Information Management & Computer Security

Strategic business applications and new virtual knowledge-based businesses through community-based
information networks
Mitsuru Kodama
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To cite this document:
Mitsuru Kodama, (1999),"Strategic business applications and new virtual knowledge-based businesses through community-
based information networks", Information Management & Computer Security, Vol. 7 Iss 4 pp. 186 - 199
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 Strategic business applications and new virtual
knowledge-based businesses through
community-based information networks
Keywords
Information technology,
Computer networks,
Multimedia,
Downloaded by SELCUK UNIVERSITY At 03:04 02 February 2015 (PT)
Organizational strategy,
Leadership, Core competences,
Virtual reality
Abstract
This article will point out that fully
utilizing community-based infor-
mation networks based on multi-
media digital networking IT
(information technology) supports
managerial speed and excellence,
while making it possible to formu-
late a new, customer value crea-
tion business model. Aggressive IT
investment by top management to
build community-based informa-
tion networks, a support tool for
this future network strategy, will
permit business innovation based
on strengthened competitiveness
and enhanced customer service.
This article describes some real
examples of communities within
companies, among companies,
and between companies and their
customers, using cases of com-
panies currently making active
use of community nets. Case
studies of manufacturing compa-
nies demonstrate the value of
community nets as a network
strategy support tool that bolsters
community management in com-
panies. This article will also point
out that community-based infor-
mation networks will become an
important multimedia communica-
tion platform for the creation of
new virtual, knowledge-based
businesses.
Information Management &
Computer Security
7/4 [1999] 186±199
# MCB University Press
[ISSN 0968-5227]
[ 186 ]
Mitsuru Kodama
Executive Director, Community Laboratory, Hoya Shi, Tokyo, Japan
It is a truism that companies must continu-
ally evolve by engaging in various forms of
innovation. Particularly in light of the
advent of the knowledge society, businesses
are faced with a large transition from focus-
ing solely on developing products and ser-
vices, to also strategically innovating to
improve their business processes.
Innovation is a process that can occur in
the course of carrying out various business
activities, such as product and service
development, marketing, manufacturing,
sales, distribution, and after-sales services. It
occurs not only in the course of improving
and expanding existing ventures, but also
while creating new businesses and ventures
(Kanter et al., 1997).
In particular, for various large, leading-
edge businesses whose core competencies
are in the software, semiconductor, and
networking technology that form the foun-
dation of multimedia and computer net-
works, as well as for numerous venture
companies, the past several years have
brought increasingly intense competition to
leverage such new business styles as strate-
gic partnerships, mergers and acquisitions,
outsourcing, and virtual corporations, for
the purposes of developing strategic enter-
prises, expanding the market shares of their
products and services, and creating new
businesses.
The important issue in promoting this kind
of business innovation is not how to carry
out strategic business operations using com-
pany resources (knowledge, personnel, etc.).
But rather how to develop innovative busi-
nesses by creating communities of various
organizational forms through collaboration
(including virtual collaboration via IT
networks) with resources outside the
organization.
The current issue and full text archive of this journal is available at
http://www.emerald-library.com
The need for strategic community
creation
One can think of companies as collections of
interlinking communities composed of
diversely-populated teams or groups, that
organically engage in strategic business
activities and operations to achieve the
organization's business goals. Communities
can be broadly divided into three categories:
1 Type 1 communities are contained within
the organization of a single corporation,
and do work from routine, daily tasks, to
sharing information and knowledge for
strategy development, and making deci-
sions (for example, from top stratum to
mid-level, and then to lower levels; or
from headquarters to branches and sales
offices).
2 Type 2 communities are collective bodies
formed with tie-up partners and outsource
companies. These communities share
diverse knowledge and information, cre-
ate businesses, and perform work related
to everything from oursourcing to strate-
gic tie-ups.
3 Type 3 communities are formed between
companies and customers on the basis of
direct channels and new marketing stra-
tegies (for example, new, customer-parti-
cipation model product and service
development projects that reflect the var-
ious needs and claims of specific custo-
mers). The customers range from large
clients to general users.
When analyzing the behavior of companies
under the aforementioned new business
forms, rather than merely coming to an
understanding of the organizational struc-
ture, and then developing strategic and
organizational theories, what will be needed
in the future is debate that takes as its unit of
organizational analysis the communities
represented by teams and groups within and
outside the company. These include such
participants as tie-up partners and custo-
mers. To continually revitalize a company
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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and nurture its efforts to create new busi-
nesses over the long term, it will be impor-
tant to develop businesses through strategic
community creation (including virtual com-
munity creation via IT) in response to
changes in the business environment (e.g.
Bechard et al., 1996; Lipnack and Stamps,
1997).
In this kind of business development, an
important theme is the need for community
leaders to exercise innovative leadership[1]
in creating strategic communities. The basis
of innovative leadership is the ability to
think and act strategically, and in accord
with the community's core competencies of
information, knowledge, expertise, and con-
ceptualization (hereafter referred to as com-
munity competencies[2]). (In this article,
business innovation through strategic com-
munity creation will be referred to as com-
munity management (Kodama, 1998)).
