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Int. J. of Human Resource Management 12:6 September 2001 1062–1084

Creating new business through strategic community management: case study of a multimedia business

Mitsuru Kodama Abstract For the last few years, the videoconferencing system and multi-point connection service market represented by multimedia technology have enjoyed strong growth in Japan. Behind the recent upturn in this market was the strategic alliance of NTT, Japan’s largest telecommunications carrier, and PictureTel of the US, followed by the birth of business communities centred around or outside NTT, thus intensively creating and boosting a new market referred to as interactive video communication. This article reviews the challenges that faced NTT, one of the big businesses in Japan, followed by PictureTel and other players within and outside NTT, all of which were lined up to create various strategic business communities. The article gives careful consideration to the measures taken by these players who achieved success in such a way as to alter employee consciousness, vitalize organizational morale, entrench the new NTT ‘Phoenix’ brand (videoconferencing system) in the Japanese market and create an emergent new video multi-point connection network service market. And it was under the innovative leadership of community leaders that communities’ core competencies were elevated, and innovation of the multimedia business achieved, as a function of the creation and harmonization of new value outlooks within the business community, inside as well as outside the companies. Keywords

Innovation; community; leadership; competence; IT.

Introduction It is a truism that large, established companies must continually 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 focusing solely on developing products and services 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). This article will describe strategic community management for large established companies, implemented through the creation of various strategic business communities (hereafter strategic community creation). Mitsuru Kodama, Community Laboratory, 6-2-21 Schin Machi Hoya Shi, Tokyo 202 0023, Japan (e-mail: [email protected]). The International Journal of Human Resource Management ISSN 0958-5192 print/ISSN 1466-4399 online © 2001 Taylor & Francis Ltd http://www.tandf.co.uk/journals DOI: 10.1080/09585190110063624

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The key to strategic community creation is an exceptional leader in the company (referred to in this article as a community leader) with the heart of an in-house enterprise intra-preneuring promoter (e.g. Bechard et al., 1996), who uses his innovative leadership to create strategic communities, both within and outside the company, and to promote strategic businesses. The community leader creates strategic communities, applying such methods as forming in-house business communities, entering strategic partnerships with other businesses, and outsourcing strategically; last, but not least, he forges interactive business communities, sometimes with customers. The community leader sees to it that this collection of strategic communities works together organically, manages it comprehensively and, in so doing, gives rise to business innovations that are well suited to large companies. The article will take up, as model case of the use of strategic community management in business, the expansion of Japan’s multimedia communication market achieved by Nippon and Telegraph and Telephone, Inc. (hereafter, NTT), Japan’s largest telecommunications carrier, over roughly the past four years. The article will explain how NTT cultivated this new multimedia market, which was spawned from its creation of business communities (both internal and external) using strategic outsourcing and various strategic partnerships with business in other industries. NTT’s multimedia business (a case study)1 Expansion of the videoconferencing and multi-point connection service market in Japan

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During the 1994 New Year’s holidays, the then-president of NTT made the following announcement: ‘NTT is going to transform itself from a telephone company into a multimedia company!’ It was a time of great change, as NTT, with its forty-eight-year history in the telephone-based network business, was facing a future of creating new, multimedia-based businesses. Against this background, a small-scale multimedia promotion organization was inaugurated within the structure of the NTT main ofŽ ce staff. At the time, NTT’s basic policy for promoting multimedia was to begin by utilizing existing, currently usable network technology to offer multimedia services to its customers. The policy NTT worked out was called ‘Multimedia for Today (NowISDN)’. It utilized an ISDN2 multimedia network-compatible communications scheme as a platform, and offered customers various application services based on this platform. NTT promoted the popularization of ISDN-based videoconferencing systems and videophones, i.e. video communication terminals,3 the most typical application. At the NTT of that time, the establishment of a new business in video applications, which were almost unheard of in the Japanese market, was a large issue. At Ž rst, three employees, including a manager, set to work drafting a plan for establishing a market for ISDN-based video communication. Their vision was the construction in Japan of a new video-communication-based video culture, from the country’s telephone-based communication of the past. They were presented with innumerable business problems, a sampling of which follows: The development of a low-cost, high-quality desktop video conferencing system for the business market.

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In promoting the video terminals that NTT was to develop, what sort of business formation would facilitate sales, maintenance and after-sales service? How could the sales and technical skills of the company’s employees be heightened to facilitate marketing, sales, installation, maintenance and after-sales service for these new video terminals that NTT had never before handled? How was NTT to go about popularizing the video terminals it would produce? How was the company to go about bringing into existence and offering to customers these new, video-terminal-based, video-network services (multi-point connection service)? c

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At the time, moving forward with these products was a nearly impossible task for just a few employees. But the motive force behind these video-based businesses turned out to be community management based on the creation of strategic communities within and outside the company that related to each individual business process, including development, marketing, sales, maintenance and after-sales service. In other words, a community leader in NTT headquarters’ Multimedia Promotion Department demonstrated innovative leadership in utilizing the relationship of empathy and resonance he had built with other leaders, both within and outside the company, to create various business communities. He managed these several business community groups simultaneously, and worked to promote video multimedia through the creation of new businesses as shown in Figure 1.

