THE ORGANIZATIONAL EFFECTS OF E-COMMERCE

A Cross-sectional Study

Efthymios Constantinides

School of Management and Governance, University of Twente,PO Box 217, 7500 AE, Enschede, The Netherlands

Keywords: e-Commerce, online business, stages model, innovation adoption, E-Commerce strategy, organizational

change.

Abstract: Electronic Commerce (EC) is increasingly perceived as a mainstream element of the marketing strategy.

With more firms trying to extract value from the virtualized and global marketplace of the 21

century it is

essential that managers effectively address the problems related to the organizational adoption and internal

implementation of EC. The paper evaluates the aptitude of the stages model, one of the well-known

approaches describing the adoption of EC, in accurately mapping and explaining this complex process.

Based on a study of ten commercial firms the study concludes that in the majority of cases the stages model

does not adequately describe the EC adoption process. The model suffers from a fundamental flaw, namely

overlooks the irregular pattern of the EC assimilation in the internal organizational processes who are

shaped by EC with different intensity, in different ways and at different times rather than in a linear way the

stages model suggests.

The paper proposes a more flexible approach recognizing the complexity of this process and providing a

more accurate and representative picture of the EC adoption by commercial firms.

1 THE ONLINE BUSINESS

IMPERATIVE

The Internet is widely considered as the most

important technological and commercial innovation

of the 90’s and all indicators point to it as the

technology likely to shape the marketing practice of

the future years. The Internet entered the

commercial field as a technological novelty and after

a heavily hyped period that ended in the 2000 with a

high tech melt-down has become today the basis of

what is commonly known as E-Commerce, a

standard feature of the mainstream commercial

landscape (García-Dastugue and Lambert, 2003;

Barwise and Farely, 2005; Brodie et.al, 2006).

Responding to the growing commercial

importance of the online marketplace millions of

traditional businesses already embraced E-

Commerce as part of their corporate, business and

functional strate

gy (Krell and Gale, 2005). The wide

acceptance of E-Commerce by consumers and

businesses as a major commercial channel indicates

that firms failing to create an attractive and

customer-centric web presence deprive themselves

from the opportunity to add new revenue streams to

their business, improve customer relationships and

improve their profitability by obtaining synergies

between their physical and online operations (Amit

and Zott, 2001; Mustaffa and Beaumont, 2002,

Lumpkin et al., 2002).

2 EFFECTS OF THE INTERNET /

E-COMMERCE ON THE

ORGANIZATIONAL

STRUCTURE: THEORETICAL

BACKGROUND

The adoption process of E-Commerce by

commercial organizations has been treated in the

literature along two broad lines:

1. As a contingency issue: this approach has been

discussed among others by Thong (1999), Wang

(2000), Truong and Subba Rao ( 2002) and Teo and

Pian (2003). The contingency model proposed by

Truong and Subba Rao ( 2002) identifies three

categories of factors affecting the adoption process

(Organizational, Technological and Environmental)

that combined lead to different degrees and forms of

E-Commerce adoption. More recently Krell and

191

Constantinides E. (2007).

THE ORGANIZATIONAL EFFECTS OF E-COMMERCE - A Cross-sectional Study.

In Proceedings of the Third International Conference on Web Information Systems and Technologies - Society, e-Business and e-Government /

e-Learning, pages 191-195

DOI: 10.5220/0001261601910195

 SciTePress

Gale (2005) proposed a process model addressing

different contingencies involved in the migration of

traditional organizations to E-Business.

2. As a stages process describing the adoption

of the Internet as a journey through different levels

of organizational adoption, a process particularly

popular by business consultants in the late 90’s. El

Sawy et al. (1999) proposed a six-level framework

of enterprise transformation on its way to E-

Commerce with emphasis on the organizational

aspects influencing this process. Earl (2000)

discussed a six-stages process with more emphasis

on strategic issues. Furth and Jensen (2000) from the

Roland Berger Strategy Consultants proposed the e-

Transformation 3-wave model. The consulting firm

PricewaterhouseCoopers developed a 4 stages

model, similar to NerveWire’s model described by

Gossain S., Kenworthy R., (2000). More recently

Subba Rao et al (2003) discussed a four stages

model that more or less summarizes the past

experience on this issue. According to their concept

E-commerce can be introduced by organizations in

different degrees of intensity leading to four broad

categories or adoption stages. In each of these stages

companies have different strategic objectives and

aspirations, expressed in varying degrees of

managerial commitment and resource allocation.

In a nutshell the stages model of Subba Rao et al.

