WP3: E-business Model Roadmap. Deliverable 3.1 (Revised):

Transcription

1 WP3 E-Business Model Roadmap Deliverable 3.1 (Revised): E-Factors Report Part 1: Overview, and Current Trends on E-Business Models Work Package Work Package Leader Task Leader Task Contributors Thematic Priority Editors Document Status Classification WP3: E-business Model Roadmap RC- AUEB (Greece) University of Jyväskylä (Finland) All partners Date May 2003 Keywords Abstract ELTRUN Research Centre, (AUEB, Greece) INSEAD (France) Erasmus University (The Netherlands) Norwegian School of Economics and Business (NHH, Norway) University of Manchester Institute of Science and Technology (UMIST, UK) University of Jyväskylä (Finland) Final Version (Following Reviewers Recommendations) Public e-business models, thematic priorities, technical factors, individual factors, organisational factors, industry factors, societal factors. This document contains work of the third work package of e-factors project, and includes results of work directed towards the identification of thematic priority areas and factors influencing e-business model adoption. The aim of this report is to provide a comprehensive overview of factors influencing this adoption process, divided under five subcategories (thematic priorities): Technical, Individual, Organisational, Industrial and Societal. EUROPEAN COMMISSION IST PROGRAMME IST Contract Start Date: Contract Termination Date: WP3 Deliverable E-FACTORS

2 TABLE OF CONTENTS 1 EXECUTIVE SUMMARY INTRODUCTION DELIVERABLE STRUCTURE E-BUSINESS MODELS: CURRENT TRENDS DEFINING E-BUSINESS: E-BUSINESS VS. E-COMMERCE BUSINESS MODEL VS. BUSINESS STRATEGY ESSENCE OF BUSINESS MODELS DEFINING THE CONCEPT OF BUSINESS MODEL THE E-FACTORS PERSPECTIVE ON E-BUSINESS MODELS DEFINITION E- BUSINESS MODELS TYPOLOGIES, TAXONOMIES AND FRAMEWORKS COMPONENTS OF A BUSINESS MODEL REVENUE MODELS CONCLUSIONS ON CURRENT TRENDS IN E-BUSINESS MODELS THE E-FACTORS FRAMEWORK INTRODUCTION THE FRAMEWORK METHOD OF WORK TECHNICAL / TECHNOLOGICAL THEMATIC PRIORITY LIST OF TECHNICAL/TECHNOLOGICAL FACTORS IDENTIFIED CRITICAL TECHNICAL ISSUES IN ELECTRONIC COMMERCE EXAMPLES FROM CLUSTERED PROJECTS SUMMARY INDIVIDUAL THEMATIC PRIORITY INTRODUCTION PRELIMINARY LIST OF FACTORS THEORETICAL BACKGROUND OF FACTORS UPDATED LIST OF FACTORS SUMMARY ORGANIZATIONAL THEMATIC PRIORITY INITIAL LIST OF ORGANIZATIONAL E-FACTORS THEORETICAL BACKGROUND OF ORGANIZATIONAL E-FACTORS ORGANIZATIONAL E-FACTORS IN CATEGORIES ORGANIZATIONAL E-FACTORS EXAMPLES FROM CLUSTERED PROJECTS SUMMARY INDUSTRY / INDUSTRIAL THEMATIC PRIORITY BACKGROUND OF INDUSTRY E-FACTORS EXAMPLES FROM CLUSTERED PROJECTS SUMMARY SOCIETAL THEMATIC PRIORITY INITIAL LIST OF SOCIETAL E-FACTORS THEORETICAL BACKGROUND ENHANCED VERSION OF SOCIETAL E-FACTORS THE SOCIETAL E-FACTORS IN THE CLUSTERED PROJECTS SUMMARY INTERRELATIONS BETWEEN THEMATIC PRIORITIES WP3 - Deliverable E-FACTORS

3 10.1 TECHNICAL < > INDIVIDUAL TECHNICAL < > ORGANISATIONAL TECHNICAL < > INDUSTRY TECHNICAL < > SOCIETAL INDIVIDUAL < > ORGANIZATIONAL INDIVIDUAL < > INDUSTRY INDIVIDUAL < > SOCIETAL ORGANISATIONAL < > INDUSTRY ORGANIZATIONAL < > SOCIETAL INDUSTRY < > SOCIETAL FUTURE TRENDS AND VISION OF E-BUSINESS MODELS CONCLUSIONS REFERENCES AND BIBLIOGRAPHY APPENDICES APPENDIX 1: GLOSSARY APPENDIX 2: CLUSTERED IST PROJECTS APPENDIX 3: TABLE OF INTERRELATIONSHIPS OF E-FACTORS CATEGORIES FOR ALL THEMATIC AREAS WP3 - Deliverable E-FACTORS

4 1 EXECUTIVE SUMMARY This deliverable is a compendium of experiences from current IST projects that are clustered in e-factors. It identifies current trends in e-business models and relates these to existing theory in the area. The deliverable acts as a consolidating framework for the e-factors project. The fragmented e-business knowledge from the clustered projects is brought together to develop a roadmap for future research. This deliverable will form a basis for the implementation of e-business case studies in Work Package 4. This initial version of an e-factors business model framework is focused on summarising the key factors that influence e-business model adoption. The factors in the framework are those found to have an impact on e-business model adoption in Europe at five levels. We refer to these levels as thematic areas. They are: technology, individual, organisation, industry and society. In developing this first version of the e-factors framework, the aim has been first to gather existing primary scientific knowledge on e-business models and their adoption as relevant to the multi-linguistic, multi-cultural context of diverse European markets. Second, we critically evaluate the temporal dimension of the value propositions and strategies espoused. This consolidation and critical evaluation supports the integration of European e-business model knowledge (from the clustered projects) and the derivation of a roadmap to guide further studies and trials. From the literature review of e-business model taxonomies the most important aspects are as follows: Business model definitions: In the business literature the definitions for business models are often based on different views of the key components defining a business model. Some of the most quoted definitions for business model are the definitions given by Magretta (2002), Amitt & Zott (2001) and Afuah & Tucci (2001). Business models rarely remain stable but evolve with changes in the environment and infrastructure of a company. A review of e- business models and their main components are included in this report to provide a basis for understanding and evaluating the diversity of e-business models. E-business model taxonomies: An e-business model taxonomy is a presentation of different of e-business formats, classified by one or more dimensions. A business model framework is a way to classify, organise or describe business models according to a set of principle dimensions. When evaluating taxonomies with respect to e-business model adoption factors, some taxonomies are clearly more suitable for identifying key factors that influence e-business model adoption for case evaluation (one of the objectives of this project). The taxonomies presented by Timmers (1999), Tapscott et al. (2000) and Rappa (2000) were found to be the most suitable and are emphasised in this deliverable. These taxonomies provide detailed yet different perspectives; Timmers (1999) emphasises innovation and functional integration, Tapscott et al. (2000) highlights collaborative business models and Rappa (2000) argues that the differentiating factor is the source of revenue (or revenue streams). In Europe, the enterprise is often treated as an integral part of society, and hence in this report we have revealed key exogenous factors of the business models, that are important in that they are beyond the control of an individual enterprise, but are shaped by policy makers. We suggest an expanded view that encompasses broader contexts while taking into account industrial and societal, and individual (consumers) factors. WP3 - Deliverable E-FACTORS

5 Revenue models in e-business: The concept of a business model usually includes a description of the way in which a company positions itself in the value chain. E-business models can include many different revenue models (source of income for the firm). A revenue model can therefore describe the way (how and where) in which the company actually gets its income, and the way in which the chosen business model enables revenue generation, which are often multiple. E-factors: E-factors are in this report classified as factors that promote or inhibit the successful performance of a given e-business model. Within this report, we have identified the key factors that influence e-business model adoption. We have considered factors that influence e-business models as inhibitors or accelerators for certain types of e-business and depending on the current situational/contextual factors. These factors need to be abstracted to broader categories, so that the actual instances of the individual factors can be mapped in different situations and so that the temporal evolution of the factors can be tracked to distinguish between success and failure. Main barriers and inhibitors for e-business adoption: The deliverable highlights major barriers and inhibitors of e-business. Some of the most common barriers are the cost of implementation, security concerns, perceived customer readiness, lack of knowledge of IT and e-business, lack of executive support and concerns regarding the reliability of technology. It is important to remember, that many of the key barriers or inhibitors for e-business adoption may at the same time be barriers for some companies, whilst acting as accelerators for others. The E-Factors perspective on e-business models definition: A model is an abstraction of a complex reality. It defines a set of entities their roles and their relationships. It can even define some qualitative or quantitative values of those entities. More specifically, a business model implies a set of entities in a commercial venture and portrays them in the context of two distinct set of factors, endogenous, that embrace factors that lie in the control of individual enterprises such as organizational, technical and individual factors, and exogenous, that include factors beyond the control of individual enterprises, such as industrial and societal factors that in some cases are defined by policy makers. An e-business model is, thus, defined as an Internet-enabled business model. Results from the identification of factors influencing e-business model adoption can be grouped by thematic priority area as follows: Technology: Technological factors, together with organisational factors, are the most commonly recognised and analysed part of the e-business model adoption process. Technological factors are more or less externally indicated, and the company itself must consider them as factors in different business models which are closely dictated by external factors, like the state of technological development, user preferences and expectations, competitive environment etc. In e-business the main technical/technological concern for the company is to be able to ensure the overall functionality of its web services, and to make sure that the abilities (functionality) of the technological infrastructure is conjoined with the customer needs and with other environmental factors (competition, IT-infrastructure of the region etc.). The main areas of WP3 - Deliverable E-FACTORS

6 technological factors that have been identified are based on the identification of the key technological change drivers in e-business. These key factors include for example; Interoperability and interconnectivity, ERP- and CRM systems, system integration, security and electronic identification (e.g. payment methods), the aspect of commitments, IT-system scalability, and transaction processing. Whilst these factors are primarily technological in nature, the technology thematic priority also includes factors concerning ideas of how technology should be developed, promoted, learned, used and applied. Individual: The individual thematic priority could be considered as something that integrates or links all of the thematic priorities. The individual (person) will adopt innovative technologies or will provide the measure for identifying social or organisational cohesion. In other words, the individual thematic priority forms the core of the thematic network. The thematic network can be perceived as a web of interdependent components. The individual thematic priority deals with the individual on a micro level and provides valuable insight into the mental processes that influence an individual s decision-making. However, these mental processes are not easy to decipher. It is not surprising therefore, that literature lacks a coherent and comprehensive map of an individual s behavioural patterns in respect to technology acceptance and adoption as well as ebusiness acceptance and adoption. Some of the most important factors affecting the latter are arguably the propensity to trust, individual differences (cognitive and physical) as well as an individual s background, environment and past experience. Organization: The adoption of and successful performance of e-business models is inherently associated with the ways in which single business firms or value networks of collaborating firms conduct business. Organization as a thematic priority must be interpreted as intra- as well as interorganizational. The adoption and subsequent performance of business models for e-business require much more than just jumping on the latest technologies. An enterprise needs to consider or reconsider what kind of business they are in, what products and services to sell, how they should serve the market or particular customer segments of the market, how they should organize their business processes, how the enterprise should be organized and managed, and how they could exploit new and promising virtual partnerships. A particular business model in a particular context may fail for a number of reasons. Our main categories of organizational e- factors stem from such a list of reasons of business model failure. The seven factor categories that we have identified are as follows: Products and services; Markets and customers; Efficiency; Management and structure; Organizational culture; Resources and capabilities; and Partnerships. Potential interrelations with other thematic priorities are briefly introduced and relevant practical examples from the clustered projects are provided. Industry: Adoption of e-business models is influenced by industry structure and vice versa. However, not every industry faces the same changes in structure due to e-business. The amount of Internet usage within an industry branch or sector is not only reflected in the nature of the product (eg. digitised products such as music, books and software are easier to sell and distribute over the Internet) but also on consumer tastes and habits. The latter can often differ across different market environments and across time through the evolution of industrial structures, markets and consumer orientations. In general we see a WP3 - Deliverable E-FACTORS

7 trend where the boundaries of industries as we know them (eg. the telecoms industry, retail, finance, media, entertainment, publishing) are blurring and networks of organisations, so called value webs, are replacing individual business units. Increasingly, within new business models, organisations from different industries collaborate in partnerships to deliver customised products and services. Information & Communications Technologies (ICT) are enablers such value webs. With respect to the impact of e-business models on industry dynamics, organisations face a number of developments. On the demand side (towards suppliers) procurement via the Internet provides more power to buying organisations. It also provides suppliers access to more customers. The rise of digital markets leads to customised products and high differentiation. E-business models can lead to disintermediation from the supply side (suppliers do business directly with customers) as well as the demand side (customers do business directly with suppliers). Market power is shifting towards the demand side (customers), because market transparency is increasing and switching costs are decreasing (your competitor is one mouse click away). Competition often leads to lower prices. Through broader geographical markets, competition is becoming global. The open character of Internet applications and the lower barriers to entry lead to a further increase in competition by substitute products and services and new actors and intermediaries (reintermediation), which often come from other industries. Society: Societal factors, that is, factors related to the general context influencing the shape and adoption of e- business models in practice, have (as with the individual) not been adequately addressed in the literature. We argue that developing models for conducting e-business is not simply about the adoption of new technologies. It also concerns changes in work practices, in customer/supplier relationships, in the way products are delivered to consumers, in marketing practices and changes in staff skills needed to support e-business. As new e-business models lead to new business practices these affect the behaviour of individuals, and society as a whole, towards new business practices and innovative products. New business models are expected to influence peoples everyday life as much as they will affect work and employment. Thorough examination of this thematic priority aims to provide a holistic understanding of e-factors by acknowledging the dynamic capabilities that emerge from new business models and including in this study factors that affect people and their environment: societal issues on the whole. Consequently, societal aspects of current e-business models are presented here as a crucial element in achieving sustainable adoption of research and development influencing the shape and adoption of e-business models in practice. The societal e-factors identified in the course of our analysis have been grouped in the following categories: factors related to region/geography, culture, legal/regulatory/policy, economic, ethical & professional factors, as well as factors related to social capital/social networks and social structure. These factors influence, directly or indirectly, the way in which e-business models are perceived, implemented and evaluated. Following the identification and theoretical validation of these factors, instances are provided, where the role of these factors has been demonstrated, drawing examples from the projects clustered in the e-factors project as well as other relevant business cases. WP3 - Deliverable E-FACTORS

8 2 INTRODUCTION E-Factors is a project funded by the European Commission under the Information Society Technologies Program (IST ). The project is a thematic network dedicated to bringing together universities, research centres and practitioners with a common objective: To determine factors of broad and sustainable adoption of new business models based on e-business practices and research expertise across Europe. The E-factors network will actively seek to transfer skills and experiences with a view to identifying strategic implications in the implementation of e-business models and to disseminate this knowledge across Europe. E- Factors is scheduled to cover a period of 18 months. The work plan of E-Factors has been structured around 6 Work-Packages (WP), as depicted in the following figure. This report presents the results of the third work package, which includes all preliminary work directed towards the identification of thematic priority areas for e-business model adoption. Specifically, the aim of this report is to deal with the concept of e-business model adoption and identify factors influencing the adoption process of organisations planning and implementing new e-business models. The analytical synthesis will be backed up by examples illustrating the manifestation of e-factors from the projects clustered in the e-factors network. The results will also be used as an input for the fourth work package, that will examine a number of best practice cases on e-business models drawn from the participants experiences and expertise. Figure 2.1: E-factors work packages The starting point for this report is the realization that at present there is no comprehensive, in-depth understanding of the factors influencing e-business model adoption. Most of the presently published adoption models mainly emphasise or focus on two key elements of business model adoption: organizational and technological factors. However, as it has become evident along the early years of ecommerce and mcommerce, the techno-organisational view is not enough. Many companies emphasise the importance of finding a right business model for specific market segments, in specific market areas with proper attention to localisation of services for different cultural contexts. Therefore, there is an evident need to have special probably a broader look into the e-business models in Europe. WP3 - Deliverable E-FACTORS

9 Against this backdrop, in this report we try to give a wider perspective on the entirety of factors influencing e-business model adoption and also emphasise often neglected elements: societal, individual and industrial elements, and factors within these elements from the view of e-business. These five elements are included in this study as thematic priority areas of e-business model adoption. Models also often concentrate on business functions solely, with too little emphasis on both structural and change processes; within what sort of time frame the change has taken place, and how widely it has dispersed geographically - the latter being important in European context with multiple cultures and languages. We present a model, that contemplates all these aspects and try to present some key interrelations/ interdependencies between these different thematic areas. This kind of wider comprehension of this area will help companies, communities and researchers to better understand the complex phenomenon of e-business model adoption and especially to recognize the fundamental factors influencing this process. The content of this report will also be used as a framework/starting point for the case evaluations to be made in the e-factors Work Package Four. Identified thematic priority areas, that constitute key change drivers for effective adoption of e-business models include: Thematic Priorities 1. Technical 2. Individual 3. Organizational 4. Industry 5. Societal 2.1 Deliverable Structure The deliverable is structured as follows. Chapter 2 introduces the overall aim of the project and the role of the current deliverable within it. Chapter 3 presents a review of the current trends on e-business models, with an emphasis on current definitions, taxonomies and components of these models. The chapter also discusses trends and the role of business models in relation to business strategy, thus setting the scene for introducing e-factors, the factors influencing the adoption of e-business models. Chapter 4 presents the central proposition of this deliverable, which argues for the holistic presentation of e-factors, taking into account five thematic priorities: technical, individual, organisational, industry and societal. Furthermore, this chapter explains how this framework formed the basis for compiling this deliverable and details the method of work followed by the consortium in this respect. Chapters 5 9 present each thematic priority in turn, showing which e-factors are relevant in each case and how these factors emerged from previous academic or industrial research. Clearly, the thematic priorities are not independent. Chapter 10 explicates the interrelations between thematic priorities with reference to specific factors that can be considered from several thematic angles. Chapter 11 presents the E-Factors perspective on the future trends of e-business models. Chapter 12 presents the conclusions of the deliverable, which forms the basis for the next stages of the project, in particular the articulation of case studies illustrating the importance of e-factors (in WP4) and actionable policy WP3 - Deliverable E-FACTORS

10 directions for improved adoption of successful e-business models (in WP5). Chapter 13 presents the references and bibliography supporting the work presented in this deliverable. Finally, Chapter 14 presents the appendices that are structured as follows, Appendix 1 presents the glossary of the most important terms that are found in this deliverable, Appendix 2 presents a short description of the clustered IST projects that participate in the E-Factors project, with the view to facilitate a better understanding of these projects and their relevant research and furthermore to offer an insight of the way that each clustered project addresses the five thematic priorities and Appendix 3 presents a table of interrelationships of e-factors categories of all thematic areas. WP3 - Deliverable E-FACTORS

11 3 E-BUSINESS MODELS: CURRENT TRENDS This chapter contains a review of the e-business models literature. The aim is to answer the following questions related to the current trends of e-business models: - How can e-business be defined? - Which is the difference between e-business and e-commerce? - Which is the concept of a business model? - Which is the difference between business model and business strategy? - Which is the essence of a business model? - What does a business model cover? - Which are the existing classifications of e-business models? - Which are the components of a business model? - Which are the revenue models and value drivers of e-business The objective of this review of e-business models and factors closely associated with them is made to provide essential information for appreciation and evaluation of the complex nature of present day e- business model taxonomies. 3.1 Defining e-business: E-business vs. E-commerce For the purpose of this project, we have adopted a definition for the term e-business, as it is quite widely referred in the academic literature. This means that we make a clear separation with terms e-business and e- commerce. In this project, we especially emphasise the next two definitions for e-business. Electronic business (e-business) is any process that a business organisation conducts over a computer-mediated network. Business organisations include any for-profit, governmental, or non-profit entity (US Census Bureau). Electronic business (e-business): All electronically mediated information exchange, both within an organisation and with external stakeholders supporting the range of business processes (Chaffey 2002) With business processes we refer especially to such key process as buying and selling and communications with customers and business partners (B-to-B and B-to-C). Furthermore, we also include into e-business process, communications with employees (B-to-E). More specifically, we look at e-business especially from the enterprise point of view; an e-business model is therefore considered as a way, tool or strategy for conducting profitable business. Term e-commerce in this context can be defined as a more narrow subset of e-business, referring to transactional view of the term commerce as the execution of legally valid business transactions ( e-commerce is buying and selling over digital media Kalakota & Robinson 1999), or as it is defined in dictionaries that is the exchange and distribution of goods; or trade (especially between companies or countries). In contrast the term business is defined in dictionaries as "commercial enterprise; buying and selling; trade; or commerce (a more extensive view to business transactions and e.g. processes connected to it). WP3 - Deliverable E-FACTORS

12 A kind of debate exists amongst the academic world and the business consultants about the separation of these two terms. Some emphasise a view that the term e-commerce covers the entire world of electronically handled organisational activities that support the firms all exchanges in the marketplace, including the information systems infrastructure of the enterprise (e.g. Rayport & Jaworski, 2001 c.f. Laudon & Traver, 2002). Others on the other hand argue that term e-business is the one covering the entire world of internal and external electronically based activities, including e-commerce as a subset of term e-business. (Kalakota & Robinson, 2001 c.f. Laudon & Traver 2002). As a debate between these two terms exists with different meanings assigned both in the literature and in the spoken language - it is important to make a clear separation between these two terms, and how we have used them in this report. From our point of view a clear and up to date separation between these two terms comes from Chaffey (Chaffey 2002). According to whom e-business refers to all electronically mediated information exchange, both within an organisation and with external stakeholders supporting the range of business processes In contrast he defines e-commerce as All electronically mediated information exchanges between an organisation and its external stakeholders. This way he separates e-commerce and e-business more or less by the direction of activities. According to Chaffey e-business management is aimed at enhancing the competitiveness of an organisation by deploying innovative information and communications technology throughout the organisation and beyond, through links to partners and customers. He also states e-business involves looking at how electronic communications can be used to enhance all aspects of an organisation s supply chain management (internal and external process management). In contrast, Chaffey defines E-commerce as all electronic transactions between organisations and stakeholders whether they are financial transactions or exchanges of information or other services. By separating e-business and e-commerce this way, he clearly surpasses some widely used definitions, by not including only the buying and selling of goods in his e-commerce definition, but also including transaction of information and other services between different parties in a supply chain. This way he implies that e-commerce is not restricted to actual buying and selling of products, but also other aspects, such as pre-sale and post sales activities within the supply chain are included. This kind of broader definition of e-commerce is also supported by many other practitioners, e.g. Zwass (1998); e-commerce is the sharing of business information, maintaining business relationships, and conducting business transactions by means of telecommunications networks. (Zwass, 1998 c.f. Chaffey 2002) As stated above, also in this kind of separation, the term e-commerce is a subset of e-business as term e- commerce lacks the aspect of internal processes (processes within the company). This distinction/ separation between these terms comes more eminent, when referring to the definition of e-business by The Department of Trade and Industry (UK): When a business has fully integrated information and communications technologies (ICT s) into its operation, potentially redesigning its business processes around ICT or completely reinventing its business WP3 - Deliverable E-FACTORS

13 model e-business, is understood to be the integration of all these activities with the internal processes of business through ICT. (DTI, 2000 c.f. Chaffey, 2002) Following from this discussion, the project threats e-business as a term broader to e-commerce, in accordance with the predominant view in the academic and business literature. 3.2 Business model vs. Business Strategy In the literature, the concepts of business model and business strategy are often mixed and therefore an explicit distinction between these two concepts is needed. As pointed out by Elliot (2002), business model specify the relationships between different participants in a commercial venture, the benefits and costs to each and the flows of revenue. Business strategies, on the other hand, specify how a business model can be applied to the market to differentiate the firm from its competitors (Elliot, 2002, p. 7). In a recent article in Harvard Business Review, Magretta (2002) contends that...the concept of business model fell out of fashion nearly as quickly as the.com appendage itself. According to Magretta, however,...a good business model remains essential to every successful organization, whether it s a new venture or an established player. Like Elliot, Magretta holds that a business model is different from a business strategy in that the latter factor is a critical dimension of performance: competition. How can a business organization do better than its rivals? How is a business organization going to do better by being different? This is what (competitive) strategy is all about. Moreover, according to Osterwalder & Pigneur (2002) business models can be seen as the missing link between strategy and business processes or in other words the linkage between the planning and the implementation level of a business environment since a business model as indicated by the authors represents the architectural level of the business logic triangle as that can be seen in the figure 3.1.1in the next page. Planning level Strategy ICT pressure Architectural level Business Model e-business opportunities & change Implmentation level Business Processes e-business process adaptation Figure 3.1.1: Business Logic Triangle (Osterwalder & Pigneur, 2002). WP3 - Deliverable E-FACTORS

14 According to the authors the strategy - planning level is perceived to be the level where a company defines and formulates its objectives and goals whereas the business processes implementation level involves the appreciation and implementation of this information. Therefore, in this context a business model is the conceptual and architectural implementation (blueprint) of a business strategy and represents the foundation for the implementation of business processes and information systems. These three levels are relevant to the work of the current project. This deliverable analyses the notion of e-business models extensively, based on current knowledge, and identifies within a framework of five thematic priorities relevant e-factors. These are used, in subsequent Work Packages, to illustrate how a successful transition to the implementation level can be attained. 3.3 Essence of Business Models While business model specify the relationships between different participants in a commercial venture, the benefits and costs to each and the flows of revenue, business strategie specify how a business model can be applied to the market to differentiate the firm from its competitors (Elliot, 2002) as discussed in the previous section. Consistent with this view, Osterwalder et al. (2002) hold that business models can be seen as the missing link between strategy and business processes or - in other words - the linkage between the planning and the implementation level of a business environment (cf. figure 3.1.1). Hence, a business model could be seen as the conceptual and architectural implementation (blueprint) of a business strategy and represents the foundation for the implementation of business processes and information systems. The concept of a business model does not go far back. In fact, as pointed out by Earle & Keen (2000, pp ), business model is a relatively new phrase, closely linked to the recent Internet or e-business hype: The phrase is everywhere now you can hardly find any issue of a business magazine or an Internet publication that doesn t use it somewhere. This is a very recent development. Previously, the articles would have used the word strategy. Business model has replaced strategy as the focus of discussion because strategy is defined within the givens of business the givens of industry, customer base and behavior, channels, pricing and marketing. There are no givens now. To pursue a strategy and execute it superbly when it s based on a flawed business model is to be efficiently ineffective. In general terms, a business model describes how a business plans to make money. If well formulated, a firm s business model gives it a competitive advantage in its industry, enabling the firm to earn greater profits than its competitors. Whether implicit or explicit in the firm s actions, a business model should include answers to a number of questions: What value to offer customers, which customers to provide the value to, how to price the value, who to charge for it, what strategies to undertake in providing the value, how to provide that value, and how to sustain any advantage from providing the value (Afuah & Tucci, 2001, p. 45). And further: They (business models) are designed to make money for their owners long term For a firm to keep making money, it must keep offering customers something that they value and that competitors cannot offer The business model is the statement of basics, the company s direction along the value path (op.cit., pp. 48, 62; also cf. Porter, 1991). Thus, the concept of a business model is closely related to but not fully synonymous to strategy. In particular, the business model concept emphasizes value creation, i.e., how to create value (benefits) to investors WP3 - Deliverable E-FACTORS

15 and other stakeholders, including customers. Managers can use business models to capture the essence of an e-business initiative, combining the elements of the five ways to represent a business strategy, form, processes, value chain, and core competencies and the flows of revenue (Weill & Vitale, 2001, p. 33). Indeed, management theory in general and strategic management theory in particular have been preoccupied with business conduct and the value impacts thereof for many years. Strategy researchers such as Igor Ansoff, Derek Abell, and Michael Porter have emphasized value creation aspects of strategy formation and implementation. As such, the business model construct builds on ideas advocated by the main theoretical frameworks of strategic management research. Michael Porter s value chain framework is perhaps among the most cited pieces of management research ever (Porter, 1985). This model is in itself a reinvention and reformulation of practical management thinking from the early 1950s. Clearly, the notion of the business model draws on arguments that are central to the value chain concept, in particular ideas associated with business activities (processes) and multiple sources of value at the firm level (cost leadership and differentiation). Much like business model formulation, value chain analysis (VCA) is a method for decomposing the firm into strategically important activities and then understanding their impact on cost and value. It explores the primary activities of the firm, i.e., those activities that have a direct impact on value creation, as well as support activities, i.e., activities that affect value only through their impact on the performance of the primary activities. While the overall value creating logic of the value chain, with its generic categories of activities (inbound logistics, operations, outbound logistics, marketing and sales, and service), is valid in all industries, the specific strategically important activities may vary from industry to industry (Porter, 1985). This view has been contested by Stabell & Fjeldstad (1998). They suggest that the value chain is but one of three distinct generic value configurations, the other two being the value shop, i.e., modeling firms where value is created by mobilizing resources and activities to resolve a particular customer problem, and value network, i.e., modeling firms that create value by facilitating a network relationship between their customers. 1 VCA specifies how a business firm could or should maximize value creation, i.e., value of output minus costs incurred, one value chain step at a time, in order to arrive at a maximum margin, i.e., value in terms of what customers are willing to pay for the products or services provided minus costs accumulated throughout the value chain. A firm is profitable if the value it commands exceeds the costs involved in creating the product (Porter, 1985, p. 38). The close ties between the concepts of the value chain and the business model respectively are well documented in the literature, e.g., Magretta (2002), who argues that: a business model is a variation of the generic value chain underlying all businesses. However, the value chain is not the only theoretical foundation on which the business model concept is built. A business model could be seen as a method by which a firm builds and uses its resources (Afuah & Tucci, 2001). Thus, the business model concept builds on the resource-based view (RBV) of the firm (Wernerfelt, 1 A more thorough presentation of value configuration concept is provided in chapter 9. WP3 - Deliverable E-FACTORS

16 1984; Barney, 1991) and is consistent with the VRIO framework (e.g., Barney, 1997). The business model concept takes into consideration the ways in which resources can be valuable, e.g., by being difficult to imitate, less transferable, less substitutable, more complementary, or more productive in use. Alternatively, a business model describes the steps that are performed in order to complete transactions. Thus, the business model depicts the content, structure, and governance of transactions designed as to create value through the exploitation of business opportunities (Amit & Zott, 2001). As such, the business model concept builds on transaction cost economics (TCE), one of the main features of which is to focus on the efficiency of alternative governance structures that mediate transactions (Williamson, 1975; Clemons & Row, 1992). TCE considers transaction efficiency as a major source of value creation, as enhanced efficiency reduces costs. According to Weill & Vitale (2001), a business model is a description of the roles and relationships among a firm s consumers, customers, allies, and suppliers that identifies the major flows of product, information, and money, and the major benefits to participants. This view of a business model has a wider scope than does the firm, since it spans activities across firms and industries to encompass the whole value creating system of the final product and service, i.e., all activities that collectively are engaged in providing the ultimate customer value (Parolini, 1999). The strategic network perspective has been fostered by the economics of information of electronic networks where the cost of gathering information, controlling, and coordinating transactions with other economic actors, has been significantly reduced (Malone et al., 1987). Moreover, networks emerge from disintegrated value chains (Evans & Wurster, 1997). Das & Teng (2000) have developed a resource-based theory of strategic alliances in which they suggest that the rationale for alliances is the value creation potential of firm resources that are pooled together. Hence, the business model concept draws on strategic network theory (SNT) by building on the view that unique combinations of interorganizational cooperative arrangements (e.g., strategic alliances, joint ventures) can create value (Doz & Hamel, 1998; Dyer & Singh, 1998). In summary, the concept of the business model is a relatively new phrase, stemming from the emergence of the Internet and e-business hype. It relates to the strategy concept, but the two concepts are clearly not fully synonymous. Business models theoretical foundation could be traced back to most strategic management theories, the value chain framework of which seems to be the most obvious. Also, RBV, TCE, and SNT constitute relevant theoretical foundations. 3.4 Defining the Concept of Business Model Why are we to synthesise a business model of our own? To answer this question we have to be more specific in what we mean by a business model. First, any model is an abstraction of 'reality'. It should define a set of entities and their relationships. It can even define some qualitative or quantitative values of the entities. Specifically, determined from a number of contemporary business models, a business model implies a set of entities that describe the fit of its resources and functions with the environment (an adaptive enterprise, price taker), or a mission/vision/strategy accomplishing organisation acting on the market accordingly (price maker). Thus, there is an in-built idea of a business model being a contingency model (i.e., finding an optimal mode of operation for a specific situation). The evolution of a business model is about changes in its WP3 - Deliverable E-FACTORS

17 environment and infrastructure. Some of the most quoted definitions of business model are the definitions by Magretta, Amitt & Zott and Afuah & Tucci, which we will present shortly. Let us first go through the state of the art of business model definitions, by listing some of the most cited definitions, as well as others which, emphasize alternative elements of a business model: Magretta (2002): A business model is a variation of the generic value chain underlying all businesses. A business model has two parts: (i) the business activities associated with making something (design, procurement, manufacturing, etc), and (ii) the business activities associated with selling something (customer identification, selling, transaction handling, distribution, delivery). Amit & Zott (2001): A business model depicts the content, structure, and governance of transactions designed as to create value through the exploitation of business opportunities. A business model includes the design of: - Transaction content: goods/services; resources/capabilities - Transaction structure: parties involved; linkages; sequencing; exchange mechanisms - Transaction governance: flow control. A business model describes the steps that are performed in order to complete transactions. Afuah & Tucci (2001): A business model is a method by which a firm builds and uses its resources. A business model consists of: - Components (eight listed in section 3.4) - Linkages between components - Dynamics (change; reinvention) Timmers (1999): A business model is an architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the sources of revenues; and a description of the potential benefits for the various business actors. Weill & Vitale (2001): A business model is a description of the roles and relationships among a firm s consumers, customers, allies, and suppliers that identifies the major flows of product, information, and money, and the major benefits to participants. Elliot (2002): A business model specifies the relationships between different participants in a commercial venture, the benefits and costs to each and the flows of revenue. All business models seek to address a simple equation: profits = revenue costs. Mahadevan (2000): A business model is a unique blend of three streams that are critical to the business: (i) the value stream, which identifies the value proposition for the business partners and the buyers; (ii) the revenue stream, which is a plan for assuring revenue generation for the business; and (iii) the logistical stream, which addresses various issues related to the design of the supply chain for the business. Petrovic (2001): A business model describes the logic of a business system for creating value, that lies behind the actual processes. WP3 - Deliverable E-FACTORS

18 Applegate (2001): A business model is a description of a complex business that enables study of its structure, the relationships among structural elements, and how it will respond in the real world. Clearly, the concept of a business model means different things to different people. Generally speaking, a business model is a story that explains how an enterprise works (Magretta, 2002). It is a kind of value chain description, i.e., a description of all the activities or key business processes, the flows of products, services, and information associated with these processes. Furthermore, it describes all the actors participating in the business venture, including the roles and relationships as well as transactions completed between these actors. Competition and environmental conditions are normally not part of the business model. Hence, a business model is not synonymous with a business strategy as discussed earlier. Quite frequently, however, business models include value propositions and encompass revenue models (e.g., Elliot, 2002; Mahadevan, 2002). Some experts keep the revenue model separate from the business model (e.g., Amit & Zott, 2001). Definitions for business models listed above present an overall view of the complexity of business model definitions; while at the same time shed some light to this concept. It is not the aim of this deliverable to opt for one single definition of a business model or to provide an exhaustive list of business model definitions. The aforementioned definitions have their advantages, and from the view of evaluating factors influencing business model adoption the selection/adoption of only one single definition has not been seen as a meaningful approach to the subject. However, as we stated earlier, in Europe the situation is understood probably a little bit differently: More emphasis is put on the enterprise as being part of the society; on active business policy by regional, national, and European wide development agencies; on the interplay of businesses and educational institutions; and on institutionalised competitive constellations, in many cases due to the smaller than ideal national/regional home market. 3.5 The E-Factors perspective on e-business models definition A model is an abstraction of a complex reality. It defines a set of entities their roles and their relationships. It can even define some qualitative or quantitative values of those entities. More specifically, a business model implies a set of entities in a commercial venture and portrays them in the context of two distinct set of factors, endogenous, that embrace factors that lie in the control of individual enterprises such as organizational, technical and individual factors, and exogenous, that include factors beyond the control of individual enterprises, such as industrial and societal factors that in some cases are defined by policy makers. An e-business model is, thus, defined as an Internet-enabled business model. 3.6 E- Business Models Typologies, Taxonomies and Frameworks A business model typology or taxonomy is a way of classifying different types of business models. Typically, business model types are classified along one or more dimensions. A business model framework, on the other hand, is a way to classify, organise or describe business models according to a set of principles or ideas. While the former is concerned with mapping generic business models on one or more dimensions, the WP3 - Deliverable E-FACTORS

19 latter is more concerned with the components and linkages between components that constitute a business model. Some of the most commonly used classifications / taxonomies of e-business models: Timmers (1999) presents a business model typology (also adopted by Elliot, 2002). The mapping criteria or dimensions used by Timmers are the degree of innovation and functional integration. Timmers has identified the following eleven generic business models: - e-shop - e-procurement - e-mall - e-auction - value-chain service provider - virtual business community - collaboration platform - trust services - information brokerage - third-party marketplace - value-chain integrator These business models can be separated based on the degree of innovation and functional integration of the different models. This is shown in the figure below: Figure 3.3.1: Classification of Internet business models (Timmers, 1999) Tapscott et al. (2000) has divided e-business models into six subcategories; Agoras, Aggregations, Value- Chains, Alliances and Distributive Networks. Tapscott s taxonomy is based on the business networks creating a new kind of collaborative e-business (Business Webs). His ideas are in many ways interesting, and this classification can be used to describe e-business formats, that are strongly based on co-operative alliances (e.g. Intermediaries/Infomediaries): WP3 - Deliverable E-FACTORS

20 - Agora dynamic pricing (e.g., Yahoo; ebay) - Aggregation selection and convenience (e.g., Amazon; E*Trade) - Value Chain process integration (e.g., Cisco; Dell) - Alliance creativity (e.g., AOL; MP3) - Distributive Network allocation, distribution (e.g., Enron; UPS) Weill & Vitale (2001) introduce what they call atomic business models. They are presented in order, from the most potentially profitable to the least: - Direct to Customer Dell.com; Gap.com - Full-Service Provider Amazon.com; gesupply.com - Whole of Enterprise several business units; one interface with customers - Portals, Agents, Auctions, Aggregators, and Other Intermediaries - Shared Infrastructure - ABACUS - Virtual Community Motley Fool; The Well - Value Net Integrator 7-Eleven Japan; Cisco - Content Provider Reuters; CNN Applegate (2001) presents four digital business model categories: - Focused Distributor Models retailer; marketplace; aggregator; infomediary; exchange - Portal Models horizontal portals; vertical portals; affinity portals - Producer Models manufacturer; service provider; educator; advisor; information and news services; custom supplier - Infrastructure Provider Models a number of sub models, e.g. infrastructure portals One classification that has many interesting characteristics is Rappas (2000) taxonomy. He divides e- business models into nine categories: - Advertising - Affiliate - Brokerage - Community - Infomediary - Manufacturer - Merchant - Subscription - Utility This taxonomy is strongly based on the company s source of revenue. It provides a way to describe e- business cases in which a company has adopted a multi-model business format. This is of importance since many e-businesses do contain many forms of business within a single website (e.g. Internet Portals often have multiple revenue channels). WP3 - Deliverable E-FACTORS

21 Quite a few experts have adopted the typology of generic business models developed by Rappa (2000). Among these experts are Afuah & Tucci (2001): - Brokerage market maker (travel agencies; auction houses) 10 submodels - Advertising provides content in websites; fees (Yahoo; Alta Vista) 6 submodels - Infomediary collects information on consumer buying habits; offer incentives to consumers two sub models - Merchant e-tailer (pricing fixed or negotiated/auctions) 4 submodels - Manufacturer searching customers directly (channel conflicts?) - Affiliate website which have click-through to the merchant - Community rests on loyalty, not traffic (ivillage) - Subscription price paid; receive content (AOL) (moral hazard?) - Utility pay as they go (activities are metered) Other experts are more concerned with identifying the key components of business models, i.e., developing a framework by which a business model can be defined, described and analysed. Some other commonly used classifications / taxonomies of e-business models include the following: ν Mail Order ν Advertising Based ν Subscription ν Free trial ν Direct Marketing ν Real estate ν Incentive scheme ν B2B ν Library ν Freeware ν Open source ν Aggregators ν Auctions ν Exchange ν Content Business ν Advertising-driven ν E-Commerce (goods for profit) ν E-commerce (non goods, non profit) Originators Syndicators Distributors Consumers Type of Service Generic Internet Specific Syndication Specific Babmbury (1998) Buckley (1999) Rayport & Sviokla (1999) Werbach (2000) Figure 3.3.2: Business model classifications E-factors focus on the taxonomies presented by Timmers (1999), Tapscott et al. (2000) and Rappa (2000), as explained in section 3.5 in detail. 3.7 Components of a business model Based on the fact that there are quite an extensive number of different e-business model taxonomies, there is also no mutual understanding of the key components that define a business model (there are different perspectives and a different outlook of the key explanatory components of a business model). In this part, we present some of the most used classifications of business model components. WP3 - Deliverable E-FACTORS

22 Afuah & Tucci (2001) hold that business models consist of the eight components listed below, the linkages between these components, and the dynamics of the model (change, reinvention etc.). The eight business model components are: - Customer value differentiation vs. low cost - Scope products/services; customers/market segments - Pricing/Price dynamic pricing, 5 alternatives - Revenue sources cf. Otis; stock brokerage; advertising metrics - Connected activities value chain linkages - Implementation strategy, structure, systems, people, environment - Capabilities resources: tangible; intangible; human = competencies = ability/capacity to turn resources into customer value and profits Other classifications of business model components include e.g: Author Business Model Elements 1. Global core, VISCIO & PASTERNACK, Business units, 3. Services, 4. Governance, 5. Linkages. KRAEMER et al., Direct Sales, 2. Direct Customer Relationships, 3. Customer Segmentation for sales and service and 4. Build to order production. MAHADEVAN, 2000 A blend of three streams: 1. Value stream - for the business partners and buyers 2. Revenue stream 3. Logistical stream ALT & ZIMMERMAN, Mission 2. Structure 3. Processes 4. Revenues 5. Legal Issues 6. Technology Table 3.4.1: Classifications of business model components WP3 - Deliverable E-FACTORS

