E-COMMERCE TECHNOLOGY AND ORGANISATIONAL BEHAVIOUR IN SMALL UK MANUFACTURING FIRMS. Ian Chaston University of Plymouth

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1 E-COMMERCE TECHNOLOGY AND ORGANISATIONAL BEHAVIOUR IN SMALL UK MANUFACTURING FIRMS Ian Chaston University of Plymouth Alistair Emerson and Greg Wilson UNITEC Track: Entrepreneurship, Innovation, and large and Small Business Marketing Abstract E-commerce has the potential to alter many aspects of current marketing theory and practice. Many early research studies have tended to emphasise the role of the Internet as a promotional tool in consumer goods markets. More recently case-based studies are beginning to emerge on how e-commerce may alter the marketing management process. There is a need to compliment these qualitative studies with empirical research. This study examines how adoption of more advanced aspects of e-commerce technology might influence attitudes and operational processes within small UK manufacturing firms. Evidence was found to support the view that small firms which are orientated towards using interactive, customer responsive e- commerce technology tend to exhibit differing perceptions about the nature of on-line markets. Empirical differences were also identified in relation to use of information management systems and the management of internal organisational processes. Introduction The rapidity with which firms are finding new ways of exploiting e-commerce has meant that many academic articles about the impact of the technology on marketing strategies have centred upon case-based examinations of single firm scenarios. It seems reasonable to propose that opportunity exists for seeking to compliment these qualitative writings with empirical research about how the new world of e-commerce may influence prevailing management theories. The aim of this study is to empirically examine the adoption of e-commerce technology and the impact on organisational attitudes and behaviour within small, UK manufacturing firms. E-Commerce As An Evolving Process It has only been a few years since the launch of the World Wide Web and only recently have a significant number of research-based articles have begun to appear in academic literature. As noted by Balabis and Vassileiou (1999), however, a significant proportion of these writings have been concerned with the use of the Internet as a new advertising channel in consumer goods markets (e.g. Ho, 1997; Briggs and Stipp 1999). Although the bias in the academic literature about managing electronic markets tends to focus on the role the World Wide Web, it is critical for organisations to recognise that exploiting this new technology goes way beyond just putting a brochure on-line. Thus when discussing this new technology, it is safer not to restrict any assessment of opportunity to merely discussing the role the Internet. Instead the debate should be expanded to cover all aspects of information interchange (Seybold and Marshak 1998). ANZMAC 2003 Conference Proceedings Adelaide 1-3 December

2 Once a company decides to embrace e-commerce as a path through which to exploit new market opportunities, then one outcome is that the organisation s knowledge platform becomes much more closely linked with other knowledge sources elsewhere within the market system such as suppliers and customers (Chaston 2000a). Early writing e-commerce concentrated on the concept being a convenient, very rapid mechanism through which to offer goods and services at the lowest possible price (Phelan 1996). The potential impact of e-commerce to drive down prices is, however, not a feature unique to the Internet. Earlier studies of pre-internet technology such as Electronic Data Interchange (EDI) were also presented as offering opportunities to reduce procurement costs through order automation and co-ordination of production schedules(marcussen 1996). In commenting upon the importance of price in on-line markets, Sinha (2000) has concluded that prior to the arrival of the Internet, sellers were able keep prices opaque and thereby able to sustain demand for high price for goods and services. Prices are more transparent in an on-line world and because the Internet reduces barriers to entry and permits major cost reductions, this situation could contribute to e-commerce driving down average prices on a global scale (Anon 2000). Anandarajan et al (1998) concluded that many firms who were early entrants into business-to-business cyberspace marketing exhibited a conventional, transactional marketing orientation because they were committed to using the technology to reduce costs across all aspects of the transaction process. Drucker (1985) commented that there were significant risks associated with adopting the strategy of using low price to attract customers. Reekie and Savitt (1982) concluded that the long-term success of firms was often determined by their ability to exploit advances in new technology to gain competitive advantage by matching changing arrays of product provision with changing arrays of customer needs. In reviewing the benefits of using innovative technology to gain competitive advantage, Gardner (1991) observed that avoidance of price-based competition can occur if firms break with convention and seek to exploit market opportunities through the provision of a new, more innovative solutions. In commenting upon the opportunities offered by e-commerce, Gummesson (1997) suggested that innovative marketers could use the technology to build closer relationships with customers. Huff and Wade s (1999) concluded that successful online firms go beyond offering a transaction facility for delivering low priced products and services and instead, focus upon adding innovative features aimed at building customer trust, providing excellent service and customising product offerings. This view is supported by Chaston (2000a) who posits that in on-line markets, customers will be attracted to on-line firms who make available specific, customised products and seek close relationships with customers. These observations about the nature of achieving competitive advantage in on-line markets generates to the hypothesis that: H1 As small firms exploit new technologies in on-line markets this will require a strong orientation towards meeting the needs of on-line customers and a revision in organisational practices associated with managing marketing activities. Entrepreneurship, Innovation and Large and Small Business Marketing Track 843

