Towards full integration: eprocurement implementation stages

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1 Towards full integration: eprocurement implementation stages Please cite as: Caniato, F., Golini, R., Luzzini, D., Ronchi, S., Towards full integration: eprocurement implementation stages. Benchmarking: An International Journal 17 (4), Federico Caniato Politecnico di Milano Department of Management, Economics and Industrial Engineering, Piazza Leonardo da Vinci, , Milano, Italy Federico Caniato earned a Master of Science and a Ph.D. in Management Engineering from Politecnico di Milano. He currently works as Assistant Professor (Ricercatore) at the School of Management of Politecnico di Milano, teaching Business Economics, Organization and Management in both undergraduate and graduate courses. At MIP, the Business School of Politecnico di Milano, he teaches Purchasing and Supply Chain Management in various programs and he is the director of the Executive Program in Purchasing and Supply Chain Management, as well as several corporate education programs. His research interests are in the fields of Supply Chain Management, Purchasing, Operations Strategy, Demand Management and Organization. He coordinates the International Manufacturing Strategy Survey (IMSS) research network, a global research project which is currently in its fifth edition. He is also one of the founder of the International Purchasing Survey, an international research project aimed at investigating purchasing strategies, practices and performance. He authored several international publications on various Operations Management journals, and he serves as a reviewer for some of them. Ruggero Golini Corresponding author Università degli Studi di Bergamo Department of Economics and Technology Management, Università degli Studi di Bergamo, Viale Marconi 5, Dalmine (BG) Italy ruggero.golini@unibg.it Ruggero Golini is PhD student at Università degli Studi di Bergamo in Economics and Technology Management. His main research stream is Supply Chain Management and, in particular, Supply Chain Globalization Strategies. He is co-author of several journal and conference papers about these topics. Davide Luzzini Politecnico di Milano davide.luzzini@polimi.it Department of Management, Economics and Industrial Engineering, Piazza Leonardo da Vinci, , Milano, Italy

2 Davide Luzzini is PhD student at Politecnico di Milano. His main research stream is Purchasing and Supply Chain Management. He is co-author of several journal and conference papers about these topics. Stefano Ronchi Politecnico di Milano Department of Management, Economics and Industrial Engineering, Piazza Leonardo da Vinci, , Milano, Italy Stefano Ronchi is Associate Professor of Business Organization and Management and Unitech Academic Director at Politecnico di Milano; he is also Director of the International MBA Program at MIP Politecnico di Milano School of Management. In January 2002 Stefano got his PhD degree in Management Engineering discussing the results of a research project on the adoption of the Internet technologies in Supply Chains carried out at the Massachusetts Institute of Technology - within the Integrated Supply Chain Management Program (ISCM). His current main research streams are Purchasing and Supply Chain Management. On these topics he has been participating in many research and consulting projects both in Italy and abroad (e.g. International Purchasing Survey, Nestlè, Koenig, IBM) and he is also author of over 30 international journal and conference papers and of a book titled: "The Internet and the Customer-Supplier Relationship. He his member of the Italian Management Engineering Association (AiIG), the European Operations Management Association (EurOMA) and the International Purchasing and Supply Education and Research Association (IPSERA). He is also reviewer of the Journal of Purchasing and Supply Management (JPSM).

3 Towards full integration: eprocurement implementation stages Abstract Purpose. In this paper we aim at indentifying different maturity stages of eprocurement adoption. eprocurement (i.e. electronic purchase of indirect goods), is a growing reality and it is spreading around companies. However, even inside a growing trend, we still find from no to low adopters, and those already using eprocurement pass by many intermediate levels. According to the literature, there can be many factors influencing eprocurement adoption but clear approaches and maturity stages are still not defined. Methodology. In this paper we propose a general framework in which eprocurement maturity is measured by three components: level of adoption, technology and organizational objectives. Next we applied the framework to 13 case studies of IT purchases of companies in different sectors thus indentifying different approaches that have been clustered in three main maturity stages. Findings. First of all, we found that there is a quite strong relationship between eprocurement adoption and technology in place. As far as organizational objectives are concerned, we found some interesting linkages with both the adoption and technological functionalities. Finally we grouped these patterns of adoption into three clusters, named Basic, Intermediate and Advanced. Practical implications. The provided results can be useful for practitioners in order to position a company into a maturity model and verify the coherence of the adoption with the technological and organizational choices. Originality. The originality of this paper derives from a new framework of analysis of the eprocurement strategies that allowed us to indentify different maturity stages. Keywords: research paper, case study, eprocurement, purchasing strategy, Internet 1. Introduction In the last few years, purchasing of indirect goods (i.e. office supplies, Maintenance Repair and Operations - MROs, Information Technology - IT, etc.) through electronic tools has rapidly become a successful and ever-growing reality (Lee et al., 2003; Puschmann and Alt, 2005). Forrester Research estimates that in 2008 electronic business to business (B2B) transactions in the US will finally overcome traditional ones (i.e. face to face or telemarketing). Among electronic transactions, 60% will still be based on the EDI technology (Electronic Data Interchange), while the remaining 40% will be based on Internet technology. It is important to notice that EDI has been developed mainly for direct materials purchasing in industrial sectors, while it is not commonly adopted for indirect goods. Internet