23 Analysis of the Components of the Business Model Elements (Alt & Zimmerman, 2001): Mission Structure Processes Revenues Legal Technology Goals, Vision Actors & Roles More detailed view of the: Mission & Structure Value Proposition Focus: -Industry -Customers -Products Indicates the Elements of the value creation process Sources of revenues (Short-term & mid-term) Necessary Investments (short-term & mid-term) With respect to the Company itself With respect to the Product/ Service In terms of the ongoing technological developments In terms of their impact upon the business model design Estimate the (potential) perceived customer -added value (i.e. better price, improved service...) Determine what the product /service offering will be Customer Orientation Business Logic With respect to the Revenue model In terms of its impact on the first four business model Elements Which will be the target group Co-ordination Mechanism In terms of their impact upon the Decisions on structures of value creation systems (i.e. value webs) In terms of their impact upon the Revenue models Table 3.4.2: Components of business model elements: (based on the analysis of Alt & Zimmerman, 2001) Methlie (2001) has developed a framework for a generic business model, highlighting the key components of such a model: - Market maker seller-driven; buyer-driven; neutral - Direction of integration horizontal; vertical - Strategy focused; undifferentiated - Control model mediator; agent; distributor; hierarchy - Service integration supplier aggregation; supplier integration; information integration; customer integration; value chain and function integration - Forms of co-operation market expansion; service integration; information integration; co-branding; competence partnership; infrastructure partnership Methlie s contribution is characterised by including strategy in the business model framework. However, this is a minor issue. The main point is that the two frameworks above provide the means by which all kinds of business models could be defined and analysed. This generic business model concept spans firm and industry boundaries. On the other hand, the typologies/taxonomies above are examples of attempts to identify the most important business models from a practical point of view. WP3 - Deliverable E-FACTORS

24 Osterwalder & Pigneur (2002) have adopted a definition that illustrates how a business model actually works. More specifically, the authors indicate that a business model consists of four main pillars that encompass the product and service proposition of the firm in the market, the customer relationship that the firm maintains, the necessary infrastructure that will enable the firm to realize all the above and lastly the finanvial aspects of the firm as it can be seen in the figure below. Figure 3.4.3: The 4 Pillars of the Business Model Ontology (Osterwalder & Pigneur, 2002). 3.8 Revenue models As we have presented above, the term business model more or less describes the way in which the company positions / allocates itself and its resources with respect to the value chain in which it operates (industry/line of business). These various e-business models can include many different revenue models (source of income for the firm). Revenue models therefore describe how and where the company actually gets its income, and the way in which the chosen business model enables revenue generation (Amit & Zott 2001) (usually multiple revenue sources). However, the Internet has become notorious due to the users unwillingness to pay even though some companies are able to reap profits on the virtual market. One classification of these separate revenue models in e-business is a classification by Novak and Hoffman (Novak & Hoffman, 2001), which separates e-business revenue models into following categories: Transaction fees The firm collects a fee for each transaction that is conducted through its e- Business infrastructure Hosting fees Collection of fees for hosting others applications and transactions on its e- Business infrastructure. (ASP model) Referral fees Subscription fees License fees The e-business site provides customers with information regarding products and services on other sites. When the customer goes there and conducts business, the referred to business pays a fee to the referring business. Regular payments for access to information or services provided into the marketplace. Collection of fees for e-business processes to which the company has rights. WP3 - Deliverable E-FACTORS

25 Pay-per-view Pay-perperformance Micropayment Advertising Sponsorship Ransom Model Margin on sale of goods/services Sale of customer data Amazon.com s 1-Click Ordering system is such a system. It has been licensed to several companies. Charge a fee for each access to information. Fee is collected if the consumer completes a transactions (but only if a transaction is completed). Collection of very small transactions fees, but in high volumes. Allowing the firm s e-business infrastructure to serve as an advertising platform for other companies. Receive fees for sponsoring others e-business sites through your own infrastructure. Provide some information free, then charge for completion or further access to the information. Examples: Stephen King provides a chapter free, then charges if you wish to read the whole book or subsequent chapters. Selling goods and services through the Internet and collecting a margin on it. Collection of customer data, then selling it to others. Note: This practice is illegal in Europe, but quite common in North America. Offline customer response Efficiency & effectiveness gains Value-added services (Linux model) Virtual real-estate The Web is used to entice customers, then subsequent profitable transactions are done off-line, through a brick and mortar infrastructure. Transactions efficiencies are improved (less errors; higher rates for information; greater volumes at same cost) Fees are collected on new services that are provided for free goods and services offered on the Internet. The company develops a presence in cyber-space, and then is able to leverage this real estate by selling it to, or renting it to others. Table 3.6.1: E-business revenue models 3.9 Conclusions on current Trends in e-business models When evaluating the different taxonomies above from the point of e-business model adoption factors, some taxonomies can bee seen as more suitable both from the point of identification of the factors influencing e- business model adoption and from the point of case evaluations (in e-factors WP4). From this point of view the taxonomies presented by Timmers (1999), Tapscott et al. (2000) and Rappa (2000) were considered as the most suitable ones to be emphasised in the project. For this there are two reasons. First, these taxonomies encapsulate different perspectives; Timmers (1999) examines business models from the point of innovation and functional integration. Tapscott et al. (2000) evaluates different business models from the point of collaborative business webs (e.g. portals, intermediaries, infomediaries). Finally, Rappa (2000) gives to the evaluation a view, where one eminent factor of separation is the source of revenue. Second, when identifying and evaluating different factors that have an impact on e-business model adoption, the selection of some key taxonomies to be used in the process of factor identification, was seen as a impor- WP3 - Deliverable E-FACTORS

26 tant controlling/directive factor for the work of e-factors consortium (the work of different partners in the project should be based on the same evaluative criteria to keep a coherent view between different thematic areas divided to the each consortium partner -the use of business model taxonomies in the formulation of each thematic priority area). unorganised Supply Communication & sales channel Click & Mortar Catalogue Merchant E-tailer Bit vendors Demand Info source and channel for procurement (personalized) portal organised Shopping boulevard and plaza Virtual mall Affiliate programs Auctions (based on organised supply) Infomediary & broker Bargain discounter Group buying Reverse auction integrated Electronic Marketplace Buy/sell fulfillment B2B Marketplace (MRO Hubs, Catalog Hubs, Yield mgrs, exchanges) Virtual communities Recommender services Figure 3.5.1: Business model - trends Actually when looking back to the previously presented business models, it is evident that some sort of expansion outside the firm boundaries are emerging. First, as depicted in the figure above, there is a trend towards dynamic market on which the alliances and networks of companies are established when needed (see e.g., Tapscott et al, 2000). On the other hand, we can see competing trends towards integrated even tighter co-operation along competing value chains (see e.g., Tapscott et al., 2000; Clemons et al., 1995 Move-to-the-Middle hypothesis). However, we should be aware that at least qualitatively this bi-directional trend has been noticed by research at least for twenty years (Attewell & Rule, 1984) Taxonomies, components and trends of e-business models must be taken into consideration when formulating and analyzing e-factors. Both current and emerging forms of e-business must have a clear part in the process of identifying e-factors. Consequently this report not only analyses e-factors from a historical perspective, but clearly examines factors that influence or may potentially influence the adoption of new emerging business models, and these factors may play an important role in the adoption process. WP3 - Deliverable E-FACTORS

27 4 THE E-FACTORS FRAMEWORK 4.1 Introduction In this document, we try to find key factors influencing e-business model adoption, which can work as inhibitors/barriers or accelerators, depending on the current situation (e.g. e-business model and combination of different environmental factors). It is most likely (our working hypotheses) that first, these factors must be abstracted to broader categories, so that the actual instances of the individual factors can be mapped in different situations. Second, it is equally likely that it is the temporal evolution of the factors that draws the thin line between success/failure. Thus, our suggestion on analysing and determining the e-factors will be more framework like than an exhaustive list of factors along the lines of conceptual work done by e.g. Osterwalder & Pigneur (2002) E-Factors What Makes a Business Model Work? According to Magretta (2002), when business models do not work, it is because they fail either the narrative test (the story doesn t make sense) or the numbers test (the profit & loss doesn t add up). Failure of the first kind occurs when customers and/or business partners do not want to play the game no matter how smart and efficient the business model is. Failure of the second kind may occur if the business model is good and sound but the enterprise is facing thin margins to begin with and is not able to generate sufficient profits due to the fact that new costs are incurred and/or customers are not willing to pay the right price (cf. the grocery industry). E-factors, in this context, are those factors or phenomena that promote or inhibit the successful performance of a business model. By successful performance, we mean the total value created through a business model, i.e., the sum of values appropriated by all the participants in the business model over all transactions enabled by the business model (Amit & Zott, 2001) Theories Relevant to the Identification of E-Factors Based on a thorough theoretical analysis, Amit & Zott (2001) came up with a model, which depicts interrelated sources of value creation (value drivers) in e-business. The theoretical analysis presents the following theoretical perspectives: - Value chain analysis (VCA) - Schumpeterian innovation theory (SIT) - Resource-based theory (RBT) - Strategic network theory (SNT) - Transaction cost economics (TCE; Coase, 1937; Williamson, 1985) While VCA and TCE highlight the role of efficiency in value creation, RBT holds that combining a set of complementary and specialised resources and capabilities may lead to value creation. SNT, on the other hand, focus on the implication of network structure for value creation. Finally, SIT has innovation as the primary WP3 - Deliverable E-FACTORS

28 source of value creation. SIT also emphasises the importance of technology in the creation of new products and production methods. The theoretical analysis provides the background for a subsequent empirical investigation. Amit & Zott (2001) used empirical data to establish a model of four interrelated value drivers: - Efficiency (costs, speed, selection range, scale economics, etc.) - Complementarities (vertical, horizontal, between products, technologies, etc.) - Lock-in (switching costs/trust/loyalty, network externalities, customisation, etc.) - Novelty (new transaction structures, transactional content, participants, etc.) Figure 4.1.1: e-business value drivers (Amit & Zott 2001) To complement the framework we have to pay some attention to issues of diffusion, i.e., the temporal dispersion of new technology into use: There are, for instance the Schumpeterian innovation theory (SIT), where the lax resources are seen as a necessary prerequisite for innovation; a contrasting Darwinian competition view with the survival of the fittest on the free marketplace. Similarly, we have the diffusion ideas of Rogers s extensive studies on the propensity of being influenced by the information on innovations (Rogers, 1976 & 1983), supplemented by Moore s & McKenna s adoption gap (1999); and complemented with knowledge barriers of adoption studies (e.g., Attewell, 1992; Cohen & Levinthal, 1990) and ideas of assimilation delays (Fichman & Kemerer, 1997), and disasters (Christensen, 1997). The above is the trick in ebusiness model adoption it is a continuous evolution of business model and technical possibilities affecting each other. WP3 - Deliverable E-FACTORS

29 4.1.3 Current barriers for e-business adoption A review of what makes a business model work would not have been complete unless barriers to adoption are examined. Such barriers have particularly been identified in the studies made in the SME environment (Small and Medium-size Enterprises). While the research results for SMEs do not necessarily apply to larger companies, they provide a significant contribution to our understanding of successful e-business adoption. Previous research (e.g. Line56 &, AT Kearney Joint Research (2001), Nolan Norton Institute (2000), and Statistics Norway (2001), indicates that at least the following seven factors are major barriers/inhibitors for the adoption of new e-business models: - Cost of implementation - Security concerns - Perceived customer readiness - Lack of knowledge (IT and e-business know-how) - Lack of executive support - Bandwidth limitations - Reliability of technology It is important to acknowledge that while these factors form strong barriers for some companies wishing to adopt a certain model of e-business, they also function as accelerators for some of their potential competitors, that have abilities to overcome these barriers (resources, new inventions etc.). In addition, some clear differences between large companies and SMEs must be noted (as also the differences in the forms/scale of e-business models that SME sector usually has resources to adopt). When compared to the barriers of the industry as a whole, and the main barriers/inhibitors identified by SME executives, some aspects that are especially problematic for SME companies can be identified. Some of these include (e.g., CommerceNet study, 2000) lack of qualified personnel, risk of loss, partners e-commerce readiness, lack of business models and legal issues. 4.2 The Framework From the outset of the project the e-factors consortium drew up a framework encapsulating our best understanding and accumulated project experience from the clustered IST-research projects and state-of-the-art research. The framework has then been validated in various academic meetings, and it has received rather enthusiastic interest. While general in its formulation, it provides a broad picture on what kind of business model framework we are aiming at. WP3 - Deliverable E-FACTORS

30 Figure 4.2: Spatio-temporal framework of the thematic priority areas The benefits of this kind of framework are, that first it addresses, not just the traditional technical and organisational factors, but also looks closely to the external factors that define the situation in that particular market, and dictate the environment into which the company is directing its new business operations. Second, some of the earlier models concentrate almost completely on the so-called business functions, with little emphasis on such elements as structure and change process. Therefore we want to pay special attention on the structural issues on each thematic priority, and especially on the spatio-temporal dimension i.e., within what sort of time frame the change has taken place, and how widely it has dispersed geographically the latter being important especially in the multi-cultural and multi-linguistic European context. 4.3 Method of Work The work carried out in WP3 derived from the following two main objectives that characterize the e-factors project as a thematic network: To present, explore, analyse and discuss the nature of work related to e-business model adoption of individual projects in the cluster. Individual projects bring to the thematic network that is e-factors their concept, scope, objectives method of work, and interim findings. To bring together the complementary expertise of the network participants both academics and practitioners and thus, develop a framework of current E-business models identifying factors that are affected by the societal, individual, organisational and technical prerequisites and requirements. The general method employed by the network participants is described in the figure below. WP3 - Deliverable E-FACTORS

31 Thematic Priorities Technical/Individual Organisational/Industry/ Societal Figure 4.3: Method of work on Work Package 3 WP3 (general) In the context of the analysis of the thematic priorities, the consortium proceeded with a specific method of work, with the exception of the technical thematic priority, which due the nature of this particular thematic area followed a slightly different method. The method that was followed can be depicted in the figure below and is explained in the following paragraphs. WP3 - Deliverable E-FACTORS

32 Figure 4.4: Method of work in relation to the thematic priorities. The process that the consortium followed for the compilation of a comprehensive list of e-factors in this deliverable can be divided in six distinct phases. In the first phase - Collection of Material, all consortium partners (as experts in e-commerce) performed a brainstorming activity, which lead to a first list of factors under each thematic priority. Subsequently, in the second phase Theoretical frameworks, we proceeded with an identification of the relevant theoretical frameworks for the thematic priorities. These include, for example, social and cultural theories for the societal thematic priority, theory for reasoned action for the individual, strategic network theory for the organizational and so on, that can help explain the factors identified in the first phase. Following this, in the third phase Reporting Results, a theoretical analysis was performed in order to identify further factors under each thematic area that have been acknowledged and analysed within the various theoretical frameworks. While factors explicitly identified in the e-commerce literature were also included at this stage, the main emphasis of this review has been to identify factors beyond those, in order to expand previous lists of e-factors to a more comprehensive compendium for all thematic areas. The importance of this phase became particularly evident in the societal thematic priority, where a few new factors were identified; factors that were either implicit or missing from the existing electronic commerce literature. In the forth phase Identification of Examples from Clustered projects, the expanded list of factors was further elaborated through the identification of examples from the clustered projects participating in the e- factors project. The aim of this phase has been to provide a richer understanding of the various factors and demonstrate how the clustering of projects related to e-business models can provide a more complete picture of e-factors than each project alone. WP3 - Deliverable E-FACTORS

33 In the fifth phase Identification of interrelationships with other thematic areas, the relationship of each thematic priority with the other thematic areas is re-assessed in an attempt to acquire a better understanding of the potential correlation of the various themes and show the interrelations of the thematic priorities. Finally, in the sixth phase The Final List of Factors from all Thematic Areas, we present the final list of factors, that have an impact on the adoption of e-business models, as a result of the examination of the interrelationships of the various thematic areas, from the previous phase, and the identification of the various overlaps and interrelations of the various categories and sub-categories of each priority. This comprehensive list of factors will be the assessment tool that will be employed in order to guide the presentation of the e- business best practice cases in the course of the Work Package 4. While all consortium partners contributed to all phases, the following partners were identified as leaders of each thematic priority in order to better organize and edit the consortium work under the respective thematic priority. Technology: Individual: Organization: Industry: Society: University of Jyväskylä (Finland) University of Manchester, Institute of Science and Technology (UMIST, UK) Norwegian School of Economics and Business Administration (NHH, Norway) Erasmus University (The Netherlands) ELTRUN Research Centre, AUEB (Greece) & INSEAD (France) (section on Capital Markets ) The E-Factors project addresses the problem of sharing and disseminating the already acquired knowledge and experiences on implementing e-business models to a broader range of stakeholders within the European Community. Hence, the implementation of E-Factors exploitation plan will be a continuous activity throughout the life span of the project, and it is a subject to specific tasks within WP6 (Exploitation and Dissemination Activities), which is concerned with orchestrating the dissemination activities across Europe. Since one key element of the e-factors project work method is to try to utilise findings of other e-factors cluster projects during the work process, this was prioritised as one key element of the work process. Therefore, each partner was challenged to pick out ideas and results of these cluster projects as part of the work on individual thematic priority areas. Though this method of work was utilised, these cluster projects are often focused into some quite narrow aspect/problem and in some special conditions, and therefore the results from these cluster projects usually offered above all some general ideas and references for the work on WP3, but also some detailed information that have been utilised in the formulation of this framework document. A short description of the clustered IST projects that participate in the E-Factors project along with an insight of the way that the each clustered project addresses the five thematic areas is presented in appendix 2. One of the methods of work in the e-factors project is to organise workshops, hosted in different regions, which will help to direct the work on different work packages, disseminate the work-in-progress of the consortium and seek feedback from the invited participants. During the work on this WP3, the project held workshops and events e.g. in Athens (Greece), Paris (France), Bled (Slovenia) and Copenhagen (Denmark). WP3 - Deliverable E-FACTORS

34 WP3 - Deliverable E-FACTORS

35 5 TECHNICAL / TECHNOLOGICAL THEMATIC PRIORITY Editors / Organizations University of Jyväskylä (Finland) Prof Jukka Heikkilä Mr. Jari Penttila The purpose of this chapter is to identify the key technological factors that play a role in the process of e- business model adoption. Consequently, an organisation implementing a new e-business model into its operations should consider these factors before and during the adoption and implementation process of a e- business model. Many of these factors are nowadays - more or less dictated by either by the past development trajectory of the organisations IT platforms or by its relationship with external environment; the state of technological development, user preferences and expectations, competitive environment, etc. Also due to the emerging nature of technological factors, the chapter provides a list of key techniques, IS applications, and purely technology related factors. It is worth noting that we share the more and more common view on the technology created, understood and domesticated by individuals and organisations as artefacts, which are not external to the social system, but rather having multiple roles in organisational life. The list of factors and subcategories are confined to those factors, which are seen to be, first, of importance, as we know them in the present and foreseeable e-business environment. Second, we are to identify technological categories with factors that are more or less common and generic to most e-business models. This way we ended up with the list of factors that are explained in detail with examples and checklist type of questions. Despite the general nature of the factors reported here, e-business models vary substantially in different circumstances: sometimes a certain technology can be of crucial importance, other times it may be insignificant. Therefore, we feel very uncomfortable of any attempt to nominate the best technologies for the best business models, as there are simply so many different ways of building the technical platforms, applications, solutions for different products, customer segments, market areas and logistics. It is also important to notice the role of the present technological architecture and co-existing platforms of a company and of its partners and customers, when considering the impact of a new business model adoption, and the implementation of needed new components/systems. At present it is not a greenfield operation anymore to implement IT for e-business. It is more than ever up to the overall ability of the organisation to both acquire, implement and manage these new technological systems and applications. Yet, the technological factors hold an important role in the strategic IT-planning and business process alignment. In each case it is also important to understand the role of continuing development of current information systems and platforms (because of external pressures and irreversible technical development). This increases the importance of estimating the total cost of this continuing system development and its burden on the human resources, as part of the risk management process of the company. WP3 - Deliverable E-FACTORS

36 5.1 List of Technical/Technological Factors Identified WP3 - Deliverable E-FACTORS

37 5.2 Critical Technical Issues in Electronic Commerce Interoperability & Interconnectivity Interoperability and interconnectivity of technical systems are fundamental elements for effective adoption of e-commerce business models. Without seamless interoperability of key systems and functions, the possibilities for implementing a business model are limited. However, there is a trade-off: interoperability requires work on standard setting, contracting, and integrating information systems. In addition, commitment to standards to ensure interoperability with major e-business functions and elements (information/content exchange, security, purchasing, negotiating, billing, paying, etc.) is a necessity. In research projects studying e-commerce in various fields ranging from travel services to groceries (Järvelä et al. 2000), the researchers concluded the standardised protocols to be the key issue between different stakeholders and business model instances. Hence, the interoperability between the partners is to be guaranteed via standard interfaces whenever possible. In many cases there will emerge proprietary standards because of power constellations on the industry and due to the delays in creating and implementing universal standards: Figure 5.2.1: Actors roles in separating channels (c.f. Järvelä & Tinnilä, 2000). PC=Personal Computer; DVB=Digital Video Broadcast, i.e., Digital TV, suitable for radio, too; MAD=Multimedia Access Devices. WP3 - Deliverable E-FACTORS

38 The above figure also summarises neatly the main functions within an e-commerce value chain. There the activity of conducting a business transaction is divided into four separate channels, where information and materials are moving down- and up-stream: - Persuasion: marketing & selling channel - Finance: payment, billing, financing - Commitment: ordering, booking, subscription etc. - Delivery: distribution of physical and digital products & services The elementary issue in understanding value chain split in different channels helps an analyst/a researcher to analyse the techniques for conducting the transaction within this subsystems in relationship with the partners positions and responsibilities in the value chain (Kallio et al., 2000). It can also be used in analysing the hand-offs and identifying intersections of information systems, activities, and people cross, i.e. points where interoperability is to be ensured. This is especially true, as more and more of the channels are outsourced to specialised vendors, partners, and subcontractors Techniques for access It seems that there will emerge multiple terminal devices for access over an ideally interoperable network. Next figure presents the multi-channel service environment of an IP-network, where the problem of a firm is to combine an ideal set of channels for a seamless service for the customer, integrated with the existing physical channels. From the customer point of view, the channels are seldom separate, but form a set of contact points, the interconnection and interoperation determines the user experience: DVB sets Multichannel CATV DVB Router Fixed terminal PSTN, ISDN, xdsl Gateways? Router Router service GSM, GPRS, UMTS Mobile terminal Proprietary networks, Peripheral devices (payments, IDs, outoput, WLAN, LON) Portals Router IP-Network (IPv6) Router Service providers Traditional channels Figure 5.2.2: Multichannel access to IP-Network WP3 - Deliverable E-FACTORS

39 Example questions for the case evaluation: What kind of terminals the users are expected to have? Has the company considered its offering via the whole network, or does it see the electronic channel as separate from others? 1. Fixed Place & Mobile use: More and more of the typically services for PC-users (fixed place) providing companies are integrating such technical & functional components to their web sites that better support mobile and wireless connections. And the reason for doing this is clear: e-business companies have realised the potential of mobile-/portable terminals in connecting to the customers every day routines. Also the sheer number of mobile terminals is exceeding the number of Internet connections in all EU-countries; this is especially true in Southern Europe (MobiCom, 2002). However, their functionality is limited. 2. Roaming: Roaming refers to contracts of delivering and accessing services over other networks. Without roaming we would have neither the Internet, nor proprietary interoperable GSM-networks. There are, roughly speaking, two different techniques on roaming: on the Internet it is called Mobile IP, and on the GSM/cellular terrestrial radio networks it is Location registers. The operation of Mobile IP is depicted below (c.f. Veijalainen, 2000): Figure 5.2.3: Operation of Mobile IP The problem with roaming is that different technology stacks (e.g., according to ISO OSI-model), are not compatible. The bearers differ (GSM, GPRS, IP), the gateways are developed always later. Additionally draw- WP3 - Deliverable E-FACTORS

40 ing up and signing roaming agreements is time consuming, and as a consequence it takes a long time before the services roam properly (e.g., SMS over GSM took years to cover the whole of Europe). Example questions for the case evaluation (Access): Is it possible to provide seamless stationary/mobile connections (e.g., Europe-wide SMS/WAP-services, use of portable computers & PDA-devices etc.)? If yes, then what are the main functions that are supported with these systems? (e.g. browsing and ordering on the Internet, SMS-news lists, WAP-ordering etc.) What is the strategy in roaming: e.g. in some international services the roaming costs can be substantial, so why did they choose as they did? Capabilities of terminal devices Capabilities of terminal devices is one aspect that needs profound consideration both when considering the adoption of a certain e-business model, and especially when implementing the model into reality. The company must analyse the type & nature of the information and services it is considering to deliver through electronic channels, and how this fits to the present (and future) range of connection techniques and terminal devices at use; e.g. PC, GSM, WAP, GPRS, UMTS, WLAN, Bluetooth, palmtops, laptops and other PDA- devices. When the targeted device of use is a PC the task is much more simple (connection speed, needed applications etc.) than when considering supporting also the use with portable devices; which involves a variety of different types of devices (processing capabilities, speed of connection, memory, screen size etc.). Some key aspects to be considered from the point of terminal devices are: - Speed of technological change, and ability to adapt to the changes in the environment of terminal devices used by key customer segments. - Reliability of applications, devices and connections; how reliable are those devices when used in a way that the company is considering to use (e.g. problems and limitations of WAP-phones) - The future environment / use of this kind of services (how, where, when and how much the customers must/ will pay!) - Interoperability/Compatibility: support for multiple devices; how to make sure, that the content is reachable and usable by multiple devices. Example questions for the case evaluation: - Expected connection speed for efficient use? - Expected capabilities of PC or other devices - Expected applications installed in devices - Recommenced use of services with mobile connections Formats for content There are a growing number of formats available for publishing content such as: - HTML, SHTML, XML, XSL (Document description & content) - MIME (Multipurpose Internet Mail Extensions), S/MIME - JPEG, GIF (Picture) - AVI, MPEG 1-4, QuickTime, MP3 (audio & video) WP3 - Deliverable E-FACTORS

41 From the business model point of view, it is critical to evaluate, whether the formats will survive in the future (for example, there are some proprietary industry specific (de facto) standard formats, such as AutoCad in engineering). Another important point is to understand the interconnection with watermarking and fingerprinting systems in terms of protecting content from illicit copying and tampering. Example questions for the case evaluation: - Supported security standards - Used content standards / alternatives (audio, video etc. ) - Supported data / information exchange standards Data / information exchange formats Structured documents (XML): From the business model point of view, the importance of XML is many-faceted. First of all, it separates the document content from its description (metadata). This way it provides a convenient, flexible mechanism for translating content and semantics between documents and databases, even with multimedia content. XML provides an alternative for more integrated solutions such as transaction filters/converters, or for mediated message exchange such as dedicated EDI standards. This is due to its flexibility in defining new data structures and mapping the content for different output formats. In the long run it can also facilitate multi-layered architectures, as sets of XML-documents (with metadata definitions and output formatting) can be combined for a framework, or repository of documents). This becomes especially crucial in environments with incompatible information systems beyond the control of individual firms (i.e., between networked companies). XML importance is further emphasised in the long run, as many future systems crucial to commercial transactions are built on XML thanks to its versatility. For example Copyright Management Systems/Digital Rights Management Systems are built on XML-definitions (e.g., and it is seen as a way to overcome the problems of document management / databases. There are problems related with XML: First, it is an evolving standard, still. The market for true XMLdatabases, server software etc, is in its infancy. It has also appeared that there will be a number of competing XML-metadata standards transactions for different alliances (e.g., MS Biztalk, UN s ebxml, industry specific definitions, e.g., for electronic industry Rosetta Net). Example questions for the case evaluation: Is the company building on XML, or some other platform to assure interoperability between incompatible systems? Has it started to develop a XML-architecture (based on RDFs, Resource description frameworks) How does the company acquire the skills needed. Others formats for data/information exchange: - EDI (Electronic Data Interchange) ANSI X.12, EDIFACT - OBI - ebxml (released for evaluation by UN in the Spring 2002), CXML - XCBL - IOTP - ECML WP3 - Deliverable E-FACTORS

42 Support for Web Services In this context the term web service refers to different types of services (usually applications) that are offered to individual consumers (at this moment still quite rare) and especially for companies by any service provider confirming to the standard interface. Efficient use of this kind of third party services requires special techniques e.g.: - SOAP: protocol for calling Web Services - WSDL: format for describing Web Services - UDDI: central organisation for registering, finding and using Web Services - OBI, OTP, CORBA, IDL: messaging systems between the services - PIP: Inter-process communication description and implementation mechanism There are many unresolved issues in terms of security, authentication, copyright protection and performance of these technologies Generic business services Generic business services refer to the functions linked to management of data transmission and business transactions of the company in the supply chain (content-/service providers and customers). Typically these services are often connected with third parties (or, outsourced) and they include functions such as: security systems, message processing, user identification, content management, transaction security management, payment system management etc. (Sirkemaa & Suomi 2002) Disaster recovery systems Disaster recovery systems refer to systems used to secure constant overall functionality of technical systems and especially their key functions (customer security, database integrity, order processing etc.). One of the most eminent problems with e-business today is the sensitivity of used IS technologies for various types of functional problems e.g. problems with basic web site functionality, order processing, management and overall application & server functionality/reliability. Therefore different kinds of problem recognition and recovery systems and the evaluation of the requirements for this kind of infrastructure in different e- business models must be considered as part of the process of e-business adoption. Disaster recovery systems may include such subsystems/functions as: - Virus protection - Protection against the denial of services caused by an outside attack - Backup systems; e.g. application-, data- and platform recovery WP3 - Deliverable E-FACTORS

43 Payment systems Payment systems in e-business refers to all types of systems and methods that are offered to the customer as a channel to make the payment for the services and products acquired through e-business channels. Although credit card payments hold a leading role as an Internet payment method, the attitudes (security and privacy issues), and the absence of credit cards (e.g. young people) forces e-business companies to offer a wider range of payment methods. These different payment methods offered to the customers must be integrated in the technical infrastructure so, that the security and functionality of these systems can be guaranteed at all times (customer security etc.)--> a direct connection to the core information systems of the company (e.g. customer databases). Means and methods of payment: Basically, the only official means of payment are coins and notes, i.e., the medium a seller is obliged to accept as a payment. Certainly we are seeing a number of other methods of payment introduced such as debit cards and credit cards, but they all build on the existing cash reserves residing on the bank accounts (so called bank money), or on the credit granted by credit companies under the control of national and European central banks. This is also true with special cards granted by companies, which are meant for limited use (i.e., you can use it for buying products of the company/corporation that issued the card). The question from the ebusiness point of view is that which method of payment to accept as more and more payments are made by electronic means? Electronic money, i.e., the electronic equivalent to notes and coins can be issued against bank deposits. It can then be used to pay any goods and services. There are national inter-bank systems that handle (in most cases) the majority of payment transactions within a country. Payments between countries are also following the international standards of SWIFT-interbank network between the countries. Second, there are so called other book money, which is based on deposits in institutions other than banks (e.g., limited liability companies, or co-operatives). Paying for goods from the same co-operative or company is allowed, but these cannot be used in general for buying from other good or service providers. These methods are not linked to the payment infrastructure of the banks directly, or in real time. Both systems issuing electronic money can be further divided in two categories: Open circulation means, that the electronic money can be circulated between the parties without any restrictions, e.g., between consumers, like Mondex or PayPal are capable of doing. Closed circulation means that after each transaction, the validity of the electronic money will be checked by the issuer (e.g. Avant etc.,). In real terms, ecommerce transactions can then be paid by cash (most often this is not a reasonable way), in bank money, such as cheque, bank transfer between accounts, or by their electronic variants (echeque, direct connection to a banking payment transfer system. Another type is the electronic purse, where the bank can transfer electronic money from the bank account on a micro chip (on a smartcard, mobile phone SIM-card etc). Debit card and e-money systems are so far primarily national, or available in a limited set of countries in Europe, which limits their use in electronic payments. Mobile payment systems for general third party purchases, such as DNX-mobile money is a bank money based transfer between accounts to the third party, so it can be used for paying both purchases and bills. The customer has to deposit money on a bank account. In Sonera shopper they have added to the above credit card number, which means that the user can choose, which way to pay (sentence makes no sense). WP3 - Deliverable E-FACTORS

44 Its use is limited on purchases (no bills). E-Pay adds up a third option by letting users to attach the purchase and bill payments to their phone bill. A fourth approach is to attach the credit card number on a phone SIM. The trials such as Mobile Wallet are implemented as credit card payments with an added functionality provided by the telecom operator as a certificate authority. Specific mobile payment systems, such as Sonera ParkIt, which is limited in paying for parking. The transactions are invoiced separately or within the phone bill. Pre-paid cards are other book based, closed money, i.e., so originally they can be used to pay for issuers goods and services only. Credit: A credit institution can issue a credit card, which is to give either payment time (typically 45 days), or true credit with a limit. The seller gets the goods value worth of money immediately, pays a commission on this transfer of credit risk to a credit institution. The credit institution has a long-term relationship with the buyer, and sends a bill at frequent intervals to its customers. The credit card can also be used to withdraw money. The well-known credit card (EuroCard, Visa, American Express) systems are globally accepted methods of payment for e-commerce. An example of a kind of a hybrid system has emerged with mobile commerce it is possible to pay for third party purchases by attaching the charge to the operators phone bills. Normally this sort of payments are limited to a minor amounts. When we evaluate the electronic methods of payment, we see that there are (in addition to the credit cards not too many systems for paying (especially international) purchases: - Account transfer, which means that the buyer uses the her/his bank account and interbank systems, to transfer the money between accounts, on the basis of her/his long term relationship and contract with the bank. In electronic commerce this is an advance payment. - Cash on Delivery (COD) Nachname/PostGiro, where national post offices interconnect with the interbank systems. This is in terms of timing equivalent to the cash (pay as you get the goods). It is also available to all citizens. Security of the payments is guaranteed by various methods. Basically, it is a two phase authentication: first to open access to the method of the payment by possessing a card, or account that can be opened by password, and by committing to the transaction by confirming the payment with a personal certificate (another password that may alternate). Security measures based on public keys is coming gradually into more widespread use (e.g. SET and its variants). There is a suggestion for an EU-directive that inter-bank trans-national money transfers should become Universal Service. The aim of this initiative is to make more affordable transfer of payments across countries possible by making the pricing of the payment transactions transparent and cost-oriented (EU xxx/xx). List of e-payment methods / systems: 1. Internet payment systems: Payment methods used in Transactions: (How customers pay) - Online Credit Card payment WP3 - Deliverable E-FACTORS

45 - Cash on delivery - Bill payment Other systems used in Internet: (small payment & micro payment systems) - Paypal - CyberCoin, Ecash, - MilliCent (Compaq) - IBM-MP,X-Pay 2. Mobile Payment systems & protocols: - X-Pay - PayPal 3. Secure Electronic Transactions (SET&SET II): - Support for secure credit card payments Questions for the case writers (Payment systems): What is the selected set of payment systems and why? What are the experiences with the selected system? Does the selected payment system limit the size and quality of the clientele? Does the selected set of payment systems incur extra costs? How much does it cause overhead and delays, and is this taken into account e.g., in terms of payment or pricing? Or has it actually helped in controlling the liquidity? Digital Rights Management (DRM) Digital rights management refers to different procedures and techniques to protect any kind of intellectual digital property. The problem concerning intellectual rights (copyrights etc.) in e-environment is significant, and it can be seen as a one of the key problems concerning e-business development (e.g. unauthorised distribution of music on Internet) (EPIC 2002). Digital rights management needs global standardisation of systems and procedures which can secure safe distribution of digital products in e-environment, and encourage both individuals and companies (holders of intellectual rights) to more powerfully adopt new ways/channels to distribute such items as music, movies, and books in digital format. Some examples of DRM -technologies in use are Content Guard, MacroSafe (Macrovision), and Windows Media Rights Manager (Microsoft). Efficient Content Management Systems (CMS) with DRM are a becoming more and more important in e- business, because of the Copyright Millennium Act of the U.S., and the recent EU-directive on the use of copyrighted material (Directive on the harmonization of certain aspects of copyright and related rights in the information society (2001/29/EC). The process of maintaining and handling often-huge amounts of information stored into many web sites requires often a highly effective content management (especially portal business models, news broadcasting and other business models that include a high volume of regularly updating content). The basic idea behind content management systems is, that they separate the actual content from design; same content can be use in many different forms (automatic design of different documents from the same original data). WP3 - Deliverable E-FACTORS

46 Functionality of CMS-systems may include: - Templating/template management - Document Management systems (DM): Document management system is often integrated with enterprise Content management systems. The purpose of Document Management system is to simplify, rationalise and speed up the processes of document management in a company (Document life cycle management). - Data management - Personalization - Digital Rights Management (DRM); systems and methods to take care of digital rights protection. WP3 - Deliverable E-FACTORS

47 One example of a DRM architecture is depicted below (Iannella, 2001): 16 Figure 5.2.4: DRM Architecture WP3 - Deliverable E-FACTORS

48 Security and Electronic Identification In e-commerce, security covers all technical and human systems and functions: database solutions, applications, information exchange, transactions, payment methods, etc. Lack of trust is still a major problem in e- commerce, and therefore it still needs a lot of attention: formation of secure globally adopted and accepted payment standardisation, secure information exchange and communication methods, privacy enhancing technologies and practices, secure electronic identification etc. Security problems are clearly identified as one of the most powerful inhibitors of e-business adoption. Therefore different issues concerning the security infrastructure, applications and methods are one key areas of interest in technical/technological side of e-business development. 1. Basic security infrastructure: Sufficient security infrastructure is the key part of the needed technological e-commerce platform. Security attacks have become more common year by year, for many reasons; EC system complexity (internal systems and connections to outside systems), lack of security knowledge and also often dismissive attitudes towards security issues (Turban et al., 2002). Therefore a strong focus on the security issues of the needed e-commerce infrastructure is needed in the evaluation process of e-business model adoption. Some key components that have an important role in the security infrastructure of e-business include: - Firewalls - Authentication systems/procedures - Access Control - Application Security - Client Security - Server Security 2. Security of communication / information exchange: Security of communication is a key concern both for the individual customers and especially for the businesses (B to-b e-commerce). This especially includes such actions made in electronic environment, that include high monetary risks (order processing, contract negotiations, business secrets etc.). This kind of integrity of communications includes such tasks as; authentication (verifying the identity of an actor), authorisation (access limitations of people/organisations using the system) and auditing (ways to verify, what kind of actions have been made, when they were made and by whom). (Turban et al., 2002). Some of the main systems used to maintain the integrity of communications via electronic networks include: - Cryptography - Electronic signatures/ other user authentication mechanisms 3. Privacy Enhancing Technologies (PET): Privacy enhancing technologies try to advance the privacy of Internet users, both by use of privacy enhancing technologies, procedures and standards connected to them (how, what, and when information is collected and used). Privacy enhancing technologies refer therefore at this context especially to those attempts to secure privacy in Internet by international guidelines and standards concerning privacy issues, and technologies used by organisations. Some most known standards/projects are: WP3 - Deliverable E-FACTORS

49 - Safe Harbour; International Privacy Principles, EU&US, (Not a technology) - P3P (Privacy Preferences Project); a platform/technology designed by privacy preferences project (P3P), by the World Wide Web Consortium. It is both an industry standard and technology, which offers users a way to control the use of their personal information on Web sites. P3P enabled browsers can "read" a document (data) of the privacy preferences/mechanisms of a single web site, and compare it to the Internet users own set of privacy preferences. (notifies user, if the site does not follow his privacy preferences (World Wide Web Consortium). 4. Public Key Infrastructure (PKI): Public key infrastructure is a multi-layered concept (see the figure below) that refers to systems of Certificate Authorities who authenticate the validity of each party involved in Internet (e-environment) transaction with digital certificates (e.g., Dictionary.com). This kind of utilisation of certified authorities in the authentication process have been assumed to deliver an easy, safe and usable way to secure the reliable authentication of transaction parties in Internet. In EU, cross-certification between PKI systems is required. Figure PKI infrastructure Despite of the fact, that PKI systems can deliver needed safety and security of transactions in e- environment, at the moment these systems are lagging in their diffusion despite the efforts of authorities in many countries. Some of the most known PKI systems are: - PKCS, X 509, PKIX (standards) WP3 - Deliverable E-FACTORS

50 - SSL; Secure Socket Layer (transport level security) - XMMS / XKMS; XML-based PKI-management specifications The well-known peer-to-peer certification used in PGP is problematic in the context of e-commerce, as it is based on unidentified persons granting the other persons identity. The official PGP-support (if there ever was such thing) has also ceased. From the point of security and confidentiality of communications, it is also essential to notice, that the rate of secure servers varies significantly between different countries, and according to OECD statistics (July 2000) half of the OECD countries had less than five secure servers for every inhabitants, and The United States had six times the proportion of secure servers of an average EUcountry (OECD 2001). 5. Secret Key Cryptography: Secret key cryptography has been for long used in electronic communication to protect the privacy of messages. Its usable mostly in an environment, where parties regularly communicate among each others, this is due the fact, that its based on a decryption key that is known only by the parties involved, and will therefore not offer an easy authentication mechanism for the security of internet transactions (used mainly in military organisations and in some forms of B-to-B communication). Some security mechanisms used in e-environment: - Netscape Secure Socket Layer (SSL) - Microsoft Crypto API - IDA s Infrastructure for Electronic Identification (IEI) Example questions for the case evaluation: - How users / customers are identified? - Which privacy standards / guidelines company abides/follows (P3P etc.)? - Basic security infrastructure of the system in use? Location Positioning Systems (GSM/GPS) Location position systems are rather new systems used in the mobile e-commerce. These systems offer a possibility to locate the position of the potential customer, and use this data as a part of the functionality of the services offered. Present location positioning systems include two categories of systems: Network based location via ETSI-standardised schemes based on cellular network topology, or terminal based location built on GPS. There are also hybrids such as assisted GPS, where the network is utilised to improve the accuracy or speed of locating the terminal. The major difference between these two systems are, whether the user is identified by the terminal or by the network. This is of importance from the privacy point of view as the network based locating of a user is beyond her/his control. WP3 - Deliverable E-FACTORS

51 5.2.3 Internal IS Platforms More and more business activities in larger companies are IT-based. At the core of IT are the intraorganisational systems that are normally tailor-made for the company. In the fear of year 2000, many of these intraorganisational systems were upgraded and their life span extended. A typical platform consists of operative systems supporting basic processes and gathering information for management (they have origins in the era of functional organisations and MIS); of office systems based on Microsoft s de facto MS Office software package with support for collaborative work, and of rejuvenation of the operative systems along process-based thinking (ERP). This systems run on different computer platforms, i.e., IBM AS- & X-series, Microsoft NT, Sun Solaris Unix, and to growing extent on open source Linux. There is a growing concern on the hegemony of closed, proprietary software vendors, especially for networked operations, where each party of the network is in the worst case - obliged to pay full license fees of using the software. Therefore, open source software in all levels of the platform is gaining more and more attention, as it is if not free, at least very affordable, gaining worldwide support from the user community. The opposing view is that one should not rely on free software, but rather turn to solid, well known software and platform providers. However, recently many public authorities (e.g. in Germany) have been turning to open source software both for political and economical reasons ERP (Enterprise Resource Planning) -systems ERP-systems are component-based software, where different sets of functional areas are put together on a uniform platform. Ideally, the ERP system integrates the storefront systems with existing legacy systems and also provides interfaces to partners information systems. Functionality of ERP systems have traditionally conjoined such functions as basic sales forecasting, production and logistical functions, but new ERP systems are implementing/conjoining also systems like SCM (Supply Chain Management), CRM (Customer Relationship Management) into the functionality of the system. The most well known examples of ERP-systems, covering an extensive set of functions, are SAP/R3, BAAN, J.D. Edwards, PeopleSoft etc. However, as promising the idea is there are fundamental problems with ERPsystems: They are often time consuming to implement (effort in calendar years) and they require substantial tailoring to meet the process requirements. In networked mode of operations the cost of licensing compatible components to each partner can grow overwhelming for the partners of the network. In many cases they cannot be adopted. Therefore, there has emerged a set of lightweight ERP-systems for SMEs. A structure of an integrated ERP-system by IBM is depicted in next page (figure 2.3.1) WP3 - Deliverable E-FACTORS

