take out my pressure. I can
class blog: http://afternoontea11.blogspot. go to everywhere in anytime.
com/2009/08/a4.html)
The comments from the first teacher
Data Analysis of Student Bs writings 1. This student makes lots of grammatical
According to these two articles which teacher uti- error.
lizes the web 2.0 concept in the writing class. We 2. You have to make your article more
can see students improve from the first article to organized.
second article. Students can express more on their 3. The students have some error on
own opinions and also try to make less grammar sentence structure; for example, My
error comparing their first and second articles. favorite vacation is summer vacation
From the perspectives of vocabulary, student B

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Adopting Web 2.0 in English Writing Course

because we can have more time to relax In our lives we meet many people and some of
and go some other places. they important in one way or
The comments from the second teacher
1. The student makes a lot of grammatical (In our life, we meet many people and some of
error; for instance, I ride the motorcycle them are)
go to everywhere with my good friend.
It had better change into My friend and another. However, the person who has most im-
I rode the motorcycle to everywhere. portant me is my mother.
2. The student also makes the wrong
words sentence: There are more people (the person who is the most important to me)
and many water activity. It has to
change into There are a lot of people In my childhood, my mother taught me to choose
and many water activities. good friends and avoid choosing bad friends.
3. You can write more and divide into She also stressed the importance of morality and
three paragraphs. encouraged me to be a
Classmates comments:
1. First sentence can change to Summer (what do you mean in this sentence)
vacation is my favorite vacation.
2. And I ride motorcycle go to every- good person. For this reason my conduct had
where. You can change to I rode not too bad.
motorcycle to everywhere.
(Because of this, I have good behavior.)
The second article of student A
I hope I can reward my mother by doing well on
The most important person in my life the society.

In our lives we meet many people and some of they (in)


important in one way or another. However, the
person who has most important me is my mother. Comments from the second teacher:
1. You write a well-organized article.
In my childhood, my mother taught me to choose 2. Try to pay attention on the grammatical
good friends and avoid choosing bad friends. error; for example, some of them, not
She also stressed the importance of morality and some of they.
encouraged me to be a good person. For this 3. Pay attention on what you express
reason my conduct had not too bad. because some sentence we cannot un-
derstand ; such as She also stressed
I hope I can reward my mother by doing well on the importance of morality
the society. Comments from the classmate:
1. In our lives we meet many people and
Comments from the first teacher some of they (them)
2. I hope I can reward my mother by do-
The most important person in my life ing well on(in) the society.

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Adopting Web 2.0 in English Writing Course

Data Analysis of Student A may not see much difference from the beginning
According to these two articles from the student of the writing essay to the end of writing essay. In
A, he/she doesnt improve much comparing the addition, the writing course is only two hours in
in the class which the teacher uses the web 2.0 a week, there are only 18 weeks in one semester,
concept inside the class. therefore, the students may not get enough input
The student A still makes a lot of grammatical in their writing. Furthermore, since the teacher
error, and he/she may not express his/her opinions sets the blog, so sometimes, students may feel
well. From the point of view of vocabulary, student less interested in it. That is also a problem my let
A seems not improve a lot. From the viewpoint of students feel less fun.
content, the student also cannot write more than
the students who are in the previous class. From
the viewpoint of organization, student A seems can CONCLUSION
divide into three paragraphs. From punctuation of
viewpoint, it seems the same as the previous class. Recommendations to the
Writing Teachers
Finding and Discussion
Combining web2.0 to the English writing course
Comparing these two articles from the second may be a good method for the future writing course,
class, we can see the student didnt improve much particularly for college writing course. Because
in their writings. The student has still made much most writing course is two to four hours a week
grammatical error and they still cannot express in Taiwan, the teacher can use the class blog to
clearly on what they would like to write. The motivate students to write the article. In addition,
reason may be that they do not read enough ar- from learning other classmates writing, students
ticles; therefore, they have less input, then they can write better according to read more articles.
cannot have the well output. It seems that they Students also can imitate other classmates writing
may improve less than the first class which the to improve their own writing skills.
teacher uses the concept of web 2.0 in the class.
In these two classes, students seem to be less Suggestions for the
improving in the viewpoint of punctuation. How- Further Research
ever, from the point of view of content, grammar
and vocabulary, the first class that utilizes the Due to the restriction of time, financial constraints
concept of web 2.0 seems to be improved more and regional consideration, the investigation realm
than the later class. Consequently, the English of this study was limited. Consequently, there
writing teachers may utilize this new method in are several suggestions for the further research.
their writing class because students have more First, this study only two schools were evaluated
time to study themselves and they have time to and only one class was evaluated in each school.
cooperate with other classmates. In addition, they In addition, the both colleges are in urban areas.
also can learn a lot from other classmates com- Therefore, we suggest that a further study choosing
ments and read more articles. several colleges in both urban and rural areas in
Taiwan. Second, the samples are limited to only
Research Remarks evaluated by two teachers. Therefore, further
research can select more samples and select more
In this research, the teacher has just used one classes and teachers to join this research. Finally,
semester to do this research, so for some students this study has had to speculate on the students

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Adopting Web 2.0 in English Writing Course

point of viewstudents interview would con- Hillocks, G. (1982). The interaction of instruc-
tribute an important aspect to a more complete tion, teacher comment, and revision in teaching
case study of writing learning among students in the composing process. Research in the Teaching
college level in Taiwan or all around the world. of English, 16, 261278.
Hwang, Y., & Li, T. (2009). Conquer Web 2.0
motivational challenges from social context
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155

Chapter 8
A Case Study of Integrated
Innovation Model in the Cultural
Innovation Industry in Taiwan
Te Fu Chen
Lunghwa University of Science and Technology, Taiwan

ABSTRACT
Taiwans diverse cultural background should bolster innovation and development. The cultural innova-
tion industry (cultural and creative industry) in particular constitutes an emerging sector in Taiwan,
and a vehicle for many countries today to show off their unique cultural characteristics. Taiwans rich
and diverse cultural foundation has garnered international attention in recent years in many areas
including visual and performing arts, film and literature, setting the standard for others to follow. The
development of the cultural innovation industry encompasses culture, art, technology and local tradi-
tions. This chapter describes the procedures of promotions formulated for the development of the cultural
and creative industry, including definition, scope, development, strategies and government assistance.
The chapter is intended to give the general public an idea of the chain effects expected to bring for the
society by the development of the cultural and creative industry.

First of all, the study goes through literature review and content analysis to develop a research frame-
work into an integrated innovation model. Secondly, the chapter details a case study to develop a more
complete and practical integrated model and researches propositions for practitioners in cultural in-
novation organizations and future researchers. Additional research is needed to provide managers and
consultants with important perspectives to consider when implementing cultural innovation programs
and practices in their organizations. The results from such research could also benefit academics by
providing select factors to focus on in future studies. This research will give more in-depth proposition

DOI: 10.4018/978-1-60960-129-4.ch008

Copyright 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

to practitioners in cultural innovation to achieve implementation of innovation programs. Likewise, it


will provide a framework in understanding why certain innovation initiatives fail and how that can be
improved. This will benefit both academics and practitioners.

This research was focused on case study based on qualitative analysis, literature review and depth
interview, discussing inner management and external relations in Liuli Gongfang, in order to offer the
concrete suggestion of development in the future. In accordance with this case, Council for Cultural
Affairs pursues its ideal in the scope of the capability, communicating with each other could obtain
the trust and cooperation. From the development and strategy of Liuli Gongfang, it continues to move
towards the road of Culture Creative Industries continuously, however, it will be no definite answer in
the future. Thus, it will remind the front office to examine both relations carefully, and must consider
the actual condition in the future.

INTRODUCTION tural innovation industry (Cultural and Creative


Industry) can strengthen their creativity and
Background design capabilities and adopt effective business
management methods, then they should have
Taiwans manufacturing sector has found itself in great potential. Their development will stimulate
a difficult situation owing to the cost of production the growth of related peripheral industry, thereby
factors rising and developing nations catching up boosting overall domestic demand and contribut-
fast. Its no longer enjoy competitive advantage in ing to export growth. Meanwhile, if fair, reasonable
Taiwan for large-scale manufacturing operations; pricing and licensing methods can be adopted in
in order to create new sources of competitive the cultural industry and the art world, and if they
advantage Taiwanese industry needs to adopt the can be integrated effectively with consumer goods
new concepts of the knowledge economy, devel- industry (for example through the laser printing of
oping new areas of production where innovative famous paintings onto scarves and cups), applying
design is the core element. Only then will it be digital content technology to culture and creativ-
possible for Taiwanese companies to differentiate ity, then not only will this be a shot in the arm to
themselves from their overseas competitors and the competitiveness of Taiwanese industry, but
create more value added. the resulting growth in exports will stimulate the
The cultural and creative industry are emerg- ongoing development of the Taiwanese economy
ing businesses in Taiwan. Culture and creation as a whole. While helping traditional industry to
has come to refer to a wide range of economic upgrade and transform themselves, the adoption
activities that draw from a countrys culture and of new information technology will also facilitate
creative talent to generate prosperity and employ- the development of new industry and the creation
ment. Such cultural and creative centers act as of new employment opportunities, breathing new
channels between industry and government by life into Taiwanese industry.
building paradigms to guide small creative and In 1995, the Council for Cultural Affairs
cultural businesses to work with the government proposed the concept of Developing Cultural
and possibly embark on international business Industry, and Bringing Culture into Industry
projects. Not only do local businesses obtain in the Conference on the Cultural Industry. This
business opportunities, but also help spread the Cultural Industry concept later became the core
knowledge of Taiwan culture abroad. If the cul- idea of Community Development in the nation.