4 based eprocurement, which is the topic of this paper, has been instead adopted since the beginning for procuring indirect goods, such as MROs, office supplies or IT. The adoption of these tools has become more and more important in the last years: even if an earlier industry study indicated that only 8-10 percent of the largest 5,000 firms had an eprocurement system in place (Attaran and Attaran, 2002), a recent McKinsey Company research into auto suppliers reveals that 85 percent of the sample intended to invest in new software to automate the procurement process (Hensley et al., 2003). This general growing trend is connected to the fact that companies buy relevant quantities of indirect goods - up to 60% of their total spending (Orr, 2002; Aberdeen Group, 2001) - thus they may find convenient to automate buyers clerical activities. Indeed, corporate buyers tend to waste much time on non-value adding activities such as data entry, correcting errors in paperwork, expediting delivery, or solving quality problems (Turban et al., 2006). In this context, eprocurement, defined in this paper as indirect goods purchasing via electronic tools, can be seen as a solution to improve efficiency and other organizational performances, such as control on the spending and transparency in the relationship with suppliers. Because of this potential, great attention and efforts have been devoted to eprocurement by both the business and the research community; however, several aspects have not been explored in depth yet. First of all, it is not easy to assess eprocurement benefits, since they are at the same time quantitative (e.g., efficiency savings) and qualitative (e.g., increased transparency, control, etc.). Moreover, there are not only operational benefits, but also strategic ones (Quayle, 2005). Another issue is related to the difficulty in selecting the right technological solution as different architectures and technologies are available in the market (Kim and Shunk, 2004). Secondly, users are sorting out the winning model according to several contextual factors, such as the industry or the firm strategy (Davila et al., 2003). Other barriers come from inside the company such as the lack of infrastructure and skills (Tatsis et al., 2006; Ahmed et al., 2006). About this, it is interesting to notice that the effort undertaken to implement eprocurement is mostly spent on organizational aspects and the redesign of procurement processes rather than on technical issues. In fact, a technology change implies process and cultural change (Tatsis et al., 2006; Power and Sohal, 2002) and the company has to develop appropriate attitudes, skills, knowledge and technology to implement eprocurement (Hafeez, 2006). Even the logistical infrastructure can be inadequate: traditional systems might not be ready for increasing inventory turnover and reduced shipment size and they might require substantial reengineering to support eprocurement based operations (Chaffey, 2002). Finally, the technological infrastructure plays a pivotal role as well because it has to assure security, reliability, interoperability and integration of eprocurement with other systems (Pastore, 2002). This complexity and variety of situations pushed companies towards different levels of adoption, ranging from non-adopters to full eprocurement adopters, with different implemented technologies, even if there is a common increasing trend of eprocurement use. About this, literature lacks of models explaining which are the approaches and degrees of eprocurement adoption in terms of technology (e.g., architecture and functionalities) and organization (e.g., objectives and degree of use). Because of that, in this paper we investigate eprocurement adoption strategies highlighting different approaches, objectives and maturity stages. First of all, we define the construct of eprocurement maturity by means of three variables: level of adoption, technology and organizational objectives. Next, we discuss the

5 relationships among these variables. Finally, we cluster cases according to this framework in order to highlight different maturity stages. To do this, we interviewed thirteen companies belonging to different industrial sectors inside a wider research project delivered in collaboration with IBM. In particular we focused our attention on IT spending categories, including hardware, software and IT services. We chose this category because IT spending is one of the fast growing purchasing categories across different industries, therefore it is more and more important for purchasing managers to deal with this increase. Furthermore, eprocurement for IT products and services is not as widely adopted as for other categories and it is a field still developing its own potential. The paper is structured as follows: we first present the research background built upon the literature review. We then develop the research framework based on the literature review and we state the research questions and the research methodology. Results are then presented and discussed in order to answer the research questions. Finally we draw conclusions and future developments. 1 Research background 1.1 eprocurement: a definition eprocurement can be defined as the use of information technologies to facilitate business-tobusiness activities of purchase and payment of goods and services (Panayiotou et al., 2004). This solution implies Internet technologies platforms and services that allow managing both strategic and day by day activities. eprocurement applications focus on creating efficiencies: their goal is to make the traditional purchasing procedures more efficient and cost effective (Wu, 2007; Turban et al., 2006). But epurchasing applications can have an even more strategic role, for instance they facilitate continuous information exchange between buying and supplying organizations and the creation of long-term relationships (Wu, 2007; Ronchi, 2003). However, in the literature about the adoption of electronic tools to support the purchasing process, there is no clear theoretical framework or definition to start from: several authors tend to use slightly different terms in order to address similar concepts or, vice versa, the same word can assume different meanings (Schoenherr and Tummala, 2007; Tatsis et al., 2006). Because of that, we prefer to define what we exactly mean for eprocurement starting from the purchasing process. Taking as a reference the contributions by authors like Monczka et al. (2004), Van Weele (2004) and Spina (2007) we classified the purchasing activities into three different macroprocesses: strategic purchasing, sourcing and supply. Strategic purchasing includes activities that have a strategic relevance, like make or buy decisions and supplier relationship management. As a consequence, these are long term and therefore low-frequency decisions. Sourcing and supply on the contrary, are more tactical or even clerical and repetitive in nature. On one side they include everything that is connected with supplier selection (i.e. sourcing); on the other side they include order fulfilment (i.e. supply). This last phase is quite different when dealing with operations-driven (direct) goods or non operations-driven (indirect) goods. For this reason, we use a specific term - i.e. procurement to refer to indirect goods supply, which is the focus of this paper.