(2003) describes four distinctive phases of E-

Commerce adoption:

a. Presence: is the simplest form of e-commerce

adoption. Organizations in this stage employ static

informational sites playing the role of a virtual

brochure. The online activity is very little or not at

all integrated in the internal organization.

b. Portal: in this stage online interaction with

customers is possible. Interactive elements of this

stage include ordering facilities, active product

feedback, customer feed-back in the form of quality

surveys, information on inventory data and search

capabilities.

c. Transactions integration (TI). In this stage the

company web site allows for financial transactions

like ordering and payments online. Other forms of

interaction like sharing of information by means of

virtual communities and electronic auctioning are

common in this stage.

d. Enterprises integration (EI) refers to complete

integration of business processes to the extent that

the online business becomes an integral part of the

existing physical, traditional organizational body.

This level of integration requires a high degree of

collaboration between organic parts of the firm and

integration with other parties forming the

organization’s value chain.

An implicit assumption of the stages models is

that in different stages of E-Commerce adoption the

effects on internal processes are uniform and

consistent. It has however been argued that the

influence of E-Commerce on internal organizational

processes can be non-linear and complicated (Barnes

et al. 2002). Earl (2000) basing his analysis of a six-

step stages model argues that the introduction of the

Internet in organizations is an evolutionary process

placing different emphasis on different processes in

each stage while Krell and Gale (2005) conclude

that the migration to E-Business is in fact a complex

organizational challenge.

3 RESEARCH HYPOTHESIS AND

METHODOLOGY

In line with the view that E-Commerce

implementation can have different effects on the

organizational operations Constantinides, (2002)

identifies two distinctive groups of organizational

processes where E-Commerce must be embedded:

- Front Office processes i.e. processes related to

marketing strategy

- Back Office processes i.e. the processes related to

the organic structure.

This distinction is used as basis for a more

detailed and deeper look on the organizational

effects of E-Commerce in different stages. The front

and back office processes plotted against the four

stages model of Subba Rao et al. (2003) are

illustrated in Table 1.

Having defined the main stages of E-Commerce

adoption and the two clusters of organizational

processes likely to be affected (Front Office, Back

Office), the next step is to examine whether the

processes belonging to each of the two clusters are

affected in a similar manner during the different

stages of the E-Commerce adoption process.

The hypothesis of the study is that internal

organizational processes are not necessarily affected

in a linear manner in the different stages of the

adoption process as the stages model suggests.

Accepting the hypothesis would indicate that

commercial firms introduce E-Commerce in many

different ways rather than in stages and with

different degrees of urgency per organizational

process.

The study was conducted by means of a survey on

the practices followed by ten USA commercial firms

based in Boston, San Francisco and Los Angeles in

integrating EC as part of their commercial model.

The companies were randomly selected and belong

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Table 1: The four stages of E-Commerce adoption against

the front and back office elements.

Presence Portal Transaction Integration

Front-office

Back-office

very diverse industry branches. The study is based

on structured interviews with top executives (CEO’s

and CIO’s) as to the company’s approach to EC.

The purpose of the interviews was to identify the

effects of E-Commerce on a number of Front Office

and Back Office processes and determine whether

these processes are affected in similar degrees per

stage, as the strict application of the stages model

implies.

The organizational processes that were evaluated

in the survey were drawn from the classic Value

Chain model of M. Porter (1985). The Porter

framework distinguishes two categories of internal

business processes, the secondary or supporting

activities and the primary ones

The supporting activities are expanding along the

whole organizational body: Firm Infrastructure,

Human Resource Management, Technology

Development and Procurement. The primary

activities (Inbound logistics, Operations, Outbound

logistics, Marketing sales and service) are

represented as a series of blocks in the lower part of

the model.

The large numbers of the processes in the Porter

model (nine) presented a major complexity:

analyzing the effects of E-Commerce in all these

processes would make the study very complicated

and extensive. In this respect it was decided to focus

on the most important and representative processes

per cluster: one secondary activity (Procurement)

and three primary ones (Inbound

Logistics, Operations, and Marketing/sales).

For reasons of additional efficiency the processes

of procurement and inbound logistics were merged

into a single category since from the practitioners’

point of view these two activities are closely related.

In order to obtain comparable answers a number

of standardized generic EC functionalities or generic

activities were identified as descriptors of the

business model per stage; they range from simple

informational functionality in the presence stage to

integrative functions in the integration stage. (Table

2). The interviewed managers were asked to identify

to what extend the Internet was supporting these

functions within the organizational processes in

question (Inbound Logistics/Procurement,

Operations, Marketing/Sales).