156
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

Under the impetuses of globalization and techno- model of large-scale manufacturing has gradu-
logical advancement, a new economical model that ally lost its competitive advantage. In addition
centers on Creativeness has been formed, which to high-tech development, Taiwan must build a
we call the K-Economy (Knowledge-based more flexible productive organization system to
Economy), and the idea of Think Globally, Act increase the competitiveness of the knowledge-
Locally has become the mainstream concept in based economy. In fact, the value-added model
the twenty-first century. To get closer to the source of the knowledge-based economy should be the
of this vibe, the government officially listed the core of innovative design in production, espe-
Culture Software the Cultural and Creative cially artistic and esthetic creation, which has
Industry into the Challenge 2008 National been ignored during the past. Most industry that
Development Plan in 2002. are labor-intensive and science and technology
The rehabilitation and reuse of culture assets intensive, are very easily imitated, and unable to
were exerted a tremendous influence by the gov- maintain their competitive advantage for long.
ernment. Since Executive Yuan started to promote Enduring competitive advantage can only be
the policy of Challenging 2008: The Focal Point created within an economic system that is founded
of National Development in 2002, the Culture upon a rich culture. But such a system requires
and Industry has been combined in the think- innovativeness as its core skill in order to lend
ing of Culture Creative Industries as its target. momentum and value to economic development.
However, the government will have its difficulties There are numerous examples of social, cultural
while promoting some aspirations, and it will need and economic innovations (Drucker, 1994). In-
an intermediary to go for management and carry novation is a proposed theory or design concept
on planning, then Non-profit Organizations can that synthesises extant knowledge and techniques
become the media of combining the government to provide a theoretical basis for a new concept
and Culture Creative Industries. Cultural Creative (Sundbo, 1998; Bright, 1969). Hence, innovation
Industries are plural, complicated commercial has many facets and is multidimensional. This is
specialties. As Culture Creative Industries are why the cultural innovation industry has become
operated by Nonprofit Organizations, will they an important indicator of national competitive-
stand for the mission, or follow the market? How ness all over the world. Latest predictions (from
can they pursue the wave on the market, but dont KPMG) are that the creative industry could grow
betray their soul, then strengthen sustainable by 46% in employment and 136% in output in
development. the two decades to 2015 (DCMS, 2006). Taiwan
needs a spectrum of international experiences for
Motivations better understanding of culture projects to develop
cultural innovation industry.
With the Development Plan for the Cultural In the 21st century, the era of globalization,
and Creative Industry, products with local cul- culture innovation industry has become the key
tural characteristics are expected to be developed of enhancing a countrys competitiveness. The
through a combination of art creativeness and cultural innovation strategy featured by both cul-
commercial operations, which will not only ture and economy is considered the core strategy
deepen peoples cultural identities toward their for each countrys economic development. For
own cultures but also increase the added value this reason, the culture innovation industry has
for these industry. become an important tendency for international
Taiwans economy has entered a new phase development. In cooperation with the central gov-
of industrialization, and the existing production ernments mechanism of cultural policy, Taiwan

157
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

Government has encouraged the development of 2. Which sources of innovation is the most
local cultural innovation industry, thus boosting its important for cultural innovation industry
development and reactivating the overall economy. to cultivate innovation capacity?
Based upon the features of the culture innovation 3. Which enablers of internal and external in-
industrys development in Taiwan and from the novation are necessary to enhance innovation
viewpoint of non-profit organizations in respect in the cultural innovation industry?
of culture innovation industrys development, the 4. How to integrate sources of innovation and
study discusses the core strategy and function the internal and external innovation to add
model that the local culture industries apply and value and raise competitiveness for cultural
the effectiveness and influence that emerge under innovation industry?
the coordination mechanism with both the public 5. How to identify key successful factors (KSF)
and private institutions. The chosen local culture of cultural innovation for Taiwanese cultural
industries include Liuli Gongfang and LIULI innovation industry?
CHINA Museum.
The function of museums has extended from Research Objectives
traditional exhibitions, research, collection, and
education to more innovative communications, According to backgrounds, motivations and
information, empiricism, leisure and more. Mu- problems of this paper, the study proposed the
seums are like media, history, church, and school objectives of this study as follows:
combined. They are the sources for the innovative
industry or representative offices for culture and 1. Provide an overview of the industrys current
art. More and more scholars and experts take state of development for cultural innovation
museums as a goldmine for culture or industries. industry.
Especially in the non-profit business, museums 2. Provide a complete and practical integrated
have more energy to express and are more inspir- innovation model for cultural innovation
ing to new thoughts in the new world. industry to be an easy-to-follow framework
Based on the above-mentioned reasons, re- when they implement innovation initiatives,
search on the cultural industry has been embarked and to link corporate innovation capacity
upon in the international community, whose foun- and then to support continue innovation for
dation is knowledge and economy. This subject adding value and raising competitiveness.
is being studied and carried to redefine cultural 3. Present a case study of successful enter-
work with new thoughts and contribute to the prises in the cultural innovation industry so
prosperity of the cultural industry and innovative that their experience in terms of products
ideas of similar types. and commercialization strategies can be of
benefit to other industry, in the hope that
Research Problems this will lead to the creation of new business
opportunities and new jobs.
According to abovementioned, the study assumed 4. Provide some policy recommendations to
there are five research problems as follows: government for the promotion of the cultural
innovation industry are put forward.
1. What is the industrys current state of de- 5. Study how Taiwanese cultural innovation
velopment for cultural innovation industry. industry to identifying KSF of cultural in-
novation and how they to integrate source of
innovation, internal and external innovation

158
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

to create industrial survival space in competi- 2000 the cultural and creative industry accounted
tive markets in knowledge economy. for around 7.9% of Britains GDP. With total
exports of 8.7 billion, the industry held a 3.3%
share of Britains total exports, while accounting
BACKGROUND for 4.1% of the employed population. In Hong
(LITERATURE REVIEW) Kong, the cultural and creative industry accounts
for 2.0% of GDP, and 3.7% of the employed
The Current State of Taiwans population; in Australia it accounts for 3.3% of
Cultural and Creative Industry GDP; in New Zealand the industry accounts for
around 3.1% of GDP and 3.6% of the employed
What is meant by the term cultural and creative population. In Taiwan, the cultural and creative
industry? Put simply, it is those industry that have industry has total production value of NT$302.62
their origins in innovation or cultural accretion, billion; it accounts for approximately 2.9% of
and which have the potential to create wealth or GDP, and employs about 325,500 people, 3.47%
create jobs through the production and utiliza- of the employed population (Moeasmea, 2004).
tion of intellectual property, and which can help It can thus be seen that the share of GDP held
to enhance the living environment for society as by the cultural and creative industry in Taiwan
a whole. Just how large is Taiwans cultural and is slightly higher than in Hong Kong, but lower
creative industry? According to data produced than in Australia and New Zealand, and much
by the Ministry of Finance Tax Data Center, in lower than in the UK. Clearly, Taiwan still has
2002 the total operating revenue of the cultural considerable room for growth in the development
and creative industry came to approximately of thecultural and creative industry. Regarding
NT$523.24 billion. If one subtracts the value of the percentage of the total employed population
intermediates, overall production value came to who are working in the cultural and creative
around NT$302.62 billion; the industry included industry, the figure for Taiwan is slightly lower
just over 47,800 enterprises, employing more than those for Hong Kong, Australia and New
than 325,500 people. On-site interviews would be Zealand, and much ower than the figure for the
needed to determine the production value of the UK. In Britain, the cultural and creative industry
designer brand and fashion industry; the innovative has created around 1.32 million jobs, a testimony
lifestyle industry is a compound industry which to the important role that this industry can play in
extends over the food, clothing, accommodation, stimulating the appearance of new employment
travel, sport and entertainment sectors. By assum- opportunities and in reducing income disparities
ing that 5% of the total production value of these within society (Moeasmea, 2004).
sectors displays a high level of creativity, a rough
estimate of production value can be made. The Definition and Scope of the
four industry with the highest production value Cultural Innovation (Cultural
are the construction design industry, broadcast- and Creative) Industry
ing industry, publishing industry and handicrafts
industry. The industry employing the largest Definition of the Cultural Innovation
number of people are the design industry, digital (Cultural and Creative) Industry
leisure industry, advertising industry and publish-
ing industry (Moeasmea, 2004). In March and July 2003, resolutions passed in
The UK has the most highly developed cultural the 2nd and 3rd Cultural and Creative Industry
and creative industry of any country in the world. In Promotion Team meetings, formed jointly by

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

the Ministry of Economic Affairs, Ministry of & Creative Industry includes original creativity,
Education, Government Information Office, and skill and ability, or any formulation of intelligent
the Council for Cultural Affairs, established the properties and the development of the potential
definition and scope of the Cultural and Creative wealth (HKDTC, 2002). In comparison with the
Industry in Taiwan. The following characteristics conventional industry, which pay more atten-
are considered when identifications are to be made: tion to their economic values, the accumulation
and application of cultural and creative type of
1. Whether there are more employments or industry have their special meanings and values.
participants UK, Denmark, Singapore, Hong Kong, Canada
2. Whether the production value is bigger or and New Zealand all have significantly developed
the associated effects are higher Cultural & Creative Industry. The total output
3. Whether there is a large growth potential production assets is about 3.04 trillion dollars and
4. Whether the originality or the Creativeness is expected to reach 6.1 trillion dollars by the year
is higher of 2020 (DSDTI, 2005).
5. Whether there will be a high added value According to UNESCOs definition, Cultural
Industry are those based on tangible or intangible
Cultural innovation (Cultural and creative) cultures going through conceptual formulation,
industry are defined as Industry originated from production and manufacturing processes and
creativeness and accumulation of culture and at the end present themselves as commercial
formed and utilized through intellectual properties products or services in the market. They usually
that have the potential to create wealth and em- have patent or copy right protections (UNESCO,
ployment opportunities and prospects to promote 2000). In Taiwan, Cultural & Creative Industry
upgrading of the overall living environment. This products are considered to be activities origi-
definition is coined with references to Britain and nating from creativity, culture, art and design,
UNs definitions of cultural and creative indus- going through intelligent property operations
try. Currently, the British governments creative and having the potential to generate fortune and
industry policies are the most comprehensive in employment opportunities (Cultural and Creative
internationally. They is defined as creative in- Industry Promotion Organization 2005a). They
dustry originated from personal creativity, skills, have multiple meanings and functions when
and talents that have potentials to create wealth examined from their cultural contents, creativity,
and employment opportunities after produced and economics, jobs and future potential viewpoints.
developed through intellectual property rights. According to UNESCOs definition, there are
And, the UNESCO defines them as industry printing, publishing, carving, design, architecture,
combined with innovation, production, and com- visual and performing arts, music instrumentation,
mercial contents and at the same time the nature movie production, cultural recreations, etc. in the
of the contents have the qualities as intangible CCI and these all have cultural and economical
assets and cultural concepts that are protected meanings. CCI definitions from various countries
under intellectual property rights and presented are mostly similar, while Taiwans definition of
in forms of products or services. Cultural & Creative Industry includes visual arts,
There are diverse names in the different music and performing arts, cultural exhibition and
countries and areas, and it is called as Cultural performance facilities, industrial craft, motion
and Creative Industry (CCI) in the UNESCO. pictures, radio broadcasting and TV, publishing,
Taiwan chose to merge them into the Cultural & advertising, design, brand and fashion design, ar-
Creative Industry (CCI). The definition of Cultural chitectural design, creative living, digital Gaming

