ELECTRONIC COMMERCE: A CONCEPTUAL FRAMEWORK

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1 ELECTRONIC COMMERCE: A CONCEPTUAL FRAMEWORK ABSTRACT Ernest A. Capozzoli, Troy State University Sheb L. True, Kennesaw State University Thomas K. Pritchett, Kennesaw State University This paper will explore e-commerce and discuss shortcomings associated with current definitions of e-commerce. It will then propose a continuum for defining and describing the level of computer-based systems, activities and business functions necessary to control and expand marketing and sales activities in the business organization INTRODUCTION E-commerce (EC) is everywhere. Papers, magazines and scholarly journals extol the virtues and promises of getting into e-commerce. The dollar value of EC transactions are increasing at a rapid rate and are expected to reach $108 billion in web related sales (WWW) (Tedeschi, July 1999). However, even though web based commerce is expanding, there seems to be no clear definition of what constitutes e-commerce. Laudon and Laudon (1998) define e-commerce as "the process of buying and selling goods electronically by consumers and company to company through computerized business transactions." Another definition of e-commerce provided by Electronic Commerce Dictionary is "The conducting of business communication and transactions over networks and through computers." A more expansive and detailed definition is: The buying and selling of goods and services, and the transfer of funds, through digital communications. However, EC also includes all inter-company and intra-company functions (such as marketing, finance, manufacturing, selling, and negotiation) that enable commerce and use electronic mail, EDI, file transfer, fax, video conferencing, workflow, or interaction with a remote computer, Electronic commerce also includes buying and selling over the World-Wide Web and the Internet, electronic funds transfer, smart cards, digital cash (e.g. Mondex), and all other ways of doing business over digital networks (Electronic Commerce Dictionary, 1995). As can be seen from the above examples the definition of what constitutes e-commerce is far from complete and still evolving. According to the U.S. Department of Commerce, standard definitions of e-commerce must still be established (U.S. DC, 1999). The lack of a standard definition for e-commerce adversely affects all measurement attempts. Depending on what definition is employed, measurements can be obtained that are erroneous and make comparability impossible across and within industry segments. In its recent report on "The Emerging Digital Economy 11" the USDC highlights some of the difficulties caused by the lack of a standard definition: Current market research estimates of aggregate online retail trade generally purport to include only those transactions that are ordered and paid for on-line. But they must rely on data supplied by individual companies who may not keep information that way. Individual companies sometimes include as online sales transactions those transactions that were conducted substantially online, but which may also include a critical non-internet component. For example, although ebay encourages sellers to establish an account tied to a credit card, they will also accept one-time payments by check. Similarly Dell Computer's online revenues include sales where although the majority of the transaction occurred online, the final steps were conducted over the phone (U.S. DC, 1999).

2 The Internet clearly impacts sales activities and can be measured across a wide spectrum of business functions. According to Thompson, the effect of the Internet on sales transactions is much larger than just those transactions completed online (Thompson, 1999). Individual consumers and businesses can use an infinite combination of the Internet and traditional purchasing methods to complete a sales transaction. Another aspect of e-commerce lost in the definition jungle is that there are two distinct groups of customers that must be defined, measured and managed. These two groups are Retail E-Commerce (REC) customers and Business to Business E-Commerce (B2B) customers. These groups are not similar in their needs and wants. According to Forrester research, in 1998 B2B sales activity over the Internet was $43 billion, this was five times more than REC (Tedeschi, April, 1999). Forrester Research also estimates that B2B will grow to $1.3 trillion over the next four years. Aberdeen Group, another research firm, estimates that B2B may now be ten times larger than REC (Tedeschi, April, 1999). So what should businesses do? Both retail and business-to-business activity is increasing but measurement indicators are incomplete and may give erroneous and unreliable output. It is logical to assume that for an organization to participate in this area of commerce it must first determine, prior to embarking on an e-com effort, the what's and the how's. More specifically what activities are to be measured: online transactions, sales calls precipitated from online browsing, web-site traffic, EDI, etc.. Metrics must then be created that will accurately reflect how those activities are to be measured for contribution to sales efforts and integrated into marketing plans. Getting involved in a search for a specific all-inclusive definition of e-com may in fact be an unproductive task. The task is made more difficult by the very nature of technological advances. Moore's law is based on the premise that computer power doubles every 18 months. This doubling of computer power has been an accurate measurement in the past and will probably continue into the future. What is new leading edge technology today will be replaced by something twice as powerful in 18 months. This exponential increase in technology will create new ways of doing business that one cannot now envision. Although technology can create new or modified business practices at a rapid rate, successful adoption of new business practices must stand the acid test of free market forces. Technology and the market place are continually reshaping business activities. Businesses and academic researchers will be required to describe and exploit emerging technologies. Therefore the purpose of this paper is to aid businesses and academic researchers in the evolution of e-commerce by forwarding: 1.) A more general definition of e-commerce, and 2.) A more focused framework of organizational e-commerce activity. Adopting a more general definition of e-com significantly reduces the definitional obsolescence caused technology advances and, consequently. would not require revision as new business practices are introduced and previously defined business practices are replaced. A more general and flexible definition: Electronic commerce is the process of deploying computer and communications technology to support an organization's sales process. This definition eliminates the need to precisely delineate how the sales process is performed. It also is general enough to be useful into the indefinite future. Anyone trying to craft a long term definition for EC must consider how different industries and organizations within those industries react to changes in their technological environment.