52 Figure 5.2.6: Integrated ERP-System components (Source IBM) But, as indicated earlier, it is the seamless integration that drives the development towards full scale ERPsystems. However, they are seldom sufficient, especially when taking into account the fact that many subsidiaries, partners, and subcontractors have polished their existing legacy systems for their purposes, not to interoperate with ERP-systems. Because of the two trends (see the introduction of this deliverable) of integration and networked mode of production, there is a growing emphasis put on mastering the product data; different views of the product data management (PDM). Different standardisation efforts for product coding (EAN; DUNS Bradstreet; RosettaNet) have been developed and utilised with other coding schemes to keep the bill-of-materials in tact. Example questions for the case evaluation: Is the company utilising an ERP-system? How did it manage the expected cost? How are they handling the interrelationship with their partner and customer network? Have they been able to implement a uniform product coding? SCM (Supply Chain Management) Especially in some forms of e-business (e.g. large scale intermediary models), the amount of suppliers and other partners in the partner network can be vast. Supply-chain members perform activities including forecasting, purchasing, production and delivery functions, which especially in heavily competitive environment must be organised so, that the network achieves as high level of efficiency as possible. To be able to control this kind of networked/co-operative operations, individual companies and the whole partner network needs a effective management tool = SCM (Supply Chain Management) system, which effectively controls and manages the tasks that every partner brings to the co-operative network. WP3 - Deliverable E-FACTORS

53 In e-business these functions that a SCM- systems mainly handles, can be divided into next four areas: Collaborative Planning: collaborative decision making procedures Demand planning: based on forecasts, predict the future demand of services, and use that information e.g. to provide sufficient capacity of systems to handle net traffic and transactions in the website. Supply Planning: What, when, how etc. Manufacturing Scheduling: in e-business e.g. needed new content and services from suppliers / service providers Transportation Management (Logistics): transportation of physical products It is important to notice that the importance of different types of SCM-systems is strongly related to the complexity of transaction, the nature of the product sold, and the value chain, e.g. physical or digital products, the length of supply chain (number of partners in the supply chain and their capabilities) (e.g. Bégin & Boisvert, 2002) CRM (Customer Relationship Management)- systems In most cases the success of e-business company is totally depended on long time relationships with its customers. This is due the substantial cost of acquiring new customers (advertising, first time purchase discounts etc.). Therefore companies need to create profitable long time customer relationships both in B-to-B and B-to-C business, and focus its limited resources to the most potential long time & high value customers (CLV-Customer Lifetime Value). In many e-business models, customers must maintain a relationship with the company for 1 to 4 years (B-to-C) before becoming profitable for the business (total monetary value of purchases exceeds company expenses per customer) (Reichheld & Scheftner, 2000). And this is the key function of all CRM systems; to maintain customer satisfaction with superior customer service. ERM (Enterprise Relationship Management) -systems are linked directly to CRM system functions (nowadays often an integrated part of the CRM system) and which is directed to help the work of the organisation (especially front office & marketing ) by actively processing customer, market and other data to support sales efforts/strategic planning etc.(includes data mining tools etc.). To be able to recognise most valuable / potential customers to concentrate on, companies (especially in large scale B-to-C business) often need a powerful CRM systems to be able to handle all the vital functions of successful relationship management. Functionality of CRM-systems may include e.g.: - Customer profile collection / maintenance (demographics, purchase history ) - Personified/ customised services; content, advertising, dynamic prising etc. - Campaign management - Help desk / Call-centre management (see below in support) - management - Customer service automation WP3 - Deliverable E-FACTORS

54 Examples of data collected into CRM system: - Sales and purchase data (Customer Account information) - Customer profiles - Marketing campaign responses (campaign management) - Logistical data (delivery times etc.) Pricing and rating systems: Different kinds of pricing and rating systems are part of the basic functionality of many e-commerce sites, and often included as a part of the CRM system functionality: Dynamic Pricing system: pricing is conducted based on customer profiles and other information; buying habits, total value of the customer to the company (potential CLV= Customer Lifetime Value), test pricing etc. Rating systems; customers rate/evaluate products, company rates products or both customers and company rates/evaluates products to help other customers to find products and services that best meet their requirements (e.g. Amazon.com book review systems). Example questions for the case evaluation: - Evaluation of CRM-systems functionality: - Does the system utilise customisation (personified content etc.) - Personified user interface components (advertising, pricing etc.) - Do customers have access to their purchase history (customer account information) WP3 - Deliverable E-FACTORS

55 5.2.4 Integration E-business Integration includes different types of techniques, standards etc. which enable companies to integrate their e-business activities and systems with their core business systems and with their suppliers, trading partners and customers. This technological and functional Integration in the e-commerce value chain can be divided into areas like: - B-to-B Integration: applications, methods, activities and work processes - B-to-C Integration - Enterprise/company application integration The benefit of integration means simply that something that operations performed together are more profitable than done separately. This implies reducing the number of hand-offs, phases, and simplifying the processes containing operations. In e-business, integration has also an additional, important interpretation it means how new features can be implemented on existing infrastructure-like IT-platform. This is a challenging task that can take many forms along time. Figure 5.2.7: System service integration (Source: Microsoft) An issue of importance is the division between layers, to isolate the technical changes to be evitable to the system. This layering creates a multitier-architecture, an example of which is presented in figure above. The total design of this integrated architecture is one central task to be accomplished for e-business. Second important issue is about how to develop the components for the architecture in an integrated manner. Although this is primarily an implementation issue, aligning the present development with the ITstrategy and competencies, it is simultaneously setting some boundaries for the realised architecture as well. This is depicted in the next figure: WP3 - Deliverable E-FACTORS

56 Figure 5.2.8; Source: (Turban et al., 2002) Example questions for the case evaluation: - Level of internal system integration - Level of external system integration WP3 - Deliverable E-FACTORS

57 5.2.5 Commitments One key aspects concerning the overall supply chain/partner network management in e-environment is the management of different commitments with numerous partners. As stated above in SCM (Supply Chain Management), especially in a large scale intermediary models the number of different interrelations with outside vendors can be quite substantial. From this point of view we have decided to go shortly through some aspects related to these commitments from technical point of view. Different kinds of agreements between suppliers and partners, which includes sharing of responsibilities concerning the technical infrastructure and functionality of e-business are extremely important for the company. As stated before, different problems in technical systems are quite common, and the effect of these problems into business can be substantial. This includes the effects of technical problems into customer relations (loss of customers and sales), partner network relations (loss of sales and income), and legal liabilities / responsibilities of these damages. When a company is doing everything itself, this kind of risk management is quite simple to do inside one organisation, but networked operations need distinct agreements between different organisations and also with customers concerning the legal responsibilities of each partner. Although agreements can always be done individually and based on current conditions, there are many standard agreements that are developed to clarify the responsibilities and role of different parties in value chain. One area of this kind of standardised agreements is SLA -contracts (Service Level Agreement). SLA Contracts: SLA contracts (Service Level Agreement) are various types of legal agreements between different parties in e-commerce value chain, that are made to ensure more secure and stable environment for e-business. Term SLA-contract is often used more narrowly to define the agreement between Internet Service Provider (ISP) and client (company). This kind of agreement describes exactly the relationship with the ISP and its role, functions and responsibilities towards its client companies. For companies that have decided to outsource some, or even all functional and technological elements of its business these agreements and their content is extremely important especially in situations like extensive expansion of business (degree of transactions, new business areas) and ISP side operational and functional problems. Special issue: Help Desk: There is no such form of e-business that would not need some kind of support/service functions. These are to some extent generic to customers, partners, subcontractors, and employees. What ever is the type of product or service, or tool the company is offering or using, someone will always need to communicate with the company. In some e-business models (especially when directed only for limited number of customers), the service/support facility may remain quite small and easy to handle, but in most forms of e-business an effective customer contact channels are needed, (one of the things many large scale e-businesses have neglected, which has quickly lead to customer dissatisfaction). There are two things why support is important: it is a good stakeholder contact/feedback point and it is a significant cost factor. Support needs a lot of workforce to be handled properly (people usually require individual/personal communication with company representatives also in e-business transactions). Phone calls, s and conventional mail need people to reply to contacts in adequate time to prevent customer dissatisfaction (note: long time customer relationships are usually a must/key condition in e-business, so there is usually no free margin for customer dissatisfaction, and loss of profitable long time customers due a poor customer service.) WP3 - Deliverable E-FACTORS

58 Call- Centers are phone switches with added functionality of answering, queuing and redirecting calls. In support activities it is often based on a model, where the personnel receiving calls uses a situation specific template to ask a series of basic questions, before redirecting it to a ring of experts. The solution is reported back to the database and it is to be used in identifying systematic problems and in developing the service itself (performance, response rates, etc.). Typically, a call center handles. Call centers are interactive, but if the problem cannot be solved immediately, the delay in handing over the call, analysing the problem, recording it to a Frequently Asked Questions and troubleshooting lists may take a while despite the fact that many of these functions are integrated with the help desk. Help desks are based on , or chat. It is dependent neither on synchronous interaction, nor on verbal capabilities of the user. Some users prefer time to formulate their responses in another language instead of trying to explain it orally on non-native language. Another benefit of the help desk is that the recording and analysis of the data can be, at least, partially automated. The problem in help desk is that it is served via the same channel, where the problem resides, i.e., if the computer or network is down, help desk may suffer from the same defect. These forms of support are sold as packages. The packages are priced according to the level of service and response times defined in the Service Level Agreement. Both can be arranged globally, even in many languages, if the volume of requests is high enough. It is worth noting, however, that it is often the case that only 10% or less of total service requests will ever reach call centers or help desks (also in Valtra, see e.g., Kiljunen; Jantunen). The majority of problems are solved generally by the local support, thanks to its physical proximity and collaborative systems of the company. A special issue: Web based tutorials & training material: It is evident that more and more tutoring material, FAQ-lists, chats, and manuals should be available on the Web/Intranet. This is because it provides a convenient way of storing and retrieving the information wherever the user resides. However, as we explained earlier, this is just a minor part of the actual on-going support and should not draw all attention. Example questions for the case evaluation: - Are there any SLA with Internet Service Providers (ISP)? - Are there any SLA contracts with value chain partners? - How much of the business has been outsourced to service providers? WP3 - Deliverable E-FACTORS

59 5.2.6 Service performance Scalability The scalability of e-commerce system is one of the critical factors in e-business. This is due to the fact that web traffic on e-commerce sites is notoriously bursty: there are high seasons, there are intraday fluctuations, campaigns and events can draw attention of an unanticipated huge number of customers. A business model with segmentation of customers can help to some extent in setting the rules for estimating the required scalability of the IT- system. The most important part of scalability management is, that the company tries to avoid such technological systems that have a pre-set maximum capacity (needed new capacity requires a totally different platform/technology/systems structure). In this context capacity can be seen as: - Number of same time users/connections that the system can handle without errors / problems - Number of possible same time transactions - Maximum data transfer (downloads etc.) Availability With availability we mean the system up time from the consumer point of view. It is a concept closely related to the scalability and service level agreements, because it is the measure how well users can access the services in real terms; i.e. launching a connection, getting responses and returning to their transactions when necessary. The technical means to ensure availability range from session control to persistence of transactions into databases to support activities. An illustration (figure 2.6.1) shows a modern front end to handle peak traffic with routers, load balancers, servers and so on. There is a growing tendency to try to combine the layers with integrated, intelligent traffic managers (adaptable, programmable). WP3 - Deliverable E-FACTORS

60 Figure (c.f., Shirai et al., 2000) Example questions for the case evaluation: - Type of connection & system for Backbone Network connection - Number of same time/simultaneous connections - Main problems for traffic & transaction growth (system limitations etc.?) WP3 - Deliverable E-FACTORS

61 5.3 Examples From Clustered Projects In this chapter we present some examples of different technological aspects examined in clustered IST- projects MOBICOM Project The MobiCom project (IST ) examines mobile e-business in European context. Part of its objectives is to examine the diffusion and adoption patterns of mobile commerce. Especially the second phase of MobiCom project examines technological aspects of m-commerce from the view of technological evolution of e-commerce, and especially MobiCom projects case evaluations give an extensive view of some key technical aspect of mobile commerce adoption e.g. technological infrastructure and case examples of used platforms and applications. In the project both telecom operators and e-commerce developers give a strong input especially in a form of explaining the evolving characteristics of M-Commerce technologies and services OMEGA Project The result of OMEGA project can be seen as a package tool supporting new business models and new types of trading for electricity producers on liberalised energy markets. In this context and with relation to that of the technical thematic priority, Omega project deals with such technical issues linked to e-commerce systems as: - Web-based user-interface aspects. - Client-Server infrastructure issues in e-commerce platforms - Hardware requirement issues for client terminals - Process Optimisation (Decision Support Systems, Artificial Neural Networks etc.) - User access security issues - Data security SEED Project The Seed project has developed a framework on key aspects, necessary for the deployment of the digital economy, including technologies and infrastructures, business applications and services, regulation and policies, socio-economic environments and awareness. For the purposes of E-factors project, the Seed project offers a comprehensive insight to the technical factors that have a key role in the e-commerce development, and therefore also in the adoption of different e-business models. Technical aspects examined in the project include aspects and individual factors linked to base technologies, e- commerce technologies and supporting technologies and services: WP3 - Deliverable E-FACTORS

62 Base technologies: - Telecommunications infrastructure aspects and factors: Demand and infrastructure, Demand and technology, Bandwidth, Market segments, Terminals, Fixed networks technologies and Wireless/ mobile networks technologies. - Public and private communication utilities: Underlying infrastructures, TCP/IP Networks, IOS, EDI and Internet e-commerce. E-commerce technologies: - Underlining open Internet protocols. - Workflow management aspects: Workflow technology and products, Simple Workflow Access Protocol, Workflow St42, Workflow Management Coalition, OMG s Workflow Management System. - Distributed object computing: Middle ware, Common Ar46, Common Object Request Broker Architecture, Remote Method Invocation, Distributed Computing Environment, Distributed Component Object Model and Simple Object Access Protocols. - Mark up languages: HTML, XML, WML, Web Interface Definition Language, Common Business Library, Biz Talk Framework and Commerce XM66 - Web integration technologies: JavaScript, Java Applets and Sevlets, Applet Servlet Communication, Encoding options, Active Server Pages and Java Server Pages and extensible Style Language - Profiling and customisation: Profiling and E-Commerce, Profiling and Personalization Tools and Implementation issues. Enabling (supporting) services and technologies: - Smart cards: Java Card Technology, Biometric Smart Cards and PKI Smart Cards - Payment systems: Credit Card-Based Systems, Electronic Checks, Electronic Payment Systems and Micropayment Systems - Security solutions: Public Key Infrastructures (PKIs), Trusted Third Party Services (TTPs) and Security on Technologies - Tools for prokerage and negotiation: Mediation, Information brokerage, E-commerce and brokerage synergy, Negotiations. - Intelligent/Mobile agents FLEXWORK Project The Flexwork project offers input related to the technical aspects of e-business model adoption in the form of: Development of high speed flexible telecommunication infrastructure in different kinds of situations Information of different technologies available to support flexible working Information related to regional broadband infrastructure WP3 - Deliverable E-FACTORS

63 Case studies, that give an detailed view of the use of flexible working technologies in different situations Manual and an exploration tool (Flexwork database) to help the Implementation of flexible work technologies ALTERNATIVE Project One of key objectives of this project is to advance the technical diffusion of ASP offerings with the evaluative tool developed in the project. From technological / technical view the project results offer information related to: Deployment, hosting and integration issues Evaluation of application outsourcing strategy Evaluation of how ASP solutions can integrate heterogeneous applications across multiple platforms/environments WP3 - Deliverable E-FACTORS

64 5.4 Summary Technological and organizational factors are the most commonly recognized and analyzed part of e-business model adoption process. As stated in the introduction, technological factors are more or less externally indicated, and the company must consider them as factors in different business models that are closely dictated by external factors, e.g. the state of technological development, user preferences and expectations, and competitive environment. Most vital technical/technological problem for any e-business company is to be able to secure the overall functionality of its web services, and constantly evaluate its performance and external factors so, that the abilities (functionality) of technological infrastructure is conjoined with the customer needs and with other external factors (competition, it-infrastructure of the region etc.). In this process such factors as reliability, security, scalability and flexibility (ability to adapt to changes) are in key role in the management of technological e-business infrastructure. The importance of these different technological factors is that they are closely connected to the next four factors: chosen business model, scale of business (e.g. local vs. global), customer expectations and competitive environment. The main areas of technological factors identified are based on the identification of technological change drivers in e-business environment. These technological factors identified are divided into next six categories: Interoperability and interconnectivity issues: Interoperability requires work on standard setting, contracting, and integrating information systems. This category includes such sub-factors as techniques for access, capabilities of terminal devices, data/information exchange formats and web services. Generic Business Services: Generic business services refer to functions connected to the management of data transmission and business transactions in the supply chain that are typically managed/handled by third party service providers (outsourcing). This category includes such sub-factors as disaster recovery systems, payment systems, digital rights management and security management (security + electronic identification). Internal IS-platforms: In the core of e-business is the organisational IT-system, typically tailor made for the company. From the e-business point of view the organisational IT-system commonly includes such key WP3 - Deliverable E-FACTORS

65 subsystems as ERP system, supply chain management (SCM) system and customer relationship management (CRM) system. Integration issues: E-business integration includes different types of techniques and standards that enable companies to integrate their e-business activities and systems with their core business system and with the systems of their suppliers, trading partners and customers. Areas of Integration in e-commerce can be divided into B-to-B Integration, B-to-C Integration and enterprise/company application integration (EAI). The aspect of commitments: E-business requires effective management of commitments with often numerous partners. Especially in large scale e-business (e.g. intermediary services) the number of relations with many outside vendors can be substantial and this calls for effective management of these relations that encompass significant interdependencies between different value/supply chain members. Service performance issues: Service performance includes such aspects as the availability and scalability of services. In many e-business models, already the basic technological system needed for that type of business may require vast investments into technological infrastructure, which only sets the possibilities for entry, but still do not guarantee anything. Only after the construction of needed technological system is completed, can a company start attracting potential customers, and many examples around the world have shown, that the basis of effective e-business marketing (B-to-C) is mostly driven by expensive traditional advertising channels. One key element strongly associated to technological factors is the element of technological change. Such factors of the business environment as the basic needs and expectations of targeted customers and basic societal factors change normally quite slowly, and the expectations are mostly changed by the technological/strategic leaders in the market, that set the rules for others to follow (e.g. Amazon with its superior customer service/crm-technology, sets the rules/expectations not only for other e-booksellers but also for other types of e-businesses in Internet. Customer expectations, new technological innovations and the fast technological development places technical system under constant and many times expensive changes (itplatforms, new communication devices used by customers, new innovations, patented technologies etc.). Therefore these constant changes must also be taken into consideration, before making the e-business adoption decisions. The current resources that may give a company advantages and survival chances in the markets at one point, may soon be overrun by competitors, if there are not enough resources to support the constant development of existing it-system. And what makes the situation even worse is, that even most powerful leading technologies are under constant thread of security attacks (viruses, intentional attacks etc.) and functional problems in the it-infrastructure, that may cause such vast problems that may lead present customers to the hands of competitors accelerated by often non-existent change costs. WP3 - Deliverable E-FACTORS

66 6 INDIVIDUAL THEMATIC PRIORITY Editors / Organizations University of Manchester, Institute of Science and Technology (UMIST), UK 6.1 Introduction The Individual Thematic Priority could be considered as the link to all the other thematic priorities. It is one of the most important thematic priorities. All thematic priorities deal with crucial issues, however all of them boil down to the individual. It is the individual who will adopt innovative technologies or will provide the driving force. In other words the Individual Thematic Priority forms the core of the thematic network. Nevertheless, there is no denying that the thematic network is an intricately woven web of interdependent components. The Individual Thematic Priority deals with the individual on a micro level, thus providing valuable insight into the mental processes that influence an individual s decision making behaviours. One should not be misled by this overly simplistic description, into thinking that these mental processes are self-evident. Unfortunately, no one has yet to present a coherent and comprehensive map of an individual s behavioural patterns in respect to technology acceptance and adoption as well as ebusiness acceptance and adoption. Some of the most important factors affecting the latter are arguably the propensity to trust, individual differences (cognitive and physical) as well as an individual s background, environment and past experience. Based on the Method of Work presented in the introductory part of this report the partners of the thematic network produced an initial list of factors based on the brainstorming activity dedicated to this thematic priority. 6.2 Preliminary List of Factors The initial list of factors, which was discussed in subsection 1, is as follows: o Availability of technology o Innovators / Early Adopters o Customisation / Personalisation o Job Satisfaction o Mobility o Family / Social / Organisational Status o Trust o Personal Goals o Perceived Security o Culture o Skills / Knowledge / Expertise o Age o Language o Gender o Peer / Social Networks o Incentives WP3 - Deliverable E-FACTORS

67 6.3 Theoretical Background of Factors Having produced the initial list of factors, we then carried out a literature review in order to put our views on a firmer basis. The literature review was also deemed necessary in order to cover areas that were overlooked in the formulation of the initial list. The literature review concentrated mainly in the areas of consumer behaviour, retail and e-tail marketing, social psychology on the micro level and cognitive science. Please note that for subsections 3.1, 3.2 and 3.3 we used the analysis by Davis et al. (1989) as the starting point in order to further elaborate on the theories. The same reasoning applies to subsections 3.5, 3.6, 3.7 and 3.8 and East (1997) Theory of Reasoned Action The Theory for Reasoned Action (TRA), by Fishbein and Ajzen (1975), is an intention model, which has been used successfully to predict and explain human behaviour across a wide range of areas. Even though, as Ajzen and Fishbein (1980) said, the TRA is designed to explain virtually any human behaviour, it can be applied to the study of computer usage as a special case. According to the TRA a person will behave in a specific way according to his Behavioural Intention (BI) to behave in that way. BI is determined by the person s attitude and subjective norm concerning the specific behaviour. In turn a person s attitude is a product of the person s beliefs of and an evaluation of the consequences of performing a said behaviour. Since TRA is a generic model it allows for a more concrete definition of the salient beliefs to be given by the researchers depending on the field of research Technology Acceptance Model The Technology Acceptance Model (TAM) is based on the TRA that was the outcome of research carried out by Davis (1986). TAM is less general than TRA and applies to computer usage behaviour. Nevertheless, it can be used to model computer acceptance. Its aim is to provide a general explanation of computer acceptance by any group of users on any information system, in a frugal and theoretically justified way. Hence, TAM provides a basis for measuring the effect of external factors on internal beliefs, attitudes and intentions. It assumes that perceived usefulness, how will the new system increase job performance, and perceived ease of use, how effortless is the use of the new system, are essential in assessing computer acceptance behaviours Theory of Planned Behaviour The Theory of Planned Behaviour Ajzen (1985 & 1988 & 1991) is also based on the TRA and introduces two extra determinants of intention, which are the moral norm and the perceived behavioural control. Moral Norm introduces the effect our own personal values have on our behaviour. However, moral norm is often identical to intention and is therefore not an attributing factor to the evaluation of behaviour. The perceived behavioural control is a measure of a person s ability to take an action, which she is thinking about taking. One can also perceive this as the degree of freedom a person has or how voluntary a person s actions are. The perceived behavioural control essentially acts as a predictor of intention and does so quite successfully, Ajzen and Madden (1986) Model of Trust for Electronic Commerce Egger and de Groot (2000) have mapped trust-shaping factors, which are particular to the electronic environment of ecommerce interactions, onto a Model of Trust for Electronic Commerce (MoTEC). MoTEC identifies four distinct clusters of variables that affect the perceived trustworthiness of a site. These are the pre- WP3 Deliverable E-FACTORS

68 interactional filters, interface properties, informational content and relationship management. Preinteractional filters include the buyer s propensity to trust, brand awareness and previous experience. Interface properties include how appealing the site is to the buyer as well as the organisation and ease of use. Informational content includes the need to have properly structured information on the products and services on offer as well as the company itself along with clear and explanatory information on the privacy and security policy of the vendor. Finally, relationship management draws on communication as the main focal point when it comes to sustaining long-term vendor-buyer relationships Exchange Theory The Exchange Theory elaborates on the idea of reinforcement, developed by Skinner (1938 & 1953), by moving the latter into a social context. Consequently, an exchange is a transaction between people, which is maintained by reinforcement. This means that a behavioural shift will occur as soon as the exchange ceases to produce positive results. Homans (1961) postulates that people are brought up to expect certain behaviours, when they are partaking in certain interactions. Those who abide by the rules get to extend their exchanges, whereas those that break them are penalised by their disruption. This explains the establishment of habits of interaction and the development of notions of fair exchange, in which rewards are seen to be proportionate to the costs. Homans (1961) also suggested that people s social status and the level of available alternative interactions help to achieve a better deal Classical Conditioning Classical Conditioning is a type of learning, which was studied by the Russian physiologist Pavlov (1927). Pavlov studied dogs and the reflexes they had when setting eyes upon their feeder. Having studied young and old dogs, he came to the conclusion that the reflex got conditioned over time reaching a point where the site of the feeder immediately triggered the saliva glands. Therefore, in this type of learning a new stimulus is coupled with a stimulus from an existing stimulus-response pair until the new stimulus alone causes the response. Watson and Rayner (1920) also carried out similar experiments. They added to the previous statement by discovering that this learning can be generalised. We can find an application of generalised conditioned learning in Marketing in the process of brand extension. The result of brand extension is that new products carry the brand name of a previous product in hope of carrying over some of the buying propensity. Classical Conditioning has a lot to do with consumer behaviour. Companies have to take care when creating their packaging, brand names, colours, smells, etc. of their products in order not to create an unfamiliar product that will dissuade consumers from making a purchase. Finally, Classical Conditioning also explains the associations that some companies have forged between certain stimulus features and their brands, e.g. Nike and the elongated tick sign, based on the idea that the conditioned stimulus will help in identification and perhaps increase purchasing tendency Reinforcement Learning This is another type of learning that focuses on the immediate results of an action. Research in this field was initiated by Thorndike (1911). The experiment involved locking up a hungry cat in a cage and placing food WP3 - Deliverable E-FACTORS

69 outside the cage. The cage was kept locked by a simple latch. Having been placed in the cage and consequently freed herself quite a few times, the cat would then immediately open the cage door as soon as she was placed in the cage. Thorndike referred to this type of learning as trial and error learning. This type of learning also applies to a consumer that moves into a new market and is forced to make random choices until he comes across something he likes. Food and freedom were the results that drove the cat into persistently looking for a way out of the cage. These were later called reinforcers by Skinner (1938, 1953). He defined a reinforcer as an experience, which increases the frequency of associated responses, whilst a punisher has a negative effect on that frequency. Skinner also introduced the idea of shaping, whereby a desired behaviour is achieved by reinforcing the responses that lead to that behavioural state. For example a salesperson that nods, agrees and approves with the movements of the consumer that lead towards the sale of the product Dissonance and Self Perception Theories Cognitive dissonance was introduced by Festinger (1957, 1964). Festinger defined cognitive dissonance as a condition of arousal that people experienced when their beliefs did not fit together. This arousal would then lead them to alter in some way their thoughts, feelings or actions in an attempt to reinstate the fit. A lot of research has been carried out in this area; however, it is not the scope of this section to cover that research. Nevertheless, it is worth mentioning that Brehm and Cohen (1962) suggested, in an attempt to clarify the term fit that the subject was aroused when she performed an action that was not consistent with her behaviour and beliefs, or one that resulted in undesirable effects that could have been foreseen. In other words, a person feels dissonance when she performs an action for which there is insufficient evidence. The latter brings it into context since it stipulates that people may become aroused if they are involved in a dubious purchase. Consequently, they would be more receptive to information input after the purchase, while they are attempting to justify their purchase, thus shifting our interest to the post-purchase effects of advertisements. Self-perception theory was proposed by Bem (1967). Bem argued that people follow the same inference process concerning their own attitudes as well as other people s attitudes. One of the findings of Bem s work was that attitude change may or may not be induced by arousal, i.e. arousal may be unnecessary. Gerard (1967), Cooper et al. (1978), and Zanna and Cooper (1974), all carried out further research into the relationship between arousal and dissonance. This research defines the boundaries of the effect that dissonance has on a purchase. More specifically, these effects will occur when a buyer is aroused and attributes that arousal to the purchase itself. Dissonance helps us understand that we must create some sort of relevant disturbance in the prospect buyer, in order to produce effective persuasion Social Learning Theory In the homonymous book Bandura (1977) sets out to analyse the developments in the framework of social learning theory. Bandura states that Social learning theory emphasises the prominent roles played by vicarious, symbolic, and self-regulatory processes in psychological functioning (Bandura (1977), p. vii ). Human thought, affect and behaviour are influenced not only by direct experience, but by observation as well. Humans have a remarkable capacity to use symbols so as to represent a plethora of information and to also take action based on that information. People are self-regulating in the sense that they do not only respond to extraneous stimuli, but exert some sort of control on the stimuli that are imposed on them. Therefore, an WP3 - Deliverable E-FACTORS

70 action has an extra determinant: that of self produced influence. Social learning theory attempts to explain human behaviour by building a web of cognitive, behavioural and environmental determinants. In closing we should note that people are not completely independent nor is their environment the sole driving force behind their every move: they both act as determinants of each other Self-Efficacy Theory In describing self-efficacy theory Bandura (1997), states that it (self efficacy theory) treats the efficacy belief system as a differentiated set of self-beliefs linked to distinct realms of functioning (Bandura (1997), p. 36). Each individual has a set of sub-skills (e.g. behavioural, cognitive), which can be combined in different ways under different circumstances, in order to deal with the same or different situations. Perceived selfefficacy is not affected by the actual set of skills one has, rather by how she perceives herself reacting or acting under different circumstances. In other words, how is the skill set used instead of what does the skill set contain. A lot of studies on perceived self-efficacy, Collins (1982), Bandura and Jourden (1991), Wood and Bandura (1989), White (1982), Bandura (1992), have proved that it has a great influence on one s performance regardless of one s skills. Bandura goes on to say that self-efficacy beliefs do not simply act as an inert and passive predictor to one s action, but they provide an active contribution in the formulation of the action. Self-efficacy beliefs affect thought processes, motivation and affective states, which in turn affect the level of an individual s performance. This literature review has provided us with the theoretical basis required for the existing factors. It has also uncovered a set of other factors that are pertinent to the Individual Thematic Priority. In order to make all these factors easier to understand and examine we decided to group them under broader categories based on the tight interrelationships that were identified amongst certain factors. The result of this process was subsection 4 of this part of the document. WP3 - Deliverable E-FACTORS

71 6.4 Updated List of Factors The theoretical background presented in the previous subsection has substantiated the initial list of factors whilst enriching it. In order to clarify the Individual Thematic Priority we suggest a framework of e-factors, i.e. factors of broad and sustainable adoption of ebusiness models, made up of broad categories of e- Factors. It is evident that for this framework to be comprehensive we need to investigate the empirical evidence available through the clustered projects. We therefore need to examine the latter so as to determine to what extent they deal with issues from the Individual Thematic Priority. This was achieved by looking at several case studies from the relevant clustered projects and presenting them under the corresponding broad categories Individual Differences This is probably one of the most important groups of factors. It revolves around a person s physical ability, or inability, to access a personal computer and consequently the Internet and ecommerce. Moreover, individuals are not only distinguished by their physical abilities, but by their mental abilities as well. Individuals that are challenged in any way are, unfortunately, still restricted in their choice of applications. Such restrictions obviously act as a differentiating factor when it comes to accessing online applications such as ecommerce. Nevertheless, a lot of effort is being put into producing specialised hardware and software that will allow such individuals to have a greater choice over what they would like to do with their personal computer. Admittedly individuals present us with a wide range of skills and diverse means of employing them. Individuals perceive problems differently and adopt different solutions. Sometimes, even routine tasks are slightly altered with each iteration. The factors under this category are: Cognitive Physical Demographic Companies use demographics in order to categorise consumers according to their age, gender, spending power, etc. This categorising is done using statistical analysis and purchasing behaviour of specific areas and/or age groups etc. Hence they derive a segmentation of the market, which essentially provides them with more specific target groups. These groups are used as an indicative map as to which products should be promoted to which groups. The factors under this category are: Gender Age Spending Power According to the MOBICOM Project, which followed the Life course need model, consumer behaviour is influenced by needs that are determined by age, personal development and - in a more aggregated view - by the social structure consumers live in. It also depends on their financial resources. The MOBICOM project assumes that even though different people feel different needs, these needs can be aggregated in a few age groups. Thereby, they have identified similar challenges/problems for specific age groups and thus determine similar needs or desires of consumption within this group. WP3 Deliverable E-FACTORS

72 The MOBICOM project has divided the lifecycles of human beings into the following groups: Childhood (4 to 12), Adolescence (13 to 16), Young Adulthood - first life structure (17 to 31), Young Adulthood - second life structure (32 to 40), Middle age (41 to 64) and Late Adulthood (from 65) Geographic The promise of ecommerce is that one can access a wide range of services anywhere, anytime. Nevertheless, linguistic and geographic boundaries have yet to be completely abolished. The locality of an individual is tightly coupled with what type of access he or she has to the Internet, if any at all. This is due to the fact that not that many remote areas have the correct, technological and general, infrastructure compared to the one in big cities. However, access is slowly becoming less and less a matter of geographical remoteness, turning into a matter of social remoteness. One would expect that geographically disadvantaged areas would heavily use online services thus taking advantage of the aforementioned promise. On the contrary, use of online services is mainly centred on largely populated areas, whilst geographically disadvantaged, e.g. remote, areas still share the fate of being overlooked. English is accepted worldwide as a common means of communication. Nevertheless, one cannot fail to notice that the predominant language seen online is English. It is evident that very few sites for online services are multilingual. A very dangerous assumption is therefore made that everyone that wishes to access an online service has a good command of the English language. HSBC Bank has been using a new slogan as of late: The World s Local Bank. It might be only four words in length, but it articulates in the best possible way what our aim is. The factors under this category are: Area Density Regions Area Type Technology Infrastructure General Infrastructure Language The SEED project looks at how regional diversity affects an ecommerce environment by analysing a specific region of Europe, namely South East Europe. The consortium partners of this project placed special emphasis upon the regional diversities and the geographic particularities that ten South Eastern European countries exhibit, namely Greece, Cyprus, Slovenia, Bulgaria, Albania, Romania, Israel, Moldova, Germany and FYROM. Another project that stresses the importance of the regional diversities through its analysis is the ENLARGE project. This project focuses on five Eastern European countries, namely, Bulgaria, Cyprus, Poland, Romania and Slovenia. Thus, as it can be seen through this project the degree of e-readiness, or in other words the available infrastructure, differs from country to country and is directly related to the way business models are adopted, implemented and affected, i.e. we witness the formulation of country specific factors. mcommerce and its effect on European competitiveness is the focal point of the MOBICOM project. The consortium members are countries that have distinct differences and that represent different regions of WP3 - Deliverable E-FACTORS

73 Europe. The aggregate analysis carried out provides a unique opportunity to look deeper into different regions of Europe Behavioural Consumer behaviour is about human reactions in a commercial environment. Why do they buy or not buy products, what affects their decision as to which products to purchase and their understanding of promotional campaigns in any shape or form. Marketing is tightly coupled with consumer behaviour in the sense that it poses the questions that consumer behaviour is called to answer. Consumer behaviour does this through using psychology and social sciences and by carrying out market research and data analysis. It is rather evident that consumer behaviour encompasses a lot more than just the two factors that can be found in the list following this description. Nevertheless, as we pointed out earlier on, consumer behaviour borrows from psychology and social sciences. The factors in this group are related purely to the market research and data analysis that was mentioned above. The factors under this category are: Frequency Purchasing Loyalty The MOBICOM project demonstrates the importance of this category through the online survey that was conducted by the project partners in the course of the third work package. Detailed information concerning this survey can be found in deliverable D.3.2 of the project. This survey analysed the current usage and adoption of mcommerce services in Greece, Finland and Germany and furthermore it investigated consumers attitudes and behaviour patterns towards mcommerce services in these countries, indicating significant variations. The MOBICOM project has assumed that different people face different challenges/problems at different ages and therefore generate different consumer needs. Following that assumption, the MOBICOM project has employed the concept of Life Course and Human Development Research in order to get a description of consumers transition phases at subsequent stages in their lives Psychological It has been a lifelong quest of humans to understand the underlying infrastructure and processes that support the decision making process. Psychologists the world around have been looking into the human psyche in an effort to explain why we act the way we do. This research has led them to the identification of several factors that play an extremely important role in defining one s actions. Nevertheless, psychologists are not adamant about the degree of the effect that each factor has. Even so, there is no denying that upon careful consideration, all of these factors combined provide a rather comprehensive framework, which can be used to understand the build up to an action. The factors under this category are: Beliefs Attitudes Intentions Propensity to Trust WP3 - Deliverable E-FACTORS

74 Motivations Lifestyles / Values In order to better comprehend the psychological make up, and consequently the needs, of the consumers a study was carried out in three European countries: Greece, Germany and Finland. This study was carried out in the context of the MOBICOM project and served as an exhaustive analysis of the different make-ups of the countries populations. A similar study that was carried out in the context of the SEED project was aimed at the southeastern European countries. It became apparent, especially in the national reports that were developed in for deliverable D.2.1, that even though the region was characterised by a common psychological make up, there were several differences between countries that were formerly part of the eastern bloc and those that had a western character Transactional This group of factors is based on the seven Ps of marketing, i.e. Product, Promotion, Price, Place, Process, Physical Evidence and People. These principles have been researched, put into practice, tested and consequently improved long before ebusiness was even conceived as a possibility. Therefore, based on the fact that a successful ebusiness must stem from a well-defined and structured business, we accepted those Ps that can be applied to ebusiness models and added a few more factors in order to cater for the digital nature of e-businesses. Classic marketing principles must not be merely dismissed as characteristics of a physical world. Rather, one should only consider that the medium is somewhat different, hence the differentiations from classic marketing. One must not completely isolate the digital from the physical marketplace, as was very painfully demonstrated by the.com boom and crash. The factors under this category are: Product Brand Website (Delivery Medium) Design / Ambience Payment Method Platform Promotion Price Process Place (Distribution) Education & Experience Major advances in the field of Human and Computer Interaction have played a major role in bringing down the preconception that personal computer users have the necessary skills to navigate their way through an application or a site for an online service. It is unfortunately assumed that the user has the required background, i.e. knowledge, skills etc., in order to decipher a graphical user interface and carry out the desired task. On the other hand the users themselves have to feel confident enough to use an application. It is not a rare occurrence that users have their own preconceptions about applications, thus leading to low levels of accep- WP3 - Deliverable E-FACTORS

75 tance for applications that do not comply. In some cases users do not feel able or up to using an application and therefore they reject it outright. The factors under this category are: Knowledge Skills Expertise Self Efficacy The SEED project strengthens the importance of education and experience, through the analysis that was performed in the course of the third work package and more specifically for deliverable D.3.1 with the title: Analysis of surveys for e-commerce environments in S.E. Europe. This analysis indicates that in all the countries, mentioned in subsection 4.3, lack of skilled personnel seems to be a significant barrier in the adoption of electronic commerce as well as IT illiteracy Peer / Social Networks Under this group we have attempted to categorise the users according to their environment, trying to take into account the group, which the user is part of. Hence, we are placing the user into a cultural context that is not purely related to the actual location of the user. o The individual at work: This refers to the situation, where an individual is interacting with e-commerce as part of their job. Examples would include e-procurement of goods for use in the workplace, e.g. components purchase of individual items for personal business use, e.g. books. They would normally interact via PC from within a company intranet. o The individual at home: This refers to the situation, where the individual accesses e-commerce from home purely for personal purposes. Examples would include downloading of music or video for entertainment, home shopping for grocery or household goods, purchase of tickets for concerts and home banking. They would normally access e-commerce by PC and a modem or cable connection to the internet or by TV to a walled garden. o The individual on the move: This refers to the situation, where the individual needs access to e- commerce from any physical location, e.g. on the train, in the car, in transit areas such as airport lounges or in social locations such as cafés or bars. Examples would include receiving news alerts for sporting events or concerts, access to on-line ordering from a subset of a known or frequently used site (e.g. ordering building materials by mobile phone while working on a building site). The individual would normally access e-commerce by mobile phone, via a kiosk or via a PC in an internet café. o The individual as part of a family group: This refers to the situation in which the individual is co-located with family members and collective decisions are made about accessing e-commerce sites and about subsequent purchases. Examples would include a mother and daughter s browsing clothes shops and discussing potential purchases, (possibly prior to visiting the physical store), family members discussing the family holiday and browsing various options prior to purchase. They would normally be sitting in a group clustered around the PC or in the lounge sitting in armchairs viewing the interactive TV. o The individual as part of a social community: This refers to the situation in which the individual is part of a tight social grouping such as a housing community, a special interest club such as a gardening club, or a church group. Examples of social communities of this type using e-commerce might include members of a housing community meeting together to decide on the most economical way to purchase goods for the community, this may involve them in auctions or bidding for items. A gardening club may WP3 - Deliverable E-FACTORS

76 o access a range of on-line gardening sites with a view to joint purchasing of equipment for the club. A church group may decide to download music for use in children s liturgy sessions. Typically they would access e-commerce via PC. The individual as part of a business community: This refers to the situation in which the individual is part of a business community such as a trade club or a collection of small traders who supply larger organisations. Examples might include small stationery businesses that supply universities. In this case the individual might engage in an e-procurement portal as a supplier; another example might involve the individual representing his business as part of a value chain. Typically they would access e-commerce via a PC through the company intranet. The factors under this category are: At work At home On the move In The Family In A Social Community In A Business Community Based upon the SEED project we may state that in the survey (deliverable D.3.1, pp.55) that was conducted in the South Eastern European countries, which are listed in subsection 4.3, the majority of the respondents indicated that they accessed the Internet mainly from their workplace amongst other places, e.g. from home or from the university. The latter seems to be correlated with the spending power of the users in each country. In the same survey respondents indicated that they use the Internet for social communication purposes as well. According to the MOBICOM Project, life is influenced and determined by factors such as the physical, intellectual and emotional capacities as well as socio-economic circumstances. These observations led us to a metaphor for linking the macro and micro level in the life course analysis: the concept of trajectory. The term trajectory refers to an entire life course that can be empirically broken down into a sequence of transitions. Transition describes the change from one stage to another. The trajectory metaphor, if combined with the life stage principle, refers to an active, self-generating process of an unfolding biography. Life course research concerns trajectories and transitions across interrelated life domains. The key point of the sociological perspective is that man is embedded in the surrounding social and cultural context. Each individual forms and holds expectations about others and, in return, is expected to behave according to other people's views. This brings about certain social roles with specific needs. The following table is a concise version of the updated list of factors for the Individual Thematic Priority. The left column contains the groups of factors and the right column contains the factors that belong to each group. Groups of Factors Individual Differences Factors belonging in that group Cognitive Physical WP3 - Deliverable E-FACTORS

