The Management of Software Standards in Enterprises First Results of an Empirical Study in Germany and the US

The Management of Software Standards in Enterprises First Results of an Empirical Study in Germany and the US Falk v. Westarp, Peter Buxmann, Tim Weitzel, Wolfgang König January 1999 Research Project Economics of Standards in Information Networks www.vernetzung.de/eng/b3/ Institut für Wirtschaftsinformatik J. W. Goethe-Universität Mertonstr. 17, 60054 Frankfurt am Main Germany Telephone: + 49 69 798-23318 Fax: + 49 69 798-28585 { westarp, pbuxmann }@wiwi.uni-frankfurt.de

The Management of Software Standards in Enterprises Results of an Empirical Study Page 1 The Management of Software Standards in Enterprises First Results of an Empirical Study in Germany and the US Falk v. Westarp, Peter Buxmann, Tim Weitzel, Wolfgang König Research Project Economics of Standards in Information Networks www.vernetzung.de/eng/b3/ Institut für Wirtschaftsinformatik J. W. Goethe-Universität Mertonstr. 17, 60054 Frankfurt am Main Germany Telephone: + 49 69 798-23318 Fax: + 49 69 798-28585 { westarp, pbuxmann }@wiwi.uni-frankfurt.de Keywords: Business software, centralization, EDI, Electronic Commerce, Internet, Intranet, network externalities, software standards, standardization

The Management of Software Standards in Enterprises Results of an Empirical Study Page 2 1 Editorial...5 2 Summary...6 3 Design of the Study...8 4 Results...9 4.1 Demographic Data of the Participating Enterprises...9 4.2 Variety, Compatibility and Centralization of Decision Power...11 4.2.1 Variety of Software Solutions in Enterprises...12 4.2.2 Problems of Incompatibility...13 4.2.3 Centralized versus Decentralized Information Management in Enterprises...13 4.2.4 The Correlation Between Incompatibility Problems and the Number of Different Products in Use...17 4.3 The Use and Management of Business Software...18 4.3.1 The Use of Business Software in Enterprises...18 4.3.2 Standardized vs. Custom-made Business Software...20 4.3.3 Who Decides about the Implementation of Business Software?...21 4.3.4 Correlation between Centralization and Heterogeneity...22 4.3.5 Opinions about Strategic Matters...22 4.4 The Status Quo and the Future of EDI Systems...23 4.4.1 Traditional EDI...24 4.4.2 The Future: WebEDI...30 4.4.3 Case Study: 3Com...32 4.5 The Use of Internet Technology...33 4.6 The Role of Network Effects...36 4.6.1 Opinions on General Subjects...39 5 References...41 6 Appendix...43

The Management of Software Standards in Enterprises Results of an Empirical Study Page 3 Figures Figure 1: Structure of the questionnaire....8 Figure 2: Business areas of German respondents...9 Figure 3: Average size of responding German enterprises in each sector...10 Figure 4: Business areas of US respondents....10 Figure 5: Average size of responding US enterprises in each sector...11 Figure 6: Variety of software products used in the different software categories...12 Figure 7: The problem of incompatibility...13 Figure 8: Advantages of centralized decisions on software standards...15 Figure 9: Reasons against centralized decisions on software standards....15 Figure 10: How sensible is centrally specifying common standards/software products....16 Figure 11: Number of different business software products used in the company...19 Figure 12: The most common products in the category of business software....19 Figure 13: The proportion of standardized business software....20 Figure 14: Opinions on strategic matters...23 Figure 15: The use of EDI standards in Germany....26 Figure 16: The use of EDI standards in the US....26 Figure 17: Diffusion of EDI standards in Germany...27 Figure 18: Diffusion of EDI standards in the US....27 Figure 19: Reasons for the implementation of an EDI solution....28 Figure 20: The use of Internet technology...34 Figure 21: Administration of content and presentation....35 Figure 22: Administration of data entry...35 Figure 23: Criteria for decisions on business software....37 Figure 24: Criteria for decisions on EDI systems...38 Figure 25: Criteria for decisions on office communication software...39 Figure 26: The opinion of the participating MIS managers on selected matters...40

The Management of Software Standards in Enterprises Results of an Empirical Study Page 4 Tables Table 1: The correlation between incompatibility and the number of different standards/products used...17 Table 2: How was the custom-made business software predominantly written?...20 Table 3: Who decides about the implementation of business software?...21 Table 4: The correlation between the degree of centralization and the number of different products used...22 Table 5: Outsourcing of EDI services in German and US companies....29 Table 6: Costs of the company-wide implementation of the EDI solution....29 Table 7: Annual costs to run the EDI solution company-wide....30 Table 8: Annual savings...30

