Developing Internet-Based Strategies in Constrained and Uncertain Environments: Lessons from Bolsa de Valores de Guayaquil
Ramiro Montealegre
University of Colorado, Boulder
College of Business and Administration
Campus Box 419, Boulder, CO 80309-0419
Telephone (303) 492-0416; fax (303) 492-5962
e-mail:
Copyright
All rights reserved.
March 24, 2000
Developing Internet-Based Strategies in Constrained and Uncertain Environments: Lessons from Bolsa de Valores de Guayaquil
Author Biography
Ramiro Montealegre is an assistant professor of Information Systems at the University of Colorado, Boulder. He received his doctorate in business administration from the Harvard Business School in the area of management information systems. His master’s degree in computer science is from Carleton University, Canada. He holds a Bachelor in Engineering degree from the Francisco Marroquín University, Guatemala. He has been Invited Lecturer at Case Western Reserve University in Ohio, Instituto de Altos Estudios Empresariales in Argentina, Instituto de Centro America de Administración de Empresas (INCAE) in Costa Rica, the Instituto Tecnológico y de Estudios Superiores de Monterrey in Mexico, and Universidad Pablo Olavides in Spain. Professor Montealegre’s research focuses on the interplay between information technology and organization transformation in highly uncertain environments. He has been involved in studying projects of organizational change in the United States, Canada, Mexico, and the Central and South American regions. His research findings have been presented internationally.
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Developing Internet-Based Strategies in Constrained and Uncertain Environments: Lessons from Bolsa de Valores de Guayaquil
Abstract
For the Internet to bridge gaps rather than further divide the global economy into information rich and information poor peoples, we need to understand how companies, particularly local companies in less-developed countries, can pioneer or participate in its emerging marketspace.
This article examines how Bolsa de Valores de Guayaquil (BVG), an Ecuadorian stock exchange, pioneered a strategy to use the Internet to educate its local market and reach investors worldwide. The findings suggest that BVG’s Internet strategy development was an evolving process that was cumulative and expansive, but very dependent on the way resources were marshaled, coordinated, and nurtured. Although this investigation focuses on a less-developed country, where the imperfection and resource scarcities of the environment were specially pressing, today’s business environments are also pressuring firms in developed countries for flexibility, speed, and innovation. Thus, the lessons that emerged should be useful for computing practitioners in developed and less-developed countries.
Keywords: international IS, Internet strategy development, case study, Internet in less-developed countries.
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Developing Internet-Based Strategies in Constrained and Uncertain Environments: Lessons from Bolsa de Valores de Guayaquil
The explosive growth of the Internet and emergence of the World-Wide-Web (Web), and rapid expansion of public access to these media, has fueled interest in doing business online among broad range of commercial interests. A primary emphasis in most discussions of the Internet is its scope, and the lower cost of reaching consumers throughout the world. The reality, however, differs a great deal depending on what part of the world we consider. To say “the Web and the Internet will be used by managers to transform the way in which companies do business” is simple. To date, little examination has been given to managerial implications and the way this emerging global information infrastructure is shaping and supporting strategic and entrepreneurial initiatives. Particularly in regions as strongly influenced by geography and political, social, and economic issues as are many less-developed countries (LDCs).
In LDCs—where environmental factors present much greater obstacles to information technology (IT) diffusion than in developed countries1—the picture is more clouded. Little has been written about how local companies overcome these environmental factors and create competitive value by adopting the Internet. Optimism is tempered by the awareness that most fundamental and technological progress is still “outside” and has to be imported, and that a polarization of “haves and have-nots” that is already underway could exacerbate differences among national groups, thus aggravating the existing gaps.
This article examines the process of the Internet strategy development at a Latin American stock exchange, Bolsa de Valores de Guayaquil (BVG), in Ecuador. In 1996, BVG began providing static information about the stock exchange via the Internet. Then, in June 1997, it launched an organization-wide project dubbed “Mundo Virtual” (virtual world), aimed at exploring the interactive capability of the medium to attract foreign investors while capturing revenues from Ecuadorian institutional sponsors. During the same period, Ecuador suffered what has been described as the “most volatile years” of its history, with political instabilities, structural reforms, low savings and investment rates, lack of capital, high inflation, stagnant living standards, and deteriorating public services.2
Consistent with the focus of this research—“how” BVG developed its Internet-based strategy and “why” it succeeded in doing so despite a seemingly poor fit with the local environment—an in-depth case research approach was followed. Case research is particularly appropriate for exploratory research of this type; it allows the phenomena to be studied in a natural setting. Moreover, case research affords an opportunity to engage in theory-building in an area in which there has been relatively little prior research and theory.3 The contemporary nature of this case also meant that extensive documentation was accessible and the key actors were available for interviewing.