With recent, rapid technological innovation
in multimedia digital networking IT, it is now
possible for communities within and outside a
company's structure to develop businesses in
a new customer value creation model, make
use of the latest IT to bolster community
management, and promote management
characterized by speed and excellence.
A grand design for organizational
management and the spread of
information networking
Amid dizzying changes in the business
environment, in order to make future man-
agement more strategic, continually increase
the productivity of individual employees, and
endeavor to raise the level of management for
the overall company organization, aggressive
application of IT is essential. Representative
examples include recent cyberbusinesses
that use the Internet, and companies that
have brought efficiency to their business
operations through the active use of intra-
nets and extranets.
Next, using Figure 1, this article outlines a
grand design for the future of organizational
management in the corporate structure, and
on the spread of information networks,
which is likely to influence it significantly.
The Hop process
In the era that preceded the development of
international digital networks such as the
Internet, the majority of companies accom-
plished their daily business operations using
telephones and facsimile machines for com-
munications both internal (among
departments) and external (with business
connections and customers). The various
types of business processing performed by
computers consisted mainly of centralized,
fixed processes, typified by accounting, and
performed on general-purpose, mainframe
host computers. On a time axis, this process
is defined as the Hop stage.
This Hop stage, described from an info-com
technology perspective, was a world based on
analog networks and low-speed transmission
digital networks, in which voice communi-
cations and data transmission played a
central role. The organizational form was
hierarchical, management-based, adminis-
trative, and pyramid-shaped. Operations
were carried out vertically, through lines of
command. Within a company, information
flowed from high organizational rank to low
organizational rank.
The Step process
Trends of decentralization and integration
through the large-scale downsizing of com-
puter systems mark the next stage, known as
Step. At the same time, backdropped against
the development of Internet and intranet
network technology, companies moving for-
ward with the configuration of both intra-
company and extra-company networks that
make free use of digital technology, have in
recent years continued to increase.
With the Step process, there exists an
environment in which communication and
collaboration, through electronic mail and
groupware that fully utilize digital networks,
play a central role, progress in improving
organizational work flow is a step above the
Hop stage, and external communication and
collaboration flourish.
Owing to a loosely hierarchical organiza-
tion in which flattening proceeds more
smoothly than in the Hop stage, the Step
stage better facilitates rapid decision making
and delegation. Regarding the form of orga-
nizational management, the organizational
climate of the Step stage better lends itself to
promotion of so-called knowledge manage-
ment based on knowledge creation, and more
individual and organizational activation can
be anticipated.
Many companies are currently moving
from the Hop process to the Step process, and
cases of companies actively adopting e-mail
or various types of groupware to facilitate
inter-organizational communication and in-
formation sharing are common. Many com-
panies are using methods like these with the
goal of promoting company innovation, and
thus taking knowledge management to the
next level.
Meanwhile, another truth about the Step
stage is that for companies that have already
carried out cultural reform by adopting new
[ 187 ]
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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Figure 1
A grand design for organization management and the spread of information
networking
[ 188 ]
tools like e-mail and groupware, it is becom-
ing apparent that these alone do not allow
them to sufficiently strengthen communica-
tion or expedite decision making, whether
inside or outside their organizations (Nikkei
Information Strategy, 1998).
In short, problems related to the one-
directional, non-real-time nature of contact
and consultation by e-mail are being raised
as the largest obstacle to quickly making
important judgments and decisions. The
reason is that the most important element in
organizational communication is the empa-
thy and solidarity between individuals that
comes with face-to-face communication.
Accordingly, the next process, known as
Jump, will require complete eradication of the
stifling feeling experienced when using e-mail
or groupware that one cannot adequately
convey his thoughts or intentions. It will also
demand the ultimate communication tools to
lead company organizational reform.
The Jump process
For future business forms such as those
mentioned, business development by
communities inside and outside the company
organization that have openly incorporated
external resources, including customers, is a
pattern expected to be increasingly seen.
Compared with Step, this process will
demonstrate flatter and more flexible orga-
nizational composition, and more open man-
agement.
In the Jump process, community leaders
must exercise innovative leadership and
leverage community management to dyna-
mically promote business strategies within
and among communities. Furthermore, net-
work strategy support tools to back up this
new management will be essential.
Specifically, these tools will comprise a
system that supports community leaders,
and the sharing, creation, and innovation of
community competencies. In concrete
terms, it will be a new, multimedia image-
based information network system that
emphasizes the high-quality collaboration
needed for decision making by community
leaders, and interaction among individuals
(in this article, it will be referred to as a
community-based information network,
hereafter, community net). In this step,
to further the Jump process transition
(that is already underway throughout the
world), dynamic reform of individual cul-
tures and overall organizational climates,
and the active adoption of multimedia,
digital networking, IT-based community
nets, will be important. It will also be
important to promote dynamic businesses
by making management and organizations
transparent throughout the various com-
munities both inside and outside the
organization.
