TRANSFORMATION OF TRADITIONAL BUSINESS TO
ELECTRONIC BUSINESS
A transformation cum maturity model and transformation matrix
Asif Ali Munshi, Fareed Hussain
Faculty of Management, University of Tehran, North Kargar Ave,Tehran, Iran
Keywords: Electronic business, electronic commerce, business strategy, IT strategy, business infrastructure, IT
infrastructure, internet.
Abstract: Electronic business provides many benefits to organizations that embrace on it. It is true that ebusiness
improve business processes, integrate business processes and its corresponding value chain, give speed to
internal and external organizational activities etc, but it poses the greatest challenge to today’s organizations
to transform their traditional businesses into electronic business. To assist organizations, in making
successful transformation to ebusiness, in this paper, we first distinguish between electronic commerce and
electronic business on the basis of three parameters of scope, support and technology. After that ebusiness
transformation cum maturity model is proposed, whose five levels acts as a benchmark to assess an
organization at different maturity levels. Emphasis is not given on discussing maturity levels, but on the
transformation stages that acts between any two levels of maturity. For this purpose, transformation matrix
is proposed, which will guide organizations to take critical organizational and information technology ( IT )
domains into consideration during each transformation stage.
1 INTRODUCTION
As we enter into the 21
st
century, the importance of
Information Technology ( IT ) is felt more and more.
One of its promising technology is computer
networks and internet. From the first day of its
commercialization, internet has changed our lives in
many ways, for example the invention of e-mail
removes the concept of distance from
communication, the concept of electronic
marketplaces has removed the concepts of physical
location for businesses, any kind of information is
just a click away etc.
The impact of all of these technologies is felt
more as we make progress in our daily lives, but the
biggest impact of internet technologies is felt on
business scenario. Businesses always try to leverage
new technologies in order to remain competitive in
the marketplace. Internet has been used by the
business entities more than any other entities in the
form of e-commerce and e-business.
e-commerce is the buying and selling, and
marketing and servicing of products, services, and
information over a variety of computer networks
(James,2001), while as e-business is the use of
internet and other networks and information
technologies to support e-commerce, enterprise
communications and collaboration, and web enabled
business processes both within an internetworked
enterprise, and with its customers and business
partners (James,2001). Although the definitions
Scope Support Technology
e-commerce Narrow Partial Less
e-business Broad Wide High
Figure 1: Shows the difference between e-commerce and e-business
33
Ali Munshi A. and Hussain F. (2005).
TRANSFORMATION OF TRADITIONAL BUSINESS TO ELECTRONIC BUSINESS - A transformation cum maturity model and transformation matrix.
In Proceedings of the Second International Conference on e-Business and Telecommunication Networks, pages 33-40
DOI: 10.5220/0001409900330040
Copyright
c
SciTePress
distinguish between the terms but many of us still use
the two terms interchangeably, therefore more robust
way is needed to clearly distinguish between the two
terms.
2 DISTINCTION OF E-
COMMERCE AND E-BUSINESS
In this section we will try to make an explicit
difference between e-commerce and e-business on
the basis of there parameters of scope, support and
technology ( systems ) as shown in figure 1. As far as
e-commerce is concerned its scope is narrow,
facilitates different types of transactions, whereas the
scope of e-business is broad, not only encompasses
the e-commerce transactions but facilitates the
effective communication and collaboration within the
enterprise and with external environment ( suppliers,
partners, customers ). Another difference between
ecommerce and ebusiness can be drawn on the basis
of support, ecommerce supports only part of an
enterprise, it can bring web initiative benefits to sales
and marketing departments but ebusiness supports the
whole enterprise, in its broadest sense ebusiness gives
rise to an enterprise which works only on electronic
platform. All of its departments are interconnected,
databases are consolidated, and more transparency
exists between ebusiness enterprise and its suppliers
and partners. Another parameter that can be used to
distinguish between ecommerce and ebusiness is
technology. Ecommerce may need less technology
dose, systems are needed only to handle online
ordering, customer service queries etc via the website
of an enterprise. But ebusiness certainly requires high
technology dose. To reep the benefits of a true
ebusiness in addition to systems needed for
ecommerce, an enterprise may also need to install an
ERP system for internal consolidation and SCM and
CRM systems to provide for the integration with the
external environment.
