7th AIAA Aviation Technology, Integration and Operations (ATIO)Conference

Barriers to integrating RFID baggage security into network operations

Dr. Akemi Takeoka ChatfieldUniversity of Wollongong

Faculty of InformaticsSchool of Information Systems and Technology

Telephone: 61 2 4221 3884Facsimile: 61 2 4221 4045

akemi@uow.edu.au

1. Introduction

The International Air Transport Association (IATA) introduced a global standard for radio

frequency identification (RFID) baggage tags in 2005. With an average 1 per cent of the

1.7 billion passenger checked-in baggage that were mishandled, IATA estimates that, if its

RFID standard is adopted on a global scale, the annual industry savings would be US$760

million. The key drivers are operational efficiency gains: reducing costs of airline

business operations and improving service quality. As such, the RFID baggage initiative

has not explicitly focused on how the RFID baggage tags can be used to provide security

information to a wide array of industry stakeholders (airlines, airports, passengers and

government agencies). Despite the individual RFID trials and implementations by airlines

and airports (IATA, 2007), network-level initiatives and real-time integrated operations

are still few in number and the overall industry adoption and proactive use of RFID for

security remains low. The urgent need for research exists to investigate a network-level

problem of integrating RFID-enabled baggage security into operations for collaborative

advantage. In this paper, we have focused on a network (of airlines/airports) as the unit of

analysis vis-à-vis an individual organization. The aim of this research in progress paper is

to identify key barriers to integrating RFID-enabled baggage security into operations. Our

research strategy applied Dyer’s seminal work (2000) on collaborative advantage through

extended enterprise supplier networks. While his work focused on the global automobile

manufacturing industry, the framework derived from the automobile industry is very

relevant and readily applicable to the air transport industry. The structure of this paper is

7th AIAA Aviation Technology, Integration and Operations Conference (ATIO)<BR> 2nd Centre of E18 - 20 September 2007, Belfast, Northern Ireland

AIAA 2007-7770

Copyright © 2007 by University of Wollongong. Published by the American Institute of Aeronautics and Astronautics, Inc., with permission.

2

as follows: literature review on IT productivity, IOS strategic payoffs, RFID, and network

externalities (section 2), network-level adoption and implementation problem (section 3),

collaborative advantage through extended enterprise supplier networks (section 4), key

barriers to integrating RFID baggage security into network operations (section 5) and

conclusion (section 6).

2. Literature Review

The integration of RFID-enabled baggage security into network-level operations involves

many issues. In this section, we review the critical importance of improved management

practices for IT productivity, key research issues and questions on RFID, and the concept

of network externalities to create network-wide collaborative advantage.

2.1. IT Investments

Prior academic research on IT investment and IT productivity presented strong evidence

for the critical importance of improved management practices to increase IT productivity,

not further IT investment (Dorgan and Dowdy, 2004). More specifically, a cross-case

analysis study of three organizations that initiated sophisticated inter-organizational EDI

networks demonstrated evidence of different levels of strategic payoffs from their IT

investments (Chatfield and Yetton, 2000). Applying sociological theories of

embeddedness, we showed that EDI embeddedness acts as a moderator on the relationship

between the adoption of EDI network and the realization of strategic payoffs. EDI

embeddedness is defined as how central or peripheral a specific EDI network is to

managing inter-firm interdependence. In summary, prior IT research suggests that RFID

investment by itself will unlikely generate IT productivity gains and strategic payoffs.

2.2. RFID Issues

In addition to the IT research literature in general, a review of the RFID literature

identified key issues and research questions on the adoption, usage, and impact of RFID

(Curtin et al., 2007). Table 1 below lists these key issues and questions. They

underscored that the managerial and organizational issues would emerge as critical areas

in RFID research. While all these issues listed in Table 1 are important to the air transport

3

industry, the global network centric nature of the industry suggests the top priority need

for those questions that are salient to the network level adoption, usage and impact of

RFID, particularly the issue of aligning inter-organizational governance, incentives, and

ownership.

Table 1. RFID research issues and questions on the adoption, usage and impactThe role of process redesign when RFID is usedHow are business processes and work systems changed due to RFID at all points in the value chain?

To what extent should initiators encourage process redesign at their trading partner facilities?

