Seideman, T. (1996), âWhat Sam Walton Learned form the Berlin Airliftâ, Audacity: The Magazine of. Business Experience, Spring, pp. 52-61. 40. Teas, R. K. ...
The impact of E-Commerce on B2B Services Ying Yang, Paul Humphreys and Ronan McIvor Ulster University, UK
Abstract Beyond the discussion of technology in e-commerce, we argue that at its heart, e-commerce is all about services to increase collaboration among business companies. This paper is concerned with the impact of e-commerce on business-to-business (B2B) services. While researchers recognise that e-commerce effectively reduces the costs and improves the efficiency, here we focus on the valueadded services via e-commerce to improve the business collaboration. We review the evolution of information technology in relation to e-commerce (such as EDI and Internet), and investigate the role of electronic intermediaries in B2B services. We also discuss the joint applications of Extranet and Intranet to offer high quality services and temper them with business strategies for further collaboration in today’s competitive environment. An effort in this paper is made to propose a theoretical model through a comprehensive literature view, serving as a foundation for our future research on improving B2B collaboration services in e-commerce environment.
Keywords: Business-to-Business, B2B services, E-commerce, Electronic Intermediaries
1. Introduction Traditionally, the concept of e-commerce has been associated with providing information, expressing brand awareness and telling the corporate story. More recently it is used for online sales transactions and the distribution in a growing number of companies (de Ruyter et al., 2001). E-commerce is not just about buying and selling goods electronically and it may also involve delivering services by using network communications technology to engage in a wide range of activities up and down the supply chain both within and outside the company to increase the business collaboration (Applegate et al., 1996). In the recent times, the most experienced and successful companies employing e-commerce are beginning to realize that the key determinants of success or failure are not merely web presence or low price but instead delivering services (Zeithaml, 2002). The service and customer satisfaction has been recognized as a key attribute to business success. Service has then been receiving increasing attention from both practitioners and researchers. The main literature on it can date from the 1980s (e.g. Grönroos, 1982; Parasuraman et al., 1985 and 1988; Cronin and Taylor, 1992 and 1994; Teas, 1993). Research concerning service has been carried out mostly in consumer marketing and service industries related to individual consumer, e.g. banking, travel and financial services. Scarcer still is research which utilises the SERVQUAL instrument- one of the most popular service quality measurement instrument in B2C marketing, as a means of measuring perceived service quality in business marketing. However, it has been assumed, both explicitly and implicitly, that this instrument is not really suitable for B2B context. In fact, the lack of research on B2B marketing has led a barrier to tracking and further improving service quality. This may be reflected by a recent survey of 10,000 Internet customers of 16 leading US companies (notably including such companies as American Express, Ford Motor Credit, Hewlett-Packard, and Proctor& Gamble): only 36% of the respondents were satisfied with their online interactions, over 50% required phone calls or other offline means to resolve their problem, and 42% waited more than 24 hours before receiving any acknowledgement of their contact with the company (Lehman, 2000). It should also be noted that the vast majority of e-commerce is in the B2B sphere rather than directly involving individual consumer (Kalakota and Robinson, 1999). B2B transaction value accounts for upwards of 90 percent of Internet transaction, and it is expected that by the year 2003, nearly $3
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trillion or fully 25 percent of business purchasing will involve e-commerce (eMarketer.com, 2000). However, recent research indicates that business companies are still making limited uses of ecommerce and just start to realize that companies operating e-commerce will involve business services, mainly driven by the business customer and integrated with supporting processes services and information technologies (Dutta and Segev, 1999; de Ruyter et al., 2001). How to employ IT to deliver high quality services between business companies, streamline, integrate, and speed up the processes to enhance business value and build up long-term relationships for further collaboration has been a challenge for all business companies (Rust, 1997 and Zeithaml, 2002). To address this, our research will take the first step to go back to see the impact of e-commerce on the B2B services with the development of IT and try to find further collaboration strategies for today’s B2B marketing. In the next section, we start with the evolution of B2B service in e-commerce environment.