After taking into consideration the above
parameters we are able to define the ecommerce and
ebusiness in a robust way. Thus we define
ecommerce, as the internet or web enabled platform,
having narrow scope, supporting the enterprises
partially, requiring a less technology dose to facilitate
the transaction on the net.
Whereas ebusiness is the platform having broad
scope, supports the whole enterprise, and requires
high technology dose to support all the business
functionalities of an enterprise. After differentiating
between the two terms, in the next section we will
look at how enterprises use these platforms and what
problems they encounter when leveraging the web.
3 RISE AND FALL OF DOTCOMS
In 1990s, much of the hype was created for
ecommerce or dotcom sites. Almost every
organization or business was in a rush to set up its
own website. They thought this new model of doing
business was profitable without thinking about say,
how a traditional business can be transformed on this
new platform. With the old mindset they tried to copy
their old business models simply on the net. In this
blind rush organizations increased their IT spending
and uploaded the company websites in the shortest
possible time. This phenomenon gave rise to the new
generation of business, where business could be done
almost virtually e.g Amazon.com, ebay.com etc. This
way of doing business virtually was called what we
know today as ecommerce. After ecommerce,
organizations started expanding their web initiatives
to outside suppliers and partners also, thereby giving
rise to ebusiness, where all of the business was done
on the web. But by the year 2000 it became clear that
leveraging the benefits of web, simply by setting up a
site was not enough. Dotcoms started falling one after
another. Businesses were forced to file for
bankruptcy, take down their websites etc. The
situation became so critical that many industry
experts said that the ecommerce era was over. After
the downturn of ecommerce it was the turn of some
ebusinesses to post the problems for survival.
4 REASONS OF FAILURE
At the same time when newly born dotcoms had
crippling situation, Boston consulting group
mentioned that the primary cause of failure of
dotcoms was not the bad execution but bad thinking.
The majority of companies held the misguided belief
that speed and scalability should take primacy over
the principles of strategy (BCG,2002). An internet
business will work only if its business management
strategies are properly integrated into a carefully
considered plan, built on a foundation of realistic and
attainable goals and objectives (Raymond,2001).
Also IT strategy must be in place in order to execute
the business strategy, therefore business strategy and
IT strategy must be given importance while planning
for any web initiative.
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34
5 IMPORTANCE OF BUSINESS
STRATEGY AND IT
STRATEGY
For any business it is necessary to have a sound
business strategy, the same is true for web businesses.
The business and its management must have clear
vision and must be fully aware of its strategic
objectives and goals. They must devise strategies to
attain their strategic goals and objectives. The basic
principle of a traditional business management team
was the development of a strategic plan in order to
give the business a competitive advantage in the
marketplace. As the rules of doing business in the
digital economy may have changed but the basic
principle remains the same even for businesses
operating in today’s modern era i.e the development
of the proper strategy to give the business a
sustainable competitive advantage. It is true that
doing business electronically has had its advantages
of cost reduction, removing the barriers of “ place ”
of doing business, reducing time to market for
different products and services, but at the same time
has created some constraints in the form of increasing
customer and partner agility, threat of new entrants,
imitating the existing business models by
competitors. This makes the importance of business
strategy more important for today’s web businesses.
Another important factor that must be given
proper attention is the technology counterpart of
business strategy i.e IT strategy. Ebusiness must
make full use of different information technologies in
order to operate on and execute its business strategy.
Therefore every business, ambitious of being a full
blown ebusiness must have an IT strategy in place.
All of the decisions relating to IT are made on the
basis of IT strategy e.g project portfolio, portfolio of
different projects is made in order to prioritize the
feasible projects, IT budget allocation, IT budget
must be allocated to projects bound to give a strategic
help to the company in the form of ROI both tangibly
and intangibly. If IT strategy is in place, enterprises
don’t throw money blindly on IT but they tend to
rationalize their IT investments to those projects only
which seem to be promising and feasible according to
both the management team as well as IT management
team.
