Electronic Commerce: Definition, Theory, and Context ROLF T. WIGAND Graduate Program In Information Resources Management School of Information Studies Syracuse University Syracuse, New York, USA Electronic commerce is a relatively new concept that crept into the business vocabulary during the 1970s. A picture of electronic commerce is emerging in which the Internet will become the essential dial-tone for conducting business by the year 2000. This contribution addresses definitional, theoretical and contextual issues including the nature, drivers, enablers, and the magnitude of electronic commerce. The author discusses the role of electronic markets, the effects of information technology on electronic commerce, interactivity, and the evolution of disintermediation to reintermediation. A definition and typology of electronic commerce are offered. Theoretical and conceptual approaches to electronic commerce are advanced in terms of (1) transaction cost theory, (2) marketing, (3) diffusion, (4) information retrieval, and (5) strategic networking. Lastly, the author poses the question of how electronic commerce adds value. Keywords adding value, diffusion, disintermediation, EDI, electronic commerce, electronic markets, enablers, information retrieval, interactivity, marketing, organizational fit, reintermediation, stragetic networks, transaction cost theory
Modern communication and information technologies can enable change in organization structures and business processes, and they influence the competitive advantage of firms. Under their influences markets gain increasing importance as a coordination form. But also events within the market and market structures are experiencing changes due to the increasing utilization of modern telecommunication media. The drivers, nature, and magnitudes of these changes are the focal points and enablers of electronic commerce and are addressed in this contribution. Electronic commerce is a relatively new concept and has crept into the business vocabulary no sooner than the 1970s. We encounter many economic activities that find electronic support. The literature and trade press tend not to delineate clearly among ª electronic business,º ª electronic commerce,º ª electronic markets,º and related terms. Maybe we should not be surprised, as the field of electronic commerce and organizational processes is subject to fast and often dramatic and externally induced technological changes. The widespread use of personal computers, coupled with the proliferation of telecommunication networks and the Internet, as well as their joint integration, has made paper-free trading a reality, even for common citizens. Received 3 September 1996; accepted 8 November 1996. The author gratefully acknowledges support for research received from Rome Laboratory, Rome, NY and the Volkswagen Foundation, Wolfsburg, Germany which contributed to this article. Address correspondence to Professor Rolf T. Wigand, PhD, Director of Graduate Program in Information Resources Management, School of Information Studies, 4-293 Center for Science and Technology, Syracuse University, Syracuse, NY 14244-4100, USA. E-mail:
[email protected]
1 The Information Society, 13:1±16, 1997 Copyright 1997 Taylor & Francis 0197-2243/97 $12.00 + .00
2
R. T. Wigand
Broadly speaking, electronic commerce includes any form of economic activity conducted via electronic connections. The bandwidth of ª electronic commerceº spans from electronic markets to electronic hierarchies and also incorporates electronically supported entrepreneurial networks and cooperative arrangements (electronic networks). The market coordination mechanism is their common characteristic. Services within the tourism, finance, or insurance industries, but also product distribution and customer services, are typical fields of application. Delineating among differing forms of electronic markets becomes even more difficult, as:
· Organizational boundaries change or disappear and, as market coordination forms, may also find a place within organizations themselves.
· Value-added chains change, and value-added activities are newly distributed. · Customers become part of the value-added chain, and private citizens become entrepreneurs on their own. Many of the concepts and ideas presented here are based on the work of numerous authors, including Benjamin and Wigand (1995), Ciborra (1993), Coase (1937), Malone et al. (1987, 1989), Kirchner and Picot (1987), Picot (1982, 1986, 1991), Schmid (1993), Wigand (1988c, 1995a, 1995b, 1995c), Wigand and Benjamin (1995), Wigand et al. (1997), and Williamson (1975, 1979, 1985). Electronic data interchange (EDI) and electronic mail, for example, are central business tools underlying the operation of electronic commerce (Kilian et al., 1994). Yet it is impossible to trade over EDI without a contractual agreement. Both EDI and electronic mail today may be viewed as value-added network services, and they allow the user to substitute electronic forms for their paper-based counterparts. Over 45,000 firms in the United States alone exchange data electronically (Stewart, 1994, p. 78; Wigand, 1994), and more than 60% of all U.S. firms utilize some form of EDI (Wigand, 1994). Development of the Internet, as well as the World Wide Web (WWW), demonstrates business and industry’ s increasing interest in and recognition of importance of electronic commerce (Wigand, 1995a, 1995b). Solutions to buying and selling in these environments, how to handle electronic cash transactions, various security issues, and other topics are emerging. The emerging strong interest in the Internet and WWW and the accompanying frenzied trend to find a role, presence, or niche by businesses worldwide is reflected in the relevant trade literature, activity on the Internet (e.g., about 20,000 firms still join the Internet monthly within the United States alone), and attention paid at major industry conferences such as the annual Gartner Group conferences. With the advent of the Internet and WWW, a new medium has emerged whose potential is more dynamic than color