Last Updated: May 3, 1994 _________________________________________________________________________ Electronic Commerce and the NII DRAFT FOR PUBLIC COMMENT "Electronic Commerce integrates communications, data management, and security services, to allow business applications within different organizations to automatically interchange information. Communications services transfer the information from the originator to the recipient. Data management services define the interchange format of the information. Security services authenticate the source of information, verify the integrity of the information received by the recipient, prevent disclosure of the information to unauthorized users, and verify that the information was received by the in tended recipient." Source: Information Infrastructure Technology and Applications (IITA) Task Group, National Coordination Office for High Performance Computing and Communications, February 1994, pp. 13-4 PART I: What Is the Application Arena? Description of Electronic Commerce The telephone, fax, and electronic mail have provided faster, cheaper, and more reliable communication of business data within and between commercial entities. Great distances and multiple time zones are no longer barriers to business communications; the challenge now is how to respond to and use an ever-increasing flood of data from diverse sources in a timely and effective manner. The stakes are high: vital information from the office next door or the other side of the world may be lost or unnecessarily delayed in the flood. Many businesses are coping with the data flood by shifting much of their routine data processing and business transactions to automated, electronic information systems. However, differences in information systems require that trading partners frequently translate from one system to another manually, greatly reducing both the speed and the reliability of information exchange. In addition, while standards for Electronic Data Interchange (EDI) enable fast, accurate exchange of routine, relatively simple business transactions between different automated information systems, EDI requires rigid agreements about the structure and meaning of data. These agreements are often expensive, inflexible, and difficult to maintain, especially in a rapidly changing business environment. Electronic Commerce is the evolution of EDI into other types of data and transactions. An advanced national Electronic Commerce capability will be comprised of interconnected communications networks; advanced computer hardware and software tools and services; established business transaction, data exchange, and interoperability standards; accepted security and privacy provisions; and suitable managerial and cultural practices. This infrastructure will enable diverse and distributed companies throughout the nation to rapidly, flexibly, and securely exchange and, more importantly, use information to drive their business processes. As a result, people -- who are needed to creatively solve complex business problems -- can be taken out of the loop of routine data processing. An advanced NII for Electronic Commerce can support activities such as the following: - Electronic funds transfer -- extending and completing the procurement process by providing buyers the ability to rapidly and cost-effectively make their payments to sellers and shippers with less financial risk and fewer errors, while reducing paper handling and storage. - Government regulatory data interchanges -- collecting formatted data from (and returning data to) various communities to enable the government to carry out its mandated responsibilities: e.g., organizations that transport hazardous materials, corporations and banking institutions that submit financial reports, and State public health officials who report health statistics and epidemiologic incidents. - Collaborative engineering -- providing for early evaluation of engineering designs to ensure manufacturability, reliability, maintainability, and other "-ilities." This may involve massive amounts of highly complex engineering data, as well as extensive, non-routine interactions among people. - Enterprise integration -- extending integration throughout a company and into other trading partners. Business Process Reengineering is needed to identify business processes which can be improved (or eliminated entirely) by improving communication within a company or by outsourcing to other companies. The result is the Virtual Enterprise, which provides vertical integration of companies with their suppliers as well as horizontal integration of segments of a company. - Computer-supported collaborative work -- expanding collaborative activities from engineering into many other business activities, such as supporting joint development of requirements, maintenance documents, etc., within or across companies (e.g., just-in-time inventory control). The intent is to remove the barriers (time, space, information complexity, etc.) that inhibit creative interactions among people. Electronic Commerce can combine the advantages of computers (speed, reliability, high volumes of data) with the advantages of people (creativity, flexibility, adaptability). Electronic Commerce can enable people to review, analyze, add value, and sell a wide variety of products that are represented electronically, such as reference material, textbooks and training materials, entertainment, and software. Electronic Commerce is not limited only to business transactions -- it also applies to exchanges of ideas and opinions, as well as the amassing and sorting of information. The successful extension of Electronic Commerce into these more complex (and rewarding) areas is dependent on the integration of communications, data management, and security services into a ubiquitous, user-friendly, easily accessible national electronic marketplace that encourages and enables the seamless exchange of information for social and business transactions -- for all companies. [footnote 1: Electronic Commerce will affect all types of business transactions and personal activities. As a result, Electronic Commerce applications are described to some extent in each of the applications strategies white papers. For a detailed discussion of the potential influence of Electronic Commerce on the manufacturing industry, see the white paper: Manufacturing and the NII.] In sum, Electronic Commerce differs from traditional commerce primarily in the way information is exchanged and processed. Traditionally, information has been exchanged through direct, personal contact or through the use of the phone or postal systems. In Electronic Commerce, information is conveyed via a digital communications network, computer system, or some other electronic media. In addition, the information accompanying a typical traditional business transaction is usually acted upon by individuals involved in the transaction, whereas with Electronic Commerce much of the transaction is automated. At a minimum, Electronic Commerce increases the speed, accuracy, and efficiency of business and personal transactions. What Are the Benefits of Electronic Commerce Applications in the NII? An advanced NII that supports Electronic Commerce applications will provide benefits in a number of areas: - Reduced costs to buyers from increased competition in procurement as more suppliers are able to compete in an electronically open marketplace; - Reduced errors, time, and overhead costs in information processing by eliminating requirements for re-entering data; - Reduced costs to suppliers by electronically accessing on-line databases of bid