6 Many tools have been developed for supporting the operational processes of sourcing and supply (and procurement) phases. We refer to eauctions, etenders, RfX and so on (Teich et al., 2004; De Boer et al., 2002) as esourcing tools. Similarly, ecatalogs, workflow management applications, einvoicing, etc. are considered esupply or eprocurement tools (Puschmann and Alt al., 2005). In short, while the term eprocurement is very often used in a very broad sense, it is used in this paper to address the use of Internet-based solutions along the supply process of indirect goods and services. Within any eprocurement implementation process it is crucial to investigate a technological (i.e. architecture and functionalities) and an organizational (objectives and processes) perspectives. 1.2 Technological and organizational perspectives From the technological perspective, there is wide agreement about three main eprocurement architectures: buyer-hosted, seller-hosted and intermediated (Davila et al., 2003; Kyte, 2000a, b; Kim and Shunk, 2004; Puschmann and Alt, 2005). In the buyer-hosted architecture, eprocurement applications and information are stored in customer s servers. Thus suppliers have to connect to customer s platform in order to make electronic transactions and data management (e.g. catalogue updates). In the second one, namely sellerhosted, the situation is reversed: the customer has to connect to different suppliers platforms in order to access supply information and place orders. Finally, in the intermediated architecture, suppliers and customers interact with a third party, which can have either a technological or commercial role. For example, application service providers usually rent their technological platform to customers and/or suppliers, so they are focused on technological aspects (e.g. software development and maintenance, data quality assurance, etc.). Business process outsourcers offer also consulting services beside the technological platform. On the other side, resellers buy goods from suppliers and then sell these goods to customers via eprocurement, thus they have also a commercial role. Many researches consider also marketplaces as intermediated architectures. Nonetheless, in recent years, these solutions have dramatically reduced their diffusion especially for indirect goods purchases (Batenburg, 2007). Moreover, marketplaces are seen in some cases as complementary to eprocurement solutions (Puschmann and Alt, 2005), as they allow some special functionalities, such as: off-contracted item search, good exchange or group buying (Kim and Shunk, 2004). As a matter of fact, marketplaces have been substituted by Supplier Networks, providing electronic purchasing services to a consolidated network of customers and suppliers on a more permanent basis. The choice of the best architecture is linked with the company strategy and objectives (Puschmann and Alt, 2005). Indeed, the buyer-hosted architecture can be useful to pool enterprise-wide demand and optimize procurement processes, while a seller hosted on the supplier s web site is suitable for a lower number of orders and a lower need of product customization. Another relevant aspect to consider in the selection of an eprocurement architecture is its capability of being integrated with the existing ERP system: buyer-hosted architectures are usually more effective on this point. Last, needed investments can vary; in fact buyer-hosted architectures, requiring to buy the software, are normally more expensive than seller-hosted ones (Davila et al., 2003; Kim and Shunk, 2004). Keeping the technological perspective, eprocurement solutions can have different and complementary functionalities (e.g. catalogue, item selection, internal workflow) and these are selected by companies according to what part of the purchasing process they want to

7 automate (Puschmann and Alt, 2005). Moreover, the functionalities have to be supported by an adequate technological model (Kim and Shunk, 2004). As we can see in table I, buyerhosted applications support the same and more functionalities than the seller-hosted ones, thus justifying the fact that they are more complex and expensive. Table I eprocurement functionalities and architectures (adapted from Kim and Shunk, 2004) Functionalities Pre-contracted item search and selection Purchase requisition (workflow) Requisition approval (for a non-standard requisition) Sell-side catalogue, auction, group buying Reverse auction, bid Purchase order generation Purchase order placement Order tracking and receiving Invoicing and payment Transaction analysis Type of architecture Buyer-hosted Seller-hosted From the organizational perspective, there are many contributions underlining the objectives and the potential benefits related to eprocurement adoption (Boyle and Alwitt, 1999; Essig and Arnold, 2001). Benefits brought by an eprocurement system can have a twofold nature: economical and organizational (Garrido, 2008; Dai and Kauffman 2004). eprocurement implies an increased efficiency in the organizational structure, especially in the reduction of purchasing department size and levels and of the number of functional areas involved in the purchasing process. This means that the process becomes faster, flexible and more agile; costs are lower and service to final customers higher (Garrido, 2008). Other savings are generated by the reduction of transaction and administrative cost (Eadie, 2007), of clerical work, of purchasing cycle time (Davila et al., 2003). Finally, eprocurement allows efficiency improvements in terms of productivity and purchasing process quality and accuracy (Harrigan, 2008; Garrido, 2008). On the other hand, the soft organizational benefits regard: increased control on the spending, transparency in the relationship with suppliers, maverickbuying reduction, decentralization of procurement activities and supply base rationalization. From our literature review (Table II), we found that the most cited benefit is efficiency, followed by control on the spending. Next there are transparency, maverick buying reduction and decentralization. Last we found the supply base rationalization.