The case illustrates that the Internet was perceived by BVG’s management as an innovation with a relative advantage that was triable, highly visible, and compatible with the stock exchange’s past experience and existing information-based product offerings (see Table 1). Nevertheless, BVG’s ambitions had to be achieved with few people, modest IT facilities, and a small budget. The misfit between its resources and aspirations would lead most observers to challenge the feasibility of its goals. Thus, its process of Internet strategy development depended fundamentally on the context of resource decisions. Past research on IT innovations in LDCs has tended to highlight the importance of adapting information practices and IT implementations to the core competencies (including infrastructure) and values of a nation.4 This study presents a powerful example of how an Internet strategy can be successfully developed even in an LDC with poor IT infrastructure, lack of governmental support, scarce resources, and staff with insufficient technical and managerial skills.
This article first presents information background about BVG, and its process of Internet strategy development. Then, it provides normative suggestions to computing practitioners concerning tactics for using the Internet strategically in a constraining and unstable environment. Although this investigation focuses on an LDC, where the imperfection and resource scarcities of the environment were specially pressing, today’s business environments are also pressuring firms in developed countries for flexibility, speed, and innovation. Thus, the lessons should also be useful for computing practitioners in developed countries.
Bolsa de Valores de Guayaquil: Internet Strategy Development
This section presents background information about BVG and its Internet-based strategy development. This will provide a better understanding of the broader context from where the lessons described in the following section emerged.
Background
The most significant challenge BVG faced in the mid-1990s was the decline of investor confidence in response to Ecuador’s slumping economic performance. The country’s economy suffered a series of adverse shocks (as shown in Table 2). Despite several attempts at stabilization and structural reform, inflation had risen and savings and investment rates had declined. Failure to reestablish sustainable economic growth and the government’s inability to meet the basic needs of the population were reflected in stagnant living standards and deteriorating public services.
The precarious economic situation in Ecuador required management to build an organization that could respond quickly to opportunities and threats. BVG general director Enrique Arosemana explained:
I always tell my management team, “We have to keep asking ourselves, what would happen if there was an economic boom in Ecuador? At the same time, we must think, what would happen if another crisis or period of instability took place? We always have to be ready. We must create new products and services, open new opportunities, execute them with high quality, and get ready to attract foreign investment.”
According to Arosemena, being prepared meant understanding the market and maintaining international standards in order to attract international investment and to earn national credibility. He was aware that learning occurs through observation, reflection, and internal analysis. “Some of the most interesting ideas,” he explained, “have come from observing our surroundings.” Recalled BVG’s systems director:
BVG never economized on field trips to understand particular issues and specific processes that we wanted to improve in Ecuador. For example, the operations director visited the stock exchanges in Mexico, Colombia, Peru, and New York. The projects director went to Peru and I visited exchanges in Colombia and Chile. On our return, we would always discuss what we learned with the rest of the group.
In 1997, BVG had 75 employees. It’s products and services reflected four principal mandates: to provide information about the stock market, to develop a stock market culture, to ensure the security of market participants, and to diffuse the image of Ecuador’s stock market and BVG to the investment community. By 1997, BVG had developed a set of publications that presented general financial, accounting, and stock market information for the enterprises registered in the exchange as well as complementary information to support investment decisions.
The use of IT to support BVG’s modernization was part of Arosemena’s initial vision for restructuring the organization. However, in 1993, when he became BVG’s general director, BVG had only one computer with only four terminals and one computer programmer. Only isolated efforts had been made to maintain electronic transactional records. Aware of its lack of resources and technical knowledge, in mid-1994 BVG established a strategic alliance with DATATEC, a software development firm focused on supporting automation to financial service institutions. DATATEC brought to the partnership a fully functional, electronic trading floor system and a communication network linking the major players in the Ecuadorian financial services community; BVG brought its stock exchange expertise. The resulting system automated BVG’s floor sessions.
Establishing Direction
In June 1997, Arosemena participated in an executive seminar on electronic commerce conducted at an Ecuadorian business school. That seminar and a second meeting with the presenters convinced Arosemena that the Internet could be used for more than just presenting static information.
BVG’s operations director commented, “Our interest in expanding our Internet presence and use was consistent with what we had seen during trips to other stock exchanges, particularly in New York, Chile, and Venezuela.” Once the decision was made to develop a more encompassing Internet initiative, a committee of BVG directors met to define the vision, products, and services. The project was named “Mundo Virtual.” A member of this committee recalled:
We began by analyzing our existing Web site [launched in July 1996]. The most visited section of the site was the most dynamic part of our Web site—stock-market prices and transactions, which were updated at the end of each day. On the other hand, very few visits were made to the sections that provided static information.