opportunities, on-line abilities to submit bids, and on-line review of awards; - Reduced time to complete business transactions, particularly reduced time from delivery to payment; - Creation of new markets through the ability to easily and cheaply reach potential customers; - Easier entry into new markets, especially geographically remote markets, as the playing field becomes more level between companies of different size and locations; - Better quality of goods as specifications are standardized and competition increases, and better variety of goods through expanded markets and the ability to produce customized goods; - Faster time to market as business processes are linked enabling virtual elimination of time delays between steps and the engineering of each subprocess within the whole process for seemingly seamless processing; - Optimization of resource selection as businesses quickly form cooperative teams to better tailor capabilities to work opportunities to increase chances of success, to share economic successes more broadly, and to give the customer a mix of capabilities more exactly meeting his requirements. Teaming may happen at either the company or individual level, creating a just-in-time "virtual" resource for delivery of the right human and business resources for a job. In addition, the workforce can be better utilized by freeing skilled labor from routine activities enabling them to focus instead on customer service and more complex duties; - Reduced inventories and a related reduction of risk of obsolete inventories as the demand for goods and services are electronically linked through just-in-time inventory and integrated manufacturing techniques; - Ability to undertake major national programs such as national health care where the cost and personnel needed to manage a manual or disjoint automated system could be prohibitive or unreasonable; - Reduced overhead costs through uniformity, automation, and large-scale integration of management processes which enable flatter, wider, more efficient processes; and - Reduced use of ecologically damaging materials through electronic coordination of activities and the movement of information rather than physical objects. What is the Public Interest in Promoting the Application? Productivity increases are essential to the long-term economic viability of the U.S. economy. Increases in productivity enable companies to create, provide, and maintain goods and services using less resources. As a result, profits rise, additional resources are freed to be invested in the sources of future economic growth and even greater productivity, and, rounding out the virtuous circle, companies continue to grow and profit. The ultimate beneficiary, of course, is the U.S. worker whose economic security is strengthened and whose standard of living continues to rise. Since the early 1980's U.S. companies have been pumping money into information technologies as one way to boost productivity. However, despite investments of over $1 trillion during this period, the resulting economic benefits have been disappointing: overall U.S. productivity grew at an annual rate of only 1.0 percent, while during a similar period, Japan's productivity increased 3.0 percent per year, Germany's 1.8 percent per year, and Korea's 5.7 percent per year. [footnote 2: Productivity is measured as the average percent change in real gross domestic product (GDP) per employed person for the period 1975 - 1991. Source: U.S. Department of Labor, Bureau of Labor Statistics. footnote 3: Some economists have concluded that any apparent lack of productivity growth may be due to deficiencies in the way we measure productivity. For an excellent summary of the current literature and a thorough assessment of the "Productivity Paradox," see Brynjolfsson, Erik, "The Productivity Paradox of Information Technology," Communications of the ACM, December 1993. In this study the author argues, "that the shortfall of IT productivity is as much due to deficiencies in our measurement and methodological tool kits as to mismanagement by developers and users of IT." He later concedes, however, that, "although it is too early to conclude that the productivity contribution of IT has been subpar, a paradox remains in the difficulty of unequivocally documenting any contribution, even after so much effort."] Table 1. Annual Growth In Gross Domestic Product per Labor-Hour for Selected Sectors of the U.S. Economy, 1979 - 1989 Industrial Sector Average Annual Growth per Labor Hour (percent per year 1979 - 1989) Manufacturing 3.33 Service Producing 0.84 Government 0.53 Source: U.S. Department of Commerce, Bureau of Economic Analysis, 1991. Survey of Current Business, April, Tables 6.2 and 6.11. An advanced NII which supports Electronic Commerce applications will help U.S. companies increase productivity by enabling rapid business transactions, data and information exchanges, and organizational changes. Through the ability to handle tremendous volumes of transactions and the ability to amass, analyze, and control large quantities of specialized data, organizations will be able to improve efficiency and accuracy, and reduce costs, while providing faster, more reliable, and more convenient services. Most importantly, in combination with changes in management practices, organizational design, corporate culture and other non-technical advancements, U.S. companies can reengineer their business processes, and then use the NII to take greater advantage of the productivity potential of their current and future information technology investments. Electronic Commerce will increase efficiency by improving human access to information, and increasing the need for human judgement based on that information. The immediate effect will be to enhance the dynamics of competition in the U.S. economy. With the ability to perform Electronic Commerce anywhere at anytime, smaller firms will be able to enter and participate at less cost and more efficiently in new markets, and larger firms will be able to evaluate, select, and work with other companies more readily than is possible today. In addition, with an advanced NII in place, new ways of doing business and new forms of economic activities will develop, including telecommuting, worldwide research networks, global sourcing arrangements, large-scale development and sharing of new databases, new training and education capabilities, faster response innovation systems, and disaggregated alliances or networks of companies. As U.S. companies use Electronic Commerce to boost productivity, they will be able to maintain and expand their share of international markets. At present, the United States maintains a large trade surplus in computer software, communications equipment, financial services, and other information-intensive manufacturing and service industries. Catching up in some international markets and expanding market share in others is critical to domestic economic growth, as the export market will be the largest single source of potential value-added to the GDP in the future. In addition to their importance to international trade, communications equipment and computer hardware and software drive the information infrastructure, providing the connectivity, tools, and services that other companies use to produce their products and to ensure a close working relationship among their suppliers, customers, and partners. In the face of shortening technology and product life cycles and increasing technological complexity, the ability to integrate highly sophisticated, next-generation components and associated services into downstream products and