Figure 1 Strategic community creation at NTT

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Systematically creating strategic communities Various organizational methods have received attention for allowing large companies somehow to achieve signiŽ cant strategic innovations (Markides, 1998). Their common essence is the idea of a strategically minded innovator in a large company constructing an organization distinct from the main company’s, in order to support strategic innovation. This can be done by building an organization contained within, but separate from, the main organization (Figure 2, Pattern 1) or by establishing a separate subsidiary (Figure 2, Pattern 2), to give two examples. However, while these organizational patterns are extremely effective for strategic innovation, there are always problems. This is due to issues related to joining and achieving long-term harmony between the cultures of the old and new organizations. Overcoming these problems requires vigorous leadership from top management and a revolution in corporate culture. To promote the kind of strategic business innovation that leads to the long-term development of such phenomena as continuous organizational invigoration and new business creation, the important issue is not how to engage in strategic business practices and operations using only the company’s internal resources (knowledge and talent). Rather, the important issue is how to create strategic communities based on collaboration (including virtual collaboration through IT-based networks) or various external (human) resources, including customers, so as to develop innovative businesses, such as this case study (Kodama, 1999a). In this subsection, the article will describe three points that comprise the important elements of strategic community management shown in Figure 1. They differ from the processes of strategic innovation-based management shown in Figure 2, Patterns 1 and 2. Point 1 is: rather than investing new resources in various separate organizations that will promote strategic businesses in a self-sufŽ cient manner, as per Patterns 1 and 2, having an exceptional, ambitious community leader use his in-house network of

Figure 2 Forms of strategic innovation in large companies

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personal relationships to create a new, strategic community within the company, and in so doing lay the foundation for moving forward with new, strategic businesses within the existing organization. This allows the strategic community of the new business, with its new corporate culture, to bring about a new strategic mind-set in the many employees of the company’s other organization, who retain the old corporate culture. In other words, it allows the new strategic community to play the role of a catalyst that joins and harmonizes the new and old corporate cultures. (See Figure 1, Community A.) Point 2 is that the community leader obtain, through strategic outside partnerships and outsourcing, the resources (knowledge and talent) needed to promote strategic business creation externally, and that he make use of the relationship of empathy and resonance he has built with leaders in other businesses to create an external strategic community. A further important subject is the creation of business communities through strategic partnerships with businesses in other industries, with the goal of Ž nding new markets and expanding existing markets for products and services generated in the strategic creation of new businesses. The community leader must discover and search out key people in businesses in other industries, and then work with them to cultivate and expand new markets. Strategic joint development, sales partnerships and outsourcing formed with businesses in other industries are examples. (See Figure 1, Communities B1, B2, B3.) Point 3 is for the community leader to use his innovative leadership to manage several groups of strategic communities, of the two types described earlier, simultaneously and in a comprehensive manner. The community leader must also work to facilitate the continuous sharing, creation and renewal of community competencies (in this article, core competencies within strategic communities will be referred to as community competencies) within each of these individual business communities (Kodama, 1999b). Accordingly, the ambitious community leader, who is primarily engaged in promoting the creation of strategic businesses, and as such plays an important role, not only has to rely on his own power continually and systematically to create strategic communities, using the relationships of empathy and resonance he has built with leaders within and outside of the corporate structure, including relationships with leaders in other industries, but at the same time comprehensively to manage these multiple strategic community groups(Kodama, 1999c). The community leader perceives the confederation of these various, sometimes customer-inclusive, strategic communities, located both within and outside the corporate organization, as a virtual corporation, and strategically promotes its businesses. The creation of a strategic community with PictureTel Corporation of America (Community B1 in Figure 1) Developing a core engine for multimedia services Joint development of Phoenix Multimedia Conferencing System, a world Ž rst In February 1995, NTT agreed to form a strategic partnership with PictureTel Corporation (headquartered in Boston in the USA), which had a track record of achievement in the core multimedia Ž eld of video communications. The partnership’s purpose was the joint development of a next-generation desktop videoconferencing system to be called Phoenix (Nihon Keizai Shimbun, 1995). Many manufacturers in Japan and abroad were

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already selling ISDN-based videoconferencing systems, but, even for the time, product prices were high, on the level of one million yen for a desktop model and several million yen for a room-type videoconferencing system. Not only the unfamiliarity of videoconferencing systems’ operation methods, but also these prices themselves, could be counted as among the reasons videoconferencing had yet to take off. For NTT, the objective of the strategic partnership with PictureTel was to ignite the Japanese video-terminal market at a single stroke and at the same time to launch the new videoconferencing system as a Ž gurative tractor to pull Now-ISDN. NTT’s target unit sales price was set at under ¥200,000. This pricing brought major changes in the desktop videoconferencing system market. The key factor behind the success of this strategic alliance was the empathy and resonance for the sense of value felt by the leaders of both NTT and PictureTel. The corporate philosophy of PictureTel is ‘RedeŽ ne the Way the World Meets’. NTT introduced the multimedia communication infrastructure referred to as ISDN, which is readily available today for a wide range of customers and large number of uses. It was intended for use in not only the business sector but also in the Ž elds of education, medicine and welfare. In the telecommunications sector, the urgent need of the world’s telecommunications carriers was transition or shift from a diminishing returns-type business model centred on conventional analogue telephone trafŽ c to a stepped-up return-type business model of non-telephone trafŽ c centred around digital video and data. In the area of cyber businesses supported by multimedia which merge networks, content and a variety of applications, there was a strong possibility of creating new businesses triggered by diverse alliances concluded among companies and organizations in different lines of business. Alliance in the multimedia arena adopts a style wherein each organizational person from alien corporate climates forms a community in which persons liaise and gel with each other to fulŽ l their business. The leaders involved in this project are required to be always innovative and to have a strategic concept and energy. The creation of strategic communities within and outside NTT Establishing an organization for business promotion Strategic community creation within the company establishing an in-house sales organization (Community A in Figure 1) The task confronting the community leader of the Multimedia Promotion Department, which at that time had no sales organization, was to create a business community to include the sales departments of NTT branch ofŽ ces and branches throughout Japan, for the purpose of outsourcing the marketing of the Phoenix. It was necessary to foster a deep understanding of and feelings of empathy towards the Phoenix in the many NTT employees who had never before handled video terminals. A group of community members, mostly made up of community leaders, used product explanation meetings, training meetings and other educational activities, throughout the approximately six months leading up to release, to bring about a revolution of employee consciousness as it related to popularizing multimedia terminals. (NTT had trained approximately 1,000 employees in sales and technology by the time the Phoenix went to market.) Using straightforward instructional activities, a group of community members, chie y community leaders, cultivated personnel in ofŽ ces through Japan who would