3 The current morass created by the ever enlarging number of competing definitions appears to be the result of how authors and researchers are dealing with different reactions to EC development found in different organizations (due in part, but not totally, to differences in B2B versus REC activity). Each author or researcher appears to create an EC definition that exactly suits the activity, organization, or industry, he or she is studying without regard to the impact of yet another definition to the overall body of knowledge. At a Macro level most sales processes appear to share similar characteristics. However, at the micro level an organization must shape the sales process to meet customer expectations and as a consequence each sales process will have some unique characteristics. The details of how business processes are performed and what technology is deployed to support those processes are better described through use of a framework. The framework utilizes a continuum. To deal with the needs of EC theorists, we propose that an organization's level of employment of EC technology be measured along a continuum, where a Level 1 company makes little or no use of computers and/or communications technology, and a Level 5 firm makes extensive, cutting-edge use of these tools. See Exhibit 1 for further discussion. Exhibit 1 Continuum of E-commerce Development E-Commerce level analysis The following descriptions flesh out the various levels of the continuum and should serve to clarify to the reader the authors' intentions vis-à-vis how an organization achieves a particular level of EC development. The reader, however, should keep in mind that further advances in technology might necessitate a redefinition of the levels. As Will Rogers is reputed to have said, "Even if you're on the right track, you'll get run over if you just sit there." In other words, a Level 5 firm that becomes satisfied with its position in the marketplace and ceases to pursue cuttingedge technology might find itself behind competitors who succeed in updating and adapting to new technological advancements. New technologies must be incorporated into systems to sustain competitive advantage. Indeed, a company that has advanced to a Level 5 can fall back to a Level 4 or lower unless it applies constant effort to the task of staying on the cutting edge. 1 An organization that is at 1 poorly utilizes computer or communications technology. This level is characterized by an internal focus that is not integrated. Customer contact is handled via salesperson calls, telephone contact, mailing and fax. Product and Service literature is usually in hardcopy only. Information systems to support sales and marketing activity are typically non-existent. Back Office Systems (BOS) such as accounting, production, sales processing, and customer information, if they exist at all, are not integrated.

4 2 A 2 organization begins to integrate computer and communications technology. The process is still internally focused but begins to see the benefit of integrating part or all of their internal systems. Customer contact via phone is enhanced through on-line systems. These on-line systems are more supportive of critical business process. The integrated systems support order-taking, tracking, customer information and more extensive marketing and sales reporting. 3 3 organizations continue to integrate computer and communications technology. The organization also begins to incorporate an external focus in systems development and customer support. Internal systems become tightly integrated. Tightly integrated systems introduce improved levels of customer support by coupling sales, inventory, production and customer information. Externally focused systems are deployed. Systems such as Electronic Data Interchange (EDI) and web-based company information are developed to increase efficiency. EDI is deployed to support Business to Business (B2B) activity. Web-based systems are primarily used as an information-mart and begin to replace hardcopy as a means to convey product and service information. is also introduced to improve internal and external communication. 4 4 is characterized by the introduction of web-based technologies. This level continues to see expansion of externally focused systems via the web. These web-based systems increase in capability from being an informationmart to include sales order processing. The web storefront has been created but remains a stand-alone system that is not integrated with the organizations internally focused information systems. 5 At 5 an organization has utilized a wide array of computer and communications technology to develop a highly integrated system that encompasses business process requirements for both internal and external information uses. This integrated system is holistic and recognizes the need for internal and external query and reporting requirements. Customer support is improved by permitting customers to access internal information such as order status, inventory availability, customer sales history and accounting information. High levels of business process support and high levels of system integration characterize this level. A summary of this descriptive framework (continuum) for EC analysis is presented in Exhibit 2. A framework of this type for defining and describing EC processes is essential. E-commerce researchers must have a uniform way of reporting and describing their findings. Without the development and adherence to such a framework, comparison of research results will continue to be difficult if not impossible

