Study On Disintermediation And Reintermediation By E Business Management Essay

1933 words (8 pages) Essay

1st Jan 1970 Management Reference this

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Disintermediation involves the removal of intermediaries such as distributors or brokers that formerly linked a company to its customers and reintermediation involves the creation of new intermediaries between customers and suppliers providing services such as supplier search and product evaluation [Chaffey, Dave 2009]

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The purpose of this study is to investigate disintermediation and reintermediation by E-business. The main focus area of the report is based on the impact of this topic upon the travel industry. The importance of disintermediation and reintermediation by E-business in the travel industry is discussed in the report, which has allowed an insight to the impact of this topic on business organisation such as travel agencies. There are a number of critical issues and challenges related to this topic which have been identified with reference to past research which has been carried out. Both reintermediation and disintermediation are results of the dynamic nature of the internet.

Importance of Disintermediation and Reintermediation by E-Business

The emergence of new technologies for electronic commerce on the internet makes possible different ways of interacting for all the players in a market (Whinston, Stahl and Choi, 1997). The internet is having an impact on organizations in a number of industries, in a positive way as well as a negative way. The travel industry is an industry highly affected by e-business. The travel industry has undergone a process of disintermediation and re-intermediation where the traditional travel distribution channels composed of small travel agencies have been replaced by a new generation of giant virtual travel ventures based on innovative online business models and backed up by advanced information technology (yeung & law,2004).

Two main types of events can occur by e-business which is disintermediation and reintermediation. Both events are important considerations for organizations as they can both change the nature of the transaction process. Disintermediation and reintermediation are important issues in supply chain management within the industry as they both affect the intermediaries in the supply chain. Disintermediation eliminates intermediaries of a supply chain and reintermediation adds new elements to the supply chain. Both events are also important consideration for organizations in the travel industry such as travel agencies and tour operators.

According to Clemons et al. (2000), the reasons for the interest in disintermediation are clear:

(i) Agencies have a higher degree of independence than airlines would prefer, leading them to serve the interests of customers, or their own interests, rather than the interests of those whose products they are distributing

(ii) Agencies and retailers have increasing power as the information control point in the distribution channel;

(iii) Airlines in particular have determined that agencies no longer represent low cost distribution. Disintermediation-as a vision or an outcome-does not originate exclusively from the direct bypass threats brought about by e-commerce

Impact of Disintermediation and Reintermediation by E- business on business organisations

Changes in the industry over the past years have dramatically altered the nature and value of information in the travel industry and consequently, the role of travel agencies.

Disintermediation and reintermediation have a significant impact on business organizations such as travel agencies, which exist primarily as intermediaries between suppliers of travel services. The role of travel agencies is to provide customers with not physical products but with information. Due to the huge widespread of the internet, many airlines and other travel companies have started to sell directly to passengers. As a result of this, airlines no longer need to pay commission to travel agencies for tickets which have been booked through them. This has disintermediated several travel agencies and they have now resorted to charging fees for their services and broadening the scope of services. Travel agencies must understand these changes and adapt their business way of thinking to the needs of tomorrow’s travelers. Airlines provide customers with the service of booking and planning their travel through their websites, however, they are not as informative and global as intermediaries. Therefore they do not offer consumers the convenience for a complete travel package that can be booked online. Re intermediation of services in the travel industry have been made possible by the expansion of business-to-business information exchange via the internet and enabling value added networks to deliver convenience and efficient service to the end user (Palmer, Adrian and McCole, Patrick 1999).

Research carried out by a Delphi Panel 1997-1998 discusses how the panel forecast that major disintermediation and reintermediation will occur and that there would be a sharp reduction in the number of traditional travel agents five and ten years in the future. The panel also identified a number of strategic threats and opportunities for the channel participants. (D.J. McCubbrey and R.G. Taylor). A follow up to the earlier Delphi study shows the actual vs predicted results; the panel estimated that the total number of travel agency entities would drop from some 22,806 in the US in 1997 to 17,030 in 2002. The panel also estimated that by 2002, traditional travel agencies would account for 58.9% of the total market share. However, in 2002 only 47% of air travels in North America was booked through a traditional travel agency (Holly & Michaels 2003), this indicated that the panel underestimated the impact of online direct markets and cybermediaries.