77 Demographic Geographic Behavioural Psychological Transactional Education and Experience Culture Peer / Social Networks Gender Age Spending Power Area Density Regions Area Type Technology Infrastructure General Infrastructure Language Frequency Purchasing Loyalty Beliefs Attitudes Motivations Intentions Propensity to Trust Lifestyles / Values Product Brand Website (Delivery Medium) Design / Ambience Payment Method Platform Promotion Price Process Place (Distribution) Knowledge Skills Expertise Self Efficacy At Work At Home On the Move In the Family In a Social Community In a Business Community WP3 - Deliverable E-FACTORS

78 6.5 SUMMARY Business models are conceived, implemented, adopted and evolved by individuals and organizations or rather groups of individuals. Consequently these models aim to service individuals or groups thereof. It is therefore apparent that the individual plays a central role in the sustainable adoption of ebusiness models. Moreover, an ebusiness model should contain allowances for certain behaviors that could be expected from the consumer in the setting of the model. In addition, one should also be reminded that an organization is an organic collection of individuals. Hence, one should realize the importance that individuals play in the evolution of an organization and its business model. A shortcoming of current projects is that they tend to exaggerate their focus on one factor or group of factors. This is done in the expense of a more comprehensive view of that/those factors since no interrelationships are taken into consideration. The dot com era has painfully proven that an ebusiness model should not be simply concerned with exploiting a new technology, but rather provide a more holistic view of a problem area in order for the model to positively affect the bottom line. Some of the reasons why a business model might fail are: The business model does not accommodate for individual differences and their impact. The business model fails to incorporate demographic information accurately. The business model does not take into account geographical diversity. The business model is inconsistent with the behavioural patterns of the consumers. The business model does not include a comprehensive psychological profile of consumers. The transactional aspect of the business model does not utilize the appropriate marketing techniques. The intended users of the business model be it consumers or employees do not have the experience or the right level of education. The peer and social networks that employees and consumers form adversely affect the business model. The main categories of individual e-factors are derived from these eight reasons of business model failure. The eight groups of factors each contribute to a different perspective as to how individual factors shape the development and adoption of ebusiness models. Empirical findings of clustered FP5 projects lend support to Deliverable 3.1,v.0.9, 31-July E-FACTORS

79 this argument. Individual e-factors play an important role as facilitators or inhibitors in the selection and adoption of ebusiness models. The eight groups of individual e-factors are as follows: Geographic. Language has proven to be a major issue in the wider adoption of ebusiness and related services. The general and technological infrastructure of certain regions as well as the area density and type can severely impede or prevent altogether adoption of ebusiness. Culture. This category deals specifically with the situations in which an individual might find herself when interacting with an ebusiness application. These might be at work, at home, on the move, in a family group, in a social or business community. Depending on the context consumers/users behave differently and have varying expectations. Education and Experience. This category deals with a lot of pre and misconceptions regarding users knowledge, skills and expertise on digital technology. It also has to do with users own perception of the level their skills or self efficacy. Transactional. This category borrows from traditional marketing whilst considering the digital form of the delivery and communication medium: product, brand, design/ambience, payment methods, platform, promotion, price, process and distribution. Psychological. Psychology has been working towards the elusive goal of understanding the human mind. Although, we are not interested in such a general notion, beliefs, attitudes, motivations, intentions, propensity to trust and lifestyles/values are the psychological traits that usually affect adoption of ebusiness. Behavioural. Consumer behaviour, i.e. why do consumers behave as they do in a given commercial environment, is an amalgamation of social sciences, psychology, market research and data analysis. The factors under this category could be many more, but in order to avoid duplication with other categories only frequency purchasing and loyalty have been listed. Individual Differences. Consumers are differentiated on a cognitive as well as a physical level. Their skills and abilities vary widely. These affect their perceptions as well as their decision-making processes. A classic example of cognitive differences is the visualizer and verbalizer styles of learning. Demographic. This group includes gender, age and spending power. These factors are used to categorize a market into segments. These are consequently used for targeting products. Deliverable 3.1,v.0.9, 31-July E-FACTORS

80 7 ORGANIZATIONAL THEMATIC PRIORITY Editors / Organizations Norwegian School of Economics and Business Administration (NHH), Norway The adoption of and successful performance of e-business models is inherently associated with the ways in which single business firms or value networks of collaborating firms conduct business. As amply demonstrated by most definitions of the concept (cf. chapter 3), a business model describes how an enterprise works. It is a variation of the generic value chain underlying all businesses, i.e., it describes business activities associated with making and selling something, respectively (Magretta, 2002). Thus, a business model is a pattern of business activities or, alternatively, business (work) processes, i.e., the flows of products, services, and information associated with these processes. Timmers (1999) corroborates this view. Amit & Zott (2001) emphasise the key role of transactions by asserting that a business model describes the presumably value creating steps that are performed in order to complete transactions. Finally, Afuah & Tucci (2001) relate a business model to how a firm builds and uses its resources. Others associate business models with the relationships between different participants in a commercial venture (e.g. Elliot, 2002), including business partners (Mahadevan, 2000) or allies (Weill & Vitale, 2001). Therefore, even though one could refer to a particular business model as firm x s business model, the business model as a unit of analysis normally has a wider scope than does the firm, since it encompasses the capabilities of multiple firms in multiple industries. Oftentimes, organisations from different industries collaborate in value networks. As already pointed out, we can see a trend that the boundaries of industries are blurring and, to some extent, new industries (or business sectors) emerge. Similarly, boundaries of organisations or business firms are blurring, giving rise to new forms of network or virtual organisations. Consequently, we must accept that the organisational and industry thematic areas overlap. Thus, organisational as a thematic priority must be interpreted as intra- as well as interorganizational. Therefore, organisational factors include factors that are related to interorganizational relationships. As such, the distinction between the organizational and the industry thematic areas in some cases may be rather superficial. This chapter starts out by presenting an initial list of organizational e-factors. The list is the result of an extensive brainstorming activity in which experts used the above definitions and descriptions of the concept of a business model as the point of departure, i.e., as a structuring device. Thus, the brainstorming process primarily was guided by (i) the content (products and services; resources and capabilities), (ii) the structure (parties involved; linkages between those parties and between business activities; exchange mechanisms), and (iii) the governance (flow control) of transactions (Amit & Zott, 2001). Next, the theoretical background of organizational e-factors is discussed, followed by a structured presentation of organizational e-factors in terms of a limited number of e-factor categories. Then, potential interrelations with other thematic areas are briefly alluded to. Finally, practical examples from the clustered projects are provided. 7.1 Initial List of Organizational e-factors Deliverable 3.1,v.0.9, 31-July E-FACTORS

81 The following initial list of factors is unstructured and may be rather incomplete. It is, however, the result of a combination of brainstorming based on practical experiences and theoretical analysis. Products Innovations Strategy Effectiveness Cross-selling Revenues Return on investment requirements Capabilities Complementarities Customisation Customer support Marketing effort Organisation structure Logistical procedures Information flows Resource sharing with partners Contracts/agreements with partners Network externalities Access to information Lock-on (loyal and satisfied customers) Trust Switching costs Virtual communities Employee incentives Employee motivation Management approach Leadership Governance mechanisms Prices/Pricing mechanisms Value adding services Organisation culture Symbols and language Access to adequate resources (products, equipment, capital, brands, human expertise) Services Markets/Market segments Efficiency Sales volumes Transactions Costs Resources Scope of products and services Personalisation Customer base Customer service Lead times/time-to-market Business activities Work flows Partnerships Number of intermediaries Warranties Value chain integration Lock-in Loyalty programs Reputation Branding/Co-branding Customer incentives Employee knowledge and competencies Human resource management Management involvement and dedication Change management Transaction mechanisms Interactive dialogue with customers Conflict resolution mechanisms Values and attitudes Organisational learning Deliverable 3.1,v.0.9, 31-July E-FACTORS

82 The factors should be structured and categorised into appropriate groups. Further, a certain prioritisation is called for, giving us the opportunity to evaluate the degree of importance of each factor or factor group. Finally, the organisational factors should be checked against factors within the societal, industry and individual thematic priorities, respectively. 7.2 Theoretical Background of Organizational e-factors The notion of organisational e-factors The notion of organizational e-factors is closely related to the interaction between information technology (IT) and organisations in terms of IT-enabled business models (e-business models). As pointed out by Laudon & Laudon (2002) and others,..the interaction between IT and organisations is very complex and is influenced by a great many mediating factors, including the organisation s structure, standard operating procedures, politics, culture, surrounding environment, and management decisions. Obviously, it is a great challenge to identify all those organisational factors with influence on the performance of e-business models What exactly is an organisation? From a technical viewpoint, an organization is a stable, formal, social structure that takes resources from the environment and processes them to produce outputs (again according to Laudon & Laudon, 2002; any other source from the organizational literature would provide similar definitions). On the other hand, a behavioural definition of an organization suggests that it is a collection of rights, privileges, obligations, and responsibilities that are delicately balanced over a period of time through conflict and conflict resolution. According to the latter definition, an organization is less about structure and mechanics and more about people who work in organizations, have relationships to each other, and make arrangements about how work will be done. Our analysis of e-factors should take into account both definitions or views. Some features are common to all organizations. Among these are structural characteristic such as (cf. Weber s notion of bureaucracies): - Clear division of labour (specialisation) - Hierarchy (of authority limited to specific actions) - Explicit rules and procedures (SOPs standard operating procedures; rules of thumb) - Impartial judgements (everyone is treated equally) - Technical qualifications for positions (not personal connections) - Maximum organisational efficiency (maximising output using limited inputs) In addition to structural characteristics shared by all (or most) organisations, the following two factors constitute common features: Organizational politics: According to Laudon & Laudon (2002),..[P]eople in organizations occupy different positions with different specialities, concerns, and perspectives. As a result, they naturally have divergent viewpoints about how resources, rewards, and punishments should be distributed. These differences matter to both managers and employees, and they result in political struggle, competition, and conflict within every organisation. Political resistance is one of the great difficulties of bringing about organizational change.. Deliverable 3.1,v.0.9, 31-July E-FACTORS

83 Organizational culture: Laudon & Laudon (2002) contend that..[o]organization culture is this set of fundamental assumptions about what products the organisation should produce, how it should produce them, where, and for whom. Generally, these cultural assumptions are taken totally for granted and are rarely publicly announced or spoken about a powerful unifying force that restrains political conflict and promotes common understanding, agreement on procedures, and common practices a powerful restraint on change, especially technological change. Most organisations will do almost anything to avoid making changes in basic assumptions.. Neuhauser et al. (2000) suggest that organisational culture first and foremost is about shared underlying assumptions, i.e. core values of groups of people. Next, it deals with human behaviours and habits, and finally it is expressed through symbols and language. Although all organizations have common features as described above, no two organizations are identical. The unique features of organizations include structure (organisation form), goals, constituencies, power distribution, leadership style, tasks, technology and environments. Some organizations are bureaucratically structured, characterised by many management layers and a strict position hierarchy, while others are less bureaucratic, in some cases characterised by a flat structure in which the traditional position hierarchy is replaced by a hierarchy based on skills and competence. Different structures lead to different ways of structuring and organizing business processes. Consequently, business models, even though they in principle appear similar, tend to be performed differently across organizations Leavitt s model of organisation design Literally, there is a limitless number of organizational theories that may have some bearing on the present work. For the sake of simplicity, we can use Leavitt s model of an organisation as a point of departure. STRUCTURE TECHNOLOGY TASKS PEOPLE Figure 7.2.1: Leavitt s model of organization According to Leavitt (1965), an organization works properly only if the four interrelated components (factors) constituting an organization are in balance, i.e. mutually adjusted and orchestrated in an integrative fashion. Hence, the model is an equilibrium model. While the firm s strategy reflects or defines the key TASKS of the organization, the business model is the story about how the four components play together in a balanced way in an attempt to accomplish the goals of the organization. WP3- Deliverable E-FACTORS

84 Leavitt s model has been extended by including MANAGEMENT PROCESSES in the centre of the diamond (Scott Morton, 1991). This extended model, as depicted below, demonstrates the importance of taking the dynamic aspects of management and organizational change into account. The balance of the four components is not static; it takes leadership and change management to move the organization from one state of equilibrium to the next. Thus, the success of a business model is closely related to leadership and management, increasing the number of relevant organizational factors. STRUCTURE TECHNOLOGY Management Processes TASKS PEOPLE Figure 7.2.2: Leavitt s model of organization We could use the extended version of Leavitt s model as a framework within which we categorize all the relevant organisational e-factors from the initial list above. Thus, the main categories or factor groups are: TASKS; STRUCTURE; TECHNOLOGY; PEOPLE; MANAGEMENT PROCESSES More sophisticated theories of organization A somewhat different approach is to look for more sophisticated theories to inform our work. Among relevant theories, we can employ economic theorie such as the microeconomic model of the firm, where the organizational output (and potential success) is a function of the interplay between input factors (or factors of production) such as labour, capital and technology (e.g., Hitt & Brynjolfsson, 1996). Agency theory, in which the firm is viewed as a nexus of contracts among self-interested individuals rather than as a unified, profitmaximising entity (Jensen & Meckling, 1976), may also hold some relevance. IT, by reducing the costs of acquiring and analysing information, permits organizations to reduce agency costs because it becomes easier for managers to oversee a greater number of employees (e.g., Gurbaxani & Whang, 1991). Behavioural theories may also contribute to the process of systematically identifying e-factors. Such theories typically stem from psychology, sociology or political science and are more useful than economic theories for describing and explaining what exactly goes on in the organization, i.e., how human behaviours influence the day-to-day performance of the firm. Among relevant behavioural theories, some may focus on attitudes and norms, others on organizational culture in general, while some may be concerned with organizational politics and power distribution. Also, organizational learning and organizational decision making may be emphasised. WP3- Deliverable E-FACTORS

85 Amit & Zott (2001) conducted a theoretical analysis based on the following theories or theoretical perspectives: - Resource-based theory (RBT) - Strategic network theory (SNT) - Schumpeterian innovation theory (SIT) - Transaction cost economics (TCE) - Value chain analysis (VCA) While VCA and TCE highlight the role of efficiency in value creation, RBT holds that combining a set of complementary and specialised resources and capabilities may lead to value creation. SNT, on the other hand, focuses on the implication of network structure for value creation. Finally, SIT has innovation as the primary source of value creation. SIT also emphasises the importance of technology in the creation of new products and production methods. We shall take the opportunity to briefly review these five theoretical perspectives. Resource-based theory Resource-based theory, as already mentioned, holds that combining a set of complementary and specialised resources and capabilities, may lead to the successful performance of business models. Such resources and capabilities are valuable if they reduce a firm s costs or increase its revenues compared to what would have been the case if the firm did not possess those resources and capabilities (Barney, 1997). The dynamic capabilities approach (Teece et al., 1997) explores the dynamic nature of capabilities acquisition and how this relates to a firm s managerial and organizational processes, such as co-ordination, integration, transformation and learning. In the digital economy, resources and capabilities may be available to firms through partnerships and resource sharing arrangements Strategic network theory Strategic network theory focuses on the formation and performance of network structures. Strategic networks may appear as strategic alliances, joint ventures, buyer-supplier relationships, virtual organizations etc (e.g., Gulati et al., 2000). Traditionally, network theory has been preoccupied with such aspects of networks as size, density, centrality, and heterogeneity of ties (e.g., Granovetter, 1973). As summarised by Amit & Zott (2001), in addition to enabling access to information, markets, and technologies (Gulati et al., 2000), strategic networks offer the potential to share risk, generate economies of scale and scope, create network externalities (e.g., Shapiro & Varian, 1999), share knowledge and facilitate learning, and reap the benefits that accrue from interdependent activities such as co-ordinated workflows. Moreover, strategic networks may shorten time to market, enhance transaction efficiency, reduce asymmetries of information, and improve co-ordination. WP3- Deliverable E-FACTORS

86 7.2.6 Schumpeterian innovation theory Schumpeterian innovation theory focuses on economic development through innovation and technological change. Schumpeter (1942) introduced the notion of creative destruction. Schumpeterian rents are benefits that become available for innovators (first movers). These are benefits that later disappear as innovations become established practices. The theory is preoccupied with the role of technology, particularly how technology may be used to combine resources to create new products and production methods. In the digital economy, innovations are no longer something that takes place within firms. Innovations are truly interorganizational by spanning firm and industry boundaries, and fostering new forms of collaboration among firms Transaction cost economics Transaction costs include the costs of planning, adapting, executing, and monitoring task completion. According to transaction cost theory (economics), firms and individuals seek to economise on transaction costs. In fact, TCE considers transaction efficiency as a major source of value creation, as enhanced efficiency reduces costs. IT, especially the use of networks, can help firms lower transaction costs, making it worthwhile to contract with external suppliers, and even use the market, instead of relying on internal sources (e.g. Malone et al., 1987). E-business may lead to a reduction in both direct and indirect transaction costs. Examples of the former are search costs and document handling costs. Reduction of indirect costs may stem from easier interaction because of open standards, reduced transaction uncertainty because of improved information availability, and a reduction in asset specificity because an Internet site is only one click away Value chain analysis Value chain analysis identifies the activities of the firm and their economic implications. The value chain is a model of the different interrelated functions that perform the activities of the firm (or rather the business unit). VCA explores both primary and support activities, and asks the question what activities the firm should perform, and how. Value chain analysis is more about efficiency than, like Schumpeterian innovation theory, about new product development. Hence, the main focus is on delivering low-cost rather than differentiated products. Porter & Millar (1985), however, stress the point that IT creates value by supporting differentiation strategies. In general, value creation in value chains is dependent on such factors as policy choices (what activities to perform, and how), linkages (within the value chain or with suppliers and channels), timing, location, sharing of activities, learning, integration, and scale/scalability and scope (Porter, 1985). In the digital economy, value chain integration may take the form of value chain bypassing or disintermediation (e.g., Giaglis et al., 1999; Timmers, 1999). Stabell & Fjeldstad (1998) have generalised value chain analysis into what they call a value configuration analysis approach (see also Afuah & Tucci, 2001, chapter 6) Value configuration analysis Building on Thompson s (1967) seminal work in which he proposes a typology of organizational technologies, Stabell & Fjeldstad (1998) explore the idea that there are three distinct generic value configuration models WP3- Deliverable E-FACTORS

87 required to understand and analyse value creation across different firms and industries. The relationships between organizational technology and value configuration are summarised in the following table: Organizational Technology Long-linked technology: Interdependencies are sequential and tasks are accomplished serially i.e., continuous processes, assembly lines, continuous output of standardised products, conversion of raw materials into finished goods, etc. Intensive technology: Oriented toward solving highly specific problems requiring an intensive interaction between the problem solvers and the object of their attention e.g., the interaction between doctors and patients in a hospital Mediating technology: Establishes a connection between two or more parties who wish to be interdependent, i.e. facilitates the role of an intermediary service e.g., borrowers and lenders, buyers and sellers Value Configuration Value chain: A model of the different interrelated functions that perform the activities of the business unit. Value is created through the transformation of inputs into products. Primary activities are: Inbound logistics Operations Outbound logistics Marketing and sales Service Value shop: A model of professional service provisioning. Value is created through the (re) solving of customer problems. Primary activities are: Problem finding and acquisition Problem solving Choice Execution Control and evaluation Value network: A model of a set, or network, of customers that are connected. The firm itself is not the network. Value is created through a communication service that depends on whom it enables customers to communicate with. Primary activities are: Network promotion & contract management Service provisioning Infrastructure operations IT and the Internet may affect the activities of each value configuration in a number of ways. A brief discussion of the value chain and IT has already been provided. According to Afuah & Tucci (2001), the Internet affects the primary activities of the value shop in four main ways: - It enables a larger scale of operation WP3- Deliverable E-FACTORS

88 - It widens the geographic scope of the area the firm represents - It allows more information to be collected and processed by the service provider - It enables a new delivery medium or mechanism Value shops have the potential to serve a larger population in a wider geographic base. Examples of such value shops are travel agencies, real estate agencies, payment services, consulting firms, engineering services, and even medical services. Similarly, the Internet influences the activities of the value network in three main ways (Afuah & Tucci, 2001): - It compounds network externalities - It widens the geographic scope of the network - It enables a larger scale of the network Afuah & Tucci (2001, p. 100) claim that the network externality effect is the most important property influencing the value network. This effect, in turn, creates a kind of lock-in effect in the sense that customers will tend to rush to the larger networks. Typical value networks are brokers, travel agencies, telecommunication services, retail banks, insurance companies, and postal services. WP3- Deliverable E-FACTORS

89 7.3 Organizational e-factors in Categories Amit & Zott (2001) used their theoretical analysis as background for a subsequent empirical investigation. Empirically, they established a model of four interrelated value drivers, i.e., main factors that may effect and explain the successful performance of e-business models: Efficiency (costs, speed, selection range, scale economics, etc.) Complementarities (vertical, horizontal, between products, technologies, etc.) Lock-in (switching costs/trust/loyalty, network externalities, customisation, etc.) Novelty (new transaction structures, transactional content, participants, etc.) Our brief review of relevant organizational theories in general, and the Amit & Zott research in particular, could be used as a starting point in the process of identifying appropriate categories of organizational e- factors. In addition, our review may help us to identify factors that are not in our initial, primitive list of factors. Below, the initial list of factors is organized in seven main categories. We use a combination of theories and models, including those presented in the previous section, in an attempt to account for all relevant factor groups at the organizational level. As already pointed out, when business models do not work, it is because they fail either the narrative test (the story doesn t make sense) or the numbers test (the profit & loss doesn t add up). Obviously, a business model may fail for a number of reasons, some of which are: - Customers are not provided with products and services that they are willing to buy. - The business fails to identify the right markets or market segments for their products and services, or simply fails to attract, satisfy and retain customers. - The business model is inefficient in terms of costs, operational procedures and/or flows. - The business model is not properly organized, structured and managed. - There is a mismatch between the business model and organizational culture. - The business does not have access to or fails to utilise critical resources. - The business fails to establish appropriate and effective partnerships. Our main categories of organizational e-factors stem from these seven reasons of business model failure. We shall discuss the main categories in turn Products & Services Apparently, the success of a particular business model is dependent on the products and services offered by the firm. Generally speaking, a particular business model works better for some products and services than for others. For example, in most cases e-business works well for information products (such as software, music, financial products) because such products (and services) may be distributed electronically. For physical products, time and costs associated with distribution and delivery may inhibit value creation. WP3- Deliverable E-FACTORS

90 The following factors are related to products and services: Product scope Information access Complementarities Value-adding services Branding Customisation Product innovation Product scope refers to reach, i.e., the number of products that are reachable quickly and cheaply in the virtual market. Product scope means that a firm s product range in an e-business context is wider than ever. Information access refers to the richness of information in conjunction with product presentations, i.e., the depth and detail of information that can be accumulated, offered, and exchanged. More about reach and richness can be found in Evans & Wurster (2000). The product range may be further extended to include complementary products and services. We distinguish between vertical complementarities (e.g., after-sales services) and horizontal complementarities (e.g., onestop shopping). Amit & Zott (2001) cite an example of how a European online travel agency (e-bookers) provides its customers with weather information and currency exchange rate information, thus enhancing the value of its core products (airline tickets, hotel reservations, etc). Complementarities are quite frequently referred to as value-adding services. The digital economy may redefine the idea of branding. According to Earle & Keen (2000), the traditional product brands are about to be outplayed by new power brands like AOL and Yahoo (and intermediaries like Ariba and CommerceOne). Product brands are replaced by relationship brands. This is an important observation, and something e-business enterprises should be aware of. In the digital economy, real-time customisability of products and services is easier than ever. Gilmore & Pine (1997) presents four different approaches to customisation: (i) collaborative, i.e., conducting a dialogue with individual customers to help them articulate their needs, identify the precise offering that fulfils those needs, and make customised products for them, (ii) adaptive, i.e., offering one standard, but customisable, product that is designed so that users can alter it themselves, (iii) cosmetic, i.e., presenting a standard product differently to different customers, and (iv) transparent, i.e., providing individual customers with unique goods or services without letting them know explicitly that those products have been customised for them. Customisation of information-intensive products and services quite frequently leads to quick response delivery as a consequence of moving production to the point of delivery. Product innovations are of utmost importance in all businesses and industries. E-business firms have the opportunity to design and develop completely new products and services, and they can identify and incorporate valuable new complementary products and services into their bundle of offerings in novel ways. WP3- Deliverable E-FACTORS

91 7.3.2 Markets The success of a business model is ultimately dependent on its ability to define its market in terms of clearly defined segments, and to attract, satisfy and retain customers. From a business perspective, this is perhaps the greatest strategic challenge faced by any enterprise. There are a number of market-related factors, some of which are accounted for by the individual thematic priority. Some key factors are: Market scope/segments Customer base Customer service and support Personalisation Customisation Lock-in Lock-on (loyal and satisfied customers) Virtual communities Loyalty programs Network externalities Customer dialogue Marketing effort Information access Like product scope, market scope refers to reach, i.e., the market segments that are reachable quickly and cheaply in the virtual market (Evans & Wurster, 2000). Virtual markets have unprecedented reach because they are characterised by a near lack of geographical boundaries (Amit & Zott, 2001). Thus, the potential customer base is virtually unlimited. Customers are concerned about the value created by the supplier s products and services. To attract, satisfy and retain customers, a business model should enable the creation of customer surplus (Hitt & Brynjolfsson, 1996), i.e., value added for the customer. Customer service and support, personalisation, and customisation are important means of creating customer value. As pointed out by Amit & Zott (2001), the value-creating potential of an e-business is enhanced by the extent to which customers are motivated to engage in repeat transactions. Customer retention could be achieved through lock-in or lock-out. The former is manifested as switching costs (transaction cost economics), network externalities (strategic network theory), or brands, trust etc. (resource-based theory). The latter is simply a matter of creating trustful relationships with customers, i.e., making them maximally safe and satisfied. Lock-in could also be achieved by creating virtual communities that bond customers to the enterprise. Virtual communities enable frequent interactions between participants and thereby create loyalty and satisfaction. Loyalty programs may play a role in conjunction with virtual communities. Virtual communities may promote the creation of networks with numerous participants. Such networks may in turn exhibit (network) externalities, i.e., the value that a participant derives from being part of the network increases with the number of other participants. There is also the additional advantage of indirect network externalities. Online auctions such as ebay and QXL provide relevant examples. Auction buyers may benefit indirectly from an increasing number of other buyers. This is because the presence of more buyers makes the auction site more attractive for potential sellers. Again, we are faced with a way of achieving lock-in. WP3- Deliverable E-FACTORS

92 The combination of products/services and markets defines the firm s strategy. Magretta (2002) provides an example (from the US retail industry) of how a particular business model, given similar products and services, works very well in one market context (Wal-Mart) but almost fails in another (K-Mart) Efficiency The success of a business model is dependent on the firm s operational efficiency. Especially, the cost efficiency of a business model is crucial. A business model is a representation of a workflow or the flow or sequencing of business activities. Obviously, the success of a business model is dependent on the way things flow, i.e., the efficiency of the flow. We distinguish between physical flows and information flows. The latter includes payment-related flows. The following factors are related (to a large extent interrelated) to efficiency: Revenues Sales volumes Costs Return on investment (ROI) requirements Prices/Pricing mechanisms Work flows Information flows Information access Scale economics/scalability Lead times/time-to-market Logistical procedures Value chain integration Transactions Transaction mechanisms Transaction efficiency may be improved by reducing transaction costs. Information access may reduce information asymmetries between buyers and sellers, and it may contribute to a reduction of customers search and bargaining costs. Furthermore, an e-business may provide for lower costs and prices by reducing distribution costs, streamlining inventory management, and simplifying transactions. Thus, all parties may enjoy the benefits of scale economics. An e-business may also ripe benefits through scalability, i.e., increasing the number of transactions (sales volumes) at essentially no marginal costs Management & Structure A business model is partly dependent on the way the business is structured and managed. Evidently, there must be a close match (alignment) between the way the enterprise is organized and the way the business model works. The key factors are: Management approach Span of control Distribution of power and authority Distribution of responsibilities Change management Teamwork Organization form Intermediaries WP3- Deliverable E-FACTORS

93 A key feature of modern organisations is flexibility. E-business enterprises require flexible management where the span of control is limited, power and authority is flexibly arranged, and the distribution of responsibilities and tasks are based on people s competencies and skills rather than on their tenure and position in the hierarchy. Teamwork prevails. Flexibility also pertains to change management; a key aspect of any e-business is its ability to change continuously. As already pointed out, boundaries of organisations or business firms are blurring, giving rise to new forms of network organisations. Typically, these organisations (virtual organisations is a case in point) are based on close, but sometimes ad hoc, relations between partnering firms. We shall return to this later (8.4.7). As far as intermediaries are concerned, e-business enterprises would tend to strive for disintermediation, i.e, bypassing an intermediary, such as a retailer or stockbroker, who was previously part of the chain to the customer. Bypassing an intermediary, or disintermediation, is at the heart of the direct-to-customer business model (Weill & Vitale, 2001) Organization Culture The success of a business model also depends on the organisation climate, i.e., the internal atmosphere within the firm. The.com era has clearly demonstrated the importance of the culture and climate within firms that decide to compete electronically, i.e., do e-business. The important factors are: Shared values (core values) and attitudes Social norms Behaviours and habits Symbols and language Demographic diversity Organisational change The deepest layer of organisational culture is constituted by the shared underlying assumptions and core values of the organisation. What is most important? Is it employees as a group, is it each individual employee, or is it the customer (e.g., a patient in a hospital)? How important is time and structure? What about honesty and ethical conduct? A couple of years ago, Time magazine had an article in which the vision and core values of Amazon.com were presented: Our vision is the world s most customer-centric company. The place where people come to find and discover anything they might want to buy online. Amazon s six core values were: customer, obsession, ownership, bias for action, frugality, high hiring bar, and innovation (Neuhauser et al., 2000, p. 7). Behaviours and habits refer to the way we do things around here. It could be formal policies and procedures, or just informal habits and customs. Symbols, language and artefacts of the enterprise are all the tangible items that people could see, touch, and hear. It could be corporate colours, logos, T-shirts, songs, sounds, yells or anything that may serve to identify the business. Organizational change in this context is about changing the business strategy, accompanied by appropriate adjustments of symbols, language, behaviours, habits, and policies, but without changing core values and underlying assumptions. WP3- Deliverable E-FACTORS

94 Rosabeth Moss Kanter (2001) has conducted extensive research on what she calls e-culture. She has found that e-culture is about continuous organisational change. Furthermore, it is a 24/7 phenomenon; business is conducted 24 hours a day, 7 days a week, and customers require the enterprise s full attention at all times. E-culture is also about fast communication, sometimes to the detriment of personal relationships. On the other hand, virtual work may foster collaboration Resources & Capabilities The success of a business model partly depends on the availability and utilisation of critical resources. A diversity of resources and mechanisms to enable effective utilisation of those resources is available, some of which are: Licenses/exclusiveness Technical/physical resources; equipment Natural resources Financial resources (capital) Brand name or reputation Human resources: knowledge and competencies, skills (employees and others) Leadership skills Incentives/Motivation Management involvement and dedication Organisational learning A business model may be seen as a method by which a firm builds and uses its resources (Afuah & Tucci, 2001). In fact, resource-based theory postulates that the products and services rendered by the firm s unique bundle of resources and capabilities may lead to value creation (Amit & Zott, 2001). The above examples of resources speak for themselves. Resources may be unique and/or specialised, i.e., they are heterogeneous within an industry, scarce, durable, not easily traded, and difficult to imitate. Licensing may pertain to the products and services of the enterprise as well as to specific input factors, including tools and equipment. Even without licensing, products, services and input factors may be unique. Human resources consist of the knowledge, competencies and skills held by individuals employed by the e- business firm as well as other individuals who have a formal relationship to the firm. We have listed leadership skills as a separate factor. In many situations, making a business model a success and even making it work at all requires a special kind of leadership that still is scarce in the business world. Organizational learning refers to the enterprise s capability of taking advantage of experience. In this sense, knowledge management is the mechanism by which organizational learning is facilitated and valuable knowledge could be exploited. WP3- Deliverable E-FACTORS

95 7.3.7 Partnerships As already pointed out, a business model quite often is inter-organisational in nature, i.e., it supports the performance of a value network of collaborating firms. The success of such business models depends on the content and quality of the partnerships that have been established. The key factors associated with such partnerships are: Number of partnerships Resource sharing Degree of equality Co-branding Cross-selling Contracts/agreements Governance mechanisms (contracts, trust etc.) Conflict resolution mechanisms Number of partnerships relates to the size of the network. Obviously, large networks possess a greater potential for value creation on part of the enterprise (e.g., by increasing the product scope, enabling cobranding, and providing access to unique resources) as well as its customers (e.g., through network externalities). The nature and content of contracts or agreements, and appropriate conflict resolution mechanisms, are key challenges for enterprises in their attempts to establish value-creating networks. Furthermore, resource sharing must be sorted out. The idea is to exploit the unique and specialised resources of each partner in order to create a win-win-win situation (winners are the e-business firm, the partner, and the customer). According to Keen & McDonald (2000), a value network is created by sourcing key business processes through a combination of electronic links to many players in the network and the company s internal capabilities. Keen & McDonald (2000) suggest two ways by which key business processes could be sourced. Outtasking means sourcing specific processes to partners (e.g., best practice providers) in an attempt to exploit these partners unique capabilities. The philosophy behind out-tasking is: If a job s worth doing and someone else can do it better, let them. Two cases in point are Dell s partnership with Ariba, the successful e- procurement provider, and ebay s partnership with Wells Fargo Bank (who takes care of paying the auction seller). In-sourcing, on the other hand, means providing access to all kinds of augmentative, and hopefully value-adding, services and products. With appropriate electronic links, such services and products are only a click away. A case in point is a travel agency providing a link to a bank s currency exchange information on its web site. WP3- Deliverable E-FACTORS

96 7.3.8 Summary of categories In summary, the seven main categories of organizational e-factors are as follows: PRODUCTS & SERVICES - Product scope - Information access - Complementarities - Value-adding services - Branding - Customisation - Product innovations MARKETS & CUSTOMERS - Market scope/segments - Customer base - Customer service and support - Personalisation - Customisation - Lock-in - Lock-on (loyal and satisfied customers) - Virtual communities - Loyalty programs - Network externalities - Customer dialogue - Marketing effort - Information access EFFICIENCY - Revenues - Sales volumes - Costs - Return on investment (ROI) requirements - Prices/Pricing mechanisms - Work flows - Information flows - Information access - Scale economics/scalability - Lead times/time-to-market - Logistical procedures - Value chain integration - Transactions - Transaction mechanisms MANAGEMENT & STRUCTURE - Management approach - Span of control - Distribution of power and authority - Distribution of responsibilities - Change management - Teamwork - Organization form - Intermediaries ORGANISATION CULTURE - Shared values (core values) and attitudes - Social norms WP3- Deliverable E-FACTORS

97 - Behaviours and habits - Symbols and language - Demographic diversity - Organizational change RESOURCES & CAPABILITIES - Licenses/exclusiveness - Technical/physical resources; equipment - Natural resources - Financial resources (capital) - Brand name or reputation - Human resources: knowledge and competencies, skills (employees and others) - Leadership skills - Incentives/Motivation - Management involvement and dedication - Organizational learning PARTNERSHIPS - Number of partnerships - Resource sharing - Degree of equality - Co-branding - Cross-selling - Contracts/agreements - Governance mechanisms (contracts, trust etc.) - Conflict resolution mechanisms WP3- Deliverable E-FACTORS

98 7.4 Organizational E-Factors Examples from Clustered Projects In this section, we provide examples from the clustered projects. Generally speaking, all the clustered projects are relevant for the organisational thematic priority. However, some of them have not provided any input to this section. Category 1: Products & Services ALTERNATIVE Project The Application Service Provision (ASP) business model is the focus of the ALTERNATIVE project. There are many variants of the model that can be differentiated by the type of product being offered as a service. The variants include: Pure Play, Full Service Providers (FSP), Enabler, Management Service Provider (MSP), Storage Service Provider (SSP), Vertical Service Provider (VSP), Horizontal Service Provider (HSP), Enterprise Service Provider (ESP), Wireless ASP (WASP) and more. Besides the type of product being offered, that which differentiates the ASP business models is the organisation of activity with respect to the industry value chain. For example, the enabler provides as a service, infrastructure and facilities that allow other ASPs to be implemented. A FSP, on the other hand, provides end-to-end solutions that comprise both hardware and software to meet a market need. MOBICOM Project The MobiCom Project has identified the significance of this category through the examination of the customer value factor in building an m-business model. In particular, the customer value factor examines whether the product/service provided by a specific business model is of significant value in order to determine the profitability and viability of this specific business model. Category 2: Markets & Customers ALTERNATIVE Project The lack of growth in the ASP business model over the last few years has been largely due to the inability of the ASPs to create a market. The target customer group has notably been the SMEs. ALTERNATIVE has found that SMEs do not understand what ASPs are offering, as they remain confused with the vendor driven information. The lack of personalisation and customisation, particularly at the level of vertical business process support and integration with legacy systems, has been a major inhibitor. The cost economics for the ASP provider are in many variants of the ASP model premised on the one-to-many assumption where economies of scale can be gained. This leads to a lack of personalisation and customisation. Till now, many ASP providers have more or less failed to address the important issue of customer support. They have rather concentrated on the technological aspects of the model. MOBICOM Project The MobiCom Project has identified the significance of this category first through the examination of the market scope in the process of building the m-business framework. According to the MobiCom Project, market scope is about the market segments or geographic areas to which the value should be offered, as well as how many types of products that embody versions of this value should be offered. Scope is about offering versions tailored to the needs of different customers and designing these versions to accentuate the needs of different groups of customers. Scope may also refer to the description of the activities that WP3- Deliverable E-FACTORS

99 an actor has to undertake with the purpose of providing value to its customers. Furthermore, the ownership and good care of the customer base is again a significant factor, since it determines which player has a strong gatekeeper role, ie who is the dominant player. Category 3: Efficiency ALTERNATIVE Project Efficiency is the key to the ASP business model. The core value proposition for potential customers is based on cost efficiencies. The ASP model can be advantageous in that a firms IT investment and operational costs can be reduced to predictable variable costs. ASP pricing models can vary widely. Typical pricing models include per person per month, per transaction, or per data unit (e.g. MB). The value proposition includes fast time-to-market with application installation and upgrade. For example, an ERP solution could normally take months to install but with an ASP, a potential customer may be on-line within days. MOBICOM Project According to the MobiCom project, a critical part of a business model analysis is the determination of the sources of a firm s revenues and profits. Many firms receive their revenue sources directly from the products they sell. Others may receive their revenues not from the sold products but from the before- and after-sales provision. In the media model, firms offer value to their customers, but charge the advertisers, not their customers. Such a revenue model is usually applied in the case of content provision on the Internet. According to the MobiCom project, an important part of profiting from the value that firms offer customers is to price it properly. That means pricing taking into consideration the prices of competitive products in the market as well as pricing based on the willingness degree of the customer to pay for that. One of the most fundamental features of information goods sold through Internet and soon via wireless networks is that their cost of production is dominated by the first-copy costs. Information is costly to produce but cheap to reproduce. The fixed costs of production are large, but variable costs of reproduction are small. This special feature of digital goods requires managers to pay attention on how to price their products, so that customers are encouraged to buy it and prefer it from similar market products. The discussion on pricing also includes identification of one or more billing schemes, policies for price discrimination, based on different versions of the same product, and definition of the cost structure (initial, fixed, variable) within the firm. DOMINO Project The management system on the basis of which the ONIA NET operates, begins its implementation with the setting of goals, following with the strategies to achieve them with view to four critical perspectives: finance, customer, internal and learning. Measures and performance targets are then established, aligned with the strategies, and are set up so that they can be regularly monitored. Utilising the existence of new technologies as well as the daily exchange of POS (point-of- sale) data, a new business model emerges. On one hand, the new business model rearranges the relationships be- WP3- Deliverable E-FACTORS

100 tween the suppliers and the retailers, while on the other hand, it paves the ground for the close collaboration and co-operation based on sharing the knowledge of the market. The key lessons to be learned from this case are: - Top management commitment, as well as acceptance by the end-users, is required. - Organisational changes and clear specifications of the new roles are necessary, especially as the number of partners increases. - It is important to have a clear product mapping and data validation mechanism to ensure reliable and uninterrupted communication between partners. - It is important to have a homogenous platform that offers user-friendliness combined with efficiency and content stability in order to enable the application of CPFR in a many-to-many environment. - It is necessary to carefully track the results and progress during and after the pilot and at regular intervals. - It is necessary for tools enabling CPFR processes to allow different users to selectively focus on different areas of CPFR, according to their needs and priorities. Category 4: Management & Structure DOMINO Project In the construction network of Dimer the researchers interest was to explore the socio-technical dynamics evolution in a network information infrastructure. Researchers study dynamic network constellations, coming from different cultural backgrounds, in terms of educational and professional qualifications, thus creating vague mechanisms of collaboration that make more than essential the study of the network objectives and the context where the phenomenon evolves. Moreover, this research effort is focused on understanding changes in the pattern of relationships concerning the network participants and comprehending the set up and configuration of a common information infrastructure. In this particular site, relationships among the nodes of the network are reinforced and probably reconfigured by the application of a web-based solution that simplifies interaction and creates new opportunities for more effective management of the relationships. In the KüchenPartner AG network, located in Germany, researchers are analysing whether and how an IOS platform is able to facilitate collaboration issues as well as to reduce co-ordination complexity and network management of organisational networks by supporting and automating certain processes and transactions. An IOS platform might have an impact on network governance and network structure. Hence, the issue of network governance is also addressed by this project. A collaboration platform facilitates and supports collaboration issues for the whole network. The roles and relationships between network participants are important to conduct a requirements analysis regarding network collaboration. The motivation to introduce an IOS platform is not only an endogenous rationale but the network context and its exogenous contingencies have also an impact on this decision process and the design of such platforms. The platform design is also affected by the particular information infrastructure of network participants as well as by technological affinity and the motivation to endorse an IT-based collaboration platform. WP3- Deliverable E-FACTORS

101 Hence, research is focused on the first phase of the network life cycle (formation, design, configuration; development of IOS solutions). Another important aspect is the stabilising phase. Network processes and structures have to be adjusted in order to integrate the platform into the network accomplishing a best fit between platform and network structure/processes. Therefore, it makes no sense to develop an IOS solution without an accompanying change process. The need to co-ordinate relationships among participating companies has been observed in the case of the KüchenPartner AG network. Interviews revealed that the obtainment of co-ordination between network participants preconditions a balance between among the need for aggregation and the desire for interdependence. Another research effort considers the configuration and adoption of new, network business models. The configuration of the network between Opel Switzerland, the garages, Car4you and the Namics consulting company, evolved exactly because of the relationship Namics already had with Opel and Car4you. Therefore, the strategic moves of Namics altered the structure of relationships surrounding Opel and Car4you and lead to the creation of a network organisation that capitalises in the competencies of both these enterprises. This research effort aims in analysing network business models, thus examining empirical configurations on a network level. It is also concerned with the identification of roles and structures on a network level. Moreover, this research effort aims at explaining the formation and configuration of webbased networks and their underlying network business models. In doing so, the configuration phase is more important, whereas the stabilisation is covered by the presentation of management implications and explicit roles to cover management issues within these web-based network configurations. Category 5: Organisation Culture DOMINO Project GeM is a fully operational network and is currently offering its third ring of courses. It is characterized by a strong culture, obvious in the engagement of each participating school to the success of this initiative. The network has already created its distinctive brand name -GeM- and the relative logo is present to all the artifacts produced by it. More specifically, the consortium publishes yearly accounts of each academic period (The GeM book of Ring I, II, ) and also awards to all the students a common certificate of completion with the GeM logo as well as the logo of the participating schools. The need to forge a strong common culture was judged imperative from the inception of the program in order to assure the harmonious collaboration of the nodes but also to underline to all the parties involved as well as the rest of the academic community that the incentives of this program were strictly academic and beneficial for the participants. This strong cultural affinity among the participating universities has, so far, prevented internal competition but the creation of rings with changing participants might produce rivalries concerning the criteria of participation and their potential manipulation by the members. Category 6: Resources & Capabilities ALTERNATIVE Project Licenses are a critical factor in the ASP business model. This research has found that the complexity and inflexibility of software licensing has been an inhibitor to the growth of the ASP business model. A firm who has already purchased licenses for in-house software, and who wishes to use an ASP, has been WP3- Deliverable E-FACTORS