An indicative example in the

logistics/procurement function: a company using the

internet in order to inform suppliers about its

intention in buying a certain product but not

allowing for online tenders would qualify as being in

the “Presence” stage. If customers were allowed to

react on line by submitting an offer then the

qualification for this function would be “Portal” and

if the web site would allow an online auction or

online ordering and online settlement the

qualification would be “Transaction”. In case the

ordering, invoicing and physical delivery processes

were fully automated then the process in question

would find itself in the “Integration” stage.

The hypothetical scores on the table indicate

differences between the 3 processes as well as

between the Back Office processes themselves. The

results in this example (Back Office Integration: 3,

Front Office Integration: 1) highlight a discrepancy

between the Front and Back office EC adoption in

each functional cluster; the company finds itself in

the transaction stage with regard to Back Office

processes but in the Presence stage with regard to

Front Office activities.

4 THE RESULTS PER

ORGANIZATION

The results of the individual tables are summarized

in Table 3 and illustrated in Graphic1.

Table 2: The classification framework of the organization effects of E-Commerce.

PRESENCE PORTAL TRANSACTION INTEGRATION

GENERIC

FUNCTIONS

Information

Promotion

Relationship

Information

Relationship

Promotion

Transaction

Information

Relationship

Promotion

Transaction

Co-development

Knowledge management

THE ORGANIZATIONAL EFFECTS OF E-COMMERCE - A Cross-sectional Study

193

Matrix 1: Example of evaluation table; hypothetical example demonstration the scores.

PRESENCE: 1

PORTAL:2

TRANSACTION:3

INTEGRATION:4

Stages

Processes

Procurement/Inbound

logistics

Operations 4

BACK OFFICE (2+4) / 2 = 3

Marketing and Sales 1

FRONT OFFICE 1

5 CONCLUSIONS

The outcome of the study indicates a wide diversity

of approaches in integrating EC into business

processes. A general remark one could place is that

the appearance

of the “Presence” stage in a number of the cases

examined indicates that after more than 15 years of

commercial Internet there are still firms apparently

unaware of the full potential of this technology,

therefore missing the opportunity of expanding and

reaching new markets, reducing costs and

streamlining their operations.

Next to this general remark the conclusions of

the study can be summarized as follows:

- From the ten firms examined in only two of them

(G and J) the adoption of E-Commerce has affected

both marketing processes (front-office) and non-

marketing processes (back-office) in a linear and

balanced way. Based on the scores we could

establish that in terms of the stages model of Subba

Rao et al (2003) firm G is finding itself in the Portal

stage while firm J in the Integration stage.

- Eight of the ten examined firms cannot be

classified according to the 4-stages model as to the

level of adoption of EC. This because of

discrepancies between the level of EC integration

into different organizational processes

- The ten firms examined seem to place different

emphasis on the role of E-Commerce as a corporate

strategy tool. Five firms (C,D,E,F and I) have placed

more emphasis on the Internet as a marketing tool

while for three (A, B, H) the Internet has impacted

mostly on their back-office processes.

It must be noticed here that the scope of the

study was limited to the level of integration of EC in

internal processes therefore the reasons for the

differences between processes within the same firm

or the differences between firms cannot be explained

by the information collected.

The above findings indicate that the influence of

E-Commerce on the various corporate processes can

vary in different stages of the adoption process. The

hypothesis is therefore accepted: the simple 4-stages

model of Subba Rao et al. (2003) is not sufficient to

describe the stages of E-Commerce adoption since it

overlooks the differences in the adoption pace by the

individual organizational processes. It seems that the

emphasis placed on transforming internal processes

during the introduction of E-Commerce can be

different per process and organizations can function

in the online environment even if their internal the

processes are in different levels of “virtualization”.

Considering the above defining the EC adoption

process as a combination of stages and clusters

(back-office, front-office) reveals much more

accurately the adoption level of EC than the simple

stages model does. The improved approach results in

eight different combinations that from the strategic

point of view provide a much better and

comprehensive picture of the situation. Such a

detailed analysis would help managers to identify

and correct discrepancies in their general E-

Commerce strategy or distinguish organizational

processes and areas of weak E-Commerce

performance.

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Graphic 1: Effects of E-Commerce in Back Office and Front Office Processes in ten case studies.

Table 3: E-Commerce stage per Front and back office activities.

Company A B C D E F G H I J

Back Office

3 4 3,5 3 2 2 2 3,5 2 4

Front Office

1 3 4 4 4 3 2 2 3 4

3,5

Company

Back Office Front Office

2,5

1,5

0,5

Value

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