160
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

& entertainment, etc. In general, these categories rial, comprising both traditional and modern-day
are similar to those of the UK, New Zealand and artistic work in such fields as literature, music,
Hong Kong, except that Cultural Exhibition and architecture, drama, dance, photography and cin-
Creative Living are uniquely included in Taiwans ematography. Also included within the scope of
definition of Cultural & Creative Industry (see cultural enterprises, and providing new directions
Table 1). of development for traditional cultural enterprises,
are such economic activities as publishing, art
Scope of the Cultural Innovation galleries, international art trade, radio and televi-
(Cultural and Creative) Industry sion broadcasting, movie theatres, clothes design,
furniture design, and industrial design.
According to Luna Liu (2003), The concept in- The scope of the Cultural and Creative Industry
novative cultural enterprises basically involves in Taiwan covers a range of thirteen categories
two aspects: artistic creativity and economic including visual arts, music and performing
activity. Broadly speaking, cultural enterprises arts, crafts, cultural display facilities, the design
have existed in human society since time immemo- industry, publishing, TV and broadcast, movie,

Table 1. Cultural and creative industry definitions by major developed countries

Taiwan UK Australia New Zealand Korea Hong Kong


Arts and Antiques
1 Visual Arts Market Visual Arts Visual Arts Fine Arts Arts & Antiques
Music and Per- Music and Perform- Music Composition Music and Perform- Music and Perform- Music and Per-
2 forming Arts ing Arts / Performing Arts ing Arts ing Arts forming Arts
Cultural Exhibi-
tion and Perfor-
3 mance Facilities
4 Industrial Craft Crafts Industrial Design Crafts Crafts
Film and Video Pro-
5 Motion Pictures Film and Video Film and Video duction Film and Video Film and Comics
Radio Broadcast-
6 ing & TV TV & Radio TV & Radio TV & Radio Broadcasting TV
Writing / Publish- Publishing and
7 Publishing Publishing ing and Print Media Publishing Printing Publishing
8 Advertising Advertising Advertising Advertising Advertising Advertising
9 Design Design Design Design Design Design
Brand and Fash-
10 ion Design Designer Fashion Designer Fashion Designer Fashion
Architectural De-
11 sign Architecture Architecture Architecture Architecture
12 Creative Living
Interactive Leisure Entertainment Soft- Game Software /
Digital Gaming Software / Software ware - Cartoon and Software and Computer Digital Contents / Software and IT
13 & Entertainment & Computer Services Computer Games Services Games Services
Graphic Design and
14 Others Marketing Character
Sources: British DCMS (2005), Australia NOIE(2005)/DSDTI(2005), New Zealand NZIER(2002), Korea KOCCA(2005), Hong Kong
HKTDC(2002), Council for Economic Planning and Development, Executive Yuan, Taiwan, etc.

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

advertising, digital recreation and entertainment, places. Based on these ideas, museums must be
the designer fashion industry, the architectural equipped with definite purposes, either research,
design industry, and the lifestyle industry. The educational, recreational, or entertaining purposes.
Council for Cultural Affairs manages the first four Also, museums must have buildings, collections,
categories. For administrative bodies assigned to researchers, and educators, as well as security
the rest of the categories see Table 2. guards, and must possess long-term objectives
The content of a cultural industry must include and missions. The reason that museums have
the following ten items: Artistic artifacts; a place become important places to pursue knowledge
for learning knowledge; creativity; the production or even for people to pursue high quality lives is
of a thing within a thing; repetitive application because they are non-profit and public institutions.
and social value; community service and educa- Public or private museums are established with
tion; derivative aesthetics not fully stake-holding; certain requirements.
artifacts that can be combined, publicly exhibited,
or privately owned for non-profit business pur- Backgrounder of Cultural Innovation
pose; center for tourism and media between in- (Cultural & Creative) Industry
dividuals and communities and for national de-
velopment; symbols of the times and Creative Industries: The Promising
characteristics of environments as well as civic FutureAn Inevitable Trend
consciousness; and public property, including
historical, social, and religious beliefs, media for According to an article Cultural & Creative Indus-
realistic views, totems symbolizing a nations try Backgrounder on CreativeTaiwan.net, noted
advancement, or social values. futurist Alvin Toffler once predicted that creative
The above-mentioned are some important and cultural industries would become the dominant
elements, with more to be covered because the sector in the world economy, that whoever takes
cultural industry is extensive. Cultural institu- the high ground of creativity can take the world,
tions such as museums, memorials, theaters and as creativity will be the force controlling the 21st
galleries as well as people-oriented services, such century economic lifeline. These chimneyless
as education, religion, and customs, and positions industries that turn experience into pleasurable
such as handicraft learners, planners, researchers memories, and creativity into fortune as well as
and implementers are all included in the scope of career opportunities are indeed the hottest and most
the cultural industry. environment-conscious sector which thrive the
knowledge-based economy!Creative economy
Definition of Museum has been taken as one of the major projects each
country works on to strengthen its competitive-
According to Huang Kuang-Nan (2008), A lot ness, which indicates that Cultural innovation
of the scope of the cultural industry involves the (Cultural & Creative) Industries will become
definition of museums because establishment the trend in the future. These industries without
of museums and the exercise of their functions smokestacks, or knowledge-based industries,
are the key presentations of culture. As a result, turn experiences into great memories, and ideas
museums can carry the functions of schools, into fortune and job opportunities.
churches, divine arenas, studios, research labs, According to Copyright Industry in the
temples, storage rooms, leisure places, tourist sites U.S. Economy: The 2006 Report, published by
or sightseeing spots. They are organizational, non- the International Intellectual Property Alliance
profit, and permanent institutions. They are public in January 2007, the value of U.S.s copyright

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

Table 2. Scope of the cultural and creative industry in Taiwan and the administrative agencies

No. Name of Industry Admin. Summary of Industry


1 Visual arts C. for Cultural Businesses involving in painting, sculpture, and other art creation, auction and retail of arts,
Affairs gallery operations, art brokerage, art valuation, and art restoration.
2 Music and perform- C. for Cultural Businesses operating drama (original scripts, acting training, and performance), musical plays
ing arts Affairs and operas) original music, music performance training, and performance), performance
facility management (theater, music hall, and open-air stages), performing art brokerage,
performing art hardware services (prop production/management, stage construction, lighting
and audio equipments), and art festival operations.
3 Cultural display fa- C. for Cultural Businesses involving in operations of fine art museums, museums, artists villages.
cilities Affairs
4 Crafts C. for Cultural Businesses involving in craft creation, craft design, craft retail, and craft valuations.
Affairs
5 Movie Gov. Info Of- Businesses involving in movie production, publishing and showing, and other peripheral
fice services.
6 TV and broadcast Gov. Info Of- Businesses operating wireless TV, cable TV, satellite broadcasting, TV station management,
fice and program production and supply.
7 Publishing Gov. Info Of- Businesses involving in publishing of news, magazines (periodicals), books, records, cas-
fice settes, and computer software. However, those involving in movie publishing should be
categorized into category 8520 (movie publishing industry) and those operating TV program
broadcasting and publishing of recorded programs should be categorized into category 8630
(Broadcast Program Suppliers).
8 Advertising M. of Eco- Businesses involving in operations of various media including design, graphic production,
nomic Affairs photographing, model making, production, and installation. Independent advertisement
distribution and solicitation are also included in this category.
9 Design industry M. of Eco- Businesses involving in product design/planning, product exterior design, mechanism design,
nomic Affairs prototype and model production, fashion design, patent logo design, brand visual design,
graphic design, packaging design, webpage/multimedia design, and design consultancy.
10 Designer fashion M. of Eco- Businesses conducting fashion design, consultancy, manufacturing, and distribution related
nomic Affairs matters for designer brands.
11 Architectural design M. of Interiors Businesses involving in architectural design, interior/space design, exhibition design, com-
mercial space design, signboard design, garden design, landscape design, and scenery design.
12 Lifestyle industry M. of Eco- All businesses match the following definitions:
nomic Affairs 1. Businesses originated from creativity or cultural accumulation and operated with
innovative ways to provide products or services for food, clothing, accommodation,
transportation, education, and recreation.
2. Businesses utilizing combo operations that are creative and regenerative and provides
learning experience activities.
13 Digital recreation and M. of Eco- Businesses involving in operations of digital recreation/entertainment facilities, environ-
entertainment nomic Affairs mental/ecological recreation services, and social/life recreation services.
1. Digital recreation/entertainment facilities 3DVR facilities, sports machines, combat
competition machines, guiding systems, electronic vending machines, motion movie
facilities.
2. Environmental/ecological recreation services digital/multimedia theme parks, mo-
tion picture theme parks, museum theme parks.
3. Social/life recreation services commercial digital entertainment centers, community
digital entertainment centers, Internet cafes, family entertainment/learning centers, and
after-school classes/schools
Source: Cultural and Creative Industry Promotion Team, Ministry of Economic Affairs, February 2004. Taiwan Cultural and Creative
Industry Guide to the Development Plan

industry in 2005 has increased to USD1 trillion of the US GDP, contributing as much as 23.78%
388.1 billion. This value is equivalent of 11.12% of overall economic growth. Cultural industry

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

outperformed traditional industry to create more able; hence no adjustment is made to the industry
than 11 million job opportunities for the country, categories to the percentage of production value
as Hollywood films, television programs produced in GDP respectively. The character/icon industry
by the three major networks, and popular music value is excluded from the figure of South Korea
under the Time Warner group spread throughout (TAITRA, 2008).
the world to lead global fashion and style trends Table 4 shows the advantages of Taiwan in
with an influence comparable to Wall Streets cultural innovation industry
financial power (TAITRA, 2008).
According to Table 3, data on Taiwan is About TAITRA
estimated by the Chung-Hua Institution for Eco- Founded in 1970 to help promote foreign trade,
nomic Research, where the production value and the Taiwan External Trade Development Council
workforce size are calculated using figures from (TAITRA) is the foremost non-profit trade pro-
only 12 and 8 out of the 13 creative and cultural motion organization in Taiwan. Jointly sponsored
industry, respectively; as a result, the percentage of by the government, industry associations, and
production value in GDP and workforce percent- several commercial organizations, TAITRA as-
age are likely to have been underestimated. Some sists Taiwan businesses and manufacturers with
fine-tuning was done to ensure a better match reinforcing their international competitiveness and
between the industry categories of different coun- in coping with the challenges they face in foreign
tries: Taiwans production value includes figures markets (TAITRA, 2008).
from the online game, computer animation and
audio-visual application industry. The software Government to Continue
and computer service industry is excluded from the Supporting Cultural Industry
figures for the U.K., Australia and New Zealand.
The U.S. figure incorporated the core copyright According to Ma, the cultural innovation sector
industry only. With respect to Hong Kong, the is one of the nations most competitive industry,
workforce figure excludes those in the software with great potential for future development in
and computer service industry. The production the global arena. (Central News Agency, 2009)
value of individual industry in the creative and
cultural sector in Hong Kong and China is unavail-