8 Table II Organizational benefits induced by eprocurement Organizational benefit Articles Efficiency Eadie, 2007; Garrido, 2008; Harrigan, 2008; All the other authors below Control Hope-Ross and Reilly, 2000a,b; Kyte, 2000a, b; Orr, 2002; Henriksen and Andersen, 2003; Davila et al., 2003; Bartels, 2004a, b; Henriksen and Mahnke, 2005; Kauffman and Mohtadi, 2004; Puschmann and Alt, 2005; Batenburg, 2007; Angeles and Nath, 2007; Tatsis et al., 2006; McGaughey, 2002 Transparency Maverick-buying Decentralization Supply base rationalization Kauffman and Mohtadi, 2004; Croom, 2005; Henriksen and Mahnke, 2005; Angeles and Nath, 2007; Puschmann and Alt, 2005 Davila et al., 2003; Kim and Shunk, 2004; Puschmann and Alt, 2005; Angeles and Nath, 2007; Tatsis et al., 2006; Fink, 2006 Henriksen and Andersen, 2003; Puschmann and Alt, 2005; Walker and Harland, 2007 Timmers, 2000; Hope-Ross, 2001; Kim and Shunk, 2004; Davila et al., 2003 Still within the organizational perspective, it is important to highlight that companies may decide to implement eprocurement only for some phases of their procurement process and this is directly related to the type of functionalities in place (Puschmann and Alt, 2005). Secondly, a company decides how much and which product categories they want to buy via eprocurement. Typically, companies start from low value and low complexity items moving towards more complex and valuable items. This is because low complexity items are easier to be included and updated in an electronic catalogue. Moreover, low value items (e.g. MRO) are usually bought with higher frequency and with a lower number of authorization stages. Therefore the benefits of eprocurement are maximized, since it dramatically reduces the process costs that are sometimes even greater than the price paid for the goods. 1.3 eprocurement implementation choices As we have seen, companies assessing the value of an eprocurement solution have to consider many aspects: short and long term benefits, costs related to technology adoption and integration and organizational change costs. This value should consider also risks perceived by buyers, sellers and management that are related to effectiveness, security and privacy risks (Angeles, 2007; Chiu et al., 2007). This means that the selection process of an eprocurement solution does not result in a single dominant design (Utterback, 1994; Henderson and Clark, 1990). Rather, a set of different models that vary across market segments seems to be more reasonable. Nevertheless, even if there is a broad variety of contexts and solutions, literature reports some general guidelines about eprocurement success factors and challenges to implementation (Angeles and Nath, 2007) considering both technological and organizational factors. Supplier and contract management, end-user behaviour, technological infrastructures appear to be the major factors affecting eprocurement success. Other issues to be managed are: lack of system integration and standardization, market immaturity, end-user resistance, maverick buying persistence and difficulty in integration with other systems (e.g. Arbin, 2008). Yen and Ng (2002) propose a step-by-step guide for companies willing to move their purchasing process to the Internet. A part from these general guidelines, there is broad

9 agreement on the fact that there is not a one best way in implementing eprocurement, but the choice must be driven by specific organization characteristics and needs. An effective ebusiness strategy (how the company exploits the Internet in order to create value) should specify the aims, goals and context of the application; these choices should be aligned with other organizational and managerial choices, and integrated with the organization s processes (Harland, 2007). In particular, the most important factors to be considered inside an eprocurement strategy have been classified into three different levels: firm, industry and geographical levels (Tatsis et al., 2006). First of all the adoption of eprocurement is linked to firms size. There are indications that larger companies have a doubled adoption of ebusiness compared to small and medium-sized enterprises (SMEs) (Haig, 2002; Simpson and Docherty, 2004; Maguire et al., 2007). The main reason cited for this slow adoption is a lack of information about ebusiness benefits and a shortage of relevant skills. Also the business area may influence the adoption of eprocurement, for example IT industry and electronics manufacturing adopt and use these tools much more than others (Batenburg, 2007). eprocurement is becoming more and more an important solution even for public administration (Croom, 2007). Another important driver is the localization of the company. epurchasing adoption is lower in countries with high uncertainty avoidance (see Hofstede, 2001 typologies) and higher when the national attitude toward change is favourable: Batenburg (2007) shows that over 60% of the respondents from German and British firms say they use online purchasing compared to about 40% of the other (Estonian, Polish, French, Italian, and Spanish) organizations. This complexity in evaluation is pushing companies to adopt different approaches when dealing with eprocurement (Davila et al., 2003; Presutti, 2003; Yen and Ng, 2002). On one side we may have companies aggressively looking for eprocurement technologies and experimenting various solutions. They have a high-intensity adoption, which would result in a firm using multiple eprocurement tools such as EDI, ERP, and extranets (Wu, 2007): they are investing significant resources to experiment alternative solutions with the expectation of identifying the technological winner and translating this leadership position into competitive advantage (Davila et al., 2003). On the other side we have more conservative firms, which wait for standards to be established and carefully choose to test one technology at a time (Davila et al., 2003). They have a low-intensity adoption and they can be characterized as firms that only maintain an informational Web site for procurement (Wu, 2007): they are taking a wait and see approach, are investing selectively in a reduced set of technology alternatives with the expectation of learning enough to be ready to move as soon as a winner emerges (Davila et al., 2003). As we have seen, companies can have different attitudes towards eprocurement and different solutions are available and should be carefully selected according to company s specificities and objectives. This brought to a current situation in which many cases are possible, even if the eprocurement adoption is anything but random. The Aberdeen Group (2006), identifies three clusters of companies (Laggards, Industry Average and Best in Class) according to the eprocurement characteristics in terms of process, organization and knowledge. First of all, different technological models have different levels of complexity and required investments, so that best of breed solutions are adopted only by Best in Class. They look for a full automation of the purchasing process and integration with the suppliers and the internal ERP. Finally, Best in Class companies do not limit their eprocurement only to few and simple product categories, but they are willing to have the full control on the entire spending, encompassing also complex products.