Keeping all the above discussions in mind, it is
not an easy task to transform a traditional business to
ebusiness without rigorous planning. Transformation
to ebusiness must be tackled with more sensitivity
because the fate of the whole business depends upon
this transformation. Therefore we must have a proper
model and methodology to led the transformation of
an ordinary business enterprise to an ebusiness
enterprise. Much of the literature written on web
based businesses discuss the ecommerce issues and
many researchers have proposed maturity models for
ebusiness, but there is a need to discuss the
transformation period, which exists between any two
levels of maturity. This transformation stage is more
important than maturity level because drawn from the
natural analogy of a human being, we say that a
human becomes a mature person at some stage but
we are unable to appreciate his/her transformation
period from less mature level to more mature level. In
this period a human being is able to sense his/her
environment in a novel way, becomes more mature
internally, stores the sensed environment in his mind
and due to the process of cognition draws upon the
new conclusions and becomes more mature.
The same is true for an organization, therefore to
reach a more mature level, organization must go
through a transformation period, in which it is able to
sense its environment in a new way, is consolidated
internally, learns from the experiences etc and makes
the transition from one level of maturity to another.
In order to assist an organization to make its way
to ebusiness paradigm, in this paper we not only
propose a maturity model for ebusiness but its more
important stage, the period of transformation from
one level of maturity to another level is discussed
fully but for this purpose a transformation
methodology which will guide the organization to
transform and make the transition from one level to
another level of maturity is also proposed. During the
process of transformation, the proposed
transformation matrix will guide the organization to
consider the critical organizational and IT domains
for successful transformation.
TRANSFORMATION OF TRADITIONAL BUSINESS TO ELECTRONIC BUSINESS: A transformation cum maturity
model and transformation matrix
35
6 INTRODUCTION TO
MATURITY MODEL
Taking the complexities of an ebusiness into
consideration, it is obvious that it is impossible for
any business to become ebusiness in days or even in
months. Any business that wants to tap the web based
opportunities to do the business must go through a
kind of an evolution. This evolution is sometimes
called the maturity. The model shows the different
levels of maturity prior to becoming an ebusiness. we
also propose such a model but we will call it a
transformation cum maturity model, because apart
from mentioning the levels of maturity our model
also address the issues of transformation form one
level to another.
As shown in maturity diagram or figure 2, there
are five levels in this model namely, Introduction,
web presence, electronic commerce, internal
integration and external integration or electronic
business. It is necessary for any business to go
through the first four levels prior to becoming a full
blown electronic business with its external integration
at the fifth level. One of the goals of writing this
paper was to distinguish clearly between ecommerce
and ebusiness and, on the maturity diagram, where
does both of them fall, that is why, 2
nd
and 4
th
levels
are named as electronic commerce and electronic
business respectively.
At the introduction level which is also the zeroth
level, organization introduces itself to web
community via other companies websites. On the first
level, the web presence level, an organization
develops and uploads its own website. At second
level, the electronic commerce level, organization
starts offering the online sale of its products and
services. With the help of Internal integration the
organization is consolidated internally at the third
level. Finally at the fourth level, external integration
or ebusiness level, with the integration of an
organization with its external environment, the
organization becomes an electronic business. More
about say, what the organization do at each level is
disclosed while discussing the transformation stages
in the coming sections.
In the maturity diagram, five maturity levels give
rise to four transformation stages. First
transformation stage exists when organization is
Web
Presence
Electronic
Commerce
Internal
Integration
External
Integration
e-business
Introduction
1
2
3
4
Figure 2: e-business transformation cum maturity model
IT infrastructure
IT strategy
Business
strategy
Business
Infrastructure
T3 T4
T1 T2
Figure 3: transformation matrix
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36
transformed form level 0 to level 1. Second stage
exists when organization transforms form level 1 to
level 2, the third one from level 2 to level 3, and the
final stage of transformation exists when the
organization transforms form level 3 to level 4. These
transformation stages are more important because all
the activities that must be done to make an
organization mature is done in the transformation
stages. This does not mean that maturity levels are
less important because on one hand the maturity
levels can be used as the benchmark for an
organization on its way to become ebusiness and on
the other hand these levels can be used to assess the
strategic objectives and goals at each level.