3 Exploiting E-Commerce Technologies Without information sharing being able deliver superior products or services would be an extremely difficult process to manage effectively. Pine et al (1995) concluded that electronic technology has a critical role because I.T. permits the firm to acquire the additional knowledge that is gained from recording every customer-supplier interaction. Acquired data also create a switching barrier as customers (Grant and Schlesinger 1995). As innovative customisation becomes embedded in the relationship, then this will lead to minimisation of customer defection rates and a reduction of customer demands for ever decreasing prices (Ing and Mitchell 1994). More recently Zineldin (2000) has posited that recent advances in the application of I.T. to support more effective information interchange now offers the most effective path to avoid price-based competition. Data about customers acquired from the firm s Website permits the organisation to treat customers as individuals and to then evolve products customised to meet specific needs. These observations on the role of I.T. in exploiting e-commerce technology generates the second hypothesis; namely: H2 Small firms exploiting advances in e-commerce technology will need to emphasis the use of internal information systems to manage the needs of their on-line customers. Internal Operations Autio et al (2000) have concluded that a key characteristic of successful firms in online markets is their ability to acquire and synthesise new knowledge as the basis for more effectively responding to customer needs. Earlier Gronroos (1997) had suggested that in firms seeking to achieve market success through differentiation the customer interface is very broader, often involving a large number of part-time marketers. Brodie et al (1997) have noted that the advent of database marketing provides the basis for a more effective monitoring of customer needs. Moller and Halinen (2000) have suggested that in on-line markets, the effective use of databases to support delivery of superior products or services is critically dependent upon ensuring active collaboration between all employees within supplier organisations. Zineldin (2000) supports the importance of employees sharing of information when seeking innovative ways to service the needs of on-line customers. Stewart (1999) has concluded that co-ordination of internal processes to service online markets is critical if the firm wishes to succeed through using a strategy based upon maintaining close contact with customers. The outcome of a co-ordinated approach is the generation of knowledge which provides the basis for maintaining close contact with customers. These observations on the importance of internal organisational co-operation generates the third hypothesis; namely: H3 Small firms seeking to fully exploit e-commerce technology will seek to achieve collaboration between employees to service the expectations of online customers. Methodology ANZMAC 2003 Conference Proceedings Adelaide 1-3 December

4 The majority writings on role of the Internet in the management of markets have tended to use case materials on individual firms as the basis for beginning to codify observed behaviours which can provide the basis for evolving possible theoretical models applicable in the management of electronic transactions. Hence it does appear that a need exists to attempt to triangulate existing qualitative studies by undertaking empirical research on how the Internet is being incorporated into the strategic marketing thinking of commercial organisations. Chaston et al (2001) recommend the research approach of determining the degree to which firms have moved beyond simple applications such as and have adopted an integrated, electronic communication system for linking with their customers and/or suppliers. These authors have developed and validated a survey tool in which respondents are asked to comment on 9 aspects of technology (see Table 1) using a 7 point scale. To gain an understanding of possible differences between the degree to which e- commerce technology is utilised in relation to (a) their perspectives about e- commerce markets and (b) their operation of I.T. systems, statements proposed by Zineldin (2000) were utilised. These statements were reviewed in focus groups with 33 senior managers. The focus groups suggested the variables are relevant descriptions and hence, as described in Tables 1 and 2, they were utilised as the basis of questions to be posed in a mail survey. Research on internal customer management (Chaston 2000b) was used to develop a series of questions concerning data sharing within organisations. Respondents were asked to comment on each statement shown in Table 3 using a 7 point scale ranging from Strongly Disagree (Value 1) through to Strongly Agree (Value 7). Following pilot testing, therefore, the survey was mailed to the managing directors of 1,000 small UK manufacturing firms selected at random from the SIC code section of a Dun and Bradstreet data base. For inclusion in the sample, firms were required to (a) be manufacturers of mechanical or electronic components (thereby ensuring their primary area of activity is business-to-business marketing), (b) have between employees and (b) be autonomous trading entities (i.e. not branch plants of national or multinational organisations.). Initial usable responses were received from 203 firms representing a response rate of 20.3%. A second, follow-up mailing to non-responders generated response from a further 95 firms, yielding a final overall response rate of 29.8% (i.e. a total of 298 firms. This level of response is somewhat higher than the norm of around 20% usually found in small business research (Chaston et al 2001). Results All of the 298 returned survey forms were used to calculate inter-item reliability for the scale to measure involvement in exploiting e-commerce technology. The calculated overall mean for involvement in e-commerce technology was Using involvement in e-commerce technology as the factor, a Multiple Analysis of Variance (MANOVA) was undertaken to determine whether the nature of marketing style influences respondents perspectives about e-commerce markets. It can be seen from Table 1 that for 10 of the 11 questions, there were significant statistical differences Entrepreneurship, Innovation and Large and Small Business Marketing Track 845

