PACT OF WIDE AREA NETWORKS ON BUSINESS
Where does one start when discussing the impact of Wide Area Networks (WANs) on business? It’s been huge! WANs have created an entirely new segment in the business market and revolutionized many of the current ones. A person could write for days or months about all the impacts and effects WANs have had. This essay will focus on three primary areas to describe the impact of WANs on business. First, some specific types of applications will be discussed and how they can improve day-to-day business operations. WANs enable various communication mediums to exist that significantly improve the speed of business communications. The telephone and e-mail are a couple of examples. WANs also allow various marketing and financial applications to improve business operations. Next, some real world examples will be provided to show the actual impact WANs are having. The travel industry, JCPenney, Varsity Books, and Wal-Mart are just some of literally thousands of companies that have capitalized on the capabilities WANs provide. Finally, the importance of WANs and the benefits they can generate will be discussed. Specifically, the strategic leverage and competitive advantages that can be created and maintained by implementing the use of WANs will be addressed.
Before getting into specific business applications, let’s quickly review what a wide area network (WAN) is. Ray Hunt and John Vargo define a WAN as, “A telecommunication network allowing connection of computers, peripherals, and other devices, such as telephone and fax, that are at a distance from one another” (1996, p. 463). WANs extend across geographic boundaries such as streets, cities, states, and even countries, into the “public” domain where anybody can use them (Hunt & Vargo, 2000). By allowing anybody and everybody into the “public” domain, WANs opened a completely new market for businesses that was previously not available to them. As a result, WANs grew larger and new communication methods and business applications were developed to capitalize on the WAN technology and architecture.
The telephone system is an example of a wide area network. Its impact on business, and on most people’s lives in general, is rather obvious. It is one of the primary methods of communication we use today. Other, and relatively newer methods based on WANs include electronic mail (E-mail), voice mail, fax machines, and teleconferences. These applications/technologies have improved business communications by:
1) Reducing the effect of “telephone tag”
2) Minimizing time spent in telephone conversations
3) Providing the ability to send and/or receive files
4) Providing the ability to retain a permanent record of the communication
5) Minimizing problems associated with geographic and time differences
6) Reducing paper handling and associated costs (Hunt ; Vargo, 2000)
The impact of business communications can not be understated. One senior executive states, “Good communications are the lifeblood of any enterprise, large or small. Communications are essential to keep our entire organization functioning at maximum levels and to make the most of our greatest management resource-our people” (Blanchard, Hersey, ; Johnson, 1996, p. 338). Communication is not the only business activity WANs can significantly impact.
Various marketing applications can be implemented using WANs. A reservation system is a good example of the way companies can market a seat on an airplane or a room in a hotel. The wide area network provides the link between the customer and the database that maintains up to the minute availability information. Customers can act as their own travel agent in the convenience of their own home or business. Companies can advertise and promote their services to a large segment of the market; the online market.
Teleshopping is another area where marketing applications have experienced tremendous growth. Teleshopping, or electronic commerce (E-commerce) means shopping or conducting business electronically over WANs. Countless new companies have started that sell their products solely over the Internet. Many other established companies have started selling their products over the Internet in addition to their traditional locations. The concept is simple. Customers can browse the company’s products over the Internet. If they find something they want, they can order it and pay with a credit card (also over the Internet). The company will ship the product(s) directly to the customer’s home or business. A customer never has to leave their home or place of business to conduct transactions. This capability attracts an entirely new market and revenue potential for companies.
Similar financial services and applications are available. Use of WANs to conduct financial transactions is now commonplace in our society. We use automated teller machines (ATMs) every day to withdraw cash, transfer funds, and perform inquiries. Electronic funds transfer (EFT) is an essential capability WANs provide to the finance and banking industry. The ability to transfer funds electronically enables numerous business and personal transactions to be performed easily and virtually immediately. Buying products, paying bills, sending money to a friend or relative are just a few examples of EFT transactions. Hunt and Vargo say that without networks, financial services throughout the world would cease (1996).
Another effective WAN application involves Point of Sale (POS) data. Networks are used to link sales registers at retail outlets to centralized databases that maintain inventory balances, product descriptions and prices, and other meaningful records. As sales transactions occur, the database is updated in real time to reflect those transactions. By maintaining current and historical data, companies can keep stock levels down, make better demand projections, and generate product and customer profiles (Hunt ; Vargo, 1996). This effective use of information management can be very important when significant decisions must be made. Most would agree WANs and associated applications are definitely impacting business today.