services requires close working relationships among component and end-product manufacturers and service suppliers. Historically, this synergy has been difficult to achieve among U.S. companies and their suppliers. An advanced NII will facilitate and encourage these relationships. Finally, as information and information exchange become more valuable to economic performance, those countries that develop an effective advanced information infrastructure will gain competitive advantage in global markets. Instead of just chasing low-wages around the globe, as has been the trend in the recent past, companies increasingly will choose to locate and invest in countries whose infrastructure and highly-skilled workforce are able to handle the rapid and efficient control and dissemination of information and the integration of diverse business operations. Consequently, an effective advanced NII and trained workforce in the United States can make the United States the country of choice for investment, with enormous and lasting positive impact on the national economy. Evidence of the Benefits Many companies in several industries have experienced the benefits and realized the need to use Electronic Commerce to survive. Large companies such as Sears, General Motors (GM), and Wal-Mart have championed electronic trading practices for their suppliers. Indeed, in some industries EDI has become a virtual necessity for doing business. Some examples of the benefits of Electronic Commerce are given below: In the 1980's, Wal-Mart Stores, Inc., experienced explosive growth in sales, rising to number one in the U.S. retail business. Despite its rapid growth, Wal-Mart's investment of half a billion dollars in computer and satellite communications networks, bar code systems, scanners, and other "quick response" equipment linking each point-of-sale terminal to distribution centers and headquarters in Bentonville, Arkansas, enabled the company to maintain high service levels and increase sales while preserving one-fourth the inventory investment. By empowering its individual stores to order directly from suppliers, even overseas, Wal-Mart stores reduced inventory restocking time from an industry average of six weeks to thirty-six hours. Moreover, by tracking every sale to see what was selling and what was not, Wal-Mart stores were better able to keep their stores well-stocked while maintaining tight inventories and low prices [Davidow, pp. 23 - 24]. In building a brand new facility in which to manufacture its Saturn cars, General Motors developed an information infrastructure to enable Saturn and its numerous suppliers to operate as one company. Through the implementation of a production scheduling database and the use of electronic data interchange, Saturn and its suppliers reduced overhead in all organizations, increased cooperation, and broke one of the oldest rules in any corporation's unwritten rule book: treat vendors as adversaries. Located in Spring Hill, Tennessee, the Saturn plant includes an online manufacturing database which is accessible by component suppliers who do not wait for GM to send a purchase order, but simply consult the car maker's production schedule, included in the database. In this process there is no paper -- no purchase order and no invoice. After the parts are shipped, the vendor sends an electronic message to Saturn saying, in effect, "These are the parts we have sent you." When the box of goods arrive, the receiving clerk scans the bar code printed on it with an electronic wand. The computer can then tell the receiving clerk to what part of the plant the goods should go. The scanning also initiates payment to the vendor [Hammer, pp. 90 - 91]. Over the past decade, the banking and financial industries have invested heavily in automation and networking technologies to handle and process electronically an ever-increasing number of financial transactions. For example, the Clearing house for Interbank Payment Systems coordinates daily bank-to-bank transactions worth nearly $2 trillion while the nation's network of more than 75,000 Automated Teller Machines (ATMs) handles more than 6 billion transactions per year. In addition, one analysis of the New York Stock Exchange suggests that electronic trading saves stock buyers and sellers hundreds of millions of dollars annually. Examples of the effect of Electronic Commerce on specific financial institutions abound: Through the use of information technologies, Visa's peak capacity for processing credit card transactions grew from 30,000 per day in 1978 to over 1.4 million per day in 1991, while its response time for authorizations dropped from 5 minutes in 1973 to 1.1 seconds in 1991; through the deployment of an ATM network in 1977 Citibank increased its market share from 4 percent to 13.4 percent; by installing a computer-based network to resolve credit card disputes, Mellon Bank reduced its backlog of customer complaints from 5,200 to 2,200, resolving them in 25 days on average (versus 45 days previously) [National Research Council, pp. 83 - 84 and Davenport, p. 54]. Through the use of just-in-time inventory control and total quality management practices, Harley Davidson reduced manufacturing cycle time for motorcycle frames from 72 days to just 2, while increasing final product quality from 50 percent to 99 percent; Digital Equipment reduced overall inventory from 16 weeks to 3, while reducing its defect rate from 17 percent to 3 percent; and 3M attained a 70-fold reduction in critical defects, appearance defects, and packaging problems [Davidow, p. 94]. The Defense Medical Logistics Standard Support (DMLSS) system has embraced Electronic Commerce concepts of business process redesign and EDI to obtain an estimated $3.2 billion savings over 12 years from an investment of $120 million. Savings come from reduced inventories and the leverage of the civilian health care supply industry to streamline DoD operations. The U.S. Customs Service, one of the leaders in the federal sector for adoption of EDI, today processes 94 percent of all customs declarations electronically and collects 60 percent of all duties electronically. By moving from paper to electronic declarations, Customs reduced error rates from 17 percent to 1.7 percent, a whole order of magnitude. In addition, it saves an estimated $500 million in processing costs each year while increasing annual productivity an estimated 10 percent each year. PART II: Where Are We Now? [footnote 4: Much of this section is excerpted from "Electronic Commerce on the Internet," by Robert Neches, et al.] As seen above, many companies and government agencies use Electronic Commerce applications to facilitate internal operations and interact seamlessly with their trading partners. While a wide variety of transactions occur electronically already, the performance of Electronic Commerce applications usually requires highly structured, previously established arrangements and, for the most part, dedicated lines and/or Value-Added-Networks (VANs). The resulting costs and necessary lead times frequently create barriers to investment in and widespread use of Electronic Commerce applications by small and medium-sized companies, and inhibit the expansion of Electronic Commerce beyond large companies and their major trading partners. Despite these barriers, the electronic market place is forming at a rapid pace. By the end of 1994, more than 10,000 companies will be offering information and services for sale over a combination of Internet and VAN service providers. Their ranks are expected to swell to 100,000 by 1997 and 1 million by 1999. In addition, the Internet is already making some form of Electronic Commerce an economically viable option for many companies. Today, the Internet connects some 10 million users in over 130 countries, and at current growth rates it will link to an additional 15 million users by 1995. While the Internet is useful for electronic mail, bulletin boards, and file transfer, it has a number of limitations that must be overcome before it can be deemed suitable for commerce. Some commonly expressed concerns include reliability, security, scalability, and ease-of-use. These problems could be more easily addressed if the Internet were run as a business enterprise; the enterprise would be accountable to customers from whom it would receive payments for specified services rendered.