Welcome to EC 1998.
For several years, state and local governments have used a variety of technologies to improve how they transact business with companies and citizens. They have used electronic data interchange (EDI) to accept and process invoices electronically. They have sent and received payments using electronic funds transfer (EFT) and have deployed interactive voice response (IVR) systems that can perform a number of transactions, including the acceptance of parking ticket payments. Many states are in the process of building elaborate electronic benefits transfer (EBT) systems to electronically distribute cash and food benefits to the needy.
By 1997, state and local governments launched electronic commerce applications that relied entirely on the Internet. Besides Washington, the commonwealth of Massachusetts started a motor vehicle registration renewal system on the Internet that accepts credit card payments. In Oregon, state employees can register for technology education classes over the Internet. A number of states are moving toward online procurement via the Internet. Soon, vendors that do business with Massachusetts will be able to use Web browsers to check the status of their bills and adjust payment schedules.
According to government officials and private-sector experts, the Internet offers a number of advantages that equal or surpass other technologies used in electronic commerce. First, the Internet consists of a global network open to virtually all computing platforms at relatively low cost. Second, any commerce application on the World Wide Web is highly expandable, making it possible to process large volumes of transactions. Third, development of Web applications is relatively easy. Fourth, hypertext links allow a government agency to aggregate related programs and services in a way that would be impossible in the physical world.
These features of the Internet are expected to create substantial benefits for government agencies as well as lead to fundamental changes in how they conduct business. Internet commerce will drive down operating costs, improve productivity and expand customer service beyond the boundaries of time and location.
But before those benefits occur, government officials must overcome a number of policy, management and technology hurdles. Individually, jurisdictions will have to review their legal statutes to ensure that state laws will allow Internet commerce to occur. They must change organizationally to reengineer existing business practices, develop marketing techniques to reach and respond to customers, and overcome internal resistance to change.
State and local governments will have to address issues of security and trust as well as standards and interoperability. They will have to collaborate both internally and externally on electronic commerce projects. Finally, states will have to work together on developing a single business model for the use of digital signatures and certification authorities. Without such a model, states face the prospect of federal preemption in this area, leading to a single, national, legal regulatory system for digital signatures and certificates.
GROWING MARKET
Government is a ready market for Internet commerce. States have identified over 45 different government programs that could be improved by electronic commerce, according to a survey conducted last year by the National Association of State Information Resource Executives (NASIRE). Loosely, the programs fall into five main categories: tax filings, vendor payments, procurements, licensing and welfare benefits. The transactions run the gamut from birth certificate applications and environmental permits to motor fuel tax filings, hunting licenses, orders from electronic catalogs and court document filings.
Government officials believe electronic commerce can deliver a number of key benefits. In particular, the following groups can expect certain advantages:
* Taxpayers will enjoy several benefits. EC will put an end to long lines, trips downtown and limited daytime service hours. Already, EC applications allow drivers in Massachusetts to renew their drivers' registration. Soon to come in the government sector will be online registration and payment forms for hunting, fishing and other licensed activities.
Taxpayers also will benefit from EC's timeliness. The electronic filing of tax returns has vastly improved the turnaround time for tax refunds. What used to take one or two months to process, now occurs in a couple of weeks at the most, according to government tax administrators with electronic filing services.
* Timeliness will also benefit government's business partners -- vendors who do business with states and localities. Electronic procurement systems speed the delivery of solicitations for bids while making it more convenient for vendors to look for business opportunities with government.
* EC will benefit government staff, including frontline workers, managers and executives. Well-designed EC projects will improve the accuracy of government information. With EC, fewer workers have to key and rekey data into computer systems, reducing the potential for errors. By improving linkages between business and government, EC will reduce the time it takes to process information, which boosts productivity.
Massachusetts is building a statewide contract management system that will reduce the amount of time it takes to execute and manage a contract. Workflow and document management tools, together with the Internet, will allow commonwealth workers and businesses to work together on the contract process in a paperless environment, which will eventually cut the processing time by as much as 50 percent.
* Managers and executives can expect to lower costs, even generate more revenue, with EC. The Office of Procurement for Montgomery County, Md., reduced postage and printing costs by 32 percent and boosted revenue by $40,000 annually when it installed an electronic procurement system costing just $9,000.
* EC will benefit state and local governments as a whole. Electronic commerce can increase competitiveness by adding value to the information that firms need to transact business. Oakland, Calif., put information about available land parcels on its Web site, making it much easier for area businesses to find land or existing buildings ready for development.