Table 3. Index of the development of cultural & creative industry in leading countries

Country Production Value in GDP (%) Workforce Percentage (%)


Before Adjustment After Adjustment Before Adjustment After Adjustment
Taiwan (2006) 2.59 3.16 2.06 2.06
U.S. (2005) 11.12 6.56 8.49 4.03
U.K. (2005) 8.10 4.53 2.54 1.27
South Korea (2004) 6.37 5.83 2.03 2.00
Australia (2000) 3.30 2.93 3.80 3.80
New Zealand (2001) 3.10 1.69 3.60 2.34
Hong Kong (2005) 4.00 4.00 4.89 3.9
China (2006) 2.45 2.45 1.48 1.48
Source: Office for the Promotion of Cultural and Creative Industries, Ministry of Economic Affairs

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

Cabinet Approves Plan to Boost floor, and he instructed the relevant authorities
Cultural and Creative Industry to solicit suggestions and opinions from industry
representatives on the development of the sector.
The government also plans to achieve an industry He said one of the major goals is to consolidate
cluster effect through the establishment of cre- and integrate the different aspects of Taiwanese
ative culture parks in Taipei, Taichung, Chiayi, culture, which he described as a rich and special
Tainan and Hualien. It also aims to make the blend that has evolved out of various cultural influ-
National Palace Museum a promotion center for ences over the centuries (Department of Economic
the countrys cultural and creative industry. The Development Taipei City Government, 2008).
plan was approved at a weekly Cabinet meeting Under the plan, the different influences, such
chaired by Premier Liu Chao-shiuan. Liu said he as the aboriginal culture, the immigrant cultures
hopes the proposal will soon clear the legislative of different periods in Taiwans history and the

Table 4. The advantages of Taiwan in cultural innovation industry

Advantages Contents
Taiwan: the worlds no. 2 in- According to the Switzerland-based Institute for Management Developments World Competitiveness
novative ability & no.1 patent Report 2006, Taiwans competitive strength comes from its outstanding Hi-Tech infrastructure, business
productivity management, and labor force. The astonishing number of patented technologies developed by Hi-Tech
sector makes Taiwan a world leader in patent productivity. Taiwans economy is made up mainly of small
and medium-sized enterprises, which are known for their mobility and creativity. This has made Taiwans
companies relatively strong in the ability to adjust themselves to the needs of the market.
Taiwan: springboard to Chi- Taiwans design industry is ahead of Hong Kong and China, acquiring a total of 133 awards in the
nese-speaking markets worlds four major design competitions: iF, Reddot, G-Mark and IDEA in 2007. Taiwan shares many
similar characteristics in culture and language with other Chinese-speaking areas, giving it a competitive
advantage in these markets. Its background puts it in a perfect position to tap into Chinas rising market.
It provides freedom for capital flow and information exchanges, allowing it to link up with world trends,
pushing Taiwans cultural and creative industry to the top.
Outstanding human resources Abundant talents: Taiwanese workers are famous for being industrious, pragmatic, careful, and pas-
and innovative marketing sionate to their work, sticking to professional ethics, and enjoying innovation. These characteristics are
the niche for Taiwan to develop cultural and creative industry. Cultural and creative industry in Taiwan
are mainly small and medium sized solely-owned or joint-venture enterprises, which have the strengths
of flexible creativity, fast mobility, and efficient executive ability. They show their creativity in continu-
ously developing new products, their mobility in rapidly responding to market demands, and executive
ability in putting ideas into actions and products as soon as possible. These are the advantages for Tai-
wans cultural and creative industry to actively develop in both the country and the rest of the world.
Cultural innovation requires creative people, and so Taipei City has revamped its school curriculum to
place a higher emphasis on creative thinking. Todays graduates are ideally-suited to work in innovative
industry; Taipeis quality of human resources is unmatched. The city has also assembled advisory teams
to gradually steer creative teams toward productization and branding, and established incubation and sales
platforms to assist start-ups. Moreover, the city also helps firms boost the visibility of innovative products.
A citys attitude toward its culture industry reflects that citys vitality and thinking. Taipei continually
strives to open new doors and create new opportunities by learning from it sown past. Thus the city gene
rates the maximum energy possible for local culture.
Cultural Innovation and Taiwan is the worlds center of Chinese culture, and as such, it boasts copious cultural resources. The
High value National Palace Museum, located in Taipei City, has the most significant collection of Chinese cultural
artifacts in the world. And situated downtown, Huashan Cultural Park has been set aside exclusively for
the development of art and culture. These irreplaceable facilities and prevailing conditions serve as the
ideal platform for developing the cultural innovation industry in Taipei City. To focus its energies on that
development, the Taipei City Government established the Cultural Industry Promotional Committee. In
2006, Taipei Citys cultural innovation industry boasted productivity in excess of NT$300 billion, illustrat-
ing both its impressive production thus far and its potential for further growth.
Source: TAITRA (2008) and Central News Agency (2009)

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

traditional Chinese culture, will be highlighted, cent. Under the plan, the different influences, such
the premier said. The cultural innovation indus- as the aboriginal culture, the immigrant cultures
try, one of six flagship industry selected by the of different periods in Taiwans history and the
government for intensive development, is closely traditional Chinese culture, will be highlighted,
related to the information technology industry, as the premier said. The cultural innovation industry
digitization is an inevitable trend, Liu said. The is closely related to the information technology
other five industry selected for major development industry, as digitization is an inevitable trend,
are tourism and leisure, medical care, biotechnol- Liu said. The six flagship industry selected by
ogy, green energy, and refined agriculture (Central the government for intensive development will
News Agency, 2009). cover television contents, films, pop music, digital
contents, designing, and handicraft and industrial
Government Promotes artworks (The China Post news staff, 2009).
Cultural Innovation Plan In addition, the China Post news staff (2009)
indicated, cultural innovation is the sixth and last
According to the China Post news staff (2009), to emerging industry spearheaded by the adminis-
integrate resources quickly and efficiently in order tration led by President Ma Ying-jeou for major
to promote the cultural and creative industry, the development. Premier Liu said one of the major
government has a total of 13 projects to promote goals is to consolidate and integrate the different
the cultural and creative industry five by the aspects of Taiwanese culture, which he described
Ministry of Economic Affairs (MOEA), four by as a rich and special blend that has evolved out
the CCA, three by the Government Information of various cultural influences over the centuries.
Office, and one by the Ministry of the Interior. The The government also plans to achieve an industry
Executive Yuan (Cabinet) approved a project May cluster effect through the establishment of creative
14 for accelerated development of the cultural and culture parks in Taipei, Taichung, Chiayi, Tainan
creative industry with an aim to make Taiwan a and Hualien. It also aims to make the National
regional hub and generate NT$1 trillion (US$30.3 Palace Museum a promotion center for the coun-
billion) in production value by 2012. The plan, trys cultural and creative industry. In addition
drafted mainly by the Council for Cultural Affairs to offering investment and tax incentives to at-
(CCA), was approved at a weekly Cabinet meet- tract more capital to the sector, the government
ing chaired by Premier Liu Chao-shiuan. Liu said will also establish a cultural and creative affairs
the government would invest NT$27.5 billion in foundation to provide assistance to companies.
the sector over a four-year period in television, The huge Mainland Chinese market will be cul-
film, pop music, digital content and handicraft tivated through closer cooperation by companies
industry. The National Development Fund will of the two sides to beef up competitive edge by
provide NT$20 billion to establish a venture combining their resources and sharing the com-
capital fund to help nurture more companies in mon cultural background, Liu said. The premier
the field. According to the Council for Cultural instructed the relevant authorities to solicit sugges-
Affairs (CCA), the initiator and chief organizer of tions and opinions from industry representatives on
the plan. The project is intended to generate more the development of the sector. He also expressed
than 20 percent growth in media production value, the hope that lawmakers are able to ratify the draft
create 200,000 jobs, triple overseas sales of media cultural creativity law governing the development
products and stimulate the local consumption rate of cultural and creative affairs proposed by the
for cultural and creative products and services for Cabinet during the current legislative session (The
an increase to 15 percent from the current 13 per- China Post news staff, 2009).

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

In September 2003, the Council for Cultural & Creative Industry Promotion Organization,
Affairs Creative Industry Project Center was 2005b, see Figure 1).
officially set up, which formed a single-window The Council for Economic Planning and
administrative service counter and an internet Development, Executive Yuan, Taiwan, ROC
platform to provide an information channel for also passed the Service Industry Development
art workers or businesses interested in joining the Guidelines and Action Plan in late 2004. This
Cultural and Creative Industry. Up to the end of plan also mentioned the following goals to be
December 2003, the Center has provided consul- achieved by 2008: (1) Increase CCIs production
tation services to fifty-six cases. The Council for assets by 150%, (2) Increase CCIs employment by
Cultural Affairs Creative Industry Project Center is 150%, (3) Increase the cultural related expenses
composed of five teams set up for different types per family from 12.9% to 15%, (4) Increase col-
of services (Table 5): lege degreed employment for CCI from 30% to
Taiwans CCI development plan mentioned 50%, (5) Increase international awards on CCI
six indices to measure the effects on the promotion products by 300% and (6) Increase intelligent
of the Cultural & Creative Industry: (1) Increase property registration by 10% (CEPD, 2004a).
the total CCIs net assets by 200%, (2) Increase Both plans mentioned the same goals, although
the ratio of CCI employees with college degrees the percentages of increases differed from one
to 50%, (3) Increase CCI employment opportuni- another. Among the six indices, college or above
ties by 200%, (4) Increase International competi- college education resource is the most important
tion awards for CCI products by 200%, (5) Increase key in building up the net asset and its competi-
Culture expenses per family to 15% of total fam- tive strength for the Cultural & Creative Industry
ily expense and (6) Increase CCI related intelligent (Cultural & Creative Industry Promotion Orga-
property registrations by 10% annually (Cultural nization, 2005b).