2. The Evolution of Business-to-Business Services in E-commerce Environment With the development of information and communication technology, e-commerce models are changing rapidly from an EDI initiative to today’s Internet base. E-commerce is now impacting all aspects of business activities. It provides business companies for 24/7 accessibility, improves efficiency and gathers information in real time. Further, e-commerce enables business companies to process B2B transactions from the basic service functions to business collaboration in the supply chain (Bitner, 2001). The number of companies applying e-commerce has significantly increased in the last ten years, as the business company implementing e-commerce is generally thought to have considerable competitive advantages over those who have not. The transaction value through B2B ecommerce grows quickly, which has surpassed $433 billion in 2000, a 189 percent increase over 1999 (Pastore, 2001). The growth of Internet based e-commerce has become a major media for B2B transactions (Forrester Research, 1999). 2.1 EDI Based B2B Service During the 1960s EDI (electronic data interchange) solutions were developed to automate B2B transactions, mainly resulting from a need to simplify the paper work for administering the Berlin airlift (Seideman, 1996). Since its birth, EDI has converted paper based transactions among known participants into electronic ones by circling around point-to-point data transactions and centralized data aggregation provided by services. With EDI, companies can effectively improve the accuracy, timeliness and speed of standard document exchange and thus reduce product development cycle time and costs (Carter et al., 1987). EDI has been considered as one of major enablers to primarily change the way many companies conduct their business (Cash and Konsynsky, 1985). However, EDI does not easily permit members of the community to exchange with one another (Upton and McAfee, 1996). It only focuses on standardized electronic transaction, hardly adding new members on it. Additionally, EDI requires significant investments in system and infrastructure, and are only suitable for relatively stable community with the long-term relationship. EDI-based B2B services are mainly related to these business practices which are built around computer-to-computer transmissions of message forms, bar codes and files. Its benefits are reflected by less paperwork, fewer manual processes, less human interaction, improved accuracy, and shortened transaction cycle. This is a low level of service and just a substitution of traditional forms of communications. Furthermore, since EDI mainly facilitates internal automation and proprietary links between the pre-determinate partners with the long-term relationship, it is very hard to achieve innovative service, especially for small companies (due to expenditure involved). 2.2 Internet Based B2B Services With the development of information and communication technology (e.g. computer network), companies have much easier access to all data and applications resident for all members (Upton and McAfee, 1996). Among those, the Internet removes the asset specificity and offers a much opener and more independent platform for information exchange in a more cost-efficient way than EDI. The new B2B e-commerce model at Internet base is a link to constantly evolve relationships among business partners. It not only redefines the concepts of business scale and scope, but also creates new value through the increased number and variety of information, services and products between
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business partners (Bons et al, 1997). One of the largest usages of the Internet is to develop logistics services by either replacing existing EDI systems or augmenting those already in place with less expensive systems. Some researchers have predicted cost reductions of up to 80 per cent by this application (Barber, 1997). More importantly, the openness of the Internet, together with its common standards and protocols and easy navigation, enables all companies to capture the benefits of the network effect. The Internet-based B2B transaction has in turn significantly increased. Business companies use new information exchange forms (such as e-mail, video-conferencing or other multimedia applications) to find out new business partners at a low cost (in real time), set up the customer databases and develop respective business relationships. The Internet entirely removes the geographic barriers among business partners and further affects all aspects of inter-organizational networks from hierarchical to market relationships. At this stage, the Internet has become a prime driver of contemporary e-commerce and dramatically increased business services. Internet vastly broadens and refines key aspects of businesses from sharing information, to conducting business transactions and maintaining business