7 INTRODUCTION TO
TRANSFORMATION MATRIX
Four stages of transformation are mapped onto the
transformation matrix, that shows the critical
domains of organizational setting and IT, that must
be taken into consideration at each stage of
transformation. This matrix consists of two
organizational domains i.e business strategy and
business infrastructure. These two domains are
shown on the vertical side of the matrix. Apart from
business strategy and business infrastructure their IT
counterparts are shown on the horizontal side of the
matrix. These IT related domains are IT strategy and
IT infrastructure. The transformation matrix is shown
in figure 3.
During each transformation stage the organization
lies in one of the quadrants of the transformation
matrix e.g during first transformation stage from
level 0 to level 1 the organization is placed in the
lower left quadrant of the matrix. Each quadrant of
the transformation matrix is marked with the
respective number of the transformation stage of
the organization. The matrix is used to assess the
important organizational and IT domains which
must be taken into consideration during each stage
of transformation.
8 ORGANIZATIONAL
TRANSFORMATION
TOWARDS E-BUSINESS
Now we will discuss the various transformation
stages that an organization must go through to
become a full fledged electronic business.
8.1 Organization at level 0
Any business on its way to start the journey towards
ebusiness is placed on the zeroth level on the
maturity diagram. At this level organization
introduces itself to the web community via other
organization’s websites. It just introduces its products
and services to web surfers. During this stage the
emphasis is given on advertising the organization.
Organization in this stage does not maintain its own
website. The management of the company accesses
the potential of internet platform for their business.
The organization may or may not have a particular
business strategy for web in place at the zeroth level.
8.2 First transformation stage and
transition from level 0 to level 1
After introducing itself to the web community, the
organization starts its first transformation stage which
will provide a way to the organization to make a
transition from zeroth level to first level on the
maturity diagram. During the first transformation
stage the organization lies into the first quadrant of
the transformation matrix and its associated critical
organizational and IT domains are business strategy
and IT strategy. These two domains must be given
emphasis during this stage. This stage is the most
important and crucial to the future overall health and
performance of an organization, because important
decisions are made during this stage. As shown by
the first quadrant of the matrix, the vertical
organizational domain of concern is business
starategy and the horizontal IT domain of concern is
IT strategy. During the whole process of first
transformation the organization remains in between
zeroth and first level of the maturity diagram.
During the first transformation stage the top
management of an organization establish the “ vision
” for the whole organization. Vision shows the
desirable state of an organization at sometime in
future. Establishing a vision gives answer to the
questions of type, say “ where an organization will be
after 10 years from now ”. vision is often the long
term achievement, acquired by an organization and it
is formally stated in the form of an organization’s
vision document. On the basis of vision, the business
strategy of an organization is developed. Business
strategy must be developed in accordance with the
vision of the organization, if this is not done so, the
organization may not be in the desired position in
future. Business strategy gives the answer to “ what ”
type of questions such as “ what should be done in
TRANSFORMATION OF TRADITIONAL BUSINESS TO ELECTRONIC BUSINESS: A transformation cum maturity
model and transformation matrix
37
order to achieve a market share of 10 percent for a
particular product segment ”. It is important to devise
the business strategy in consensus with the various
departmental heads, because ebusiness is going to
change the way of doing business in all of the
departments. Therefore there arises the need of
communicating the vision and business strategy to
the organizational members in order to have a
common understanding about the overall strategy of
an organization.
Business strategy consists of three components
business scope, distinctive competencies, and
business governance. Business scope, focuses on the
type of business the organization is engaged in, the
products and services it offers, market segmentation,
competition and the values and mission of the
organization. Distinctive competencies include the
areas in the company excels i.e its distinguishing
strengths. The third component, business governance,
focuses on ownership. It specifically looks at the
establishment of business alliances and partnerships
with other firms, government regulations and their
effect, as well as outsourcing strategies (Raymond,
2001).
