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E-Commerce Business Development

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Published: Mon, 5 Dec 2016

LITERATURE REVIEW

2.1ABOUT E-COMMERCE

Undoubtedly, e-commerce, and especially Web-based e-commerce, is revolutionizing the way business transactions are being conducted between businesses, and between businesses and consumers (Farhoomand and Lovelock 2001). It is more than just a current fad for business. When asked where the Internet ranks on his list of priorities, Jack Welch, General Electric CEO, answered, “It is number 1, 2, 3 and 4.” According to Derek Slater, a senior writer for CIO magazine, “E-commerce is the most recent step in the evolution of business transactions. It replaces (or augments) the swapping of money or goods with the exchange of information from computer to computer” (Haraburda, 2000).

2.1.1Defining E-Commerce

Despite the importance of e-commerce, consensus has not been reached as to what constitutes e-commerce (Ngai and Wat 2002, Riggins and Rhee 1998). Although there is currently no internationally agreed-upon definition of e-commerce, the Organization for Economic Co-Operation and Development (OECD) defines e-commerce as:

“The sale or purchase of goods or services, whether between businesses, households, individuals, governments, and other public or private organizations, conducted over computer-mediated networks. The goods and services are ordered over those networks, but the payment and the ultimate delivery of the goods or service may be conducted on or off-line” (OECD 2002, p.89)

This traditional definition of e-commerce as simply buying and selling on the Internet and the World Wide Web has been criticized by those who regard e-commerce as a new way of doing business. The ultimate objective of any business is to make a profit. Profit is revenue minus cost. Generating revenue may be glamorous, but to limit e-commerce transactions to only buying and selling is “a form of tunnel vision akin to looking through the wrong end of a telescope” (Davis and Benamati 2003, p.7). The real potential of e-commerce is more than just revenue generation. It is also about improved efficiency and effectiveness.

As such, the definition of e-commerce is evolving to reflect a broader perspective. According to Turban et al. (2004),

“E-commerce describes the process of buying, selling, transferring, or exchanging products, services, and/or information via computer networks, including the Internet.” (p.3)

This definition is closer to that adopted by the Infocomm Development Authority of Singapore and the Singapore Department of Statistics, where much of our data for e-commerce will be based. Hence this study has adopted this definition.

E-commerce activities can be categorized in terms of the nature or the relationship among participants (Turban et al. 2004). It can take place between companies, between companies and their customers, or between companies and public administrations. Although there are many versions and permutations of the above, most e-commerce models can be described adequately as business-to-business (B2B) and/or business-to-consumer (B2C) relationships (Hawkins 2001):

  • Business-to-Business (B2B) activity refers to the full spectrum of e-commerce that can occur between two organizations. Among other activities, this includes purchasing and procurement, supplier management, inventory management, channel management, sales activities, payment management, and service and support (Rayport and Jaworski 2003).
  • Business-to-Consumer (B2C) e-commerce refers to exchanges between businesses and consumers, such as those managed by Amazon, Yahoo, and Charles Schwab & Co. B2C transactions can include the exchange of physical or digital products or services and are usually much smaller than B2B transactions (Rayport and Jaworski 2003).

2.1.2 The E-Commerce Scene in Singapore

Over the years, Singapore has gained a worldwide reputation for her many achievements in promoting information and communication technology (ICT). In 1999, the World Competitiveness Yearbook ranked Singapore second in the world “for implementing new information technologies that meet business requirements” and third in the world “for e-commerce development for business opportunities” (Business Wire 1999). Within that same year, Singapore was ranked first in Asia in terms of e-business readiness, and fourth in the use of e-commerce for business in the Global Competitive Survey 1999 (Ang et al. 2001).

More recent data point to rising e-commerce sales revenue from both B2B and B2C activities. According to these figures, 18 percent of total sales revenue in Singapore companies was derived from B2B e-commerce sales (see Figure 2.2) while 16 percent was derived from B2C e-commerce sales (see Figure 2.3). These figures were higher than equivalent benchmarks in Australia, Hong Kong, Taiwan and South Korea (IDA 2001).

