A resource-based view of electronic commerce

Information & Management 43 (2006) 251 261 www.elsevier.com/locate/dsw A resource-based view of electronic commerce Youlong Zhuang a, *, Albert L. Lederer b a University of Missouri-Columbia, Columbia, MO 65211-6100, USA b University of Kentucky, Lexington, KY 40506-0034, USA Received 19 April 2004; received in revised form 10 January 2005; accepted 25 June 2005 Available online 15 August 2005 Abstract A management theory known as the resource-based view of the firm states that resources foster organizational success. Our study of e-commerce retailers applied this theory to examine the effects of human, business, and e-commerce technology resources on firm competitiveness. An e-mail and Web-based survey used 458 responses from site managers. Business and e-commerce technology resources, as well as the individual business resource of process redesign, were found to predict e-commerce performance, whereas human resources did not. E-commerce performance, in turn, predicted firm performance. These findings partially support the resource-based view and coincide with differences between physical and e-commerce retailing. # 2005 Elsevier B.V. All rights reserved. Keywords: Electronic commerce; Competitive advantage; Resource-based view 1. Introduction Few organizations today debate whether to participate in e-commerce. Instead, they are concerned about how and how much to do so. To decide, managers need to identify the resources that make e-commerce successful. By understanding and then strengthening these resources, they can improve performance in their organizations. Researchers are also interested in resources that make e-commerce successful. A management theory, * Corresponding author. Tel.: +1 573 882 6283; fax: +1 573 884 6857. E-mail address: zhuangy@missouri.edu (Y. Zhuang). a resource-based view of the firm, states that resources foster organizational success [3]. It provides an organized way to study and understand the resources by categorizing, comparing, and contrasting them. The theory has not been used much in e-commerce literature. The purpose of our research was to use a resourcebased view to answer management s question: what resources make e-commerce successful? 2. The resource-based view of the firm The theory assumes that a firm s performance is founded on its capabilities, i.e., its resources, and its 0378-7206/$ see front matter # 2005 Elsevier B.V. All rights reserved. doi:10.1016/j.im.2005.06.006

252 Y. Zhuang, A.L. Lederer / Information & Management 43 (2006) 251 261 competitors difficulty in imitating them. Resources must be valuable, heterogeneous, and immobile [46]. That is, they must provide benefits (reduced costs or increased revenue), be owned exclusively by the firm, and be costly or impossible to imitate. An individual resource can be a source of competitive advantage only if it meets all three criteria. A conventional retailing study, the foundation study for this examined business, human, and IT resources [52]. According to the resource-based view, the first two complement IT and would lead to retailer performance, whereas IT alone would not. This is because business and human resources can be valuable, heterogeneous, and immobile but IT resources can be imitated [16]. Our study focused on electronic retailing, one of the three major types of e-commerce [14]. E-commerce is here defined as any form of economic activity conducted via electronic connections [63]. We wished to identify the resources that make e-tailing successful. Our work augmented past research (e.g. [11,19,34,51,58,65]) by examining the relationship between resources and e-commerce performance and thus firm performance. 3. Research variables: resources and performance 3.1. Resources in a resource-based view Resources are the basic unit of analysis here; however, our study did not consider all resources of the firm but focused on e-commerce technology resources and how they work with their complementary resources to enhance e-commerce and thus firm performance. 3.2. Resources Resources cannot be evaluated in isolation [17]; one may not be valuable but a set of them might. Thus, one resource produces greater returns when used in conjunction with others [7]. This may explain why firms might use the same e-commerce technologies with different results. In fact, a synergistic combination of IT resources with other organizational resources has been shown to enhance firm performance [9]. The independent variables selected for our research represented resources for participating in e-commerce. We adapted the research model as well as the complementary human and business resources from a study of conventional retailing (the foundation study) by Powell and Dent-Micallef [52] which used three resources IT, human, and business resources to predict IT performance and firm performance. We assumed that human and business resources are immobile whereas IT is not. Our study substituted e-commerce resources for IT resources. 3.3. E-commerce technology resources Table 1 shows the list of seven e-commerce technology resources and the survey items used to represent each in our study. 3.4. Complementary human resources The human resources we used were those four used by Powell and Dent-Micallef; one was slightly modified by adding a new item so that each contained three items (for better validity). Table 2 shows the resources, their items adjusted for our study, and relevant references. 3.5. Complementary business resources The business resources and items we used were adjusted from Powell and Dent-Micallef s study based on differences between IT in general and e-commerce as a specific IT application. Two resources (customer relationships and IT-business relationships) especially important to e-commerce were added. One resource was renamed. Four items were added so that each resource had three of them. Table 3 shows the resources, items and references. 3.6. E-commerce performance and firm performance The two performance variables used were analogous to Powell and Dent-Micallef s IT performance and overall company performance with minor adjustments to fit e-commerce. The e-commerce performance survey items in Table 4 directly represent effects attributable to e-commerce, while the firm performance items in Table 5 represent the synergistic organizational outcomes after e-commerce implementation.