10 However, respect to the literature, the linkages among technology, adoption and organizational objectives remain not fully clear. Because of that we focused our paper on clearly defining these relationships and identifying how these are related to different eprocurement maturity stages. 2 Research framework The research framework of this paper is based on literature contributions presented in the previous section (Figure I). eprocurement maturity can be assessed according to three elements: eprocurement adoption, organizational objectives and technology in place. eprocurement adoption refers to the usage rate of eprocurement in buying Information Technology items (i.e. percentage of spending through Internet based electronic tools) and the category typologies bought through eprocurement: hardware, software or IT services. For instance, a company with a low eprocurement usage will buy electronically a limited amount of mostly simple and low value products (Davila et al., 2003), maybe starting from hardware items. The organizational objectives (e.g. Wu 2007, Garrido, 2008) are those drivers pushing towards eprocurement adoption. As already discussed, six main drivers emerge from literature and are confirmed also by the case studies. First of all efficiency, in terms of reduction of purchasing process costs. The second objective, linked to the first one, is generally decentralization: through automation companies pursue operational procurement process decentralization in order to centralize more value added activities. Control is another driver, as most companies are willing to increase their control on total spending. Another objective is the reduction of maverick buying, in order to increase compliance to prenegotiated contracts. eprocurement might also be introduced in order to rationalize the supply base and manage it in a more efficient and effective way. Finally, eprocurement provides higher transparency to suppliers on the overall purchasing process. Technology is represented by implemented functionalities (Puschmann and Alt, 2005) and the architecture implemented (Kyte, 2000a, b). There are different tools generally included within eprocurement platforms: order placement, repository and content management, electronic catalogue, request for quotation, workflow management, system integration, order tracking and tracing, electronic invoicing, reporting. The adopted architecture is the eprocurement configuration selected by the company, it might be either seller-hosted, buyerhosted, or intermediary. There might be some hybrid configurations, but generally those are Buyer-hosted architectures with a punch-out to an intermediary or directly to a supplier. Among these three main elements there are some relationships already assessed by literature: there are examples of how technology and organizational objectives are related to eprocurement adoption (Davila et al., 2003). For instance, a simple and low cost technology (e.g. a basic seller hosted solution) is generally related to a lower adoption. Nevertheless, the link between eprocurement technology and organizational objectives seems not fully covered in literature, and we aim at exploring this point in particular.

11 Figure I The maturity level framework 3 Research questions and methodology As we have seen, literature analyses drivers, barriers and approaches to eprocurement. However, these contributions rarely take into account single eprocurement functionalities (i.e. catalogs, workflow, etc.). Most of all, we miss the link between technological functionalities and organizational objectives that is one cause of uncertainty in evaluating eprocurement implementations. In particular, in our paper we address the following research questions: 1. What are the relationships among the three elements describing eprocurement maturity (i.e. eprocurement adoption, organization objectives, technology)? 2. What are the maturity stages characterizing the eprocurement adoption process? As discussed in the previous section, some contributions dealing with eprocurement adoption and organizational objectives, and eprocurement adoption and technology in place are existing in literature. Therefore, the critical issue in the first research question will be the relationship between adopted technology and organizational objectives. The first aim of the paper is therefore to asses proper relationships among eprocurement adoption, organizational objectives and technology, with a particular attention on the link between the last two elements. Once analyzed those relationships, the second aim of the paper is to define the maturity stages of eprocurement adoption within companies. According to different configurations of the three elements there might be different maturity levels, ranging from low maturity in the introduction phase to the high maturity in a fully integrated phase. We focused on a specific indirect purchasing category - i.e. IT hardware, software and services because of its growing importance in terms of spending and because of the need to investigate some real examples during the case studies in order to have clear insights from the respondents. In order to pursue our goal, we selected a case study methodology, with the aim of gathering an in-depth understanding of the topic. 13 firms have been selected across different