Although both B2B and B2C e-commerce transactions are on the rise, the former is still the predominant form of transaction, contributing 98 percent of sales. Figure 2.4 shows the wholesale and retail sector leading the pack. This sector employs around 15.6 percent of Singapore’s workforce and constitutes around one third of total establishments in Singapore (Wong and Ho 2004). The major e-tailers in Singapore are mainly brick and mortar retailers who have ventured into online selling as an alternative marketing channel. This sector appears as a natural candidate for successful e-commerce diffusion because e-commerce directly addresses the core business process of the sector. E-commerce has the ability to address both the demand-side issues of distribution and outreach as well as the supply-side issues of procurement and operational coordination with suppliers (Wong and Ho 2004).

On the other hand, financial intermediaries are way ahead of the other sectors in B2C e-commerce (Figure 2.5). As a result of financial deregulation by the Monetary Authority of Singapore, foreign institutions are now allowed to engage in a larger range of activities in Singapore. This has also led to increased product offerings and service levels. For example, the stock broking sector, which has been most affected by liberalization, is now able to provide customers with new and multiple products on Internet platforms (Wong and Ho 2004).

About 46% of the top enterprises (based on turnover) have their own corporate websites (Ang et al. 2001). As shown in Figure 2.6, most of these websites were used for advertising, obtaining feedback and performing product search (Wong and Lam 1999).

2.2E-COMMERCE IN THE ORGANIZATION

The world of information technology and e-commerce, in particular, demands that organizations reconsider who they are, where they are going, who their major competitors are, where new competition might come from, and how they need to releverage their capabilities to remain competitive. Although the fundamentals of business remain the same, the best way to do so has changed (Fitz-Enz 2001).

2.2.1Uses of E-Commerce

The first research question Q1 looks into the e-commerce scene in Singapore to find out how organizations making use of e-commerce in their business. E-commerce will play a different role in each company depending on its industry, reasons for adopting e-commerce, available resources, level of e-commerce penetration in the industry, and so on (Bégin and Boisvert 2002).

In a study of e-commerce practices of 57 Quebec companies, conducted by the CMA International Centre, four principal types of e-commerce users – Explorers, Advertisers, Builders and Sellers – were identified (Bégin and Boisvert 2002). As illustrated in Figure 2.7, these user groups were differentiated by (a) the characteristics of their Web sites and (b) the degree of integration of e-commerce and information and communication technologies (ICT) in their business processes.

  • Explorers have informational Web sites that disseminate information on the company, often in an environment that is not specific to the development of e-commerce. Other typical uses include recruiting from their Web sites and communicating with employees (via an Intranet) or suppliers (via an extranet).
  • Advertisers, as the name implies, mainly use ICT technology to advertise and promote their products and services on top of providing information about the company. The nature of their products and/or customer purchasing behaviours prevents advertisers from selling online.
  • Builders exert a solid effort to develop their markets. Promotion of products and services is not limited to online product catalogues. Their Web sites include several interactive applications to determine customer requirements, provide after-sales service, and so forth.
  • Sellers carry out online sales transactions. Thus a significant portion of their revenue comes from online transactions. They can be further divided into Ingenious Sellers, who are usually small companies with specialized expertise but limited financial resources and Big Gun Sellers, who by contrast, possess significant resources and tend to have fully transactional and secure Web sites (especially when there is online payment).