relationships. For example, with real time information managers can plan, execute, and evaluate results (with greater precision and speed) more effectively to compete for contracts that would not be accessible by traditional means. As a new way of advertising medium, the Internet provides new distribution channels and information sources for all sizes companies (Rust, 2001). In particular for the Small and Medium companies, they may seize the opportunities presented by linking to a wide network to serve in a small part of the value chain where they have special competencies. In fact, the presence of a web site enables small companies to show a nearly same physical image (as big counterparts) to their customers. According to Booze-Allen and Hamilton (1997), while substitution of traditional communications and access to information account for only 30% of the total potential benefits, the remaining 70% can only be achieved by improving services through electronical business processes. Better B2B services thus require not only cost reduction and data management, but also more information exchange and further collaboration. At this stage, nearly all companies are employing similar types of applications, which makes it more difficult to sustain operational advantages. The services are consolidated into the management of services centres, and thus may be standardized and automated for all business partners, such as an Internet-based bill payment service. To gain sustainable advantages, business companies need more value-added services depending on their own characteristics, such as more information services about product development and demand forecasting. Obviously, there is a need to further investigate how to implement Internet based ecommerce for services in other transaction processes. Here we take a closer look at the Electronic Intermediaries. 2.3 Improved B2B Services by Electronic Intermediaries Recently, innovations in IT (e.g. electronic intermediary) make it possible to offer an intermediary service. The electronic intermediary (TEI) gains some popularity by allowing any business company to register for a low fee and make order from supplier catalogues or conduct tendering on-line almost immediately. The electronic intermediary acts as a single gateway to a range of products or services that are provided by a number of suppliers. These intermediaries initially are attractive because they reduce search costs, and promoted price discovery. The key benefit of TEI is that it brings a large number of buyers and suppliers together for a range of products or services through one connection. TEI expands the implementations of the Internet, redefines the competitive field and allows all companies to access service innovations across dimensions--speed, convenience, personalization, price, and cost and volume transparency (Barratt and Rosdahl, 2002). This results in further collaboration with increased capacity and decreased response time for communication between them, e.g. better management of inventory leading towards a just-in-time system. The services at TEI can take several forms such as quickly responding to customer inquiries, taking and fulfilling order accurately, providing free value-added services to accompany, support and enhance the utility of products. TEI also creates new highly efficient services for more delivery channels and new challenges for both suppliers and buyers, e.g. integration of services during the purchasing and transaction processes. Particularly, it helps small to mid-sized companies make choices about service mix, quality and price, which has been prohibited by the cost, time and scale previously. Small and
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medium business companies may participate more quickly and cost-effectively as both buyers and sellers in national and global markets. Although it has been well recognized that the TEI plays an increasingly important role in B2B services (e.g. as illustrated in Figure 1), business companies have not yet found an effective way to reap the benefits. It should be noted that, at the present time, the supplier companies face more competition than the buyer company because generally TEI favours buyers and reduces the market power of suppliers. In a short term suppliers may be compensated with the profit reduction by the increasing buyers number. In a long term it may be impossible to avoid suffering some losses in market power and profit, especially when the market power is based on high information cost. One important business strategy for suppliers is to provide unique and value-added services required by the buyers and thus make switching to other competitors more costly. Fig. 1. Growth Drivers forB2B E-commerce in the Future. Obtain critical mass
54%
Offer services
44%
Become the market leader
24%
Create brand recognisition
20%
Build scalable infrastructure
16%
Promote e-commerce adoption
16%
Source: Favier (2000).
