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few one-size-fits-all approaches. Aside from the reduced paperwork and faster process-
ing, many business say they are happiest with the level of security and verification
provided by the electronic signature utilization.
The Future of Electronic Signatures “ Small businesses will be a significant driver to the
growth of the business-to-business market. According to real business activity, Internet
penetration among small businesses will steadily increase, reaching over 80 percent by
2004, and small businesses will generate 35 -40 percent of worldwide Internet commerce
revenue by 2004. The entry of multiple small businesses into online marketplaces will
decrease the overall credibility and credit worthiness of Internet market participants.
This decrease will cause other participants to demand legally binding agreements based
on an electronic signature to support online transactions prior to shipping goods.
Another driver to electronic signatures will be financial institutions. As small businesses
increase their purchases via the Internet, it will encourage financial institutions to
provide online financing and participate in this explosive growth. Already, Citibank NA
has formed an online market in Asia, and First Union Corp. (another US financial
institution) recently announced that it is building a business-to-business Internet market
targeted at its 700,000 small businesses. Financial institutions have significant lobbying

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Electronic Signature 131

power and can cause the government and various states to initiate uniformity in
electronic signature laws.
A third driver to electronic signatures is developing procedures for accepting signatures
in digital or other electronic form with a goal of having at least 80 percent of all state tax
and information returns filed electronically. As consumers grow more comfortable with
electronic signatures, their use and popularity will increase.

E-Signature Utilization in a Real World

Loans “ USA Funds Supports E-Signature

The electronic-signature process reduces paperwork, speeds the delivery of funds, and
simplifies the education-loan process for schools, lenders and borrowers. USA Funds®
provides functional ways of supporting e-signature utilization in loan processes. By July
1, 2002, or by the date they subsequently adopt e-signature usage, lenders must provide
to USA Funds® a general explanation of each of their e-signature processes. The
description must include an overview of the steps that borrowers must follow in
completing that lender™s e-signature process. If the lender uses multiple processes, the
description also must outline how to identify which process was used for each loan. After
providing this initial summary, lenders also must notify USA Funds of any significant
changes in their e-signature processes. In addition, lenders must retain detailed docu-
mentation of the e-signature processes that they use, as well as documentation of any
changes to their e-signature processes, including the effective date of these changes.
This documentation should clearly describe the process under which individual notes
are endorsed. Unless the lender follows guidelines established in the U.S. Department
of Education™s Safe Harbor policy for e-signatures, loans are not insured if deemed by
a court to be legally unenforceable because of the e-signature process in use at the time
the note was endorsed. If, however, a borrower who signed a promissory note through
the electronic-signature process offered by USA Funds later challenges the validity of
the promissory note, or the U.S. Department of Education determines that the loan is
ineligible for reinsurance, because the note was executed using the electronic-signature
process offered by USA Funds, USA Funds will not require the lender to repurchase the
Federally subsidized Perkins and Stafford loans are the need-based loans available to
students. To apply for Federal Stafford Loan, all first-time borrowers must complete a
Master Promissory Note (MPN). To complete an MPN online, a candidate would fill out
Apply for a Loan. Before selecting the “Sign electronically using my US Department of
Education PIN” option, candidate should be sure that she/he has already obtained a PIN.
AES is required to ask for consent in order to complete this electronic transaction, so a
candidate will need to give her/his consent prior to proceeding. This process is active
in the online environment and with e-signature utilization it gives more credibility and
security to lenders and borrowers.
The standards provide that if a lender or holder™s processes used for electronic
signatures and related documents satisfy the standards set forth, those lenders or

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132 Ruzic

holders, “will be protected from the loss of Federal benefits on a loan if the loan is
determined to be legally unenforceable by a court based solely on the processes used
for the e-signature or related records.” If the holder or lender does not follow the
procedure set forth, “the Secretary will determine on a case-by-case basis whether
Federal benefits should not be denied or repaid.”
The online application process is guided through three steps:
1. Student logs in, selects school and lender. (Student™s name and address data are
pre-populated using data from their log-in account.)
2. Student selects one of the following options:
• Print at their printer.
• Have AES print it and mail it to them.
• Save the form for completion at a later date.
• Sign electronically using their USDE PIN.
3. After the signed process, the student gives consent to complete the Stafford MPN
process electronically.

