E-Commerce and the Digital Economy

Michael J. Shaw

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317472698
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This volume in the "Advances in Management Information Systems" series offers a state-of-the-art survey of information systems research on electronic commerce. Featuring chapters by leading scholars and industry professionals, it provides the framework for understanding the business trends, emerging opportunities, and barriers to overcome in the rapid developments taking place in electronic business and the digital economy. Researchers, students, and practitioners - anyone interested in the current issues and future direction of electronic commerce, especially from the standpoint of information systems and information technology - will find this book to be an authoritative source of cutting-edge information. The volume is divided into four parts: Part I covers the fundamental issues of information technology standards and the transformation of industry structure; Part II focuses on B2B commerce; Part III investigates the management of mobile and IT infrastructure; and Part IV includes trust, security, and legal issues that undergird the success of e-commerce initiatives.

PART I

Information Technology Standards and the Transformations of Industry Structure

CHAPTER 1

MEASURING THE BUSINESS BENEFITS OF WEB-BASED INTERORGANIZATIONAL SYSTEMS

A CO-ADOPTION MODEL FOR STANDARDS DEVELOPMENT

MATTHEW L. NELSON, MICHAEL J. SHAW, AND MARY SCHOONMAKER

Abstract: One of the important sources of competitive advantages of information technology (IT) comes from the practice of interorganizational systems (IOS), which have taken on even more important roles because of the advent of Internet technologies, such as XML and Web services, for facilitating business-to-business transactions. This study evaluates the impacts made by the ongoing adoption of Web-based IOS standards. By first developing a co-adoption model for standards development, we are able to evaluate factors that include compatibility, relative advantage, environmental variables, and such control variables as seller versus buyer, technology conversion type, and location in supply chain. An empirical study covering twelve implementations of the target technology and standards is conducted with the RosettaNet consortium. A comparative analysis of the field study results based on the theoretical model is conducted. The intent of this comparison is to measure the business consequences of implementing Web-based IOS, examine key relationships, and assess potential influential factors leading toward adoption and diffusion in an industrial group setting. Recommendations for future research and managerial implications are also provided.

Keywords: Information Technology (IT) Standards Diffusion, Interorganizational Systems (IOS), Standards Development Organization (SDO), Supply Chain Interoperability

INTRODUCTION AND BACKGROUND

This chapter examines one of the emerging trends in the digital economy regarding the open enterprise model and standards setting. The focus is on the assessment of business value and adoption strategy. We started out by merely seeking to identify supply chains interested in the use of consistent interorganizational systems (IOS) standards. What we found, however, were supply chains faced with extraordinarily competitive pressures and sharply rising manufacturing costs and the fact that industrial group survival was hanging in the balance—a situation that many industrial groups are now confronting. In coping with the competitive pressures, the group of firms we studied positioned themselves on the cusp of transformation enabled by intense industrywide collaboration and IOS standardization. This group collectively funded and launched industrywide standardization initiatives with elements that include a nonprofit standards development organization (SDO), called RosettaNet, to coordinate and oversee the development and deployment of vendor-neutral, platform-independent IOS standards that are modularized around cross-company business processes. The novelty of their approach has legitimately earmarked the industrial group as one of the first of its kind using an open enterprise model that other industrial groups now seek to replicate. The key research question is: Do the standards-setting adoption practices and e-process initiatives used by the supply chains in this industrial group generate value?

In the broader context, the development of IOS standards has reached a fevered pitch across many industrial groups. The Chemical Industry Data Exchange (CIDX), for example, is a nonprofit industry-based SDO for the chemical industry. CIDX has assembled seventy-five member firms and developed fifty-two sets of IOS standards since the year 2000, including a host of pending standards at various stages in the development cycle. HR-XML, a nonprofit industry-based SDO, was launched in 1999 and has assembled over 150 member firms and developed twenty-seven sets of human–resource related IOS standards, with many more in the development queue. Similarly, RosettaNet, a nonprofit SDO serving the semiconductor, electronic component, and information technology (IT) industries has assembled over 500 member firms since its launch in 1998 and developed fifty-three sets of IOS standards, with fifty-two in the development queue. New SDOs are emerging on a regular basis and other industrial groups are opting to redirect efforts of existing SDOs toward utilization of modern-day IOS standards-related innovations (e.g., Accord, Open-GIS).