The Management of Software Standards in Enterprises Results of an Empirical Study Page 5 1 Editorial New information and communication networks - above all the Internet - offer new and significant opportunities to achieve competitive advantages for companies, people, and public institutions. These networks are likely to lead to fundamentally new organizational and cooperative structures that will change current ways of doing business. Consequently, an analysis of the "networking" phenomenon with all its possible dimensions becomes of great importance. In 1997 the University of Frankfurt in Germany started the research program Competitive Advantage by Networking the Development of Frankfurt and the Rhine-Main Region aimed at the creation of an interdisciplinary theory of networking. Financial supported from the German National Science Foundation (Deutsche Forschungsgemeinschaft), 50 scientists from various disciplines (Business, Computer Science, Information Systems, Political Science, Law, Sociology and Geography) analyze the effects of new communication and information networks on economy and society in 11 projects. Networked cooperation (inter- or intra-company) depends upon the use of information technology (IT) standards. Therefore, our participating project Economics of Standards in Information Networks analyzes the impacts of technical standards on networking between companies. To gain information about the use of software standards in enterprises, we conducted a comprehensive empirical survey, both in Germany and North America. It focuses on the corporate adoption and use of various IT standards, including Internet and electronic commerce standards, business software and EDI. The main questions of the questionnaire were: Which IT standards do companies currently use and which will they use in the future? How significant are the problems of incompatibility for different categories of software? Who are the decision-makers for the adoption and implementation of IT standards in enterprises? What are the potential advantages and disadvantages of centralizing the management of software standards? Of what importance are various criteria (price, functionality, market penetration etc.) for decisions on IT standards? The questionnaire was sent to the head of the MIS department of 1000 of the largest enterprises both in Germany and the United States. Analyzing the management of software standards in large enterprises of course only covers a small area of a wide research field. Nevertheless, this study provides a good starting point for an economical analysis of standards in networks. Preliminary results of the survey were published in (Buxmann, P./Westarp, F v./könig, W. 1998) and (Westarp, F. v./weitzel, T./Buxmann, P./König, W. 1998). Falk v. Westarp (Ph.D. Candidate) Dr. Peter Buxmann Prof. Dr. Wolfgang König Institute of Information Systems Frankfurt University, Germany

The Management of Software Standards in Enterprises Results of an Empirical Study Page 6 2 Summary In this report, we present first results of our empirical survey carried out in the summer of 1998 with 1000 of the largest companies in Germany and the US respectively. We examined questions of managing software standards in enterprises. We described the status quo of software standards used in enterprises and proved statistically that with an increasing number of products the problem of incompatibility is also increasing. This indicates the lack of compatibility and appropriate interfaces among current software products. Most significant is the problem of incompatibility in the field of business software. One possible solution of the problem of incompatibility is the centralization of decisions on software standards. Centralization bears the advantage that central information management might have the best overview on the company as a whole. On the other hand, a decentralized decision structure usually considers more knowledge concerning the specific needs of the particular departments. MIS managers from both Germany and the US generally agree on a positive assessment of centralizing the decisions on software standards. Advantages like guaranteed compatibility, flexibility, and economies of scale are rated very high, while the disadvantages like lacking knowledge of particular IT requirements and enforceability seem to be of less importance. By using the example of business software we could confirm this positive judgement statistically by showing that centralization can reduce the number of different products in use and therefore reduce problems of incompatibilities. Analyzing the use of business software we found that the market in Germany is dominated by SAP, while the US business software market is much more heterogeneous. Focusing on the difference between standardized and custom-made business software respectively, we did not find a clear trend towards standardization or individualization. In average the proportion of standard software is a little less than 50%. The custom-made part of the business software was mainly produced by internal resources of the respective company. In most of the cases, we found that decisions concerning the selection of business software are made within teams, i.e. both central IT departments and decentralized departments are involved in the decision process. However, in Germany decision-making is currently more often centrally organized than in the US. Most of the responding MIS managers in Germany and the US agree that their companies will use more standardized business software in the future. At the same time a majority of the respondents believes that the standard software will be easier to customize. Using the survey data and a case study with 3Com, we gave an overview of the current use of EDI solutions in large companies and analyzed how far the use of new emerging Internet-based EDI (WebEDI) is considered. The majority of the responding companies already uses traditional EDI technology. Most of the responding MIS managers see the main reason for using EDI in potential time savings and think that the request of business partners was very important or important for their decision to implement EDI. Surprisingly, costs savings is not one of the most important argument for implementing EDI. The responding companies in both countries are more likely to provide EDI services in-house. This tendency is by far stronger in the US than in Germany. Only in 10 to 15% of responding companies from the US data security services and format transformation are exclusively or mostly outsourced. While currently only 7.4% of the responding enterprises in Germany and 16.9% in the US use WebEDI, more than 50 per cent of the enterprises in both countries plan to implement this technology in the future. The expectations concerning the future share of Internet-based