printing, radio, or television. The appeal of such universal connectivity and access is driving firms to the Internet. It appears that all this focused interest, current developments, and apparent perceived importance by the business world are resulting in a perception that by the year 2000 the Internet is the universal dial-tone for conducting business. The aim of all these efforts is to conduct business electronically with millions of small and medium-sized firms and with millions of customers equipped with personal computers and a modem, as well as those who will be equipped in this fashion within the next 5 years. The WWW has become a viable part of firms’ long-range strategic plans. The Internet phenomenon is indeed a paradigm shift governing both business and information technology systems. It may take time and considerable investments, but most observers agree that there is no doubt that our computers, televisions, and some machines not yet dreamed of will one day be a two-way window to the world through which we can tweak our bank accounts,
Electronic Commerce
3
order groceries, or broadcast our own views to anyone who is willing to listen. Many of these things are already possible today, but maybe not yet in a user-friendly fashion (see, e.g., Benjamin & Wigand, 1995). The effects of these developments will be modest at first, probably more modest than has been predicted, as is usually the case with newer information technologies. Most newer information technology is used at first to replace familiar tasksÐ that is, they may perform familiar tasks better and more cheaply (Wigand, 1985). Within our economic system, electronic commerce must be seen in the context of markets. Markets are places of exchange. It is here where supply and demand meet. A market is conceived to consist of all goal-seeking firms, government agencies, or individuals producing some commodity, as well as all firms, government agencies, and individuals purchasing the commodity. Within this market, the exchange of goods and services takes place. When the market is competitive, it is characterized by (1) many buyers and sellers, (2) homogeneous products, (3) easy entrance to and departure from the market, (4) low switching costs for consumers who wish to choose among suitable goods from competing firms, and (5) the availability of perfect information. Information is an essential ingredient for the functioning of any market and is exchanged frequently between buyer and seller, such as when price information is exchanged. Perfect information denotes that consumers will have all the information (e.g., through advertising, news media) they need to make informed, rational decisions about which goods or services to purchase in the marketplace. The market is viewed aside from the hierarchy as the second basic form of coordination (Coase, 1937; Williamson, 1975, 1981a, 1981b, 1985). Between the two poles of ª marketº and ª hierarchyº one can recognize a continuum of hybrid organization forms (e.g., clan and strategic network; see Wigand et al., 1997) that offerÐ depending on differing task situationsÐ varying degrees of efficiency and, in turn, advantages. Based on efficiency reasons, the coordination form of the market lends itself well to standardized transactions of performance relationships that have little variability and are easily describable (see Wigand et al., 1997). Electronic markets, therefore, are one selected institutional and technical platform for electronic commerce.
Effects of Information Technology on Electronic Commerce Information technology is vital for a modern firm’ s optimal performance today, as it augments the firm’ s capability to coordinate business transactions within the firm, but also among firms such as between buyers and suppliers. In this context, Malone et al. (1987) identified three effects of information technology, to which Wigand (1996a) added a fourth one. All four effects may lead to reduced transaction and coordination costs: 1. The communication effectÐ Advances in information technology allow for more information to be communicated in the same unit of time, thus reducing transaction costs (Malone et al., 1987). 2. The electronic integration effectÐ A tighter electronic linkage between buyer and seller is enabled (Malone et al., 1987). 3. The electronic brokerage effectÐ An electronic marketplace where buyers and sellers come together to compare offerings (Malone et al., 1987). 4. The electronic strategic networking effectÐ Information technology (including networks) enables the design and deliberate strategic deployment of linkages and networks among cooperating firms intended to achieve joint, strategic goals to gain competitive advantage (Wigand, 1996a; see also the section on Strategic Networking). Thus the $4 billion to $5 billion home shopping market that McKinsey and other consulting firms have predicted in the United States in 2003 will involve not new retail
4
R. T. Wigand
spending, but a switch of customers from shops and catalogues to computers and interactive television (Wigand, 1996b). An additional built-in dilemma here is that these new services not only need to cover their basic costs in terms of actual service provision, but they also need to be priced such that they can recover the cost of building the network that delivers them in the first place. In essence then, the entertainment that many expect to be beamed into people’ s homes some day must not only replace the trip to the local video store, but it also must persuade customers to spend more on those pleasures than they are now. However, in the Florida video-on-demand market trials by Time± Warner, customers were unwilling to allocate additional funds to their entertainment budget. It appears that this behavioral change will come in time, especially when completely new services are being offered and applications are possible that we still have not dreamed of and when users realize the added value achieved via these services and new applications. The same was true with other technologies in history such as the steam engine.