This activity has caught the attention of researchers and practitioners alike. Dubbed the “next great frontier for reducing costs, enhancing quality, and speeding operations” (Jones 2000; Hammer, 2001), the use of consistent and compatible IOS standards in an industrial group setting solidifies business-to-business (B2B) connections and streamlines cross-company business processes. The key technological advancements spawning this activity are a grouping of related innovations that include eXtensible Markup Language (XML), Simple Object Access Protocols (SOAP), Web Services Description Language (WSDL), Universal Description Discovery and Integration (UDDI), and other application programming interfaces (APIs) (Hagel and Brown, 2001). Integrating cross-company business process standards with these innovations provides the opportunity for creating electronic business documents, common field attributes, consistent data tags, and compatible communication protocols (Berners-Lee 2001, 2003). With an industry-based SDO acting as the lead coordinator, these IOS standards are structured around shared cross-company business processes and jointly agreed to and developed by members of the extended industrial group. We refer to these integrated innovations as Web-based IOS, or XML-based IOS (to highlight the underlying technology).

The existence of this phenomenon, however, is raising a host of new challenges with respect to the adoption and deployment of Web-based IOS (Koch 2003). Some firms with a large electronic data interchange (EDI) installed base are reluctant to quickly deploy Web-based IOS due to their concerns that this will entail costly reengineering of back-end legacy systems and their associated business processes. Other firms that serve multiple industrial groups are delaying deployment of new IOS standards since they are uncertain as to which set of standards will take hold on a cross-industry (horizontal) basis. Still others (including some entire industrial groups) are postponing deployment projects to reap lessons learned and best practices from early adopter firms (and industries). In fact, in a review of fifteen different industry-based SDOs by the authors, the adoption issue was discovered to be among the top three priorities in all SDOs reviewed. Thus, the questions driving this line of research include: What are the business consequences of implementing Web-based IOS in a supply chain (industrial group) setting? What are the significant factors influencing the adoption and diffusion of Web-based IOS in organizations? Do these consequences or influencing factors change depending on the role played by an organization within the supply chain?

The work reported in this paper represents part of an ongoing inquiry by the authors to examine the factors influencing the adoption and diffusion of IOS standards. An earlier paper (Nelson et al. 2002) introduced and defined a theoretical model depicting potential antecedent conditions as well as consequences of diffusion measures. This provided insight into the technology under study and the use of interoperability standards and shed some light on the mutual operational and economic benefits provided to firms on each side of the IOS. The scope of that paper’s empirical analysis was limited to a single implementation instance of an XML-based IOS between a manufacturer and distributor (Nelson et al. 2002). This paper builds on these findings and expands the empirical analysis to twelve implementations (organized into four cases) of the target technology across eight firms from a single industrial group. This structure enables a closer examination of the role and consequences of industrywide collaboration, an industry-based SDO, and the IOS standardization process.

The paper is structured as follows. First, based on a review of prior innovation diffusion and IOS literature, a theoretical framework is proposed to examine potential influential factors leading toward adoption and diffusion. Second, a field study utilizing RosettaNet’s IOS standards is presented, examining twelve instances of the target technology. Third, the empirical results are compared to the theoretical model and the findings stated. Managerial implications are summarized and recommendations for future research are discussed throughout.

CO-ADOPTION MODEL OF WEB-BASED IOS STANDARDS

Based on a review of IOS and innovation diffusion literature the following factors are under consideration for influencing the adoption and diffusion of the target technology. The measurement variables can be classified into four constructs: compatibility, relative advantage, environmental, and control variables (see Figure 1.1). The dependent variables are in the bottom center of Figure 1.1 and include adoption and three measures of diffusion (volume, diversity, and breadth). All measurement and dependent variables are defined below. This paper’s intent is to measure the business consequences of implementing Web-based IOS, examine key relationships, and assess potential influential factors leading toward adoption and diffusion in an industrial group setting. This research builds on the theoretical model and findings from earlier work in this line of inquiry by the authors (Nelson et al. 2002).