The community net concept
The community net is networking that takes
the one-to-one, text-based communication
and collaboration represented by e-mail and
groupware to a new level to allow interactive
communication and collaboration that fuses
the three multimedia elements of images,
voice and text. It uses technologies repre-
sented by the Internet and ISDN (integrated
services digital network)[3] that are continu-
ously being realized through network devel-
opment and technological innovations in
various network devices. As for applications,
there exist both interactive real-time models
and storage-type, non-real-time models.
Use of community nets in the interactive
real-time model
The first application, as shown in Figure 2, is
an interactive real-time model system that
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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Figure 2
The community-based information network concept
allows simultaneous exchange of information
from different locations. Typical systems are
desktop personal video conferencing systems
(DTC: Desktop Video Conference) and video
terminals such as video phones, which are
more personal, easier to use, and more suited
to the general user than single-use room
system-type video conferencing systems[4]
(Rosen, 1996; Trowt-Bayard and Wilcox, 1997).
This system allows interactive, real-time
transmission of images and voice, but also
supports the sharing of textual information;
for example, two-way collaboration on a data
sheet. Video terminals overcome the e-mail
and groupware disadvantages of not being
real-time and not facilitating easy commu-
nication of thoughts and intentions, and
allowing content-rich debate and rapid deci-
sion making.
This makes possible support of decision
making by community leaders and contribu-
tions to the reform and creation of commu-
nity competencies in information,
knowledge, expertise, and conceptualization,
both within and among communities.
Furthermore, the use of video communica-
tion with business contacts and customers
makes possible a new customer-creation
model business style.
Use of community nets in the non-real-time
model (storage)
The second application is storing community
competencies such as information, knowl-
edge, and expertise, which are not real-time
in nature, in storage systems, from which
they can be searched and extracted on
demand. A typical system is the video-on-
demand (VOD) system[5]. VOD systems allow
the accessing and searching of databases of
images (as well as voice and textual infor-
mation) using the video terminals of devices
such as video conferencing systems and
video phones.
VOD allows knowledge and expertise
(community competencies) gained from
organizational learning, which does not lend
itself to text-based communication, to be
stored in visual form, and then shared within
or among communities. R&D, design, manu-
facturing, and personnel training applica-
tions will be particularly useful.
The community net as a network
strategy support tool
Mainframe host computers are a type of
information system that has changed little
over time. These numeric processing-based
machines are positioned as management
control systems for routine operation-type
work. However, with the arrival of e-mail and
groupware, many companies are clearly
supporting decision making by community
leaders and using collaboration within and
between communities to promote knowledge
management over older models. But our
survey results show that, in light of the trend
toward the management innovation model
and the customer value creation model,
community nets are a stronger strategic
network support tool than e-mail and group-
ware (see Figure 3).
Figure 4 shows the results of a survey of 50
leading companies in Europe, the USA and
Japan that are already actively using com-
munity nets in individual business pro-
cesses such as planning, design,
development, manufacturing, sales, physical
distribution, and support. It summarizes the
results of a conventional survey of the
project leaders, group leaders, team leaders,
and other upper-level managers whose roles
correspond to that of community leader, and
the results of a hearing-type survey. Using
these results, we compared community nets
to conventional tools such as e-mail and
groupware, and found that in the following
ways, community nets are superior for
promoting community management in the
company setting.
First, take the community net's superiority
in bringing efficiency to business processes by
expediting the decision making of community
leaders in order to promote strategic business,
and by fostering the high-quality collaboration
within and among communities that is embo-
died by interaction among individuals; and
the community net's superiority for sharing,
creating and innovating community compe-
tencies such as knowledge and expertise, a
process known as management innovation.
[ 189 ]
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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[ 190 ]
Figure 3
Positioning of community-based information network
Figure 4
The superiority of community-based information networks
Second, in the realm of marketing strategy,
including service improvements and
enhancement of after-sales service, com-
munity nets are superior in customer value
creation. In other words, it can be said that
from the standpoint of innovation in man-
agement and customer value creation,
community nets can assume the job of
supporting community management and
expediting innovation in company
business.
Case studies of two manufacturing compa-
nies, one in the USA and one in Japan,
demonstrate the value of community nets as
a network strategy support tool that bolsters
community management in companies.
Managing with speed and
excellence: the case of Peregrine
Inc.
Promoting community management
Peregrine, Inc.[6,7], headquartered in South-
field, Michigan, in the USA, is an auto parts
supplier, and a first-rate company from the
standpoint of quality control[8]. President
and CEO Edward J. Gulda, stresses his firm
belief in the company's strategy of main-
taining a competitive advantage through
speed and excellence.
Behind his emphasis on this point is the
reality that amid the diversity of customer
needs and shrinking product life-cycle that
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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characterize his industry, in order for a
company to beat its competitors, it is
becoming increasingly important to invest in
the ability to nimbly grasp customer needs,
and quickly develop, produce and market
products.