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There are a number of potential strategies firms can adopt for disintermediation and Reintermediation. New internet focused competitors can use a variety of strategies to attain competitive advantage in the short run, and maintain competitive parity in the long run. However, there are very few strategies that will provide sustainable competitive advantage. Instead, competitive success depends on how well these internet intermediaries can use their first mover advantages as new entrants to gain a head start in the incumbents, and then leverage these strategies for longer term gains. (Chircu and Kauffman 1999)

A national mail survey was also conducted to investigate the plausibility of the disintermediation hypothesis in travel by drawing on consumer intention data. The data revealed that consumers plan to abandon traditional travel agencies as they would like to take a more direct approach- disintermediation. And the other half of the consumers who participated in the survey indicated that they use the internet as a communicational channel to traditional travel agencies- reintermediation (Anckar, Bill 2003).

Critical issues or challenges related to Disintermediation and Reintermediation by E-business

Many scholars and industry experts have looked upon the supposition of elimination of middleman with strong scepticism, but most would probably agree that traditional high street travel agencies are, if not threatened by the new possibilities offered by the internet, at least face with a need to refocus (Anckar, Bill 2003).

Traditionally, the travel industry focused on the travel agency sales channel. Travel agencies allowed customers to purchase travel tickets or gather holiday information through the agencies. The use of e-commerce has obviously caused this to change as customers have now discovered that they can search travel destinations and even purchase airline tickets online. Popular sites such as Expedia, Travelocity and Preview Travel offer point and click results to the customer’s home or office.

The main issue with the disintermediation and reintermediation is that suppliers feel they no longer need intermediaries to sell their products. Direct marketing on the internet by suppliers is disintermediating traditional intermediaries’ business. Using information technology to develop and tighten supply chain relationships can reduce costs and bring higher quality travel products to the market. This technology can also contribute to minimizing transaction costs, lowering uncertainty, sharing market information and aiding in distribution channel efficiency. Providing computer systems that integrate travel business with suppliers, distributors, and retailers is the crucial first step towards developing a successful e-commerce business model (Loborec, Vesna 2008). Now suppliers rely on GDS systems (Global Distribution Systems) for connecting their products to travel agencies networks, which allow them to distribute to the final consumer.

Travel agencies can use the internet as a tool rather than seeing it as a threat by collecting and researching information and accessing links to new business partners, suppliers and services. I.T has become a vital competitive advantage for travel agencies, as they use ecommerce development strategies to retain performance advantages. Therefore, e-commerce creates opportunities for the re-intermediation of the on-line travel agency (Chiu, Paul, April 2006).

When deciding to reintermediate, there are several critical factors which need to be considered which may affect the outcome, such as: Strategic uncertainty, short term expectation and long term result, conversation process and individual resistance.

Conclusion

Overall, traditional travel agencies need to sustain their position in the market by reintermedating and refocusing their business strategies in the emerging market place. The research carried out offers a new perspective and insight in to widespread of e-commerce. Future research should be carried out on a management strategic perspective of how companies can adapt to e-commerce, providing strategic options available to the firms. The effects of disintermediation and reintermediation are being felt in several other industries, such as music, financial services and real estate. The music industry is also highly affected by the development of information technologies, for example retail music stores such as HMV’s are finding revenue streams for music cds being low. The main reason for this is that consumer can get them cheaper online, such as iTunes and Netflix. Firms in these types of traditional channels would have been well served if they noticed trends in other industries. Failure to anticipate the impact that e-business can have on traditional models should not be lost by managers and IT practitioners in any industry. Therefore this relies on research to be carried out which can show technology trends in all types on industries, so firms can develop innovative ideas to expand their products and provide customers with satisfaction.

In summary, disintermediation and reintermediation can be seen as a positive impact as well as a negative impact depending on the type of industry the intermediaries are operating in. the travel distribution chain has traditionally been heavily dependent on middleman, the travel industry has been hypothesized to be among the first sectors to experience disintermediation on a large scale as a result of e-commerce. Internet travel services such as e-mail booking services are promoters of reintermediation and online self booking systems are promoters of disintermediation.