[footnote 5: Potential solutions to these and other concerns about using the Internet for Electronic Commerce are explored in "Electronic Commerce on the Internet," by Robert Neches, et al. ] Electronic Commerce usually happens as a set of evolutionary implementations. The early implementations focus on the introduction of electronic technologies to add functionality and operational effectiveness (i.e., automate business processes) by connecting computers and applications with electronic tools such as bulletin board systems, groupware, databases, e-mail, electronic directories, imaging, and graphics. The second phase moves beyond automation to complete business process reengineering, where major benefits are realized from the integration of the business processes. Business process reengineering, facilitated by Electronic Commerce, eliminates time and distance constraints, leading to double digit or higher annual returns on investment as well as increasing cycle time by an order of magnitude or better.[footnote 6: For an excellent discussion of the role of information technology in business process reengineering see Davenport, Process Innovation: Reengineering Work Through Information Technology. ] Obtaining Electronic Commerce benefits is more like a journey rather than a destination. With each increase in the efficiency of business processes, new bottlenecks are identified, studied, and overcome yielding a new level of benefits. An improved NII will establish an environment conducive to speeding up this evolution. The computers, networks, standards, interoperability, accessibility, training, and other components of the NII are the raw materials used to build the national Electronic Commerce capability. Once the tools for Electronic Commerce are nationally available and companies are comfortable using them, organizations will be able to concentrate on a re-examination of business processes rather than working to overcome technology barriers. As a result, the realization of the benefits possible through Electronic Commerce will be accelerated by implementation of the NII. Federal Goals From its sheer size, the government's adoption of a redirection in business practices can create a force that can sway business practices throughout the nation. At present, there are numerous pockets of expertise in the federal government. Most importantly, the Administration has made the development and implementation of Electronic Commerce throughout the federal government a top priority, with the President asserting personal leadership in this area by signing an Executive Memorandum outlining federal goals for "Streamlining Procurement Through Electronic Commerce" dated October 26, 1993. That memorandum provides the following milestones: - "by March 1994, define the architecture for the government-wide Electronic Commerce acquisition system and identify executive departments or agencies responsible for developing, implementing, operating, and maintaining the federal electronic system; - "by September 1994, establish an initial Electronic Commerce capability to enable the federal government and private vendors to electronically exchange standardized requests for quotations, quotes, purchase orders, and notices of awards and begin government-wide implementation; - "by July 1995, implement a full-scale federal Electronic Commerce system that expands initial capabilities to include electronic payments, document interchange, and supporting databases; and - "by January 1997, complete government-wide implementation of Electronic Commerce for appropriate federal purchases, to the maximum extent possible." This implementation schedule should be accelerated where practical. By creating and completing an initiative such as the President's Executive Memorandum, the government will signal strong leadership for the country's adoption of Electronic Commerce. In addition, the National Performance Review, conducted by Vice President Al Gore, has proposed to reengineer many current government services and information dissemination processes through the introduction of Electronic Commerce applications.[footnote 7: For more detail on federal initiatives to use Electronic Commerce improve the collection and dissemination of information and the provision of government services see the white paper: Government Service Delivery: Reengineering Through IT.] Many smaller businesses and government agencies, however, are waiting for Electronic Commerce applications to become more prevalent before they make their investments, citing the desire to avoid prohibitive trail-blazing costs that are always incurred by the leaders. Legacy systems and a large installed base provide further barriers to Electronic Commerce. In addition, some organizations, even if large, are at the end of an information chain involving many organizations which have handled the information before it gets to them; the benefits from conversion to electronic data handling may not make sense until that data is delivered in electronic form. Federal Activities The following is a small sample of current activities within the federal government: The Executive Office of the President has established the Federal Electronic Commerce Acquisition Team to define the Electronic Commerce architecture called for in the President's Executive Memorandum. Representatives from over a dozen federal agencies and departments participate on this team, which is co-chaired by the General Services Administration and the Department of Defense. The General Services Administration (GSA), Information Resource Management Services (IRMS), is engaged in several government-wide Electronic Commerce initiatives which should have a major impact on the way the federal government conducts business with the private sector. These activities include: - The support of the President's Electronic Commerce Executive Order by providing procurement, automated data processing, and telecommunications technical support and by serving as co-chair of the Federal Electronic Commerce Acquisition Team. - The redesign and implementation of an automated procurement system which will start with the preparation of a purchase requisition and include the electronic transmission of a purchase order, either using EDI, e-mail, or fax. Once the order is completed the vendor will electronically transmit its invoice, which will be electronically matched with the purchase order and receiving report. The payment to the vendor will then be made through EFT. - The establishment and maintenance of the IRMS Bulletin Board which contains Multiple Awards Contract information is undergoing enhancements to enable federal agencies to directly place purchase orders. - The development and introduction of emerging technologies into the government-wide infrastructure through Master Contracts for products and services, and the development of critical multiagency