The US auto industry, which is character-
ized by large changes in the business envir-
onment, was exposed to an intense offensive
by Japanese auto makers in the latter half of
the 1970s. As a result, companies in the USA
vigorously promoted policies such as con-
current engineering (Clark et al., 1987; Ernst
& Young, 1991; Dyer, 1996; Helper and Sako,
1995; Womack and Jones, 1996). As auto
makers have efficiently applied these poli-
cies, suppliers have increasingly reduced the
life-cycle of the components they supply in
step with frequent model changes (from their
previous lengths of four to five years to two
years or less).
Consequently, suppliers must participate
from early in the new model development
stage, so through joint projects with their
customers, they are involved from an early
stage to develop various components that fit
their customers' needs (supplier-maker de-
sign sessions). In this way it becomes possi-
ble for them to greatly reduce the length of
the product development and production
process. So to aggressively promote concur-
rent engineering like that mentioned earlier,
it is important to strengthen community
management in relation to the three com-
munity types described before.
As a Type 3 community application, the
first form is community management
between the auto maker customer and the
supplier (in this case, Peregrine, Inc.), which
demands rapid decision making and concrete
action in response to the diversified needs of
the customer. For this to succeed, commu-
nication between the community leaders and
community members of the customer and
supplier, and the sharing, creation and
innovation of information, knowledge,
expertise, and ideas represented by commu-
nity competence, are always essential. Suc-
cess sometimes requires that the strategic
level of top management exchange opinions
and information, and make quick decisions,
as well.
As a Type 1 community application, the
second form is community management
within the supplier's own company. An
example is strong cooperation between the
design department and the production
department. Here, it refers to the smoothing
of two-way communication and collaboration
between the design and production group
departments, in which it must be possible to
share and create community competencies
among the groups, and to achieve rapid
decision making by community leaders.
For example, re-examining the production
process and solving problems to accompany
changes in specifications from the customer
auto maker are among the important
business processes within this community.
As a Type 2 community application, the
third form is community management from
the primary supplier as seen from the auto
maker (Peregrine Inc.) and its own suppliers
(second-tier suppliers). Specification changes
from the auto maker do not effect only the
primary supplier. They also have a large
ripple effect on second-tier suppliers, which
requires cooperation and agile community
action to be dealt with effectively.
And so, in each of the three forms of
community management, both within and
among communities, carrying out this man-
agement in a deft and proper manner is the
most important issue for purposes of
reforming management and creating custo-
mers. Peregrine Inc. strengthened commu-
nity management by making a large
investment in IT by configuring a commu-
nity net in order to further promote concur-
rent engineering in the areas of auto design
and production.
Reforming itself to become a world-class
leading company in ten years via
community nets
Community net configuration using
intranets and extranets
To smoothly promote communication and
collaboration among its departments, the
company used a high-speed, fiber-optic,
wide band ATM network (ATM-LAN/
ATM-WAN) to configure an intranet con-
necting its headquarters and four factories[9]
(Ford et al., 1997). It went on to connect
itself to its auto maker customer and second-
tier suppliers with ISDN, and an extranet
was realized within each of these
communities.
On the other hand, Peregrine had been, as
a concurrent engineering tool, sharing blue-
print files with its auto maker customer over
a large-scale CAD network, to expedite design
and development work. In addition, the
company has achieved speedy management
by adding to this CAD system communica-
tion and collaboration within and among the
communities of the design staff, development
staff, and production staff through face-to-
face video communication and collaboration.
Contributing to this is the high-speed, wide-
band ATM network-based community net the
company has configured[10].
This community net links roughly 900
customers (desktop PCs) in various
[ 191 ]
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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[ 192 ]
departments (headquarters staff department,
design departments, production departments
in factories) in five remote locations (includ-
ing headquarters) to an ATM network, and
between 10 and 100 of these customers are
equipped with a high-speed, high-quality
video conferencing system.
What is more, these video conferencing
systems can be connected to a public
ISDN network to allow video conferences
with the auto maker and second-tier
suppliers.
The community nets in each location are
equipped with the standard features of a VOD
system, allowing the various community
competencies created within and among
communities to be stored in the form of video
information.
Top-level innovation, creation and sharing
of community competencies and rapid
decision making (see Figure 5)
Mr Gulda makes active use of the community
net by holding a strategy session with his
company's executive staff and factory heads
for business planning and financial analysis
every Monday morning from his desktop PC.
The community net also plays an important
role in face-to-face communication with cus-
tomer auto makers and second-tier suppliers.
The top-level managers are always using the
community net to conduct quick, strategic
community management within and among
communities.
Figure 5
The community net at Peregrine, Inc.
Promoting communication and
collaboration among different
departments, such as the design and
production departments (see Figure 5)
An important point in business operations in
the intra-company communities is the
promotion of community management using
real-time communication and collaboration
between factory and design teams that are
approximately 60 miles apart. Designers and
factory technicians use the community net to
quickly solve current component problems in
a virtual face-to-face setting. Furthermore,
interactive, real-time collaboration between
a door handle designer and sheet metal
technician, specialists from completely dif-
ferent fields, is now possible.