5 between firms orientated towards utilising available e-commerce technologies and firms basing their operations on somewhat simpler technologies. Table 1: MANOVA of Firm E-Commerce Perceptions and Use of E-commerce Technologies 1. The Internet provides customers with greater control and power over their purchase decisions 2. The Internet means customers expect suppliers to be orientated towards satisfying individual customer needs 3. The Internet means customers expect much closer relationships with their suppliers Hyp. Sum of Squares Hyp.Mn. Square F Valu e Sign. of F The Internet means customers want more frequent interaction and communication with suppliers 5. The Internet means customers are aware and informed about offerings available from different suppliers 6. The Internet means customers have greater expectations over service quality 7. The Internet provides the firm with much more knowledge about individual customer needs 8. The Internet means a firm s marketing activities need to be more closely integrated with firm s internal operations 9. The Internet means specialist customer need market niches are easier to identify 10. The Internet means firms have to focus on continually developing new products or services to survive The Internet means the firm can develop closer relationships with individual customers = significant at p 0.05 Using involvement in e-commerce technology as the factor a Multiple Analysis of Variance (MANOVA) was undertaken in relation to the 8 questions concerning the use of information management to serve customer needs. It can be seen from Table 3 that for 4 of the 8 questions concerned with information management, a statistically significant difference exists for firms orientated towards utilising available e- commerce technologies and firms basing their operations on somewhat simpler technologies ANZMAC 2003 Conference Proceedings Adelaide 1-3 December

6 Table 2: MANOVA of Information Management in Relation to Use of E-commerce Technologies Hyp. Sum of Squares Hyp. Mean Square F Value Sign. of F 1. Staff have access to complete databases on each individual customer 2. The firm maintains detailed records and uses this information when interacting with individual customers 3. Customer records are continuously analysed to identify new ways of delivering customer satisfaction 4. Customer records can be analysed to identify opportunities for the development of new products 5. Accounting, production and customer information systems are all integrated into single database system 6. The firm combines existing internal data with new information obtained from individual customers 7. While dialoguing with customers staff can immediately access the firm s customer records systems 8. The firm s customer databases are utilised to assist the development of customer specific records system = significant at p Involvement in e-commerce technology was also used a factor in a Multiple Analysis of Variance (MANOVA) in relation to the 10 questions concerning internal organisational processes. It can be seen from Table 4 that for 8 of the 10 questions concerned with the management of internal organisational processes, a statistically significant difference exists for firms orientated towards utilising available e-commerce technologies and firms basing their operations on somewhat simpler technologies. Entrepreneurship, Innovation and Large and Small Business Marketing Track 847