Can business value be realized without RFID-focused process redesign? What strategies will yield value?How does RFID change the job descriptions and work roles? Are the impacts similar across industries?Will process design for outsourced business processes be affected by the capabilities that RFID offers?Technical integration with other applicationsHow difficult will RFID be to integrate with other applications? What capabilities in the firm will mitigatethe impacts?What are the technical challenges of achieving application integration? Internally and externally? The costs?How does application integration at the trading partner’s organization impact usage? Are the impacts large?What real options are created with increasing application integration? Is business value enhanced?Will technical integration be differentially costly depending on the industry setting of the application?Costs and risks associated with becoming dependent on RFIDHow costly are errors in an RFID-based work system? How will the errors drive costs in RFID-based IOS?What roles do redundancy, back-up, exception processing, and human intervention play?What analysis approach is appropriate for optimizing RFID costs?Will the possibility of RFID dependency diminish investment levels? Will there be “underinvestment”?Will the hidden costs of information exploitation affect the real cost of RFID?Taking advantage of voluminous data collectionHow can managers leverage the data flood organizations will experience with RFID?Will new performance measurement approaches be required to realize value from RFID?How can this data effectively be mined to create business intelligence and promote CRM?Will new data processing intermediaries arise to help organization manage this flood of data?What new data mining techniques will make the data usable?Will different industry settings offer unique opportunities for leveraging voluminous data collection?Will RFID add value for information sharing in outsourced business processes, such as logistics and supply?Facilitating decision making capabilities in real-timeHow can the firm make efficient use of real-time item/operator entity RFID tag placement?How will real-time entity location management add value to business processes?How can organization make use of real-time systems-based decision-making? Industries?How will RFID and real-time decision making change managerial capabilities?Aligning inter-organizational governance, incentives, and ownershipWho does the tagging? Who owns the technology? Who owns the data? Who gets the value?What is the role of mandates and subsidies to entice trading partner adoption? Usage in a particular manner?What is the role of a major player promoting adoption? How might they motivate partner R&D?Who will pay for readers that benefit multiple parties? Who will drive the effort to build standards?How can incentives be put in place to avoid exploitative behaviour when RFID supports informationcollection?How contractible are joint RFID initiatives? How will the resulting business value be measured and split?Will RFID provide a basis for cross-organizational control in business process outsourcing?Source: adopted form Curtin et al., (2007, p. 99)

3.3. Network Externalities

4

The concept of network externalities has been examined in the literature on economics,

marketing and IT. Economists, Michael Katz and Carl Shapiro (1985, p. 424), defined

network externalities as “products for which the utility that a user derives from

consumption of the good increases with the number of other agents consuming the good.”

Prior IT research on network externalities has examined positive consumption externalities

(Riggins et al., 1994) as well as two-sided network externalities (Yoo et al., 2002). Two-

sided network externalities in the context of B2B electronic marketplace means that the

value of the e-marketplace to online buyers is dependent on the number of online

suppliers, and value to suppliers is dependent on the number of buyers and suppliers.

The international nature of most air transportation operations and business processes

(Montevalli and Stough, 2004) suggests the presence of network externalities in the

industry, suggesting the importance of interdependencies and cooperation across a

network of airlines and airport operators (Leone and Liu, 2005). It also suggests the

importance of evaluating the industry stakeholders’ ability to forge strategic partnerships

and to realize collaborative advantage from IT investments such as RFID (Chatfield and

Yetton, 2000). Prior studies (i.e., Leone and Liu, 2005) found that there are economies of

scale in standardization and cooperation in integrating security oversight requirements into

the interdependent air transportation operations and business processes. However, the

history of Transportation Security Administration (TSA) with heavy lobbying by airport

and airline groups to Congress and Bush administration officials (Weinstock, 2003 cited in

Leone and Liu, 2005) also suggests the presence of commercial and political conflict of

interest among the key stakeholders.

3. Network-Level Adoption and Implementation Problem

The adoption of RFID tags by the US Department of Defense and Wal-Mart highlights the

potential capability of RFID technologies in providing extended enterprise supplier

networks with improved asset visibility, safety and security. These emerging RFID

developments worldwide have some implications for the air transport industry in creating

new capability in aviation security, through RFID-enabled real-time baggage visibility,

baggage passenger reconciliation, and agile emergency response. However, the industry-

wide adoption and diffusion has been slow, despite the post-9/11 legal and policy

5

mandates in the US, Australia and other countries to screen baggage for explosives and the

falling price of RFID tags, high-level accurate read rate, and the IATA RFID standard.

Figure 1. RFID Adoption in the Air Transport Industry

Source: IATA (2007, p. 59)

Recently, RFID baggage systems were implemented to automate baggage handling

through real-time tracking and sorting at McCarran International Airport, Hong Kong

International Airport, and Narita International Airport. However, while airports and

airlines are involved in various stages of RFID proof of concept trials and implementations

(IATA, 2007), their primary focus is on technical feasibility. The first baggage trials in

1998 achieved a read rate of 97.3%, demonstrating the potential RFID benefits for

baggage sorting and reconciliation than the current lower level accuracy provided by

baggage handling based on bar code technologies. Table 2 lists these technical trials and

implementations. The scope of the trials and implementations, except the TSA’s global

interoperability initiative, is largely limited to a single airline/airport. Table 2 shows that

the absence of network-level trials and implementations, for example, by The Star

Alliance or by one of the 14 airport groups that participated in the Air Transport Research

Society (ATRS) Global Airport Benchmarking study (Oum, 2005).