3. The Measurement of Service Quality Nowadays, the executives find it increasingly difficult to establish sustainable, technology-based competitive advantage. Superior customer service is the most effective way to grow and expand market share. Business companies thus need to direct greater attention and resources to quality and customer service as a real source of advantage (Carter and Narasimhan, 1994). For the B2B transaction, developing profitable service is one of key growth strategies. Although much of the extant literature on service quality assessment is involving end consumers rather than business customers (Parasuraman, 1998), a review of the B2C service literature might help us with our research in B2B services. 3.1 Service Quality Model in Business-to-Customer Context Service quality has been receiving increasing attention since 1980s. The concept was originally investigated in an extensive series of focus group interview conducted by Parasuraman et al (1985). They describe service quality as the overall evaluation of discrepancy between customers' normative expectations for the service and their perceptions of the service performance. This notion has also been supported by other marketing researchers such as Grönroos (1982), Sasser et al. (1978). Parasuraman et al. (1985) further identify five service quality gaps (see Figure 2), which is well recognized as a major contribution to the marketing literature. The definitions of each of gaps are as follows: This model is a diagnostic tool to facilitate the identification of gaps between a number of variables affecting the quality of the offering. It also has the potential to assist managers to identify the pertinent service quality factors from the perspective of the customer. The most well-known instrument to measure service quality is SERVQUAL (Parasuraman et al., 1988), which is along five key dimensions that includes: • Tangibles--physical facilities, equipment, and appearance of personal; • Reliability-- ability to perform the promised service dependably and accurately; • Responsiveness--willingness to help customers and provide prompt service;
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• •
Assurance--knowledge and courtesy of employees and their ability to inspire trust and confidence; Empathy-caring and individualized attention provided to customers.
Fig 2: A Gaps Model of Service Quality Personal Needs
Word of Mouth Communications
Past Experience
Gap 1: Difference between consumer expectations and management perceptions of consumer expectations.
Expected Service
Customer GAP 5
Service Delivery (including pre-and post-contact)
Marketer
GAP3 GAP 1
Gap 2: Difference between management perceptions of consumer expectations and service quality specifications.
Perceived Service
GAP 4
External Communications to Consumers
Gap 3: Difference between service quality specifications and the service actually delivered. Gap 4: Difference between service delivery and what is communicated about the service to consumers.
Translation of Perceptions into Service Quality
GAP2
Gap 5: Difference between consumer expectations and perceptions.
Management Perceptions of Consumer Expectations
Source: Parasuraman et al., 1985
This measurement has been widely examined for its validity and reliability by plenty of researchers, e.g. Cronin and Taylor (1992, 1994), and Teas (1993). However, SERVQUAL has focused primarily on interpersonal interactions that may not fully apply to the human-computer service provision. 3.2 Limits of SERVQUAL Gap Model in the Context of Business-to-Business E-commerce Since SERVQUAL has gained popularity in wide variety measuring service quality in B2C context, we are interested in to what extent this could be applied into B2B e-commerce. The extant research is converging on the view of directly referencing or utilising SERVQUAL scale within the B2B context as a means of measuring perceived service quality. However, SERVQUAL has several limitations for service quality in B2B context. First, SERVQUAL measures are essentially generic. The five dimensions do not have uniform frames of reference for each situation in the B2B context (Kong and Mayo, 1993) and twenty-two items cannot cover all the industry-specific service areas. The stability of the service dimensions across different branches of industry has also proved to be weak (Cronin and Taylor, 1992). Second, SERVQUAL focus on the quality of the service process, neglecting that of the service outcome. Third, the measurement does not include service cost, which is one of the most important determinants of service value. Forth, additive relationships between service dimensions are implied by the model, while this may not be a realistic assumption (Cronin and Taylor, 1992). Finally, the SERVQUAL model is built upon an assumption of multi-attribute evaluations; thus it does not capture categorical product or service judgements made on the basis of product cues or service incidents (Fiske and Pavelchak, 1986).