Investments in electronic commerce are also investments in a government's information infrastructure -- the roads and bridges of the 21st century. By building more bandwidth and flexible networks, cities, counties and states can strengthen their position in the local, regional and global economy. A report published by NASIRE and the National Association of State Purchasing Officials points out that states using electronic commerce for an electronic bidding system "create a healthier economic environment. These states send out a positive message to the business community -- showing how economically savvy they are -- while governments that operate using decades-old procurement processes based on manual systems are less likely to have such an impact."
Another indirect benefit of EC is the restoration of government's image. Strongly criticized in recent years as inefficient and wasteful, government can salvage its reputation, thanks in part to EC. Take electronic benefit transfer; these projects have significantly reduced the waste and abuse once suffered by food stamp and AFDC programs, while removing the stigma of welfare. With the recent addition of identification technology to detect fraud, public opinion of these entitlement programs may change from negative to positive.
The same can be said about applying for and renewing a driver's
license. Long considered bureaucratically flawed because of inconvenience, departments of motor vehicles that use EC to handle licensing transactions are beginning to receive a better public image. In response, public opinion is beginning to change for the better in terms of how government spends taxpayer dollars.
DIFFERENT FROM THE REAL WORLD
Not so long ago, many in government believed EDI would become the standard for transacting business with vendors; but its lack of flexibility and low rate of use among medium- and small-sized firms reduced EDI's acceptance. "EDI was oversold as an electronic service for suppliers and states," said Gary Lambert, deputy purchasing agent for Massachusetts. "EDI is good for manufacturers who need 'just-in-time' delivery for thousands of parts, but it's not good when it comes to other types of procurement."
Right now, nobody knows whether Internet commerce is also being oversold, and since it is a relatively new phenomenon, it's not clear which government transactions will be accepted by businesses and citizens. In order for Internet commerce to work, it has to give the users value. But it isn't easy figuring out how to do that. Ultimately, the applications that have succeeded -- in the public and private sector -- are the ones that offer something different from what exists in the real world.
Because commerce over the Internet differs from commerce in the physical world, knowing what to expect can make the difference between success and failure. In the brief tenure of Internet commerce, experts have alerted organizations to these factors:
* Be prepared for rapid change. The Internet accelerates trends, making today's preferred method of conducting business tomorrow's out-of- date business model. Government officials should be prepared to move quickly once they start conducting electronic commerce.
* Be prepared for lots of customer feedback and use it to your advantage. The Internet amplifies people's responses to online services. Most are not afraid to say what they like and don't like. Wise government agencies will use this information to find out what citizen preferences are and then fine-tune or overhaul their electronic offerings to meet those preferences.
* Turn citizens into a community. Online music stores allow customers to rate musical artists. Online bookstores allow customers to write short book reviews that others can read. Government practitioners of EC should look at ways of allowing citizens to have a voice in the service. For example, an agency that accepts online applications for hunting/fishing licenses might set up a feedback device that allows hunters and fishermen to rate parks and lakes for quality of game or facilities. Allow the citizen to become involved with the online service, and agencies are likely to foster loyalty and greater use.
* Understand customers and their concerns. Internet customers want convenience and peace of mind. They also want to avoid irritations that come with using services in the physical world, and avoid wasting time. The goal of Internet commerce is to make it easier to do business. That might mean letting customers help themselves or helping them do their job
better. Internet experts advise organizations to start their application by designing it around the customer and then working toward internal organizational issues that must be addressed for the application to work.
* Know when a service is meant for electronic commerce and when it's not. The private sector has discovered not every service is ideal for electronic commerce. Technology products sell very well over the Internet, but airline tickets do not. People buy books via the Web, but not musical CDs or tapes. According to analysts, there's no magic formula that explains why some types of electronic commerce succeed and others fail. For governments, the only way to find out whether their service will succeed electronically is through a combination of careful planning of services.
HARD TO ACHIEVE
State and local governments have been quick to adopt the Internet as a means for publishing and distributing taxpayer information. Reaching the next level of Internet commerce -- full-fledged business transactions -- is proving much harder to achieve. Still, agencies and departments are beginning to develop models and pilots of EC applications that run on the Internet.
A number of payment systems are in the planning and development stages. Massachusetts accepts credit card payments for drivers who want to renew their car registration over the Internet. Florida is preparing a Web payment system to allow computer users to purchase a fishing license or renew a professional license using a credit card. Again in Massachusetts, the Comptroller's Office is developing an Internet-based service to give companies access to the commonwealth's accounting system so they can reschedule bill payments and take advantage of special discounts for accelerating their payments.