102 forced to effectively re-purchase the license through the ASP s pricing model. This has been detrimental to the ASP model as the potential cost economies may not be realized. Licensing issues are normally in the realm of the Independent Software Vendors, who appear to be protecting their traditional software business models by acting inflexibly with respect to the ASP model. Even in advanced examples such as Cable & Wireless a-services (CWaS), who included Microsoft as a strategic partner, there were licensing issues. For some time, Microsoft would not allow customers to transfer existing licenses to the ASP. This changed just before the closure of CWaS. Brand name and reputation are key to the ASP business model because of the confidence needed by a customer in trusting a third party to operate important critical processes, and store and manage company data. The lack of growth in the ASP model has not given rise to many reference cases that generate customer confidence. Netstore, Europe s Leading ASP, has several well-known customers that it uses for this purpose (Cisco and Avon). MOBICOM Project According to the MobiCom project, to develop a business model, the firm has to exploit its own resources and capabilities, but also to outsource the mechanisms, which it cannot support. The above factors have been examined under the category Core Competence in the MobiCom business model framework. DOMINO Project Research in the DOMINO project concerns the management on a network level: rules, guidelines, and structures for governing whole networks. Particularly, it investigates direct effects of the adoption of ECR on multiple performance indicators, and the antecedent and moderating effect of several important enablers of network management such as asset specificity, teams, incentive systems, trust, complementary capabilities and dependence. This research project concentrates mainly on the network level. The network in this case setting consists of several suppliers and its core firm: Sainsbury`s Supermarket. We investigate the characteristics of Sainsbury`s network in terms of strategy, organisation and technology. Managing retailer-supplier networks effectively has been a critical issue for decades. Therefore, the objective in Sainsbury s case setting is to establish a long-term win-win situation for both parties, aligned to the philosophy of ECR adoption. The case of Sainsbury s extranet environment revealed that the configuration of a network is only the first step in the process of creating stable arrangements among organisational units. Category 7: Partnerships ALTERNATIVE Project Partnership is key to the success of the ASP business model. A typical ASP service consists of several stakeholders who come together to provide the specific service. The firms that normally need to partner are Independent Software Vendors, Network Operators, Hosting providers, Managed storage providers, and the like. The necessary resources required to deliver an ASP solution, are rarely found in a single WP3- Deliverable E-FACTORS

103 firm. Even giants such as Cable & Wireless needed to develop partnerships with Microsoft and Compaq, who provided the software and hardware for an ASP solution, respectively. DOMINO Project The OEM project involves the dyadic view within networks, especially concerned with inter-personal social relationships and aspects of informal structures within networks (includes learning). More specifically this research effort focuses on power issues, social aspects as well as specific latent patterns of relationship specific investments among network participants. Therefore, researchers face the dyadic view and distinguish various relationship facets. The research focuses mainly on the single firm level with regard to the impact of the network and the environment it belongs, investigating the network position of specific network actors with its implications for other participants or the entire network. Therefore, researchers examine, on the bases of various aspects, the alignment process for sustainable collaboration in OEM networks. Thereby, we particularly identify various parameters on the single firm level, which describe the firm s network position regarding power and dependence as well as social relations against the background of significant environmental changes. Interviews revealed that managerial issues are prevailing in the case of the DaimlerChrysler suppliers network where each individual organisation participating in the different levels of suppliers tiers must be able to predict shifts in power in order to position itself strategically and furthermore to avoid deterioration of its position in the overall network if possible. In the GeM MBA program, DOMINO research examines the role of interpersonal social relationships in the configuration process of network organisations. Additionally, emphasis is placed on the role of the informal ties among physical actors in the partner selection process. The basic aim is to identify the influences of pre-existing social ties in the containment and diffusion of behavioural phenomena like conflict. The type of governance in GeM is also analysed as a parameter of the co-operation, co-ordination and conflict management mechanisms that constitute the main topic of this individual research effort. In GeM s case, the researcher is observing the effects of the management on the various relationships inherent in a network to the creation or prevention of conflict among the various units. Therefore, focus is placed on the network level and, additionally, the perspectives of some nodes like the Athens University of Economics and Business are added in order to offer an alternative view of the issues examined. Since this case investigates behavioral phenomena like conflict generation and management in network enterprises, all stages of a network life cycle are investigated in order to create a complete and comprehensive picture of the manifestations of the conflict phenomenon in the various stages of GeM s configuration. The configuration of the network between GeM s academic partners, evolved because of the pre-existent social networks running it. Interviews revealed that the competency of managing the network as a unique entity is crucial for the viability of the network. Interviews also showed that the management of the relationships portfolio of the network also affects the manifestation of organisational phenomena like conflict among the nodes of the network. WP3- Deliverable E-FACTORS

104 7.5 Summary The adoption and subsequent performance of business models for e-business require much more than just jumping on the latest technologies. An enterprise would have to consider or reconsider what kind of business they are in, what products and services to sell, how they should serve the market, how they should organize their business processes, and how they could exploit new and promising virtual partnerships. An e-business model should be established on the grounds of a thorough analysis of the considerations mentioned above. Obviously, any business model may fail for a number of reasons, some of which are: Customers are not provided with products and services that they are willing to buy. The business fails to identify the right markets or market segments for their products and services, or simply fails to attract, satisfy and retain customers. The business model is inefficient in terms of costs, operational procedures and/or flows. The business model is not properly organized, structured and managed. There is a mismatch between the business model and organizational culture. The business does not have access to or fails to utilize critical resources. The business fails to establish appropriate and effective partnerships. The main categories of organizational e-factors stem from these seven reasons of business model failure. Each of the seven factor categories contributes a different perspective as to how organizational factors shape the development and adoption of e-business models. Empirical findings of clustered FP5 projects lend support to this contention. Organizational e-factors play important roles as facilitators or inhibitors in the selection and adoption of e-business models. The main categories of organizational e-factors are the following: WP3- Deliverable E-FACTORS

105 Products & Services. Generally speaking, a particular e-business model works better for some products and services than for others, e.g., information products versus physical products. The e-factors identified under this category are product scope, i.e., the number of products that are reachable quickly and cheaply in the virtual market; information access, i.e., the richness of information in conjunction with product presentations; complementarities (vertical or horizontal), frequently referred to as value-adding services; branding, e.g., in terms of relationship brands in the virtual market; customization, real-time customizability of products and services are easier than ever; and product innovation, i.e., design and development of completely new, ICTenabled products and services. Markets & Customers. The organization s ability to identify the right markets for their products and services, and to attract, satisfy and retain customers, ultimately determines the success of an e-business model. The market-related e-factors accounted for are market scope, i.e., the market segments that are reachable quickly and cheaply in the virtual market, eventually defining the customer base; value added for the customer through customer service and support, personalization, and customization; customer retention, i.e., sustainable, loyal and/or satisfied customers, through lock-in, lock-on, virtual communities, loyalty programs, or network externalities; and finally such things as customer dialogue, marketing efforts, and information access. Efficiency. The success of an e-business model is dependent on its cost efficiency as well as on its flow efficiency. Flow refers to the workflow or the flow of business activities. Efficiency e-factors range from scalability related to sales volumes and subsequent revenues, via scale economies associated with efficient transaction mechanisms, reduced lead times, reduced costs, and streamlined logistical procedures, to value chain integration and efficient workflows. Management & Structure. A successful e-business model requires dedicated management and adequate work structures. It calls for (i.e., e-factors) flexible management including change management - and limited span of control, flexible power and authority, and distribution of responsibilities based on competence rather than on the traditional position hierarchy. Teamwork prevails. New forms of networked organizations complete the picture. Organization Culture. Competing electronically requires new forms of culture and climate within firms. Such forms are built around shared values and attitudes, social norms, behaviors and habits, as well as symbols and language. An e-culture typically embraces ubiquity, i.e., the ability of the Internet to shrink and enlarge time; being available instantaneously and asynchronously, 24/7 worldwide. Resources & Capabilities. The success of a business model partly depends on the availability and utilization of critical or scarce resources. Factors associated with resource utilization include licenses, equipment, human resources, leadership, incentives, motivation, and management involvement and dedication. Knowledge management is the mechanism by which organizational learning is facilitated and valuable knowledge (experience) could be exploited. Partnerships. An e-business model is typically interorganizational in nature, i.e., it supports the performance of a value network of collaborating firms. Key factors in this regard are the number of partnerships, i.e., the WP3- Deliverable E-FACTORS

106 size of the network; governance mechanisms, e.g., trust or contracts/agreements; resource sharing; cobranding; and conflict resolution mechanisms. There are a number of interrelations between the organizational thematic area and the other thematic priorities: technical, individual, industry, and societal. While technology is one of the most important unique factors constituting an organization, the main overlaps between the individual and organizational thematic priorities are in the areas of customers and culture. Culture is also closely related to the societal thematic area. Finally, we should acknowledge that boundaries of industries as well as organizations are blurring, thus creating close ties between the industry and organizational thematic priorities. WP3- Deliverable E-FACTORS

107 8 INDUSTRY / INDUSTRIAL THEMATIC PRIORITY Editors / Organizations Erasmus University Rotterdam (EUR), The Netherlands Adoption of e-business models is influenced by the industry structure and vice versa. Though not every industry faces the same changes in structure due to e-business. Taylor (1999) defines 6 parameters, which declare the differences between industries in their change in industry structure: 1) New value propositions 2) New business models and intermediaries (reintermediation) 3) Vertical disintegration 4) Transparency (which leads to erosion of marges) 5) Disintermediation 6) Horizontal integration In general we see a trend that the boundaries of industries as we know them (like telecom, industry, retail, finance, media, entertainment, publishing) are blurring and networks of organisations arise. More and more within the new business models organizations from different industries collaborate and deliver customised products and services. Delivery of customised products and services is co-ordinated via new intermediaries or one of the existing organizations in the value web. The value web integrators combine from the partners in the network a number of (standardised) production modules in order to deliver customised products and services to the final customer (see Hoogeweegen, 1997). Core competencies originating from different partners like contents, technology, finance & insurance, logistics, marketing, production and insurance can be combined. WP3- Deliverable E-FACTORS

108 Customisation takes place in many industries. The two examples show customisation in the Automotive branch and customisation in the Toys industry Research of OECD (2002) says that because of the new e-business models many types of markets may become more open and efficient, with obvious benefits to producers and consumers. E-commerce results in a greater mix of direct and intermediated sales, helping customers to bypass traditional intermediaries (disintermediation) and facilitating new intermediaries (reintermediation). E-commerce may provide new avenues for firms to create new dominant positions or perpetuate existing ones. Incumbent firms and their established business models are surviving, and e-commerce is not significantly altering the established basis of market power. Very few interviewed firms saw e-commerce destabilising existing commercial relations. Overall, first mover advantages by new firms have not been as clear as earlier thought. Established firms and industries are benefiting from e-commerce, and small firms may not be advantaged. WP3- Deliverable E-FACTORS

109 Initial List of Industry e-factors The following list of Industry e-factors is based on a combination of brainstorming based on practical experiences and theoretical analysis. We identify a number of industry-categories and sub factors that influence the uptake and rate of possible success of an e-business model. In the following section we will shortly describe each sub-factor. Category Factors Sub-factors Industry Type of industry Branch Profit/non-profit Degree of industry standards Industry structure New value propositions New business models and intermediaries (reintermediation) Vertical disintegration Transparency Disintermediation Horizontal integration Product characteristics (In) tangible (Non) Digitalised Competition Presence of competition / new competitors Suitable co-operation partners Complimentary in competencies Suppliers Customers Equal level of automation Suppliers negotiation power Type of customer (business or consumer) Added value from customer perspective Heterogeneity of customer group / negotiation power WP3- Deliverable E-FACTORS

110 8.1 Background of Industry e-factors Type of industry Profit/non-profit The difference between profit and non-profit organisations lies in the adoption and application of the e- business models. Profit organisations and so markets tend to apply e-business models faster then the nonprofit organisations and markets. The cause of these differences lies in the ability and desirability to use these models in order to fulfil the organisations business. Non-profit organisations and so markets see obstacles in the price of high-tech resources. The budget within non-profit organisations is rather small compared to for-profit organisations (Agnew, 2000). Non-profit organisations however do make extensive usage of the Internet as a channel for communication. Branch Standardisation of processes within a branch is important for the adoption of e-business models. For example the financial services are in front of industry sectors with using e-business models. Another example is the publishing industry. This industry is using and developing Internet technology for their core business. Online newspapers and other papers are transferred through Internet as an extra channel to the traditional physical channels. Furthermore new combinations are explored, combining digital delivery and physical printing on demand (see Due to the characteristics of the product an industry will be more or less keen on adopting Internet for the core business. Furthermore some industries are more change-driven and innovative than others. The branches where products are sold the best over the Internet are not necessarily the same across countries (Figure 9.2.1). The amount of Internet usage within a branch is not only reflected by the nature of the product digitised products such as music, books and software are easier to sell and distribute over the Internet but also on consumer tastes and habits, which often differ per country (space) and time (season, year). WP3- Deliverable E-FACTORS

111 Figure 8.2.1: Consumers Internet purchases by product per country (source: OECD, 2002) Research of the OECD (2002) shows that firms differ considerably in their use of information technology and the Internet, depending on the industry. Information-intensive services (business and property services, communications, finance and insurance) and the public sector (education, public administration, health care) usually have the highest penetration rates. Transport and storage, retail trade and accommodation and food services generally have the lowest penetration rates, with manufacturing approximately in the middle. Differences by industry are also related to organisation size. Figure shows the propensity of businesses to carry out Internet purchases across selected sectors in six OECD countries. This propensity is higher in services than in manufacturing, and financial services, business services and wholesale trade are generally the most intensive users. Internet orders are most popular in the finance and insurance industry in Sweden and the United Kingdom, and the business services 8 industry also has high rates of Internet commerce. In Denmark and Finland, the business services industry reported approximately every second order to be an Internet order. In Canada and Australia, the propensity to buy over the Internet seems to be more equally distributed across sectors. In Canada, the industries with the highest percentage of businesses purchasing over the Internet in 2000 were information and cultural industries (53%), private educational services (41%) and professional, scientific and technical services (41%). In Australia, Internet procurement in was most common in the electricity, gas and water supply and communication services industries (38% and 29% of Internet users, respectively) (OECD, 2002). WP3- Deliverable E-FACTORS

112 Figure 8.2.2: Business ordering over the Internet by industry per country (source: OECD, 2002) Degree of industry standards A high level of industry standards increases the value of the specific network or industry. Network externalities become available for the industry (Pant & Ravichandran, 2001). The usefulness for the consumer increases when a higher level of standardisation is present. The online digital economy isn t established by one single industry alone, the success of this economy depends on the co-operation of some more or less direct involved industries. (Tapscott, 1996). Agreements between industries and within industries result in cooperation, collaboration and consolidation. The result of this is a new digital economy and higher levels of profit for industries and organisations. By sharing competencies organisations in telecommunications, computer hardware and software, entertainment, creative content, news distribution and financial services could result in a major consolidation of information-base industries. In order to seize these major opportunities, some degree of standardisation is required. WP3- Deliverable E-FACTORS

113 Covisint ( is an example of the boost, which industry standards can give to an e- business model and its participants. Covisint was initiated by General motors, Ford and DaimlerCrysler. Covisint provides supply chain management and e-procurement tools based on open standards for message specifications, message exchange and middleware to back-office systems Industry structure The industry structure plays an important role in the success of an e-business organisation. In industries with many SME s e-business models are less adopted (e.g. retail industry, transport industry) given the lack of expertise, time and money at SMEs. In industries with a fewer number of (mainly larger) organisations e- business models will be adopted more quickly given the availability of investment budgets, expertise and the need to make operations more efficient to gain economies of scale (e.g. financial services industry). Organisations faced with dynamic environment and structure face the challenge to organise the organisation in a way that let them be able to react quickly and firmly on changes in the environment. Organisations have to be flexible and organic in order to be able to face those rapid changes (Geisler, 2001). E-business models lead to changes in the structure of industries. The following fundamental changes can be identified: New value propositions By collaborating with organisations in other industries companies join their individual strengths to come up with new value propositions to their existing customers or even to reach into new markets. Federal Express ( changed their value proposition by offering just-in-time deliveries, warehouse management, order tracking via their website. FedEx had to set up partner networks to be able to offer the total service to their customers. WP3- Deliverable E-FACTORS

114 New business models and intermediaries (re-intermediation) Industry structure is changed by new intermediaries that enter an industry, based on a new service, which often is enabled by new Internet technologies for collaboration and information sharing. Covisint ( has developed an online marketplace for the automotive industry with various supply chain management and e-procurement tools. Covisint is a combination of various e-business models (brokerage model and collaboration platform). Bricsnet ( is a new intermediary in the construction branch. This website supports all related member organisations in the construction of a property in the various phases from design, construction, leasing, contents to maintenance and repair via a centralized planning & administration, reporting, docushare and collaboration tools. Vertical disintegration Vertical disintegration takes place once organisations decide to outsource (part of) their original activities and deliver new services towards the final customer. Nike ( leaves their traditional production and distribution process to business partners. They can to this because of a reliable and efficient electronic infrastructure with partners, connected via the internet. Transparency (leading to erosion of margins) Because of the increase in market transparency, customers can make better decisions. Transaction costs (searching costs for market information) decrease, which lead to an overall lower price of products and services. In specific e-business models (like reversed auctions) transparency can lead to even lower market prices. WP3- Deliverable E-FACTORS

115 Via reverse auction models suppliers can bid on a certain request by a buyer. In case of Travelbids ( this concerns airway tickets. This makes the airline ticket market more transparent towards the customer who is searching for a cheap ticket on a certain track. Another example from increased transparency is This website provides support in the various phases of buying an insurance product: discovery (based on independent advise, support and tools), compare (based on various criteria), choose, buy (with back-office link to insurance company) control (based on personal profiles). Wellowell s revenue model is based on fees from the participating insurance companies based on the traffic and leads generated. Disintermediation The traditional distribution channels can be threatened by organisations that use the Internet for direct communication with customers. Information, transactions and services can be delivered via a website. WP3- Deliverable E-FACTORS

116 On-line travel agents offer flight schedules, price comparison and online bookings through websites. A good example in the Netherlands is Part of the existing activities of physical travel agents is disintermediated via this service. Another example is Sciencedirect delivers digitised academic papers through the Internet instead of hardcopy papers through traditional channels like libraries. Because of its direct-delivery model Dell ( is delivering directly to consumers, thereby disintermediating the consumer electronics retail shops. This provides both benefits to Dell (lower inventory costs, production on demand) as well as the customer (always latest technology components, customised product). Dell created a virtuous cycle (the opposite of a vicious cycle) by rewriting the rules of the PC industry, custom-configuring PCs through direct dealings with end users. Customer intimacy gave Dell superior forecasting ability, which allowed it to pursue JIT manufacturing with very low levels of finished goods and components inventory and little risk of stock-outs. Radical reductions in inventory not only lowered costs but also enabled Dell to be first to market with the latest products. The net result was that Dell had the dominant share of the PC market, which in turn led to more customer contacts-thereby starting the cycle all over again (Govindarajan & Gupta, 2001). WP3- Deliverable E-FACTORS

117 Horizontal integration E-business offers a way to go beyond the borders of one s industry, for example offering new services towards an existing customer group or targeting a new market on the basis of specific assets (like technology and expertise). Microsoft online travel services ( use the Microsoft infrastructure and its customer base for offering products and services, which go beyond Microsoft s traditional industry (software). Another Microsoft example is Microsoft.NET Passport ( This service was launched in It is a suite of Web-based services that makes using the Internet and purchasing online easier and faster..net Passport provides users with single sign-in (SSI) and fast purchasing capability at a growing number of participating sites, reducing the amount of information users must remember or retype. With.NET Passport Microsoft has moved to the financial services industry as a new intermediary Product characteristics Tangible goods and/or (intangible) services The adoption of business models that are based on intangible goods seems to go faster than with tangible goods. Intangible goods are more suitable for e-business (van Heck et al, 2000). Products with a high level of services are perfectly suitable to create a relation with the consumer by personalisation. This characteristic stimulates the adoption of the business model. Furthermore using the Internet organisations can reach a great part of the market at seemingly no cost for intangible goods. The element of personalisation enables organisations to offer services that are extremely well adapted to the needs of the consumer. If those services fit well with interactive media then the potential for this product increases e.g. insurance organisations. They can offer a broad range of customised products to individual consumers. An example where this applies is financial services. For example Rabobank ( who set up a virtual banking facility where clients can do all their banking and financial businesses at any time and anyplace they want. Although intangible goods seem to be more suitable for e-business there are business models set up for tangible goods. Ahold developed the concept a Dutch web shop where consumers can order products from various stores, which are then delivered at home. Digitalised (software, audio, video, advice) or non digitalised goods The potential of products that are digitalised is greater than non-digitalised products (van Heck et al., 2000) The digitalised products can easily be distributed on the Internet and therefore the market for these products approaches the world. The added value for customers seems to be greater with digital goods than with nondigital goods. Higher added value is often provided in the combination of time (speed, any time), space (any space) and customisation (on demand delivery). More and more new business models are developed, based WP3- Deliverable E-FACTORS

118 on the combination of delivery of goods via physical and digital channels (see Figure 9.2.3) and the PEPC example. sales channels Mail Order Internet Physical outlet Type of goods Physical goods Digital goods Catalogue merchant e.g. Wehkamp Click & Mortar e.g. Nike, GAP, Bijenkorf E-tailer e.g. Amazon, CDNow, etoys Bit vendors e.g. McAfee, Realnetworks, Combinations e.g. Newspaper on demand (Pepc) Figure 9.2.3: Categories of eshops PEPC ( has developed the PRESSPOiNT. This print-on-demand automate is installed at international, high traffic venues such as hotels, airports, cruise ships and convention centers throughout the world. Through its proprietary Satellite Distribution Network, PEPC distributes the newspapers to the kiosks on a 24/7/365 basis. This seamless distribution method ensures that PRESSPOiNT -venues can rely on a constant offer of all participating newspapers. PEPC's innovative distribute-then-sell-then-print model makes pre-purchases and overstocks belong to the past. WP3- Deliverable E-FACTORS

119 8.1.4 Competition Presence of competitors / new competitors The adoption of e-business models depends on the adoption of these models by competitors (Herbrink, 2002). The adoption of e-business models is influenced by the behaviour of the competitors (Agarwal, 2000). Some organisations try be the first to go to the market with their business model without good thought of the consequences or the quality of the e-business model. Just the presence of the competitors was enough to invest in e-business (Agarwal, 2000). Since the dotcom crisis, organisations focus more on a follow-strategy, making use of the (failure) lessons from previous years. The new e-business models still bring new competitors, coming from various directions (like other industries (e.g. ICT), supply side or demand side). Given the increase of competition from digital mail ( ) the Dutch Postal Services (TPG) have repositioned their services into bringing information from A to B instead of bringing postal mail from A to B. A new business model in line with this strategic repositioning is Privver ( which is a digital mailbox, where digital mail is collected and archived from various institutes (so far mainly banks, financial institutes and electricity firms). It leads (to a certain degree) to disintermediation of the physical mailman of TPG. WP3- Deliverable E-FACTORS

120 Another new service by TPG is Easystamp ( by which companies can print their own digital poststamps on demand. This service has efficiency, customisation, time- and place benefits for its customers. It leads (to a certain degree) to disintermediation of physical post-stamp sales outlets. A new competitor in the courier industry is Ship it Smarter ( Based on a number of characteristics the best fit for a courier for a certain shipment is given. Shipitsmarter receives a commission for each lead towards the partner couriers who are connected. WP3- Deliverable E-FACTORS

121 8.1.5 Suitable co-operation partners Complimentary in competencies Co-operation partners are important for organisations to adopt e-business models. E-business offers a new way of doing business. New relations emerge which can be connected to each other without much effort. Activities can be outsourced easily, within a closed Internet environment. By doing business with partners the value added for customers can increase. The increase in added value comes from the sharing of information, knowledge, experience and skills between the co-operation partners. Especially for the development of innovative solutions co-operation can be effective. Finding a suitable partner is the problem organisations face. Partners have to have the same interest to be equal in the co-operation. Information to be exchanged has to be standardised to make the co-operation successful (Herbrink, 2002). Some examples of e-partnerships are shown in Figure Kodak and America Online have joint their competences to target America Online s customers with a new digital photo-service, combining the competences of Kodak (development of photo s) with those of America Online (Internet portal) Nokia ( is one example of increasing co-operation with outside suppliers (OECD, 2002). Rather than produce everything, it is strengthening vertical relations and permanent partnerships. In the 1980s inter-firm co-operation was mostly traditional subcontracting to stabilize manufacturing capacity over business cycles. In the 1990s outsourcing became a permanent mode for manufacturing accessories, and manufacturing partnerships were gradually expanded to other areas to reorganize supply chains and use assembler services. Now these relationships encompass R&D subcontracting, and are moving towards R&D partnerships. WP3- Deliverable E-FACTORS

122 Figure 8.2.4: Examples of e-partnerships (Stienstra, 2002) Equal level of automation Especially in the Business-to-Business market the level of automation between co-operation partners is important for the choice of partners. Partners with similar levels of automation can be helpful to get network externalities (De et al., 2001). These network externalities can be useful or essential for the adoption and success of some e-business models. Suppliers negotiation power The negotiation power of suppliers tends to weaken with the coming of the Internet. Porter signalises negative and positive effects on the bargaining power of suppliers (Porter, 2001). Though these effects will not be equal in every industry Customers Is there an added value in the e-business model from customer perspective? An added value for customers is almost essential for adoption. Higher added value means greater attractiveness to customers, which leads to greater potential profits for organisations deploying the e-business model. Business models that offer an added value compared to the current situation shall be adopted faster then the ones that provide no added value compared to the current situation. Some examples of such added value towards the customer are given in table WP3- Deliverable E-FACTORS

123 e-business model Customer Example of added value type click and mortar Consumer Combination of virtual and physical channels e-tailer Consumer Ease of comparison and procurement of (digitalized) products Personalised portal Consumer Personal approach, specific information storage Auctions Group buying Consumer Business Consumer Business Increased efficiency and time savings New channel for non-sold products or services Higher negotiation power Economies of scale B2B marketplace Business Increased market transparency, lower prices Table 8.2.1: Some examples of added value from e-business models. The relative business motivation factors for Internet commerce are described in Figure Figure 8.2.5: Relative business motivation factors for Internet Commerce (source: OECD, 2002) Type of customer B-to-C (consumer) or B-to-B (business) Drivers of electronic commerce transactions can also be explored in terms of the target market (OECD, 2002). Factors affecting growth in business-to-consumer transactions differ significantly from those affecting business-to-business electronic transactions. The use of electronic commerce technologies in business-tobusiness relationships has resulted in considerable efficiency gains through cost cutting and rationalisation of WP3- Deliverable E-FACTORS

124 business processes. Successful business-to-consumer models, instead, have often created new products or value (e.g. convenience, customisation). Cost reductions obtained by reaching more efficient suppliers or better managing inventories are easier to quantify than the perceived benefits of experimenting with new business models in the business-to-consumer arena. Consumers need time to adopt a radical new technology (Holland et al., 2001). This means that radical new business plans need some time to be adopted by the consumers. Not radical new business models will be adopted faster. The adoption of e-business models can also be influenced by the use of Internet by consumers. Greater usage of Internet increases the changes for organisations on the Internet. Chaffey et al. (2000) defines five factors, which influences the usage of Internet by consumers: 1. Cost of access on Internet 2. Value proposition offered through Internet 3. The ease of using the Internet 4. Security 5. Fear of the unknown Within the BtoB market ecommerce has grown significantly. E-business models have a long history in electronic message exchange (EDI). However, since the coming of the Internet and the development of open standards and technologies there is a shift from closed networks (based on bilateral EDI message exchange) to open markets (based on open standards like XML, UDDI and SOAP). The new technologies provide all kinds of opportunities for new services and business models, thereby changing the structure of industries. An example of a successful business model in the BtoB market is the closed BtoB marketplace. In the Netherlands most of grow in turnover within e-business models comes from BtoB marketplaces. (Holland et al, 2000). B2B Marketplaces mainly focus on e-procurement. Kaplan & Sawhney (2000) came up with the following classification of B2B marketplaces. Operating inputs (for a diverse set of industries) What is bought? Manufacturing inputs (within specific vertical industries) How it is bought? Systematic Sourcing (long-term, relationship oriented) Spot Sourcing (commodity products, no long-term relationship needed) MRO Hubs e.g. Ariba, Commerce One Yield Managers e.g human resources and manufacturing capacity e.g. Employease Catalog Hubs (buyer or seller focused) e.g. Sciquest Exchanges e.g. e-steel Figure 8.2.6: BtoB Marketplaces (based on Kaplan & Sawhney, 2000) WP3- Deliverable E-FACTORS

125 Figure shows that most of the most profitable Internet firms focus on the BtoB market. In the top 25 Internet firms only 8 organisations focus on BtoC (but also contain BtoB functions). Most obvious ones are AOL Time Warner, ebay, Yahoo, Amazon, etrade and Expedia. Figure 8.2.7: Top 25 Internet firms (OECD, 2002) Heterogeneity of customer group ~ negotiation power Like in any other business the negotiation power of the customer group influences e-business and the adoption of an e-business model. Customer groups with a higher negotiation power can influence the adoption or rejection of an e-business model. A homogeneous group of customers can lead to success for group buying business model. In such a model individual purchasers are brought together from across the Internet to transact as a group, so they can receive the same values traditionally afforded to organisations who purchase in volume (e.g.) Some examples of an increase in the negotiation power of groups of consumers are and The business model is based on getting a discount from producers based on the creation of aggregate demand. The initiator gets a small fee for each customer and the customer receives a discount compared to normal consumer prices. In practice these models have not proven successful (yet). The website provides products (airline tickets, hotel room nights, rental car days), where the customer has to tell what he is looking for and how much he wants to pay. For example, if WP3- Deliverable E-FACTORS

126 priceline is used to purchase round-trip airline tickets the customer can save up to 40% over the lowest published fares for the dates and cities of his choice. In return however, the exact airline and flight times are not disclosed to the customer until after the tickets have been purchased. This business model provides both benefits to the customer (savings up to 40%) as well as the associated partners (selling of non-used airline seats, rooms or car rentals). All of the partners are leading brand names. WP3- Deliverable E-FACTORS

127 8.2 Examples from Clustered Projects Vertical disintegration in the automotive industry (based on DOMINO Project) During the past decades, the dominant organisational strategy in the automotive industry has been to vertically integrate activities that required close co-ordination and to buy on the market all other inputs from outside suppliers. Thus, the production and supply network of most manufacturing firms was organised as a set of vertically integrated activities combined with the inputs of a group of arm s length suppliers for spot business and commodities. Nowadays, due to the transformation process in the automotive industry OEMs, like DaimlerChrysler, can be seen more and more in a sheer co-ordination role by passing on the production process to their suppliers. DaimlerChrysler, as focal firm has direct and indirect relationships in clearly defined vertical structures with its suppliers. In order to co-ordinate the highly fragmented and complex production processes along the value chain the co-ordination effort is partly delegated to the responsibility of their system suppliers (0,5th tier/1st Tier). Thus, the vertical network is characterized by a explicit determination of responsibilities among the different players: OEMs, suppliers, dealers and service providers, following a linear structure New competitors in the educational sector (based on DOMINO Project) Globalisation, technological innovation and a variety of major trends of our time are imposing major changes to the educational sector. The convergence in learning markets, the appearance of new entrants in the field as well as the growing number of managerial postgraduate programs, offered internationally, shapes a highly competitive environment in which every university must differentiate in order to attract students and assure its survival. The members of GeM following these trends joined their forces in order to establish a program suitable to address the academic as well as the business issues of the new managerial practices. Furthermore, they made an innovative proposition that combines widely accepted academic methods of tuition with the advantages of Internet-based courses, offering a global perspective to its participants through collaboration of both faculty and students at the international level. With that initiative GeM members attempt to embrace change and more importantly to create a strong brand name at the international level New Business Models and intermediaries in the retail industry (based on DOM- INO Project) ONIA-NET focuses rather on the collaboration issues of the network participants than on their individual needs and problems. It is the expert opinion of the salesman that the ONIA-NET model wants to support and exploit, with the ultimate objective to decrease the shelf out-of-stocks while maintaining optimum levels of stock throughout the supply chain, for both products replenished directly by the supplier or through the retailer s central warehouse. The aim of a collaborative network in the grocery retail sector should not be only the reduction of the operating cost of ordering and fulfilment, but also the improvement of the communication and transaction processes (collaboration) between retailers and suppliers in order to reduce shortages at points of WP3- Deliverable E-FACTORS

128 sale, the better organisation of promotions, the better forecast of required order-quantities and generally the improvement of the effectiveness in the whole supply-chain. Realising this fact, the international marketplaces offer new value-added services to the sector in an international market. However, many of these services become especially important at a local level, and even more on a shop level, which is the final contact place between the retail industry and the consumer Products characteristics and industry sector impact on adoption of e- procurement and supply chain management business models (based on MAIN-E project) The scope of the MAIN-E (Networked negotiation platform for MAnufacturing & logistics INtegrated planning and control in SME multi-enterprise Environment) project is to support electronically the Supply Chain Management process through the development of an INTERNET based platform. This platform will provide the enterprises with the capability to participate in an open, dynamic e-business interenterprise network for the execution of the activities composing the Supply Chain Management. Moreover, through the above-described network the participating enterprises will be able to negotiate, to be informed for each phase of the purchasing process, as well as to proceed to the necessary corrective actions when required. Within the framework of the MAIN-E project, a study was undertaken by INTRACOM S.A. aiming at studying the socio-economic impact of the project s outcome on the European enterprises, as well as to collect and analyse industrial requirements for further improvements of the MAIN-E system. One of the results of the project indicated that in general, many companies use the Internet for the procurement of various materials types. Based on both the industrial sector and the companies size, Services and Supplies are the type of materials, which are more frequently procured through the Internet. These two types of materials could constitute the initial target materials for the adoption of MAIN- E. Moreover, the Services and Telecommunications sectors are the most familiar with the Internet usage for procurement. Therefore these two sectors could be more willing to adopt MAIN-E and thus could serve as the initial target industrial sectors. Finally, based on the number of employees as we move from the Small to the Large companies the percentage of Internet usage for procurement becomes higher. This result indicates that the e-commerce penetration is greater in the large companies. Regarding the execution of the SCM process, the analysis indicated that, independently of country and industrial sector, the companies use mostly conventional means such as telephone and fax to perform the majority of their activities. In addition, for activities such as identification of buyers/suppliers, offer composition and submission, information of buyers, etc, particularly for the Food/Drinks, Chemicals/Pharmaceuticals and Services the usage of and Internet is observed, but with a more frequent usage of . Furthermore, a strong differentiation is observed in the Services sector, where the usage of Internet appears in almost every activity. This indicates that the replied companies representing the Services sector have a more progressive attitude towards the adoption of new working practices such as b2b e-commerce. WP3- Deliverable E-FACTORS

129 8.3 Summary Adoption of e-business models is influenced by industry structure and vice versa. However, not every industry faces the same changes in structure due to e-business. The amount of Internet usage within an industry branch or sector is not only reflected in the nature of the product (eg. digitized products such as music, books and software are easier to sell and distribute over the Internet) but also on consumer tastes and habits. The latter can often differ across different market environments and across time through the evolution of industrial structures, markets and consumer orientations. The adoption of business models that are based on intangible goods seems to go faster than with tangible goods. Intangible goods are more suitable for e- business (van Heck et al, 2000). Products with a high level of services are perfectly suitable to create a relation with the consumer by personalization. This characteristic stimulates the adoption of the business model. Furthermore, the potential of products that are digitalized is greater than non-digitalized products In general we see a trend where the boundaries of industries as we know them (eg. the telecom industry, retail, finance, media, entertainment, publishing) are blurring and networks of organizations, so called value webs, are replacing individual business units. Increasingly, within new business models, organizations from different industries collaborate in partnerships to deliver customized products and services. Information & Communications Technologies (ICT) are enablers such value webs. Partners have to have the same interest to be equal in the co-operation. Information to be exchanged has to be standardized to make the cooperation successful. Furthermore an equal level of automation is seen as a success factor for a successful collaboration. Research of the OECD (2002) shows that firms differ considerably in their use of information technology and the Internet, depending on the industry. Information-intensive services (business and property services, communications, finance and insurance) and the public sector (education, public administration, health care) usually have the highest penetration rates. Transport and storage, retail trade and accommodation and food services generally have the lowest penetration rates, with manufacturing approximately in the middle. Besides information intensity the level of standardization of processes within a branch can explain these industry differences. Standardization is important for the adoption of e-business models. WP3- Deliverable E-FACTORS

130 Furthermore differences by industry are also related to organization size. In industries with many SME s e- business models are less adopted (e.g. retail industry, transport industry) given the lack of expertise, time and money at SME s. In industries with a fewer number of (mainly larger) organizations e-business models will be adopted more quickly given the availability of investment budgets, expertise and the need to make operations more efficient to gain economies of scale (e.g. financial services industry). Drivers of electronic commerce transactions can also be explored in terms of the target market (OECD, 2002). Factors affecting growth in business-to-consumer transactions differ significantly from those affecting business-to-business electronic transactions. The use of electronic commerce technologies in business-tobusiness relationships has resulted in considerable efficiency gains through cost cutting and rationalisation of business processes. A good example is electronic procurement. Successful business-to-consumer models, instead, have often created new products or value (e.g. convenience, customization). Cost reductions obtained by reaching more efficient suppliers or better managing inventories are easier to quantify than the perceived benefits of experimenting with new business models in the business-to-consumer arena. With respect to the impact of e-business models on industry dynamics and industry structure, organizations face a number of developments. These developments have been described in the value-chain model of Porter. Five-force industry e-factors model by Porter (2001) On the demand side (towards suppliers) procurement via the Internet provides more power to buying organizations. It also provides suppliers access to more customers. The rise of digital markets leads to standardized WP3- Deliverable E-FACTORS

131 products and less differentiation. E-business models can lead to disintermediation from the supply side (suppliers do business directly with customers) as well as the demand side (customers do business directly with suppliers). Market power is shifting towards the demand side (customers), because market transparency is increasing and switching costs are decreasing (your competitor is one mouse click away). Competition often leads to lower prices. Through broader geographical markets, competition is becoming global. The open character of Internet applications and the lower barriers to entry lead to a further increase in competition by substitute products and services and new actors and intermediaries (reintermediation), which often come from other industries. New intermediaries enter an industry, based on a new service, which often is enabled by Internet technologies for collaboration and information sharing. WP3- Deliverable E-FACTORS

132 9 SOCIETAL THEMATIC PRIORITY Editors / Organisations Athens University of Economics and Business, ELTRUN Research Center, (RC-AUEB) Greece 9.1 Initial list of Societal e-factors As new e-business models lead to new business practices they will affect peoples behavior towards new business practices and innovative products. It is expected that new business models will influence peoples everyday life as much as they will affect work and employment. These broad societal changes will require analysis of peoples social behavior and degree of adoption. By focusing on dynamic capabilities that emerge from new business models and identify factors that affect people and their environment: societal issues on the whole. We will also investigate factors that may affect new e-business models and consequently implications on people. To this end, we will investigate potential impacts on work and ways of living, in rural versus urban areas for different social classes, in densely populated or remote regions. In the meanwhile we will also be concerned with various economic issues that may be closely related. User acceptance concerns both customers and e-business employees. The fast changing world of the Information Society will undoubtedly create new requirements for both customers and the existing workforce of e- business. Examining and evaluating the importance of societal factors seem to become very important to the adoption of e-business models. In this section attention will be paid both to the individual and to the new attitudes that they will adopt, as well as to several environmental considerations. As a consequence, societal aspects of current e-business models are a crucial element in achieving sustainable adoption of research and development outcomes. It can be argued that current projects address some of the societal factors that will be examined in this section. However, they are usually limited by the context of a particular industry sector or type of technologies. Thus, the objective of this section is twofold: To investigate societal factors that affect the adoption of e-business models in order to gain a broader and deeper understanding of these aspects, as well as to initiate further work to promote their discussion across individual projects, so that the outcome of this investigation be used in the next Work Package. To provide the reader with examples drawn both from the clustered IST projects. These examples are examined under the light of whether they have identified or not, the need to consider the societal aspects of their business related practices and whether this business strategy has led them to a success or a failure. In order to achieve the aforementioned objectives a good starting point that provides some useful pointers is a concise literature review. However, as indicated in section 3, existing literature remains inadequate and problematic. To this end, we argue that our effort to provide a comprehensive framework of e-factors also needs a systematic review of the empirical evidence in the development and adoption of e-business models in a variety of application contexts. A feasible approach to this undertaking that is of particular relevance to the European Research Area, consists of recording such empirical evidence from the expertise gained by leading WP3- Deliverable E-FACTORS

133 partners in current IST projects within Key Action II. The following section describes how this can be addressed in a manner that would be beneficial for researchers, practitioners and policy makers. The first phase includes the data collection part. Through a brainstorming activity meeting that was held by all consortium partners (as experts in e-commerce) we were lead to a first list of factors under this thematic priority. This initial list of Societal factors are listed below: Region/Geography, Communities, Culture, Access, Legal/Regulation/Who/What?/How much, Awareness, Government, Acceptance/ Maturity of people, Environmental Issues, Education, Competition, Vocabulary, Social Capital, Infrastructure, Social Status, Word of Mouth, Social Support. Finally, the review will show that societal reflection centers on issues of: social capital and structure, region and culture, ethical and professional considerations as well as economic and cultural concerns. To this end, e-business models need to examine factors that impact decision making at the individual as well as the societal level. 9.2 Theoretical background Following the initial list of Societal factors, in the second phase we enhance our analysis with the identification of all the relevant theoretical frameworks for this thematic priority. These include, social theories and cultural theories, that can help us firstly to explain the factors identified in the first phase and secondly to allow us to discover additional societal factors. In the first part of our analysis we provide a brief description of all the relevant theories in an attempt to acquire a better insight regarding the societal thematic area. Following this, in the second part of this phase we identify certain new societal factors that can be derived from each of the previously examined theories Cultural Theory Culture has been defined as the collective programming of the mind which distinguishes the members of one group or category of people from another (Hofstede, 1991, p.5). Cultural Theory distinguishes between myths of human physical nature as two integrated aspects of four cultural biases: 1.Hierarchy 2. Egalitariarism, 3. Individualism, 4. Fatalism (Douglas, 1978). Cultural theory is best served by treating the myths of physical and human nature as logically independent of one another. (Grendstad and Selle, 2000) Through the examination of different currents/schools of thought of the cultural theory we are able to identify factors related to values and beliefs along with ideas and attitudes since in its core, culture is a system of values, attitudes, behaviours and lifestyle (MOBICOM, D.2.2, pp.10). Furthermore, we are also able to associate cultural theory with community and social networks issues based upon the fact that all individuals as members of the society are embedded in the surrounding of social and cultural context and thus identify the importance of these issues. WP3- Deliverable E-FACTORS