From Disintermediation to Reintermediation It is becoming increasingly difficult to delineate accurately the boundaries of today’ s organizations. Driven by information technology’ s ability to produce even cheaper unit costs for coordination, firms are implementing new links for relating to each other. Geographic distance is often of little concern as modern telecommunication technologies perform at very high speeds. These links take many forms, such as electronic data integration, just-in-time manufacturing, electronic hierarchies and markets, strategic alliances, networked organizations, and others. The resulting new organizational forms indicate an ongoing transformation of value chains due to technological change (Benjamin & Wigand, 1995; Wigand et al., 1997). In the past such linkages among firms were enabled through the mediating roles of wholesalers, retailers, agents, distributors, brokers, warehousing operations, forwarders, and ª jobbers.º Today examples abound in which these mediating roles have been replaced or eliminated. Benjamin and Wigand (1995, p. 67) demonstrate one such example in conjunction with the purchase of a high-quality shirt acquired in three variants of value chains within the shirt industry. Other examples are electronic home shopping services such as the highly successful Peapod, the direct electronic purchase of flight tickets from airlines, the bypassing of the insurance agent when purchasing insurance, etc. This development has been labeled disintermediation and is depicted in Figure 1. Disintermediation is the displacement or elimination of market intermediaries, enabling direct trade with buyers and consumers without agents. Often suppliers and their customers are linked directly today without any intermediaries. The previous intermediary roles, sometimes called middle professions, of brokers, agents, etc. between manufacturer and buyer/consumer (see Figure 1) may be replaced by an electronic market maker or by value networks (e.g., common carriers, on-line market places), which, in turn, enable a reintermediation. Electronic markets allow firms to reach very large customer groups at very low costs (Benjamin & Wigand, 1995). Further discussion on market hierarchies will be found in the section on transaction cost theory.
A Definition and Typology of Electronic Commerce Although electronic commerce has been around for some time in the form of EDIÐ within the trucking, automotive, and financial industries, for exampleÐ when viewing this setting as a potential electronic market, one must realize that it is not understood
Electronic Commerce
5
Figure 1. Disintermediation of the market hierarchy.
well. One must also make a distinction between markets for information and a market for ordinary commodities on at least two counts (Ciborra, 1993, p. 103): On the surface, information can be considered a factor of production. Another perspective enters the picture when information itself becomes the commodity and when private markets have formed in which information can be bought and sold as a commodity. Information then takes on a more complex role as information has peculiar characteristics in that it is easily copied, transmitted, sold without destroying it, and that it is expandable, diffusive, compressible, difficult to establish property rights to at times, and sometimes it is a public good (cf., e.g., Wigand et al., 1997; Ciborra, 1993; Wigand, 1988b). The term electronic commerce is poorly understood and frequently used to denote different meanings, very often depending on the individual’ s job function, professional orientation and background, focal product or service, and type of information technology deployed. One may identify upward of 30 different technologies that individually or mutually enable electronic commerce. Electronic commerce is, of course, more than the mere use of technology. Electronic commerce denotes the seamless application of information and communication technology from its point of origin to its endpoint along the entire value chain of business processes conducted electronically and designed to enable the accomplishment of a business goal. These processes may be partial or complete and may encompass business-to-business as well as business-to-consumer and consumer-to-business transactions. Following this definition, the attempt in Table 1 identifies some criteria leading toward a typology of electronic commerce (Wigand, 1995c). These various types of electronic commerce range and ascend from one-way teleshopping broadcasts via cable and satellite television channels, via automated electronic markets, to electronic shopping on the Internet and WWW, to full-fledged electronic commerce utilizing an electronic market maker with a market choice or set-top box in the consumer’ s home. This latter stage
6
One-way only
No
No
Mainly one-way only
Yes
Yes
Yes
Yes
Note. From Wigand (1995c).
Larg ely yes
Yes and no
Automated market (A): simple, larg ely automated transactions (e.g ., EFT, EDI, SWIFT, value-added services) Automated market (B): simple transactions with some human choices/decisions required (e.g ., SABRE, APOLLO, stock market transactions) Mobile and wireless cellular phone/PCS-based applications (e.g ., construction industry) Electronic shopping (e.g ., via Internet, WWW) Full-fledg ed electronic commerce utilizing electronic market maker with market-choice box (e.g ., available in the future via 500 cable television systems, phone, maybe wireless, etc.)
One-way only
Automatized buying transactions
Yes
Buyers’ deliberate choice/decision at time of transaction
Teleshopping via television (e.g ., QVC)
Type of electronic commerce, by increasing electronic interactive capabilities
Table 1
Hig h
Hig h
Hig h
Hig h
Hig h
Limited, one-way
Deg ree of interactivity
No
No
No
Generally no
Larg ely yes
No
Buying choice/ decision made by computer/software on behalf of buyer
An electronic commerce typolog y
Yes
Yes
Yes
Yes
No
Yes
Direct buying choice/decision made by human
Hig h
Hig h
Hig h
Hig h and successful
Hig h and successful but only partially electronic Limited, only transaction and processing system
Potential for full-fledg ed electronic market
Very hig h
Hig h
Small
Medium
Small
Hig h
Role of market maker
Electronic Commerce
7
will not be very practical without the use of an effectively working intelligent agent assisting the consumer in searches, comparisons, and evaluations. It appears that in all conditions the buyer’ s deliberate choice or decision at the time of the transaction is assumed or required. Some transactions may be automatized buying transactions. Interactivity tends to be high in most electronic commerce settings. It appears also that the higher the degree of interactivity, the more perfected the electronic market might be, although one needs to realize individuals’ limits in their willingness and desire to be interactive in some settings (Dittlea, 1995). We have observed a plethora of interactive services over the last decade, ranging from on-line networks to two-way cable television to telephone-based banking and investment services. They change the way we inform, educate, work, play, manage our resources, and entertain ourselves. Such interactive services are changing rapidly how businesses connect with customers and suppliers. Moreover, interactive services can personalize the information people need and use it in a manner suiting them best (see the later discussion on liquid marketing). Interactive services are easy-to-use telecommunications-based services designed for information exchange, communication, transactions, and entertainment. Voice-based telephone information services generate more than $600 million per year in the United States. Interactive services, it appears, should encompass four essential features in order to ensure their acceptance: (1) The device or service must replace a process that is inefficient, costly or boring, (2) consumers must not be asked to choose between competing technologies, (3) consumers must not feel ª trackedº or that privacy is threatened, and (4) consumers must perceive that the use of the service (and information technology) is relatively easy and user-friendly. Table 1 suggests also that the more perfected the electronic commerce and as an electronic market, the less the buying choice or decision is automated or made by a computer or software on behalf of the buyer. In most forms of electronic commerce, a direct buying choice or decision is made by a human being, and ultimately, such as with standard EDI, this is of course always a human decision. The role of the market maker varies considerably with the various forms and types of electronic commerce. The market maker’ s most prominent role is evident when the market maker is the driver of the electronic market and can offer single-source channels, as is the case in teleshopping, electronic shopping, or the full-fledged electronic commerce situation through the use of a market choice or set-top box.