Through this kind of community manage-
ment using community nets, Peregrine can
offer superior products to the auto maker
customer quickly, and the auto maker can
quickly place the end product new model on
the market. This, in turn, has a direct
bearing on improved customer service for
the ultimate end-user consumer.
Storing community competencies using
VOD (see Figure 5)
Peregrine uses a VOD storage system to
continually share, create and innovate the
community competencies that arise within
and among the communities of its organiza-
tion. An important point relating to the
application of VOD is that it facilitates
promotion of personnel cultivation,
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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intra-company communities, and organiza-
tional learning for the entire company by
allowing various educational materials for
intra-company training and knowledge and
expertise derived from the design, develop-
ment, and production processes to be stored
as video information. What is more, Pere-
grine is using VOD for storing and updating
personnel information, and aggressively ap-
plying it to human resource management and
other processes.
Top-down investment in IT
To configure a large community net such as
that mentioned, a network configuration
professional with general knowledge is
thought to normally require about two years.
Peregrine, however, by using top decision
making, was able to complete the task in
about eight months. Behind this accomplish-
ment was a firm belief at the top level that the
community net would lead the company to a
superior competitive position.
A special project team composed of Pere-
grine's system integrator team and personnel
from external vendors vigorously promoted
the network configuration project. The com-
pany is further aiming for the future devel-
opment of a sophisticated, state-of-the-art
network in the USA.
What is more, Peregrine plans to expand
its business overseas, and develop its ATM
backbone-based community net to be the core
infrastructure of its global strategy. Back-
dropped behind these plans is a firm recog-
nition by the managing staff, beginning with
top management, that communication and
collaboration within and among commu-
nities is the true lifeline of Peregrine's
business.
Customer value creation management
(Yoshida Original, Inc.)
The starting point for customer value
creation
Japanese high-grade women's leather bag
manufacturer Yoshida Original, Inc.[11,12],
which represents Japan at the top of its
industry and has been selected as a award
winner of the Japan Quality Award in 1998[13]
(Nihon Keizai Shimbun, 1998e), has estab-
lished a production system that includes
every stage in the life of its bags, from careful
selection of the leather that goes into them, to
manufacture, wholesaling, retailing, and
after-sales service. By establishing atypical
sales channels that bypass wholesalers and
allow it to deal directly with retail outlets, and
designing, manufacturing, selling, and re-
pairing its bags, Yoshida Original has devel-
oped a highly profitable management style
that has seen a 20 percent increase in nominal
profits over the past five years.
An unusual feature of the company pointed
out by observers is that it manufactures and
sells its original design, ``warm, all-natural,
hand-made bags'', in various styles and small
lots, with a lifetime guarantee. In considera-
tion of company management in the customer
value creation model, and to further win over
its customers, Yoshida Original offers them a
variety of substantial after-sale services.
Regarding these after-sales services in
particular, Yoshida Original, which not only
offers informational services that include
sending more than 50,000 direct mailings and
copies of IBIZA Magazine to fans of the IBIZA
brand each year, but also impresses each
customer who purchases a bag by sending
her a personal letter of thanks from the
company president, can be called a new kind
of business that wins intense loyalty from
customers.
Past isues
Making products that utilize nature in its
original state is the concept and value behind
IBIZA. In practical terms this means using,
in its original form, animal leather that has
been affected by a variety of changes in the
natural environment. Of course, a piece of
leather from an animal's abdomen differs
greatly from one from its back. That is why
despite being a standardized article, each
IBIZA product is a little different from the
next.
The company has been searching through
trial and error for a way to communicate
with its customers and salespeople about
products in a way that is faithful to each
individual article. A similar situation exists
with repairs. IBIZA products come with a
lifetime guarantee. The company used to take
repair requests by telephone and fax, but
customers were somehow unable to get
across the subtle nuances of their requests.
So it was important to contrive a way for
repair staff members to communicate with
customers located far away as though they
were holding the product in question in their
hands.
As a company based on direct sales that
bypass wholesalers, Yoshida Original was
pondering a method of direct communication
with its customers and dealers that Mr.
Yoshida himself could oversee. Under the
constraints of time and distance, voice and
text-only systems such as telephone, fax,
e-mail, and groupware somehow could not
solve these problems. The company needed to
create a ``take a look and you'll see what I
mean'' environment with the feel of televi-
sion or video.
[ 193 ]
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[ 194 ]
IT investment for the customer
So the company undertook a project of large-
scale IT investment to construct a commu-
nity net focused mainly on connecting
Yoshida Original (its headquarters and fac-
tories) with dealers throughout the country
using video conferencing systems, video
phones, or similar devices.
The combination of a company with a
slogan like, ``warm, all-natural, hand-made
bags'', and multimedia video information
distribution may seem paradoxical. From the
standpoint of customer value creation and
management innovation, however, it sug-
gests an important element in Yoshida Ori-
ginal's unique brand of company
management.