In the previous section, some general WAN applications affecting the business world were provided. Following, are some specific examples of these applications. Let’s start with the service industry. Expedia.com (http://msn.expedia.com) and Travelocity.com (http://www.travelocity.com) are just two of many companies that provide travel reservation systems using WANs. They both enable customers to make airline, hotel, rental car, and cruise reservations on-line in the convenience of their own home or business and on their schedule. Their sites provide maps and driving directions. Customers can establish their own accounts and preferences. They can compare fares and rates to find the lowest competitive prices. At the same time, companies are forming partnerships to market various package deals. Purchasing airline tickets and hotel accommodations for one price is a popular combination package.
Now let’s move to the merchandising industry. In a recent interview with Paul Pappajohn, the president of JCPenney E-Commerce, Elizabeth Blakey revealed the success JCPenney has experienced since starting to sell merchandise over the Internet. JCPenny is a 98-year-old retail company that historically sold its merchandise through traditional retail stores. They started selling over the Internet in 1994 and initiated secure online ordering in 1996. In November 1999, JCPenney began offering their entire catalog assortment of merchandise (over 250,000 unique products) online and now average over 40,000 customer orders per week over the Internet. Revenue generated from Internet sales were $15 million in 1998, $102 million in 1999, and are expected to reach $300 million in 2000 (Blakey, 2000).
VarsirtyBooks.com (http://www.varsitybooks.com) is an example of a small business that is also capitalizing on WAN capabilities. Joshua Wilner of the E-Commerce Times reveals their background in an interview with Eric Kuhn, President, CEO, and Co-Founder of VarsityBooks.com. Varsitybooks.com was started in 1997. The company began operations by marketing textbooks to college students over the Internet since students are quite comfortable using it. VarsityBooks.com’s sales are purely online; however, they also market their products with a strong peer referral program. VarsityBooks.com recruited more than 2,000 student leaders at over 500 colleges and universities nationwide to work as on-campus student marketing representatives. Today, VarsityBooks.com sells over 350,000 titles of textbooks, study/reference guides, and best-selling fiction and non-fiction. According to Student Monitor (the only nationally syndicated market research study of the college student market), VarsityBooks.com is the most-visited and most often-visited Web site for the college market (Wilner, 2000).
Wal-Mart is another company that capitalized on WAN technology. Aquilano, Chase, & Jacobs explain Wal-Mart’s history of Point of Sale (POS) systems. Wal-Mart started in 1987 with their award winning Satellite Network. It maintained real-time sales and inventory information and supported data, voice, and video. They implemented electronic data interchange in 1990 that issued electronic purchase orders and received invoices to/from their vendors. In 1991, Wal-Mart installed Retail Link, which enabled vendors to see real-time POS data. Vendors could then make improved forecasts and manage inventories better. Retail Link also included e-mail and Microsoft Excel to facilitate other supply activities (1998). Not surprisingly, Wal-Mart has been a very successful company. As these examples show, WANs are influencing the operations of a variety of companies. They impact service companies like the airlines and hotels, established companies like JCPenney, new companies like VarsityBooks.com, and industry giants like Wal-Mart.
Why is the impact of WANs on business so significant? One part of the answer to that question is “leverage”. More specifically, “strategic leverage”. Hunt and Vargo define “strategic leverage” as the use networks and information technology (IT) to increase the advantage from an organization’s strengths, and to capture opportunities not available without the use of use networks and IT. Integrating networks and IT can help ensure organizations successfully respond to customer requirements with quality products and services in a competitive business environment (1996).
Another part of the answer to question is “advantage”. Successful integration may yield a competitive advantage over the organization’s primary competitors. Results can include the creation of new business opportunities, improved responsiveness, and minimized weaknesses. Look at what JCPenney has done in the previous example to gain a competitive advantage over those that have not capitalized on Internet sales.
WANs can help organizations attain a competitive advantage, but nowadays, use of WANs is almost mandatory just to stay in business. The cost savings associated with communication, marketing, transactions, and other business activities make the use of WANs a “must have” in order to ensure efficient financial management and competitive in their respective industries. Hunt and Vargo state, “A company in the travel industry cannot remain competitive without access to networks” (1996, p. 41). This can be applied to other industries too. Again, JCPenney’s entry in the Internet market gained a competitive advantage over their competitors that didn’t, but they also maintained their competitiveness with those that did.