2.2.2Strategic Planning of E-Commerce

With all the hype surrounding e-commerce, many companies are rushing to capitalize on this seemingly lucrative market. Unfortunately, in their haste to reap this benefit, many companies have skipped forming an e-commerce strategy in favour of first building their Web site (Saban 2001). Evidence of this has surfaced in the following studies:

  • Cutter Consortium noted that 65 percent of companies did not have an overall e-commerce strategy and nearly one-quarter said they lacked even a basic business and implementation plan for e-commerce. Furthermore, nearly one-third of these companies did not know when they might have a plan in place (Booker 1999).
  • Deloitte and Touche found that 70 percent of retailers with a Web presence consider their online store to be “strategic”. However a majority have set up Web operations with no clearly articulated strategy. They were merely “testing the waters to gauge Internet demand” (Spiegel 2000).
  • Forrester Research observed that many companies had already created e-commerce groups but they were struggling with issues like funding, accountability and reporting relationships (Spiegel 2000).
  • Business Communications Review discovered that only 33 percent of their subscribers had an e-commerce plan. 45 percent were still working on having a plan in place while the remaining have never constructed a plan (Ritter and Walker 1999).

Every business should have an e-commerce strategy (Bartels 2000, Haraburda 2000). An effective e-commerce strategy requires a comprehensive, yet flexible strategic planning process (Saban 2001). Thus our second research question Q2 attempts to verify if local organizations plan their e-commerce initiatives in a strategic manner. To address this, a review was made of the authors (Amor 2002, Kalakota and Robinson 1999, Kleindl 2003, Rayport and Jaworski 2003, Turban et al. 2004, Ware et al. 1998) who studied the planning behaviour of successful e-commerce companies. Four common, interrelated planning components surfaced: goal formation, strategy development, resource deployment and outcome metrics (see figure 2.8).

(1)Goal Formation

Goal formation involves the development of a plan for the effective management of a new business activity. Goals not only crystallize the importance of a new business activity, but also provide a basis for determining what it is to contribute (Ware et al. 2000). E-commerce goals can take one of three forms (Goldberg and Sifonis 1998, Useem 1999):

  • Transformational goals, which focus on altering the way the company does business
  • Productivity goals, which focus on process improvement or cost cutting
  • Effectiveness goals, which focus on revenue generation

Whichever goal(s) an organization chooses, it has to be clearly defined. More importantly, these goals have to be derived from the organization’s corporate goals. E-commerce strategies which are consistent with the organization’s goals encourage everyone to pull in the same direction. This results in the formation of an organization that is greater than the sum of its parts.

(2)Strategy Development

Strategy development is the means to achieve the organization’s goals. It can take one of two forms: competitive strategy and cooperative strategy (Saban 2001). The former involves a direct frontal assault of a competitor such as Barnes and Noble’s reaction to the entrance of Amazon.com. In the latter case, the organization is geared to halting competitive entry into a market through e-ventures, e-partnerships and e-alliances (Turban et al. 2004).

According to Thompson et al. (2003) and as cited by Tribunella (2001), a winning strategy distinguishes itself from a mediocre one through the following characteristics:

  • Goodness of fit. The strategy has to be well-matched to industry and competitive conditions, the best market opportunities, and other aspects of the external environment. At the same time, it has to be tailored to the company’s resource strengths and weaknesses, competences and competitive capabilities.
  • Sustainable competitive advantage. A winning strategy enables the company to achieve a sustainable competitive advantage.
  • Improve company performance. A winning strategy can either boost company profits and financial strength or increase its competitive strength and market standing.

(3)Resource Deployment

The third component is resource deployment. It is important to ensure that the appropriate organizational resources in terms of human, financial, technological, managerial or knowledge-based assets are set aside (Stuart 1999). For example, the necessary funding has to be made available; hardware has to be purchased and software has to be licensed, purchased or written.

A Web (project) team has to be formed. The purpose of the Web team is to align business goals and technology goals to implement a sound e-commerce plan with the available resources. A Web team needs individuals who are knowledgeable about the technology that is required, as well as employees who are familiar with business information and data, and how they should be structured and delivered (Turban et al. 2004).

Goldberg and Sifonis (1998) warn about the dangers of assuming that the company’s current staff can carry out the full load of developing and managing a Web site. This is because e-commerce requires a specific skill set in such areas as changing technologies, security, infrastructure and programming, specialists will be required inside unless the company decides to assign work to outside consultants.