The Management of Software Standards in Enterprises Results of an Empirical Study Page 7 relative to traditional EDI vary between 5% and 25% for the year 2000 and between 15% and 100% for the year 2005. Nearly all of the responding companies currently use Internet technology. The use of the World Wide Web (WWW) and e-mail is general practice in both countries. Besides this, Intranet is also a very common field of use. The administration of Internet contents is more centralized in comparison to Intranet contents. The evaluation of various decision criteria in the context of buying and implementing software shows different profiles depending on the kind of software category. The functionality is the most important criterion for choosing a specific business software solution, while it does not really matter to the decision makers if the business partners of the own company use the same solution or not. The profiles for decisions on EDI systems show that functionality, price and complementary goods are by far not as important as the other criteria. In contrast, all three of the criteria that indicate direct network effects (current and future diffusion and use of the same solution among the business partners) are evaluated of high importance. In the area of office software, the current and future market penetration are the most important decision criteria while at the same time the use of the same solution among business partners is less important.

The Management of Software Standards in Enterprises Results of an Empirical Study Page 8 3 Design of the Study The survey was conducted in the summer of 1998. A questionnaire containing about 30 questions on 8 pages was sent to 1000 of the largest companies both in Germany and the United States. Prior to mailing the questionnaire, each company was contacted by phone to identify the head of the MIS department to whom the questionnaire was then directly addressed. The respondents had the choice between filling out the paper version of the survey and sending it back by mail or the use of an online web-based survey form. 250 completed questionnaires were returned in Germany (25%), and 102 in the US (10.2%). SPSS was used for the data analysis. The goal of this study was to gain empirical data about corporate adoption and use of various IT standards. On the one hand the study was designed to provide an insight into the determinants of strategic standardization issues like the diversity of software solutions, compatibility problems, and the centralization of decision structure. On the other side, more detailed questions are asked for the selected categories Internet and electronic commerce standards, business software and EDI. Figure 1 shows the structure of the questionnaire. General questions - variety of solutions within different categories - problems of compatibility - pros and cons of centrally specifying standards Business software - products used - proportion of custommade software - selection criteria - decision makers - opinion on some general statements EDI - standards used - reasons for implementation - selection criteria - make or buy of EDI services - costs and benefits - decision makers - Internet-based EDI Office communication - selection criteria Internet technology - areas of use Internet/Intranet: - central/decentral decision on content - central/decentral data entry Personal opinions of the MIS managers on general statements Demographic data of participating enterprises Figure 1: Structure of the questionnaire.

The Management of Software Standards in Enterprises Results of an Empirical Study Page 9 4 Results 4.1 Demographic Data of the Participating Enterprises In this section we will describe the basic demographic information (business area and size) of the participating companies. 250 German companies responded to the questionnaire. The sample is dominated by manufacturing (38%) followed by retail (16%), financial services and insurance (10%), other services (10%), energy and water supply (6%), transportation and communication (6%), construction (4%), and health care and social services (3%) (figure 2). Of the 94 participants that belong to the manufacturing sector, 21 are from the engineering industry (8.4% of the full sample), 18 from the automobile industry (7.2%), and 14 from the chemical industry (5.6%). Construction Health care and social services Other Services Other Manufacturing Financial services and insurance Transportation and communication Retail Energy and water supply Figure 2: Business areas of German respondents. We used the volume of annual national revenues and the number of employees as measures of the size of the responding companies. Figure 3 shows the results for the different sectors.

The Management of Software Standards in Enterprises Results of an Empirical Study Page 10 Germany Construction Health care and social services Other services Financial services and insurance Transportation and communication Retail Energy and water supply Manufacturing 2,09 0,30 0,64 1,81 1,07 1,59 4,86 6,51 12352 4227 4733 8009 5758 2426 4933 24694 0 2 4 6 8 Revenue in Billion $ 0 10000 20000 30000 40000 Number of employees Figure 3: Average size of responding German enterprises in each sector. Like the German sample, the US sample with 102 respondents is also dominated by manufacturing (43%). The other participants belong to retail (14%), financial services and insurance (9%), transportation and communication (9%), health care and social services (6%), energy and water supply (5%), other services (4%), and mining (4%) (figure 4). The companies of the manufacturing section mainly belong to the food, the oil, the chemical and the electronics industry. Health care and social services Other Services Mining Other Manufacturing Financial services and insurance Transportation and communication Retail Energy and water supply Figure 4: Business areas of US respondents. Figure 5 shows the annual national revenues and the number of employees for the different sectors of the responding US companies.