4. Needs of Improved Business-to-Business Services in E-commerce Environment With the market power shift from the manufacturer/wholesaler/retailer to the end customer, the end customers become more sophisticated and demanding more variety quality, low cost, and greater service. Concurrently, the battle for competitiveness is increasingly fought between supply chains, not companies (Christopher 1992). It is dangerous for a single company to maintain full capacities to
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take every market opportunity. Therefore, many companies focus on their core business activities where they are able to expand their competitive advantages and contract out their non-core activities to capitalize on others’ expertises. These result in that business companies increase economic interdependencies and cooperation service to obtain closer, long-term relationships and improve the competitive advantage of the supply chain as a whole. In recent years there is also a trend to encourage fewer permanent inter-company trading relationships if initial transactions are satisfactory (Bakos and Brynjolfsson, 1993, Grönroos, 1994). In this regard, service is becoming crucial for longterm relationship (Parasuraman, 1998) regardless of what is exchanging (tangible or intangible). The high level of service has become a competitive weapon to seek new areas of differentiation and superior profits. This might be the main reason why B2B e-commerce is developing so quickly. The literature has also acknowledged the growing importance of services in B2B context as a distinct component (Parasuraman and Grewal, 2000). On the other hand, the current global environment marked by increased demand, decreased customer loyalty, shorter product life-cycles, and mass product customisation, forces companies to lower costs and have a strong information system, especially in B2B relationship marketing situation (Grönroos 1991). The competition is therefore advancing from being between individual companies, to being between clusters of tightly-knit partnering corporations. This demands high level of services between business companies with the e-commerce to deliver the right product at a fitting time and price. At this point, the business companies will survive based upon their ability to deliver superior services among their business partners, such as business information, collaborative planning, collaborative design, financing, settlement, fulfilment, market intelligence etc (Barratt and Rosdahl, 2002).
5. Develop Business-to-Business Service in E-commerce Environment The development of technologies has deeply changed the way of business interaction and created new ways for service delivery. Therefore, further research is needed for better understanding service quality in the context of the e-commerce (Parasuraman and Grewal, 2000) and supplementing the IT to increase the business service quality. 5.1 Integrating E-commerce with Business Strategies E-commerce is an area of strategic concern to most organisations. Enabled by new, networked technology, e-commerce is rapidly becoming an integral part of the many different ways people and companies do business and manage information. Through the IT revolution of recent decades, there has been little understanding of how to measure the real costs and benefits of information systems to the business. The business companies in e-commerce need to shift their focus from merely selling to customer to serving them effectively (Parasuraman, 1998) by closely integrating all aspects of their service in terms of systems, networks, procurement, shipping and customer support in order to meet their customers’ needs. To capture the growing infusion of e-commerce into service quality, Parasuraman (1996) proposes a pyramid model of services marketing as an extension of Kotler’s triangle model of services marketing. In the B2B context, they need to combine product characteristics, company attributes, process transactions and information technology with business services (Fig. 3). With the infusion of IT with service quality, the model may influence the service encounters. Therefore, before employing the strategies to improve the B2B service quality, it is useful to identify their new description in e-commerce. Fig. 3: Various Factors Effect B2B Service in E-commerce Context Product Characteristics
Company Attributes 1
2
1. 2.
Services 3.
Process Transactions
3
4
Information Technology
4.
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Different products need different services Various business services depend on company’s characteristics Different services needed along the business process transactions Various information technology offer different business services
5.2 Improve the Business Services via Process Transactions The B2B services via e-commerce are much more than technical problem solving, equipment installation or placing an order and tracking the order status via information system. Business companies are encouraged to focus on different areas simultaneously to provide services instead of solely depending on outcome product. In fact, business companies increasing consider the service quality delivered by business process, and process satisfaction is the foundation of business customer satisfaction and retention of the long-term relationship (Parasuraman and Grewal, 2000; Bitner, 2001). Hence, it requires a perspective that focuses on creating value-added services along the business process. The process program helps business customer with purchasing process, logistics management towards complex buyer and supplier collaboration. In this context, e-commerce needs to promote more information flow, which emphasizes the collaboration between business companies. For example, Converge, Covisint, and e-steel have begun to assess their value-realization potential by describing the effect of their services offering key business processes. According to Raisch (2001), the next step in the evolution of B2B services is the integration of business processes with valueadded services to create a value network to facilitate intensive buyer-supplier collaboration. Beyond the operation and transaction services, business services may also include integration services, where information and functions are further integrated towards credit provision, industry expertise, news and directories, web site management and technology assistance, collaborative planning and design, and market intelligence (Kong and Mayo, 1993; Barratt and Rosdahl, 2002). 