12 industries. The principal respondents have been Chief Procurement Officers (CPOs), but also IT specialists within the Purchasing Department or Chief Information Officers (CIOs) have been involved, in order to assume different perspectives in the purchasing process. In 9 cases we talked to people at the company headquarters, while in the remaining 4 cases our counterpart belonged to a subsidiary, but still had responsibility about purchasing and the adoption of eprocurement. Most respondents have international responsibilities, mainly based in Europe and in the US. All interviews were performed by two or more researchers, in order to maximize understanding and avoid single-person bias. In most cases, upon permission by the interviewee, interviews have been recorded to avoid information loss. In many cases also company data and information have been gathered during or after the interview. Follow-up s and calls have been used to complete missing information and clarify doubts. Interviews were conducted following a standard, semi-structured questionnaire, which covered the following topics: a. General information about the company: company structure and strategy; b. Purchasing overview: what the company buys; purchasing organization (centralized vs. decentralized); c. IT Purchases: IT spending categories (product categories; high value vs. low value transactions); key vendors; purchasing organization for IT (centralized vs. decentralized); d. eprocurement: barriers and drivers; solutions, tools, and providers; e. Implementation: process; vendor role/support. The sample of 13 companies was purposefully heterogeneous in terms of industries, in order to have a broad overview of eprocurement adoption and maturity. In terms of size, we focused primarily on large firms, in order to have the opportunity of studying complex implementation processes and also because small companies might not have the chance to implement all available functionalities. Table III shows industries and countries of companies within the sample. Turnover 2007 Case Industrial sector Country (mln ) Finance_ Financial USA Finance_ Financial USA Finance_ Financial USA Pharma_ Pharmaceutical Germany Pharma_2 677 Pharmaceutical USA White_Goods Industrial USA Electrical_Appliances Industrial Germany CPG Consumer packaged goods USA Fashion Fashion retail Italy Energy Energy Italy Oil Oil & Gas Italy Telecom_ Telecommunications Italy Telecom_ Telecommunications UK Table III Interviewed companies All cases have been mapped according to different variables underpinning the research framework, thus focusing on eprocurement adoption, technology used and organizational

13 objectives (Table IV). First of all the average use of eprocurement, measuring the percentage of IT purchasing over the Internet: low if lower than 33%, medium if between 33% and 66% and high if higher than 66%. Also goods bought through eprocurement have been highlighted (i.e. hardware, software or IT services). As far as technology is concerned, we investigated what functionalities are adopted in each case, and the adopted architecture (i.e. buyer-hosted, seller-hosted, intermediary). Finally, the six main benefits, and thus drivers to eprocurement adoption, have been mapped as well. By analyzing this map and taking into consideration deeper case studies insights it was possible to answer the first research question. In order to answer the second research question, thus identifying different maturity stages, it was necessary to make the following simple assumption: the more the company is mature in eprocurement adoption, the more it buys electronically, the more functionalities it has in place and the more organizational benefits it has pursued. As we will discuss below, we define maturity as a combination of company s behaviours along the three constructs. As a consequence, as presented below, more mature companies are those buying both hardware, software and IT services through eprocurement, those implementing almost all functionalities, and those pursuing almost all organizational objectives. Pharma_2 Finance_1 Finance_2 Pharma_1 Energy Fashion Finance_3 Electrical_Appliances CPG Oil Telecom_1 Telecom_2 White_Goods eprocurement adoption Average use Low High High Low High Low High Low Low High Med Med Low Hardware Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Software Yes Yes Yes Yes Yes Yes Yes Services Yes Yes Technology Order placing Yes Yes Yes Yes Yes Yes Repository and content management Yes Yes Yes Yes Catalogue Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Rfx Yes Yes Yes Workflow Yes Yes Yes Yes Yes Yes Yes Yes System Integration Yes Yes Yes Yes Yes Yes Order tracking and tracing Yes Yes Yes Yes Electronic Invoicing Yes Yes Yes Yes Reporting Yes Yes Yes Yes Architecture Int Int B-h B-h B-h S-h B-h Int B-h B-h B-h B-h B-h Organization Efficiency Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Decentralization Yes Yes Control Yes Yes Yes Yes Yes Yes Maverick Buying Yes Yes Supply base rationalization Yes Yes Transparency Yes Yes Yes Yes Yes Table IV The interviewed companies mapped according to the maturity level framework