Table 5. Five teams set up for different types of services of the Council for Cultural Affairs Creative
Industry Project Center

Team Categories Services


1. Legal Research and Services 1. Research on relevant legal systems.
2. Provide art workers legal consultations.
3. Provide legal knowledge forums and courses.
2. Management Consultation 1. Assist in upgrading management abilities.
2. Provide financial, taxation, and management consultations.
Promote Cultural and Creative Industry Incubation programs.
3. Administer tax discounts and financing services.
4. Promote incubator plans for the development of the Cultural and Creative Industries.
3. Promotion and Enducation 1. Provide human resource development services, promote policies relevant to the plan, and pro-
mote the cultural and creative industries.
2. Set up entrepreneur club to match interested investors.
3. Conduct various forums and policy conferences.
4. Industrial Marketing 1. Provide information on industrial development, market intelligence and government purchasing.
2. Assist in setting up of distribution channels and expansions into the international market.
3. Set and maintain the project center website
5. Administrative coordination Provide a single-window service counter to coordinate internally of the project center as well as
relevant administrative affairs.
Source: http://english.cca.gov.tw/public/Attachment/411317374171.pdf

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

Figure 1. Indices to measure the Growth Effects on Cultural & Creative Industry. Source: Cultural and
Creative Industry Promotion Organization (2005b)

EU Views Cultural Enterprises as Study Notes Importance on


Playing Key Role in Balancing Non-Profit Creative Industry
Europes Social Development
John Stark (2007) indicated Non-Profit Arts Yields
In 1996 members of the European Commission Annual $77.6 Million. Americans for the Arts an-
signed a policy communiqu regarding cultural nounced at its National Conference in Las Vegas
cooperation, regional development and promo- last week that the non-profit arts and cultures indus-
tion of employment opportunities. In the view of try creates $166 billion in economic activity and
troubles stemming from structural transformations 5.7 million jobs annually. In Santa Barbara alone
in traditional industry and employment, the charac- the non-profit arts and culture industry creates
teristic types of employment to which cultural en- $77.6 million in local spending, $41.4 million of
terprises and regional ecological / ecology-friendly those dollars coming from event-related spending
development have given rise have, in Europes by the audiences and the remaining $36.2 million
major countries, become important as avenues for from event organizers. In addition, the non-profit
new business and job opportunities. Through an arts and culture industry creates generates 2,288
synergistic mix of traditional cultural and innova- fulltime jobs in the Santa Barbara area which adds
tive elements, the joint efforts of Europes public up to $41.57 million in income and 7.62 million
and private sectors most notably including the in local and State tax revenue. After attending
EU governments allocation of resources have the Las Vegas conference, County Arts Commis-
resulted in public policies relating to cultural and sion Executive Director Ginny Brush noted the
innovation enterprises becoming more long-term importance of this sector of Santa Barbara life.
and integrated in nature (European Commission, These figures will do much to shift the perception
1996). The content of such policies may indeed of the arts viewed as frills to acknowledge the
serve as important references for Taiwans policy vital economic role of the creative class plays in
making regarding the development of cultural and communities, Brush said in a prepared statement.
innovative enterprises. (Luna Liu, 2003) Nationwide the non-profit arts and culture industry

168
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

creates $104.2 billion in residential income which development of our cultural enterprises and small-
leads to $7.9 billion in local tax revenue, $9.1 town regional economies. Moreover, inasmuch
billion in State tax revenue and $12.6 billion in as cultural enterprises are typically dependent
Federal tax revenue. The figures are the results upon elements of local culture and local talent,
of the most in-depth study of the arts and culture because they are oriented toward both domestic
industry and its economic impact of the United and foreign consumption, and because they involve
States ever conducted. The study was conducted effective, long-term cooperation among local
in 156 communities that reflect all 50 states and resource providers, they are broadly beneficial
the District of Columbia in areas both urban and to the enhancement of regional development and
rural. Researchers gathered comprehensive atten- the quality of regional tourism. (Luna Liu, 2003)
dance and expenditure data from 6,080 non-profit
art and culture organizations. Integrated Thinking and Resources
on Innovative Cultural Enterprises
Keys to Multi-Culturalism and a
Sustainable Taiwan Economy According to Luna Liu (2003), While culture is
founded most fundamentally on creative activity,
Luna Liu (2003) indicated, The impact of eco- cultural enterprises must take into consideration
nomic globalization in particular has provided us practical, economic factors in conjunction with
with the opportunity to understand the role which artistic creativity. It is only through doing so
innovative cultural enterprises can play, as well as that such cultural enterprises as product design,
the importance of redefining and further develop- radio and television broadcasting, and the music
ing our native culture. Furthermore, she pointed recording industry can have sustainable, stable
out In consideration of practical realities, cultural operations. Development of public support for the
innovation can directly and indirectly create many fine arts and design arts is regarded as an indis-
new employment opportunities: It can encour- pensable requisite for the cultivation of cultural
age the creation of new small and middle-size enterprises. She further indicated, Given that
enterprises and stimulate technical innovation, in cultural enterprises do indeed present opportuni-
addition to stimulating the development of related, ties for economic development, there is a great
peripheral industry. Thereby, cultural innovation need for new funding as well as for professional
can significantly stabilize domestic employment training. The study suggests Taiwans official
opportunities. In this connection, it is worth noting policy directions include: the promotion of so-
that new, integrated ways of thinking about policies cial integration, regional development, cultural
relating to ecological protection and economic development and educational development; the
activity particularly regarding the redefinition establishment of a center for developing cultural
of regional and environmental interests and the enterprises; investment of resources in reinforc-
renovation of smaller municipalities serve as ing the spirit of entrepreneurship and innovative
indices for the development of innovative cultural concepts; and nurturing the development of new
enterprises. Under the mounting competitive types of cultural-industry techniques. Such goals
pressures accompanying globalization, the rich first require adequate funding arrangements.
diversity of cultural elements with which Taiwan Public funding, together with coordination of
is blessed can be incorporated into marketing and presently available private financial services and
strategy-making mechanisms, thereby injecting cultural demands, can serve as the initial step
a new vitality into our society and economic in developing cultural industry. Beyond this, it
system, and creating new opportunities for the is also necessary to encourage private funding

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

of cultural activities, as for example, through from a small-scale workshop into a fully-fledged
company sponsorships. Further, we should erect company, first of all they need to start thinking
a framework for cooperation between business, about costs and profits. If the gross profit margin
government and researchers which can provide is less than 50%, then the company may find that it
guidance for policy-making, and help all sectors is unable to bear the cost of R&D and distribution
of Taiwan society to come to a new realization of channel development. One also needs to consider
our present strengths and weaknesses so that we whether the companys products are sufficiently
may make solid progress in cultural development. innovative and distinctive for brand development
In addition, she indicated, A penetrating study to be successful, or whether the company possesses
of the effectiveness of promoting innovative cul- some particular edge in terms of technology, or
tural enterprises must take into consideration not has a niche market that it can develop. The trans-
only the matters of carrying forward the structural formation from workshop into company is bound
transformation of our countrys economic activity to involve major upheavals in terms of personnel
and the diversification of employment opportu- and management, and if external funding sources
nities and new businesses; further, it must give are tapped then the company will find itself under
thought to transformation of the limitations of the heavy pressure with respect to profitability and
one-sided process of government-initiated public market development. If a company feels that es-
policy-making. This entails the integration of ef- tablishing its own brand right away is too risky,
forts by the various government agencies and the then an alternative strategy would be that adopted
close-knit coordination of the public and private by Seagull undertaking ODM/OEM work for
sectors. Because the promoting the development leading vendors, or licensing ones products to
of innovative cultural enterprises presents a great other companies while insisting that they continue
number of opportunities as well as challenges, in to bear your trademark. In this way, companies
addition to depending upon the vitality and inno- can maintain a steady flow of profits while slowly
vative input of the private sector, its promotion is building up brand recognition and waiting until the
further in need of related government agencies time is ripe to move into branded manufacturing.
pooling of resources and financial investment
(Luna Liu, 2003). The Industrialization of Culture
Moeasmea (2004) indicated, the cultural
and creative industry could be divided into the According to moeasmea (2004), the process
handicraft industry, where commercialization is whereby culture becomes industrialized can be
relatively easy to implement, and the cultural divided into several stages: The original idea
economy where this is less true. The following stage, the innovation formation stage, the
section examines ways in which the government start-up stage, and the final industrialization
and private-sector companies can work together stage. The requirements imposed by these stages,
to promote the development of the cultural and and the restrictions relating to the provision of
creative industry. assistance by the government result in a situation
where the industrialization of culture is best
Commercialization in the suited to those companies that possess innovation,
Handicrafts Industry originality, their own brands, and the capabilities
needed for successful commercialization.
According to moeasmea (2004), if a maker of
handicrafts wishes to transform their business

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

METHODOLOGY to the interviews. The topic guide is used to give


a direction to the interview, but it is not used as
Research Design a straitjacket and respondents are encouraged to
talk at length within and around the topic areas.
This research is qualitative in orientation, explor- In addition follow-up questions are used in the
atory in approach and interpretative in nature. An course of the interviews, where necessary, to get
interpretative study is suggested for more subjec- respondents to clarify or develop their responses.
tive, organizational and managerial research ques- All interviews undertaken are recorded and
tions, particularly where concerned with industry transcribed. The transcripts are then coded with
practice (Galliers, 1991; Lee, 1991; Walsham, concepts and transformed and simplified in order
1995). The research method is mainly based on to facilitate display, analysis and comparison along
the quantitative research and will be divided into the lines recommended by Miles and Huberman
two parts. The first part is the secondary data (1994). The coding is revised and developed as the
from literature review about KM and cultural research progressed. Displays are developed for
innovation. The second part is to carry out the the different concepts, summarizing the response
primary data by doing the interview. This paper of each respondent.
describes a piece of qualitative research involv-
ing one case study, which have been developed Sample
from a series of questionnaires of interview and
in-depth interviews. According to international organizations such as
United Nations Educational, Scientific and Cul-
Data Collection tural Organization (UNESCO) and the General
Agreement on Tariffs and Trade (GATT), cultural
The study collects data by consisting of docu- industry (creative industry) combine the creation,
ments and corporate website of the case study production, and distribution of goods and services
companies, analysis of secondary data, question- that are cultural in nature and usually protected
naires of interview and in-depth interviews. The by intellectual property rights. Cultural industry
interview questionnaires will be sent out about worldwide have adapted to the new digital tech-
20. Individual in-depth interviews are chosen nologies and to the arrival of national, regional and
as the main method for the collection of data as international (de) regulatory policies. According
they allow the respondent to remain anonymous to above, the study defines cultural innovation
and provide the opportunity to probe and clarify industry as develops new insights into situa-
points arising. It is also the most practical way tions and applies innovative solutions to make
of getting participation from busy executives organizational improvements; creates a work
and managers. Written notes are used in this environment that encourages creative thinking
phase. A two-page interview questionnaire will and innovation; designs and implements new or
be developed, typically the subjects represented cutting-edge programs/processes. The cultural
in the interviews covered directors or managers innovation industry for the case study was se-
of the case company. The present study builds on lected based on the above definitions. Twenty (20)
five in-depth interviews with cultural innovation cultural innovation industry from the following
related directors or managers in the fields of CEO broad categories textual, music, art, museum,
office, IT, HRM, Marketing, R&D. The interviews television, film production and publishing, as well
are semi-structured and informal with a topic as crafts and design were considered. The initial
guide to provide some structure and consistency questionnaire guide was sent to those twenty firms.