To gain an understanding of the incredible growth and impact WANs are having on the economy, the following statistics and forecasts are provided:
– Americans online is expected to be 194 million (68%) in 2005, from 122 million (44%) in 2000
– U.S. workers with Internet access at work is expected to be 85% in 2005, from 63% in 1999
– U.S. business-to-business e-commerce will rise to $6.3 trillion in 2005, from $336 billion in 2000
– U.S. consumer e-commerce is expected to rise to $269 billion in 2005, from $45 billion in 2000
– E-commerce this holiday season is expected to rise to $11.6 billion, from $7 billion in 1999
– Online small businesses with e-commerce are expected to be 49% in 2003, compared to 34% in 2000
– E-commerce is expected to represent 4.4% of the U.S. gross domestic product by 2002 (Carr, 2000).
As the statistics and forecasts show, WANs and associated applications will continue to grow and significantly impact our business and economic environments. To account for the expected growth and range of use, the Internet Corporation for Assigned Names and Numbers (ICANN) recently added seven new web address suffixes to the existing dot-com, dot-net, dot-org, dot-edu, dot-mil, and dot-gov. The new ones are dot-biz, dot-aero, dot-coop, dot-info, dot-name, dot-pro, and dot-museum (McDonald, 2000). Businesses can not ignore these trends. Use of WANs and e-commerce via the Internet is becoming the industry standard for companies to become and remain competitive.
This essay attempted to provide a brief description of the impact of wide area networks on business. A definition of a WAN was provided and various business applications were described. Communication methods such as the telephone and email were addressed along with marketing and financial applications. Real world examples from the travel and retail industries were also discussed. We saw how WANs were utilized by an established company like JCPenney to maintain its competitiveness, and how a new company like VarsityBooks.com gained a competitive advantage and a piece of the college textbook market. Finally, we looked at the underlying concepts behind the success of WANs. Strategic leverage was explained and how it can result in gaining a competitive advantage and/or simply maintaining a company’s competitiveness. The future of WANs is bright.
A.J. Strickland III and Arthur A. Thompson, Jr. provide a succinct description of the current trend. They state,
“Internet entrepreneurs are currently leading a revolution to revamp the value chains for providing traditional mail services, providing all sorts of information to businesses and households, for conducting meetings via cameras and computers while the attendees sit at their desks in their offices, for providing long distance telephone services via the Internet, for shopping for goods and services, for trading stocks, and on and on. They are employing “virtual value chains” and exploiting the new economics of doing business in the marketspace of the World Wide Web and commercial on-line services” (1999).
Their choice of words seems accurate. We are employing “virtual value chains”, there are “new economics of doing business in the marketspace”, and we are experiencing a “revolution”. The statistics revealed earlier support this. The bottom line here regarding the Internet and WANs is that usage is becoming more prevalent and diverse every day, so you better gone on board or you will be left behind!
Aquilano, Nicholas J., Chase, Richard B., & Jacobs, F. Robert. (1998). Production and Operations Management: Manufacturing and Services (Eighth Edition). Irwin/McGraw-Hill
Blakey, Elizabeth. (2000). “Exclusive Interview: JCPenney.com.” E-Commerce Times. November 19, 2000 < http://www.ecommercetimes.com/success_stories/success-jcpenney.shtml >
Blanchard, Kenneth H., Hersey, Paul, & Johnson, Dewey E. (1996). Management of Organizational Behavior: Utilizing Human Resources (Seventh Edition). New Jersey: Prentice Hall.
Carr, Laura. (2000). “100 Numbers You Need to Know.” TheStandard.com. November 19, 2000 < http://www.thestandard.com/article/display/0,1151,20128,00.html >
Hunt, Ray, & Vargo, John. (1996). Telecommunications in Business: Strategy and Application. Irwin/McGraw-Hill
McDonald, Tim. (2000). “New Internet Domain Names Approved.” NewsFactor Network.. November 19, 2000 < http://www.newsfactor.com/>
Strickland, A.J. III & Thompson, Arthur J. Jr., (1999). Strategic Management: Concepts and Cases (11th Edition). Irwin/McGraw-Hill.
Wilner, Joshua. (2000). ” Small Business Success Story: VarsityBooks.com.” E-Commerce Times. November 23, 2000 < http://www.ecommercetimes.com/success_stories/success-varsitybooks.shtml