6

Table 2. RFID trials and implementationsTrial/Implementation Technology Used Purpose Status

Las Vegas McCarrenAirport

UHF RFID Security Ongoing implementation

ASTREC UHF RFID Proof of concept Ongoing

Auto_ID Centre @ HKG UHF RFID Proof of concept Completed

TSA UHF RFID Global interoperability Completed

Hong Kong International UHF RFID Baggage sorting andreconciliation

Implemented, nowadopting IATA RP

KLM/AF UHF RFID Baggage sorting Implementing

SFO UHF RFID Baggage security Ongoing

Asiana Airlines UHF RFID Tracking Completed

Delta Airlines UHF RFID read only Proof of concept Completed

British Airways HF RFID Proof of concept Completed

SIA, SIN, FRA, AUK HF RFID Baggage sorting Closed

Heathrow Airportbaggage collection

HF RFID Baggage collection anddelivery services

Implemented

ASTREC HF RFID Baggage collection andsecurity

Implemented

Seattle Airport Sea TacTerminal

Microwave RFID Tracking Closed

Source: Adopted from IATA (2007, p. 15)

The dominant RFID implementation problem facing the industry is not

technological (Curtin et al., 2007) but rather the dynamic interplay among technological,

organizational and political factors as extant barriers to the adoption and diffusion of RFID

technologies in the aviation industry. Given the literature on IT in general and RFID in

specific, the technical focus and the absence of network-level trials and implementations

are significant. As the aviation industry is operating in a global network environment, we

direct our focus on the implementation problem across a network of different airlines and

airports. Hence, the unit of analysis should not be a single organization but a network of

organizations operating in the air transport industry. In other words, while technological

challenges may be faced by individual airlines or airports with regard to adopting and

integrating new information technologies such as RFID into their operations, we do not

address these problems. In this paper, we address this network-level RFID

implementation issue by identifying key perceived barriers to integrating RFID baggage

security into operations. In this paper, we draw on extant literature on collaborative

advantage to address this urgent RFID implementation problem. An insight provided in

this paper on the key barriers to the network-level adoption of RFID is beneficial both to

7

the industry managers and academic researchers in RFID and aviation technologies. This

paper outlines a step towards developing a conceptual framework for gaining collaborative

advantage in aviation security through RFID technologies.

4. Extended Enterprise Supplier Networks for Collaborative Advantage

This research draws on prior theoretical and empirical work by Dyer (2000) on the

importance of extended enterprise supplier networks for gaining collaborative advantage.

Dyer conducted detailed case studies of the automotive industry firms across the globe.

He found strong evidence in these firms that the fundamental unit of competition has

changed from the individual enterprise to the extended enterprise supplier networks. In

other words, the fundamental paradigm has shifted from competitive advantage to

collaborative advantage. Toyota and, to a lesser extent, Chrysler realized the shift and

developed new capabilities to forge strategic partnerships with their extended enterprise

supplier networks for technology diffusion and information sharing. The two firms

successfully realized collaborative advantage through information technology enabled

Toyota Production System (TPS). They gained performance and operational efficiency

gains. On the other hand, Ford and GM failed to realize the paradigm shift and fell much

behind Toyota and Chrysler in terms of a number of performance measurements.

Key characteristics of these extended enterprise supplier networks include:

o The extended enterprise as a new unit of competition and competitive advantage

o The four core capabilities of a lean extended enterprise:

• The capability to design the new boundaries of the firm (or the “governance profile”

of the production network);

• The capability to make greater investments in dedicated or relationship specific

assets;

• The capability to create more effective inter-organizational knowledge-sharing

routines;

• The capability to create high levels of trust throughout the extended enterprise,

which will effectively reduce transaction costs and maximize flexibility and

responsiveness.

8

It must be noted that these core capabilities of the lean extended enterprise are

fundamental to address the issue of aligning inter-organizational governance, incentives,

and ownership (the issue listed in Table 1) discussed in Section 2.