5.3 Provide Different Services for Different Business Customers In practice business companies at different starting points have different options in the degree to what their processes are integrated into their e-commerce strategy. They may face different strategic imperatives and there is no simple prescription as an established B2B services model even for the same industry, considering different strategies, different relationships with their partners, product characteristics and the position in the whole supply chain (Booz-Allen & Hamilton, 1997). Different buyers may look for different services to suit their specific needs. Suppliers in turn have to treat their customers in a flexible way to identify service attributes that are important to their customers and achieve an adequate balance between these attributes. For example, depending on the relationships with the buyers, suppliers may (1) emphasize the outcome services (e.g. price and lead time) for those with short term relationships; (2) provide extra process services for those with long term relationships, such as purchasing management, delivery management; and (3) share more information (e.g. new product development details, forecast of demand and inventory management, and sale order management) with close partners in the supply chain. For example, with seamless electronic linkage, manufacturers may involve their key suppliers in the new product development process. The most important benefits of flexible services offerings are that they can provide suppliers with a powerful means of retaining and expanding business with their most valuable customers. Of course, making the flexible services is not just a matter of rethinking how existing services are employed, it needs to involve that the ways of new services are added to the mix. In addition, to what extend suppliers can offer services is also affected by those issues like security and cost (Bitner, 2001). Therefore, to improve buyers and suppliers collaboration and increase service quality in all functions during the whole business process, e-commerce needs to enlarge its functions by employing different networks. In this context, it might be helpful to look at the application of extranet and intranet. 5.4 Jointed Applications of Various Information Technologies In implementing EDI, the threat to companies’ internal information security and legal problems (due to lack of paper documentation) has received considerable attention. Similarly, security and legal issues around the Internet are also a major concern among many companies (Nath et al., 1998). By contrast, Extranet is an electronical link distributed companies over the Internet in a private forum (OneSoft, 1998). It is possible for partner companies to share data and cooperate on projects such as product design and development and to negotiate favorable price via Extranet. In practice, Dell Computer Company’s suppliers access Dell’s inventory and production plan via Extranet to receive continuous feedback on how well they meet shipping criteria. With Extranet, a company can offer
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customized experiences that are dynamically generated or modified based on a customer’s privileges, preferences, or usage patterns (OneSoft, 1998). Ford Motor Company’s Extranet, FocalPt, for instance, provides Ford’s 15,000 dealers worldwide access to promotional, inventory, and financial information. FocalPt can also provide repair information for specific car models and track an individual car’s repair history for any machine on the network (Wagner, 1997). Intranet is one kind of internal information system, which is mainly used to improve companies’ internal communication, collaboration, and information dissemination and accessing databases. It provides accesses to exclusive, proprietary and sensitive information, which can only be used by authorized employees, customers, suppliers and other business partners. Internal communication is critical to service operation, enabling companies to tailor products and services to meet customers’ expectations (Barua et al, 2001). It needs all individuals across different functions and departments to involve and use it more actively. Internal activities can also be supported through intranet functions that disseminate information and assist in coordinating cross-functional group work. In Ford Motor Company, Intranet links its design centres in the United States, Asia and Europe, enabling the engineers to develop on-line electronic prototypes of automobiles and their components.
6. Conclusion The Internet has dramatically changed B2B transaction and provided more channels for B2B service. However, B2B services are still at an infancy stage. With the increased development of e-commerce, it may be expected that companies’ internal processes and supply chain collaborative activities will increasingly employ B2B services applications. Beyond the discussion of technology in e-commerce, this paper emphasizes that, at its heart, e-commerce is all about service. This also leads us to suspect the appropriateness of making analysis in implementing e-commerce to obtain/sustain a competitive advantage mainly by comparing an e-commerce business company with those which have not implemented e-commerce. We have proposed a model for B2B e-services merely based on a literature review. Ongoing research will test the model in different business companies.
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