Theoretical/Conceptual Approaches to Electronic Commerce Five different approaches are advanced here through which one may view electronic commerce. 1. Transaction Cost Theory Economists have classified transactions among and within organizations as those that (a) support coordination between buyers and sellers, that is, market transactions, and those (b) supporting coordination within the firm. Figure 2 depicts a typical market hierarchy progressing from ª manufacturerº to ª wholesaler,º ª retailer,º and ª consumer.º The associated respective transaction costs are shown as well. Williamson (1981b) points out that the choice of transaction depends on a number of factors, including asset specificity, the parties’ interests in the transaction, and ambiguity and uncertainty in describing the transaction. Transactions may then be broken down into production and coordination costs (e.g.,
8
R. T. Wigand
Figure 2. Market hierarchy and transaction costs in a stepwise fashion. From Wigand (1995c).
Wigand et al., 1997; Benjamin & Wigand, 1995; Malone et al., 1987). In this context, coordination costs include the transaction (governance) costs of the information processing necessary to coordinate the work of people and machines performing primary processes (Malone et al., 1987, p. 485). Transaction costs may be viewed as the economic equivalent of friction in a physical systemÐ that is, if friction is too great, no or at least impeded movement will occurÐ suggesting that if transaction costs are high, no or little economic activity is likely to occur. These costs are comprised of the following four types:
· · · ·
Search costsÐ the cost of searching for products, sellers, and buyers Contracting costsÐ the cost of setting up and carrying out the contract Monitoring costsÐ the cost ensuring that the terms of the contract have been met Adaptation costsÐ the cost incurred in making changes during the life of the contract
Firms will choose transactions that economize on coordination costs. As information technology continues its rapid cost performance improvement, the unit cost of coordination transactions will approach zero, thus enabling the design of innovative coordination transactions to fit new business needs (Benjamin & Wigand, 1995). The ever-increasing and innovative use of the World Wide Web (WWW) to conduct business and WWW-related forms of electronic commerce are clear examples of firms’ desires to economize on transaction costs. Figure 2 suggests that transaction cost savings may be achieved through the use of information technology within the entire market hierarchy and resulting market or industry value chain. Benjamin and Wigand (1995) present an example of the purchase of a high-quality shirt with empirical cost figures clearly demonstrating actual savings in transaction costs resulting in lower purchase costs for the consumer. Moreover, this example demonstrates nicely how the potential elimination of entire levels within the mar-
Electronic Commerce
9
ket hierarchy (e.g., wholesaler, retailer) may occur. The latter is clearly observable in several markets and industries, as already mentioned in the discussion on disintermediation versus reintermediation. One may argue that with cheap coordinative transactions, interconnected networks and their strategic deployment, and easily accessible databases, there would be a proportional shift of economic activity to cheaper electronic communications channels to conduct a firm’ s business. 2. Marketing All marketing efforts are based on the basic premise that there is a specific consumer audience. Consumers are specific firms or individuals within an industry who have needs that can be filled by other firms operating within a specific market. Three main foci of orientation within the marketing effort are identified: customer orientation, product orientation, and profit orientation. A customer orientation denotes (a) an attitude and a pattern of conduct, as well as (b) the extent to which a firm tries to determine what its customers want and then gives them what they want. A product orientation is predicated on the view that consumers will recognize and appreciate products for superior merit and bestow their patronage on firms. A profit orientation denotes the clear identification of products, services, and related activities that distinguish themselves by (a) high demand among customers and (b) high levels of profitability. The basic challenge faced by a firm, then, is to identify needs and provide linkages between the firm and its customers. In order to maximize such linkages and relationships to customers, a firm needs to form hypotheses and understanding about present and potential customers, addressing such questions as:
· What affects customer behavior? · Which channels (face-to-face, advertising, WWW, publications, etc.) reach customers?