Company wide business strategy is reciprocated
on the technological side by its IT counterpart i.e IT
strategy. IT strategy is devised out of the business
strategy of the organization. Importance must be
given to IT strategy because it is the IT strategy
which tell us how to implement the business strategy
in its real context.
IT strategy consists of technology scope,
systematic competencies, and IT governance.
Technology scope, like business scope, focuses on
the key technologies and applications the business
should and / or must employ. Systematic
competencies include information about the
company’s customers and clients, accessibility,
reliability, and other vital characteristics and
strengths of information technology. The third
component, information technology governance,
addresses many of the same issues as business
governance. Specifically, it focuses on the decision to
make-or-buy, the prioritization of applications, and
the possibility of technological alliances and
partnerships including outsourcing (Raymond,2001).
As, organization wants to make a web presence
of its own at level 1. Therefore a website must be
installed and maintained by the company. The model
of the website is developed, implemented and
uploaded, and the company makes its first transition
from zeroth to fist level successfully.
At its first level a company has acquired a web
presence of its own and starts giving out the
information about its products and services. The
focus at this level is on information dissemination
rather than information collection. E-mail contacts
are maintained with the customers. it is after the
successful transition to this level that, the
organization starts thinking about the next stage of
transformation.
8.3 Second transformation stage and
transition from level 1 to level 2
The next phase of transformation will take the
company to second level on the maturity diagram.
Our transformation matrix say that the organizational
and IT domains of concern during this transformation
stage are business strategy and IT infrastructure.
IT infrastructure consists of information
technology architecture, processes and skills.
Information technology architecture includes the
hardware, software, data, applications, and
communications platforms that the organization uses
to achieve its information technology and business
strategies. The processes focus on the development of
specific information technology practices and how
they can be improved. They include application
development, systems management, and maintenance
functions. The final component, information
technology skills, addresses the experience,
competence, and values of technology employees. It
includes the information technology culture and its
associated norms, employee salaries, and hiring and
training practices(Raymond,2001).
At the second level of maturity, the company
wants to be engaged in electronic commerce.
Therefore there is the need of many IT systems to
facilitate this type of commerce. The company must
be able to offer transactions online, communicate
with its customers, provide for purchase of goods and
services online. Thus the two domains of
transformation matrix must work closely in order to
make the transformation successful. Organizational
domain ( business strategy )mentions the
requirements for IT infrastructure, it sets out the
assessment / performance metrics to evaluate the
performance, budget is allocated for different
ecommerce initiative. On the technology side IT
infrastructure is layed out ( either developed or
acquired ). Electronic commerce projects are
implemented that facilitate the transactions on the
website, databases are built to collect information,
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38
steps are taken to offer customer service through the
website.
At level 2, actual transactions are facilitated on
the company website, databases collect the required
information, customer service is maintained through
the website also. In other words the company enters
into the real ecommerce paradigm. Ecommerce also
includes ordering, payment and customer service on
the worldwide web.
8.4 Third transformation stage and
transition from level 2 to level 3
In order to move on its path to ebusiness, the
organization must transform itself further and make
smooth transition to level 3 of maturity diagram,
where business infrastructure of the organization is
revised or reengineered. During this transformation
stage the organization lies into the third quadrant of
the transformation matrix. Here the organization and
IT domains of concern are IT strategy and business
infrastructure. During this transformation business
infrastructure is reengineered on the basis of IT
strategy of an enterprise. In other words
organization’s business infrastructure must be
properly aligned with its IT strategy.
Business infrastructure or organizational
infrastructure is comprised of three components
namely, administrative structure, processes and skills.
Administrative structure consists of the authority
structure, responsibilities, and roles within the
organization. Business processes are those activities
that drive the business. They determine the extent to
which work flows can be integrated with respect to
information technology. Business skills, the third
component, focus on the human resources of the firm.
(Raymond, 2001).
At this stage the business processes are based on
the old philosophy. On one hand the business
processes are changed or improved in order to
accommodate the IT flavor in them, and on the other
hand policies are drawn, to integrate each and every
functional department to each other. In this way
information flows across the organization freely and
high levels of efficiency is acquired across the
organization.