Compatibility

Compatibility examines the extent to which the innovation is consistent with existing tasks and needs and prior experiences and business processes of the adopters (Agarwal and Prasad 1999; Cho and Kim 2001; Cooper and Zmud 1990). Cooper and Zmud (1990) provide a framework for assessing compatibility of a new technology by evaluating assumption gaps between the characteristics of the new technology versus the task characteristic needs of the organization. This framework proves to be useful in this study for two reasons. First, the scope includes three different cross-company business processes: (1) purchase order (PO) generation, change, and cancel, (2) shipments from made-to-stock items (i.e., ship from stock and debit), and (3) notification of advance shipments. Thus, similar technological innovations are applied to different business processes that necessitate different task characteristics. Second, the alternative technical solutions include XML-based IOS, Web-based POs, electronic data interchange (EDI), and manual-based process solutions. This will provide a useful framework for evaluating the alternative technical solutions to the share business process types. Firms were asked to rate each solution’s ability to meet underlying cross-company business process needs on a Likert Scale from 1 (Strongly Disagree with Compatibility) to 5 (Strongly Agree with Compatibility).

Figure 1.1 Co-Adoption Model of Web-based IOS Standards

Relative Advantage

Relative advantage is the extent to which a potential adopting organization views the innovation as offering direct and indirect financial and operational benefits over previous ways of performing the same tasks (Agarwal and Prasad 1997). The financial indicators include Return on Investment (ROI, transaction cost savings, investment, and payback. The operational performance indicators include throughput (processing capability per unit of time) and cycle time. Thus, firms were required to calculate transaction costs prior to and after implementation of the target technology. The direct cost components include technical standards negotiation time (between the two participants), hardware, software, and implementation-related expenses. The initial up-front investments associated with implementing the new technology were isolated in order to calculate the ROI and payback financial indicators. The direct operational impact of the new technology was based on its impact on cycle time and throughput.

Environmental

Two environmental factors under consideration include partner power and expectations of market trends. Partner power is measured as the percentage of sales (or purchases) that a business partner is dependent on from their customer (or supplier). This use of the power variable is consistent with the industry under study, availability of substitute suppliers, low manufacturing capacity utilization rates, and relatively low switching costs. This is consistent with Hart and Saunder’s notion of supplier dependence in dyadic relationships (Hart and Saunders 1998) and similar to Iacovou’s findings regarding external pressure in EDI adoption (Iacovou et al. 1995). Expectations of market trends is an infrequently used variable in study of innovation diffusion (Cho and Kim 2001, Fichman 1992). For the present study, the definition for this variable is consistent with Cho’s: “Expectation for market trend is the degree of expectation that the target technology will be pervasively adopted in the industry in the future” (Cho and Kim 2001). Industry-based SDOs are funded, to a large extent, from contributions by member and partner organizations. Thus, partner organizations have a “vested” interest in developing and setting the most appropriate standards to be utilized within their industry.

Control Variables

Three control variables are used in this study and they include buyers versus sellers, location in supply chain, and technology conversion type. Each respondent firm will either be a buyer or seller organization with respect to the underlying cross-company business process. Similarly, each firm fulfills a role in the supply chain with respect to the underlying cross-company business process. For a given firm it may be as a distributor, an original equipment manufacturer (OEM), or an outsourcin...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Series Editor’s Introduction
• Acknowledgments
• E-Commerce and the Digital Economy: An Introduction
• Part I. Information Technology Standards and the Transformations of Industry Structure
• Part II. Emphasis on Consumers and Customization
• Part III. Management of Mobile and Information Technology Infrastructure
• Part IV. Trust, Security, and Legal Issues
• Editor and Contributors
• Series Editor
• Index