· What is the degree or strength of need or desire for the product or service? · What are the appropriate appeals (or arguments) to which customers are most responsive?
· What is the customers’ responsiveness to different types of sales devices? After these questions have been answered, the marketing dimension entails five general activities: 1. Identifying and selecting the type of customer whom the firm chooses to cultivate and learning the firm’ s requirements. 2. Designing products, know-how, and services that the firm can bring to market in conformity with customer desires. 3. Persuading customers to acquire and adopt products, know-how, and services. 4. Displaying, moving, and to some extent storing products, know-how, and services after they have been developed by the firm. 5. Identifying potential products and services and their applications. In designing products, acquiring and developing know-how, and deciding how much and what specific services to offer, firms will unquestionably benefit from having a clear picture of their target customer. Electronic commerce can provide a direct linkage, an electronic marketing and information channel, between these target customers and the firm. Considerable rethinking has occurred based on such a customer-centric perspective as it enables new forms of relationship marketing. The term liquid marketing suggests it-
10
R. T. Wigand
self as a suitable and appropriate descriptor of this evolving setting. It denotes the disintermediated, frictionless, personalized, individually accessible, customer-centric, immediate, cooperative, dynamic, rapid, fluid, computer-to-computer or -person, on-line, and interactive nature of this new form of relationship marketing. Moreover, the concept of liquid marketing is enabled by the Internet’ s use and while being interactive with those individuals within the target group: It allows for customized, almost interpersonal-like interaction, if one uses the interactive multimedia, cooperative, and feedback capabilities of the WWW, coupled with, for example, the application of such features as agents, avatars, network dynamic functions, cookies, cacheing, and the customer’ s willingness to complete profile information forms. This potential for interactivity certainly makes the medium highly attractive as requests, requirements, etc. certainly can be customized. Truly dynamic webs are expected by 1999, enabling virtual applications, logic applications, collaboration, interaction, dynamic transactions, and entertainment. Moreover, such interactivity, sometimes called interactability, makes possible the often missing feedback loop in this communication process. Feedback, in turn, allows one to shape and incrementally customize the very next step in the diffusion and communication process reflecting the target customer’ s needs (see the later discussion on diffusion). Such customization is almost impossible when viewing the diffusion process via traditional advertising as a communication channel. Future electronic commerce marketing strategies may demand that we attempt to bring in the buyers and hook them to products and services offered such that it is very difficult for customers to leave or switch, resulting in competitive advantage. 3. Diffusion Diffusion is the social process by which an innovation is communicated through certain channels over time among members of a social system (Rogers, 1995). This process clearly resembles the task at hand in the electronic commerce setting; that is, a task or transaction needs to be communicated to a set of firms or customers (members of a social system) within a market or an industry. The communication channel typically chosen for the present purposes is that of an electronic connection in the form of electronic data interchange (EDI), the use of the Internet, or the WWW. From a diffusion perspective, in which time, speed, and cost vis-‚ -vis effectiveness are of essence, such electronic diffusion means are indeed timely, cost-effective, and focused methods and channels of reaching target customers described earlier. The rate of diffusion or adoption is determined by the characteristics of the innovation (e.g., the relative advantage, compatibility, complexity, trialability, and observability). The communication channel chosen determines, in part, the likelihood of making a successful linkage with the target customer. General diffusion principles posit that, ideally, successful communication occurs in a face-to-face setting with the target audience or customer. However, this is often impracticable or too expensive. Substitutes for faceto-face settings are chosen and the mass media come into play. The use of mass media for advertising purposes is often a vague undertaking, since one cannot be sure that one’ s message truly reaches the intended target. Mass media follow a passive one-to-many communication model whereby a firm reaches many current and potential customers through efforts that allow the customer limited forms of feedback. Often a compromise between the two extremes is desirable, such as the use of the mass media, followed up by a face-to-face meeting within smaller groups, etc. The Internet and WWW facilitate an interactive multimedia, one-to-many communication model, where feedback from the customer plays an ever-increasing important role.