Y. Zhuang, A.L. Lederer / Information & Management 43 (2006) 251 261 253 Table 1 E-commerce technology resources Interactivity [21,60] Our e-commerce site responds quickly to e-mail queries Our e-commerce site lets customers easily summon a human to answer questions Our e-commerce site readily accepts orders worldwide Publishing applications [21,33,68] Our e-commerce site publishes clear answers to frequently asked questions Our e-commerce site publishes important company policies (i.e., on credit, privacy, or payment terms) Our e-commerce site publishes useful general company information (e.g., company history, background, phone number, and physical location) Community applications [33,57,61] Our e-commerce site makes extensive use of bulletin boards for customer interaction Our e-commerce site makes extensive use of audio conferencing for customer interaction Our e-commerce site makes extensive use of chat rooms for customer interaction Catalog applications [33,37,40,57,67] Our e-commerce site allows customers to compare multiple products easily Our e-commerce site allows customers to search the catalog contents easily Our e-commerce site returns answers to catalog searches that fit customer profiles well Transaction applications [33,38,40] Our e-commerce site allows customers to complete their orders online easily Our e-commerce site allows customers to complete their orders online securely Our e-commerce site provides up to date order tracking for our customers Network performance [20,21,45] Our e-commerce site generally loads quickly Our e-commerce site loads quickly during sudden, large volume surges Our e-commerce site infrequently crashes User interface [4,21,43,59] Our e-commerce site provides rich product descriptions using graphics Our e-commerce site is easy to navigate Our e-commerce site provides links to direct customers easily to related items Table 2 Complementary human resources Open organization [52,69] In the home office, our people are open and trusting with one another We have very little formal bureaucracy in our company Our people would say this is a loose, informal place to work Open communication [52,69] Written and oral communications are very open in our home office Our people communicate widely, not just with their own departments Communications are very open between our home office and our stores CEO commitment [1,30,39,49,52] Our top executives have clearly indicated their commitment to e-commerce Our top executives have championed e-commerce within the company Our top executives have shown that e-commerce is important to the company a Flexibility [5,52] In general, our people accept change readily Our people have openly embraced e-commerce We have had very few problems fitting e-commerce with our company culture a New item added to foundation study items. Similar subjective performance measures have been widely used in organizational research [41]. Such measures are valued because specific firm accounting conventions do not affect their comparability and financial information is often unavailable to the researcher. However, profit through the e-commerce site, when provided, was used in our study as a performance measure. 4. Hypotheses According to the resource-based view, any universally available resource (imitable or mobile) would not provide competitive advantage to a firm. Most observers agree that e-commerce technology, is a commodity universally available to all [56]. We thus expect e-commerce technology resources to result in e- commerce applications that have not increased productivity, sales, and profitability, and have not improved