(4)Outcome Metrics

The last component is outcome metrics, which evaluate the impact of the company’s e-commerce strategy on the organization’s performance. The evaluation of goals is perhaps the most crucial step in the planning process. Unfortunately, many organizations falter when developing outcome metrics because of a misconception that once the Web site is up and running, all else will take care of itself (Ware et al. 1998).

A myriad of outcome metrics are available:

  • Technical metrics for the features of a Web site include measuring download delays and navigability (Palmer 2002).
  • Financial metrics like return on investment, net payback period and quarterly profitability are typical metrics used. However they tend to suffer as they may be affected by external factors, including industry conditions, competition and the economic situation at a given time (Straub et al. 2002).
  • Non-financial metrics include measuring the number of error-prone transactions, product matches and product returns (Straub et al. 2002). They can also assess the extent to which e-commerce contributes to supplier or customer lock-in and for the click-and-mortar companies, the ease with which customers are able to move seamlessly between on- and off-line channels (Shapiro and Varian 1999, Steinfield et al. 2001).
  • Balanced metrics demonstrate the value of e-commerce in terms of contribution to the business (Luftman 2003). A balanced “dashboard”, such as the balanced scorecard approach by Kaplan and Norton (2001), enables e-commerce to highlight its value to get additional funding for future technology projects and ensures that everything aligns (Lubbe 2002).

Ideally a combination of metrics should be utilized. Monitoring performance in a single area to the exclusion of others will fail to capture what is going on across-the-board (Labovitz and Rosansky 1997). Such formal assessments have to be carried out regularly in order to be truly effective.

2.3ABOUT CORPORATE STRATEGY

Corporate strategy is fundamental and determinant in affecting the performance of the organization. A well-developed corporate strategy brings immense benefits to the organization while major errors in corporate strategy may result in undesirable consequences, possibly risking the organization’s survival (Lynch 2000).

2.3.1Defining Corporate Strategy

Like e-commerce, there are also many definitions of corporate strategy. Originally, the term was used to describe the pattern of decisions that determined a company’s goals, produced the principal policies for achieving these goals, and determining the range of businesses the company was to pursue (Andrews 1971). Taken literally, this would mean that corporate strategy addressed any and every strategic issue facing the company (Collis and Montgomery 2005).

Over time, a distinction came to be made between corporate-level strategy and business-level strategy (Lynch 2003). At the general corporate or headquarters level, the strategy is concerned with the overall purpose and scope of the organization and how value will be added to the different parts (business units) of the organization. Business-level strategy, on the other hand, is about how to strengthen the market position and build a sustainable competitive advantage (Thompson et al. 2006). Although this distinction led to the development valuable analytical frameworks and techniques that were applicable to each strategy level, it also downplayed the many important areas of overlap between the two, and impeded their integration. Therefore this study will adopt a more inclusive definition of corporate strategy based on the resource-based approach by Collis and Montgomery (2005):

“Corporate strategy is the way a company creates value through the configuration and coordination of its multi-market activities” (p.8)

2.3.2E-Commerce within the Overall Strategic Framework

Historically, the e-commerce strategy was often viewed as a subset of the information system (IS) or information technology (IT) strategy, which in turn was a subset of the organization’s corporate strategy (see Figure 2.9) (Whiteley 2000). This provided the alignment and synergy that were crucial for making headway in a difficult business environment.

However, for many organizations, e-commerce has wider applications than being just another IT system. E-Commerce is often seen as a technology for strategic IS and is becoming an essential component in the formulation of the overall organizational strategy (Whiteley 2000). A recent study by Zhuang and Lederer (2006) can attest to this. In their study to examine the effects of human, business, and e-commerce technology resources on firm competitiveness, it was found that only business and e-commerce technology resources were able to predict e-commerce performance, which in turn, predicted the performance of the firm.