Figure 8: Selection window to submit application including e-signature option

Please select one of the following options:

¤ Print MPN Form on Your Printer
¦ AES will Print the MPN Form
¦ Save Information for Later
¦ Sign Electronically with my US Dept. of Education PIN

Submit Reset

Figure 9: Consent-giving window to approve signing electronically

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Electronic Signature 133

The student is informed of impending signature, MPN data and clicks are stored. Thus,
the overall application process is done electronically saving time, money and organiza-
tional procedures.

Production “ Ford Credit Introduced Electronic Signature

Interlink Electronics, Inc. and Ford Credit, a subsidiary of Ford Motor Company, are
introducing in second half of 2003 Interlink™s ePad handwritten electronic signature
solution at thousands of dealerships throughout the US. ePad implementation will utilize
electronic signatures to automate processing of some of its lease end documents, as the
organizational solution for a system-wide transition from paper lease end documents to
electronic lease end documents. The processing of thousands of lease end documents
yearly will reduce operations costs by providing a handwritten electronic signature that
is understood and accepted by the consumer, easy to use, and legally binding. Electronic
signature solutions, like that software, are being deployed by larger companies to enable
customer hand-signing of electronic forms and applications. Motivated by sharp
reductions in processing costs and transaction times, companies are leveraging their
investment in information systems to carry more revenue directly to the bottom line. ePad
solution captures the handwritten signature converting it to a biometrically -secure e-
signature for use in electronic forms and transactions. By providing user-intuitive
electronic signatures, ePad enables enhanced workflow, reduced operations costs and
faster document processing times. ePad e-signatures may be permanently bound into
office-based digital files, Internet documents, and many proprietary forms and transac-
tions, and it is used to authenticate the identity of the signer.

Healthcare “ E-signature at Hospital Registration

At hospital registration, patients are normally required to sign a wide range of pre-printed
forms and documents, with each generating a hard-copy duplicate that must be pro-
cessed and filed in a document storage area in the medical records department. With e-
Signature products, hospitals are able to secure a legally acceptable patient signatures
without generating paperwork. In an e-Signature-enabled environment, patients com-
plete a set of admissions forms as usual, but each document is now placed on an Access
e-Signature tablet before signature. As the patient signs the paper document, the
signature is simultaneously captured by the e-Signature tablet, encrypted, and bonded
to an electronic version of that same document, which resides in, and is managed by, the
hospital™s database. In this scenario, there is only one set of hard-copy forms, which is
given to the patient for his or her own records. No duplicate copies are left behind in
registration for filing, allowing for a paperless registration process. As needed,
registration staff can, with a single keystroke, digitally distribute the completed form to
outputs such as document imaging systems, faxes, e-mail boxes, wireless messaging
devices, or printers throughout the hospital.
The e-Signature devices are supported by a software application that ensures tamper-
proof encryption and authentication of digital signatures and their associated source

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permission of Idea Group Inc. is prohibited.
134 Ruzic

documents. e-Signature devices and software prevent encrypted signatures from being
printed separately from their original source documents, thus making it virtually impos-
sible for captured digital signatures to be stolen, falsified, or re-applied to fraudulent
documents. To further increase security, e-Signature also uses proprietary technology
to encrypt signatures with their uniquely identifiable biometric characteristics. With
each signature, Access™ technology captures specific information including speed,
stroke, and pressure and digitally encodes this information to the document to ensure
legal verification.

Ang, L., Dubelaar, C. and Lee, B. (2001). To trust or not to trust? A model of Internet from
the Customer™s point of view. Proceedings of the 14th Bled Electronic Commerce
Castells, M. (2000). The Rise of the Network Society (2nd ed.). Oxford: Blackwell.
Conte, R. and Castelfranchi, C. (1995). Cognitive and Social Action. London: UCL Press.
Forno, R. and Feinbloom, W. (2001). PKI: A question of trust and value. Communications
of the ACM, 44(6).
Jones, S. and Wilikens, M. (2000). Trust requirements in E-business. Communications
of the ACM, 43(12).
Kozlov, A. and Reyzin, L. (2003). Forward-Secure Signatures with Fast Key Update
(2002). In S. Cimato, C. Galdi & G. Persiano (Eds.), Security in Communication
Networks (pp. 241-256). London: Springer.
Nanavati, S., Thieme, M. and Nanavati, R. (2002). Biometrics: Identity Verification in a
Networked World. New York: John Wiley & Sons.
Onieva, A., Zhou, J., Carbonell, M. and Lopez (2003). Multi-Party Non-Repudiation
Protocol for Exchange of Different Messages. In D. Gritzalis (Ed.), Security and
Privacy in the Age of Uncertainty (pp. 37-48 ). London: Kluwer.
Sang-Ro, K. (2002). Liability of On-line Service Provider for Copyrights. Commercial
laws Review, 21(1).
Schaechter, A. (2002). Issues in Electronic Banking: An Overview. IMF Policy Discus-
sion Paper, No. 02/6 Washington, D.C.: International Monetary Fund.
Skrbek, M. (2003). Signature Dynamics on a Mobile Electronic Signature Platform. In U.
Grimm, H. Keller & K. Rannenberg (Eds.), Sicherheit - Schutz und Zuverl¤ssigkeit
(pp. 329-332). Frankfurt: GI.
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Volti, R. (2001). Society and technological change. New York: Worth.