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act as key people. Thus, through activities to motivate employees to promote the sales of these new products, a virtual business community was formed among NTT headquarters’ Multimedia Promotion Department, NTT’s branch ofŽ ces and NTT branches. The new corporate culture possessed by this new business community gave rise to a new, innovative mind-set in other employees who were immersed in the old corporate culture. As a result, this virtual business community has now expanded greatly, and the Phoenix is positioned as the video multimedia product that represents NTT. Creation of strategic communities within the company and the establishment of a service-front system (Community A in Figure 1) In response to various inquiries arising from Phoenix users with regard to technical issues and network faults, one of the major issues the community leader at the Multimedia Promotion Department had to deal with was how to establish a sales system while at the same time creating a strengthened complaints department backed by a nationwide network of service-front desks. At the time, the ISDN service centre or 113 service centres (forty front desks across the country) were answering inquiries about technical problems with ISDN terminals and ISDN lines and accepting troubleshooting requests. The community leader at NTT headquarters Support Department and the Multimedia Promotion Department, which exercised overall control over those nationwide ISDN service centres, formed an inhouse business alliance and began accepting Phoenix service-front applications at ISDN services centres spread across the country. At Ž rst, employees felt unrest and were embarrassed about the new technology and products. To counter this, community leaders worked hard on improving employee skills and conducted patient personnel training as part of on-the-job technical training or nationwide brieŽ ngs intended for each ISDN service centre. The actions of these community leaders also contributed to the creation of important in-house strategic communities in line with the establishment of the sales network. The creation of strategic communities outside the company Enlarging extra-corporate sales channels and establishing a maintenance organization (Communities B2 and B3 in Figure 1) To boost sales through channels other than those funnelled from NTT sales departments in branches and stores, NTT entered into sales tie-ups with Otsuka Shokai, a major SI vendor, and LAOX, a PC and home appliance volume retailer, so as to accelerate the expansion of sales channels. Outside agency agreements with about 100 companies were successfully concluded before initiating sales of Phoenix. NTT entered partnerships with companies in its group to outsource maintenance and after-sales service strategically. This was an example of strategic outsourcing within the NTT group for the purpose of sharing and accumulating within it knowledge and expertise related to the Phoenix. NTT utilized this outsourcing arrangement to offer its video-terminal customers a high-quality service package that included maintenance and after-sales service. Through business community formation by means of extra-corporate sales-, maintenance- and after-sales-service-related strategic partnerships and outsourcing, NTT built the foundation for a Ž rm Phoenix business formation.

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Support for inside and outside communities over the new video information networks To support the strategic community groups both within and outside NTT that were associated with sales, maintenance and after-sales services, the community leader at NTT headquarters’ Multimedia Promotion Department introduced desktoptype videoconferencing systems and groupware to interconnect the communities, linking within and between them with ISDN and the Internet in the form of a new video information system (referred to as the Phoenix Customer Service Network). The goal was to provide high-quality customer services through a virtual community that was created using the Phoenix Customer Service Network. SpeciŽ cally, the mode of application was, Ž rst, the accumulation and sharing of sales and maintenance information within and between each community, for example, sharing of customer information or fault case information. In addition, customer needs and product and system improvement requests were promptly collected, stored in a database and shared. The second mode of application was to operate a sales/maintenance information exchange and conduct nationwide virtual conferences. For example, information is distributed between sales branches or to community members at multipoint videoconferences that link ISDN service centres, and interactive exchange of information is actively worked out so as to enhance the value of the information. The third mode of application is personnel training intended as follow-up training, to be conducted following product brieŽ ngs through remote training via the videoconferencing system, or as part of mass training. The introduction of the system allowed community competencies such as information, knowledge and know-how within and between the communities to be efŽ ciently accumulated and shared, and, at the same time, allowed the business cycle, comprising multimedia sales, maintenance and after-sales service, to cycle smoothly in the form of leadership support tools for the community leaders. The determination to introduce these large video information network systems was encouraged through prompt decision making by the community leader at the Multimedia Promotion Department and innovative-type leadership. Sales begin in Japan of world’s Ž rst multimedia conferencing system In March 1996, NTT began selling Phoenix, the world’s Ž rst Windows 95- and PCI local buscompatible, desktop-type multimedia conferencing system, with the hope that it would be the killer application to make ‘Multimedia for Today (Now-ISDN)’ a reality (Nihon Keizai Shimbun, 1996). Phoenix was truly a world Ž rst and a Ž rst in Japan among multimedia products, in terms of both its cost and its functionality. Its amazingly low cost of ¥198,000 redeŽ ned multimedia and established a videoconferencing market in Japan in a single stroke. Upon the sale date, the vice-president, then president of NTT (President Mr Miyazu) presided over a Phoenix sales kick-off ceremony at LAOX’s ‘The Computer’ Shop in Akihabara, home to Japan’s largest computer electronics shopping town (Nikkei Sangyo Shimbun, 1996). The impetus to move the top leader of big business stemmed from innovative leadership centred around the community leader at the Multimedia Promotion Department in an approximately one-year endeavour extending from the formation of tie-ups with PictureTel to the launch of sales. The community leader created a group of strategic communities within and outside the main organization in order to vitalize each organization within NTT and reform consciousness in an effort to encourage community members to promote multimedia businesses. The Phoenix’s sales for 1997 amounted to a 70 per cent share of the Japanese market for desktop videoconferencing systems (Fuji Chimera Research Institute, 1998). (See Figure 3.)