The Management of Software Standards in Enterprises Results of an Empirical Study Page 11 US Mining Health care and social services Other services Financial services and insurance Transportation and communication Retail Energy and water supply Manufacturing 1,88 4,40 3,50 2,93 2,97 3,08 3,78 5,60 8200 17333 20088 18933 15912 5730 14002 31200 0 2 4 6 8 Revenue in Billion $ 0 10000 20000 30000 40000 Number of employees Figure 5: Average size of responding US enterprises in each sector Generally, the companies of the US sample are by far larger in terms of national revenue and the number of employees. Exceptions to this are only the sectors financial services and insurance and transportation and communication. 4.2 Variety, Compatibility and Centralization of Decision Power In the course of time a large variety of heterogeneous software systems emerged particularly in large enterprises. A reason for this development is that different departments have different functional needs for software support. This development is also fueled by the increasing number of mergers, acquisitions and cooperations. The heterogeneity within the IT-infrastructure of large enterprises leads to problems whenever incompatibilities of systems arise. This applies to different types of software solutions as illustrated by the following examples. A lot of time is wasted because the word processing program of an employee persistently refuses to process a document created by another word processing program. This often happens even when an appropriate import function seems available. Unnecessary costs arise. Applications obtain data from different non-integrated databases. In this case, data redundancies may occur. This often results to an inconsistent database which, for example, creates increasing costs due to incorrect data. The incompatibility of applications leads to media discontinuities. Documents are often printed, transmitted via fax and then are entered manually into the receiver s application. The goal of the first section of questions was to gain data about the variety of software solutions in different categories, to identify problems of incompatibility and generally evaluate

The Management of Software Standards in Enterprises Results of an Empirical Study Page 12 advantages and disadvantages of centralizing decisions on software standards. The questions were based on the following categorization of software standards. Office communication software (e.g. Microsoft Office) Database management systems (e.g. Oracle) Business software (e.g. SAP R/3) E-mail programs (e.g. Pegasus Mail) Network protocols (e.g. SNA) Programming languages (e.g. Java) Operating systems (e.g. AIX) 4.2.1 Variety of Software Solutions in Enterprises The first question of the survey addresses the variety of software solutions in enterprises. The respondents were asked about the number of different products they have currently in use in the different categories. Figure 6 illustrates which percentage of the responding companies uses how many products in each of the different software categories. The upper and lower bars of each category show the results in Germany and in the US respectively. E-mail programs Office communication Germany US Network protocols Business software Database systems Programming languages Operating systems 1 product 2 products 3 or more products 0 20 40 60 80 100 % of companies Figure 6: Variety of software products used in the different software categories. Comparing the two countries, the results do not reveal a significant difference concerning the variety of products. Business software is an exception to this. More than 68% of German responding companies only use one or two products in this category, while it is only 53% of the companies in the US. This remarkable gap of 15% is most probably a result of the dominant market position of SAP software in Germany. The largest variety of standards is found in the area of Programming languages and Operating systems. Only 29% of the largest companies in Germany use less then three programming languages (23% in the US) and only 20% (26% in the US) use less than three operating systems. In contrast, we find less variety in the categories E-mail programs and Office communication. About 92% of the responding German companies (86% in US) use

The Management of Software Standards in Enterprises Results of an Empirical Study Page 13 only one or two different products for their e-mail communication and 73% (78% in US) use only one or two different office communication products. 4.2.2 Problems of Incompatibility Looking at the variety of standards used does not necessarily provide enough information about related problems. Therefore, the respondents were asked to give their evaluation concerning the incompatibility problems within the software categories classified above. A five category Likert scale was used for this question with the extremes very significant and very insignificant. Figure 7 illustrates how often the categories very significant and significant were chosen. For reasons of simplification, figure 7 does not show the answers in the other categories. In general, enterprises in the United States seem to be more likely to experience problems of incompatibility than in Germany. The largest differences appear in the categories of Business software, E-mail programs and Programming languages. Business software Operating systems Office communication Database systems Germany US E-mail programs Network protocols very significant significant Programming languages 0 10 20 30 40 % of companies Figure 7: The problem of incompatibility. MIS managers of both countries report their largest problems of incompatibility in the area of Business software. This is likely to be a result of the strategic importance of such systems in enterprises. Nowadays, business software has an impact on all key processes. Therefore, incompatibilities in this area lead to more significant problems than in other areas. 4.2.3 Centralized versus Decentralized Information Management in Enterprises One measure to reduce the number of different software standards seems to be the centralization of decision power. In general, the structure of an organization is called centralized if a single unit within the organization holds all the power of decision. In contrast, an organization is decentralized to the extent that the power of decision is shared among