254 Y. Zhuang, A.L. Lederer / Information & Management 43 (2006) 251 261 Table 3 Complementary business resources Partner relationships [15,28,52] We have very open, trusting relationships with our suppliers We have very open, trusting relationships with our shipping firms a We have very open, trusting relationships with the financial institutions a Customer relationships [42,48] We communicate with customers on a personalized basis to build long-term relationships a We tailor our products and/or services to suit customers specific needs a We collect maximum amount of customer data without intruding into their privacy a IT business relationships [40] Our IT and business managers have a mutual understanding of each other s e-commerce responsibilities a Our IT and business personnel share the responsibilities of the online store a Our IT and business executives share a vision for how e-commerce will support the business a Process redesign [5,13,36,52] We redesigned our inventory management process to fit our e-commerce We redesigned our marketing and sales process to fit our e-commerce Improving company processes is a key part of our use of e-commerce Benchmarking [8,29,62,52] We actively research the best e-commerce practices of other retailers We actively research the best Web practices of other Web sites a We regularly search the Web for new features of other Web stores a E-commerce planning [2,18,27,30,32,52] We have a long-term strategic plan for e-commerce We have clearly identified our e-commerce project priorities Our e-commerce planning is integrated with the overall business plan a New items added to foundation study items. competitive position and overall performance. Hence, H1 is: H1. E-commerce technology resources do not predict e-commerce performance. Table 4 E-commerce performance measures E-commerce applications have dramatically increased our productivity E-commerce applications have improved our competitive position E-commerce applications have dramatically increased our sales E-commerce applications have dramatically increased our profitability E-commerce applications have improved our overall performance Clearly, for any technology to be successful, people play an important role. In contrast to e-commerce technology resources, complementary human resources tend to be valuable, heterogeneous, and immobile, providing competitive advantage [66]. Studies have strongly supported the relationship of human resources with IT performance [49,24,10].For example, openness in communication and organization can be powerful sources of that advantage [55,22]. CEO commitment is believed to differentiate successful from unsuccessful e-commerce [53]. Organizational flexibility is even deemed necessary to enhance performance when new IT applications are introduced [5]. Hence, H2 is: H2. Human resources complementary to e-commerce create advantages that predict e-commerce performance. Business resources are a potential source of competitive advantage. Partner, customer, and IT business relationships are important business resources that take time to build and can contribute to e-commerce performance [26]. Moreover, because e-commerce changes the way business is conducted, retailers need to adjust their Table 5 Firm performance measures Since we built our e-commerce site, our financial performance has been outstanding Since we built our e-commerce site, our financial performance has exceeded our competitors Since we built our e-commerce site, our sales growth has been outstanding Since we built our e-commerce site, we have been more profitable than our competitors Since we built our e-commerce site, our sales growth has exceeded our competitors

Y. Zhuang, A.L. Lederer / Information & Management 43 (2006) 251 261 255 internal business processes and concomitant business resources to compete. Such resources are thus critical and must be changeable. Process redesign enables the organization to change its processes. However, business resources can be difficult to copy. Thus, a company needs to change its business resources when it wants to imitate a competitor s IT applications. However, this change can incur costs that exceed benefits. Business resources are thus valuable, difficult to copy, and heterogeneous. Hence, H3 is: H3. Business resources complementary to e-commerce create advantages that predict e-commerce performance. E-commerce affects an organization s performance through its added distribution channel, new marketing communication medium, and enhanced operational efficiency [31]. E-commerce applications can automate customer service operations to cut the costs of sales, increase revenue, and gather high quality customer data to improve support and enhance selling opportunities [35]. They also facilitate the exchange of real-time and interactive information with business partners and stakeholders to create value for an organization [25]. We would thus expect that after implementation of e-commerce, a firm s financial performance, profitability, and sales growth would improve. Hence, H4 is: H4. E-commerce performance predicts firm performance. 5. Methodology 5.1. Sample selection Our research focused on the retail industry, which has been an early participant in e-commerce with potential benefits expected from its use. Due to the Internet s popularity and increased consumer confidence, business-to-consumer [B2C] e-commerce retailing has become more attractive and popular [23]. Moreover, retailers often use IT to improve customer service, reduce costs, and compete more effectively [47]. Wal-Mart and Tesco have created substantial competitive advantage via e-commerce [28]. Because we have the foundation study we could compare Internet and conventional approaches, a potentially valuable analysis [12]. Though many dot coms failed, business-to-consumer retail sales have continued to grow [6,44]. Our subjects were managers of the organization s e-commerce unit. Two major retailer portals were selected, because they were popular, well-respected, and represented many retailers and a wide variety of products [64]. The first, http://www.mysimon.com, had over 2000 retailers at the time of data collection. The other, http://stores.yahoo.com, had over 5000. Many sites appeared on both so duplicates were eliminated. E-mail addresses were collected from each site. 5.2. Implementation of the survey To improve data reliability and validity, the questionnaires were evaluated rigorously by pilot testing prior to administration (and also, of course, prior to the rigorous statistical tests for reliability and validity described below that were performed on the data eventually collected). Five local retailers with e-commerce sites were selected to represent various sizes and products. These pilot subjects completed the survey and provided face-to-face comments. They discussed the benefits and features of their sites, and their oral comments corroborated their survey answers. The survey was revised after each of the first four pilot tests to make it clearer and easier to complete. The fifth resulted in no changes. A short message was then e-mailed to the primary subjects, the managers responsible for their organizations e-commerce sites at the 4088 companies on the two e-commerce retail portals. The message included a link to the survey Web site. The questionnaire asked them to give the address of their e-commerce site. It also contained items for stating e-commerce and overall company performance and then items for e-commerce technology, complementary human, and complementary business resources. Subjects responded on 1 (strongly disagree) to 5 (strongly agree) scales. Finally, the instrument asked demographic questions. After respondents completed the survey and submitted it online, they received a request that a second subject in their organization complete a 3-min