Adopting the notion that a firm should sell to the most favorable buyers, the committee focused on understanding how to use its Web site to attract the most influential stakeholders. The committee identified investment banks, bond brokers, and fund managers as key information providers for their Web site. Mundo Virtual’s goals became to promote a positive image of Ecuador; enhance the image and visibility of BVG; improve customer service; distribute educational materials on stock market related topics; reduce costs of matching buyers and sellers; and increase stakeholder communication.
The committee subsequently reasoned that a visitor who had read information provided by BVG might want to know more about specific institutions. BVG’s Web site could provide space for those institutions’ information and advertisements. Thus, a visitor to the BVG’s Web site who clicked on a client’s logo was presented with three pages of targeted, specialized information about the institution. These pages included tools that enabled customers to interact with the institution (e.g., place preliminary orders to buy/sell fixed and variable notes). Mundo Virtual sponsors leased space and selected the location of their advertisements on the Web site.
Focusing on the Strategy Development
Mundo Virtual became BVG’s primary project. Recalled BVG’s project director:
By July 1997 the systems director and I developed a timetable for all the necessary activities to launch Mundo Virtual. There were three main check dates. On August 5, we were to begin visiting potential clients. We knew we had to have a prototype of the Web site, with appropriate public information from our potential clients. On September 5, we were to present the prototype to the participants of the XXIV Assembly of the Ibero-American Federation of Stock Exchanges [an event hosted by BVG that year]. On October 1, Mundo Virtual was to be on-line in the BVG’s Web site.
The Mundo Virtual steering committee met daily to coordinate and monitor activities so that deadlines would not be missed.
In addition to computer and people costs, the Mundo Virtual project also required investment in two LANs and specialized software for the Web site development (MS Front Page) and database management (WebConnection and MS Visual Studio Enterprise 97). WebPromote, a U.S. firm, was contracted via the Internet to ensure that the address of the BVG Web site appeared in the listings of the Internet’s 200 most searched directories and search engines. A contract with Ecuanet gave BVG a preferential tariff for Internet connections; in return, Ecuanet was presented as a strategic partner in Mundo Virtual. Ecuanet provided marketing and technical consulting for the implementation of Mundo Virtual and Web site development for other stock market participants.
Growing the Strategy
Arosemena placed emphasized selling the concept of Mundo Virtual as a way to build traffic to the BVG Web site. The committee identified important Web sites that were related to Ecuador and international stock markets and, in accordance with BVG’s goal of promoting Ecuador’s image, linked Mundo Virtual to these pages. Invitations to visit the BVG Web site and to link their Web sites to BVG’s were sent to these institutions. BVG used a list of individuals who had responded to Financial Investor magazine’s special report on Ecuador to send 1,300 letters announcing the launch of its Web site. In addition, two of the main Ecuadorian newspapers, Universo and Hoy, a current events magazine, Vistazo, and a financial magazine, America Economia, published bulletins advertising the launch.
Arosemena and BVG’s systems director managed and executed the sales campaign directly. “We roped in some heavyweight local bankers to push the sales campaign,” explained a BVG officer. BVG’s systems director added:
We scheduled appointments with the general managers of the main issuers of financial papers that have a major presence in BVG. A typical sales meeting lasted around one hour, and we presented the objectives and characteristics of Mundo Virtual. One of every two people we visited contracted for Mundo Virtual.
Within BVG, “we realized that to maintain the Web site it was necessary to have a full support group to keep the data updated and follow up on the quality of products and services,” acknowledged BVG’s operations director. By the end of 1997, Arosemena thought it was time to institutionalize Mundo Virtual and involved more people at the staff level. Four subcommittees were formed: Innovation (to analyze ways to improve the Web site); Information Products (to automate the information acquisition process and the search for new information products); Commercialization (to develop a more aggressive sales campaign); and Quality Control (to improve product presentation and ensure quality processes). These subcommittees were required to meet weekly with the Mundo Virtual steering committee. A computer engineer with 15 years experience developing financial information systems was hired as the new systems director. He immediately began working on a data warehouse project with the objective of automating BVG’s databases to make them available through the Internet.
The Internet Strategy’s Results
All the planning deadlines were met on time; Mundo Virtual was launched October 1, 1997. Income from paid-in-advance annual contracts was $72,600 at the end of 1997 (Figure 1 summarizes BVG’s economic model). A daily average of 60 people visited the Web site, and 85 persons signed the guest book during this four-month period.