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Figure 3 Phoenix vitalizes the Japanese videoconferencing market

Phoenix is currently positioned as a video multimedia product representing NTT. Phoenix quickly evolved, in a succession of upgrades, from the initial NEC-PC98 model to a DOS/V model (Nihon Kogyo Shimbun, 1996) and NEC-PC98/DOS integration models (Nikkei Sangyo Shimbun, 1997c). And the success of Phoenix, which was formed as part of a strategic alliance with PictureTel, was achieved through the introduction of a new product onto the market. That is, commercialization and sales of room-type videoconferencing systems referred to as Phoenix WIDE (Nikkei Sangyo Shimbun, 1997a) triggered radical price-cutting sales that swept the room-type videoconferencing system market, having much the same impact as the original Phoenix. At present, Phoenix WIDE has come to command an impressive 50 per cent share of the room-type videoconferencing system market. Results achieved by communities Figure 4 shows activities by each community (A, B1, B2 and B3) in chronological order. Achievements by Community B1 Achievements by Community B1 are roughly divided into three. First, in order to create a new video culture in Japan called video communications, it developed a new highquality, low-priced Phoenix videoconferencing system accepted by many customers. As NTT and PictureTel were working out the details of the contract, the community

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Figure 4 Activities by innovation communities

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successfully determined the technical speciŽ cations of the new product and made decisions on the procurement contract terms within about Ž ve months. In the joint development process after the contract was signed, NTT’s community members stayed in the US for a long period to execute a development project by co-operating mutually on various issues. Activities included technical discussions on creation of a prototype, quality checks on software that has complex and various functions, localization into Japanese and creation of technical manuals and user manuals. Needless to say, information sharing and dispatches were actively performed via the latest communication tools at that time, including the Internet and TV conferencing. As a result, for the Ž rst time anywhere in the world, Phoenix, a desktop-type multimedia conference system, was born in Japan. The second achievement was commercialization of an updated version of Phoenix (DOS/V model and PC98/DOS integration models) and a new line-up of products (Phoenix WIDE). The third achievement was that a business was established for a one to multiple location video communication service derived from 1-to-1 video communications including the Phoenix videoconferencing system. Details of this will be discussed later. Achievements by Community A Community A achieved the following Ž ve points. First, it established a sales structure for the NTT Sales Department (branches) at about 200 locations nationwide. Core community members at each branch promoted Phoenix sales in each area. Second, it established a customer-service counter structure at the service-front centre at about Ž fty locations nationwide. The centre at each area provided centralized customer services to handle inquiries and troubleshooting, etc. Third, it provided training for new technologies, sales know-how and skills to about 1,000 sales staff and service-front staff (in the six months before NTT began selling Phoenix). For this training, a special training facility was constructed in three months and staff were reinforced in their ability to provide meticulous knowledge, know-how and skills training. Fourth, it established a database of sales information, customer needs and technical information through the Phoenix customer-service network that connects Tokyo and the servicefront centres that are the sales base in each area, and promoted sharing of information, knowledge and know-how among communities using both Phoenix and the Internet. Fifth, as a noteworthy achievement, the sales team successfully expanded sales applications for Phoenix. That is, it developed new usage for videoconferencing by attempting to sell the videoconferencing system not only for the usual corporate meeting purposes but also for distance learning, telemedicine and the welfare Ž eld. Details of this will be discussed later. Achievements by Communities B2 and B3 NTT entered into a sales agent contract with about 100 outside sales companies including large mass merchandisers and large sales companies, and NTT and sales agent communities set up a product package called Phoenix1 PC1 ISDN to promote sales to ordinary households using a discount method. In this all-in-one product, the Phoenix board and software are preinstalled and necessary devices for ISDN line connection are bundled. This type of product held great advantages for users because, without special knowledge and skills, anybody could easily perform TV conferencing by simply turning the power of the system ON and connecting it to an ISDN line. With the Phoenix system installed in all-in-one package integrated with an ISDN line and