256 Y. Zhuang, A.L. Lederer / Information & Management 43 (2006) 251 261 Table 6 Product lines Product lines Percentage Apparel and accessories: men s shoes, watches, fragrance, etc. 16 Sports and recreation: golf clubs, skateboards, tennis, etc. 10 Computers and software: handhelds, notebooks, software, etc. 10 Toys and collectibles: action figures, dolls, games, etc. 9 Gourmet and groceries: coffee, seafood, tea, wine, etc. 8 Flowers and gifts: fine gifts, flowers, gift baskets, etc. 8 Books, music and movies: books, movie memorabilia, CDs, etc. 7 Consumer electronics: digital cameras, DVD players, etc. 5 Automotive: maintenance supplies, motorcycles, parts and accessories, etc. 4 Hobby and leisure: cigars, telescopes, guitars, etc. 4 Family, health and beauty: cosmetics, nursery, vitamins, etc. 4 Home and garden: cookware, furniture, linens, etc. 3 Office supplies: toner, pens, labels, paper, etc. 3 Others (including not reported) 9 survey. The second survey contained the e-commerce and firm performance items, demographics questions, and a request for the e-commerce site address to link to the primary instrument. 5.3. The research sample Of the 852 total responses, 379 e-mailed reasons they could not complete the survey (e.g., firm policy, site too new, too busy), and 473 completed it. Fifteen of the 473 were dropped. The overall response rate was thus 21%, but was only 11% when counting only usable surveys. Of 458 finished surveys, 58 secondary subjects also provided useable data for arateof13%. The average firm size in the sample was 408 employees, with a median of 10. About 8.7 employees with a median of 3 worked on the firm s site. Online store profits averaged US$ 250,000 with a median of US$ 16,000 for the 197 firms who provided them. The average number of daily accesses to the sites was 2300. The average percent of transactions through it was 10%. About 38% of customers were return customers. Table 6 shows the product lines of the participants. The primary subjects averaged 5.3 years of employment for their company and 2.3 years in e-commerce. The secondary subjects averaged 4.7 years with their company and 2.3 in e-commerce. Table 7 shows their job titles and Table 8 shows their education levels. Table 7 Subjects job titles Job title 6. Analysis Primary subjects (%) CEO or owner 43 22 Web master or IT manager 16 17 Marketing, sales, customer service 19 19 Other managerial 16 31 (VP, COO, CFO or GM) Another or not given 6 11 Table 8 Subjects education level Education level Primary subjects (%) Postgraduate degree 16 4 Some postgraduate school 12 5 Four-year college graduate 37 20 Some college 21 2 Two-year college graduate 6 44 High school diploma 4 13 Some school 0 11 Others (including not reported) 4 2 Secondary subjects (%) Secondary subjects (%) 6.1. Common method variance and non-response bias Common method variance is a problem associated with the empirical demonstration of a relationship between similar measures. Because different sources

Y. Zhuang, A.L. Lederer / Information & Management 43 (2006) 251 261 257 for some measures can either control or test the effect of the respondents tendency to be consistent, three separation of measurement approaches as well as a post hoc approach were used [50]. None of the tests detected any problem with the data. A time-trend extrapolation test examined non-response bias [2] but also failed to detect a problem. 6.2. Confirmatory factor analysis Confirmatory factor analysis was first applied to the independent variables. EQS was used to determine whether e-commerce technology, complementary human, and complementary business resources were indeed three distinct constructs. EQS provides a robust statistic that compensates for potential non-normality. The pair-wise chi-square difference tests and confidence interval tests provided evidence that the three resources were different. Next, second-order confirmatory factor analysis was used to determine if all factors within each resource belonged together. Each of the three resources was assessed for goodness of fit, convergent validity, and discriminant validity. For e-commerce technology resources, the validation resulted in the dropping of one item, our e-commerce site provides up to date order tracking for our customers, and one factor, community applications. For complementary human resources, two highly correlated factors (open organization and open communications) were combined into one, and one item (communications are very open between our home office and our stores) was dropped. For complementary business resources, no changes were necessary. Further analysis supported the convergent and discriminant validity of the resources as well as the reliability of e-commerce performance and overall firm performance. Fig. 1. The structural equation model: * p < 0.05, ** p < 0.01, *** p < 0.001.