services. A number of specific initiatives are likely to support Electronic Commerce. These may include service ordering and billing, and X.435 prototype and operational system development, distributed directory services, registration services, and security certification services. The Office of Management and Budget has established an E-Mail Task Force (EMTF), to develop a plan of action for promptly establishing a government infrastructure for interagency e-mail. The plan will support mail-enabled applications such as electronic filings, Electronic Commerce, interactions with state and local governments, and Service to the Citizen. EMTF is currently supporting several e-mail pilot projects to promote government e-mail. Throughout the Department of Commerce, Electronic Commerce applications are being implemented. For example, the Bureau of Export Administration processes export licenses electronically; the Economics and Statistics Administration maintains the Department's Economic Bulletin Board; the National Oceanic and Atmospheric Administration electronically disseminates weather information to local meteorologists and news stations; the Office of the Secretary receives and processes Federal Express invoices using EDI; and the Department transmits time and attendance data to the U.S. Department of Agriculture National Finance Center electronically. Many more initiatives are either underway or planned. Also within the Department of Commerce, the National Institute of Standards and Technology (NIST) has been active in R&D for Electronic Commerce as well as efforts to increase public dialogue on Electronic Commerce and standards issues. NIST assists the private sector with the development of the technical underpinnings for interoperability, and also works to coordinate and facilitate the standards process. NIST has issued Federal Information Processing Standard 161, which assures federal agency adoption of appropriate national and international voluntary standards for use in Electronic Commerce. NIST reports on Electronic Commerce include: "National Public Key Infrastructure Implementation," "The Federal Certificate Authority Liability & Policy," "Good Security Practices for Electronic Commerce, Including Electronic Data Interchange," and "Analyzing Electronic Commerce." NIST's work to establish the Digital Signature Standard (DSS) is critical to the success of Electronic Commerce. Other NIST activities include the establishment of an Electronic Commerce Integration Facility (ECIF), described below: The goals of the ECIF are: (1) to serve as a technology transfer center to assist government and industry in the deployment of Electronic Commerce applications; (2) to demonstrate, through prototypes and pilots, generic open systems implementations of Electronic Commerce applications; (3) to perform, in cooperation with industry, research, development, and testing of Electronic Commerce applications and infrastructure services. These goals should assist in the removal of barriers that are currently preventing the transition from paper-based commerce to Electronic Commerce, and should help to advance technology in order to permit the development of future Electronic Commerce applications. The ECIF is developing a pilot electronic procurement system which will assist agencies in the implementation of the Executive Memorandum on electronic procurement. Other Electronic Commerce applications, such as health care and manufacturing, will be addressed in the future. Prototypes and pilots of infrastructure services, required by Electronic Commerce applications, are also under development. The initial services included are: secure electronic mail, directories, EDI translation and transmission, and Remote Database Access. Other ECIF deliverables will include: (1) guideline documents disseminating the knowledge gained from the facility, (2) liaison services with other government and industry groups involved in Electronic Commerce, and (3) consulting services, which help users in the federal and private sectors deploy Electronic Commerce applications. The Security and Exchange Commission's (SEC's) EDGAR system is designed to automate the receipt, processing, and dissemination of documents filed with the SEC. The purpose of EDGAR is to increase the efficiency and fairness of the securities markets for the benefit of investors, corporations, and the economy by accelerating the processing, dissemination, and analysis of time-sensitive corporate information filed with the SEC. Under the fully implemented EDGAR system, millions of pages of information currently submitted to the SEC on paper will be transmitted and stored electronically using electronic communication and data management systems. Currently, 3,400 of the approximately 15,000 U.S. corporations with filing obligations are using the system to submit 309 different filing types. Once the electronic filing is accepted, public information is immediately disseminated and becomes available quickly to investors, the media, and others on computer screens via the SEC's public reference rooms and through electronic subscription services provided by information resellers. EDGAR makes disclosure in formation readily available on both a document retrieval and a text search basis to all of the SEC operating divisions and offices. The Department of Veterans Affairs (VA) is using EDI as a business reengineering tool to improve relationships with third parties regarding benefits delivery, seeking to improve the quality and reduce the costs of doing business. VA has recently completed a Business Case Analysis that outlines savings of approximately $500 million over a five year period by replacing approximately 15 commonly used business documents, including purchase orders, invoices, health care claims and others with their electronic equivalents. VA is currently developing an implementation plan for Electronic Commerce applications. The Department of Defense Continuous Acquisition and Life-Cycle Support (CALS) Initiative is an industry and government strategy to enable more effective generation, exchange, management, and use of digital data supporting the life cycle of a product through the use of international standards, business process change, and advanced technology application. The CALS initiative was started in September 1985 by the U.S. Department of Defense with the goal of enabling the integration of enterprises on a worldwide basis through the development, implementation, and integration of digital information standards for product design, manufacture, and support. The vision is for all parts of a single enterprise to be able to work from a common digital database, in real-time, on the design, development, manufacturing, distribution, and servicing of products. The Tennessee Valley Authority (TVA) is modernizing business processes to allow TVA to compete more effectively in today's global economy. A critical tool in this modernization process is the NII. TVA is streamlining its procurement processes to use electronic data interchange to solicit bids, develop contracts, and to deliver and receive products. As a result of this initiative, TVA has developed electronic data interchange relationships with 56 preferred suppliers. Of the 56 suppliers, 19 are small, minority, or woman-owned businesses. The U.S. Postal Service (USPS) has instituted a Postal Electronic Commerce Services project at the request of the Department of Defense to provide trusted third-party value-added services for Electronic Commerce transactions. The services consist of a registration authority service for individuals to obtain a public-key