The Management of Software Standards in Enterprises Results of an Empirical Study Page 14 different units (Mintzberg 1979, 181). Therefore, focusing on the organizational structure of the information management in companies, we call this structure centralized, if the company management or a central IT-department is making the main decisions concerning software standards. On the contrary, in a decentralized information management different departments or business units decide by themselves what kind of standards they use. The main advantage of centralized decisions on standards is to avoid incompatibilities. The central perspective seems to be appropriate to manage information dependencies and companywide business processes. For example, central decisions on company-wide software solutions can contribute to support business processes even though some modules of one standard software usually do not meet the needs of all users equally. Another advantage is that generally it is easier to make necessary changes in centrally administered and more homogeneous IT systems. Examples in this context are upgrades to a newer version of the software or the integration of new solutions into an existing infrastructure. By using common standard software with standardized user interfaces, centralized administration of IT can also reduce the learning time of employees or make it easier to find appropriate personnel. Another advantage of a centralized information management might be economies of scale concerning costs for IT solutions (Mertens/Knolmayer 1998, 51). The main advantage of a decentralized information management and therefore the main disadvantage of centralization - is that the decentral units generally have more information about their particular requirements concerning IT-solutions than a central decision maker (Heinzl 1996, 36). Another disadvantage of a centralized information management is that employees might have little incentive to fulfill central instructions. This usually leads to significant acceptance problems (Mertens/Knolmayer 1998, 75). Generally, this problem will be more serious as the difference between the centralized solution and the solution the departments prefer becomes larger. Additionally, there are other circumstances that further complicate centralized decisions on software standards. For example, particularly in large enterprises, we can find both centralized and decentralized responsibilities concerning IT solutions. Obviously, the reason for this development was the attempt to leverage the advantages of a centralized information management with the advantages of decentralized decision-making. However, these structures often lead to disputes over respective areas of responsibilities and sometimes to extremely long decision-making processes. These problems have recently become even more important due to the increasing number of mergers and cooperations (e.g. Windfuhr 1993). The following section shows how the responding MIS managers evaluate selected potential advantages and disadvantages of central decision making concerning software standards. The respondents were asked to give their evaluation, using a five category scale with the extremes very important and unimportant. Figure 8 shows how often the respondents have chosen the categories very important and important. For reasons of simplification, the figure does not show the answers in the other categories.

The Management of Software Standards in Enterprises Results of an Empirical Study Page 15 Guaranteed compatibility Germany US Homogenious systems are more flexible in case of changes Standardized design reduces learning time of employees very important important Economies of scale 0 20 40 60 80 100 % of responding companies Figure 8: Advantages of centralized decisions on software standards. Almost all of the responding MIS managers (92% in Germany and 92% in the US) see the main advantage of centralization in the improvement of compatibility. About 82% of the responding German enterprises (82% in US) think that the flexibility in case of changes is very important or important in this context, very close to the evaluation of the reduction of learning time of employees (88% in Germany and 80% in the US). Comparing the two countries, there is a remarkable difference concerning the evaluation of potential economies of scale. While 77% of the US respondents consider this a very important or important advantage of central decisions on software standards, it is only 45% in Germany. After learning that all the considered advantages get very high rates in terms of importance, we want to take a closer look at potential disadvantages. Employees best know what software they need for solving problems Germany US There are enough accessible interfaces to solve compatibility problems very important important Trying to centrally specify software is doomed to failure anyway 0 20 40 60 80 100 % of responding companies Figure 9: Reasons against centralized decisions on software standards. It is very obvious that the reasons against centralized decisions on software standards provided in the questionnaire are not seen as significant. Only 14% of the responding German MIS managers (24% in the US) think that the employees in the different operating departments

The Management of Software Standards in Enterprises Results of an Empirical Study Page 16 know better what software best serves their needs. It is clear that the respondents do not agree with one of the most important arguments against central decisions in the organization theory literature. Another result that contradicts some arguments in the discussion about centralization is related to potential incentive problems. It has often been argued that centrally specifying software standards is doomed to failure because employees have no incentive to follow the rules of a central decision making unit (Heinzl 1996, 36). Only 13% of the respondents in Germany and only 15% in the US agree that this is a very important or important problem of centralization. The overhead of a centralized information management could be inefficient if the use of existing interfaces can solve the problems of incompatibility. This does not seem to be the case. Only 11% of the German MIS manager (19% in the US) think that existing interfaces are sufficient to make centralized decisions on IT standards obsolete. Generally, we can observe that the responding MIS manager evaluate the advantages of central decision making by far higher than potential disadvantages. However, we have to be aware of a potential bias since the respondents themselves belong to MIS departments, that are likely to be centrally organized. We also asked the respondents to evaluate how sensible centrally specifying common standards/software products would be in the different categories. The respondents were asked to a five category scale with the extremes very sensible and not very sensible. Figure 10 shows how often the respondents have chosen the categories very sensible and sensible. Office communication Germany US Database systems Business software E-mail programs very sensible sensible Network protocols Programming languages Operating systems 0 20 40 60 80 100 % of respondents Figure 10: How sensible is centrally specifying common standards/software products. Overwhelmingly, the respondents in both countries evaluate centrally specifying standards very positive. With the exception of programming languages between 80 and 98 per cent of the responding MIS managers think that such course of action is very sensible or sensible in all of