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strategic outsourcing to NTT group companies, technical know-how and skills were handed down in order to promote customer services (installation and maintenance) provided by all group companies. Expanded usage of ‘Phoenix’ in education, medical and welfare Ž elds The strategic alliance between NTT and PictureTel was a big trigger for the dissemination of videoconferencing systems in Japan. Furthermore, as a contribution by Phoenix in other Ž elds, the communities not only expanded the use of Phoenix in virtual conferences in the corporate business Ž eld but also in the education, medical and welfare Ž elds as well, and constructed new business models that used IT and multimedia. According to Figure 5, ‘Forms of multimedia services in the education, medical and welfare Ž elds’, about 35 per cent of the use is in these Ž elds. A typical example in each will be discussed in the next section. Language study (see Figure 5a) With the onset of a true international era, the necessity and needs of language education are rising. In June 1997, NTT and the Foreign Broadcasting Centre Corporation began a ‘multimedia remote language education’ service, with corporate co-operation, which connects the Foreign Broadcasting Centre with corporations and carries out language training, using Phoenix systems (Nikkei Sangyo Shinbun, 1997b). The Foreign Broadcasting Centre has been carrying out internationalized training from 1978 with ‘Try It Yourself in English (TIY)’ in 350 major Japanese corporations with the aim of ‘personnel training for the internationalization of Japanese corporations’. TIY does not have traditional class lessons; rather it is a system in which the foreign teacher in charge provides instruction directly on a one-to-one basis while recording all telephone conversations and report corrections on a ‘personal chart’ (class record), all of which is on an individual level. As TIY does not have any time restrictions, it is ideal for busy corporate personnel who do not have time to attend class lessons or an English language school, and it supports interactive ‘multimedia remote language education’ that provides higher training effects through the combination of Phoenix and TIY. With the launch of a Chinese language training multimedia remote language education service predicted, the Foreign Broadcasting Centre will be able to offer more than only English training. Emergency medical services4 (see Figure 5b) At the site of a medical emergency, a small delay in treatment may have life-threatening consequences. Depending on the patient’s symptoms, supporting physicians may be called in from other hospitals, and three or four physicians might handle the treatment of a patient with complicated injuries. An information network by which information on the patient’s condition can be exchanged via real-time video is effective for providing the correct treatment. To accomplish this, the Tokyo Women’s Medical University has built Phoenix that links the Tokyo Women’s Medical University’s Emergency Rescue Centre to seven hospitals across Japan from which the centre dispatches physicians, enabling centre physicians to provide support while viewing video of the conditions of patients who have been brought to other hospitals.

Figure 5 Forms of multimedia services in the education, medical and welfare Ž elds

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Sign language support service (see Figure 5c) ‘Sign language support service’ is a service whereby sign language interpretation can be performed by connecting to a sign language support centre through Phoenix and, using both sound and the screen, it provides assistance in corporations, community organizations, hospitals and department store counters, etc., should it be necessary to speak in sign language. Japan is one of the world’s aging societies, and, if elderly people who are hard of hearing are included, there are said to be six million hearing-impaired people in Japan. Any barriers that hinder the hearing impaired from being independent and involved in society must be removed in order to have a society in which it is easy for people to live. In the case of the hearing impaired, most conversation with the able hearing is written, and it is not uncommon for people to be accompanied by a sign language interpreter when the conversation is necessarily complicated. It is on this point that Phoenix systems are convenient for many people, with the hearing-impaired person speaking in sign language to the screen and the hearing-able person conŽ rming the sign language interpretation by voice. The multimedia era is not a simple boom: it is something that will help to solve each problem within individual lifestyles, company activities and administrative services. Test trials at hotels, banks, department stores, hospitals, police boxes and welfare ofŽ ces within the Tokyo metropolitan area were begun in February 1997, and, at the peak, there were between twenty and thirty people using the Phoenix system each day, with reasons for use being from giving hearing-impaired people directions at police boxes to inquiries regarding childbirth costs at hospitals (Mainichi Shimbun, 1997; Nihon Keizai Shimbun, 1997b). As explained above, universities, special schools, language schools, hospitals, social welfare centres and other proŽ t and non-proŽ t organizations, such as local governments, now became able to provide content and applications for the education, medical and welfare information owned by each organization to end-user customers as multimedia services using the ISDN digital network and the Phoenix videoconferencing system as a multimedia communications platform. This was the birth of a totally new business model.5 The creation of an NTT Phoenix-based video-network service market Background A diversity of emerging businesses in the multimedia arena have capitalized on the Internet, ISDN and other information networks that have accompanied progress in IT and multimedia technologies. This trend stems from the development of businesses centred around large enterprises and accelerated by various strategic alliances between heterogeneous businesses in the multimedia sector, and from the development of new businesses promoted by venture companies that combine their core competencies. The videoconferencing market has experienced explosive growth over the past six years. With the advent in the last few years of so-called desktop-type videoconferencing systems that run on PCs, videoconferencing is Ž nding its way into not only large enterprises but also medium to small enterprises and other businesses. Recently, videoconferencing systems have grown into a new and promising telecommunications medium, transcending the conventional realm of ‘conferencing’ and evolving into such high-tech implementations as data conferences and videoconferencing in LAN environments or via the Internet (Kodama, 1999a).