certificate to sign electronic transactions, a time/date stamp service to prove existence of an electronic record and to seal it to prevent undetectable alteration and a directory service for identification and location of Electronic Commerce trading parties. The services, developed jointly with NASA, will be tested with the Federal Aviation Administration and the Internal Revenue Service. A decision will then be made by the USPS concerning making the services generally available throughout government. The USPS is also working with other federal agencies, most noticeably the Social Security Administration, the Internal Revenue Service, and the Department of Veterans Affairs, to establish a generic government-wide Service to the Citizen kiosk program. The program will provide an economy of scale and a "one stop shopping" kiosk program for the public. The kiosk program material will migrate to interactive TV delivery of the government information services at such time as the NII supports secure home interactive TV services. The Internal Revenue Service, which introduced an Electronic Filing System on a limited basis in 1986, received over 13 million individual returns from over 75,000 filers last year, a number that is expected to grow to 80 million returns within the next 10 years. Over the past few years the system has expanded to include certain business forms and balance due returns. In 1991 a Federal/State cooperative program was started that has grown to include more than 25 states. In 1992 a 1040EZ file-from-home pilot (TeleFile) was introduced via touch-tone phone. The current system uses a proprietary input format but a pilot is scheduled to accept American National Standards Institute/American Standards Committee X12 (ANSI/ASC X12) EDI input in the near future. Private Sector Activities Many private sector organizations are developing and implementing Electronic Commerce applications for the NII; indeed, the Gartner Group has made a strategic planning assumption that by 1997 there is an 80 percent probability that electronic messaging will become more important for Electronic Commerce than EDI [Gartner Group ECS Research Notes, February 14, 1994]. Evidence of this movement is that the Electronic Messaging Association, the national U.S. e-mail association, has created an Electronic Commerce Committee to promote adoption of Electronic Commerce throughout the U.S. and internationally. National voluntary standards organizations working in electronic data interchange, in bar coding, and in electronic exchange of product modeling and specification data, are providing necessary components for the infrastructure. Below is a brief list of examples of current private sector activities: CommerceNet CommerceNet is an $8 million project designed to help Silicon Valley businesses make commercial use of the NII. Half of the funds for CommerceNet will be provided by a federal "Technology Reinvestment Program" (TRP) grant. Matching funds will be provided by the State of California and participating companies. CommerceNet's goal is to make public computer networks, such as the Internet, "industrial strength" for business use. CommerceNet will address issues including low-cost, high-speed Internet access using newly deployed technology such as Integrated Services Digital Network (ISDN) services and multimedia software. CommerceNet will support a range of commercial network applications such as on-line catalogs, product data exchange, and engineering collaboration. It will also offer outreach services such as technical assistance to small- and medium-size businesses that want to access public networks. The CommerceNet consortium is sponsored by Smart Valley, Inc., and the State of California's Trade and Commerce Agency. Enterprise Integration Technologies, a local high-tech company specializing in Electronic Commerce, will lead the effort. Enterprise Integration Network (EINet) The Microelectronics & Computer Technology Corporation (MCC) is an industry consortium of more than 80 leading companies in the microelectronics and computer industry committed to the joint development of pre-competitive technologies. MCC has developed the Electronic Integration Network (EINet) which dramatically reduces the time and costs involved in getting products and services to market using Electronic Commerce technologies. EINet allows the wide-spread, secure exchange of information and services in order to increase and enhance business activity across networks. With EINet, businesses and organizations are able to interconnect with partners, suppliers, and customers. Four initial services|mdash|directory, security, remittance, and advanced e-mail -- have been developed based on industry priorities. The Advanced Research Projects Agency, the National Institute of Standards and Technology, Electric Power Research Institute, Sematech, and the National Center for Manufacturing Sciences, among others, are participating in the EINet program. Pilots are being planned in the manufacturing, health care, and general commerce arenas. Geographically based initiatives are also developing in Albuquerque, Austin, Omaha, and Rochester. These initiatives are aimed at increasing the economic viability of a specific region. Electronic Manifest Bar Code (EMBARC) The publishing industry has been using EDI since 1985 and has grown its Electronic Commerce uses through an evolution of progressive changes that started with financial or operational justification and that have evolved into strategic service differences. The publishing industry has developed a proprietary set of EDI transactions and bar codes called Electronic Manifest Bar Code (EMBARC) which it uses to used to track and control paper shipments. This standard is expected to migrate to X12 EDI standards in the near future. As an example of the benefits of EMBARC, Judd's, a Virginia printer, has used the EMBARC technology to reduce on-hand paper stock from 100 to 25 days and reduce their inventory by $3 million. EDI transactions are also used to provide activity reports electronically to such customers as Newsweek in an automated process that is quicker and more accurate and that saves time. Production Order Specification (PROSE) Using a new complex EDI transaction for Production Order Specification (PROSE), also to be converted to X12, New York based printer World Color Press receives detail printing instructions that can set up a print job 60 percent faster and can be used by the U.S. Postal Service to rate the resultant mail pieces. Use of PROSE enables customers such as U.S. News & World Reports to make last minute changes while extending their deadlines closer to print time. PROSE in the future will be used to customize printing for companies, regions, or even individuals to receive their personal customized copy of their national magazine!! What started with notices and control of paper shipment, through successive iterations, will generate whole new strategic products and capabilities [EDI News, pp. 1 - 3, "Publishing Industry Gets The Word Out On EDI", January 10, 1994]. Financial Services Technology Consortium The Financial Services Technology Consortium (FSTC) is a consortium of financial service providers, national laboratories, universities, and government agencies whose goal is to enhance the competitiveness of the U.S. financial services industry. The FSTC sponsors interbank technical projects with particular emphasis on projects involving the NII and the High Performance Computing and Communications Program such as Electronic Commerce/consumer payments; fraud prevention and control; and trusted, secure remote access to