(1)Leveraging Complementary Resources

It has to be noted that merely adopting e-commerce does not ensure competitive advantage. This is because the technologies utilized are open and available to competitors (Carr 2003, Lord 2000). Investments in IT and e-commerce initiatives do not bear economic value directly. Value is created through the interaction of the IT assets with the “complementary resources” of the firm (Clemons and Row 1991).

Figure 2.10 shows the Corporate Strategy Triangle. According to Collis and Montgomery (2005), resources are the assets, skills and capabilities of the firm. IT assets, including e-commerce technology are important resources because they are part of the critical building blocks of strategy. Together with the other resources of the organization, they determine not what the firm wants to do, but what it can do. When aligned together with the “businesses” and “organizations” in pursuit of a vision and motivated by appropriate goals and objectives, the organization can achieve a corporate advantage (Collis and Montgomery 2005).

Other authors advocating this concept also believe that an organization needs to be able to mobilize its IT resources in conjunction with other resources to achieve superior performance (Bharadwaj 2000, Kivijäryi and Saarinen 1995, Li and Ye 1999). Therefore, an organization that includes e-commerce in its strategic orientation would be more likely to leverage complementary resources and achieve efficiency and effectiveness benefits. In other words, “failure to recognize e-commerce as a part of corporate strategy is more likely to result in isolated initiatives or responses to competitive pressures that are less likely to leverage the full complement of organizational resources” (Chang et al. 2003, p.665).

(2)Anticipated Benefits of E-Commerce

For e-commerce to gain strategic value and become an integral part of the organization’s overall strategy, it is important to understand the anticipated benefits that prompted the organization to implement it (Lederer et al. 1997). Currie (2000) highlighted four different groups of cost/performance benefits of e-commerce:

  • The first group of benefits is based on a reduction of external and internal communication expenses such as speeding up business processes and reducing administrative tasks.
  • The second group of benefits talks about the revenues generated either from the current business or new initiatives.
  • The third group of benefit refers to tangible benefits like reduced costs and more flexible working practices.
  • The last group of benefit relates to intangible benefits such as enhanced competitive positioning and improved customer relationship.

However Piris et al. (2004) argues that not all the above-mentioned benefits have equal strategic value. Some are more crucial for strategy than others. In their study of six different organizations, it was observed that companies with a strategic perception of e-commerce considered its greatest benefits to be improved customer services, speeding up of business/administrative processes and increased communication with customers. The last two reasons were directly related to improving customer service and adding value to the product offering rather than increasing sales. This concurs with our earlier comments that e-commerce is about improving efficiency and effectiveness, not revenue generation.

(3)Executives’ Perceptions

Executives tend to rely on their perceptions in determining whether or not a particular IT investment creates value for the firm (Tallon et al. 1998, 2000). The same can be said of e-commerce, where managers’ perception of its strategic value influences its adoption within the organization (Busch et al. 1991, Grandón and Pearson 2004, Jarvenpaa and Ives 1991). Parker et al. (1988, p.2) and as cited by Subramanian and Nosek (2001) has noted that “management use their own value system and act as interpreters of the organization’s value system in judging cost, benefits and risk during resource allocation decisions”. Thus executives’ perception is a double-edged sword that can facilitate or hinder the adoption of e-commerce as a strategic organizational initiative. This is also the rationale behind research question Q3 – executives’ perception of e-commerce.

When executives perceive e-commerce as being critical to the success of the organization, they will be more willing to provide the necessary funding and resource for its related activities. Equally important is that these people need to have a vested interest in the successful outcome of the e-commerce strategy undertaken. This type of support inspires other members of the organization to develop the commitment necessary to succeed. Without it, an e-commerce project may suffer as a result of insufficient resources. According to a research by General Management Technologies (GMT), adequate funding and executive involvement are essential keys to success (Fitz-Enz 2001). The larger the budget, the more top executives personally supported the program, the higher the incidence of success. In fact, executive support is often prescribed as critical for fully tapping the benefits of IT (Jarvenpaa and Ives 1991).