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Unlike conventional point-to-point conferencing systems, currently available MCUs (Multi-point Connection Units)6 allow videoconferencing to be conducted through the linking of three or more locations at a time; however, due to the expense of MCUs and the complexity of system operation, with the exception of some leading-edge companies, multi-point videoconferencing systems have not enjoyed popular support. Under such circumstances, international telecommunications carriers and system vendors are endeavouring to launch ‘multi-point connection service’ businesses as a means for the user to implement multi-point videoconferencing without the need to purchase or otherwise acquire MCUs. Current status of multi-point connection services around the world In the US, the total number of large-to-small videoconferencing systems is expected to top the three million mark by the year 2000 (Dataquest, 1997). This is similar to the videoconferencing system situation in Japan, where they are expected to grow to an impressive 400,000 units (Fuji Chimera Research Institute, 1998). The growth of multipoint connection services and proprietary ownership of MCUs will also accelerate. With regard to multi-point connection services, AT&T began providing services in 1994, followed by a number of other companies, including MCI and Sprint. Worldwide service is also available outside the US market. In Europe, on the other hand, telecommunications carriers are focusing their services on the domestic market, with MCU connection fees averaging $50 to $60 per hour per terminal. Based on such service trends worldwide, NTT and PictureTel immediately began incubation after launching sales of Phoenix (in March 1996) in order to establish a new video-network service business unique to Japan. A trial multi-point connection service was provided to customers who purchased Phoenix, and various customer requests, including quality, charge and services, were collected. Then, in July 1997, sixteen months later, the communities established a joint venture company, NTT Phoenix Network Communication Inc. (hereinafter referred to as NTT Phoenix),7 consisting of inter-professional companies including NTT and PictureTel. The advent of world’s largest multi-point connection service and its impressively low charges NTT Phoenix opened Ž fty-two access points across the country, permitting videoconferences linking a maximum 1,000 terminals. Its nationwide  at rate of ¥40 for three minutes per terminal (about $7 per hour) is unrivalled in the world. Multi-point connection services permit discussion among multiple, variously located participants, and, because they permit participants to see one another’s facial expressions (i.e. emotions, etc.) on television monitors, they are drawing attention as the ultimate tool for deepening communication, speeding and bringing efŽ ciency to decision making and contributing to the curtailment of the various expenses involved in business trips and holding conferences. Regarding members’ use of the service, membership began expanding rapidly in 1998, with corporate users forming the core growth area, and momentum provided by various company presidents’ use of the service for conveying beginning of the year greetings during the 1998 New Year’s holiday. In addition to use for regular meetings and internal communication at various companies, the service began to be used for nonmeeting applications such as seminar relay services, distance learning services, wedding ceremony relay services and franchise store management. By March 1999, 1,000 corporate members were using the service, 70 per cent of users were from general

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companies unrelated to NTT and its corporate group, and the service’s usership, while centred on the manufacturing and distribution industries, covered a wide spectrum of industries. Not only did this multi-point connection service promote the expansion of multi-point connection service videoconferencing, it also contributed signiŽ cantly to the ISDN trafŽ c of parent company NTT. By March 1999, total usage time for the service had reached nearly 25,000 hours, and interviews with customers were re ecting the popularity of the service’s ease of use and low cost. NTT Phoenix offered the various modes of use of the multi-point connection service such as seminar relay service, large-scale multipoint meetings, distance learning, telemedicine, wedding ceremony relay service and so on. NTT Phoenix went on to start new services, central among which were a multi-point connection service to respond to customer requests for more types of meetings and higher quality, and a service focused on the delivery of various types of content using Video On Demand (VOD). As for speciŽ c new services, it aggressively expanded its offerings to videoconferencing system users to include a multi-split screen/high-speed multi-point connection, among other things. Discussion Creation of strategic communities through innovative leadership by community leaders The key factor in NTT’s multimedia strategy to establish a video-communication-based multimedia market such as a videoconferencing system and multi-point connection service is business innovation through the creation of a wide variety of strategic communities. The key points in successfully creating strategic communities are achieving empathy and a harmony of values among all leaders (the community leaders forming the core of the strategic partnership-based community) in both of the community’s constituent organizations. In these business cases, the organization leaders educated in a framework of Ž xed decision making and organizational behaviour within the existing and disparate organizational cultures were dependent on the harmonization of their value systems, based on the vision of ‘universally providing an environment and opportunity for multimedia-based video communications to a multitude of individuals’. This harmonization of value systems was a new motivational force for inspiring community leaders to establish video-based businesses. The grounding of community leaders must include innovative leadership elements based on strategic thinking and the ability to act. In other words, this refers to the strategic thinking and action of the community leaders (seen in this business case) who will build a new video culture based on multimedia network-based video communications, from a strategic viewpoint founded on long-term trends with a keen eye on longterm prospects. For business strategies in today’s bewildering business environment and technologically revolutionary Ž elds at the leading edge, such as multimedia, it is especially important for community leaders themselves to think, and to possess a dynamism and subtlety in their strategic actions, as well as an enhanced business sense. Formation of a value-harmonized platform in a strategic business community If innovation is to be achieved based on the creation of a strategic business community, it will become important to form an intra-community value-harmonized platform

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involving all the community members. What is here meant by ‘value’ corresponds to the idea, thought and spirit of the entire community respecting the vision and concept upheld by the community leader, with a view to business achievement by the community. What we have observed, through this case study, of the value harmonization process may be summarized as follows: in order to have the value outlooks of all the community members resonate, a shift becomes necessary from the existing set of values (or old values) to a new set of values. A value-harmonized platform is created through the four-tiered process of ‘sharing, contact-triggered inspiration, creation and resonance’ of value outlooks (Figure 6). The sharing of value outlooks, the Ž rst step, provides the stage for studying and understanding the new value outlook (idea, thought and spirit respecting the vision and concept introduced by the community leader) in the light of which the community members have indicated the direction in which they feel the community should be headed. In the case of strategic alliance with, or strategic outsourcing to, an outside party, this Ž rst step will provide a stage also for the two partners to understand and study each other’s corporate value outlook and management vision. Community members study the difference between the existing value outlook and the new one through constructive conversations with community leaders so to arrive at an understanding of the essentials of the new value outlook. For example, for a community member in Community A (in-house community) in Figure 1, who has for many years been handling the staid, old market for analogue telephone business which no longer promises proŽ tability for the future, the new multimedia business dealing in digital applications, PCs, video-networking, etc., is a