financial services. In addition to the examples cited above, the Council on Competitiveness has created an inventory of Electronic Commerce applications in various stages of development. Their inventory includes: "Institute for a Distributed Workplace" and "Intell-I-Center" are two Electric Power Research Institute (EPRI) projects designed to study the impacts of telecommuting on productivity and social structure. "Internet Mercantile Protocol" is a Bellcore proposal to develop technologies that will permit Internet users to conduct business over Internet, and use Internet services to validate and complete the transaction. "Kodak Picture Exchange" is a Kodak pilot to demonstrate an on-line marketing service for the commerce of images and the commerce of image-dependent products or services. Kodak's project enables keyword and visual searching of an image database, transmission of thumbnail images to the desktop, and electronic ordering. "Interactive Transaction Partners" is an operational joint venture among General Motors/Electronic Data Systems (GM/EDS), US West and France Telecom to provide interactive financial and information transactions to the consumer and small business in the home and office. It provides a platform to move seamlessly among applications. "PowerView (Energy)" is an operational EPRI pilot that provides residential and other electric customers the ability to manage their electricity to reduce their energy expenses. PowerView is a combination of software and broadband network technology that allows real-time information exchange between the utility and its customers. It has ample capacity to integrate other services to the home, such as video and telephone. "Workers Compensation Reporting Services" is an EDS developed system that conveys an employer's First Report of Injury to the state and to the insurance agent, carrier third party payor, or self-insurer and to the state's Industrial Accident Board. International Activities The United Nations Economic Commission for Europe is developing an international family of standards called UN/EDIFACT that is starting to make possible world-wide Electronic Commerce. Many nations throughout the world, including the United States, contribute to development of these standards. [footnote 8: ANSI/ASC X12 has agreed to adopt EDIFACT standards, and has established the EDIFACT Alignment Task Group.] The United Nations has established a Commission on International Trade Law (UNCITRL) to develop rules for the international adoption of EDI. The United Nations Commission on Trade and Development (UNCATD) is working on reducing the administrative costs of conducting international trade, which currently is $400 billion annually, to enable $4 trillion of commerce. UNCTAD is holding a World Symposium on Trade Efficiency in Columbus, Ohio, on October 17-24, 1994. Secretary Ronald H. Brown, of the U.S. Department of Commerce, will serve as host and UN Secretary-General Boutros Boutros-Ghali is expected to attend. Columbus, one of the fastest growing centers in North America for international trade and utilization of information technologies, has been named The North American Trade Point by UNCTAD under its Trade Efficiency Initiative Project. This project is an effort to include the developing world in Electronic Commerce with the developed world. The European Community started in 1988 a Trade EDI Systems (TEDIS) program to educate users, to help set standards, and to help implement and coordinate EDI systems in such industries as automotive, chemical, and retail. Singapore perhaps is the leader in the world today in its adoption of Electronic Commerce. Singapore has adopted a national program to aggressively maximize its use of telecommunications and paperless processing to establish competitive advantage for its nation. Singapore represents a potential national model and benchmark for Electronic Commerce. Worldwide recognition of the potential payoff for international enterprise integration is evidenced by CALS organizations in Australia, Canada, France, Germany, Italy, Sweden, Denmark, Norway, Netherlands, Japan, and Taiwan. Singapore and South Korea are also considering CALS efforts. PART III: Where Do We Want to Be? The ultimate goal of the NII in Electronic Commerce is the creation of a national electronic marketplace which is secure, open, affordable, easy to access, and easy to use. The exponential growth of the Internet indicates that connectivity and the use of electronic mail, bulletin boards, and file transfers are growing at an enormous rate. In addition, EDI is currently being used by many individuals and organizations to automate simple business decisions and financial transactions. To make an advanced NII for Electronic Commerce a reality, individuals and organizations must continue to increase their use of and familiarity with networked communications services and tools, such as the Internet and EDI, as quickly as makes financial sense. A fully scaled, comprehensive national Electronic Commerce capability, however, involves much more than the reduction of paperwork and the speeding of decision making information for business and government transactions. In particular, the creation of an advanced infrastructure that can support national Electronic Commerce requires solutions to many technical, legal, security, financial, and regulatory barriers, as well as the widespread adoption and use of a variety of technical standards for communications, information processing, and security. Although the federal government itself generates a small portion of total commerce, it may be, with its Departments of Defense, Veterans Affairs, and General Services Administration leading the way, the largest single purchaser of goods and services in the United States. All over the government, agencies are beginning to adopt Electronic Commerce for the very high volumes of information interchanges required in its tax, insurance, and regulatory activities. Implementation of Electronic Commerce by the federal government, including its adoption of applicable national voluntary standards, has provided and will continue to provide significant momentum towards implementation nationwide. As a result, the full implementation of the President's memorandum on Electronic Commerce is an important goal. While the government as a large user of Electronic Commerce can provide leadership, it is the private sector that generates the overwhelming majority of commercial transactions, and therefore will make an overwhelming majority of the investments in Electronic Commerce capabilities. As such, for an advanced NII to develop and succeed, it is critical that the private sector own and operate it. The nature of Electronic Commerce, in particular the fact that cooperation and flexibility among permanent and transient partners as well as the establishment of standards for the interoperability of communications networks, information and data exchange, and security services are needed means that the government can play a pivotal role in creating the NII by facilitating and coordinating private sector efforts. Until many technologies, Electronic Commerce capabilities, and security provisions are proven, individuals and companies will be hesitant to invest in research, development, and implementation of Electronic Commerce applications. For example, concerns about threats to proprietary data, computer virus exposure, unauthorized access, increased single points of failure, control and auditing functions, and search and verification mechanisms inhibit investment. Many of these concerns go beyond Electronic Commerce; in