Disintermediation involves the removal of intermediaries such as distributors or brokers that formerly linked a company to its customers and reintermediation involves the creation of new intermediaries between customers and suppliers providing services such as supplier search and product evaluation [Chaffey, Dave 2009]

The purpose of this study is to investigate disintermediation and reintermediation by E-business. The main focus area of the report is based on the impact of this topic upon the travel industry. The importance of disintermediation and reintermediation by E-business in the travel industry is discussed in the report, which has allowed an insight to the impact of this topic on business organisation such as travel agencies. There are a number of critical issues and challenges related to this topic which have been identified with reference to past research which has been carried out. Both reintermediation and disintermediation are results of the dynamic nature of the internet.

Importance of Disintermediation and Reintermediation by E-Business

The emergence of new technologies for electronic commerce on the internet makes possible different ways of interacting for all the players in a market (Whinston, Stahl and Choi, 1997). The internet is having an impact on organizations in a number of industries, in a positive way as well as a negative way. The travel industry is an industry highly affected by e-business. The travel industry has undergone a process of disintermediation and re-intermediation where the traditional travel distribution channels composed of small travel agencies have been replaced by a new generation of giant virtual travel ventures based on innovative online business models and backed up by advanced information technology (yeung & law,2004).

Two main types of events can occur by e-business which is disintermediation and reintermediation. Both events are important considerations for organizations as they can both change the nature of the transaction process. Disintermediation and reintermediation are important issues in supply chain management within the industry as they both affect the intermediaries in the supply chain. Disintermediation eliminates intermediaries of a supply chain and reintermediation adds new elements to the supply chain. Both events are also important consideration for organizations in the travel industry such as travel agencies and tour operators.

According to Clemons et al. (2000), the reasons for the interest in disintermediation are clear:

(i) Agencies have a higher degree of independence than airlines would prefer, leading them to serve the interests of customers, or their own interests, rather than the interests of those whose products they are distributing

(ii) Agencies and retailers have increasing power as the information control point in the distribution channel;

(iii) Airlines in particular have determined that agencies no longer represent low cost distribution. Disintermediation-as a vision or an outcome-does not originate exclusively from the direct bypass threats brought about by e-commerce

Impact of Disintermediation and Reintermediation by E- business on business organisations

Changes in the industry over the past years have dramatically altered the nature and value of information in the travel industry and consequently, the role of travel agencies.

Disintermediation and reintermediation have a significant impact on business organizations such as travel agencies, which exist primarily as intermediaries between suppliers of travel services. The role of travel agencies is to provide customers with not physical products but with information. Due to the huge widespread of the internet, many airlines and other travel companies have started to sell directly to passengers. As a result of this, airlines no longer need to pay commission to travel agencies for tickets which have been booked through them. This has disintermediated several travel agencies and they have now resorted to charging fees for their services and broadening the scope of services. Travel agencies must understand these changes and adapt their business way of thinking to the needs of tomorrow’s travelers. Airlines provide customers with the service of booking and planning their travel through their websites, however, they are not as informative and global as intermediaries. Therefore they do not offer consumers the convenience for a complete travel package that can be booked online. Re intermediation of services in the travel industry have been made possible by the expansion of business-to-business information exchange via the internet and enabling value added networks to deliver convenience and efficient service to the end user (Palmer, Adrian and McCole, Patrick 1999).

Research carried out by a Delphi Panel 1997-1998 discusses how the panel forecast that major disintermediation and reintermediation will occur and that there would be a sharp reduction in the number of traditional travel agents five and ten years in the future. The panel also identified a number of strategic threats and opportunities for the channel participants. (D.J. McCubbrey and R.G. Taylor). A follow up to the earlier Delphi study shows the actual vs predicted results; the panel estimated that the total number of travel agency entities would drop from some 22,806 in the US in 1997 to 17,030 in 2002. The panel also estimated that by 2002, traditional travel agencies would account for 58.9% of the total market share. However, in 2002 only 47% of air travels in North America was booked through a traditional travel agency (Holly & Michaels 2003), this indicated that the panel underestimated the impact of online direct markets and cybermediaries.