The Management of Software Standards in Enterprises Results of an Empirical Study Page 17 the categories. The results of this question confirm our opinion that the answers are significantly biased since most of the respondents are the head of central MIS departments. Therefore, we must use other means for an unbiased evaluation of centralization in this context. For this reason, in the following, we will first measure the potential correlation between incompatibility problems and the number of different products in use. We will then use the example of business software to see if the variety of different business software products is smaller in those companies where the decisions on this kind of software was made centrally. If both of these hypotheses are true we can prove that centralization indeed leads to less incompatibility problems. 4.2.4 The Correlation Between Incompatibility Problems and the Number of Different Products in Use We assume that the chance of incompatibility problems increases with the number of different products in use. To test this hypothesis we measured the correlation between these two variables. We have to consider that the variable that measures the number of different standards is an interval variable while the incompatibility problems were measured ordinally. In this case, it is appropriate to apply statistical tests for the ordinal level. Therefore, the interval variable was transferred to an ordinal scale. To do this, the six categories 1 product in use, 2 products in use, 3 products in use, 4 products in use, 5 products in use and more than 5 products in use were created. We then calculated the Goodman s and Kruskal s Gamma and the Spearman s Rank-Order Correlation Coefficient (rho). Both of them are applicable to measure the correlation of ordinal variables (Levin/Fox 1997). In our case the Goodman s and Kruskal s Gamma is a particularly appropriate measure of correlation since the variables involved are ranked in categories (Levin/Fox 1997, 331). In Table 1 we display the measured values of gamma and rho whenever the level of significance (α) is better than 0.05, since a α larger then 0.05 would be statistically questionable. Goodman s and Kruskal s Gamma Spearman s rho Germany US Germany US gamm α gamm α rho α rho α a a Office communication.301.000.371.003.244.000.305.004 Database software.295.000.252.013.276.000.241.025 Business software.459.000.428.000.408.000.422.000 E-mail programs.382.000.463.000.261.000.361.000 Network protocols.369.000.312.000 Programming languages.310.000.289.000 Operation Systems.315.000.294.000 Table 1: The correlation between incompatibility and the number of different standards/products used.

The Management of Software Standards in Enterprises Results of an Empirical Study Page 18 In most of the cases we see a moderate positive correlation between the two variables. For the German data sample in every software category all levels of significance for both coefficients are better than 0.0005 (SPSS shows the value.000). This means that we can be sure with a confidence of more than 99.95 percent that the measured correlation is not a result of sampling error. The empty spaces in the table indicate the areas in which α is larger than 0.05 and therefore correlations are not significant. This applies for the categories Network protocols, Programming languages and Operation systems in the US sample. One reason for this might be that this sample is smaller than the German one. However, in general we find a positive correlation between the problem of incompatibility and the number of different software standards used. There is a particularly strong correlation in the category of Business software. Taking into consideration that the MIS managers also reported this category as the one with the largest problem of incompatibility, it seems reasonable to reduce potential incompatibilities by reducing the number of different products used in the company. In the next section we will use the example of business software to further analyze if centralization can reduce the number of different products in use and therefore reduce incompatibility problems. 4.3 The Use and Management of Business Software This section focuses on the use and the management of business software. To show the variety of different solutions, we will first describe which particular products are used in Germany and the United States to support business processes. Afterwards, we analyze who are the current decision makers concerning the implementation of this particular type of software. On the basis of our findings we will further analyze if the number of different business software products and the problems of incompatibility problems respectively correlate with the degree of centralization in this area. 4.3.1 The Use of Business Software in Enterprises Figure 11 shows the information displayed in figure 6 more detailed for the field of business software.

The Management of Software Standards in Enterprises Results of an Empirical Study Page 19 Business software Percentage of companies 60 40 20 0 1 2 3 4 5 >5 Germany US Number of different products in use Figure 11: Number of different business software products used in the company. As described in section two, we find that the variety of different software products used to support business processes is larger in the United States. More than 12% of the responding US enterprises use 4 different products, about 8% use 5 and, even more remarkably, about 18% use more than 5 different products. In Germany 6% of the largest enterprises use 4 kinds of business software, 3% use 5 products and about 11% use more than 5 different products. The respondents were also asked which particular business software is used in their companies. Figure 12 shows which types of standard software are currently the most common ones in our sample. 100 % of companies 80 60 40 20 0 SAP R/3 SAP R/2 Oracle- Appl. Paisy Baan-Triton 100 % of companies 80 60 40 20 0 SAP R/3 SAP R/2 Oracle- Appl. Peoplesoft Baan- Triton JD. Edwards Figure 12: The most common products in the category of business software.