Electronic Commerce
11
Electronic messaging via the Internet comes close to this ideal, that is, using a costeffective one-to-many medium while still reaching specific, targeted individuals, assuming a critical mass of users of this medium. Internet and WWW capabilities require the development and application of new concepts and models for diffusing and marketing products and services. 4. Information Retrieval Firms tend to be overwhelmed with information stored in central databases, as well as dispersed documents (e.g., correspondence) in various places throughout the organization. In electronic dissemination, it is obvious that the users can readily retrieve information once the information is stored on the system. Many databases are available within firms that could be accessed through the Internet. The Gartner Group reports, for example, that firms produce 3 billion pages of printout daily in the United States alone. In 1995 600 billion report pages were produced at an estimated cost of over $30 billion. This was done to ª freezeº digital information into a form that cannot be modified or searched, loses its timeliness rapidly, and requires a massive infrastructure for storage and retrieval (Bair, 1996). At the same time, Yahoo, the WWW directory company, adds 7000 new Web sites to its directory each day. Most numeric data are already on line and are being exploited extensively by such trends as data mining for various applications. This information glut needs to be made available, if appropriate of course, in a format conducive for use by outside users, that is, customers and suppliers. The design of such information, databases, etc. often determines their successful use. In this sense, a customer or end-user orientation must be employed in the design of the system. Unless such design is inviting, encouraging, timely, informative, and user-friendly, the success of the system is highly questionable (Taylor, 1986). Text and document retrieval experts face considerable challenges by finding means to search and retrieve both structured and unstructured information on-line while making needed information available instantly whenever and wherever it is needed. Presently, we still search by going separately to several different search tools, although meta-search engines, that is, universal finders, have surfaced. It appears that one can envision a future soon in which the user enters an inquiry from a universal finder to search all enterprise databases asking common language questions such as, ª Find all sales from 1990 to present for our five top grossing products, broken down by sales region and which products and reports demanded EPA considerations.º 5. Strategic Networking Networking, that is, the deliberate design and deployment of networks enabling new organizational forms, includes all four of the preceding topics, without which networking could not take place. Networking in this sense goes beyond the traditional means of reaching the target customer. This importance was already demonstrated in an empirical National Science Foundation-funded study by Wigand within the microelectronics industry and the role of industry, government, and universities (Wigand & Frankwick, 1989). Other authors, including Ciborra (1993), Jarillo (1993), Sydow (1993), Wigand (1996a), and Wigand et al. (1997), have stressed the importance of strategic networks and collaboration. Wigand et al. (1997) emphasize strategic networks as a distinct organizational form, that is, as being separate from other organizational forms: hierarchy, market, and clan. Networks have been studied as social systems, organizations, individuals and
12
R. T. Wigand
groups, entire industries, and political and social communities (see Wigand, 1988a). In the present context they can be seen as a specific organizational form designed for the purpose of carrying out economic activities between the organizational form of ª marketº and ª hierarchy.º Under particular conditions we can label networks strategic networks, as they reflect connotations of long-term, rational importance, being proactive, selectivity, complexity, intention and coherence (Sydow, 1993, pp. 80± 81). In accordance with Jarillo (1988, p. 32; 1993, p. 149), Sydow (1993, pp. 81, 82), Wigand (1996a), and Wigand et al. (1997), strategic networks are defined here as the long-range, deliberate, cooperative, and goal-oriented organizational forms among distinct but related organizations that enable such network member organizations to gain or sustain competitive advantage vis‚-vis their competitors outside the network, by optimizing transaction costs and minimizing coordination costs. Trust is an essential element of strategic networks that developed often prior to the formation of such networks and must be viewed as an important mechanism lowering transaction and coordination costs. Ideally, all member organizations continue to add value over time through adaptation, novel applications, learning, sharing of feedback, etc., which, in turn, will determine the strategic network’ s success. This approach enables interaction with customers and suppliers that is simultaneous, almost fluid, efficient, flexible, interactive, may be collaborative, conducive to innovation, and adds value to processes and the firm. Electronic networking suggests the use of listservs, electronic bulletin boards, direct electronic inquiries, transaction-capable and interactive websites, and others.
Is Electronic Commerce Adding Value? In the often trendy striving toward the development of ever newer and better approaches for the management of organizations, firms eagerly followed one fashionable concept after another. Current movements, as well as those of the not all too distant past such as total quality management, empowerment, quality circles, or reengineering, were viewed as the all-around cure for many problems of the firm. Within such trendy developments it is becoming more and more difficult to recognize a truly rich idea with value for the future (Wigand, 1995d). Could the strong push toward electronic commerce be nothing more than just another of those trends? In the final analysis, as with the introduction of any new information technology and its applications, we must ask ourselves: Are we adding value? Recent developments seem to suggest that ideal organizational forms are gaining shape along the concept of the horizontal organization (Wigand, 1995d). This concept is based, among other factors, on the strategic determination of core processes, the redesign of work processes, and the alignment of information and communication technology with organizational goals, strategies, and core processes (Wigand, 1995d). All of these activities require that the understanding of the firm’ s own competitive position and its knowledge about possibilities to achieve necessary competitive advantage is a given. The change affects essentially the model for organization design, the functional hierarchy that was so dominant during the last half century. Moreover, core processes need to be found that not only are central to the entire firm, but that also incorporate suppliers and customers, and it makes us wonder about the actual boundaries of the firm that seem to expand increasingly. In this context, process stands in the foreground; that is, it is not what firms produce deserves focal attention here, but rather how they produce. But even when firms have identified the right processes, to build them or to change them becomes difficult and is a task not to be underestimated. Information and communication technolo-
Electronic Commerce
13
Figure 3. Adding value within the organizational fit of information technology, business processes, and goals/strategies. From Wigand (1995d).