134 Hofstede Dimensions In the context of cultural theories Hofstede has identified five dimensions that are critical in structuring cultural phenomena and practices. These are as follows: 1. Power distance - the extent to which the less powerful members of society accept that power within society is distributed unequally 2. Individualism vs Collectivism - people look after themselves and their immediate family only) vs (people belong to in-groups (families, clans or organizations) who look after them in exchange for loyalty 3. Masculinity vs Femininity the dominant values of: (achievement and success) vs those of (caring for others and quality of life). These are antiquated notions that would raise many eyebrows among social scientists, let alone central currents of feminist theory are women today more caring and less achievement and success oriented? The distinction can be maintained but drop the gender affiliations. 4. Uncertainty Avoidance Indicates the extent to which people feel threatened by uncertainty and ambiguity and try to avoid these situations. 5. Long- vs. Short-Term Time Orientation (LTO) According to this fifth dimension, that Hofstede added in his theory after a further study of the Asian culture; cultures can be divided in terms of behaviour towards problem solving: High LTO cultures tend to approach tasks strategically, aiming at skill acquisition and learning through experience. Where as, low LTO cultures tend to approach tasks more aggressively, aiming at immediate results and focusing at a short resolution. These dimensions allow us to identify issues related to the community and to the social support. This can be done since, the specific theoretical framework analyses issues that are related to the patterned behaviour of individuals and therefore the social relationships that may exist amongst them Socio-cultural theory of learning Vygotsky s socio-cultural theory of learning emphasizes that human intelligence originates in our society or culture, and individual cognitive gain occurs first through interpersonal (interaction with social environment) than intrapersonal (internalization) processes. Vygotsky differentiated between our higher and lower mental functions conceiving our lower or elementary mental functions to be those functions that are genetically inherited, our natural mental abilities (Nicholl, 2002). In contrast, he saw our higher mental functions as developing through social interaction, being socially or culturally mediated. Another aspect of Vygotsky's theory is the idea that the potential for cognitive development is limited to a certain time span, which he calls the "Zone of Proximal Development" (ZPD). The zone of proximal development is the range of potential each person has for learning, with that learning being shaped by the social environment in which it takes place. ZPD has four learning stages ranging between the lower limit of what the student knows and the upper limits of what the student has the potential of accomplishing" (Gillani and Relan 1997, 231). The stages can be further broken down as follows (Tharp & Gallimore 1989, 35): Stage 1 - assistance provided by more capable others (coaches, experts, teachers); Stage 2 - assistance by self; WP3- Deliverable E-FACTORS

135 Stage 3 - internalization automatization (fossilization); and Stage 4 - de-automatization: recursiveness through prior stages. It is in the zone of proximal development, through social interaction that we learn how to use the psychological tools available to us. There are precisely the psychological tools that enable us to bridge the gap between lower and higher mental functions. These psychological tools include: Various systems for counting; mnemonic techniques; algebraic symbol systems; works of art; writing; schemes, diagrams, maps, and technical drawings; all sorts of conventional signs, and so on. (Vygotsky, 1982:137, cited in Cole & Wertsch) Of the psychological tools that mediate our thoughts, feelings, and behaviours, language is the most important. It is through language that we construct reality. With words we define, shape, and experience. Without the words to think, communicate, experience, or understand our lives would be very different from what they are. Words expand our consciousness but also limit us as we can only fully experience those things that we have the words for. Language provides the framework through which we perceive, experience, and act. As language constructs reality, so symbolisation constitutes objects. Symbolization constitutes objects not conceptualized before, objects which would not exist except for the context of social relationships wherein symbolization occurs. Language does not simply symbolize a situation or object, which is already there in advance; it makes possible the existence or the appearance of the situation or object, for it is a part of the mechanism whereby that situation or object is created. (Mead, 1934:78) Vygotsky s ideas have wide application in the area of e-learning where they provide guidelines for the design of effective learning systems. Through his work a set of parameters is available for the design of such systems in a globalized environment as well as the evaluation of relevant entrepreneurial efforts Symbolic Interactionism Symbolic interactionism is an approach that has evolved principally from social behaviorism and the writings of George Herbert Mead. It stresses the symbolic nature of human interaction, linguistic and gestural communication, and particularly the role of language in the formation of mind, self, and society. More specifically, Herbert Blumer (1969: 180) who developed a systematic approach to this theory, notes: The term "symbolic interaction" refers, of course, to the peculiar and distinctive character of interaction as it takes place between human beings. The peculiarity consists in the fact that human beings interpret or "define" each other's actions instead of merely reacting to each other's actions. Their "response" is not made directly to the actions of one another but instead is based on the meaning, which they attach to such actions. Thus, human interaction is mediated by the use of symbols, by interpretation, or by ascertaining the meaning of one another's actions. This mediation is equivalent to inserting a process of interpretation between stimulus and response in the case of human behavior. Therefore, the basic characteristics of this approach include an emphasis on interactions among people, use of symbols in communication and interaction, interpretation as part of action, self as constructed by others through communication and interaction, and flexible, adjustable social processes. Its concern tends to be the interaction order of daily life and experiences, rather than the structures associated with large scale and relatively fixed social forces and laws. WP3- Deliverable E-FACTORS

136 Though this theoretical perspective important issues regarding factors that enhance or forestall geographical diffusion of e-business models can be explained. In the assessment of any e-business model parameters like language, variation of attributed meanings according to culture as well as possibilities for interaction need to be taken into account in order to understand the dynamics and the constraints of any new value proposition Ethics Ethics, in general, is concerned with the moral character of voluntary actions that affect other people. The goal of ethics is to distinguish between right and wrong actions (Artz, 1994, p. 17). Ethical Theories serve as corrective lenses through which we can observe reality and see the choices to make as we attempt to direct reality towards our ethical ideals (Mason, 1995, p.56). In other words, ethical theories formulate ethical decision-making. Over time, several ethical theories have been developed. A comprehensive review is presented by Beauchamp and Bowie (1997) who provide pointers to ethical theories relating to corporate social responsibility, the regulation of business, acceptable risk, rights and obligations of employers and employees, gathering, concealing and gilding information as well as social and economic justice. One approach to ethical thinking that is particularly relevant to this report concerns the ethics of virtue. It has been suggested that virtue ethics seem as an appropriate tool to be used for the examination of ethical issues in the computing field (Artz, 1994). Virtue ethics can be employed to illustrate the traits and characteristics of the moral person with respect to responsibility, professionalism and moral integrity against issues of computer crime, privacy, free speech and so on, as Virtue Ethics focuses on desirable characteristics and traits of the moral person, rather than examining the act itself. Virtue ethics provides an illustration of how business ethics and computer ethics are interlinked. Specifically: Business Ethics considers ethical issues within the business environment, as well as ethics regarding the relationship between business and the wider society (Maguire, 1997). Computer Ethics is a subfield of ethics (Artz, 1994) that aims to formulate policies to guide individual and collective action in the use of Computer Technology (Moor, 1985 in Brey, 2000, p. 125). In the 1980s a debate was initiated on whether a good business can also be an ethical business. The debate focused on the argument that ethically responsible management is management that takes into serious account the interests of a broad range of stakeholders rather than only the stockholders in the decision-making process. This argument has been triggered primarily as a response to the turbulent business environment whereby a business organization has become, since the 1980s, increasingly interdependent on its business partners (Freeman, 1984). The notion that a business organization is increasingly interdependent on its business partners is accentuated in the e-commerce era and becomes more complex as technology plays a key role and raises further ethical concerns. For example, technology-enabled anonymity creates new issues of trust for business transactions and conversely technology-enabled monitoring raises new privacy concerns. As ethical dilemmas become more widely experienced in the business world, the importance of ethics becomes more broadly recognised. Following the motto good ethics is good business (Dean, 1997), businesses and universities around the world teach and practice ethics. WP3- Deliverable E-FACTORS

137 Relevant practices include: ethics-oriented policy statements; codes of ethics; formalised management responsibilities for ethics; free-standing ethics offices; training, communication, and education programs; and evaluation of ethics programs activities. However, recent developments in Worldcom, Enron and other companies show that formal corporate ethics statements need to be followed-up by consistent business practice and culture. Otherwise, the lack of professionalism has demonstrable adverse impact on business. This ethical agenda is currently only partially reflected in the e-commerce literature and needs to be expanded so that ethical issues are also taken into account when designing e-business models Cyberculture Cyberculture or Culture of the Cyberspace has been, generally, defined as: an information- based culture. More specifically, William Gibson (1984) offers a further insight in the actual Cyberculture indicating that it is a consensual hallucination experienced daily by billions of legitimate operators A graphic representation of data abstracted from the banks of every computer in the human system; Unthinkable complexity. Issues of language are raised in the context of this analytical framework given the fact that this informationoriented-culture should consider differences in linguistic issues in order to be in a position to amalgamate the various cultural backgrounds. Another important issue is raised and that is the one referring to the anonymity that the individual agents are enjoying in the cyberspace. This anonymity leads to both positive and negative aspects. The positive aspect is the fact that this anonymity enhances free speech where as the negative perspective is the fact that certain users are seen to experience identity crisis issues derived from this anonymity. This crisis in self-identity is, more than a personal crisis; it registers, following Christopher Lasch (1985) arguments, a significant transformation in the relationship between the self and the social world outside Diffusion of Innovation The diffusion of innovations theory is concerned with how innovations are spread and adopted by the consumer. An Innovation may be an idea, object(s), practice(s) that is perceived as new by an individual or other unit of adoption. Everett Rogers, in 1962 (Diffusion of Innovations, The Free Press, New York), defined diffusion of innovation as the process by which an innovation is communicated through different channels over time among members of a social system. Thus, two processes are involved: the diffusion process that is concerned with the spread of a new product from its source to the consuming public ; and the adoption process that focuses on the stages through which an individual consumer passes when deciding to accept or reject a new product (Schiffman and Kanuk, 2000: #410). The individual thematic priority is concerned with the attributes that affect the diffusion process. That is because it is these attributes that affect individual s decision to adopt or reject an innovation. The societal thematic priority is more concerned with variables that derive from the social environment of the individual. These variables, that also have an affect on an individual s decision to adopt or reject the innovation, are the following: 1. the nature of communication channels, which are divided into two main categories: mass media channels, for example television, are relatively more useful in creating knowledge (exposure of the individual to the existence of the innovation), and interpersonal channels, Vanderslice, (2000) contents that the in- WP3- Deliverable E-FACTORS

138 terpersonal channels are intimately connected to the social system through which the new idea moves, for example word of mouth, that are relatively more useful in changing attitudes (forming a favourable attitude to the innovation). 2. the nature of the social system, for example, its norms, degree of network, interconnectedeness. Rogers (1995) defines a social system as a set of interrelated units that are engaged in joint problem-solving to accomplish a common goal (p. 23). Members of a social system may be individuals, informal groups, or organizations who worked toward a common goal. Moreover, Rogers (1995) states that the culture within the social system and the individuals who make up the social systems can affect the diffusion of an innovation. 3. the extent of a change agents promotion efforts: Positively influence innovation decisions via mediation of social system and change agency. The theory of diffusion of innovation identifies environmental issues because the extent of whether a consumer will adopt a new innovation or not, and when, depends primarily in the context within which he/she acts upon. Social structure issues come into the picture, connected to economic and cultural issues for the reason that they define the pace that social groups adopt innovations. Government and regulation/legislation issues matter to the extent that they formulate the context that innovations grow in. Thus, regulation can be seen as an important aspect of economic activity, since it can speed up or hinder competition. Last, but not least, it is all a matter of roles, roles that people, social groups and other teams play and the way they interact to each other Social Attitude Theories Social attitude theories i.e. Theory of Reasoned Action (Fishbein and Ajzen, 1975), Theory of Planned Behavior (Ajzen, 1981) and Technology Acceptance Model (Davis, 1989) - as explained in Individual Thematic priority posit that a specific behavior is a function of the individuals intention carry out that behavior and that intention is affected by the individual s attitude toward the particular behavior occasion rather than his or her general attitude towards the behavior. More specifically, the Theory of Reasoned Action proposes that human behavior is influenced by two factors: attitudes towards the behavior and the influence of social environment - general subjective norms on the behavior. Social norms are determined by examples that significant others set for us and by the attitudes they convey to us. The Theory of Planned Behavior extends the Theory of Reasoned Action in that it posits that perceived behavioural control - the individual s perception of his or her ability to perform the behavior - influences intentions and behavior. Finally, the Technology Acceptance Model is the specialization in the domain of information systems of Fishbein and Ajzen s (1975) Theory of Reasoned Action and shows that perceptions are instrumental in the development of attitudes, which lead to intentions, and eventually result in system utilization behavior. Social norms, attitudes, values and beliefs and behavioural issues are identified in the context of this theoretic framework since they examine how people behave in the social context Social Embeddedness Through the theory of social embeddedness (Granovetter, 1985) the social network of external contacts has been acknowledged as a significant factor that influences organizational action. A social network can be de- WP3- Deliverable E-FACTORS

139 fined as a set of nodes (e.g. persons, organizations) linked by a set of social relationships (e.g. friendship, transfer of funds, overlapping membership) of a specified type. (Laumann, Galaskiewicz and Marsden, 1978: 458). This particular notion was introduced by Barnes (1954), who elaborated the concept from a metaphorical to a conceptual state, generating this way a vast literature upon the way social structure is influencing economic activities. From that point on, the idea that the surrounding environment influences economic action has been finally incorporated into organizational thought. So far, other theoretical trends like transaction cost theory and new institutional economics have provided adequate explanation for the exogenous factors that triggered organizational action and the formation of innovative business models. Social embeddedness theories are completing the picture by incorporating endogenous dynamics that account for the choice of partners, as well. More specifically, the choice of partners is shaped by two specific embeddedness mechanisms that are further elaborated below: Relational embeddedness, which highlights the effects of cohesive ties between social actors on subsequent cooperation between those actors. Structural embeddedness that captures the impact of the structure of relations around actors on their tendency to cooperate or be in structural conflict with one another. The incorporation of these parameters in the study of business models provides a deeper understanding regarding the choices made by organizations. Furthermore, they can explain adequately various instances in the life cycle of a collaborating effort that traditional theories cannot capture. Through this theoretical point of view the basic factors that can be identified are primarily the social networks that can trigger the formation of specific business model as well as the role of social cohesion and support in the adoption of specific business models Institutional Theory Institutional theory examines the reasons of homogeneity among organizations in terms of forms and practices. Although the majority of organizational theorists explore the reasons for the increasing variety in organizational forms; institutional theory approaches the issue of organizational structure in a quite opposite manner. More specifically, institutional theory explores the drivers behind an inexorable homogenization (Di- Maggio & Powell, 1983) that eliminates the diversity of the initial stages in the life cycle of organizational fields. The basic mechanisms that promote this conformity, which is called isomorphism, are: Coercive isomorphism, which arises in circumstances of high interdependency among organizations as well as from social expectancies. Mimetic processes that prevail in environments with great uncertainty. Normative pressures, which stem out of professionalization or the collective struggle of members of an occupation to control working practices and conditions. These mechanisms provide a comprehensive framework that can adequately explain the diffusion of business models in specific industrial sectors as well as the wide acceptance of particular business practices among professionals as well as the role of incubators in the adoption of specific business models. WP3- Deliverable E-FACTORS

140 Cyberpsychology or The psychology of cyberspace Instigated by cyberspace, the term Cyberpsychology has been identified by researchers as an attempt to explain and further analyse this new domain of human behaviour. In psychoanalytic terms computers & cyberspace may become a type of transitional space that is an extension of the individual s intra-psychic world (Suler J., 1999). Cyberpsychology raises issues of confidentiality and reliability since the electronically mediated contact in the cyberspace does not allow any physical contact amongst individuals, reducing this way sensation through the non-existence of face-to-face physical contact. Kenneth J. Gergen (1991) calls this transformation social Saturation and additionally he argues that self-identity in the Information Age is profoundly affected by technology because it exposes us to an astonishing range of people, relationships feeling, and ideas. With social saturation, he says each of us comes to harbor a vast population of hidden potentials- to be a blues singer, a gypsy, an aristocrat, a criminal Stakeholder Theory In the management literature, stakeholder analysis is typically used to examine the external organisational environment, to assist strategic planning. Donaldson and Preston (1995) argue that : 1. Stakeholder theory is descriptive in the sense that it describes the corporation as a constellation of co-operative and competitive interests possessing intrinsic value (p. 66). 2. Stakeholder theory is instrumental because it establishes a framework for examining the connections, if any, between the practice of stakeholder management and the achievement of various corporate performance goals (pp ). 3. Finally, the fundamental basis of stakeholder theory is normative and involves acceptance of the following ideas: stakeholders are persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity and the interests of all stakeholders are of intrinsic value (p. 67). Normative aspects consider the theoretical and moral grounding of stakeholder analysis and debate whether stakeholder analysis is an ethical approach to business. In information systems, instrumental approaches to stakeholder analysis concern either the development of an information systems strategy and its alignment to business strategy or the improvements that a broad inclusion of stakeholders will facilitate information systems development. Thus, this theoretical approach draws a rich picture of the parties involved in any business arrangement and their influence in corporate decision-making. Overall, stakeholder theory reveals differences in culture, at the national or corporate level, as it points to different perspectives in terms of what constitutes a successful strategy of the organisational entity at the Internet era. Furthermore, it can be used as an instrument for studying the role and interests of multiple players in the e-commerce context and supporting e-commerce policy makers (Papazafeiropoulou & Pouloudi, 2000, 2001). In this respect, stakeholder theory can also enforce e-commerce diffusion. WP3- Deliverable E-FACTORS

141 Our investigation of all the relevant theories that was performed in the previous section allowed us to justify the existing societal factors while at the same time it endorsed us to enrich our initial list of factors (Section 10.1) through the identification of new ones, as it can be seen in the second column titled: Societal Factors Identified of Table 1 below. Furthermore, in the context of our analysis we followed a specific rational regarding the categorisation of the pool of factors, which we have identified, as it can be seen in the third column of Table 1 named: Categories of Societal Factors. More specifically, the classification criteria that were employed were based upon the interrelationships of the various previously identified factors. Consequently, after the identification of these interrelationships we proceeded with a clustering process of the related factors based upon the sighting of certain general and inclusive categories such as: Region, Culture, Legal/Regulation/Policy, Economic, Ethical & Professional, Social Capital/Social Networks and Social Structure. THEORIES SOCIETAL FACTORS IDENTIFIED CATEGORIES OF SOCIETAL FACTORS 1. o Values and Beliefs o Communities CULTURAL o Awareness Cultural Theory o Attitudes SOCIAL STRUCTURE o Community o Social Support SOCIAL NETWORKS o Social Networks 2. Socio-Cultural Theory of Learning o o o o o o Social structure Roles Attitudes Language Social Interaction Cognition SOCIAL STRUCTURE ETHICAL & PROFESSIONAL CULTURAL REGION / GEOGRAPHY SOCIAL STRUCTURE 3. Inter- Symbolic actionism o o o Language Social Interaction Cognition REGION / GEOGRAPHY SOCIAL STRUCTURE 4. o Computer Crime o Responsibility Ethical Theories o o Professionalism Anonymity ETHICAL & PROFESSIONAL o Trust o Free Speech 5. o Language o Linguistic REGION / GEOGRAPHY Cyberculture o Anonymity o Identity Crisis ETHICAL & PROFESSIONAL o Free speech WP3- Deliverable E-FACTORS

142 6. o o o Culture Competition Economic CULTURAL ECONOMIC Diffusion of Innovation o Environment o Roles o Social System/Social structure o Communication channels o Adoption REGION / GEOGRAPHY ETHICAL & PROFESSIONAL SOCIAL STRUCTURE CULTURAL 7. o Social Norms Social Attitude Theories o o Behaviour Attitudes CULTURAL o Values/Beliefs 8. o Social networks SOCIAL CAPITAL/ SOCIAL NETWORKS Social Embeddedness o o o Social capital Social cohesion Social structure SOCIAL STRUCTURE o Social support CULTURAL 9. o Acceptance Institutional Theory o o Diffusion of innovative business practices The role of incubators in the adoption of particular business models CULTURAL ETHICAL & PROFESSIONAL 10. Cyberpsychology or The psychology of cyberspace o o o o o Confidentiality Trust Identity crisis Computer Crime Reliability LEGAL / REGULATION/POLICY ETHICAL & PROFESSIONAL LEGAL / REGULATION/POLICY 11. Stakeholder Theory o o o Culture Ethics Understanding multiple perspectives CULTURAL ETHICAL & PROFESSIONAL Table 1: Societal Factors Identified through the Theoretical Analysis Performed. 9.3 Enhanced version of Societal e-factors The theoretical analysis, which we performed in the previous phase, provided us with evidence so as to enrich the initial set of societal e-factors. As a further effort to organize the current knowledge on the societal thematic priority we suggest a framework of e-factors; that is factors of broad and sustainable adoption of e- business models, grouped together under more general categories. These categories derived from a classification process that we followed which was based upon the interrelationships that the various societal e- WP3- Deliverable E-FACTORS

143 factors exhibit. Subsequent to the identification of these interrelationships, we proceeded with a clustering process of all the related factors based upon the sighting of certain general and inclusive categories, such as: Region/Geography, Culture, Legal/Regulation/Policy, Economic, Ethical & Professional, Social Capital/Social Networks and Social Structure. Furthermore, in the first section of this part we suggest that a comprehensive framework of e-factors also needs a systematic review of the empirical evidence. To achieve this, a detailed and concise examination of currently clustered projects is carried out aiming to investigate how the various societal issues that we have identified are addressed in the course of these projects. Thus, clustered projects exploring societal factors will be examined briefly under each societal category and in a more detailed form in the section 3.1. Finally, to fully investigate the proposed societal categories various case studies have been drawn from the literature and are examined in the section Region/Geography Geography is in general, defined as a large land area that has particular geographic, political or cultural characteristics that distinguishes it from others whether existing within one country or extending over several. In the context of this thematic priority, region/geography is a term that encompasses issues that are highly related to specific geographic areas and that may be linguistic singularities of specific regions, environmental issues and other country specific issues that can be associated with the rest of the identified categories in the societal thematic area. (At this point we should note that this category can be seen as one of a higher level since incorporates key components of other categories, such as institutional, regulatory frameworks and market dimensions that differ regionally.) Language Country-specific issues Environmental issues Cultural Culture is, most of the times, seen as a multidimensional and convoluted phenomenon that addresses issues that deal with the patterns of behaviour and thinking that people living in social groups learn, create, and share (Bodley, 2002). Thus, culture is considered to be the characteristic that distinguishes human groups since it includes, amongst other things, their values, beliefs, rules of behaviour and rituals. Therefore, in the context of this thematic area, culture is based upon the concept that people living together in a society share culture (Bodley, 2002). More precisely, culture is perceived so as to encompass issues related to common rules of behaviour that members of a group share amongst themselves. These issues are values, beliefs, ideas, attitudes, religion and other factors that have been identified in the process of our analysis and can be seen below. Values/ Beliefs Acceptance Awareness Communities Adoption Attitudes Change Behaviour WP3- Deliverable E-FACTORS

144 Social Support Social Norms Religion Word of Mouth / Word of Mouse Communication Channels Legal/ Regulation/ Policy The term, legal and regulation portray the official rules, laws or order stating what may or may not be done or how something must be done, that have been issued by a government department or agency that has the force of law. All these issues are addressed in this category: legal/regulation/policy, which also encompasses issues related to role of the policy makers, the regulatory frameworks, reliability, confidentiality, freedom of information and e-democracy and others that can be seen, in the list, in the next page. Security Privacy Freedom of Information Reliability Confidentiality Regulation Policy makers / Policy Intermediaries Regulatory framework- Jurisdictions Taxation Infrastructure e-democracy Economic In this category, we are concerned with issues that are related to the economic conditions of a country, seen from a macro perspective. More specifically, in this category, we consider issues related to the structure of the markets and their competitive characteristics as well as the overall economic environment in a regional and national level. Market structure (concentration, competition) Access The convergence of computer power and telecommunications technology led to the rise of a new economic landscape with great differences from what was the norm before. Information and Communications Technology (ICT) has triggered the compression or even the collapse of space and time (Van Baalen & Moratis, 2001) providing the opportunity for continuous information exchange which in turn lead to the formation of global economic structures. Firms in the private sector, not-for-profit organizations, governments, the media and the academic community are heralding Information and Communications Technology (ICT) as a revolutionary means of conducting business and facilitating relations with clients and suppliers alike, in global virtual communities and open-ended organizational networks. Whether one believes this evolutionary or revolutionary, existing organizations must now cope with quickly realigning their internal operations and focus, while nimble new entrants attack their market spaces with more effective business models. Therefore, the structure of the market forces the companies to align their capabilities according to the demands of the vari- WP3- Deliverable E-FACTORS

145 ous clients but also as institutional theory has pointed out specific business models prevail in various periods of time and thus oblige the companies that seek legitimacy to adopt them. Financial Markets as a Key e-factor E-business is not merely an economic activity conducted through computer-enabled electronic networks. E- business is a central component of a new economic system that is powered by information and communication technologies (ICT), is dependent on highly knowledgeable labour, and is organized around electronic and organizational networks. The historical specificity of this new economic system is that it is knowledge-driven, it is global and it is networked in terms of technology and organization. It is knowledge-driven because the productivity and competitiveness of economic units depend upon their ability to create, process and convert information into knowledge geared to innovation and value creation. It is global because the core processes of production, consumption, and circulation are organized on a global scale through functional linkages among economic agents. It is networked because productivity and competition are organized through a global network of interaction between and across business networks. The origins of the new economy lie in the last quarter of the twentieth century. More specifically, the new economy is closely linked with two key industries that not only introduced process and product/service innovations, but also applied such innovations to their own structures and processes, which resulted in higher growth and productivity, and through competition, to the diffusion of new business models throughout the economy. These industries are information and communication technology and finance. Much of the conventional academic and business literature on the new economy in general and e-business in particular tends to concentrate on the technological drive of economic change associated with ICT. Yet, if ICT is a main driving force of economic change the other pillar of the new economy is finance, and more specifically capital markets. For the economic boom of the 1990s was fuelled to a large extent by the ability of businesses to raise cheap capital and the increased participation of institutional and individual investors in the financial markets. Indeed, looking at the comparative performance of stocks of financial services firms and ICT firms over the past seven years the financial component of the new economy has shown a 17% annual return with financial services firms the main providers of investment capital some of the biggest gainers, reflecting the growing centrality of the financial services sector in the economy (See next page, Table 2) PERCENT INCREASE IN STOCK PRICES, 1/3/95 7/2/02 * Financial Services Banks, brokerages, insurance companies Health Care Drugs, biotech, managed care Consumer Staples Food, hoursewares, personal care Information Technology Hardware, software, services Industrials Machinery, transportation, business services 224% 202% 128% 125% 115% WP3- Deliverable E-FACTORS

146 Consumer Discretionary Autos, media, retailing, apparel Basic Materials Aluminum, chemicals, steel, paper products Utilities Gas and electric companies Telecom Services Telephone and wireless companies Table 2. What s real, What s not 107% 39% 17% 1% * Based on S&P 500 Sector Indexes. Data: Bloomberg Financial Markets, BusinessWeek, July The growing centrality of financial markets in the new economy has to do with successive rounds of financial innovation that have resulted in a profound transformation of financial markets, both organizationally and technologically. Financial markets are increasingly globalized and interdependent while they are one of the leading domains of application of new ICT. The ability of capital to flow in and out of securities and currencies across markets, and the hybrid nature of financial derivatives, are intertwining at an accelerated pace through regulatory changes. At the same time, ICT-enabled innovation is transforming the nature of financial transactions. The widespread use of ICT and the Internet has fundamentally changed financial trade between companies, between companies and the investment community, between sellers and buyers, and among the stock exchange markets. This change has important implications not only for financial markets but also for the entire economy. ICT-enabled transaction mechanisms reduce transaction costs, thus significantly increasing capital market volumes because the institutional regulatory and technological interconnectedness of financial markets on a global basis allows financial institutions and the investing community to mobilize savings for investment on a planetary basis, while considerably accelerating the turnover of investment. On the other hand, ICT-enabled transaction mechanisms open up investment opportunities to an increasingly larger basis of individual and institutional investors who are able to assess value and identify investment opportunities on the basis of information that is increasingly available online. The dialectical interplay between technology and finance is in many ways the central axis, the flywheel, that powers the dynamism and innovation potential of the new economy. On the one hand, the technological infrastructure of financial markets allows for processes of financial innovation and the development of new financial products that create value out of trade in securities. On the other, ICT-enabled financial innovation encompasses an increasingly larger sphere of social life where almost any potential source of value can be converted into a security and traded in financial markets through ICT-enabled transaction systems. Indeed, this process of conversion of potential sources of value into financial securities, i.e., securitization, is the driving force of the financial industry. Financial markets, in this respect, constitute a strategic network of the new economy. For it is there that value is increasingly assigned to economic activity as this is represented by its stocks, bonds, derivatives or any kind of security. The valuation of companies, and thus their capacity to attract capital in the new economy, depends in a fundamental sense on the judgment of the financial market. The question of how this judgment is formed is one of the most complex questions in contemporary economic analysis and is the subject of considerable debate. Nevertheless, recent research suggests that expectations (on the part of financial markets) about the future growth projections of firms and trust in the institutional environment within which firms operate are central determinants of investment in the new economy. To put it differently, in the new economy real-world economic calculations that govern investment decisions WP3- Deliverable E-FACTORS

147 are made not on the basis of the actual profitability of firms but rather on the basis of the expected growth of their financial value, even though profitability (especially after the recent experience of accounting and financial scandals) remains a fundamental criterion for the investment process as a whole. 2 However, to reach capital markets, and to compete for higher value in them, firms have to go through innovation in processes, product/service lines, management quality, and branding. Indeed, the ability to innovate in these domains becomes the cornerstone of competitiveness in the new economy. The formation of an open and transparent financial environment is a central feature of innovation processes in the new economy. Money today, as the saying goes, is information. But the identification of the relevant information both by firms in search of capital and capital holders in search of investment opportunities requires knowledge. This financial transparency is particularly important for SMEs the main generators of employment. Yet, the EU is still largely a bank-based financial environment that is not conducive to high-risk entrepreneurial activity. Though many European banks have taken steps to address the financing needs of new start-up enterprises and SMEs many suggest that bank-based credit is not entirely appropriate for the current needs of the EU. It is no accident that the conclusions of the Lisbon European Council of March 2000 stress the strategic importance of financial markets in the transition to the new economy: Efficient and transparent financial markets foster growth and employment by better allocation of capital and reducing its costs. They therefore play an essential role in fuelling new ideas, supporting an entrepreneurial culture and promoting access to and use of new technologies. It is essential to exploit the potential of the Euro to push forward the integration of EU financial markets. Furthermore, efficient risk capital markets play a major role in innovative high growth SMEs and the creation of new and sustainable jobs Ethical & Professional Considering that ethics, in general, are concerned with the moral character of voluntary actions that affect other people. Ethics in the context of the e-business models and in association with the societal thematic area suggest the exploration and analysis of ethical issues such as computer crime/ abuse, responsibility, anonymity and so on. Furthermore, in the same perspective, professional issues deal with the responsibilities and roles along with the level of professionalism of the agents in the context of e-business. Identity Crisis Issues Responsibility & Roles Computer Crime / Computer Abuse Anonymity Free Speech Trust Social Capital / Social Networks In the context of the societal thematic priority, the definition of social networks that Laumman, Galaskiewicz and Marsdenh (1978: 458) introduced is adopted. According to this definition a social network is a set of nodes (e.g. persons, organizations) linked by a set of social relationships (e.g. friendship, transfer of funds, overlapping membership) of a specified type. This definition permits the introduction of social context in the analysis of business models and provides multi-layered perspectives to the investigation of factors affecting their sustainable adoption. 2 Manuel Castells, The Internet Galaxy: Reflections on the Internet, Business and Society. Oxford: Oxford University Press WP3- Deliverable E-FACTORS

148 9.3.7 Social Structure Sociology indicates that social structure is the way in which society is organized into predictable relationships and patterns of social interaction (Schaefer & Lamm, 2001). Consequently, in the context of our analysis the term: social structure indicates the way in which a human society is related and organized. Thus, social factors, income level, education status, social class are some of the elements that are seen to influence the way of living, the decision making and the possibilities of the members of a society. Social Factors Income Level Education Status Social class (social rank) Cognition Wealth Ethnic background Social cohesion Social interaction Social System/social structure In an attempt to provide the reader with a better understanding of the societal categories identified in the context of all the previous sections we provide the following table which summarizes the general societal categories along with the various societal factors that correspond to each of these categories, as it can be seen below, in Table 3. GENERAL SOCIETAL CATEGORIES SOCIETAL FACTORS IN EACH GATEGORY 1. REGION/GEOGRAPHY Language Country-specific issues Environmental issues 2. CULTURAL Values/ Beliefs Acceptance Awareness Communities Social Support Social Norms Religion Adoption Attitudes Change Behaviour Word of Mouth / Word of Mouse Communication channels 3. LEGAL/ REGULATION Security Privacy Freedom of Information WP3- Deliverable E-FACTORS

149 Reliability Confidentiality Regulation Policy makers / Policy Intermediaries Regulatory framework-jurisdictions Taxation Infrastructure e-democracy ECONOMIC ETHICAL & PROFESSIONAL SOCIAL CAPITAL / SOCIAL NETWORKS SOCIAL STRUCTURE Market structure Access Identity Crisis Issues Responsibility & Roles Computer Crime / Computer Abuse Anonymity Free Speech Trust Social Factors Income Level Education Status Social class (Social rank) Wealth Ethnic background Social cohesion Social interaction Cognition Social System/Social Structure Table 3: General Societal Categories and Subcategories. 9.4 The societal e-factors in the Clustered Projects In the context of the Societal thematic area, we have identified a number of clustered IST projects that participate in the E-Factors project and present societal aspects and thus crucial elements in achieving the sustainable adoption of e-business models. These projects are: ALTERNATIVE, BUSINESS ARCHITECT, DOMINO, ENLARGE, MOBICOM, and SEED, and are presented and analyzed extensively in the sections below. 1 st category: Region / Geography MOBICOM PROJECT The MOBICOM project focuses on the convergence of Mobile telecommunications and e Commerce in an attempt to understand the driving forces that will create and shape m Commerce, as well as how it will affect European competitiveness. For this reason, its consortium is structured around a pan-european WP3- Deliverable E-FACTORS

150 dimension bringing together different countries like Greece, Finland, England and Germany, which represent nations from a geographical spread with different cultural and technological backgrounds. Therefore, this amalgamative analysis of different regions offers further insight in the geographical differences of these regions. SEED PROJECT The important role that regional diversity plays in an e commerce environment was particularly emphasized in the SEED project, which is primarily based on a regional analysis because it refers to a specific region of the South Eastern Europe like, Greece, Cyprus, Slovenia, Bulgaria, Albania, Romania, Israel, Moldova, Germany and Fyrom. ENLARGE PROJECT The differences that arise in various geographical contexts are also stressed in the Enlarge project where research pointed out that the adoption of e-business is a matter of individual country achievement. The legal and technological infrastructure necessary for e-readiness although a prerequisite is not always present in all the countries. The fact that various regions enter the new economy with various degrees of e-readiness affects the implementation of generic business models and generates country specific factors that influence the sustainable adoption of business practices. BUSINESS ARCHITECT PROJECT The Business Architect project focuses on management approaches for the innovation process. Language differences were identified as a major concern to innovation management across all studied European countries. Differences instead were found between corporate functions. Engineers, Management, Marketing, Finance, Human Resource, that all need to contribute to the innovation process all have their own languages. ALTERNATIVE PROJECT The Application Service Provision business model, in several variants, is the focus of the ALTERNATIVE project. This model has significant features that relate to geography because any software application can be provided almost ubiquitously. The ASP model assumes the central hosting and management of software in (usually) data-centres. The software that is managed centrally can be delivered over fixed or wireless networks to any location where there is an appropriate computing device (eg. Personal Computer, PDA handheld, WAP enabled mobile phone etc.). This has significant special implications on software use. Advanced software such as ERP often requires highly skilled professionals for its management. In regions where there is a skills shortage of such professionals, an ASP delivery of this software could be beneficial. 2 nd category: Cultural MOBICOM PROJECT A pan-european examination of the different cultural issues that can be identified in the context of three different European countries like: Greece, Finland and Germany, were extensively studied in the MOBICOM project. These three countries constituted the sample framework of a thorough analysis that was performed, in the context of the project, regarding consumer needs and preferences. These interests WP3- Deliverable E-FACTORS

151 and needs are seen to be the main factors that characterize the profile of the individuals also in the context of the society and determine to a non trivial extend their behavioural patterns in the market. SEED PROJECT Cultural issues were particularly emphasized in the SEED project, which refers to one geographical region that exhibits cultural characteristics common to south Eastern European countries but at the same time it raises issues regarding the cultural differences that can be observed in each country. More specifically, the fact that some of the aforementioned countries that are examined in SEED belonged to the former communist regime while others in the Western type regime like, Greece and Israel, demonstrates the contrasts in these countries culture. In particular, this can be identified in the national reports of the participating countries that were prepared in the context of the deliverable D.2.1 with the title: Frameworks & Web-based surveys for e-commerce environments in S.E. Europe. BUSINESS ARCHITECT A Comparison between cultures in Europe and the US has been undertaken in the Business Architect Project (WP 4 Economic, methodological and technical Validation on European and Global scale, to which all quotes in this chapter relate) to understand the distinct attitudes towards innovation. For example, in the US business failure is more socially accepted, while in Europe business failure continues to a large degree to be seen as a cause of social embarrassment, which can have adverse economic implications in the future. Innovation efforts as well as rewards are socialized to much higher degree in Europe than in the US. While the US heavily relies on experiences individuals, so called serial entrepreneurs, Europe is inclined to more procedural approaches to innovation. The introduction of ICT in business practices has expanded the scope of economic activity and forced many companies to operate on a global scale. ENLARGE PROJECT The introduction of ICT in business practices has expanded the scope of economic activity and forced many companies to operate on a global scale. This global perspective accelerated interaction of organizational units with various institutional structures and cultural backgrounds that infused traditional business practices with new perspectives and new capabilities. This interaction between various organizational forms, different mentalities and different institutional arrangements can accelerate or even decelerate the process of e business adoption and innovation as the Enlarge project suggests. The capabilities of firms to overcome national barriers but also the acceptance levels of the hosting countries shape decisively the overall environment in which the e-business models will develop and operate. 3 rd category: Legal/ Regulation/ Policy SEED PROJECT Legal and regulatory frameworks are one of the most important issues that concern the policy makers as it has been identified by the SEED project. Specifically, the project also indicates that a common characteristic of the developing countries of S.E. Europe is that that they have already formulated laws or regu- WP3- Deliverable E-FACTORS

152 latory frameworks governing internet based commerce, demonstrating this way the intentions of the governments of these countries that is to enhance the e-business practices in their own countries. These issues are part of the regional analysis that was performed in the course of the deliverable D.2.1 with the title: Frameworks & Web-based surveys for e-commerce environments in S.E. Europe. BUSINESS ARCHITECT PROJECT In the Business Architect project factors influencing the innovation process that were found to have a strong impact on the innovation process were found to be the bankruptcy law, which defines the consequences in the case of failure of an innovative venture. While these consequences are purely economic and limited to the business case in the US, consequences in Europe include prohibition of future economic activities and personal liability. In consequence the attitude towards risk varies considerable. Taxation on profits and capital gains vary and impact the upside potential of business innovation. Most European countries tend to have higher profit taxes than in the US, but no capital gain tax. A third dimension of the regulatory framework is labour law. While low employee protection allows for high flexibility in the workforce in the US, stricter employee protection in Europe requires more prudent hiring decisions in Europe. ENLARGE PROJECT The creation of an adequate legal infrastructure is of paramount importance for the adoption of e- business. This has been obvious in Eastern European Countries where the existing legislation had to change in order to nurture innovation and permit implementation of novel business models. The research conducted under the auspices of Enlarge project demonstrates that an insufficient and slow change of the regulatory environment is creating significant obstacles to the development of e-business. Legislation assumes a dual role since it accelerates competition by liberalizing industrial sectors but also it forges the trust of consumers in e-business. Therefore, it is an important factor that has to be taken into consideration by governments and enterprises alike since it forges the foundations for an environment facilitating and supporting the implementation of new practices. ALTERNATIVE PROJECT Application Service Provision models involve many legal and regulatory issues. The ALTERNATIVE project has identified user or potential user concerns about many of the factors in this category to be major inhibitors to the success of the business model. Specific concerns centre around security, privacy, reliability, and confidentiality of data. Ironically, SME customers who are most concerned about these issues, are often less able to maintain security and privacy of data and systems reliability than the ASP provider who specialises in these aspects. 4 th category: Economic MOBICOM PROJECT The MOBICOM project aims to an extensive exploration of the fundamental factors that will affect the evolution of this new dynamic area of Mobile E-Commerce (M-Commerce), such as market structure WP3- Deliverable E-FACTORS

153 and dynamics, key players and new products and services amongst other things attempting to achieve the convergence between the mobile communications and e - commerce sectors has been successfully performed in the MOBICOM project, pointing out this way the major importance of the economic issues. SEED PROJECT The e - commerce analysis that was performed in the course of the SEED project clearly indicated the major importance of economic issues in the context of specific countries. One basic impediment in the expansion of the Internet based commerce is the fact that countries exhibit lack of information regarding the existence of economic funding. This is a point that can be identified in the financial framework and the financial section of the project s national reports of the S.E. European countries, in the deliverable D.2.1, where further evidence regarding this problem and its magnitude can be found. ALTERNATIVE PROJECT In the context of the ALTERNATIVE project, the Application Service Provision models can have significant impact on the structure of both the markets of software vendors and of the users or potential users. The software market is currently heavily structured around the concept of software licensing, normally directly between the Independent Software Vendor (ISV) and user. The ASP model shifts this to a rental model without fixed ownership at the user. The untested economics of this method of software delivery have made ISVs cautious. Some ISVs such as SAP and Oracle created an ASP channel alongside their normal channels to test the market and to access smaller customers who were previously outpriced. If the ASP model grows significantly, the market structure of software providers will certainly change. The market structure of users of ASP s where they access applications that they previously could not afford can potentially change the structure of their own industries. The use of advanced software applications can change the structure of markets and lead to radically different market characteristics. ASP has the potential to provide users with world-class applications that they previously could not access which could change their markets significantly. 5 th category: Ethical & Professional MOBICOM PROJECT Research in the multidimensional environment of the MOBICOM project has indicated, thus far, that one of the most important elements in the adoption of new technologies such as electronic and M-Commerce is trust. Consequently, trust has been considered as a driving force as well as an obstacle. Furthermore, due to the lack of trust, Internet commerce has been considered to be a technology not completely exploited indicating that it hasn t reached its full potential. SEED PROJECT In the context of this category we can identify further evidence regarding the ethical and professional issues from the SEED project. Where from the analysis that was performed in the course of the deliverable D.2.1 it has been identified that the countries that were not concerned with the ethical and professional issues of e-business where those that were not highly developed in terms of the e-commerce. This is the reason why the expert partners of the SEED project in the analysis of the frameworks, in the course of the deliverable D.2.1 they introduced and examined issues like: spamming, intellectual WP3- Deliverable E-FACTORS