The Management of Software Standards in Enterprises Results of an Empirical Study Page 20 The market in Germany is dominated by SAP; 77% of the respondents use R/3 and 48% use R/2. The use of competitive products is by far smaller; 16% of all responding companies use Oracle-Application, 7% use Paisy and 3% use Baan Triton. In the US the market of business software is much more heterogeneous. The most common products in the sample are Peoplesoft (51%), SAP (R/3: 40%, R/2: 4%), Oracle-Application (36%), J.D. Edwards (22%), and Baan Triton (9%). 4.3.2 Standardized vs. Custom-made Business Software Besides standardized software products like SAP or Peoplesoft, the solution to support business processes can contain custom-made software that has been exclusively written for the individual company. We asked the respondents to estimate the proportion of the standardized software in their companies. Figure 13 shows the answers. % of companies 30 25 20 15 10 5 0 0-20% 21-40% 41-60% 61-80% 81-100% Germany USA Figure 13: The proportion of standardized business software. The answers show that there is no clear trend towards standardization or individualization respectively. In average the proportion of standard software is a little less than 50%. We find about as much companies with very little custom-made software as companies that use very little standard software. Focusing on that part of the solution that was custom-made, we wanted to know whether this software was programmed in-house or if the programming was outsourced (table 2). in % of companies in-house outsourced both equally Germany 60.8 16.3 22.9 USA 53.8 18.7 27.5 Table 2: How was the custom-made business software predominantly written?

The Management of Software Standards in Enterprises Results of an Empirical Study Page 21 In both countries the custom-made part of the business software was mainly produced by internal resources of the respective company (60.8% in Germany and 53.8% in the United States). Only 16.3% of the responding German and 18.7% of the US companies predominantly outsourced this task. 4.3.3 Who Decides about the Implementation of Business Software? The empirical results of section 4.2.3 show a strong vote of MIS managers in favor of centralizing the decisions on software standards. Taking the earlier results of this article in consideration, we will now statistically test whether centralization really reduces the problems of incompatibility in the area of business software. First, the respondents were asked to answer the question who makes the decision in the field of business software. To answer this question the respondents could choose from the following categories: 1. company management 2. head/employee of the central MIS department 3. head/employee of an operating department ( e.g. controlling, accounting) 4. head/employee of a business unit 5. other Multiple answers were possible. For analysis and interpretation the data was regrouped. Answers of category 1 and 2 were classified as central, 3 and 4 as decentral. Whenever answers were found in both of these groups, they were newly classified as team. Answers were also counted by the variable team, whenever it was explicitly mentioned in the category others that decisions were made with central and decentral units participating. The table below shows the proportion (in percent) of how decisions concerning business software are currently made. in % of companies decentral team central Germany 3.3 56.7 40 US 8.5 61.7 29.8 Table 3: Who decides about the implementation of business software? In most of the cases we find that decisions concerning the selection of business software are made within teams, i.e. both central IT departments and decentralized departments are involved in the decision process. An interesting result, however, is that in Germany decisionmaking is currently more often centrally organized. It appears to be promising to take a closer look at a potential connection between the larger degree of centralization and the smaller heterogeneity in Germany in comparison to the United

The Management of Software Standards in Enterprises Results of an Empirical Study Page 22 States. More centralization seems to lead to more homogenous solutions. This correlation appears to be reasonable since a central decision making unit is able to consider company-wide network effects related to the use of software standards. 4.3.4 Correlation between Centralization and Heterogeneity In section 4.2.4 we found that especially in the category of business software the problems of incompatibility in enterprises correlate with the variety of different solutions in a company. Based on our findings we propose the hypothesis that centralization leads to more homogeneous software solutions. In order to test this hypothesis for the field of business software, we measured the potential correlations between centralization of decision making and number of different products used for the data samples of both countries. As for the test of correlation in section 2.4.2 the variable number of different products used was transferred from interval to ordinal scale. The data about the current decision makers was regrouped as described in section 4.3.3 to create the variable centralization of decision making. The latter was interpreted as an ordinal variable. This means that in terms of centralization the following statement is true. decentral < team < central To measure potential correlation between the two variables we calculated the Goodman s and Kruskal s Gamma and the Spearman s Rank-Order Correlation Coefficient (rho). Table 4 shows the results. Goodman s and Kruskal s Gamma Spearman s rho Germany US Germany US gamma α gamma α rho α rho α -.053.637 -.388.006 -.036.633 -.307.010 Table 4: The correlation between the degree of centralization and the number of different products used. While for the German sample no significant correlation was found, testing the US sample shows a moderate, statistically significant, and negative correlation between the number of different products in use and the degree of centralization. Therefore, we accept the research hypothesis for the US sample: The number of different business software used in enterprises decreases when the degree of centralization increases This result seems to substantiate the strongly positive judgment of the responding MIS managers towards the centralization of IT-decisions. Nevertheless, the measured correlation needs further examination since it could statistically only be proven in the comparatively small US sample. 4.3.5 Opinions about Strategic Matters