The company's reason for taking the
plunge into IT investment was not simply to
bring efficiency to its business operations
using the latest multimedia. It was to inno-
vate, share and develop the concept and value
of each individual product (or composition;
the company goes so far as to call each
individual product a composition) with
employees, not to mention customers and
dealers, using video information. Mr Yoshi-
da's customer-oriented ideas and superior
leadership were the basis of this investment
in, ``IT for the customer''.
Community net supporting customer value
creation model businesses (Type 2 and
Type 3 communities application)
At the end of January 1996, Yoshida Original
had built a network on its own premises and
those of its dealers, and has been using it to
send product information, take orders, and
for maintenance business. In this way, the
community between Yoshida Original and its
dealers, and the community between the
company and its customers, are put to use.
Specifically, the community net had two
broad objectives. The first was winning
orders by sending information on newly-
created products to dealers throughout the
country without delay; and the second was
taking orders and checking inventory
quickly and accurately.
In the past, methods for announcing new
products were limited to exhibitions, private
viewings, and the semi-annual publication of
a catalog, but by introducing a community
net into a portion of the dealers in Japan,
Yoshida Original was able to easily offer
those shops detailed information on new
products without a moment's delay, and to
obtain purchase orders on the spot using bi-
directional video communication. Using the
community net to make product announce-
ment eliminates decorating and traveling
expenses incurred in preparing venues for
conventional product announcement gather-
ings. Because each piece of the leather used
for making bags looks different, dealers find
it desirable to inspect products and get
detailed inventory information when placing
orders. This is another area where the
community net is demonstrating its power.
This application of the community net in the
community of Yoshida Original and its deal-
ers is garnering attention as a new method of
marketing through one-on-one interaction.
Application of the community net to prop-
erly respond to customers' product mainte-
nance needs is another important business
process. IBIZA products carry a lifetime
warranty. Connecting Yoshida Original fac-
tories with dealers by means of a community
net allows repair staff members to directly
observe images of the repair locations, check
work, and respond to inquiries, permitting
an accurate response to all the nuances of
customer requests with no misunderstand-
ings. There have also been cases of a product
planner or factory supervisor giving a direct
product demonstration to a customer at a
dealer's shop over the community net, and
this leading to a new order. This can be seen
as a new form of community management
that includes not only Yoshida Original and
dealers, but also customers. It consists of
virtual, real-time contact between the Yoshi-
da Original corporate organization and cus-
tomers over the community net, and is also
an example of a business in the customer
value creation model eliciting trust and
security from a customer.
With a community between a company and
its dealers like that mentioned, a large asset
is the sharing, creation, and innovation of
new community competencies, and the abil-
ity to earn the sympathy and trust of
customers through interaction consisting of
communication and collaboration.
Continual sharing, creation and innovation
of community competencies (see Figure 6)
(Type 1 community application)
As the first step in configuring a community
net, Yoshida Original promoted community
management in its community with custo-
mers and dealers. As the second step, to
enhance the sharing, creation, and innova-
tion of community competencies within the
company, it built, on a high-speed, wide-
band, fiber-optic ATM network, a cutting
edge community net that uses product
images to function as an order placement and
reception system (Nikkei Sangyo Shimbun,
1998a).
While promoting communication and col-
laboration among individuals in the commu-
nity between its headquarters and factories,
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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Figure 6
The community net at Yoshida Original, Inc.
Yoshida Original also aims to store commu-
nity competencies such as new product
planning and shop expertise in the form of
video information, share them, and also to
engage in new competency creation and
innovation.
Communication and collaboration using
high-quality video information
To respond quickly and accurately to rapidly
changing market needs and various customer
demands, businesses must raise the level of
their customer service through such means as
shortening the new product development per-
iod. For these purposes as they relate to
development, there is a need to carry out
design, development, and manufacturing-re-
lated interaction more quickly, accurately, and
frequently. High-quality video information
used over a community net offers an environ-
ment that gives the impression of holding a
consultation in the same location, even when
the headquarters and factories are separate.
Yoshida Original is aggressively carrying out
communication and collaboration in the com-
munity between its design, development, and
manufacturing departments.
On-demand searches of shop and new
product information
In the past, there was a problem with product
planners at headquarters being unable to
accurately convey their intentions to the
sales department. As a result, products often
went to market without clear explanations of
the ideas behind them. The new product
information stored in the VOD system
contains images of the products from all
angles, as well as the developer's comments
and concept. A user can gain a clear under-
standing of information such as the new
product's features and the ideas behind its
development by merely pointing and clicking
on a personal computer screen. This form of
the community net permits the spectrum of
information, knowledge, expertise and ideas
that make up community competency to be
stored in the form of video information, and
then developed through further creation and
innovation.
Salespeople used to make the rounds of their
assigned shops, and then include in their daily
sales reports detailed written information on
product displays and the situations in stores.
But these reports were somehow unable to
convey an image of the customers and bags in
the shops, and when personnel changes
brought a new salesperson, background infor-
mation that cannot be found in figures and
written reports, such as scenes of communi-
cations with customers, would disappear with
the old salesperson. Today, with the newly-
configured VOD system, a user can take in
with a glance scenes such as a store's layout,
manager, and product display, and the system
has been configured to allow headquarters to
give stores detailed guidance on matters such
as product display changes. This mechanism
is an application of the community net that
makes possible constant contribution of novel,
front-line sales styles that are in harmony with
the new strategies of Yoshida Original's sales
department. The goal is to further enhance
customer service related to on-site sales.