154 property rights, digital divide and others. Their major concern was to concern the future users of these (less-developed) countries regarding issues that are going to trouble them in the years to come. 6 th category: Social Capital / Social Networks DOMINO PROJECT Focused research on the management of inter-organizational network formations and the role of social networks in the creation of specific organizational schemes has been performed in the context of the DOMINO project. A typical example of the influence of social networks in the configuration of interfirm arrangements is the GeM MBA. Research in this specific empirical setting revealed that the incentives for the formation of this particular business model but also the particular properties of the collaboration were mainly the product of the previous social ties among the physical actors that actually created GeM MBA. All the professors involved in the creation of the Gem MBA network creation were collaborating closely under the auspices of EU research projects and furthermore they were meeting frequently in the conferences of the ICT field. Therefore, were the creation of such a network among universities begun to take shape all physical actors possessed the necessary information that would allowed them to get involved in the project but furthermore they were all aware of the properties that the specific business model should possess in order to accommodate all partners into a fruitful relationship. The role of social networks in the formation process of a business model is also apparent in the case of Opel Switzerland, which had configured an organizational network in order to provide information and services for the second hand sales via the Opel.ch Web site. The specific business model contains the following partners: Opel Switzerland, the basic entity that created and bundled the Web services Car4you, the provider of an online sales platform for second hand cars Opel garages Namics, which plays a mediator role in the relationship between Opel and Car4you leading to an interesting triadic relationship Eurotax, which owns and manages the standard on which the whole solution is based: a standard for the description of used cars with detailed feature lists and model history. Provides also standardized ratings for used cars, which is definitive for the success of their application Autowert The organizational entity that triggered the configuration process of this specific arrangement is Opel Switzerland that aims at integrating the Web activities of independent Opel garages into its Web site and is thus trying to generate valued services to motivate the garage owners to make use of the Opel Web services (cp. During this integration process the idea of an online sales services started to materialize but Opel did not have the necessary resources and capabilities to set up such a service on its own purpose. Thus, Opel looked out for a partner. In this process it was the consultant partner Namics ag who brought together Opel and its partner, Car4you.ch (cp. a prominent Swiss second hand e-market platform provider. The consultant company Namics had established the Opel Internet solution as well as the online platform of Car4you. Thus, the formation of this WP3- Deliverable E-FACTORS

155 partnership was somehow the result of a lucky coincidence and not a strategic choice resulting from a long partner evaluation process. From research conducted thus far it has been obvious that the configuration of the business model of a network organization can be modelled as a dynamic process driven by exogenous interdependencies and endogenous network embeddedness (Gulati & Garguilo, 1999). The exogenous factors explain the tendency of organizations to seek cooperation in order to gain access to resources and reduce environmental uncertainty whereas the endogenous parameters interpret the partner selection process that is influenced by structural, relational and positional embeddedness. This second parameter mainly introduces the role of social networks in the configuration of network organizations since the interrelated parties of such a business model are chosen according to previous working relationships that help minimize risk and uncertainty regarding prospective partners. SEED PROJECT The importance of the social capital in the context of e-commerce was an issue that was identified and examined in the context of the SEED project. More specifically, the regional analysis of the S.E. European countries that was performed indicated that the educational level of the aforementioned countries appears to be of a very high level. This may constitute a competitive advantage for these countries as far as the Internet based commerce is concerned. All these issues are analysed in the educational section of the social framework of the project. 7 th category: Social structure MOBICOM PROJECT The major importance of social structure was identified and examined in the context of the MOBICOM project, through the online survey that was performed in three European countries: Greece, Finland and Germany, referring to the current usage and adoption of the mobile services in the aforementioned countries, aiming to attain a deeper understanding of their social structure. Furthermore, the MOBICOM project pays particular attention to the individuals social ranking, along dimensions of inequality (for example wealth, education, prestige, age, or other characteristics) that takes place in most societies in an attempt to acquire a better understanding of peoples behaviours. SEED PROJECT The social factors are identified to be of major importance in the SEED project, as well. In the course of the deliverable D.2.1, and on the topic of social environments, the SEED consortium partners examined the digital divide, in two dimensions firstly, between developed and least developed countries as far as e- commerce practices are concerned and secondly, between users within the same country. Their analysis clearly demonstrated that the digital divide constitutes an important concern not only for the SEED partners but also for the Internet based commerce in the examine S.E. European countries as well. BUSINESS ARCHITECT PROJECT The Business Architect project validation study indicates that social capital and social structures play a much more important role in Europe than in the US. Regional networks, industrial districts are a general WP3- Deliverable E-FACTORS

156 phenomenon in Europe and the source of innovation; apart from very few exceptions (Silicon Valley, or Boston) this form of regional social capital seems to be European (including Israel) phenomenon. 9.5 SUMMARY Societal e-factors are those related to the general context within which new e-business models are formulated and adopted. Thorough examination of this thematic priority aims to conclude this project s effort toward the holistic understanding of e-factors, by considering factors that affect people and their environment: societal issues on the whole. Although the societal factors that influence the adoption of e-business models are usually considered of low importance or, even, neglected both in theory and in practice, the identification, evaluation and testing of these factors that the present study has realized, can strongly support that such factors do exist and that they shape the way e-business models are perceived, adopted, implemented and evaluated. Indeed, the study of societal and cultural theories that the consortium has realized, has provided the basis for interpreting and evaluating the way e-business models emerge and evolve. This evolution process of e-business models has been viewed through theories that provide for the vindication of the way people, in the context of society, learn about changes, conceptualize them (with relevance to themselves and the immediate and broader social environment within which they are active) and, based on the influences it wields on them, the way they respond or learn to respond to these changes, thus, formulating and adopting or rejecting e-business models. The e-factors project has identified a set of factors that originate from the social and the business environment and, acting in a dynamic way, affect directly or indirectly the shaping and adoption of e-business models. These factors fall under seven broad thematic areas, each one of which contributes a different perspective as to how societal factors shape the evolution and adoption of e-business models. Further endorsement of the validity of this classification scheme is provided through the findings of projects developed in the Framework V programme, which provide instances illustrating the role of these factors as facilitators or inhibi- WP3- Deliverable E-FACTORS

157 tors in the selection and adoption of e-business models. More specifically, the categories of societal e-factors that have been identified are the following: Region / Geography. This includes factors that emerge and are unique with regard to specific geographical areas. The factors identified under this area are language, as a unique means of encoding and communicating information and meanings, country specific issues, such as the level of e-readiness which varies among different regions and environmental issues, linked to the applicability of certain e-business models depending on the specific environmental characteristics of each geographic region. Cultural. This category includes factors arising from different cultural characteristics and illustrates how these variations can impact people s attitudes towards e-business models, such as the following: Values / Beliefs, Acceptance, Awareness, Communities, Social Support, Social Norms, Religion, Adoption, Attitudes, Change, Behaviour, Word of mouth / Word of mouse, Communication Channels. As demonstrated by the clustered projects, the combination of the above characteristics forms different cultures and, thus, different needs, preferences and, in general, attitudes toward e-business models attitudes that have to be taken into account when examining the evolution of e-business models. Legal/ Regulation /Policy. The factors categorized under this area refer to elements that derive from the institutional, mainly, framework of the different countries or areas. Namely, the factors clustered here are: Security, Privacy, Freedom of Information, Reliability, Confidentiality, Regulation, Policy makers/ Policy intermediaries, Regulation framework-jurisdictions, Taxation, Infrastructure, e-democracy. The above factors represent aspects that can play a critical role towards nurturing innovation and permitting the implementation of novel business models. Depending on the way they are handled by governments and policy makers, these factors have an important impact on the way businesses and individuals behave towards adopting and implementing e-business models. Instances are provided by the clustered projects which give evidence that insufficient and slow change of the regulatory environment can create significant obstacles to the development of e-business, while issues such as taxation or bankruptcy laws can discourage the adoption of innovative and often, risky e-business practices. Economic. This area looks at the macro-economic conditions of regions and the way the identified factors, that is, market structure and access, determine the way in which companies behave, adopting or rejecting specific business models. More specifically, it is demonstrated that different market structures favour the adoption of different business models, while the degree of access to different markets and the various capabilities offered point toward different levels of adoption of e-business practices. The dynamic relationship between the way markets are structured and the way the respective key players respond and formulate them, is also demonstrated. Ethical & Professional. The factors identified in this category are more related to the way businesses and professionals define the climate within which e-business is deployed. Reference is made to factors such as identity crisis and responsibility and roles issues as well as computer crime and abuse, anonymity, free speech and trust are examined. Theoretical and empirical evidence support that these factors can prove to be driving forces or major obstacles in the adoption and development of e-business models. As a result, the way these factors are treated can lead to high or very low exploitation of the new e-business models potential, whilst the importance assigned to these issues defines to a great extent the degree of development of e- business practices at a country level. WP3- Deliverable E-FACTORS

158 Social Capital / Social Networks. This thematic area looks at the way people and organizations interconnections contribute to the way business models are adopted. In particular, theory and instances from the clustered projects examined here show that the way social networks are structured can define the selection of e-business models to be adopted, while the relationships people and organizations form through social networks determines the sources by which they are influenced in the adoption of e-business models and the way they deploy them. Social structure. The way in which the manner in which society is structured and organized affects the formulation of e-business models is examined here. Factors such as income level and education, wealth and ethnic background are shown as critical to the selection and adoption of e-business models. Social capital and structures are also studied here, as the differences in the way they appear at different geographical regions and societies result in different configurations of the sources of innovation and the way social capital contributes to the adoption of e-business models. The fact that society has an encompassing or dialectic relationship with the other identified key themes in e- business adoption dictates that interrelations with these aspects be pin-pointed, in order to complete the framework for the understanding of the adoption process of e-business models. As a result, similarities are identified with the other four thematic areas (technical, organisational, industrial, individual) and differences are drawn. The societal thematic priority is most strongly connected to the individual thematic priority, where many factors are common. However, societal factors underline the significance of the individual s social environment rather than the individual as such. WP3- Deliverable E-FACTORS

159 10 INTERRELATIONS BETWEEN THEMATIC PRIORITIES Following from the detailed presentation of the five thematic priorities, it is important to state that our framework does not consider these as independent aspects of a business model, but rather, as complementary perspectives on the factors that affect e-business model adoption. Furthermore, the aim of this section is to make the interrelations between the thematic priorities explicit. To this end, we consider the thematic priorities in pairs, commenting on their similarities in terms of perspective adopted by each thematic priority Technical < > Individual The needs and priorities of customers and different customer segments provide significant input to the creation of an e-business model. Certain customer needs, priorities and expectations are related to technical factors and are likely, therefore, to have an impact on the functional infrastructure of an e-business. For example, customer engagement in e-business transactions is often influenced by the way in which customers evaluate a website Limayem et al. (2000). Davis (1989) technology acceptance model emphasizes the usefulness and ease of use of technology as the basis of user satisfaction and ultimately acceptance. Using this model, key factors that determine usefulness and ease of use of a website have been further investigated and include technical factors as the overall functionality of the user interface (Vassilopoulou et al., 2001) - users typically show low tolerance to functional problems and expect effective transaction management, order management and logistics/delivery for both digital and physical products and services. Another example where the technical and individual thematic priorities are closely interrelated concerns security. On the one hand, technical measures to ensure confidentiality, integrity and availability of transactions need to be in place. On the other hand, security is strongly related to issues of trust: whether a business organization trusts its customers (e.g., as a result of a long history of successful transactions) or whether a consumer perceives a business organization and/or its website as trustworthy (e.g., because there are explicit measures to protect the consumer s personal information or because the business organization respects the consumer s culture) Technical < > Organisational When considering the interrelationships between technological and the organizational side of e-business, interrelationships of these two factors are substantial. As illustrated by Leavitt s model (see 8.3.3), technology is an integral part of any organizational design. Even though Leavitt s concept of technology refers to technology in a fairly broad sense (including all kinds of technologies, procedures, and mechanisms employed by the organization), it is clear that technology is one of the most important unique factors constituting an organization. Adopted technology shapes the organization (structure, workflow, tasks, etc.) and organizational factors have a strong impact both on the structure and on the composition of the chosen technological system (expertise to make the right decisions for the system structure etc.) and on the possibilities to effectively adopt and use different technological systems, functions and tasks, which are needed for the effective implementation of the chosen e-business model. Some of the most explicit interrelationships between technological and organizational factors are: WP3- Deliverable E-FACTORS

160 Financial recourses (both short and long term resources) set the limits for technological infrastructure (scale, scope and functionality), and the expertise of personnel (suitable educational background, training, support, recruiting), sets the limits for the efficiency in which the company is able to use it s technological systems. The quality and structure of existing IT-systems have a strong impact on the ability to, for example, integrate new components, functions and capacity to existing systems, and to quickly adapt to changes both in the external and internal environment (changing set of rules and requirements set by customers, suppliers, new production methods etc.) One aspect that may have a strong impact on the possibilities for a company to construct a competitive technological system for the effective adoption of a special e-business model rests strongly on the basis of ongoing contracts with system suppliers (binding long-time contracts, support and competence of existing suppliers etc.). When an existing company decides to start adopting a new e-business model, the successful adoption of a new business model often requires major changes in its current operations and substantial monetary investments into needed new technology. Furthermore, at least the following factors listed under the technical thematic priority, namely ERP, CRM/ERM and Integration, are closely related to the organizational thematic area. ERP focuses on what organizations typically do, or rather what the management of organizations is all about: planning, scheduling, control, operations, clearing, etc. The same is true for CRM, even though this area is more customer-oriented than supply-chain-oriented. Integration is all about organizational applications, methods, activities and work processes. In fact, an information system, of which ERP-systems and CRM-systems are vivid examples, could be defined as a particular type of work system that uses information technology to capture, transmit, store, retrieve, manipulate, or display information, thereby supporting one or more other work systems (Alter, 2002). A work system is an organizational system, i.e. a system in which human participants and/or machines perform a business process using information, technology, and other resources to produce products and/or services for internal and external customers (Alter, 2002). Thus, an ERP-system, which belongs to a particular class of work systems called information system, is just as much an organizational construction as it is a technical artefact Technical < > Industry Technology is the enabler for many new e-business models. In practice a lot of the new e-business models and services arise because of collaboration between technology partners and industry partners. So far however, technology itself has not changed the structure of industries fundamentally. Perhaps so far most initiatives were set up from a technology-push perspective instead of a concrete demand aimed at problem solving. However, it is expected that in the longer turn some industries will change drastically, once certain technologies and/or e-business models are adopted by the market on a larger scale. Industrial factors have a clear impact on technological requirements for e-business operations. Basic technological requirements (internal and external infrastructure) and needs are often similar between different business models, but some clear differences can be found when comparing B-to-B and B-to-C markets and digital products vs. actual physical products. B-to-B e-business has usually a smaller number of customers than B-to-C, but the quantity of products and services sold per one transaction are much higher. This changes the relative importance of logistical systems and on time delivery, which are key industrial production factors. Similarly, digital products (e.g. stream audio / video) need a different technical infrastructure than e-business models that focus mainly on selling physical products. Some other specific technical factors that are often strongly determined by in- WP3- Deliverable E-FACTORS

161 dustrial factors include security & privacy issues, payment systems, user interface functionality and integration with external systems (suppliers, customers etc.) 10.4 Technical < > Societal Societal and technical factors have strong interdependencies. The term e-readiness, for example, considers a region s technological infrastructure but is also strongly related to the technology culture in that region. Thus, while technical factors increasingly play a key role in supporting an e-business model, the availability and awareness about such supporting technology may rely on the availability of government support, the nature of communication channels in creating knowledge and changing attitude of the individual and awareness creation activities, particularly for small and medium sized enterprises (O Connor, and O Keefe, 1997; Keeling et al., 2000). The latter often lack the resources (both human and technical) to compete on an equal basis with larger companies in e-business activities and, given their importance for the economy in Europe, require a lot of attention from public bodies and other policy intermediaries (Papazafeiropoulou & Pouloudi, 2000). Some of the most eminent societal factors, which have an important influence also for the development of technological side of e-business, include affordability (cost of needed technology for access), legal and regulatory framework and favorable conditions in the local and macro- economic environment Individual < > Organizational The main interrelationship between the individual and organizational thematic priorities is in the area of customers. Clearly, from an organizational point of view, customers are important as consumers of the products and services offered by the enterprise (markets), as well as increasingly active partners in value networks (partnerships). From an individual viewpoint, customers are consumers who exhibit certain behavior, hold individual beliefs and attitudes, and are identified in terms of demographic characteristics. Increasingly, businesses direct marketing towards individual customers. This one-to-one marketing approach is closely related to such concepts as CRM, customization and personalization. Furthermore, particularly in e-business firms depend heavily on the customers trust and loyalty (lock-on) [Neal, 1999]. There is also an overlap as far as culture is concerned. Corporate culture, which refers to the atmosphere at work, i.e., in the organization, reflects individual behaviors and habits, values shared among individuals (primarily members of the organization but increasingly also customers), social norms created by individuals, the practice of languages or way of speaking by individuals, etc. Finally, there is a potential overlap in the resources category. Individuals hold knowledge, competencies, and skills, i.e., expertise in specific areas. This constitutes the human resources of the organization. Human resources are regularly claimed to be the most important strategic resource of an organization Individual < > Industry The individual and industry thematic priority are perhaps the least related, as any links are mostly indirect: Each industry has its own culture, values and beliefs, which are often reflected in the e-business models built. As individuals experience these e-business models, the latter also need to reflect factors that make them more appealing to customers, particularly in a B-to-C context. WP3- Deliverable E-FACTORS

162 10.7 Individual < > Societal Interrelations between individual and societal factors are obvious since society is made up of individual units. Therefore, the factors that influence the acceptance of a business model at the personal level are also important at the collective one. At the same time, the two levels are distinct. For example, class, income and other factors of social exclusion, which are best described at the societal level influence computer use, and certainly e-business adoption. In terms of the precise factors that influence both the individual and society, culture is the most obvious parameter since members of a social group often share values, beliefs and attitudes. Thus, culture describes the attitudes that are considered the norm at a specific period of time by certain individuals or societies and as a factor can explain various parameters that inhibit or reinforce the acceptance of e- business models. Another factor, which is common to individual and societal thematic priorities, regards ethical concerns related to the use of computer in economic exchanges. Issues like anonymity, privacy and security of personal information have been preoccupying society for quite some time. It is primarily those issues that make individuals wary of e-business since society has not really provided convincing answers to the questions that arise from the use of ICT in every day life. If e-business is to become broadly adopted in economic activities society must establish norms that comfort the fears of the individuals in order to defeat any reservations concerning new practices and new services offered through ICT. Finally, geography is a factor common to the individual and societal thematic priorities as it connotes a large area with specific political or cultural characteristics that are distinctive to the people that inhabit it. Cultural issues, linguistic singularities as well as the environmental characteristics of any country are influencing decisively the propensity of people to use novel products or services and thus are important factors to the acceptance of e-business models. Values tied to specific areas of the world, linguistic issues like the knowledge of foreign languages or the popularity of a certain language as well as environmental phenomena that affect the customs in particular areas of the world can explain the success, failure or the inability of diffusion of specific business models Organisational < > Industry We see a trend that the boundaries of industries as we know them are blurred. Organizations organize themselves more and more as value networks. This changes the structure of industries. Since an e-business model is often based on a partnership between organizations with various competencies, industry boundaries become even more vague. E-business models (in theory) can change the power structure within industries, because of the various effects of e-business models on industry structure (re-intermediation, vertical disintegration, market transparency, disintermediation and horizontal integration). Sometimes it is difficult to distinguish between industries and enterprises. For example, value networks have a role as a portal or an integrator, thus representing the predominant business logic within an industry. Consequently, industry structure as an industry e-factor category is closely related to organization structure, especially as it pertains to inter-organizational partnerships (value networks). At both the organizational and industry levels, customers, suppliers, and other allies play a key role as business partners. As far as customers are concerned, it is a question of value creation or customer surplus. As far as suppliers and other allies are concerned, the main emphasis is on resource sharing and trustworthiness. Potentially, there is an overlap between products and services as seen from an organizational viewpoint, and product characteristics as viewed at the industry level. This interrelationship is perhaps superficial. WP3- Deliverable E-FACTORS

163 10.9 Organizational < > Societal One of the main interrelationships between the societal and organizational thematic priorities is in the area of culture. Obviously, people bring their values and beliefs, as well as their behaviors and habits, into the workplace. Furthermore, an organization is a society in miniature, with its own culture. Therefore, the factors influencing the acceptance of e-business models at the organizational level can be seen as a subset of the overall factors that promote or inhibit the successful performance of a business model. The embeddedness of economic action in social relations and structure has an effect on the function of organizations since they are in turn often influenced by the regional or national culture. In some cases, organizations can only survive if they comply with the accepted values of the society in which they are located. The arrangement of work, the products and services they offer as well as the image they create, need to take into account the norms of society in order to be acceptable as entities by people. Culture is also reflected in laws and regulation. Thus, there is an interrelationship between the structure and culture of organizations on one hand, and the legal/regulation category at the societal level. Further, business enterprises cannot ignore (macro) economics. This factor category spans at least three thematic priorities (organizational, industry, societal). Not surprisingly, the economic and political conditions for e-business are a major concern of national and supra-national policy makers. The emergence of value networks consisting of firms and individuals from different cultures and industries makes the management of social networks an important challenge for business leaders. Thus, we can see an overlap between management and culture at the organizational level, and social capital/social networks at the societal level. Social capital is in itself closely related to individual skills and competencies (e.g., provided by the educational system), thus creating a potential overlap between the three thematic priorities of individual, organizational, and societal. Additionally, the laws and regulations that society demands for the organizations of social life also influence organizations since they shape the legal environment is which they must operate. Thus, the legal constructs that society has built in order to protect the rights of various groups are shaping the boundaries within which organizations must operate since they represent what is deemed acceptable and ethical. The extent to which the current legal frameworks are respected and adopted is certainly an open issue, particularly in the area of e-business where technological capabilities change at a pace that is faster than the pace in which society and its legal structure can effectively respond. Finally, there is a potential overlap between social structure and organizational structure. For example, class politics may be just as relevant within organizations as it is in the society Industry < > Societal The link between societal and industrial thematic priorities can be traced primarily to the macroeconomic conditions that influence market structure, thus shaping the environment in which organizations operate. The cultural background of each country or region as well as the customs of people influence the structure of the market and favor the sustainability of specific organizational forms and business models. Thus, the social environment of each country influences decisively the economic institutions and therefore the development and growth of specific industrial sectors and organizational models. Society e-factors, especially the role of the government, is important in analyzing the impact of e-business models on industries. The availability of a good technical infrastructure, legal and regulatory policies, fiscal measures and economic stimuli all have a big impact on the rate of success and adoption of e-business models. In practice this differs per industry and WP3- Deliverable E-FACTORS

164 per country. Since industries are more and more globally oriented, technology transfer will for a large part come from the international operating companies. WP3- Deliverable E-FACTORS

165 11 FUTURE TRENDS AND VISION OF E-BUSINESS MODELS In the transition to the knowledge economy the capacity of organisations to engage in learning processes has increasingly come to be viewed as a crucial determinant of innovation, enterprise performance and economic development. In the emerging economic system innovation constitutes the foundation of the competitiveness and value creating capabilities of economic organisations (Lunvall and Johnson, 1994; Nonaka and Takeuchi, 1995; OECD, 2001). However, innovation is not something that is happening 'inside' organisations but rather increasingly at the interface of organisations with the business, regulatory and institutional environment within which they operate. The process of innovation is increasingly driven by open source networks of cooperation and involves dynamic interrelationships between technological transformation, organisational capabilities of firms and public institutional and regulatory structures supportive of innovation and entrepreneurship. In other words, for new ICT that power the new economy and its business models to be able to spread throughout the whole economy, thus enhancing productivity growth, business firms, the regulatory institutions and culture of society, and the factors intervening in the production process need to undergo substantial change (Castells, 2000). However, these domains of social life do not always move at the same pace of historical change. For instance, it is arguable the technological change today far outpaces associated changes in organisational, regulatory and institutional change. Yet, the synchronisation in their movement constitutes a central condition that underpins successful and sustainable business models. In other words, successful business models need to be designed on the basis of careful reading of the existing economic environment and the trends that are likely to shape its future. This section outlines some of the key trends that are likely to shape e-business models in the foreseeable future. One of the well-noted features of the emerging knowledge-driven economy is the relative fluidity it introduces in the spatial and functional boundaries of individual organisations and industries. In this context there is a significant shift in the qualities that define the 'core' competencies of organisations in ways that organisations will have to take seriously into account as they develop their e-business models. This shift redefines the parameters of the process of value creation by prioritising several interrelated organisational competencies that are likely to be of strategic importance for e-business development. The first such competency involves a change of focus from product and service design and delivery to skills and knowledge applied to constant innovation of products and services. This is likely to take the form of the utilisation of ICT for better understanding of market trends and anticipating customer needs for the better calibration of product and service provision. The second involves a shift from vertical and hierarchical to horizontal and decentralised forms of organisation. The latter, especially networked forms of organisation such as the 'network enterprise' (Powell and Smith-Doerr, 1994; Hagel and Seely Brown, 2001) will be a major facto in the valorisation of the technological and knowledge creating capabilities of organisations. An interrelated shift concerns the relative transition from a financial 'shareholder' based form of capitalism where capital is associated with finance to a form based on the intangible aspects of organisation and intellectual capital of organisations as the key quality that defines competence and competitiveness. This trend, already at the centre of the current debates within the accounting profession regarding the measurement of competitiveness, is likely to have organisational implications that will need to be taken into account in the design of future e-business models. For apart from the identification of the 'core' competency of an organisa- WP3- Deliverable E-FACTORS

166 tion with respects to its market it involves a significant realignment with respect to its 'core' competency in terms of its value generating capabilities and the constituency that drives it. This means that the knowledge creating components of an organisation will increasingly have to stand on a more or less equal footing with the providers of finance, redefining in the process the stakeholding constituency of organisations and successful e-business models (Plender, 2003). The transition to the knowledge economy also affects systems of value chains within markets. The key change in this context involves a shift from linear to non-linear value chains: from value chains to value networks to dynamic value constellations where individual value propositions need to design differentiated and carefully calibrated value propositions according to value targets. This non-linear pattern implies that successful value propositions will need to be increasingly based on innovation both in understanding customer needs and the capacity to address them most effectively. The dominant pattern here is that of bundling of services, which depends on sophisticated and intimate understanding of customer needs. However, 'bundling' is a major challenge that has to do with the redefinition of the strategic understanding of what an individual organisation's 'core' competencies are. A third domain that is likely to affect the future development of e-business models involves organisational forms. As was noted above the process of innovation is migrating toward open source networked forms organisation. Beyond their 'internal' networking capabilities organisations have to be increasingly able to function as 'ambient' organisational entities in alignment with the market environment within which they operate by capitalising on existing and emerging technological capabilities. However, the development of networked and ambient forms of organisation depends on institutional structures of support. Globalisation does not eliminate the strategic importance of location. Instead, globalisation is giving rise to the re-emergence of the strategic significance of locality and comparative spatial differentiation. Research shows that spatial concentration and geographical proximity continue to be of fundamental importance in fostering innovation (Soja, 1985, Harvey, 1991, Corbridge et al. 1994, Saxenian, 1994, Castells, 2000, Castells and Hall, 1994, Porter, 1998, Gambardella and Malerba, 1999, Saskia Sassen, 2000, Storper, 1995, Crouch, 2001, OECD, 2001). The importance of localised access to certain forms of knowledge highlights the centrality of local institutions, especially that of social capital, in processes of innovation. In broad terms social capital comprises the social norms, values, assumptions and beliefs that provide the organizing principles of everyday interaction within social networks in ways that enable the coordination of social action toward the achievement of desired goals (Woolcock, 1998). In other words, the interaction between the organizational entities comprising a cluster of innovation reflects not only market relationships, but also the broader social and cultural context in which such relationships are embedded. This institutional mediation is a crucial factor in structuring the relationships among the central entities within a cluster since institutions are they are the main articulators of the social rules, norms, routines and conventions that regulate the interaction between organizations. Institutions are also key instances in a cluster since they influence the behaviour of organizations by putting into place constraints on or incentives for learning and innovation. Nowhere is perhaps the role of institutions in the structuring of clusters more noticeable than in the development of trust across organizations. Where interrelationships across organizations is marked by high levels of trust, that is, the expectation of honest, collaborative, non-opportunistic behaviour, uncertainty with respect to knowledge exchange is reduced, stable and reciprocal interactions are developed and consequently innovative capability is considerably enhanced. The opposite tends to be the case in hyper-competitive environments that increase uncertainty and reduce trust in relationships across organizations (Edquist, 1997, OECD, 2001). WP3- Deliverable E-FACTORS

167 Thus, while there is accumulating evidence of structural changes that sustain trends toward the globalization of economic processes this does not render the comparative difference among localities and regional constellations of competitive advantage any less significant. On the contrary, a critical issue in the growing importance of locality has to do with the modalities and patterns of organizational learning that are implicated in the complex interactions between global and local processes. The specific elements that structure the social and economic fabric of regions, that is, their economic structures, patterns of social and political relations, cultural and institutional settings, are critical factors that condition and shape emerging patterns of economic development and organizational forms. Hence a key question regarding a locality s economic trajectory is the extent to which its social institutions can operate as frameworks enabling responses to the challenges of the new knowledge-driven competitive environment (OECD, 2001). In other words, in order to benefit from the innovation and economic potential associated with clusters of innovation firms, institutional bodies and all the central elements that compose the cluster need to be learning organizations aligned around the requirements of the knowledge-driven economy (Morgan, 1997). Inextricably linked to this set of questions is the issue of motivation of individual employees. Employment relationships in the emerging economy are changing. However, both organisation and systems of industrial relations will have to adapt to the agile and flexible patterns of business and economic activity in a way that preserves motivation and commitment on the part of individual workers that remain crucial for innovation and successful and sustainable e-business models. WP3- Deliverable E-FACTORS

168 12 CONCLUSIONS This deliverable contains the first main result of the E-FACTORS project, a compendium of the existing theoretical work on e-business models, and a collection of factors affecting e-business models adoption that were reported from FP 5 projects and other empirical sources. Five thematic priorities provide the structure for the compendium: technology, organization, individual, industry and society (see figure below). Each thematic priority again is structured in six to eight key factors to cluster the abundance of identified factors. The here established structure is populated with a case collection for e-business model analysis and teaching, which is published independently as the second main result of E-FACTORS (Deliverable 4.1). The third main result of E-FACTORS is a strategic roadmap on e-business model research and development and a teaching curriculum that contain the conclusions from both literature compendium and empirical evidence (Deliverable 5.1). WP3- Deliverable E-FACTORS

169 This deliverable above all is a compendium of existing works aiming at providing an in-depth investigation of e-business model definitions, taxonomies and dimensions of classification. Along the same vein a tremendous amount of material has been collected in this document. Each of the thematic areas has provided a concise summary as the last section of their chapter that can be read independently and provides a quick overview of the results in the sections. In this early stage of research on business models, which is undertaken by the many member projects of e- factors, this document should create awareness leading towards the edifice of a common approach of e- business model investigation. E-factors is a cluster project and assigned to capture and consolidate the learning from many EU funded projects that have been working in parallel for several years and now get the opportunity and resources at least for this topic to exchange and discuss their findings and views. Many member projects are explicitly mentioned at some place, which states their contribution. More often, however, individual effort is woven into a stream of thought of consolidated contributions. In short, this compendium is the necessary basis for any further work on e-factors. The factor categorization is an original development of the E-FACTORS project and could possibly lead to an original and innovative contribution, if concise conclusions can be established. Researchers and practitioners with different writing styles and different theoretical backgrounds, language of different scientific domains, have come together to thoroughly, profoundly and in a systematic way examine e-business model definitions, taxonomies and frameworks. Τhe initial corollary was a multiple array of definitions, terms and classifications representing the diversity of the underlying work of the member projects. Given this setting, very tight timeframes and budget constraints, it is remarkable that the document has been structured in a way that would enhance readability, applying a classification of five groups of e-factors on the societal, organizational, industrial, individual and technical level. The categorization leads us to three main conclusions. First, our view on technology is mostly limited to the most advanced member states, which is relevant with respect to the enlargement countries from Eastern Europe. Additionally, there are very difficult inter-organizational integration issues to be resolved, the solution of which we do not know yet. Furthermore, our analysis so far also pinpoints clearly the problems of launching e-business for the fragmented multiple markets within the European Union. Second, it emerges that understanding e-business model adoption is about understanding growth that is driven by the interplay of innovation and adoption of technology by consumers and organizations. Growth occurs throughout the document in multiple fashions. Apparently growth of business and revenues is a dominant concern in all the chapters of the document. This growth is driven by the growth of technical performance, as well as a growing number of e-product users. Education and personal development of individuals and growth of the industry and its business firms are further dimensions. On the societal level as the Lisbon declaration documents - innovation shall lead to economic growth, which drives the creation of employment and wealth. It is the obvious rationale of bodies like the EU to invest public money in innovation. Growth is a socio-economic phenomenon, which meets the research focus of the e-factors project. Third, it showed that growth is a not an easy methodological issue for research, because on the one hand it is an interdisciplinary technological as well as socio-economic phenomenon and on the other hand because it is a dynamic phenomenon. It requires describing (and ideally predicting) processes in their management over time. As the report shows, an established minority in academic research has established an initial body of WP3- Deliverable E-FACTORS

170 knowledge on theses dynamic processes. In the economic field, Schumpeter (1942) and Nelson & Winter (1982) have provided most important contributions. In the field of organizations, Penrose (1969) established initial ideas that in those days get fashionable in strategic and organizational research on dynamic capabilities. The section on financial markets has been added, to capture venture capital as a capital market instrument to fuel growth. The next steps in the project are to extend on the here drafted conclusions. In this context, it seems worthwhile to extend the search to entrepreneurship research, which at least for a part is equally concerned with managing growth processes. In short, from what is prepared in this report, the project can decide to join an ongoing research to find integrative perspective on what growth is and how it can be managed. The here identified factors, provide the basis for testable hypothesis on whether they further or hinder growth processes for which empirical cases would need to be observed over a longer period of time to capture the specifics of growth processes in longitudinal cases. Growth processes are both, theoretically interesting and of high practical relevance. The other way forward is a series of workshops organized by E-FACTORS and the online publication of the results to invite researchers and practitioners to provide feedback and participate in the discussion on the here presented work. On its own the projects core-group brings together more than 40 people, who are geographically distributed all over Europe. Each of them represents one or more research projects and their respective teams. Besides the research base, officers from the European Commission will join the discussion on e-business models. In a further larger circle, a general public with experience in studying or implementing e-business models will be invited to join in workshops and conferences, as it has been done throughout the project. This document will have accomplished its task, if it stirs discussion and reflection, not if it is accepted with no comments, but if its structure and contents finally result in the production of well thought conclusions on the sustainable implementation of e-business models in Europe. WP3- Deliverable E-FACTORS

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182 14 APPENDICES 14.1 APPENDIX 1: GLOSSARY Age: Refers to the segmentation of a market according to age Area Density: Refers to the density of an area, i.e. persons per km 2 Area Type: Refers to the type of the area, e.g. urban, suburban, rural, etc. Attitudes: Refer to the attitudes of the consumers to technology, technological products etc. The attitudes of users of e-business applications in general Beliefs: Refer to the beliefs that consumers have concerning e-business and technology in general. This also applies to other users of e-business applications as well Branch: Industry sector Brand: An identifying symbol, words, or mark that distinguishes a product or company from its competitors. Usually brands are registered (trademarked) with a regulatory authority and so cannot be used freely by other parties. For many products and companies, branding is an essential part of marketing. Business process: A related group of steps or activities that use people, information, and other resources to create value (in terms of a specific product or service) for internal or external customers (Alter, 2002) Business processes are, typically, key elements of any business model. However, we argue that business processes per se do not promote or inhibit the successful performance (in terms of value creation) or enduser adoption of business models. What matters is the business model s ability to produce value Business model: A business model implies a set of entities in a commercial venture and portrays them in the context of two distinct set of factors, endogenous, that embrace factors that lie in the control of individual enterprises such as organizational, technical and individual factors and exogenous, that include factors beyond the control of individual enterprises, such as industrial and societal factors that in some cases are defined by policy makers. An e-business model is, thus, defined as an Internet-enabled business model Business model framework: a way to classify, organise or describe business models according to a set of principle dimensions or ideas Business models specify the relationships between different participants in a commercial venture, the benefits and costs to each and the flows of revenue. (Elliot 2002) Business strategies specify how a business model can be applied to the market to differentiate the firm from its competitors. (Elliot, 2002) Cognitive: Refers to the cognitive type of individual differences. These might be mental disabilities. Complimentary in competences: New and other capabilities, which are complimentary to an organisation s own current competences Cultural Theory distinguishes between myths of human physical nature as two integrated aspects of four cultural biases: 1.Hierarchy 2. Egalitariarism, 3. Individualism, 4. Fatalism (Douglas, 1978) Culture: WP3- Deliverable E-FACTORS

183 The collective programming of the mind which distinguishes the members of one group or category of people from another (Hofstede, 1991) A multidimensional and convoluted phenomenon that addresses issues that deal with the patterns of behaviour and thinking that people living in social groups learn, create, and share (Bodley, 2002) Cyberculture or Culture of the Cyberspace has been generally defined as: an information- based culture Cyberpsychology: the attempt to explain and further analyse the new domain of human behaviour that emerges from the view that computers & cyberspace may become a type of transitional space that is an extension of the individual s intra-psychic world (Suler, 1999) Diffusion of innovation: The process by which an innovation is communicated through different channels over time among members of a social system Digitalised goods: Goods which can be transferred and delivered in digitalized format, like software, audio, video Disintermediation: Bypassing of organisations in a supply chain, e.g. producers do direct business with customers bypassing wholesalers and retailers Dynamic capabilities approach: The dynamic capabilities approach (Teece et al., 1997) explores the dynamic nature of capabilities acquisition and how this relates to a firm s managerial and organizational processes, such as co-ordination, integration, transformation and learning. e Factors: Factors or phenomena that promote or inhibit the successful performance of a given e-business model e business model taxonomy / typology: A presentation of different of e-business formats, classified by one or more dimensions a way of classifying different e-business models Electronic business (e-business) is any process that a business organisation conducts over a computermediated network Electronic commerce (e-commerce) is any transaction completed over a computer-mediated network that involves the transfer of ownership or rights to use goods or services Equal level of automation: Comparable level of sophistication in automation (hardware and software), needed for interoperability between systems and data sharing, e.g. the same software for external communication, the same ERP systems for back-office integration, the same platforms for joint product development, the same database structures for data sharing Ethics, in general, is concerned with the moral character of voluntary actions that affect other people. The goal of ethics is to distinguish between right and wrong actions (Artz, 1994). Ethical Theories serve as corrective lenses through which we can observe reality and see the choices to make as we attempt to direct reality towards our ethical ideals (Mason, 1995). Virtue Ethics focuses on desirable characteristics and traits of the moral person, rather than examining the act itself. Business Ethics considers ethical issues within the business environment, as well as ethics regarding the relationship between business and the wider society (Maguire, 1997). WP3- Deliverable E-FACTORS

184 Computer Ethics is a subfield of ethics (Artz, 1994) that aims to formulate policies to guide individual and collective action in the use of Computer Technology (Moor, 1985 in Brey, 2000). Existence of added value in e-business model for consumer: Existence of added value in the e- business model compared to the current physical model, e.g. in terms of lower cost, more service, improved and unlimited access independent of time and place, increased level of customisation etcetera Expertise: Refers to the particular area of expertise of a user and how this relates to the ebusiness she is using at a particular point in time Frequency Purchasing: Refers to how often a consumer purchases items and/or services, which are not necessarily provided by the same company Gender: Refers to the segmentation of a market according to gender General Infrastructure: Refers to the general infrastructure of an area. In particular any type of infrastructure that affects the use of ebusiness applications except for technological infrastructure as such Horizontal integration: Development into activities with are either competitive with, or directly complimentary to, a company s present activities (Johnson & Schools, 1989) Human resources: Human resources consist of the knowledge, competencies and skills held by individuals employed by the e-business firm as well as other individuals who have a formal relationship to the firm. Industry: All the steps of manufacturing, distribution and servicing which go into the production and marketing of a company s products and other products of which they form a part (Johnson & Schools, 1989) Industry standards: Standard formats agreed to an industry to structure information exchange, identify products and services etcetera Information access: Information access refers to the richness of information in conjunction with product presentations, i.e., the depth and detail of information that can be accumulated, offered, and exchanged In-sourcing: In sourcing means providing access to all kinds of augmentative, and hopefully value-adding, services and products. With appropriate electronic links, such services and products are only a click away Institutional theory: The theory that examines the reasons of homogeneity among organizations in terms of forms and practices Intangible goods: Goods and services, which are not tangible/physical, e.g. advice Intentions: Refers to a user s intentions and how these relate to the use of e-business applications Knowledge: Refers to a user s knowledge, whether obtained through self-study or an organised course. Language does not simply symbolize a situation or object, which is already there in advance; it makes possible the existence or the appearance of the situation or object, for it is a part of the mechanism whereby that situation or object is created (Mead, 1934). In the context of the individual and social thematic areas the term language is used to refer to the barriers imposed on users by it Lifestyles / Values: Refers to the effect that a user s lifestyle and values have on his psychology and consequently to his perception and use of e-business applications Loyalty: Refers to a consumer s loyalty to a specific brand or company s services WP3- Deliverable E-FACTORS