The Management of Software Standards in Enterprises Results of an Empirical Study Page 23 Concluding the section about business software we asked the MIS managers for their opinion on some strategic matters in this context. The respondents were asked to give their evaluation on different statements using a five category scale with the extremes I totally agree and I totally disagree. Figure 14 shows the statements and results and summarizes the answers. The share of standardized software relative to custom-made software will increase in my company. Germany USA Custom-made software is mostly used to support critical success processes. In the future, so called "component ware" (e.g. Java Beans) will substitute more and more for standardized software. I totally agree I agree In the future, standardized software will be easier to customize. 0 20 40 60 80 100 % of responding MIS managers Figure 14: Opinions on strategic matters. About 82% of the responding MIS managers in Germany and 90% in the US agree (or totally agree) that their companies will use more standardized business software in the future. At the same time a majority of the respondents (77.2% in Germany and 71.4% in the US) believes that the standard software will be easier to customize. About 44% of the German and about 57% of the US respondents agree that custom-made software is mostly used for critical business processes, while only 31% and 38% respectively think that so-called component ware will substitute standardized software. 4.4 The Status Quo and the Future of EDI Systems EDI is the exchange of business data (e.g. delivery notes, invoices) between two application systems in a standardized, automated form. EDI solutions are used by companies to achieve a more efficient data and information management by reducing processing time and avoiding redundant data entry. EDI standards structure the content of messages with regard to syntax, semantics, and pragmatics by uniformly defining message types and components. On the one hand, the benefits of EDI derive from cost reductions induced by rationalization and automation. Examples are avoiding redundant data entry and error rate improvements. On the other hand, the use of EDI induces other strategic benefits such as higher customer satisfaction through shorter order processing time or by improving the value-added chain (justin-time management, etc.). Despite these potential improvements a lot of companies do not yet use EDI for the transfer of business data due to the relatively high costs of implementing and running the solution. In this section we will give an overview of the current use of EDI in large

The Management of Software Standards in Enterprises Results of an Empirical Study Page 24 enterprises and analyze how far large companies consider the use of new emerging Internetbased EDI (WebEDI). 4.4.1 Traditional EDI Electronic Data Interchange (EDI) is the business-to-business exchange of electronic documents in a standardized machine-processable format. EDI enables partners to electronically exchange structured business documents, such as purchase orders and invoices, between their computer systems. In contrast to traditional paper-based transactions there is no human intervention. Data is automatically generated in one computer system and sent to another to be automatically processed. Prior to exchanging EDI documents, partners must first agree on a common standard to structure the content of the documents, i.e. the EDI-Standard. The content of the transmitted documents varies with regard to the industry. Therefore, a variety of industry specific EDI standards has emerged over the years. Examples are VDA in the automotive industry, SWIFT in the banking sector, SEDAS in the consumer goods industry or DAKOSY in the transportation industry. In addition, national standardization efforts led to national EDI standards like TRADACOMS in the UK or ANSI ASC X12 in the USA. To overcome compatibility problems caused by the variety of standards was the motivation for the United Nations (UN), the European Community and the worldwide standardization organization ISO to develop a globally effective, industry-neutral standard. This effort resulted in UN/EDIFACT (EDI for Administration, Commerce and Transport, ISO 9735). The complexity of EDIFACT due to the claim to meet all possible message requirements led to socalled - again mostly industry specific - subsets. These subsets are a 'small solution' or an 'EDIFACT light' application, a fraction of the usable message types, data elements, codes and qualifier of the extensive set supported by EDIFACT. Subsets only employ that small part of the large amount of EDIFACT messages the particular user really utilizes. Therefore, from a user's perspective, subsets are often more efficient since their implementation is considerably more cost-effective. This led to industry-specific EDIFACT subsets like ODETTE (Organization for Data Exchange by Teletransmission in Europe) in the automotive industry, CEFIC (Conseil Européen des Fédération de l Industrie Chemique) in the chemical industry, EDIFICE (EDI Forum for Companies with Interests in Computing and Electronics) in the electronic industry, EDICON (EDI Construction) in the construction industry or RINET (Reinsurance and Insurance Network) in the insurance industry. The cost and time savings resulting from using EDI can be considerable. Direct savings result from decreased information costs due to cheaper and faster communication. Additionally, avoiding media discontinuities eliminates the errors that occur due to re-keying of data or reformatting of documents. The immediate availability of the data allows an automation and coordination of different business processes, e. g. enabling just in time production. As a result, an enterprise can reduce its stocks drastically, capital investment in stocks decreases; it can faster react to changes in its competitive environment. Often, administrative overhead can be reduced and unnecessary loss of information can be avoided since enterprises do not take full advantage of all information available due to the costs of manual data input. Another reason discussed in the literature on EDI why EDI is implemented in enterprises is the possibility to offer better service to the customers. It is also common that especially smaller companies are forced to implement the EDI-standard of the big partner by threat of giving up