258 Y. Zhuang, A.L. Lederer / Information & Management 43 (2006) 251 261 6.3. Hypothesis testing The measurement model included 5 underlying constructs and 25 observed measures. The constructs were: e-commerce technology resources, complementary human resources, complementary business resources, e-commerce performance, and firm performance. Fifteen of the observed measures were the factor means of each resource. The other 10 were the individual items for the two performance measures. Structural equation modeling with EQS was used to test the relationship of the three measures of resources to e-commerce performance and of e-commerce to firm performance. The results in Fig. 1 show that both e-commerce technology resources and complementary business resources predicted e-commerce performance, while complementary human resources did not. Further, e-commerce performance predicted firm performance. To understand the findings, another EQS run was performed to test the impact of the 15 resources individually on e-commerce performance. It showed that only process redesign was a statistically significant predictor ( p < 0.001). No other individual resource was significant at p < 0.05. Two more analyses supported the relationship between e-commerce and firm performance (H4). First, a correlation of the 58 secondary subjects firm performance items with their matched primary subjects e-commerce performance items was 0.35 ( p < 0.05). Second, a correlation of profit per employee (as firm performance) for the 166 subjects having such data with e-commerce performance was 0.20 ( p < 0.01). 7. Discussion of the hypotheses H1: According to the resource-based view, H1 should be accepted. E-commerce technology resources presumably can be imitated and thus would not provide sustainable competitive advantage. Instead, they explained e-commerce performance ( p < 0.05); perhaps it depends on resources to provide a temporary advantage. E-commerce is relatively new and firms may not have had time to imitate each other. 1-Click, a newly patented ease-of-use feature for repeat customers, could provide temporary benefits [54]. Its patent may delay other e-commerce retailers, but they should soon find a similar available technology. In any case, the finding of e-commerce technology support for e-commerce performance resembles the foundation study. In it, IT resources explained IT performance ( p < 0.05). H2: According to the resource-based view, H2 should be supported. However, we failed to show that it did. In contrast, Powell and Dent-Micallef s findings did support it ( p < 0.01). Human resources differences in virtual and physical retailing may explain this disparity. Physical retailing requires more salesperson contact to demonstrate products, explain product features, and answer specific and general questions; the interpersonal skills of the salesperson are deemed critical to the sale of the product. Thus, human resources in the virtual world do not provide as much value. Finally, if one held fast to the belief that human resources are valuable, heterogeneous, and immobile regardless of whether in the virtual or physical worlds, then our research indicated that not all such resources cause competitive advantage. In a sense, one might conclude that the finding for H2 challenged the resource-based view. H3: According to the resource-based view, this research should support H3. It did so. Complementary business resources significantly explained e-commerce performance. This coincides with the view that business resources are valuable, heterogeneous, and immobile. It further confirms the relative value of organizational resources. H4: Support for H4 provides an answer to the important, question: does e-commerce affect firm performance? The affirmative answer supports expectations that e-commerce can affect an organization s performance through its added distribution channel, new marketing medium, enhanced operational efficiency, automated customer service operations, improved customer data gathering, and real-time and interactive exchange of information. 8. Conclusion: implications for managers E-commerce technology and business resources predict e-commerce performance. By implication, managers should cultivate those resources in their

Y. Zhuang, A.L. Lederer / Information & Management 43 (2006) 251 261 259 firms and identify those that they consider their strengths and weaknesses. In effect, the constructs and items of our model provide checklists for managers. Managers should give high priority to process redesign and should be careful not to over- or underemphasize any other ways of enhancing performance. Likewise, the lack of significance for any e-commerce technology resources suggests that no one of them plays a particularly important role and thus managers should be careful not to over- or underemphasize any. Surprisingly, human resources failed to predict e-commerce performance. So probably managers should disregard open organization/communications, CEO commitment, and flexibility in their efforts to improve e-commerce performance. However, this may be a premature conclusion. 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He receivedhis Ph.D. indecision sciences and information systems from the Gatton College of Business and Economics at the University of Kentucky. His research has appeared in Decision Support Systems, International Journal of Elec-

Y. Zhuang, A.L. Lederer / Information & Management 43 (2006) 251 261 261 tronic Commerce, Electronic Commerce Research, Journal of Electronic Commerce Research, andthe DATABASE for Advances in Information Systems. His major research area is electronic commerce. Albert L. Lederer is a professor of management information systems at the University of Kentucky. He holds a Ph.D. in industrial and systems engineering from the Ohio State University, an M.S. in computer and information Sciences from Ohio State, and a B.A. in psychology from the University of Cincinnati. His research has appeared in Information and Management, MIS Quarterly, Journal of Management Information Systems, and elsewhere. His major research area is information systems planning.