gies play a decisive role. Their potential can only be exploited when their deployment and fit are appropriate (see Figure 3). The right alignment of processes overlaid with information and communication technologies is the basic premise for successful transformation to the horizontal organization (Wigand, 1995d). We recognize the missing immediate correlation of information and communication technology deployment and value added. Of higher importance is to pay focused attention to the business strategy or the firm’ s goals. These derived demands placed on the information technology have to be seen in conjunction with demands resulting from the concrete organization of business processes. ª Adequateº means in this context that the relationship is reciprocal: On the one hand business strategy and processes define their demands on information technology, and on the other hand information technology is the enabler for new strategies and processes. The trick is to identify the optimal point for the deployment of information and communication technologies, that is, the optimal organizational fit and alignment (Wigand, 1995d). This, unquestionably, is also true for electronic commerce. In order to achieve the appropriate organizational and strategic fit, several iterations of implementation efforts will be necessary, each followed by improvements, adaptation, and learning processes, and analogous to the self-regulatory mechanisms of a cybernetic system. When the optimal relationships among information technology, business strategies, goals, and processes have been developed, all mistakes have been corrected, and the organization has adapted to the changes, one may then and only then expect the anticipated improvements in efficiency and effectivenessÐ that is, the adding of value occurs (Wigand, 1995d). These relationships are depicted in Figure 3. Added value may be realized in various forms, such as various types of cost reductions, cycle time reductions, inventory reduction, cash flow improvement, sales increases, customer service improvements, productivity increases, opening of new marketing and distribution channels, gains in competitive advantage, and the enabling of just-in-time delivery. Aside from adequacy, the principle of innovative deployment of information and communication technology counts. Especially with regard to international competition,
14
R. T. Wigand
the deployment of information as a production factor must occur in novel and unique ways as much as possible. Ciborra (1994, p. 19) recommends for this a deliberately paradoxical procedure: that is, by following of often contradictory guidelines within existing work processes, thinking patterns and behaviors may be softened or may even be dissolved entirely. He argues that his seven paradoxes describe a new ª systematicº organizational approach in order to control the development of innovative information systems (p. 20). They are suited to enhance learning processes and creativity and to place the need for control into the background. The striving toward innovative information technology solutions on the one hand and the striving toward appropriate organizational fit on the other are the key for overcoming performance boundaries of the organization. Affected are not only the traditional boundaries of the firm with regard to geographic limitations, distances, speed, and working time, but also awareness limitations of the employees in the organization. Through the continual balancing of information technology, business goals, strategies, and entrepreneurial processes on the one hand, and the awareness about the expansion of entrepreneurial boundaries and limits on the other, it becomes possible to realize the vision of the horizontal firm. This is supported and encouraged by the steadily growing potential of information and communication technologies. It is important to view and apply current developments in electronic commerce within this context.
Conclusion The perspectives on electronic commerce presented and the implications to be drawn here are the realization that the world of economics is essentially borderless, as well as boundaryless, and those who do not see this will create more difficulties for themselves and their organizations than otherwise. Kenichi Ohmae (1991, 1995) has eloquently argued this perspective and has expressed the need to work toward a global economy and a global logic. Those organizations wishing to remain competitive and use strategy to their advantage will seek a balance among the strategic triangle, according to Ohmae, the triad region including the United States, Europe, and Japan. Almost all aspects of human existence come down to an issue of economics; whether this is good or bad is uncertain. But the fact remains that if human existence is held in the power of economy, then the national and international organizations of the world must turn their focus outward, rather than remain internally focused (Wigand, 1996b). Many of today’ s organizations focus only on those improvements that are internal and are not creating a management perspective seeking a globally united economy. A novel way of thinking must be established focusing not only on the internal, but lending itself to a better understanding of the external environment as well. In a borderless world the key is a balanced combination of both perspectives. Only those organizations that alter their outlook of management to combine both environments will remain competitive in the global market of tomorrow’ s world. Electronic commerce, it seems, will be one major contributor toward shaping this borderless and boundaryless world of economics, and, in turn, will help firms to expand markets and boundaries.
References Bair, J. 1996. How to develop an enterprise architecture for information retrieval. Paper presented to the annual Gartner Group Symposium/ITxpo ’ 96, The IT Revolution Continues: Managing Diversity in the 21st Century, Lake Buena Vista, FL, October 10.