14 4 Results We conducted a pattern analysis on our cases according to the research framework to highlight the linkages between organizational objectives, technology and eprocurement adoption and identify the maturity stages. Results are presented according to the research framework: first of all, the single constructs (i.e., technology, adoption and organizational objectives) are described. Next the linkages among these constructs are analyzed. Finally, the maturity stages are identified and described. 4.1 Adoption Starting from the eprocurement adoption, we found different levels of eprocurement use in terms of percentage of purchases via eprocurement and product categories purchased. Quite interestingly, we found more cases in the two extreme categories (low less than 33% - and high more than 66% - of purchases via eprocurement). There are only a couple of cases in the intermediate class (Telecom_1 and Telecom_2), but they are moving towards a higher adoption. This is in line with literature (Davila et al., 2003), stating that there are aggressive and follower users of eprocurement; the intermediate level is more a transitory state. Looking at product categories we see that there is a cumulative effect: companies tend to buy hardware, then software and last IT services. This is quite intuitively as hardware is a less complex product than software or services and so more easily implementable in an electronic catalogue for example. Next, there is a relationship between the percentage of eprocurement purchases and the product categories. High level adopters (as Finance_2, Finance_1, Energy) are more willing to buy through eprocurement complex products as software or even services. On the other side, low adopters as Pharma_2 or Fashion, tend to buy only simple hardware products. Anyhow, this is not always true, for example CPG is a low adopter but buys also software thanks to a special solution offered by its suppliers. However some high level adopters as Finance_1, do not buy services, because they need very customized projects and their technology is not able at the moment to support them in this kind of purchases. This apparent incoherence happens as we will see later - because in determining the maturity stage, we need to consider also technological and organizational aspects. 4.2 Technology In the technology section, we found that every functionality is, at least, adopted by one case. Catalogue is the mostly adopted functionality, as it is supposed to be the core of an eprocurement system. Only Oil does not use it, as it is an engineering company and it uses eprocurement for project purchases, so it has not a standardized catalogue. Moving further with the analysis, the joint adoption of order placing-catalogue-workflow-system integration functionalities is highly diffused. We could consider these functionalities as the first extension of the catalogue: companies find beneficial to integrate their catalogue externally with the supplier and internally with the resident ERP system. However, integration can be sometimes expensive according the IT infrastructure of the supplier and the customer. Moreover, integration with suppliers can imply switching costs and security issues. Because of that some companies, as White_Goods and Pharma_1, renounced to automatic order placing. A way to overcome this issue is to rely on a unique intermediary, such as Pharma_2. In this way, it is easier for the company to manage transactional risk and integration because there is only one interface and suppliers are managed and integrated by the intermediary. On the other side, using an intermediated architecture instead of a buyerhosted one could make the system integration with the internal ERP system more complex. Due to this issue, especially when dealing with more intermediaries, some companies as

15 Pharma_2 or Electrical_Appliances, renounced to system integration. From this point of view, companies as Pharma_1, Oil or CPG preferred to buy their eprocurement module from their ERP supplier in order to facilitate system integration. Furthermore we found that companies adopt different architectures ranging from buyer-hosted to intermediate and seller-hosted architectures. As stated by literature (Hope-Ross et al., 2000; Rajkumar, 2001), there are also companies that integrate intermediaries services in their buyer-hosted system. For example, Finance3and CPG, empowered their buyer-hosted catalogs with supplier networks and catalogs provided by third parties. Looking at functionalities, buyer-hosted architectures are usually more complete - and, on average, more expensive - than intermediated and seller-hosted architectures. For example, Electrical_Appliances uses a simple catalogue provided by a reseller, while Energy aims at a fully functional buyer-hosted eprocurement solution. However, there are some exceptions. Oil has a buyer-hosted architecture but it uses only two functionalities out of nine, while Finance_1 relies on an intermediary but it has four functionalities. This means that functionalities do not necessary depend on the architecture, and even an intermediated architecture could theoretically include all functionalities. However, more demanding companies in terms of functionalities and services provided tend to move to more sophisticated and directly owned architectures. 4.3 Organizational objectives Analyzing the organizational objectives, we can highlight some common patterns. Firstly, all companies declared to adopt eprocurement at least for efficiency reason. In particular, Fashion, Electrical_Appliances and Telecom_2 declared to have implemented eprocurement only for efficiency purposes. In fact, they use this technology basically in order to get rid of the most clerical activities related to purchases of simple goods. Beside efficiency, some companies showed also other objectives, in which the most diffused are control and transparency in the relationship with suppliers. In detail, a couple of companies (Pharma_1 and Oil) are interested only in control, while Telecom_1 and White_Goods are more concerned about transparency. Finally Finance_2, Finance_3 and CPG declared to be interested jointly in the two objectives. This tells us that the two objectives are independent, since they can be pursued either jointly or separately in relation to the specific company s situation. In fact, control is linked to an internal perspective, for example Oil, that is a project-based company, is very focused on cost controlling and accounting so it strongly aims at control. On the other side, transparency is a matter of external perspective in managing the relationship with suppliers. For instance, Telecom_1 and White_Goods deal with many suppliers and they want to keep them in a fair competition. Because of that they look for transparency as a way to build suppliers trust and give them incentives to improve their performances. Finally, Finance_2 and Finance_3, belonging to the financial sector, are pushed towards both control and transparency because of the accountability regulations they have to follow. The other organizational objectives (i.e., decentralization, maverick buying and supply base rationalization), seem to be quite neglected by companies. Pharma_2 and Finance_1 are interested in decentralization; Energy and CPG in maverick buying reduction; Finance_1 and Telecom_1 in supply base rationalization. Here, a clear evolutionary pattern does not emerge, as many different configurations of objectives exist and they are very firmspecific. What we can say in conclusion is that efficiency is the main driver, frequently followed by control and transparency. The others instead are not the principal motivators. Moreover, the choice to pursue a particular set of objectives is strongly related to the company s characteristics.