particular, information protection, privacy, and security have been identified as a critical requirement and enabler in each application strategy paper. It is a cross-cutting need and the challenge for government and industry is establishing a comprehensive and coherent approach for these applications. This will require leadership and cooperation across government and industry, and the requirements for Electronic Commerce will offer a benchmark application. The President's efforts toward "Streamlining Procurement Through Electronic Commerce" afford the government a unique opportunity to provide the needed leadership and to demonstrate secure and trustworthy operational solutions. Consistent with the National Performance Review (NPR) Recommendations, the Government Information Technology Services (GITS) Working Group must provide the leadership to identify the steps that must be taken to provide solutions that cross-cut applications in an integrated fashion. With such leadership stovepipe systems can be avoided, and the benefits of an integrated and comprehensive solution fully realized. The documentation of success stories and the development of a national scorecard and metrics for evaluating Electronic Commerce implementations as well as the development of legal and regulatory structures that address these threats will help ameliorate some fears. In addition, the expansion of national R&D, pilot demonstrations, and testbeds, and the continued support of the High Performance Computing and Communications Program and other long-range, high risk R&D programs will further reduce fears and create a healthy environment for investment in Electronic Commerce applications. To create a national commerce infrastructure, the following seven subject areas, illustrated in Figure 1 (see below), must be coordinated and facilitated through public-private sector partnerships, setting base implementations and standards for minimizing costs overall, but allowing for flexibility to meet unique requirements: [footnote 9: Saltman, pp. 52 - 62.] - Agreements among organizations of partners interchanging diverse subject matter, so that the developed infrastructure meets all requirements in a cost-effective manner; - Details of message interchange standards, i.e., character sets, data types, data elements, message syntax, message types, and provision for inclusion of security parameters; - Supporting interchange technologies, such as communications protocols, audit trails, security, and graphics interchange capability; - Network reliability, availability, and management, including agreements among connecting networks, to assure that messages are delivered in a timely manner with integrity, security, and appropriate audit trails; - Directories of prospective partner information, including network addresses and representational data, such as contacts for Electronic Commerce, banking arrangements and financial terms for buying and selling, and sources for security credentials and public keys; - Technology and standards development, including a national Electronic Commerce architecture employing a distributed implementation using networks such as the Internet that tie together other networks, and transmit electronic mail, formatted commercial documents and graphics. - Legal and regulatory framework, including strategies for facilitating the transition from paper-based commerce to Electronic Commerce, and for addressing such issues as legal acceptance of electronic documents and electronic signatures, assurance of the "trustworthy" electronic record and the "trusted third party." PART IV: How Are We Going to Get There? It is probable that Electronic Commerce, like fax, will grow slowly until a critical mass is reached, and then explode in popularity. How can we reach critical mass as quickly as possible while ensuring that the transition from traditional commerce activities to Electronic Commerce activities is as smooth as possible? The following paragraphs represent only a starting point for formulating the key issues and questions, and for initiating the key actions and policies that are needed to facilitate the development of the Electronic Commerce application as part of the NII. The full range of issues described in this paper must be addressed to realize the full potential of Electronic Commerce. Issues and Questions to be Addressed - Government and industry cannot accept Electronic Commerce unless electronic transactions are secure. There are clear requirements for authentication of the source of a transaction, verification of the integrity of the transaction, prevention of disclosure of the transaction to unauthorized users, and verification of receipt of the transaction by the intended trading partner. Is the current work in computer security services adequate for timely resolution of these technical issues, or should the direction of work be changed or the level of effort increased? What organizations and mechanisms are needed to ensure that government and industry can jointly address security-related issues? - Electronic Commerce application will require the interoperation of communications, data management, and security services. These services will be provided by many different companies, including Value-Added-Networks, systems integrators, hardware vendors, and software vendors. Given this diversity, how can government and industry ensure that Electronic Commerce will be reliable, and that the components can be assembled, maintained, and upgraded at reasonable cost? We must develop technologies, measurement tools, testing services, interoperability demonstrations, etc., to ensure that components satisfy the current and future requirements of government and industry. Should the NIST Electronic Commerce Integration Facility be tasked to lead this effort? What other organizations can lead or contribute to this effort? What actions are needed to ensure appropriate funding? - Successful resolution of technical issues will be insufficient to ensure the widespread use of Electronic Commerce; economic, cultural, regulatory, and legal barriers to Electronic Commerce must be identified and removed. For example, how can government and industry ensure that Electronic Commerce will be viewed positively by workers? What incentives can be provided so that workers will share in the benefits of Electronic Commerce? How can government and industry establish realistic business cases and success stories to encourage potential users and providers of Electronic Commerce hardware, software, and services? Are the benefits discussed in this paper adequate, or are additional incentives required? Should government and industry create a joint task force to identify the most critical barriers and incentives and identify or create appropriate organizations to remove those barriers and provide those incentives. What actions are needed to ensure appropriate funding for the joint task force and for the organizations that it will identify or create? excluded: Figure 1. Planning for Global Electronic Commerce. References Byrne, John, "The Virtual Corporation," Business Week, February 8, 1993. Carnahan, G. W., J. J. Peavey, and K. E. 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Ross, E., "CALS-CE ISG Benefits Working Group Reports, 1989 & 1991," CALS Journal, Winter 1992. Saltman, Roy G., "Planning the Infrastructure for Global Electronic Commerce," EDI FORUM, Vol. 6, No. 3, 1993, pp. 52 - 62. Teresko, John, "Tripping Down the Information Superhighway," Industry Week, August 2, 1993. Weiss, Peter, "Electronic Data Interchange Federal Programs and Policies," Office of Management and Budget. .