Electronic Commerce
15
Benjamin, R. I., and Wigand, R. T. 1995. Electronic markets and virtual value chains on the Information Superhighway. Sloan Manage. Rev., winter:62±72. Ciborra, C. U. 1993. Teams, markets and systems: Business innovation and information technology. Cambridge, England: Cambridge University Press. Ciborra, C. U. 1994. The grassroots of IT and strategy. In Strategic information systems: A European perspective,eds. C. U. Ciborra and T. Jelassi, pp. 3±24. Chichester, England: Wiley & Sons. Coase, R. H. 1937. The nature of the firm. Economica 4:386±405. Dittlea, S. 1995. Interactive Illusion. Upside March:56±68. Jarillo, J. C. 1988. On strategic networks. Strategic Manage. J. 9:90±143. Jarillo, J. C. 1993. Strategic networks: Creating the borderless organization. Jordan Hill, England: Butterworth-Heinemann. Kilian, W., Picot, A., Neuburger, R., Niggl, J., Scholtes, K.-L., and Seiler, W. 1994. Electronic Data Interchange (EDI) aus ökonomischer und juristischer Sicht. Baden-Baden, Germany: Nomos. Kirchner, C., and Picot, A. 1987. Transaction costs analysis of structural changes in the distribution system: Reflections on institutional developments in the Federal Republic of Germany. J. Institutional Theoret. Econ. 143:62±81. Malone, T., Yates, J., and Benjamin, R. 1987. Electronic markets and electronic hierarchies. Commun. ACM 6:485±497. Malone, T., Yates, J., and Benjamin, R. 1989. The logic of electronic markets. Harvard Business Rev. 3:166±172. Ohmae, K. 1991. The borderless world. New York: Harper. Ohmae, K. 1995. The end of the nation stateÐ The rise of regional economics: How new engines of prosperity are reshaping global markets. New York: Free Press. Picot, A. 1982. Transaktionskostenansatz in der Organisationstheorie: Stand der Diskussion und Aussagewert. Betriebswirtschaft 2:267±284. Picot, A. 1986. Transaktionskosten im Handel: Zur Notwendigkeit einer flexiblen Strukturentwicklung in der Distribution. Betriebsberater 27(suppl. 13):2±16. Picot, A. 1991. …konomische Theorien der OrganisationÐ Ein Überblick über neuere Ansätze und deren betriebswirtschaftliches Anwendungspotential. In Betriebswirtschaftslehre und ö konomische Theorie, eds. D. Ordelheide, B. Rudolph, and E. Büsselman, pp. 143±170. Stuttgart: Schäffer-Poeschel. Rogers, E. M. 1995. Diffusion of innovations, 4th ed. New York: Free Press. Schmid, B. 1993. Elektronische Märkte. Wirtschaftsinformatik 5:465±480. Stewart, T. A. 1994. The information age in charts. Fortune April 4:75±78. Sydow, J. 1993. Strategische Netzwerke: Evolution und Organisation. Wiesbaden, Germany: Gabler Verlag. Taylor, R. S. 1986. Value-added processes in information systems. Norwood, NJ: Ablex. Wigand, R. T. 1985. Integrated communications and work efficiency: Impacts on organizational structure and power. Information Serv. Use 5:241±258. Wigand, R. T. 1988a. Communication network analysis: History and overview. In Handbook of organizational communication, eds. G. M. Goldhaber and G. A. Barnett, pp. 319±359. Norwood, NJ: Ablex. Wigand, R. T. 1988b. Fünf Grundsätze für die erfolgreiche Einführung des Informations-Managements. Information Manage. 3(2):24±30. Wigand, R. T. 1988c. Integrated telecommunications, networking, and distributed data processing. In Handbook of information systems and resource management, eds. J. Rabin and E. Jackowski, pp. 293±321. New York: Marcel Dekker. Wigand, R. T. 1994. Electronic data interchange in the United States of America: Selected issues and trends. In Electronic Data Interchange (EDI). Aus ö konomischer und juristischer Sicht, eds. W. Kilian, A. Picot, R. Neuburger, J. Niggl, K.-L. Scholtes, and W. Seiler, pp. 369± 391. Baden-Baden, Germany: Nomos Verlagsgesellschaft. Wigand, R. T. 1995a. Doing Business on the Information Superhighway: Are We Adding Value? Business J. 9(24):3±15.
16
R. T. Wigand
Wigand, R. T. 1995b. Electronic commerce and reduced transaction costs: Firms’ migration into highly interconnected electronic markets. Electronic Markets 16/17:1±5. Wigand, R. T. 1995c. The Information Superhighway and electronic commerce: Effects of electronic markets. Paper presented to the Annual Conference of the International Communication Association, Albuquerque, NM, May 25±29. Wigand, R. T. 1995d. Information technology and payoff: The productivity paradox revisited. Paper Presented to the Annual Conference of the International Communication Association, Albuquerque, NM, May 25±29. Wigand, R. T. 1996. An overview of electronic commerce and markets. Paper presented to the Annual Conference of the International Communication Association, Chicago, May 23±27. Wigand, R. T. 1997. Electronic data interchange: A transaction cost perspective. EDI Forum 10(1):60. Wigand, R. T., and Benjamin, R. I. 1995. Electronic commerce: Effects on electronic markets. J. Computer Mediated Commun.3. URL: http://www.usc.edu/dept/annenberg/vol1/issue3. Wigand, R. T., and Frankwick, G. L. 1989. Interorganizational communication and technology transfer: Industry-government-university linkages. Int. J. Technol. Manage. 4(1):63±76. Wigand, R. T., Picot, A., and Reichwald, R. 1997. Information, organization and management: Expanding markets and corporate boundaries. Chichester, England: Wiley. Williamson, O. E. 1975. Markets and hierarchies: Analysis and antitrust implications. A study in the economics of internal organization. New York: Free Press. Williamson, O. E. 1979. Transaction cost economics: The governance of contractual relations. J. Law Econ. 22:233±261. Williamson, O. E. 1985. The economic institutions of capitalism, Firms, markets, relational contracting, 11th ed. New York: Free Press. Williamson, O. E. 1981a. The modern corporation: Origin, evolution, attributes. J. Econ. Literature 19:1537±1568. Williamson, O. E. 1981b. The economics of organization: The transaction cost approach. Am. J. Sociol. 87(3):548±577.