Internet document filing systems are another potential gold mine for electronic commerce in government. Washington, California, Hawaii, Indiana, New Jersey, Rhode Island and Texas are planning or developing Internet tax filing systems. States are also investigating how to file unemployment insurance claims over the Internet.
Accepting applications for licenses and permits is considered another business of government that can benefit from the Internet. Similarly, states are beginning to set up Web-based enrollment services for educational and social service programs. Oregon has an online registration system for statewide technology training classes. In Montana, welfare applicants will soon have the choice of enrolling in social service, medical and job search programs using a Web browser. In Silicon Valley, a number of local jurisdictions have been working on the requirements for an Internet-based "smart" permitting system.
But the most promising area of Internet commerce so far seems to be in procurement and purchasing. Numerous states are either planning, pilot testing or operating the following applications over the Internet:
* Electronic ordering
* Electronic catalogs
* Bid and solicitation notices
* Receipt of bids
* Invoicing
Virtually every state uses the Internet in some way to buy goods and services. The capabilities include posting vendor registration requirements, procurement opportunities, information on master contracts and price agreements, vendor handbooks and guidelines, information on set-aside or vendor assistance programs, and procurement information for design and construction activities.
So far, no state or local government has accepted bids or procured goods and services directly over the Internet. Hybrid systems involving EDI or fax appear to be as far as governments are willing to go at this time because of Web security concerns and legal issues.
BRACING FOR THE CHALLENGE
As state and local governments probe the boundaries of Internet commerce, the challenges of working within this new medium have begun to mount. Conducting government business over the Internet is unlike anything else states and localities have attempted. The issues range from the fundamental, such as security and funding, to the less familiar, such as marketing, collaboration and change management.
But nothing seems more formidable than setting up the legal framework for conducting business over the Internet -- for both government and the private sector -- on a national scale. For secure, legal transactions to take place on the Internet, they must meet the following requirements:
* Confidentiality -- making sure that the transaction/message cannot be read by an unauthorized party.
* Integrity -- knowing that the transaction/message has not been altered.
* Authentication -- ensuring that the person who sends the transaction/message is who they say they are.
* Nonrepudiation -- ensuring that a person cannot deny sending the message/transaction.
The private sector has developed a number of software and hardware tools to help government agencies establish a secure and legal environment for business transactions. These tools use encryption technology to create digital signatures and certificates that help governments extend traditional legal business practices to Internet commerce in a safe and secure manner. A number of protocols have been advanced to help establish this framework. They range from SSL (Secure Socket Layer) and S-MIME (Secure-Multipurpose Internet Mail Extension) to PGP (Pretty Good Privacy) and SET (Secure Electronic Transactions).
What's missing, however, is a uniform national structure for digital signature and certification technology. Without standards, interstate Internet commerce will become difficult, if not impossible, as businesses and citizens will be forced to use one system for banking and a completely different one for government transactions.
Many states have enacted or are considering legislation and regulations governing the use of digital signatures. Some states have opted to specify the technology while others have decided to recognize digital signatures without regard to the underlying technology. Business groups, such as the Information Technology Association of America (ITAA), have expressed concern about the potential lack of harmony among states governing the development of digital signatures and have pressed the federal government to create a national standard that preempts state laws governing digital signatures and certificates.
To counter this potential threat, a number of state groups, including NASIRE, NASPO (National Association of State Purchasing Officers) and NASACT (National Association of State Auditors, Comptrollers and Treasurers) are working with the Internet Council of the National Automated Clearing House Association -- together with other private- and public-sector groups, including the federal government -- to coordinate their approaches to digital signature legislation interoperability and standards.
Last December, NASIRE, NASPO and NASACT met in San Antonio, Texas, to identify and act on some of the potential showstoppers for Internet commerce. Besides issues concerning security and legislation, the groups found that, when it comes to Internet commerce, states are struggling with organizational problems, such as resistance to change and staff distrust, privacy concerns, insufficient funding, a lack of cross-boundary collaboration and inadequate knowledge of customer marketing.
While the task ahead may appear daunting, the good news is that efforts are under way in developing Internet commerce in many areas of government. Early practitioners are learning the lessons and have begun to share their experiences with others. Two years ago, electronic commerce was barely on anybody's radar screen. By December, more than 250 state officials were meeting in San Antonio to find out as much as they could on the subject and to devise strategies for establishing model practices and sharing the results. It will be interesting to see how far state and local governments go in the next two years.
Portions of this article are from "Electronic Commerce: A Guide for Public Officials," written by Tod Newcombe and published by Government Technology Press. For more information, call Lisa Thiel at 916/932-1300. E-mail:
March Table of Contents