5 Exhibit 2 E-commerce Levels Process Support Internal Focus (Back Office) Technology Usage External Focus 1 Sales Visit Phone Contact Fax Hard copy literature No Back Office System (BOS) integration i.e. sales, accounting, etc. Non-existent 2 On-line order system Customer database BOS begin being integrated Non-existent 3 Web based literature Sales and production systems integrated (EDI) BOS integrated with other internal systems, begin to utilize externally focused systems. EDI Web based company information 4 Web based sales Web system not integrated with BOS Web storefront 5 Customer initiated queries supported for: Sales history Product availability Web system integrated with BOS. Customer interacts with Internal systems via web. Moreover, this continuum can benefit business organizations. It will provide organizational managers with a method of assessing where their organizations are relative to where they could be in EC development. The continuum will also provide a tool for assessing an organization's competitive environment within its industry. It seems likely that not all organizations will want to achieve level 5. Some managers are still somewhat afraid of these technological advancements. However, the acceptance and adoption of this continuum will allow such managers to judge what level of system integration and process support is appropriate for their organizations. (It should be noted here that some industries will be more motivated by the nature of their business to employ EC than others. Thus, the commitment to EC may be a reaction to external forces rather than any internal proactive strategies.) The associated relationships between business process support and system integration for each of the levels of the EC Development Continuum are graphically presented in Exhibit 3.

6 Exhibit 3 Process Support and System Integration Summary/Conclusion This paper has explored and discussed shortcomings associated with the definition of e-commerce. The authors have proposed a framework for defining and describing the degree to which marketing and sales activities and processes are using computer and communications technology along a continuum that places an organization's level EC development into one of 5 levels. This framework will prove important and useful to organizations and individuals that are considering e-commerce activities. The framework will also assist organizations already involved in e-commerce by providing a tool to describe and assess the level of current activities. Future Direction/Further Research Areas Future research and development in the area Of e-commerce, both in the market place and in academia needs to focus on a.) how to test the merit Of the new definition in terms of it's applicability and b.) measure it's advantages / disadvantages to assist in the transformation to an e-commerce mindset. Additionally, from an operational perspective the proposed framework needs to a.) be tested for validity, b.) have quantifiable metrics developed to assist in determining a company's current e-commerce level and c.) have managerial and technology strategies developed that will provide for a cost effective progression along the proposed continuum. While outside the realm of this paper, the authors realize the continuum would be stronger if we could identify organizational cultures that are commonly found at each level. Of course, the theory that there is a cultural uniformity among organizations at each level may not be accurate. Other areas that should be looked at include organizational structure, leadership style, overall business strategy, and level of commitment to customer service. Each of these concepts would be useful in creating a more general structure (not industry-specific) for identifying the depth to which an organization is committed to e-commerce.

7 REFERENCES Electronic Commerce Dictionary (1995), Lauden and Lauden (1998), Management Information Systems 5th ed., Prentice Hall, New Jersey Tedeschi, B. (1999), "The Net's Real Business Happens.Com to.com," E-Commerce report, New York Times, April Tedeschi, B. (1999), "Local Merchants Going Online Rely on Faith," E-Commerce report, New York Times, July Thompson, M. J. (1999) "Only Half of Net Purchases are Paid for Online," The Industry Standard, March 1. United States Department of Commerce (1999) "The Emerging Digital Economy II" Washington, D.C.