During this stage of transformation, traditional
business infrastructure is revised, management
commits itself to led the internal organizational
change, new business infrastructure is assessed for
viability, change management policies are stated on
the organizational front.
One of the strategic business values of IT is its
role in making major improvements in organization’s
business processes. Investments in information
technology can help make a firm’s operational
processes substantially more efficient, and its
managerial processes much more effective.
Reengineering and making other improvements to its
business process could enable an organization to cut
costs, improve quality and customer service and
develop innovative products and services for new
markets. So business process reengineering ( BPR )
combines a strategy of promoting business innovation
with a strategy of making major improvements to
business processes, so that the organization can
become much stronger and more successful
competitor in the marketplace(Turban,1999).
Another strategic value that IT gives to
organizations is its capability to integrate various
functional departments. This is facilitated with the
help of an enterprise resource planning ( ERP )
software. ERP consolidates all the different databases
of various functional departments and makes one
organizational database. All of the departments are
connected to the organizational database, thereby
providing the necessary transparency between the
departments. In this way, departments work more
collaboratively and exchange of information between
departments is greatly enhanced.
At this stage the organization is internally strong
and works efficiently, because work is done in a new
way and organization is almost integrated internally.
Now the only remaining goal to become ebusiness is
organization’s integration with its external
environment i.e suppliers, partners, and customers.
8.5 Fourth transformation stage and
transition from level 3 to level 4
This transformation stage is the fourth and final stage
for an organization in its way to become ebusiness.
At this stage according to our transformation matrix,
the domains of concern are the IT infrastructure and
and business infrastructure. This means that internal
IT infrastructure in combination with business
infrastructure is used to facilitate for the external
integration of the organization.
This is done in a way that organizational
database is connected via the extranets to the
databases of different suppliers and partners. In this
TRANSFORMATION OF TRADITIONAL BUSINESS TO ELECTRONIC BUSINESS: A transformation cum maturity
model and transformation matrix
39
way the IT infrastructure arises between the
organization and its external environment.
At this stage on organizational side, possibility
of integration with outside suppliers, partners, and
customers is assessed, policies for integration is
mentioned, further change management policies are
devised, managers manage the organization
electronically. On the operational side, all business
activities are done electronically, organizational
database is integrated with the databases of suppliers,
partners and customers, more robust IT systems are
introduced to enable full blown electronic business,
organization becomes more transparent.
In this stage systems such as supply chain
management ( SCM ) may be installed on the back of
ERP to facilitate the electronic procurement etc and
also electronic customer relationship management (
eCRM ) may be employed to manage the
relationships with customers electronically. Therefore
after a long journey from zeroth level to fourth level
on the maturity diagram, we can say that the
organization is qualified as being called an electronic
business enterprise.
9 CONCLUSION
Many conclusions can be drawn from this paper, but
the most prominent of them all, is that we must not
not see the ebusiness as just the technology, but we
must give emphasis on its foundations i.e its
underlying strategy. Strategy is one of the most
important weapon through which all of the business
wars can be won. Therefore it is important for any
organization to have a proper strategy in place for
any IT initiative and especially for ebusiness
initiative, because it is considered to be the next
frontier of business.
Also an organization cannot make an overnight
transition from traditional business to ebusiness, that
is why we must have a proper path to follow to
facilitate this type of transition. The proposed
transformation cum maturity model can act as the
benchmark for this transition. Moreover the
transformation matrix will give the required direction
at every stage of transformation.
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James, A.O, (2001), “Introduction to information systems:
Essentials for the internetworked e-business
enterprises ”, Mc Graw Hill International Edition,
Tenth Editon.
Boston Consulting Group Report (2002).
Raymond, p., ( 2001 ), “ Strategic information technology:
opportunities for competitive advantage ”, Idea group
publishing, first edition.
Turban, M., McLean, E., Wetherbe, J., ( 1999 ), “
Information technology for management: making
connections for strategic advantage ”, John Willey &
Sons, 2nd edition.
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