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permission of Idea Group Inc. is prohibited.
Electronic Signature 135

Wenderoth, D. (2001). Development of an European-Wide Citizen Javacard to Support
Administrative Processes by the Use of the Electronic Signature and the Biometric
Fingerprint Sensor. In B. Schmid, K. Stanoevska-Slabeva & V. Tschammer (Eds.),
Towards The E-Society: E-Commerce, E-Business, and E-Government (pp . 817-
830). London: Kluwer.
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Boston, MA: Addison Wesley.

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permission of Idea Group Inc. is prohibited.
136 Mowatt

Chapter VII

Impacts of the
Digital Economy:
The Shift to
Competition and
Life-Span Products
Simon Mowatt
Auckland University of Technology, New Zealand

This chapter examines changes in innovation and competition made possible in two
traditional industries by the adoption of integrated information and communication
technologies. Using empirical interview-based research the chapter highlights the
importance of consumer-driven innovation. The development of complex innovation
networks to supply consumer needs is demonstrated using two example sectors, the UK
magazine publishing and grocery retailing industries. The innovation process is
outlined in detail and the importance of linkages to the end-consumer and market
experts is acknowledged. In addition, this chapter offers the concept of “life-span”
goods as those developed from the outset as having a short life dependent on changing
consumer tastes and fashions. Within this environment firms act more as project
orchestrators, using core skills in developing innovation teams based on a deep
knowledge of consumer activities. Finally the chapter concludes by examining the
challenge to economic analysis and to the theory of the firm provided by shifting and
temporary alliances.

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Impacts of the Digital Economy 137

The adoption and use of digital technologies by firms has created both many new
industries and opportunities for existing firms to enter new markets. In addition to this,
a key aspect of the use of digital and communications technologies based around those
of the Internet has been to allow firms to reorganise their internal operations. This chapter
provides an examination of the organizational responses to technological change made
by firms in two industries transformed by the use of the “integrated information
channels” (Nicol, 2001) which characterize the digital economy. Whilst the focus of many
studies examining the impact of new digital technologies has been on high technology
sectors, the adoption of digital communications technologies has also led to new
competitive pressures in industries that could be characterized as low technology (Cox,
Frenz and Preveezer, 2002). Firms in traditional industries have been able to gather more
detailed information about the requirements of consumers, and the factors of competitive
success have moved toward the ability to innovate the products and services which fulfill
customer needs. An important aspect of organization and competition in the digital
economy is therefore the process and management of innovation itself. This chapter
argues that a key feature of competition in the digital age is that there has been a
significant shift in competitive advantage toward the consumer-facing firms which are
best placed to use details of consumer preferences to drive innovation, and that they are
increasingly able to do this through the use of complex network arrangements. The
balance of power between manufacturers and downstream companies has been shifting
as a result of these changes, and the consequent reconfiguration of existing industries
has important consequences for our understanding of economic analysis, particularly
of organization, innovation, competition and industrial structure.