16 4.4 The Technology-Adoption linkage Theoretically, we could expect that companies with more sophisticated architectures will tend to have a higher eprocurement adoption, but this is not always verified by cases. For instance, Pharma_1, because of security issues, prefers to keep information on his servers and so adopts a buyer-hosted architecture even if the level of adoption is low. On the other side, Finance_1 has a high use, but through an intermediated architecture because it worked a lot with its intermediary in order to increase the effectiveness of the solution. A clearer relationship exists, instead, among the architectures and the product categories, as those who buy services via eprocurement (Telecom_1 and Finance_2) have a buyer-hosted architecture. Moreover, seller-hosted or intermediated architectures adopters are more focused on hardware purchases. This could be related to the fact that intermediaries can have difficulties in managing customized services provided by suppliers. For instance, Telecom_1, which purchases services via its buyer-hosted platform, has developed a specific application to manage services purchase. In the end of this section, we can conclude that architectures, functionalities and purchased categories are related with each other; and different degrees of adoption maturity emerged. However, technology is only an enabler, and some companies seem to not fully exploit the potential of their eprocurement solutions. 4.5 The Organizational objectives-adoption linkage Cases do not show an evident pattern in the linkage between organizational objectives and average eprocurement use. Of course, efficiency, which is declared by all cases is not differential. Actually, even decentralization, maverick buying and transparency are objectives pursued both by low and high level users. For example, a low adopter as CPG aims at transparency and maverick buying reduction only on that portion of spending (simple hardware and standard software) that have shown some criticalities. On the other hand, control seems to be more frequent in high adopters (Finance_2, Finance_3, Energy and Oil) because to have high and real-time control most of the spending must flow through the eprocurement system. Finally, supply base rationalization is related to a higher eprocurement adoption as well. Even if we have evidence only on two cases (Telecom_1 and Finance_1), this link seems to be reasonable, as supply base rationalization is needed when many suppliers and by consequence a wider range of products and spending - are potentially involved in the eprocurement system. Next, we do not see strong patterns even in the relationship between organizational objectives and product categories complexity. The only thing we see is that companies aiming at decentralization (Pharma_2 and Finance_1) and maverick buying reduction (Energy and CPG) do not buy services because these objectives are achievable especially for standardized goods categories. For example, Finance_1, in the financial sector, needs complex and high value IT services, that have to be bought centrally and because of that there is a lower need of controlling maverick buying. 4.6 The Technology-Organizational objectives linkage In order to link organizational objectives with technological functionalities we built a frequency table counting the cases showing a particular functionality-objective couple. Next we summed up rows and columns and we ordered by row and column. The result is reported in Table V.

17 Catalogue Workflow System Integration Order placing Repository and content management Order tracking and tracing Electronic Invoicing Reporting Rfx Total Efficiency Control Transparency Maverick Buying Decentralization Supply base rationalization Total Table V Frequency table of organizational objectives and technological functionalities As already discussed, efficiency is the far most important objective, followed by control, transparency and maverick buying reduction. Less important are decentralization and supply base rationalization. If we look at functionalities in place, catalogue is the most adopted functionality, followed by workflow management, system integration and order placing. Those four functionalities often constitute the core of any eprocurement system. Other functionalities, like repository management and reporting are less adopted. As we can see, the couple catalogue-efficiency is the most frequent: all cases except from Oil declared this. Even if it is not possible to establish direct links between organizational objectives and functionalities from Table V, it can be anyway a valid support for the qualitative patterns we have found interviewing the companies. First of all, all functionalities seem to give a contribution - more or less direct - to efficiency. In fact, as most of the companies told us, functionalities as catalogue, order placing and workflow can speed up the purchasing order emission. System integration and electronic invoicing can increase passive cycle process efficiency. Other functionalities as repository and content management and RfX, ease buyers in finding the right product. Finally, order tracking and tracing and reporting allow buyers to have a higher control of the process thus decreasing quality costs, e.g. related to errors in delivery or in pricing. Control on the purchasing process, that is also the second organizational objective, is also related to other functionalities such as workflow (i.e., authorizations control) and system integration (matching between deliveries, invoicing and documents). Next, transparency is impacted by functionalities as workflow (for internal transparency), catalogue and order tracking and tracing (for transparency in the relationship with the supplier). Then maverick buying is reduced thanks to functionalities as catalogue and order placing that constrain users to certain goods and suppliers. Moreover, as Energy told us, having a structured Rfx system is beneficial for maverick buying reduction when dealing with an out-of-catalogue good. Finally, as maverick buying is caused also by a low control, authorization workflow and reporting can have a positive impact on it. In the end, interviewed cases reported us positive effects also of catalogue and order placing on decentralization and supply base rationalization. We made the same analysis crossing organizational objectives with technological architectures (Table VI). In all the cases efficiency is an objective, regardless the architecture (i.e. buyer-hosted, seller-hosted, intermediated). It is interesting to notice that companies aiming at control, maverick buying reduction and transparency prefer buyer-hosted