Figure 6 Resonance process of value in community

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challenge – a major hurdle. He is deeply entrenched in a Ž xed value system under which he, as a mere cogwheel in a giant corporate machine called NTT, is content to attend uneventfully to his daily routine in exchange for a Ž xed pay (or could not care less what went on in his workplace as long as he was paid), a value system which is in a signiŽ cant way hampering him in all attempts he may make to acquire a new sales style or new technical skills. But, following repeated, constructive conversations he has had with his community leader, who speaks to him enthusiastically, he, the community member, is beginning to show signs of opening up to studying and understanding the new value system. The second step, contact-triggered inspiration of a value outlook, provides the stage for shaking out old values in favour of new ones advocated by the community leader, a set of new, replacing values which will be touched off within the community. Furthermore, in cases of strategic tie-ups or strategic outsourcing, there is a stage at which the sense of value on both sides is induced and touched off in order to fuse the sense of corporate values and management visions of the two sides. One of the triggers that is an important process in this touching off is to induce risk awareness. In the inhouse Community A, the community leader induced solicitation of the need to establish a new multimedia business in order to survive in the IT and multimedia world of the future. The important thing is that the innovative leadership of the community leader gradually destroys the old values by bringing about risk awareness. The third step, which has to do with value outlook creation, provides the stage for the creation of new value outlooks within a community rooted in new value outlooks introduced by community leaders. In an in-house Community A, it would be an intracommunity setting for new value creation where community members would individually engage in self-improvement as they endeavoured to reach the new objectives of a new multimedia business. It would also be at this stage that challenging objectives, such as an organized acquisition of new sales skills and technical skills, are set. And the last step, the stage for the resonance of value outlooks, is where the mental vectors of idea, thought and spirit of the entirety of community members resonate with a view to the values newly created within the community towards the formation of a sense of unity. A value-harmonized platform will thereby form itself within the community. And within the in-house Community A at this stage, the community members would individually acquire new knowledge, skills and know-how and at the same time individually improve their competence while gaining cognizance of their ‘un agging courage’ and their ‘own selves’ with respect to the new multimedia business. The value harmonization process in the communities illustrated in Figure 1 may be more speciŽ cally described as in Figure 7. For the community members, value harmonization within the in-house Community A is in fact little less than a ‘Ž ght against habit’ too. On the other hand, with extra-company communities (B1, B2, B3), it becomes important for the community leaders to locate and identify partners likely to most beneŽ t both parties, to create new values to be shared with the extra-company leaders through reciprocated in uences and fusion of the corporate value systems and management visions of the two, and to ensure, in an organized manner, that resonance occurs between the two systems. In either or any of the communities, a valueharmonized platform will be created under the innovative leadership of community leaders upholding new visions and concepts, enabling its eventual development into the innovation process (sharing® creation® renewal) of community competence, discussed below.

Figure 7 Resonance process of creating sense of value in communities

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Sharing, creation and renewal of community competence The sharing, creation and renewal of the information, knowledge, innovation and concepts comprising the various resources within the community (community competence) are also crucial factors for the formation of new ideas and innovations in multimedia business. Sharing, creation and renewal of the community competencies in the construction of diverse strategic communities observed in the case study of NTT multimedia business strategy can be arranged as shown in Figure 8. Sharing of community competencies represents the steps to allow the core competencies of both organizations to be spawned into new integrated core community competencies, while deepening understanding between the leaders of both groups. For example, in each of those steps, engineers at both groups thoroughly understand NTTcultivated technology and PictureTel video technology so as to gain new knowledge and know-how. In addition, sales tie-ups in terms of heterogeneous business alliances allow each player to deepen their understanding of the core competencies of other

Figure 8 The sharing, creation and renewal of community competencies

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players, and integrate and share the leading edge Ž eld of other players. What is more, various customer information and user needs obtained through the Phoenix Customer Service Network should also be the result of sharing of crucial community competencies. Creation of community competencies means the steps to create products and services as a new core competency based on shared core competencies. Phoenix, which was created from this sort of joint development effort, is the result of the creation of community competencies. Moreover, a similar case is the marketing of a new Phoenix product package, which is being bundled with PC and modem. Renewal of community competencies represents the steps that are taken to allow new products and services to Ž nd their way to market and to yield a major breakthrough while, at the same time, creating even more high-quality customer value. Particularly impressive are the new versions of products that were created through analysis of customer feedback (commercialization and sales of new versions, from the original NEC98 model to a DOS/V model, and integrated models), commercialization of nextgeneration terminals (such as Phoenix WIDE) and the start of multi-point connection service, and the marketing of higher-quality maintenance and after-sales services. Commercialization of a series of service packages, from sales to maintenance and aftersales services, makes it possible to provide customers with new value. It is important to share, create and innovate community competencies in a steady manner within the strategic community and to foster talented personnel (community members). In this way, strategic communities will be able continuously to create and innovate new businesses. Conclusion Critical to all of this is the active incorporation of such new business styles as strategic partnerships, mergers and acquisitions, outsourcing, and virtual corporations, into corporate management, and the application of strategic community management to create a diversity of new businesses typiŽ ed by the Ž eld of multimedia. As such, it is extremely important that community leaders in corporate organizations apply their superior, innovative leadership and capacity for strategic co-operation to form strategic communities, both within and outside their corporate organizations. Towards such an end, it becomes important for the community leaders to assume innovative leadership in creating a new value-harmonized platform in business communities both within and outside their companies. To achieve this, community leaders must work to achieve a harmony of philosophy and vision with heterogeneous organizations both within and outside their companies. They must demonstrate innovative leadership, while at the same time accumulating superior community competencies through advanced organizational learning within the strategic community, and facilitating the sharing, creation and renewal of these community competencies among community members. This is the essence of strategic community management. A new, unprecedented image of leadership will be demanded of community leaders, from both within and outside the corporate organization. In light of the advent of a society based on multimedia and cyberspace, the techniques of fostering superior community leaders who can shoulder the burden of business innovation for the twentyŽ rst century, leveraging the power of strategic partnerships to create business communities, and in the process promoting new businesses, will be critical elements of business organization.