171
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

Figure 2. An integrated innovation model in the cultural innovation industry

Based on the responses one firm was selected. model in the cultural innovation industry, explore
One larger cultural innovation companies (70200 how it grew from a small workshop into one of
employees) was selected. This diversity amongst the worlds leading glassware makers.
the organisation should help to map the basic in-
novation phases, activities and routines carried Development of Liuli Gongfang
out by cultural innovation organisation in practice.
The contact details of the above companies will Liuli Gongfang was established in Tamsui in
be taken from public sources. Taiwan in 1987. The founders Yang Huei-Shan
and Chang Yi once were a famous actress and a
An Integrated Innovation Model famous director in the movies. On the basis of
in the Cultural Innovation love to folk art culture and the insistence of life
Industry in Taiwan faith, Yang Huei-Shan and Chang Yi resolutely
retired at the height of their movie career, threw
According to comprehensive literature review, the themselves into modern lazurite art which was not
study proposed an integrated innovation model popular then in Taiwan and established the first
in the cultural innovation industry as Figure 2: lazurite art studio- Liuli Gongfang. Liuli was
The theoretical framework developed in this the name of glass in ancient China. The reason
paper needs to be compared to practitioners why the studio is named Liuli is that the found-
perspectives. The following section will adopt a ers want to convey craft beauty and emphasize
case study to examine the framework. the belonging and existence to history and art
through the process of lazurite study and creation.
The ideal of Liuli Gongfang is to create exquisite
CASE STUDIES ANALYSIS virtu by using Pate-de-verre as a basic skill and
have place in lazurite art that is flourishing in
The case study analyzes a successful enterprise in the world except for in Taiwan. During the past
the cultural innovation and creative industry. The twenty years, Liuli Gongfangs works have been
following sections examine the case firm: Liuli invited to display in many countries such as Japan,
Gongfang due to above integrated innovation America, England, Italy, France, German, South

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

Figure 3. Liuli Gongfang museum in china. Source: http://www.liulichinamuseum.com/

Africa etc. The style and idea of Liuli Gongfangs Liuli art, as the various incarnations of Liuli ap-
works make them become the representative of pear before our eyes, the feeling we feel deep in
lazurite art in Taiwan, and receive the recognition our hearts is pure joy.
of being collected in the most important museum What is culture? Liuli is our tool, urging us
in the world. to see clearer and to dig deeper. For Chang Yi,
As of 2008, Liuli Gongfang employed 900 Loretta Hui-shan Yang and the twenty years of
employees in 67 locations around the world, in- Liuligongfang, it has all been about the hopes, the
cluding 3 locations in United States: Los Angeles, courage and the dreams that came true. Located in
San Francisco, and New York. Their successes Xintiandi, Shanghai, LIULI CHINA Museum is a
have earned them the moniker of founders of striking and relevant meeting point of the world.
contemporary Chinese glass art and the Georg With one wall constructed entirely of 12,000 Liuli
Jensen of the glassware world (Freundl, Diana, tiles, LIULI CHINA Museum has accomplished
2005). Works created by Liuli Gongfang have be- its goal, loud enough to shake the very earth!
come part of the permanent collection of Londons The realization of a 20-year dream welcome to
Victoria and Albert Museum as well as the Palace LIULI CHINA MUSEUM. (Chang YI Founders
Museum in Beijings Forbidden City (Xu, Wei, LIULI CHINA Museum)
2006). People First Party chairman James Soong, April 29th, 2006 marked the birth of LIULI
during his visit to Mainland China (the second of CHINA, Chinas first Liuli art museum. The
a major Republic of China politician figure, after museum is formed in tripartition: ancient Chinese
that of Lien Chan), presented Peoples Republic of Liuli, contemporary Liuli art by Loretta Hui-shan
China President Hu Jintao with a Liuli Gongfang Yang, and international Liuli art. Every piece
sculpture; Hu gave him Jingde porcelain in return represented at LIULI CHINA is a splendor in its
(Eastern Television News, 2005). own right. Liuligongfangs Chang Yi and Loretta
Hui-shan Yang founded LIULI CHINA with the
LIULI CHINA Museum vision to enhance the place of Liuli in Chinese
art and culture. The distinguishing image of the
According to liulichinamuseum.com (2006), We museum is the Liuli wall comprised of 12,000
do not treat this place as a museum. It does not unique pieces of Liuli bricks that evoke an image
have that cold and solemn feel people come to of a Inscription tablet - symbolic of Liuligong-
expect from such an establishment. We wish for fangs 20 year history. Each Liuli is handmade,
it to be filled with light, with music, with moving no two are alike; as a whole they illustrate the
images we want it to tell a story. As we look dedication of perpetual creation as upheld by
upon the commanding display of international LIULI CHINA and Liuligongfang. LIULI CHINA

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

surpasses the scope of Liuligongfang. Not only In considering the factors behind Liuli Gong-
does it pay homage to the history of Chinese Liuli, fangs success, it is necessary to focus on the
it acknowledges the contributions and eminence following areas: Space design, Application of
of Liuli as a contemporary art medium throughout Corporate core knowledge, Production design,
the world (liulichinamuseum.com, 2006). Touching of deep experiencing, Product design,
LIULI CHINA has become a station where Characteristic, Culture and Creativity, Express of
each work serves as an imprint of an artists high quality and value, Service design, Activity
creative journey. The station becomes a space to design strategy. The study will discuss and analyze
rethink, adjust, and gear up for the next expedition in the following sections.
of excellence. It is also a salon for intellectual
discussion, inspiring dialogue between artists, Space Design
spectators, and professionals alike. LIULI CHINA
is a window for learning ; both Chinese and According to the website of liuli.com and 104info.
international, historical and contemporary, visitors com, Liuli Gongfang strives to promote its cre-
are exposed to a vast variety of Liuli art. Within ation space of Pate-de-verre to a scope and a level
the first exhibition hall is a replica of the oldest which have not been reached in the world, and it is
known Liuli artifact, an ear cup from Chinese generally acknowledged as the best Pate-de-verre
Western Han Dynasty (4 B.C.). Originally cited studio in the world. Yang Huei-Shan and Chang
as the oldest Pate-de-verre glass artifact, it is to Yi are regarded as the founders and pioneers of
Liuligongfang and LIULI CHINA the representa- modern Chinese lazurite art. Liuli Gongfang is
tion of the extensive history of Chinese Liuli. It is engaged in building a new culture creation image
also what inspired the LIULI CHINA theme of of China lazurite art. On the basis of creating
the Liuligongfang Museum. LIULI CHINA - an works which are good for human heart without
international standard. (Tang Si-fu Director LIULI end, with ethical, educational and wholesome
CHINA Museum) works and through the process of lazurite study
The company began life as a small workshop and creation, Liuli Gongfang expects to awake
located in Tanshui, Taipei County. Initially, Chang the precious value of Chinese national tradition in
and Yang had just seven employees, and they had modern society to an extent, to provide construc-
to develop their production technology more or tive direction of Chinese culture regeneration in
less from scratch. Glassware manufacturing is an the future, and to bring Chinese lazurite craft into
R&D-intensive industry, but one involving small- a broader stage. In late 1990, Liuli Gongfang held
volume production of a large number of different its first exhibition in the Eslite art gallery. This
products, and it was difficult to find experts who exhibition marked the first step in the companys
were interested in, or had the capabilities needed efforts to promote the art of glass-making in Tai-
for, working in this industry. Liuli Gongfang had wan and develop a local market for its products; at
to feel its way by trial and error, and, spending around the same time, Liuli Gongfang also began
a large amount of money on R&D, the company to market its glassware overseas. After more than
found itself heavily in debt. However, through a decade of effort, in 2001 Liuli Gongfang had
sheer perseverance and constant willingness to combined domestic and overseas sales of more
learn, the Liuli Gongfang gradually found its than NT$700 million. By the end of 2002, the
feet. The company had played a leading role in company had over 50 outlets and two factories,
the development of modern Chinese glassware its capitalization exceeded NT$150 million, and
making, and had succeeded in developing its it had more than 800 employees, including 1214
own distinctive brand image (moeasmea, 2004). R&D personnel. Liuli Gongfang had been invited