[ 195 ]
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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[ 196 ]
Creating new virtual
knowledge-based businesses
With these trends in the background, new,
virtual businesses are being formed using
community nets, and the IT- and multimedia
technology-utilizing, knowledge-based business
(Davis and Botkin, 1994) is recently attracting
attention as a business strategy as interesting
as it is important. The virtual, knowledge-
based business is a new mode of business
formation and development through strategic
community creation that combines different
industry categories and conditions. One could
call it a new type of business that unifies
community types 1, 2, and 3 described before.
Specifically, a virtual, knowledge-based
business is a type of service business formed
through a strategic tie-up between an infor-
mation provider that possesses content, and a
telecommunications carrier that provides a
community net. It offers customers a variety
of interactive contents by means of this
community net. These strategic tie-ups com-
bine differing industry types and conditions
to create new businesses, and in so doing,
pioneer new customers and markets. It
should also be mentioned that they create
new communities that implement the custo-
mer encirclement strategy.
In Japan, knowledge-based business exam-
ples such as virtual education services, semi-
nar distribution services, and on-demand
contents distribution services, have already
been created (see Figure 7).
Typical examples of virtual education
services include home-based distance
Figure 7
Community net-based virtual knowledge-based services
language study (Yomiuri Shimbun, 1996;
Nikkei Sangyo Shimbun, 1997), remote
mathematics classrooms designed for ele-
mentary students (Nihon Kogyo Shimbun,
1998a), and remote adult education and life-
long learning programs offered by universi-
ties and graduate schools (Nihon Keizai
Shimbun, 1998a; Nikkei Sangyo Shimbun,
1998c). The foundation of virtual education
services is the use of a community net as a
platform for delivering educational content.
In other words, these businesses use a
community net to offer services such as
interactive language lessons and remote
lectures to customers with their own video-
phones or videoconferencing system term-
inals (or to customers who purchase such
video terminals to receiving the services). A
single teacher conducts a class for multiple
students.
Conference distribution services distribute
the contents of various seminars conducted
in remote locations (e.g. keynote addresses
from computer symposiums such as Win-
dows Expo and Mac World Expo, fee-based
seminars, public lectures, etc.) via commu-
nity net (Nihon Keizai Shimbun, 1998b; 1998c;
1998d; Nihon Kogyo Shimbun, 1998b). Not
only do these services allow users to elim-
inate the time and expense of going to a
seminar hall, they also permit them to enjoy
the seminars they desire in real-time.
Furthermore, the interactive nature of com-
munity nets allows for question and answer
exchanges between audience members and
speakers.
Moreover, on-demand content distribution
services that make use of the non-real-time
 Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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(storage) features of community nets are
already underway. With such a service, the
customer accesses the VOD server as desired,
causing the server to retrieve news, enter-
tainment-value information, seminar or lec-
ture contents, and other information, which
has been stored in the form of video. (Nikkei
Sangyo Shimbun, 1998b; Nihon Kogyo Shim-
bun, 1998c, 1998d).
With this sort of new, knowledge-based
service, a communications carrier provides
the community net, and an information-
providing company in the education or
event industries provides the video contents
delivered on this platform. These unified
(content and network) services created
through business formation between two
different industries make it possible to offer
customers new, knowledge-based services.
They also permit, by means of the inter-
active nature of community nets, informa-
tion transmission by customers (there are
cases of customers sending requests and
opinions regarding the contents offered, and
cases of customers themselves participating
as lecturers or content providers), making
them true customer-participation model,
virtual knowledge-based businesses (see
Figure 8).
Conclusion
As the era of full-fledged networking ap-
proaches, to succeed with strategies that
actively incorporate increasingly common
new business styles, such as tie-ups, out-
sourcing, and virtual corporations, compa-
nies will require from community leaders
Figure 8
Composition of a virtual, knowledge-based business
superior leadership that results in the
continuous creation, innovation, and promo-
tion of community competencies.
To achieve this, it is important for compa-
nies to work toward the Jump stage (which,
as seen from company case studies, is already
on the ascendant,) by, beginning with top
management, dynamically reforming the
individual and organizational cultures of
community leaders and members through
full application of the digital, multimedia
networking environment of a community
net.
The goal of applying community nets as a
tool to support future network strategies is
not just the staid idea of trimming travel
budgets. The true benefit of these networks
lies in areas such as gains in time and value
through rapid decision making by first-rate
community leaders, who are no longer bound
by time or distance. It includes the promotion
of efficient business operations by employees
that occurs when communities collaborate
internally and externally; and the constant
creation and innovation of community com-
petencies. These advantages relate directly to
the realization of managerial speed and
excellence, a customer value creation busi-
ness model, and progress in community
management.