On the other hand, a less than strategic perception of e-commerce can hinder the organization’s efforts to achieving strategic success in the field. For example, managers may have insufficient awareness of the potential gains of this type of transactions or they may have a deficient strategic orientation of ICT management (Hollerstein and Wörter 2004). Consequently, the other members of the organization spend a good deal of their time maneuvering rather than collaborating. As Fitz-Enz (2001, p.207) commented, “Everyone salutes, but few march, and fewer charge”.

Nevertheless by virtue of their seniority within the organization, it is still believed that executives are in an ideal position to identify how and where e-commerce can create value for the business (Tallon et al. 2000).

2.3.3Strategic Planning in Organizations

Most organizations do not handle strategic planning well (Gray 1986). Although Gray’s research was carried out in the mid 1980s, the problems he found with regards to planning in organizations appeared to be still prevalent in business today. The main problems cited ranged from the lack of preparation on the part of managers involved to vaguely formulated goals and inadequate linkages of the strategic plans with other control systems. Strategic planning was not always carried out. In instances where it was carried out, it was often done in a very piecemeal fashion. The planning would be long-winded, tedious and would usually degenerate into financial planning, more accurately referred to as “budgeting”. On top of that, the strategic plan would usually be developed with little review or analysis before being placed on a shelf for display purposes. In the meantime, the organization carried on with its daily activities, many of which, may not have much in common with the strategic plan (Farrell 2003).

Chan et al. (1998) had similar comments regarding the ways in which organizations plan their business:

“All organizations have strategies, although not all organizations have formalized strategies. Some write their strategy down, some just talk about their strategy, while others never even mention the word.” (p.273)

The research of Luftman and Brier (1999), Pant and Hsu (1999) and Reich and Benbasat (1996) have shown that an organization’s corporate objectives have to be clear, concise and cover all aspects of the organization’s business. Otherwise it is unlikely that their IT and e-commerce initiatives can be successfully aligned with the objectives. The purpose of this study, however, is not to measure the quality or success of an organization’s corporate objectives but to assume that they would at least be adequate and thus provide a point of reference to which organizations can link their e-commerce initiatives.

2.4ALIGNING E-COMMERCE WITH CORPORATE STRATEGY

In this study, alignment can be seen as the process of developing e-commerce initiatives in support of the vision, goals and objectives of the organization. To create a state of perfect alignment, it is necessary to have a clear and shared understanding of the nature of alignment. Otherwise, “we may take actions, with the best of intentions, that instead of helping us escape our strategic quagmire, entangle us deeper in the misalignment tar pit” (Boar 1994, p.14).

The basic notion of alignment is that when things are in a state of alignment,

“… … they naturally and harmoniously work together to accomplish a common end. There is neither friction nor drag between them; they perfectly complement and reinforce each other. Alignment has the basic property that those things in a state of alignment combine effortlessly as though they were one.” (Boar 1994, p.14)

In smaller organizations, where there are fewer business functions and communication is often easier, alignment can occur more easily. In larger organizations, greater effort has to be taken to make this “linkage” stick (Cunningham 2002).

2.4.1Importance of Alignment

Growth of the Internet has led to the birth and evolution of electronic commerce. E-commerce has now become a key component of many organizations in the daily running of their business. Various authors have written entire books about e-commerce strategy (Cunningham 2002, Plant 2000). However, a discussion of the link between e-commerce and corporate strategy is conspicuously absent from these literatures. For e-commerce activities to add value to the organization, they must be “strategic”, that is, facilitate the overall organizational strategy.

For example, BASF, one of the world’s leading chemical companies, posted e-commerce sales of approximately €2.65 billion in the first half of 2004. This corresponds to a 70 percent increase compared with the same period of 2003 (BASF 2004). The company’s head of Competence Center Information Services, Andrew Pike, has attributed the company’s success to its e-commerce structure. “E-co


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