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

to exhibit its products in Japan, the US, the UK, patte-de-verre lost-wax casting provided
Italy, Germany and South Africa, and several of maximum malleability and made it possible to
its pieces had been acquired by leading interna- achieve a high level of precision in replication
tional museums to form part of their permanent and mass production. Using this new method, the
collections (moeasmea, 2004). company was able to produce glassware of exqui-
Furthermore, LIULI CHINA Museum wel- site beauty that conformed to the Liuli Gongfang
comes everyone to fulfill their revolutionary ideal of reviving the art of Chinese glass making
Virtual travel fantasy from May 12, 2008. Embark (moeasmea, 2004).
on a new dimension in the Virtual LIULI CHINA
Museum-- A new interactive and explorative art Production Design
space. Virtual LIULI CHINA Museum quests
in pertaining their passion of LIULI Glass by Yang and Chang developed a comprehensive
simulating virtual experience; providing the best production process based on methods that they
learning environment from the technological had developed themselves. The key factor was the
domains three-dimensional space. The visual lower production costs that resulted from locating
discoveries are a breakthrough experience in production in Mainland China. Reducing Produc-
cyber-communication. Virtual LIULI CHINA tion Costs by Establishing a Factory in Mainland
Museum, will lead the audience through a nar- China In 1995, Liuli Gongfang established its
rated multimedia presentation with interaction second factory, located in the Qibao Industrial Park
to new experiences far beyond expectations! in the Minxing District of Shanghai. The lower
(liulichinamuseum.com, 2006). production costs of this new production facility
had a significant positive impact on the companys
Application of Corporate operational performance (moeasmea, 2004).
Core Knowledge
Touching of Deep Experiencing
According to moeasmea (2004), The key factor
was the lead that Liuli Gongfang established over Hui-Shan Yang shoots in 123 movies processes,
its competitors in the area of technology. The was almost equal to that has attempted 123 in-
Core Technology Lost-wax Casting Due to the dividual life experiences, she felt very sincerely
restrictions imposed by the equipment available actually has one kind of heaviness. 20 years
to them, in the early days Liuli Gongfang had glass artistic creation, when the technical ques-
to rely on glass-blowing technology. However, tion no longer is one kind puzzles, she starts to
using this technology they found it very difficult ask herself, what wants to say? Movies experi-
to increase their production capacity. Another ence and artistic creations experience, turns an
consideration was that glass-blowing technology overall experience suddenly, she studies slowly,
had been in existence for several hundred years originally the very major part of life, is not joyful.
in many countries around the world, and as a late Dramas ingredient of Movie hopes to make those
entrant, it seemed unlikely that Liuli Gongfang unhappy life shift and sublimation by another kind
would be able to achieve any real success in this of model. Buddhisms idea and goal is the same,
area. Furthermore, glass-blowing techniques were it hoped that you have the wisdom, understood
not suited to the uniquely Chinese style that Yi the phenomenon in life, lives, old, gets sick, dies,
Chang was trying to develop. Liuli Gongfang the resentful hatred meeting, the love to leave
therefore began to look for new ways of making depart, to ask not to, the five human attributes be
glass. The method the company ultimately adopted prosperous, is actually very natural. If possible,

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

art is also hope that through a medium, lets each culture character: Liuli Gongfangs ultimate ob-
person feel the different appearance of life. Hope jective has always been to create glassware with
to make oneself happy and joyfully and enables a unique ethnic style. With Chinese cultural
everybody happy as well. She does greatest effort coordinates as the foundation, Liuli Gongfang has
to share her learning experience with everybody. developed its own modern artistic vocabulary to
According to moeasmea (2004), The main express the essence of Chinese culture, and their
focus in Liuli Gongfangs marketing strategy products thus have a distinct cultural aspect to
has been on building up name recognition and them that has proved extremely attractive on both
overall brand image via touching of deep ex- domestic and international markets. In positioning
periencing. The companys products, which are the products, Yi Chang has tried to focus on the
distinctively Chinese, are produced in limited philosophy and the emotions they evoke, rather
editions; in addition, Liuli Gongfang has worked than on the objects themselves. With this in mind,
hard to develop international distribution chan- he developed Liuli Gongfangs product explana-
nels. The fame that both Hui-Shan Yang and Yi tions. The idea is to express what inspired each
Chang enjoyed in Taiwan helped Liuli Gongfang piece in a few succinct sentences. For glassware
to secure media exposure when the company was enthusiasts from a different cultural background,
first getting off the ground. The media and the these explanations help to give the pieces a whole
general public rapidly became familiar with the new level of meaning (moeasmea, 2004).
concept of artistic glassware; this was an impor-
tant factor in the companys early development. Express of High Quality and Value
Liuli Gongfang was well aware of the importance
of overall brand image; its marketing concepts, In line with the emphasis that Liuli Gongfangs cor-
strategies and implementation displayed a high porate culture places on integrity, the company
level of consistency. At both the companys own has never gone in for large-volume production or
direct outlets and department store outlets, Liuli efforts to maximize profits. Instead, its products
Gongfang personnel handle the sales operations are all issued in limited editions. Before produc-
themselves. Detailed rules govern everything tion begins, each step in the production process
from store layout and product packaging through is rated for difficulty; these scores are then added
to customer reception and product presentation together to provide a basis for calculating the
(moeasmea, 2004). unit price, and the total amount being invested
in that particular piece is divided by the unit
Product Design, Characteristic, price to determine the number of pieces that will
Culture and Creativity be produced. Once the agreed number of pieces
has been made, production is terminated and the
Liuli Gongfang took an ancient technique and molds are destroyed. Each piece has engraved
has turned it into a refined scientific process. The on its base the serial number of that particular
main objective of Liuli Gongfangs research and piece and the total number that were produced.
development department is to go abroad to study This limited edition strategy helps to maintain
at international glass art schools, and to research the value of Liuli Gongfang glassware, creating
and develop superior techniques. After only the potential for pieces to increase in value after
thirteen years of development, Liuli Gongfang is purchase; it also encourages constant innovation
already one of the best pate-de-verre glass studios by the Liuli Gongfang team (moeasmea, 2004).
in the world. Products with a distinctly Chinese

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

Service Design Gongfang opened the TMSK restaurant, the first


restaurant of its kind in Shanghai, in Xin Tiandi
For servicing global customer, Liuli Gongfang luxury shopping center. Later, Liuli Gongfang
develops international distribution channels. Liuli opened the TMSK restaurant in Hong Kong (Fig-
Gongfang held its first overseas exhibition in ure 4). TMSK uses glassware for all of its interior
1992, at the Mitsukoshi Art Gallery in the Ginza furnishings, and features a glass lotus pond, glass
district of Tokyo. Since then, the company has held lamps and a glass-embellished dome, etc. With its
exhibitions in Italy, the US, Germany, Singapore, unique atmosphere, TMSK has become a favorite
Switzerland, South Africa, the Czech Republic and meeting place for Shanghai and HK trendsetters,
the UK. Today, besides the companys 20 outlets particularly foreigners. By making glassware part
in Taiwan, Liuli Gongfang has a distribution of the lives of Shanghais and HKs elite, Liuli
network that covers Mainland China, Singapore, Gongfang has succeeded in raising the visibility
Europe and the US. In Mainland China, there are of its products, and has created a new source of
now more than 20 Liuli Gongfang galleries in revenue (moeasmea, 2004).
Shanghai, Beijing, Hangzhou, Dalian and Harbin.
These Mainland China outlets now account for
more than 50% of total sales revenues, and sales IMPLICATIONS OF THE CASE
are continuing to grow rapidly (moeasmea, 2004). STUDY
Moreover, Luili Gongfang attaches great
importance to the cultivation of human talent. In The study examines the case firm: Liuli Gong-
order to boost the capabilities of its employees fang due to above integrated innovation model
for giving the best service to its customers, Liuli in the cultural innovation industry, explore how
Gongfang employs experts to collect and collate it grew from a small workshop into one of the
the latest information on new glassware-making worlds leading glassware makers. Development
developments from all over the world and to of Liuli Gongfang: through sheer perseverance and
study the latest pieces by leading designers. Liuli constant willingness to learn, the Liuli Gongfang
Gongfang spent a considerable sum of money to gradually found its feet. The company had played a
establish a library (open to the general public) leading role in the development of modern Chinese
on the third floor of its Tanshui production facil- glassware making, and had succeeded in develop-
ity, containing several hundred books relating to ing its own distinctive brand image. In considering
the arts, culture and philosophy. In order to give
company employees the opportunity to learn new
skills and to achieve a higher level of interaction Figure 4. TMSK restaurant in Hong Kong. Source:
with the international glass-making community, http://www.tmsk.com/
Liuli Gongfang also sends employees to study
overseas on a regular basis (moeasmea, 2004).

Activity Design Strategy

In order to integrate the art of glassware into


peoples everyday lives, Liuli Gongfang has be-
gun to expand into architecture, interior design
and lifestyle products (such as sets of glasses and
light fittings). Towards the end of 2001, Liuli

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

the factors behind Liuli Gongfangs success, it is 6. Express of high quality and value: its
necessary to focus on the following areas: products are all issued in limited editions.
Before production begins, each step in the
1. Space design: This exhibition marked the production process is rated for difficulty;
first step in the companys efforts to pro- these scores are then added together to pro-
mote the art of glass-making in Taiwan and vide a basis for calculating the unit price,
develop a local market for its products; at and the total amount being invested in that
around the same time, Liuli Gongfang also particular piece is divided by the unit price to
began to market its glassware overseas. determine the number of pieces that will be
2. Application of Corporate core knowledge: produced. Once the agreed number of pieces
The Core Technology Lost-wax Casting has been made, production is terminated and
Due to the restrictions imposed by the the molds are destroyed. This limited edition
equipment available to them. The method strategy helps to maintain the value of Liuli
the company ultimately adopted patte-de- Gongfang glassware, creating the potential
verre lost-wax casting provided maximum for pieces to increase in value after purchase;
malleability and made it possible to achieve it also encourages constant innovation by
a high level of precision in replication and the Liuli Gongfang team.
mass production. 7. Service design: For servicing global cus-
3. Production design: Yang and Chang devel- tomer, Liuli Gongfang develops interna-
oped a comprehensive production process tional distribution channels. Moreover, Luili
based on methods that they had developed Gongfang attaches great importance to the
themselves. The key factor was the lower cultivation of human talent. In order to boost
production costs that resulted from locating the capabilities of its employees for giving
production in Mainland China. the best service to its customers.
4. Touching of deep experiencing: The main 8. Activity design strategy: In order to in-
focus in Liuli Gongfangs marketing strategy tegrate the art of glassware into peoples
has been on building up name recognition everyday lives, Liuli Gongfang has begun
and overall brand image via touching of to expand into architecture, interior design
deep experiencing.Liuli Gongfang was well and lifestyle products. By making glassware
aware of the importance of overall brand part of the lives of Shanghais and HKs elite,
image; its marketing concepts, strategies Liuli Gongfang has succeeded in raising the
and implementation displayed a high level visibility of its products, and has created a
of consistency. new source of revenue.
5. Product design, Characteristic, Culture
and Creativity: Liuli Gongfangs ultimate
objective has always been to create glassware FUTURE RESEARCH DIRECTION
with a unique ethnic style. With Chinese
cultural coordinates as the foundation, Liuli The research limitations are that to generalize the
Gongfang has developed its own modern usefulness of the proposed model, more cases need
artistic vocabulary to express the essence to be analyzed. Although the model presented in
of Chinese culture, and their products thus this paper has made integrated perspectives on
have a distinct cultural aspect to them culture innovation implementation in one case
that has proved extremely attractive on both company, it has to be pointed out that this paper
domestic and international markets. has serious limitations in that it is basically a