The two industries that are the focus of this chapter are the food retailing and the
magazine publishing sectors in the UK. Although distinctly different in character, both
of these activities have been transformed from ones where competition was driven
primarily by economies of scale in production to sectors where competitive success is
conditioned by the ability to engage in continuous innovation driven by customer needs.
In both examples the greatest impact of the digital revolution has been the changes in
organizational structure within and between firms in the value-chain, although this may
not readily be apparent. The temptation in these industries is to focus exclusively as to
how the digital age has reduced the importance of “bricks and mortar” delivery relative
to “clicks” and Internet delivery. Magazine publishers, for example, deal with an
information product whose composition has become potentially purely digital. With the
possibility of scale-free delivery on the Internet many industry observers predicted the
end of paper-based magazines. Not only has this markedly failed to occur, with many
magazine companies such as EMAP which invested heavily in digital brands and delivery
scaling back their investment after losses in the early 2000s, but the range of paper-based

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138 Mowatt

magazines has proliferated hugely in the last decade (PIRA, 2002). Similarly, supermar-
kets have established their dominance as a retailing format by concentrating a large range
of products in a specific outlet”often a large out-of-town shop. With the well publicised
move to Internet-based ordering and home delivery, the significance of the wider
changes to the industry conditioned by new technology may be overlooked. To date, for
example, the vaunted benefits expected to accrue from online shopping have also proved
to be elusive (Hughes, 2002). The leading exponent of this approach in Britain, Tesco
plc, now holds 60% of the UK internet grocery provision market, with annual sales
currently valued at £365 million (Tesco, 2002). Whilst this amount is larger than the entire
European market for online grocery sales (Keynote, 2002), it nevertheless represents
only 1.7% of Tesco™s UK sales turnover. Rather, it has been the responses to customer
preferences made possible by the application of digital technologies to other parts of
their operations which Britain™s supermarkets have used for competitive advantage.
By exploiting information gathered directly from and about their customers via scanning
technology, inventory management software systems, data warehousing and mining,
and consumer participation in online groups and surveys, supermarkets and magazine
companies have been able to benefit directly from a strategy of new product development
based on these requirements. Further to this, by engaging in innovation these consumer-
facing firms have created a web of inter and intra-firm alliances and networks that have
served to transform relationships within the industry™s value system.
The interesting aspect to the transformation of these industries is that in many respects
they appear much as they always have in terms of concentration ratios, the composition
and identities of the largest firms, and superficially in the nature of activities undertaken.
In the publishing industry the UK™s two long-running dominant firms, EMAP and IPC,
are still the largest consumer magazine publishing companies. The food manufacturing
and retailing industry is still comprised of large multinational food manufacturers and
large, mainly national retail groups. In the UK the top five supermarkets continue to
control the grocery market. However, close empirical study reveals that the competitive
dynamics within these two industries has changed substantially, with the balance of
power shifting from firms engaged in production to those in closest proximity and control
over information about the end consumer. Conventional measures of industrial structure
such as concentration ratios fail to adequately depict the changes in activities under-
taken by firms and fail to reflect the importance of the large number of small suppliers who
are critical to the performance and operation of flexible business networks.
The detailed descriptions of the operation of the industries and the innovation processes
described in this chapter are based on a four-year empirical investigation completed in
December 2002 and a review of published sources. The study of the magazine publishing
industry was undertaken by a programme of 28 semi-structured interviews in the
consumer sector with senior managers who had an overview of both editorial and
business functions, typically publishers or publishing directors (in the US this function
is often referred to as the magazine general manager), printing firms and distribution
companies. The particular sub-sectors used as vehicles to explore consumer-responsive
innovation were the men™s lifestyle, computer gaming and cycling segments. In support
of the interview-based research we also undertook a census questionnaire survey of 246
publishing firms in the entire magazine publishing sector. A response rate of 23% was

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Impacts of the Digital Economy 139

obtained from a statistically representative sample, comparison being made with a
random selection of firms in the industry (Cox, Mowatt and Young, 2003). The retail
industry was researched with a similar interview based programme, concentrating on the
innovation network, suppliers and distributors to a leading supermarket, which we name
here SuperCo for reasons of confidentiality.
This chapter illustrates the issues outlined above in the following manner: the next
section examines the shift to consumer-driven competition in the two focus industries,
with a focus on the importance of innovation. Following this the concept of “life-span”
products is offered as a hallmark of the change in products to those characterised by
consumer-driven pressures. The chapter then proceeds to examine in detail the innova-
tion networks employed within the two exemplar industries. From this a review is offered
as to how these issues may affect our understanding of innovation and the use of
conventional economic approaches to analysing firms in the digital age. Finally the
chapter concludes.

The Shift to Consumer-Driven
The magazine market has changed markedly since the introduction of digital technolo-
gies. The market has shifted from being dominated by few publishing firms whose main
activity was publishing largely undifferentiated established weekly magazines to a
market characterised by a large number of often transient high-quality monthly niche
titles. These titles are targeted towards narrow interest groups and publishing firms need

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