5. Key Barriers to Integrating RFID Baggage Security into Network

Operations

A content analysis of the IATA and the Airports Council International publications show

that two key barriers to integrating RFID-enabled baggage security into network

operations are the dominantly technical focus of the past and present trials and

implementations and the narrow scope of these trials and implementations. The latter

reflects the mindset that the fundamental unit of competition has not changed from the

individual enterprise to the extended enterprise supplier networks. Unlike the global

automobile manufacturing industry studied by Dyer, the global air transportation industry

does not provide clear evidence of the fundamental paradigm shift from competitive

advantage to collaborative advantage. For example, the IATA (2007, p. 55) shows a

normative model of RFID as a global IT tracking and tracing solution which can be used

to simplifying the business. While the model components, such as IT strategy and

governance, are identified as important to facilitate RFID integration into operations, the

model is at the enterprise level. It does not address the issue of how to align inter-

organizational governance, incentives, and ownership. Furthermore, it does not address

the issue of how to facilitate the paradigm shift from viewing the fundamental unit of

competition from the individual enterprise to the extended enterprise supplier networks.

In light of the evidence found in the research literature and the new paradigm for

collaborative advantage, we identify these two areas as potentially key managerial and

organizational barriers to integrating RFID baggage security into network operations.

In Australia, in March 2005 a new enhanced aviation security regime came into

force. The Department of Transport and Regional Services (DTRS) consulted closely with

industry to evaluate and approve transport security programs for 186 airports, 170 airline

operators and over 900 air cargo agents (DTRS Annual Report 2004-05). Australia

Tourism & Transport Forum Regulation Taskforce issued a statement in December 2005

to argue that the costs of aviation security regulations (i.e., Aviation Transport Security

Bill 2003) imposed on business are significant. More central attention needs to be directed

9

to address the inter-firm governance issues and the network-level RFID adoption and

implementation issues so that high cost of RFID investments will create business value

and strategic payoffs for the industry. Data collection in Australia is ongoing to explore

the two key barrier issues.

Figure 1. RFID integrated onto track & trace application and within IT corporate system

6. Conclusion

Despite the potential of RFID technologies, the air transport industry faces the challenge

in proving the business value of RFID investments. Since the industry operates in a global

network environment, the dominantly technical focus of the past and the present RFID

trials and implementations and their single firm scope are considered as the two key

barriers to the real-time integration of RFID into network operations in the air transport

industry. This research in progress paper proposed the utility of applying the Dyer’s

conceptual framework to explore the key barriers to integrating RFID security into

network operations. The real-time integration of RFID into network operations requires

closer attention to managerial and organizational barriers. More specifically, it argued the

risk of insufficient attention to the importance of inter-firm governance capabilities in the

air transport industry, which was shown as the key critical success factor in deploying IT-

based production technologies successfully in the global automobile manufacturing

industry.

RFIDTechnologyIntegration

Management of Change

Organization

RiskManagement

&Security

Solution Integration

Business ProcessTransformation

IT Strategy & Governance

10

References

Chatfield, A., & Yetton, P. (2000). Strategic payoff from EDI as a function ofEDI embeddedness. Journal of Management Information Systems, 16(4), 195-224.

Curtin, J., Kauffman, R. & Riggins, F. (2007). Making the ‘MOST’ out of RFIDtechnology: a research agenda for the study of adoption, usage and impact of RFID.Information Technology Management, 8, 87-110.

International Air Transport Association. (2007). RFID Business Case for BaggageTagging, www.iata.org/stbsupportportal.

Dyer, J. (2000). Collaborative advantage: Winning through extended enterprisesupplier networks. New York: Oxford University Press.

Garfinkel, S., & Rosenberg, B. (eds). (2006). RFID Applications, Security, andPrivacy. USA: Pearson Education, Inc.

Ghobrial, A., & Irvin, W. (2004). Combating air terrorism: Some implicationsto the aviation industry. Journal of Air Transportation, 9 (3), 67-86.

Katz, M. and Shapiro, C. (1985). Network externalities, competition, and compatibility.The American Economic Review, 75(3), 424-440.

Leone, K., & Liu, R. (2005). The key design parameters of checked baggagesecurity screening systems in airports. Journal of Air TransportManagement, 11, 69-78.

Montevalli, V., & Stough, R. (2004) Aviation safety and security; reachingbeyond borders. Journal of Air Transport Management, 10, 225-226.

Oum, T. (2005). Key results of the ATRS global airport benchmarking. The ATRSPowerPoint presentation, www.atrsworld.org.

Riggins, F., Kriebel, C. & Mukhopadhyay, T. (1994). The growth of interorganizationalsystems in the presence of network externalities. Management Science, 40(8), 984-998.

Sim, k., Koh, H. and Shetty, S. (2006). Some Potential Issues of Service QualityReporting for Airlines. Journal of Air Transport Management, 12, 293-299.

Yoo, B., Choudhary, V. & Mukhopadhyay, T. (2002). Pricing strategies of electronic B2Bmarketplaces with two-sided network externalities. Proceedings of the 35th HawaiiInternational Conference on System Science.