178
A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

case study of one organization. The arguments practices in their organizations. The results from
of this paper, before they can be generalized, such research could also benefit academics by
must be corroborated further with other cultural providing select factors to focus on in future stud-
innovation organizations with various strategies ies. The study gives some in-depth propositions to
and other specificities. practitioners in cultural innovation to achieve suc-
In the near future, the study will develop more cessfully implementation of innovation projects.
complete and practical integrated innovation It provides a framework in understanding why
model for various cultural innovation industries certain innovation initiatives fail and how that
and future researchers via more case studies. Ad- can be improved. This benefits both academics
ditional research is needed to provide managers and practitioners.
and consultants with important perspectives to This research was focused on case study based
consider when implementing cultural innovation on qualitative analysis, literature review and depth
programs and practices in their organizations. interview, discussing inner management and
The results from such research could also benefit external relations in Liuli Gongfang, in order to
academics by providing select factors to focus on offer the concrete suggestion of development in
in future studies. This research will give more the future. In accordance with this case, Council
in-depth proposition to practitioners in cultural for Cultural Affairs pursues its ideal in the scope
innovation to achieve successfully implementa- of the capability, communicating with each other
tion of innovation programs, and will provide a could obtain the trust and cooperation.
framework in understanding why certain innova- Governments role as active integrator to pro-
tion initiatives fail and how that can be improved. mote culture innovation industry: A key topic of
This will benefit both academics and practitioners. concern regarding culture innovation industry is
how to help them advance into new domestic and
international markets and effectively operate and
CONCLUSION manage their businesses. One objective of this
study is to explore what role governments should
This chapter describes the procedures of promo- play and how they may intervene in an appropriate,
tions formulated for the development of the Cul- timely manner. Examine the various elements in
tural and Creative Industry, including definition, cultural enterprise systems, how governments
scope, development, strategies and government take the initiative in playing a bridging, facilitat-
assistance. The paper is intended to give the gen- ing role bringing together potential workers,
eral public an idea of the chain effects expected local organizers and know-how providers to
to bring for the society by the development of the build a sound environment for development, how
Cultural and Creative Industry. governments facilitate the commercial systemiza-
First of all, the study through literature review tion of culturally oriented activity with respect to
and content analysis to develop a research frame- marketing, operations and management.
work: integrated innovation model. Secondly, Governments have to bear a heavy burden of
the study through a case study to develop a more responsibility for pressing forward systematiza-
complete and practical integrated model and re- tion of their commercial operations in developing
searches propositions for practitioners in cultural cooperative partnerships with cultural enterprises.
innovation organizations and future researchers, This study indicated, how governments bring to-
the study provides managers and consultants gether and organize their various administrative
with important perspectives to consider when agencies in an effort to assure the effectiveness
implementing cultural innovation programs and of cultural innovation enterprise operations.

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A Case Study of Integrated Innovation Model in the Cultural Innovation Industry in Taiwan

Definitely, government coordination with cultural Cultural and Creative Industry Promotion Organi-
enterprises poses a number of difficult challenges zation. (2005b). Introduction of the cultural and
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Cultural and Creative Industry Promotion Team.
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(2004). Scope of the cultural and creative indus-
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Ministry of Economic Affairs.
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Lost-Wax Casting: According to Wikipedia,
Lost-wax casting sometimes called by the French
name of cire perdue (from the Latin cera perduta)
KEY TERMS AND DEFINITIONS is the process by which a bronze or brass is cast
from an artists sculpture; in industrial uses, the
Cultural and Creative Industry: It is those modern process is called investment casting.
industry that have their origins in innovation or An ancient practice, the process today varies
cultural accretion, and which have the potential to from foundry to foundry, but the steps which are
create wealth or create jobs through the production usually used in casting small bronze sculptures
and utilization of intellectual property, and which in a modern bronze foundry are generally quite
can help to enhance the living environment for standardized. Other names for the process include
society as a whole. lost mould, which recognizes that other mate-
Cultural Innovation Industry: UNESCO rials besides wax can be used, including tallow,
defines them as industry combined with innova- resin, tar, and textile; and waste wax process
tion, production, and commercial contents and at or waste mould casting, because the mould is
the same time the nature of the contents have the destroyed to unveil the cast item. Other methods of
qualities as intangible assets and cultural concepts casting include open casting, bivalve mould, and
that are protected under intellectual property rights piece mould. Lost-wax casting was widespread
and presented in forms of products or services. in Europe until 18th century, when a piece-mold
Creative Economy: It has been taken as process came to predominate.
one of the major projects each country works Liuli: It means ancient Chinese glass/crys-
on to strengthen its competitiveness, which tal. It has a lineage stretching back thousands
indicates that Cultural innovation (Cultural & of years, first making its appearance in the 11th
Creative) Industry will become the trend in the century BC. The art of Liuli left an indelible trail
future. These industry without smokestacks, throughout Chinese history until the 19th century
or knowledge-based industry, turn experiences when China opened its door to imported goods,
into great memories, and ideas into fortune and and effectively stifled traditional artisan skills.
job opportunities. The discovery in 1968 of the tomb of Liu Shun,
Innovative Cultural Enterprises: Basi- a nobleman from Man-Chung County in Hopei
cally involves two aspects: artistic creativity and Province, unearthed the earliest recorded example
economic activity. Broadly speaking, cultural of pate-de-verre. A glass ear cup was found be-
enterprises have existed in human society since hind the renowned jade suit with gold thread.
time immemorial, comprising both traditional Archaeologists confirmed the glass material was
and modern-day artistic work in such fields as of Chinese origin, indicating the pate-de-verre
literature, music, architecture, drama, dance, technique was indeed indigenous to China. This
photography and cinematography. Also included revelation was astounding and engendered in the
within the scope of cultural enterprises, and provid- group of artists a profound sense of mission to
ing new directions of development for traditional revive the artistry embedded in their own ancestry.
cultural enterprises, are such economic activities

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184

Chapter 9
An Innovative Business
Model in NPOs:
From Venture Philanthropy 1.0 to 2.0

Te Fu Chen
Lunghwa University of Science and Technology, Taiwan

ABSTRACT
This chapter reviews Venture Philanthropy (high engagement Philanthropy), social Venture Philanthropy
(SVP) model, Philanthropy 1.0 and Philanthropy 2.0: Leveraging the venture capital model. In addition,
the chapter explores e-Philanthropy (1.0) business models and a new framework for e-Philanthropy,
building a new business model for the philanthropy 2.0 advisory industry. Furthermore, the work ana-
lyzes some case studies of new business models from Philanthropy 1.0 to 2.0. The question is which new
philanthropy business model or combination of models will come out on top?

Therefore, first of all, this chapter introduces the new model of e-philanthropy can provide value added
content, resources, and tools that will allow both users and charities to leverage the potential power of
the Internet. People are given the ability to act immediately; it is their satisfaction with the process that
will dictate the speed at which this industry moves forward. The facilitation of donations to NPOs and
charities is an old market with new possibilities, e-philanthropy is a disruptive strategic innovation that
has fundamentally changed the competition in the traditional philanthropic industry. This innovation
will eventually overtake the traditional gift-giving market.

Secondly, donors have always gathered in various communities, but today there are more and more
people thinking about co-funding, funder collaboratives and other ways that they can leverage their
giving through interacting with other donors. As nonprofits move from fundraising (philanthropy 1.0)

DOI: 10.4018/978-1-60960-129-4.ch009

Copyright 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
An Innovative Business Model in NPOs

to friend raising (philanthropy 2.0), they are recognizing the power of building a web 2.0 community of
supporters and donors are beginning to see the value of this community as well.

Thirdly, nonprofits and charities have a strong opportunity to engage in meaningful conversations (that
may lead to contributions) with the social media savvyespecially those who are uncultivated. This
indicates a growing market for distribution of information via social networks. Trust in social media is
significant among social media savvy, would-be donors. They trust social networks and blogs to provide
important information. Social media use is also very high with users participating in social networks,
participating in blogs, and participating in message boards. Social Networks: its about the relationship
and trust.

Finally, this chapter integrates different new business model of venture philanthropists from different
theories of worldwide scholars, practitioners, undeveloped, developing and developed countries to con-
struct an innovative business model: philanthropy 2.0. It integrates web 2.0 technology with trust and
relationships to build a network platform of Philanthropy 2.0 is the key to successfully connect VP with
donors, charities and funders. It hopes to help NPOs to connect supporters, donors with other donors
and supporters and with charities, NPOs, and organizations to share knowledge and experiences, finally
to help the people who are really need help. Meanwhile, charities, NPOs, and organizations all are able
to achieve self-growth and sustainable operation to reach triple win.

INTRODUCTION table organizations), philanthropy, trade unions,


and public arts organizations. Most governments
According to International Venture Philanthropy and government agencies meet this definition, but
Forum (2001), just as the new economy is in most countries they are considered a separate
revolutionizing the global capital market of the type of organization and not counted as NPOs.
for-profit sector, the emerging field of venture They are in most countries exempt from income
philanthropy is poised to have a significant and property taxation.
impact on the face of philanthropy around the
world. Venture philanthropy is an emerging field Contexts, Definitions
of philanthropic double bottom-line investment and Characteristics of
that combines the practices of long-term invest- Venture Philanthropy
ment and venture capital models of the for-profit
sector with the mission-driven principles of the In the mid-1990s, modern forms of VP emerged
nonprofit sector. in the USA, and spread to Europe about five years
ago. However, the very first modern VP organi-
NPOs (Non-Profit Organizations) sation is arguably the Phyllis Trust (now known
as Andrews Charitable Trust), set up in 1965 by
The International Center for Not-For-Profit Law Briton Cecil Jackson-Cole. The Trust played an
defined a non-profit organization (NPO) is an or- important role in the creation and growth of a
ganization that does not distribute its surplus funds number of charities, including Oxfam, ActionAid
to owners or shareholders, but instead uses them and Help the Aged. UK and other European ven-
to help pursue its goals (Gary M. Grobman, 2008). ture philanthropists have adapted and evolved the
Examples of NPOs include charities (i.e. chari- American model to reflect differing socio-political

185
An Innovative Business Model in NPOs

and funding environments. For example, most European venture philanthropy are (Jamkit and
American venture philanthropy is grant-based, Philanthropy UK, 2009):
whereas in Europe there is a broader spectrum
of financing, such as loans and surplus sharing 1. High engagement
mechanisms, often used in combination with 2. Tailored financing
grants. Europeans also typically are more open 3. Multi-year support
to investing in initiatives that are not registered 4. Non-financial support
charities such as social enter