There are a number of potential strategies firms can adopt for disintermediation and Reintermediation. New internet focused competitors can use a variety of strategies to attain competitive advantage in the short run, and maintain competitive parity in the long run. However, there are very few strategies that will provide sustainable competitive advantage. Instead, competitive success depends on how well these internet intermediaries can use their first mover advantages as new entrants to gain a head start in the incumbents, and then leverage these strategies for longer term gains. (Chircu and Kauffman 1999)

A national mail survey was also conducted to investigate the plausibility of the disintermediation hypothesis in travel by drawing on consumer intention data. The data revealed that consumers plan to abandon traditional travel agencies as they would like to take a more direct approach- disintermediation. And the other half of the consumers who participated in the survey indicated that they use the internet as a communicational channel to traditional travel agencies- reintermediation (Anckar, Bill 2003).

Critical issues or challenges related to Disintermediation and Reintermediation by E-business

Many scholars and industry experts have looked upon the supposition of elimination of middleman with strong scepticism, but most would probably agree that traditional high street travel agencies are, if not threatened by the new possibilities offered by the internet, at least face with a need to refocus (Anckar, Bill 2003).

Traditionally, the travel industry focused on the travel agency sales channel. Travel agencies allowed customers to purchase travel tickets or gather holiday information through the agencies. The use of e-commerce has obviously caused this to change as customers have now discovered that they can search travel destinations and even purchase airline tickets online. Popular sites such as Expedia, Travelocity and Preview Travel offer point and click results to the customer’s home or office.

The main issue with the disintermediation and reintermediation is that suppliers feel they no longer need intermediaries to sell their products. Direct marketing on the internet by suppliers is disintermediating traditional intermediaries’ business. Using information technology to develop and tighten supply chain relationships can reduce costs and bring higher quality travel products to the market. This technology can also contribute to minimizing transaction costs, lowering uncertainty, sharing market information and aiding in distribution channel efficiency. Providing computer systems that integrate travel business with suppliers, distributors, and retailers is the crucial first step towards developing a successful e-commerce business model (Loborec, Vesna 2008). Now suppliers rely on GDS systems (Global Distribution Systems) for connecting their products to travel agencies networks, which allow them to distribute to the final consumer.

Travel agencies can use the internet as a tool rather than seeing it as a threat by collecting and researching information and accessing links to new business partners, suppliers and services. I.T has become a vital competitive advantage for travel agencies, as they use ecommerce development strategies to retain performance advantages. Therefore, e-commerce creates opportunities for the re-intermediation of the on-line travel agency (Chiu, Paul, April 2006).

When deciding to reintermediate, there are several critical factors which need to be considered which may affect the outcome, such as: Strategic uncertainty, short term expectation and long term result, conversation process and individual resistance.

Conclusion

Overall, traditional travel agencies need to sustain their position in the market by reintermedating and refocusing their business strategies in the emerging market place. The research carried out offers a new perspective and insight in to widespread of e-commerce. Future research should be carried out on a management strategic perspective of how companies can adapt to e-commerce, providing strategic options available to the firms. The effects of disintermediation and reintermediation are being felt in several other industries, such as music, financial services and real estate. The music industry is also highly affected by the development of information technologies, for example retail music stores such as HMV’s are finding revenue streams for music cds being low. The main reason for this is that consumer can get them cheaper online, such as iTunes and Netflix. Firms in these types of traditional channels would have been well served if they noticed trends in other industries. Failure to anticipate the impact that e-business can have on traditional models should not be lost by managers and IT practitioners in any industry. Therefore this relies on research to be carried out which can show technology trends in all types on industries, so firms can develop innovative ideas to expand their products and provide customers with satisfaction.

In summary, disintermediation and reintermediation can be seen as a positive impact as well as a negative impact depending on the type of industry the intermediaries are operating in. the travel distribution chain has traditionally been heavily dependent on middleman, the travel industry has been hypothesized to be among the first sectors to experience disintermediation on a large scale as a result of e-commerce. Internet travel services such as e-mail booking services are promoters of reintermediation and online self booking systems are promoters of disintermediation.

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