As community nets expand, not only in
business, but also in education, medical
welfare, entertainment, and various other
business fields, they will become an impor-
tant multimedia communication platform for
new, multimedia, knowledge-based business
creation.
[ 197 ]

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applications and new virtual
knowledge-based businesses
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[ 198 ]
Notes
1 A particularly important element in innova-
tive leadership lies in psychological qualities
of the community leader. In order to make the
community members' thoughts, ideas, beliefs,
work attitudes, and other values resonate with
his or her behavior and ideas, the leader must
have the ability to produce, be skilled in
conceptualization and interpersonal relation-
ships, and possess political sense and leader-
ship ability both within and outside of the
company. The community leader must use his
or her superior leadership ability to continu-
ally create and innovate with regard to the
community competencies accumulated in the
community, and to leverage the sympathy and
cooperation between community leaders to
smoothly promote the primary target of suc-
cess in the overall business.
2 Community competence consists of the var-
ious resources in the community that make up
``information, knowledge, expertise, and con-
ceptualization'', and the competencies pos-
sessed by individuals corresponds to the
competencies possessed by the community,
i.e. its member groups and the overall orga-
nization. Specifically, community competence
is the core competencies possessed by the
overall community for the purpose of incor-
porating resources within and outside the
organization, in order to vigorously move
forward with a variety of businesses as part of
a creative new enterprise development effort
with its roots in business reform by the middle
and lower level employees who are the con-
stituent members of the community. An
important point is that the knowledge, exper-
tise, and ideas of the individuals, groups, and
the overall organization be stored, and then
continually created and modified.
3 A digital network service (Integrated Services
Digital Network) established by the telecom-
munications standardization sector of the
International Telecommunications Union
(ITU-T). Additional information on ISDN is
available at <http://www.alumni.caltech.edu/
~dank/isdn>, and ITU-T recommendations
are also available at <http://www.itu.ch/
itudoc/itu-t/rec/i.html>.
4 Video terminals based on videoconferencing
systems and/or video phones standardized by
the ITU-T. (See Rosen, 1996 and Trowt-Bayard
and Wilcox, 1997.)
5 The system sends stored video data when a
request is sent from a remote location. It is
generally used for delivering entertainment
such as movies and television programs to
homes, but recently is being utilized at
universities for distance learning and at
companies as a training tool.
6 Interviews were conducted with supervisors
at Peregrine Inc.'s headquarters and factories.
7 Peregrine, Inc. is a supplier of internal and
external components to the big three auto
manufacturers of General Motors (GM),
Chrysler, and Ford, handling design, produc-
tion and sales. Its wide-ranging product line
includes seat systems, door modules, door
trimming and related hardware, airbag sys-
tems, instrument panels, window regulators,
and steering wheels.
8 In 1997, Peregrine received the international
quality standard QS-9000 certification in its core
competency fields of design and manufacturing.
The QS-9000quality standard system was jointly
established by the big three based on the
international standard ISO-9001, with the
addition of conditions unique to the automotive
industry. And recently, Chrysler awarded
Peregrine's Warren (Michigan) plant, a zero-
defects manufacturing plant, its Gold Pentastar
Award, given to recognize its best supplier.
9 ATM (asynchronous transfer mode) is a system
for transmitting images, voice and data using
a high-speed LAN (local area network) and a
WAN (wide area network) that connects
users across geographic boundaries such as
city and state lines (see Ford et al., 1997).
10 See the following Web site for information on
the community net configured by Peregrine,
Inc. <http://www.fvc.com/apps/pgrine.html>
11 Interviews were conducted with Mr Yoshida
and the top management of Yoshida Original,
Inc. and with the management of vendors who
have been engaged in the design, configura-
tion and operation of Yoshida Original's
community net.
12 The company's product brand name is the
name of the Spanish island of Ibiza, and it has
earned 780,000 devoted customers throughout
Japan. It has earned numerous management
awards, prominent among which are the ``13th
Nikkan Kogyou Shimbun Excellence in Man-
agement Award'', ``the Corporate Small Busi-
ness Research Center Award for the Kanto
District'', and, ``the 1995 Saitama Prefectural
Sai no kuni Factory Designation''.
13 The Japan Quality Award is an annual award
which recognizes excellence of management
quality. Award winners are companies which
are managed from the viewpoints of custo-
mers, the source of business profits, and
which have management framework to con-
tinuously create new values. The purposes of
this award are: to innovate the whole indus-
try; to change economic structures; and to
improve the living standard in harmonization
with international situations. This award
system was established in December 1995.
This award has seven central concepts. The
evaluation criteria, ``Japan Quality Award
Criteria'' has eight categories. Applying com-
panies submit their ``management quality
reports''. They are evaluated in four stages by
the reviewers. They must be finally qualified
by Japan Quality Award Committee. See the
following Web site for the information on the
Japan Quality Award. <http://www1a.
meshnet.or.jp/jqa/>

Mitsuru Kodama
Strategic business
applications and new virtual
knowledge-based businesses
through
Information Management &
Computer Security
7/4 [1999] 186±199
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