185 Market scope: Market scope refers to reach, i.e., the market segments that are reachable quickly and cheaply in the virtual market (Evans & Wurster, 2000). Virtual markets have unprecedented reach because they are characterised by a near lack of geographical boundaries (Amit & Zott, 2001). Thus, the potential customer base is virtually unlimited Market transparency: Insight in market characteristics, like prices, service levels, number of market participants, willingness to buy Motivations: Refer to a user s motivations in as much as they affect her use of e-business applications. Negotiation power: Power of an organisation or a (group of) customer(s) to negotiate on price and/or delivery terms (like time, quality,...) Network externalities: When the value of a product to a user depends on how many other users there are of that product (Shapiro & Varian, 1998) Organisation: From a technical viewpoint, an organization is a stable, formal, social structure that takes resources from the environment and processes them to produce outputs (Laudon & Laudon, 2002). A behavioural definition of an organization suggests that it is a collection of rights, privileges, obligations, and responsibilities that are delicately balanced over a period of time through conflict and conflict resolution. Organizational learning: Organizational learning refers to the enterprise s capability of taking advantage of experience. In this sense, knowledge management is the mechanism by which organizational learning is facilitated and valuable knowledge could be exploited. Organizational politics:..[p]eople in organizations occupy different positions with different specialities, concerns, and perspectives. As a result, they naturally have divergent viewpoints about how resources, rewards, and punishments should be distributed. These differences matter to both managers and employees, and they result in political struggle, competition, and conflict within every organisation. Political resistance is one of the great difficulties of bringing about organizational change.. (Laudon & Laudon 2002) Out-tasking: Out-tasking means sourcing specific processes to partners (e.g., best practice providers) in an attempt to exploit these partners unique capabilities. The philosophy behind out-tasking is: If a job s worth doing and someone else can do it better, let them. Payment Method: refers to the payment methods made available to a consumer when purchasing a product or service. Physical: Refers to the physical type of individual differences. These could be some form of physical disability Place: Refers to the physical location of the product or service and how this affects distribution, pricing, etc. Platform: Refers to the platform used to launch an e-business application Price: Cost, usually expressed in monetary terms. Furthermore, the pricing policies used in order to better approach the appropriate target groups Process: Refers to the process used to acquire the completed product or service WP3- Deliverable E-FACTORS

186 Product: The end result of the manufacturing process, to be offered to the marketplace to satisfy a need or want Product innovations: Product innovations are of utmost importance in all businesses and industries. E- business firms have the opportunity to design and develop completely new products and services, and they can identify and incorporate valuable new complementary products and services into their bundle of offerings in novel ways Product range: The product range may be further extended to include complementary products and services. We distinguish between vertical complementarities (e.g., after-sales services) and horizontal complementarities (e.g., one-stop shopping) Product scope: Product scope refers to reach, i.e., the number of products that are reachable quickly and cheaply in the virtual market. Product scope means that a firm s product range in an e-business context is wider than ever Profit/Non-Profit: Profit making organisation or non-profit making organisation (e.g. a government institute) Promotion: An activity, such as a sale or advertising campaign, designed to increase visibility or sales of a product Propensity to Trust: Refers to how trustful a user can be and how this affects adoption and consequent use of e-business applications Regions: Refer to the geographic regions into which a country is divided Re-intermediation: New intermediary organisations enter an industry supply chain Revenue model: A way to describe the way in which the company actually gets its income, and the way in which the chosen business model enables revenue generation (Amit & Zott 2001) Reverse auction model: In a reverse auction the buyer is the bid-taker and the seller is the bidder. The seller with the lowest bid wins. Usually there are many sellers that bid. Often used in procurement auctions (Kambil & Van Heck, 2002) Resource-based theory: Resource-based theory holds that combining a set of complementary and specialised resources and capabilities, may lead to the successful performance of business models. Such resources and capabilities are valuable if they reduce a firm s costs or increase its revenues compared to what would have been the case if the firm did not possess those resources and capabilities (Barney, 1997). Schumpeterian innovation theory: Schumpeterian innovation theory focuses on economic development through innovation and technological change Self-Efficacy: Refers to the user s own perception of how capable she thinks she is. This affects the use of e-business applications Skills: Refer to the skill set a user has. The skills are technical, but could also be non-technical as long as they do affect the use of e-business applications Spending Power: Refers to the segmentation of a market according to consumers spending power Social embeddedness: The theory that acknowledges the social network of external contacts as a significant factor that influences organizational action (Granovetter, 1985) and thus incorporates endogenous dynamics that account for the choice of partners WP3- Deliverable E-FACTORS

187 Social network: a set of nodes (e.g. persons, organizations) linked by a set of social relationships (e.g. friendship, transfer of funds, overlapping membership) of a specified type. (Laumann, Galaskiewicz and Marsden, 1978) Social structure: The way in which society is organized into predictable relationships and patterns of social interaction (Schaefer & Lamm, 2001) Strategic networks: Strategic networks may appear as strategic alliances, joint ventures, buyer-supplier relationships, virtual organizations etc (e.g., Gulati et al., 2000) Strategic network theory: Strategic network theory focuses on the formation and performance of network structures. Traditionally, network theory has been preoccupied with such aspects of networks as size, density, centrality, and heterogeneity of ties (e.g., Granovetter, 1973) Structural characteristics of organizations: The structural characteristics of organizations are listed below: Clear division of labour (specialisation) Hierarchy (of authority limited to specific actions) Explicit rules and procedures (SOPs standard operating procedures; rules of thumb) Impartial judgements (everyone is treated equally) Technical qualifications for positions (not personal connections) Maximum organisational efficiency (maximising output using limited inputs) Switching costs: Costs to switch from one partner/ supplier to another Technology Infrastructure: Refers to the technological infrastructure of an area. Transaction costs: The comparative costs of planning, adapting and monitoring task completion under alternative governance structures (Wiliamson, 1985) Transaction cost theory: According to transaction cost theory (economics), firms and individuals seek to economise on transaction costs. In fact, Transaction Cost Economics consider transaction efficiency as a major source of value creation, as enhanced efficiency reduces costs Thematic areas: The (five) different levels at which the e factors are found to have an impact on e- business model adoption in Europe. Namely, in the context of the project these are: technical, individual, organization, industry and societal TECHNICAL e - FACTORS Interoperability and interconnectivity: Interoperability and interconnectivity refers to such factors as standard setting, contracting, and integrating information systems. This category includes next sub factors: Techniques for access, Capabilities of terminal devices, Data/information exchange, Web services. Generic Business Services: Generic business services refer to functions connected to the management of data transmission and business transactions that are typically handled by third party service providers. This category includes such sub-factors as: Disaster recovery systems, Payment sys- WP3- Deliverable E-FACTORS

188 tems, Digital rights management, Security management (security + electronic identification), Location positioning systems. Internal IS-platforms: In the core of e-business is the organisational IT-system, typically tailor made for the company. From the e-business point of view this organisational IT-system commonly includes such key subsystems as: ERP systems, Supply chain management (SCM) systems, Customer relationship management (CRM) systems. Integration issues: E-business integration includes different types of techniques and standards to enable companies to integrate their e-business activities and systems with their core business system and with the systems of their suppliers, trading partners and customers. Areas of Integration in e- commerce can be divided into: B-to-B Integration, B-to-C Integration, Enterprise/company application integration (EAI). Commitments: E-business requires effective management of commitments with numerous partners. Especially in large scale e-business the number of relations with outside vendors can be substantial and this calls for effective management of these relations that encompass significant interdependencies between different value/supply chain members. This category includes such sub factors as: SLAcontracts, Customer service management & efficiency, Help-Desk and Call centre services. Service performance issues: Service performance includes such factors as: Availability of services, Scalability of services. INDIVIDUAL e FACTORS: The Individual e-factors could be considered as the link to all the other thematic priorities. All five areas of e-factors deal with crucial issues, however all of them boil down to the individual. It is the individual who will adopt innovative technologies or will provide the driving force. Individual Differences: The individual differences category refers to a person s physical and mental ability or inability to access and use a personal computer and consequently an e-business application. Demographic: The demographic category refers to the market segmentation according to age, gender, spending power, etc. Geographic: The geographic category refers to the factors that are purely area-specific and affect the use of e-business applications. Behavioural: The behavioural category refers to the human reactions in a commercial environment and more specifically the factors that are related purely to market research and data analysis. Psychological: The psychological category refers to the psychological factors that affect a user s decision-making processes and consequent actions. Transactional: The transactional category refers to the seven P s of marketing plus two other characteristics that apply specifically to the digital delivery and presentation medium of e-business applications. WP3- Deliverable E-FACTORS

189 Education & Experience: The education and experience category refers to the skills acquired and preconceptions formed by and about users through training and/or personal experience. Peer / Social Networks (Culture): The peer/social networks category refers to the categorisation of users according to the environment in which they access ebusiness applications, i.e. at work, at home, on the move, in a family group, in a social or business community. ORGANIZATIONAL e FACTORS: The notion of organizational e-factors is closely related to the interaction between information technology (IT) and organisations in terms of IT-enabled business models (e-business models). Products & Services: The success of a particular business model is dependent on its ability to identify the right markets for their products and services, and to attract, satisfy and retain customers. Generally speaking, a particular business model works better for some products and services than for others. For physical products, time and costs associated with distribution and delivery may inhibit value creation. Markets & Customers: The success of a business model is ultimately dependent on its ability to define its market in terms of clearly defined segments, and to attract, satisfy and retain customers. From a business perspective, this is perhaps the greatest strategic challenge faced by any enterprise. Efficiency: The success of a business model is dependent on the firm s operational efficiency, that is, its cost efficiency as well as its flow efficiency. A business model is a representation of a workflow or the flow or sequencing of business activities. Obviously, the success of a business model is dependent on the way things flow, i.e., the efficiency of the flow. We distinguish between physical flows and information flows. The latter includes payment-related flows. Management & Structure: A successful e-business model requires dedicated management and adequate work structures Evidently, there must be a close match (alignment) between the way the enterprise is organized and the way the business model works. Organizational culture:..[o]organization culture is this set of fundamental assumptions about what products the organisation should produce, how it should produce them, where, and for whom. Generally, these cultural assumptions are taken totally for granted and are rarely publicly announced or spoken about a powerful unifying force that restrains political conflict and promotes common understanding, agreement on procedures, and common practices a powerful restraint on change, especially technological change. Most organisations will do almost anything to avoid making changes in basic assumptions.. (Laudon & Laudon 2002). Neuhauser et al. (2000) suggest that organisational culture first and foremost is about shared underlying assumptions, i.e. core values of groups of people. An e-culture typically embraces ubiquity, i.e., the ability of the Internet to shrink and enlarge time; being available instantaneously and asynchronously, 24/7 worldwide. Resources & capabilities: The availability and utilization of critical or scarce is crucial to the success of a business model. Under this light, the focus is on factors associated with resource utilization, while the mechanism of knowledge management is a way of exploiting corporate knowledge and facilitating organizational learning. Partnerships: A business model is typically inter-organisational in nature, i.e., it supports the performance of a value network of collaborating firms. The success of such business models depends on the content and quality of the partnerships that have been established. WP3- Deliverable E-FACTORS

190 INDUSTRY e FACTORS Type of Industry: Industry sector, branche Industry Structure: The way the industry is organised (e.g. relationships, number of echelons, number of organisations, size of organisations, focus of organisations (regional national- international) etcetera) Product/service characteristics: Characteristics of a product or service, like tangibility, digitizability, monetary value, etcetera Competition: Organisations that compete for the same customers or resources Suitable cooperation partners: Organizations that are suitable for a partnership, e.g. to jointly develop a product or enter a new market or to outsource certain activities to like logistics or marketing Customer: Individual consumer (in a business to consumer setting) or an organisation (in a business to business setting) that buys a company s products and/or services SOCIETAL e - FACTORS: factors related to the general context influencing the shape and adoption of e- business models in practice, that is, factors that affect people and their environment: societal issues on the whole. These factors are further categorised as follows: Region / Geography are factors that emerge and are unique with regard to specific geographical areas. Cultural: includes factors arising from different cultural characteristics and illustrates how these variations can impact people s attitudes towards e-business models. Legal/ Regulation /Policy factors refer to elements that derive from the institutional, mainly, framework of the different countries or areas Economic. This area looks at the macro-economic conditions of regions and the way the identified factors, that is, market structure and access, determine the way in which companies behave, adopting or rejecting specific business models Ethical and Professional factors in the context of the e-business models and in association with the societal thematic area suggest the exploration and analysis of ethical issues such as computer crime/ abuse, responsibility, anonymity and so on, that is, issues that define the climate within which e business is deployed Social Capital / Social Networks factors look at the way people and organizations interconnections contribute to the way business models are adopted Social structure: the ways by which the society is structured and organised affects the formulation of e-business models are examined by these factors Temporal dimension WP3- Deliverable E-FACTORS

191 Spatio temporal dimension: within what sort of time frame the change has taken place, and how widely it has dispersed geographically, as the temporal evolution of the e factors draws the thin line between success and failure [ ] as institutional theory has pointed out specific business models prevail in various periods of time and thus oblige the companies that seek legitimacy to adopt them Type of customer B-to-B (business): A business organisation as the customer in a Business-to-Business relation Type of customer B-to-C (consumer): The final consumer/individual as the customer in a Business to Consumer relation Value chain: The value chain is a model of the different interrelated functions that perform the activities of the firm (or rather the business unit) Value chain analysis: Value chain analysis identifies the activities of the firm and their economic implications. Value Chain Analysis explores both primary and support activities, and asks the question what activities the firm should perform, and how. Value chain analysis is more about efficiency than, like Schumpeterian innovation theory, about new product development. Hence, the main focus is on delivering low-cost rather than differentiated products Value propositions: Combination of products and services that create value (like place, time, financial, prestige) for a customer Vertical disintegration: Organisations decide to outsource (part of) their original forward activities (towards the customer) and/or backward activities (towards their suppliers) Virtual communities: Virtual communities bond customers to the enterprise, since they enable frequent interactions between participants and thereby create loyalty and satisfaction. Additionally, virtual communities may promote the creation of networks with numerous participants Website (Delivery Medium) Design / Ambience: This refers to the aesthetic feel of the interface of an e-business application WP3- Deliverable E-FACTORS

192 14.2 APPENDIX 2: CLUSTERED IST PROJECTS The purpose of this chapter is to provide a short description of the clustered IST projects that participate in the E-Factors project, as it can be seen in the table below, with the view to facilitate a better understanding of the context within which their relevant research has been conducted and furthermore to present additional information regarding their main activities, objectives and outcomes that were identified in the course of their extensive research. Current IST Clustered Projects Project Acronym ALTERNATIVE Project Full Title Assessing the Deployment, Hosting and Integration of Business-critical Information Systems by Application Service Providers (IST ) BUSINESS ARCHITECT DOMINO Business Architect (IST ) Dynamic Organisational Management for Inter-Firm Network Orchestrations (IST ) ENLARGE FLEXWORK Entrepreneurship Laboratory for Eastern European Regions (IST ) Demonstrating and promoting the take-up of new ways of FLEXIBLE WORKING among outlying regions and SMEs (IST ) MOBICOM OMEGA SEED Evolution Scenarios for Emerging m-commerce Services (IST ) Open Market Energy Generation Allocation (IST ) South Eastern European Digital Economy (IST ) Table 14.1: Clustered IST projects that participate in the E-Factors project. WP3- Deliverable E-FACTORS

193 These IST projects will be employed in the analysis of the five thematic priorities that has been realized by the E-Factors consortium partners, through the identification of examples drawn from these projects, in order to provide a richer understanding of the various factors and demonstrate how the clustering of projects related to e-business models can provide a more comprehensive picture of e-factors than each project alone. Furthermore, these projects will act, on one hand, as a validation technique and, on the other, as a further illustration of the factors identified under each thematic area. The structure of this chapter is as follows. Section 6.1 provides a short description of the aforementioned IST clustered projects their main activities, objectives and outcomes. Section 6.2 illustrates how the five thematic areas of the E-Factors project are addressed by the each clustered project ALTERNATIVE Alternative project s main purpose has been to develop a web-enabled tool to provide a risk assessment framework for evaluation, deployment, hosting and integration of a taxonomy of ASP (Application Service Provider). This project offers therefore an in depth view to the ASP business model. The ALTERNATIVE project aimed at encouraging the technical diffusion of ASP offerings by providing customers with a valuable evaluative tool. The objectives are achieved by bringing together the complementary expertise of the consortium members. The objectives the ALTERNATIVE system are to: identify the critical deployment, hosting and integration issues extend and refine the ASP risk assessment framework developed by Brunel University (key partner) evaluate how application outsourcing using ASP differs from traditional service bureau, mainframe & datacentre outsourcing using a taxonomy of ASPs investigate their European market penetration with performance indicators, assessment criteria, metrics and tools developed in the risk-assessment framework investigate how ASP solutions can integrate heterogeneous applications across multiple platforms, sites & environments through seminars, forums & workshops disseminate the findings of ALTERNATIVE and maximise European SMEs access The ALTERNATIVE system developed an interactive web-enabled tool for ASPs (existing and potential) comprising a checklist of key performance and operational criteria for offering ASP services. The four categories comprise: delivery, integration, management and operations and enablement. Also, the system provides for evaluating the benefits and risks of different ASP business models. The five ASP business models in focus are: enterprise; pure-play, vertical, horizontal, and enabler. Additionally, the ALTERNATIVE system offers a process model to SMEs to enable them to select and implement ASP solutions based upon their own customer profile. This comprises of: a needs analysis; pricing models; outsourcing versus in-house development ('make-or-buy' decisions); quality of service and service level WP3- Deliverable E-FACTORS

194 agreements (SLAs); reliability, availability and scalability (RAS); security requirements; customer service and help desk support; bandwidth requirements. Last, the project has produced a vendor-independent analysis offering SMEs contemporary data and information on pan-european ASP solutions. ALTERNATIVE will provide up-to-date information and analysis on pan- European ASP case studies which will provide SMEs with reference sites relating to their own specific industry/business sector BUSINESS ARCHITECT Business Architect s objective is to develop methods of work for the broker in a Virtual Enterprise and to develop professional services to exploit potential of new business development. The project s goal was to develop a high quality service for new business development the Business Architect service to improve their business opportunities and make their firm more competitive, while further exploiting the dynamic network organisations throughout the European industry. In the course of its research the Business Architect project takes a particular stance, assuming that purposeful managerial action can change the diffusion speed of innovation as presented above. Much research has been undertaken from an institutional perspective or an economic perspective to model the impact of innovation agencies on the performance of corporate, regional or national innovation systems. The Business Architect project took an innovative theoretical lens (based on the resource based view and more specific dynamic capabilities ) to identify best practices, organizational routines and processes that are socially embedded in the firm, or a network of firms (e.g. in an industrial district). The hypothesis of the Business Architect project is that such managerial practices can be made explicit and can be made more systematic so that it can be transferred between individual contexts to improve business innovation behaviour. The project refers to such systematic managerial practice as venture coaching. Typical contexts in which venture coaching is applied are, new business development, technology marketing, strategic R&D management, strategy planning, incubators, or (corporate) venture capital firms. The validation of the business architect project included the study of external factors that impact venture coaching and venture creation (see figure below: source Hämmig, the globalisation of venture capital, unpublished DBA thesis, California international school of management, San Diego, 2002). WP3- Deliverable E-FACTORS

195 Legal / Regulatory Intermediaries Venture Creation Cultural Economic Fiscal Figure 14.2: External factors that impact venture coaching and venture creation. The Business Architect project has developed methods and tools to professionalize the broker role in a virtual organization, which facilitate the new venture process. Business Innovation, that is, the development and implementation of new business models for a network of cooperating partners had initially been defined as the task of such a broker. The project outcome has been a set of tools, aiding the business architect in the design of a new venture. These tools focus on three areas: a) the Operational Design, where the Value System Designer tool has been developed to assist the business architect in the creation of the organizational structure of the new venture, placing special emphasis on improved awareness of business processes for the new venture, b) the Resource Configuration, where the Virtual Team Configurator assists the business architect to select the right team and, c) the Value Quantification Service helps the business architect to quantify the potential of the new venture ENLARGE The objective of the ENLARGE project is to promote the integration of EU Eastern European Candidate Enlargement Countries through the development and application of a methodology for designing and implementing e-business strategies in small and medium size enterprises (SMEs). The project focuses on five Eastern European countries, namely, Bulgaria, Cyprus, Poland, Romania, and Slovenia. Eastern European companies, particularly SMEs, are confronting the challenge of converging to the economic, technological and organisational practices and standards of their EU counterparts, especially in view of the fact that Eastern European countries are candidates for the next waves of EU enlargement. Information technology applications, in the form of e-business, provide a unique opportunity for these companies to go through the convergence learning curve, faster and with greater success. The actions planned for in ENLARGE aim at accelerating the learning process within and between businesses in Candidate Enlargement Countries. More specifically, the project seeks to advance the state of e-business knowledge and preparedness of SME managers in Eastern European countries through the development of a series of customized executive education programs. Customization involves taking into account not only the distinct needs and char- WP3- Deliverable E-FACTORS

196 acteristics of each company but, more importantly, the particular obstacles impeding the successful adoption of e-business technologies, processes and practices. In order to achieve these objectives the project undertakes a comprehensive analysis of the current state of affairs in e-business/e-commerce in Eastern Europe and has conducted a survey of the particular e-business training requirements of SME managers. In this context key elements of the e-business environment at the level of the SME firms are examined, and more specifically, the mentalities of managers of SMEs and their general state of knowledge of e business, the state of technological preparedness of SMEs for e business and SMEs with developed e business strategies and the barriers to e business development of the SMEs. Furthermore, the project researches the state of e-business at the level of the interface of the SMEs and the market in which they operate, that is, its technological infrastructure and internet penetration and the state of e business at the levels of industrial structure and regulatory environment. ENLARGE has developed a methodology for devising and putting into action an ebusiness strategy, customized in nation specific and local characteristics of the participating countries. The project has also produced training courses that target SMEs managers and aim at stimulating their exploitation of ebusiness opportunities FlexWork (New Ways of Working in Remote Regions) The Flexwork project is concentrating on the creation and collation of different types of information related to the thematic entity of Flexible Working. The project offers information especially for small companies in the area of flexible working both from the view of managerial work and technological issues. FlexWork aims to facilitate the practical take-up of new ways of flexible working, particularly within technologically disadvantaged regions and SMEs, using technologies from within and outside IST. More specifically, the project aims to: Facilitate the practical take-up of new ways of flexible working using technologies from within and outside IST, in outlying or technologically disadvantaged regions with special emphasis on SME's. Demonstrate to SME's in these regions how Service Deployment Templates (detailed guidelines and procedures) can enable them to make use of existing technologies and new technologies. Encourage synergy between IST technologies and organizations using the European Regional Development Fund and European Social Fund, by working with EURADA (European association of regional development agencies), ADAPT (European employment network) and Telework organisations. The project has developed Service Deployment Templates, using SMEs in developing regions in Ireland, Portugal and Eastern Europe as usage case studies. These Service Deployment Templates and the underlying flexible working technology have been channeled and demonstrated directly to the users by participating in their own conferences, workshops, publications and websites. The project supports all levels of flexible working technology, from application software (e.g for collaborative working and virtual meetings) to the underlying communications infrastructure, with emphasis on the use of open standards. WP3- Deliverable E-FACTORS

197 The project has developed a comprehensive set of tools to facilitate and inform any professional who wishes to introduce flexible working to his / her business, while its outcomes serve as requirements, issues and comments feedback to the IST projects DOMINO (Dynamic Organisational Management for Inter-Firm Network Orchestrations) DOMINO addresses the challenges of the management of dynamic organizational forms. A key goal of the project is to enhance the understanding in the field of network organizations, with regard to partnering and network formation issues, and thus to set the basis for common references. More specifically, the objectives of the project are to: Specify the organizational and business attributes of dynamic organizational forms (like for example business networks) Develop an organizational and business taxonomy, presenting types and characteristics of dynamic organizations Analyze and explain the management practices within several types of dynamic network organizations Build a framework of management guidelines for the set-up, coordination and management of these types of organizations Prepare guidelines on regulation and policy with a view to facilitating the growth of dynamic organizational forms Disseminate results at a broader European level The DOMINO research efforts are organized as a constellation of Micro (research) Projects. Each Micro Project has a specific research topic and target, contributing to the creation of a framework of actionable research results. The research topics within Micro Projects include: Management of vertical OEM-Networks in the automotive industry: Power and culture effects ECR (Efficient Consumer Response) adoption in the consumer goods industry. Network Information Infrastructures in the construction industry: Emergence and impact on work and management arrangements Co-operation, coordination and conflict management mechanisms in network organizations Collaborative process improvement in the grocery retailer industry: Development of evaluation methods Partner Relationship Management (PRM): Guidelines for the improvement of relationships with network partners Collaboration Platforms: Facilitating collaboration in networks through IT Network business model configuration: Structures and guidelines for web-based value creation Corporate venturing: Building a venture base and knowledge production in networks Management of participation in learning networks A large number of business networks in terms of properties and origin have served as research context in DOMINO. Certain of these network instances of the micro projects have been used in the context of the e WP3- Deliverable E-FACTORS

198 Factors project. In order to facilitate the reader in understanding the relevant references made in the analysis of the factors, we provide a brief description of these networks below (presented in alphabetical order). DAIMLER The automotive industry is a prime example for co-operation. Automobiles are developed and manufactured by Original Equipment Manufacturer (OEM) and their supplier networks, which produce as much as 70 percent of the value of the vehicle. Consequently, the cost and quality of an automobile are a function of the productivity of a network of firms working in co-operation. But, car manufacturers are currently loosing control over their supplier base due to the high level of outsourcing. This control comes, in part, from members who are satisfied with their work and obliged to their organizations because of their identification. Daimler- Chrysler has historically attempted to keep input prices low by increasing bargaining power over suppliers. However, by splitting their business among many suppliers and rotating them at each model change, DaimlerChrysler has repeatedly destroyed the experience curves effects of suppliers. However, since a new supplier incurs high start-up costs suppliers are unable to effectively plan long-term production and investments without long-term commitments. Furthermore, the policy of DaimlerChrysler to seed competition among their suppliers has impeded the willingness of suppliers to engage in intensive partnerships. DIMER Dimer is a construction network, located in Greece, where research is focused on the potential role of IT in enabling and facilitating new forms of relationships. This research effort seeks to identify and understand the impacts on business and work practices in a networked organisational setting, created specifically by the introduction of new information systems supporting collaboration and information resource sharing. More specifically, the consortium has implemented and uses a sophisticated web-based IT application for improving the project's performance, monitoring and control. The primary goal of the prime contractor who implemented the system, has been to monitor the construction processes remotely from the head offices. The research findings extracted from the studies in the construction consortia illustrate how an emerging information infrastructure implementation context, may denote additional complexity compared to interorganizational IT implementation, resulting from a greater level of autonomy among geographical dispersed business units, geographical barriers and technological constraints. GEM Global emanagement MBA (GeM) is the official product of an intense collaboration among 10 renowned business schools. This MBA program in e-management is offered by the GEM consortium, an international network of business schools sharing a common curriculum in e-management at the masters degree level. More specifically, the network consists of the six founding members: Athens University of Economics and Business (Greece), Copenhagen Business School (Denmark), Erasmus University, Rotterdam School of Management (The Netherlands), Georgia State University (USA), Norwegian School of Economics and Business Administration (Norway0, University of Cologne (Germany), and the new members that additionally offer the program: ESADE (Spain), Monterey Tech (ITESM) (Mexico), Reykjavik University (Iceland), University of Denver (USA). Since its inception the basic characteristic of the consortium is the absolute equivalence of its members. The power is equally distributed among the nodes of the network and there is an equal allocation of information volume. The absence of centrality is expected in a peer-to-peer network, as GeM, since the prevalence of a central core will nullify the incentives for the network s formation, in the first place. Therefore, all Universities contribute to the GeM Consortium in various ways. They develop the program s curriculum jointly but they WP3- Deliverable E-FACTORS

199 also offer school-specific courses. Furthermore, they contribute financially to the network administration. This official cooperation among the Universities reinforces the global character of the consortium and assures its viability. Research showed that the network of physical persons that actually run the program collaborates in five distinct levels: the university level, the GeM directors level, the administration level, the faculty level, and the students level. The classification of network participants in five distinct levels creates a variety of information needs for each member of the strategic alliance but also creates a lot of ambiguity and uncertainty regarding the information each partner possesses. The operation of the network during the last four academic years (rings in GeM terminology) under different topologies pointed out that in Rings I, II and III where network partners were geographically spread around the globe and could only interact through the information regime was not satisfactory at all. In fact, there were problems of sense making especially among students that needed to collaborate during common assignments. There the problem of unsatisfactory information spread was solved primarily through the use of the social ties among students that acted as "back-channels" of information. On the contrary, during Ring IV where students experienced geographical proximity and more common classes these problems were solved since face-to-face interaction facilitated sense making and more information was not necessary. ONIA NET ONIA-NET is a start-up company in Greece who acts as an intermediary between supermarkets and their suppliers, supporting their business transactions and exchange of information via its electronic market. ONIA-NET is seeking to improve the different stages in the supply chain through the use of advanced information technologies and new business models. Typically ONIA NET followed the CPFR initiative, thus increased the collaboration level between supplier and retailer. The company s management team has long-term experience in the retail market and related sectors, in Greece and abroad. Private investors fund ONIA-NET. The organization network, such as ONIA-NET case, revolutionizes the existing collaboration scheme between supplier and retailer. ONIA-NET aspires to become the definitive collaborative process support provider in the vertical market, through the sharing of various privileges to all the involved parties of the network. According to its creators, the balanced scorecard takes a holistic approach, which is not just a performance measurement system, but a management system that can channel energies, abilities and specific knowledge held by people throughout the organization towards achieving long-term strategic goals. KUCHEN The Kuchen Partner network is a hub-spoke network with characteristics similar to a horizontal strategic alliance. Kuchen Partner AG as the network hub is the central network coordinator who "cherry-picks" services for its shareholders. On the one hand the AG negotiates price conditions for its members and on the other hand they look for external services that could be attractive and valuable for them. The recent market conditions in the German kitchen retail market are very difficult. Similar to other industries the kitchen retailers suffer from weak investments due to the continuous economic downturn. Fitted kitchen designers, usually SMEs, have to compete with big furniture stores and chains as well as with direct sellers. Therefore they can only survive by co-operating with each other and founding networks. These networks can WP3- Deliverable E-FACTORS

200 achieve virtual size in order to compete with the big players. Nowadays, only 10 per cent of small and medium kitchen stores are still independent. In Germany, there are three big and several small and mediumsized associations. Smaller associations like Kuchen Partner AG usually have between 50 and 150 members. In many cases, small associations are co-operating with big ones (e.g. Kuchen Partner AG is co-operating with VKG) in order to benefit from their wide-spread service portfolio and special purchasing conditions. OPEL Opel Switzerland teamed up with Car4you.ch, a provider of an electronic market for second-hand cars, in order to offer the Swiss Opel retailers the opportunity to announce their used car sales on the central Opel website. The garages can enter their used card data into a system, which also determines the list price of the used car. The data is then sent to Car4you.ch. Car4you collects the data from the different Opel garages, and displays it on its own as well as Opel's website. In this network, Eurotax, who develops the software used by Car4you and the garages, takes on the role as a standards manager. Namics, an IT and Web consultancy and developer, plays the role of both facilitator and mediator. Namics set up the initial contact between Opel and Car4you and played an important role in the configuration of the network business model. Furthermore, Namics has implemented and maintains the IT solution integrating Car4you's data into the Opel website. Thus, Namics plays an important role in mediating between Opel and Car4you and in stabilizing the network, which relies more on social relations than on contracts. SAINSBURY S Sainsbury's, a leading UK retailer, has been with the ECR movement in Europe since its early beginning. Considering a supplier base of more than 2000 companies, Sainsbury's developed a strategy to balance collaborative efforts and organizational efficiency. The whole supplier relationship strategy is underpinned by the structured used of scorecarding in order to evaluate the readiness and status of collaboration of each manufacturer. The scorecard is currently still in the final steps of development through a team of multiple company representatives coordinated by ECR Europe. Essentially it has three levels of relationships which will define the nature of relationship and how Sainsbury's drives through its B2B supply chain program. Most suppliers will complete a readiness check and remain in the normal "business as usual" category. About 200 go through a top line scorecard covering 14 business areas on demand, supply and enabling technologies. Probably 20 of Sainsbury's key partners will be assessed at a greater level of detail in some core areas such that they will be the focus for joint development and joint piloting of B2B initiatives. This is essentially the Supply Chain Development Group (SCDG). The above network organizations entail units collaborating at various stages of the value chain with a variety of task scope and dependency that ensures a multi- perspective analysis of business networking and a plurality of issues regarding the management of these formations. The degrees of variety the task scope and dependency of the parties involved in these networks are demonstrated in the figure 6.2. WP3- Deliverable E-FACTORS

201 Figure 14.3: The degrees of variety the task scope and dependency of the parties involved in the networks MOBICOM (Evolution Scenarios for Emerging m-commerce Services) MobiCom explores the fundamental factors affecting the evolution of Mobile e-commerce, such as market structure, key players, technology architectures, consumer behaviour, new products and services. In the context of the project Greece, Finland and Germany were studied, countries that have different cultural, social and technological backgrounds. The aims of the project have been the following: Identification of existing factors deriving from mobile communications and e-commerce industries, which enable or constrain the development of m-commerce in Europe Identification of new development trajectories emerging from the convergence of mobile communications technologies and e-commerce entrepreneurial activities Description and specification of new business models and services as well as of diffusion and adoption patterns in m-commerce Preparation of guidelines on regulation and policy for facilitating the growth of m-commerce Consensus building, dissemination and interaction of m-commerce stakeholders MOBICOM is divided into 3 phases: The first phase of the project comprises an analysis of the mobile communications and e-commerce sectors, exhibiting the fundamental characteristics of the two industries driving their evolution and growth. The second phase assesses the industry convergence, technological evolution and potential market growth in m-commerce. New services and applications have been assessed against socio-economic factors affecting WP3- Deliverable E-FACTORS

202 their adoption and diffusion. Feasibility studies provide input on the commercialization process and market readiness. The third phase involves a socio-economic analysis on the intensity of new market evolution. To this end m- Commerce evolution scenarios have been developed with respect to critical issues that affect this process. Emphasis is given to regulatory and policy issues, new methods of work, new market dynamics and new business models. An interactive online platform, MobiForum, has been set up to support dissemination /exploitation of the project s results. In this context an online survey was performed with the title: E commerce Demand Side Analysis, that analyzed the current usage and adoption of m-commerce services in the aforementioned countries. This survey explored consumers attitudes and behaviour patterns towards m-commerce services in Europe and more specifically to test the hypothesis that current Internet e-commerce has the potential to trigger and strengthen the uptake of mobile commerce. The results of this survey indicate the existence of significant variations in the penetration of m commerce, between different countries and markets in Europe. It should also be noted that the specific study specifies that there exists a convergence in the reported results of almost all the respondents in all three countries. Moreover, the MOBICOM project realized a thorough analysis of the consumers needs and preferences and the Life-Course-Need-Model was introduced. According to this model a person s life is divided into defined phases where people experience special interests and needs OMEGA (Open Market Energy Generation) The Omega project aimed at designing and implementing a decision support system to support electricity producers acting in an open and deregulated power market. This decision support system exploited innovative modeling and algorithmic approaches as well as electronic commerce schemes to address the following problems: 1. Allocation of bilateral energy sales contracts over time 2. Calculating the future expected water value, taking energy substitution into account 3. Solving the unit commitment problem for a disaggregated system 4. Energy bidding (price and quality) in the electricity spot markets The OMEGA project aimed at the development of concepts and tools for virtual marketplace and business communities. Furthermore, the operational goal of the project was to develop, implement and test a modular set of software tools, which simulated and optimized power companies trading-oriented operations (both physical and financial), and integrated them in an electronic commerce platform. This kind of system was based on advanced software system, which went beyond state of- the-art tools that were already available, at the time, and integrated electronic commerce capabilities and decision support functions, based on different advanced techniques (Artificial Neural Networks, Stochastic Programming etc.). The result of OMEGA project can be seen as a package tool supporting new business models and new types of trading for electricity producers on liberalized energy markets and will enable European power producers WP3- Deliverable E-FACTORS

203 to be competitive partners in future electronic commerce based electricity trading environments. Furthermore, the OMEGA project contributed to some of the EC social objectives, such as improving the quality of life and health and preserving and enhancing the environment and natural resources. A very interesting contribution of the OMEGA software was the contribution to a behaviour change in the energy sector, in the sense that their business goal was not only to produce energy with high quality to satisfy demand needs instead the aim was also to maximize revenues and then increase the generation resource availability in an integrated way along a time horizon SEED (South Eastern European Digital economy) The SEED project s aim was to offer a comprehensive set of services aimed at stimulating the growth of electronic commerce and the digital economy, supporting the South Eastern European industry and co-operation among the small and medium size companies (SMEs) of the region. Furthermore, the project aimed at the examination of the current situation of electronic commerce in the region of south Eastern Europe. More specifically, the SEED project aimed at the delivery of frameworks, that examine all appropriate environments necessary to the employment of electronic commerce capturing the particularities of south Eastern Europe. The main objective has been the delivery of dissemination and exploitation strategies that will be useful to policy makers in the participating countries. The consortium of the project consists of policy intermediaries : organizations such as chambers of commerce and industry, professional organizations and business consultants. These partners were selected because of their key role in their countries; they work in collaboration with government agencies and policy makers while they are in direct contact with companies. The participating counties are Albania, Bulgaria, Cyprus, FYROM, Greece, Israel, Moldova and Romania. The Seed project has developed a framework on key aspects, necessary for the deployment of the digital economy, including technologies and infrastructures, business applications and services, regulation and policies, socio-economic environments and awareness E-Factors Clustered projects and Thematic Ares Addressed WP3- Deliverable E-FACTORS

204 The e-factors cluster projects offered us valuable input into the formulation of this framework document, and some general ideas and references for the work on WP3. Each partner was challenged to pick out ideas and results of these cluster projects as part of the work on individual thematic priority areas, as it can be seen in the table Project Name ALTERNA- TIVE BUSINESS Org. Soc. Tech. Thematic Priorities IN- DIV. INDUS- TRY ARCHITECT Indicative e-factors, Affecting e-bm adoption Level of assessed risk User / customer education Opportunities and threats in the Sector Technological state and maturity Organisational processes Organisational change Communication networks DOMINO ENLARGE FLEXWORK MOBICOM OMEGA SEED Organisational culture Organisational learning Management aspirations E-commerce education Cultural, national and local characteristics Organisation & technological change User capabilities & technological opportunities Market structure & key players Technology architectures Consumer behaviour New products & services Users acceptance, accessibility Technological opportunities Applications DSS adoption Technological opportunities Regulation & policies Table 14.4: e-factors cluster projects and the thematic priorities they address. WP3- Deliverable E-FACTORS

205 14.3 APPENDIX 3: Table of Interrelationships of e-factors Categories for All Thematic Areas THEMATIC PRIORITIES E-FACTORS CATEGORIES TECHNICAL INDUSTRY ORGANISATION INDIVIDUAL SOCIETY INTEROPERABILITY & INTERCONNECTIVITY GENERIC BUSINESS SER- VICES Internal IS Platforms Integration Commitments Techniques for access Capabilities of technical devices Formats for content Data/ information exchange formats Support for Web services Disaster recovery systems Payment systems Digital Rights Management (DRM) Security and Electronic Identification Location Positioning Systems (GSM/GPS) EPR (Enterprise Resource Planning) -systems SCM (Supply Chain Management) -systems CRM (Customer Relationship Management) - systems B-to-B Integration B-to-C Integration Enterprise Application Integration SLA (Service Level Agreements) contracts Help-Desk and Call Center Deliverable 3.1,v.0.9, 31-July E-FACTORS

206 E-FACTORS CATEGORIES SERVICE PERFORMANCE Individual Differences Demographic Geographic/ Region-Geography Behavioral Psychological THEMATIC PRIORITIES TECHNICAL INDUSTRY ORGANISATION INDIVIDUAL SOCIETY Scalability Availability Cognitive Physical Gender Age Spending Power Area Density Regions Area Type Technology Infrastructure General Infrastructure Language Frequency Purchasing Loyalty Beliefs Attitudes Motivations Intentions Propensity to Trust Lifestyles / Values Language Country specific issues Environmental issues WP3- Deliverable E-FACTORS

207 E-FACTORS CATEGORIES Transactional Education & Experience THEMATIC PRIORITIES TECHNICAL INDUSTRY ORGANISATION INDIVIDUAL SOCIETY Product Brand Website Design / Ambience Payment Method Platform Promotion Price Process Place (Distribution) Knowledge Skills Expertise Self Efficacy Culture/ Culture-Peer & Social Networks/ Organization Culture Shared values (core values) and attitudes Social norms Behaviors and habits Symbols and language Demographic diversity Organizational change At work At home On the move In The Family In Social Community In Business Community Values/ Beliefs Acceptance Awareness Communities Social Support Social Norms Religion Adoption Attitudes Change Behavior Word of Mouth / Word of Mouse Communication channels WP3- Deliverable E-FACTORS

208 THEMATIC PRIORITIES E-FACTORS CATEGORIES TECHNICAL INDUSTRY ORGANISATION INDIVIDUAL SOCIETY Type of Industry Industry Structure/ Economic/ Management and Structure Competition Profit/ Non-Profit Branch Degree of Industry Standards New value propositions New business models and intermediaries (re-intermediation) Vertical disintegration Transparency (leading to erosion of margins) Dis-intermediation Horizontal Integration Presence of competitors/ new competitors Management approach Span of control Distribution of power and authority Distribution of responsibilities Change management Teamwork Organization form Intermediaries Market structure Access WP3- Deliverable E-FACTORS

209 E-FACTORS CATEGORIES SUITABLE COOPERATION PARTNERS CUSTOMERS/ MARKETS & CUSTOMERS THEMATIC PRIORITIES TECHNICAL INDUSTRY ORGANISATION INDIVIDUAL SOCIETY Complimentary in competences Equal level of automation Suppliers negotiation power Existence of added value in e-business model for consumer Type of customer BtoC (consumer) or BtoB (business) Heterogeneity of customer group/ negotiation power Market scope/ segments Customer base Customer service and support Personalization Customization Lock-in Lock-on (loyal and satisfied customers Virtual communities Loyalty programs Network externalities Customer dialogue Marketing effort Information access WP3- Deliverable E-FACTORS

210 E-FACTORS CATEGORIES PARTNERSHIPS Products and Services/ Product Characteristics Efficiency THEMATIC PRIORITIES TECHNICAL INDUSTRY ORGANISATION INDIVIDUAL SOCIETY Tangible goods and/or (intangible) services Digitalized (software, audio, video, advice) or non digitalized goods Number of partnerships Resource sharing Degree of equality Co-branding Cross-selling Contracts/ agreements Governance mechanisms (contracts, trust etc.) Conflict resolution mechanisms Product scope Information Access Complementarities Value-adding services Branding Customization Product innovations Revenues Sales volumes Costs ROI requirements Prices/Pricing mechanisms Work flows Information flows Information access Scales economics/ scalability Lead times/ Time- to-market Logistical procedures Value chain integration Transaction mechanisms WP3- Deliverable E-FACTORS

211 THEMATIC PRIORITIES E-FACTORS CATEGORIES TECHNICAL INDUSTRY ORGANISATION INDIVIDUAL SOCIETY RESOURCES AND CAPABILITIES LEGAL/ REGULATION Licenses/ exclusiveness Technical/physical resources; equipment Natural resources (capital) Brand name or reputation Human resources: knowledge and competencies, skills (employees and others) Leadership skills Incentives/ Motivation Management involvement and dedication Organizational learning Security Privacy Freedom of Information Reliability Confidentiality Regulation Policy makers/ Policy Intermediaries Regulatory framework Taxation Infrastructure e-democracy WP3- Deliverable E-FACTORS

212 E-FACTORS CATEGORIES Ethical and Professional Social Capital / Social Networks THEMATIC PRIORITIES TECHNICAL INDUSTRY ORGANISATION INDIVIDUAL SOCIETY Identity Crisis Issues Responsibility & Roles Computer Crime / Computer Abuse Anonymity Free Speech Trust Not analyzed in sub-categories WP3- Deliverable E-FACTORS