7 Table 3: MANOVA of Internet Organisational Process and Use of E-commerce Technologies Hyp. Sum of Squares Hyp. Mean Square F Value Sign. of F 1. The firm is orientated towards using technology to optimise meeting the needs of individual customers 2. The firm provides the latest technology to employees who interact directly with customers 3. The firm understands how to work with other organisations in the market to optimise customer needs 4. The firm uses continuous dialogue with customers to identify ways of delivering greater customer satisfaction 5. The firm s employees work as a team in seeking to deliver customer satisfaction 6. The firm expects employees to always act in a way that further enhances the delivery of customer satisfaction 7. The firm s appraisal system assesses how each employee fulfils their role in serving the needs of customers 8. The firm uses knowledge of individual customer needs as the basis for developing new products or services 9. The firm s marketing mix is designed to meet the specific needs of individual customers 10. The firm carefully monitors competitors to learn from others how to further satisfy our customers needs = significant at p Conclusions Table 1 indicates that firms orientated towards utilising available e-commerce technologies when compared to firms basing their operations on somewhat simpler technologies, have differing perceptions about customers behaviour. Additionally Table 1 indicates that firms orientated towards utilising e-commerce technologies and firms basing their operations on somewhat simpler technologies have differing perceptions about the Internet. Thus on the basis of the data in Table 1, it can be concluded that this study supports hypothesis H1; namely that as small firms exploit new technologies in on-line markets this will require a strong orientation towards meeting the needs of on-line customers and a revision in organisational practices associated with managing marketing activities. This conclusion is based upon the fact that across variables such as the Internet providing customers with greater control, the Internet creating higher customer expectations and customers expecting closer relationships, there are statistically significant differences in the response of firms. The implications of this research is that as small firms move on-line this will require the adoption of a stronger orientation towards ensuring customer needs are satisfied by the marketing activities undertaken by the organisation.. Table 2 indicates that in most areas concerned with the management of information differences exist between firms orientated towards utilising available e-commerce technologies and those which firms which base their operations on somewhat simpler ANZMAC 2003 Conference Proceedings Adelaide 1-3 December

8 technologies. Within the former organisations greater emphasis is given to activities such as maintaining detailed records, using information in customer interaction and using data to develop customer specific marketing campaigns. However, as there are only 4 areas where statistically significant differences are reported in Table 2, on the basis of these results it seems reasonable to conclude that this research only partially supports hypothesis H2 that small firms exploiting advances in e-commerce technology will need to emphasis the use of internal information systems to manage the needs of their on-line customers. The implications for small firms moving on-line is that if their existing terrestrial information management systems are effective then only minor systems will be required as they seek to optimise their e-commerce activities. Table 3 indicates that in 8 out of 10 areas concerned with the management of internal organisational processes, firms orientated towards utilising available e-commerce technologies adopt a different philosophy than that of firms basing their operations on somewhat simpler technologies. Data in Table 3 suggest that the former type firms place greater emphasis on activities such as dialoguing with customers, team-based activities and customisation of products, prices and promotional activities. These results seem to suggest this research supports hypothesis H3 that small firms seeking to fully exploit e-commerce technology will seek to achieve collaboration between employees to service the expectations of on-line customers. The implications for small firms is that they expand their cyberspace trading activities, revisions in practices across the entire marketing mix will be required. References Allen, M.J. and Yen, W.M. (1979), Introduction to Measurement Theory, Brooks/Cole, Monterey, CA. Anandarajan, M., Anandarajan, A. and Wen, H.J. (1998), Extranets: tools for cost control in a value chain framework, Industrial and Management Systems, Vol. 98, No. 3, pp Anon. (2000), A thinkers guide, The Economist, April 1st, pp Armstrong, A. And Hagel, J. (1996), The real value of on-line communities, Harvard Business Review, May-June, pp Autio, E., Sapienza, H.J. and Almelda, J.G. (2000), Effects of age of entry, knowledge intensity and imitability on international growth, Academy of Management Journal, Vol. 43, No. 5, pp Balabanis, G. and Vassileoiu, S. (1999), Some attitudinal predictors of home shopping through the Internet, Journal of Marketing Management, Vol. 15, pp Brodie, R., Coviello, R., Brookes, R. and Little, V. (1997), Towards a paradigm shift in marketing? An examination of current marketing practices, Journal of Marketing Management, Vol. 13, pp Chaston, I., Badger, B., Sadler-Smith, E. And Mangles, T. (2001), E-commerce: an opportunity to examine organizational learning in process, International Journal of Small Business, Vol. 19, No. 2, pp Entrepreneurship, Innovation and Large and Small Business Marketing Track 849

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10 Sinha, I. (2000), Cost transparency: the Net s real threat to process and brands, Harvard Business Review, March-April, pp Stewart, T.A. (1999), Customer learning is a two-way street: e-commerce at Dow, GE, Kaiser and Xerox, Fortune, May 10th, pp The Economist (2000), Seller beware, March 4th, pp Ven de Ven, A. and Ferry, D. (1980), Measuring and Assessing Organizations, Wiley, New York. Zineldin, M. (2000), Beyond relationship marketing: technologicalship marketing, Marketing Intelligence & Planning, Vol. 18, No. 1, pp Entrepreneurship, Innovation and Large and Small Business Marketing Track 851