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Notes 1 This case study relates to the video multimedia strategy NTT has pursued for the past four years. It was created on the basis of an interview with NTT’s Mr A, who played a central role, and on materials prepared for use outside the company. 2 A digital network service (Integrated Services Digital Network) established by the telecommunications standardization sector of the International Telecommunications Union (ITU-T). Additional information on ISDN is available at and ITU-T recommendations are also available at . 3 Video terminals based on videoconferencing systems and/or videophones standardized by the ITU-T (see Trowt-Bayard and Wilcox, 1997). 4 Remote Medical Treatment via Videoconferencing System (broadcast by the Japan Broadcasting Corporation (NHK) as part of its 7 p.m. news programme News Seven) on 12 December 1996. 5 New types of multimedia services based on interactive visual communication will spread through video-based information networks using Phoenix systems within not just the education, medical and welfare Ž elds but also various other business Ž elds as well. Also, through this video-based information, networks will become an important multimedia communicatio n platform for producing new virtual knowledge-based businesses. The details of the new service are described in Kodama (1999d) and Kodama (2000). 6 A server that simultaneously connects multiple videoconferencing systems and includes a type of conversion function that permits interactive video and voice communication . 7 To permit a number of videoconferencing system users to use the multi-point connectio n service at reasonably low charges, Nippon Telegraph and Telephone, Inc. (NTT), Japan’s largest telecommunications carrier, was at work studying the business planning for a multipoint connection service in Japan to be implemented by a strategic alliance of heterogeneou s companies set up among US PictureTel, a professional videoconferencing system maker, Otsuka Shokai Co. Ltd, a major telecommunications system SI and sales company, Canon Sales Co. Inc., NOVA Inc., a major language school, and NTT-TE and NTT-PC, both NTT group companies. After mutual discussions about the speciŽ c business plan, a joint-venture-typ e videoconferencing multi-point connection service company (NTT Phoenix Network Communication Inc.) was founded in July 1997 (Nihon Keizai Shimbun, 1997c). The following is an outline of NTT Phoenix Network Communication Inc. Location: Tokyo; founded in: July 1997; capital: ¥490,000,000; description of business: multi-point connection service, construction of multimedia networks, outsourcing operations; employees: 13; controlling shares: NTT (44.3 per cent), PictureTel (19.9 per cent), Otsuka Shokai (11 per cent), Canon Sales Inc. (5 per cent), NOVA (19 per cent), NTT-TE (10 per cent), NTT-PC (1 per cent).

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Kodama, M. (1999d) ‘Strategic Business Applications and New Virtual Knowledge-base d Businesses through Community-based Information Network’, Information Management & Computer Security, 7(4): 186–99. Kodama, M. (2001) ‘New Regional Community Creation, Medical and Educational Application s through Video-based Information Networks’, Systems Research and Behavioral Science, 18(3): 225–40. Mainichi Shimbun (1997) ‘Sign Language Interpreting and Videophones at Five Police Boxes in Tokyo’, 3 June: 13. Markides, C. (1998) ‘Strategic Innovation in Established Companies’, Sloan Management Review, 39(3): 31–42. Nihon Keizai Shimbun (1995) ‘Joint Development between NTT and a US Firm (Low-Cost Videoconferencing) ’, 9 May: 10. Nihon Keizai Shimbun (1996) ‘NTT, US Firm in Joint Development (a PC-based Conferencin g System that Breaks the ¥200,000 Barrier)’, 5 February: 10; related information is available in English at , http://pr.info.ntt.co.jp/mon/96_mar/sys.html . . Nihon Keizai Shimbun (1997b) ‘Introduction to Sign Language Support System’, 6 March: 12. Nihon Keizai Shimbun (1997c) ‘NTT Creates a New Company (Remote Videoconferencing – in Partnership with 16 Other Companies)’, 16 April: 8; English information on the joint venture is available at http://www.nb- paciŽ ca/headline/nttandpicturetelformj_930.shtml . Nihon Kogyo Shimbun (1996) ‘NTT Releases DOS/V-compatible Version’, 3 October: 3. Nikkei Sangyo Shimbun (1996) ‘Videoconferencing System: NTT Promotes Low-Price Terminal’, 3 September: 1. Nikkei Sangyo Shimbun (1997a) ‘Videoconferencing System: Renders PC Nowhere to Go (NTT)’, 29 January: 8. Nikkei Sangyo Shinbun (1997b) ‘Video Conference-based Linguistic Research’, 1 July: 2. Nikkei Sangyo Shimbun (1997c) ‘Videoconferencing PC terminal: System Extension Version from NTT’, 18 September: 8. Trowt-Bayard, T. and Wilcox, J. (1997) Videoconferencing & Interactive Multimedia: The Whole Picture. New York: Flatiron Publishing.

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