An investigation of the benefits of an IOS in B2B exchanges

(1)

AN INVESTIGATION OF THE BENEFITS

OF AN IOS IN B2B EXCHANGES

Aantal woorden / Word count: <16613>

Noah Vanhecke

Stamnummer / student number: 01505900

Promotor / supervisor: Prof. Dr. Steve Muylle Commissioner: Nils Van den Steen

Masterproef voorgedragen tot het bekomen van de graad van: Master’s Dissertation submitted to obtain the degree of:

Master in Business Engineering: Operations Management

(2)

Toestemming

Ondergetekende verklaart dat de inhoud van deze masterproef mag geraadpleegd en/of gereproduceerd worden, mits bronvermelding.

Noah Vanhecke

Permission

Undersigned declares that the contents of this master thesis may be consulted and / or reproduced, provided the source is acknowledged.

(3)

Abstract

This research is set out to identify the benefits of integrated systems. Integrated systems give companies the opportunity to gain operational and strategical improvement. Unfortunately, it is difficult to have the optimal combination of integrated systems and relationships to experience those benefits. Therefore, we investigate the benefits of integrated systems in different B2B exchanges. We took a qualitative research approach by interviewing 9 different firms. Two different types of exchanges are discovered. We found that transactional exchanges can be useful, but most firms engage in collaborative relationships. Firms are in the process of installing integrated systems. We introduce a new term which is called a semi-integrated system. This means that companies are able to directly input data in the system of the partner company. On top of that, operational and strategic benefits of integrated systems are found such as decreased lead time, less errors and improved relationships. Many different combinations of relationships and systems exist such as the use of integrated systems in a transactional exchange to increase the speed of transferring goods.

(4)

Preface

This master dissertation is written in order to obtain the degree of Master of Science in Business Engineering – main subject Operations Management.

I would like to thank Steve Muylle and Nils Van den Steen for giving me the opportunity to learn more about B2B e-commerce. It was extremely interesting to gain more expertise of real-world business operations by interviewing managers and CEO’s. They provided countless valuable information about relationships, IOS and the benefits.

Further, I want to thank Nils Van den Steen again for being a phenomenal mentor. He always managed to steer me in the right direction with the perfect advice. Next to that, the meetings were very efficient and enjoyable.

This research was conducted during the COVID-19 period. However, no disturbance was experienced because the 9 interviews were executed on time prior to the lockdown. Only one interview was cancelled.

To end, I hope that I motivate others to further analyse the benefits of an IOS in different B2B exchanges.

(5)

Thanks to

Participants: Nick Cash, Eddy Bultinck, Koen Braekman, Johan Van Wesemael, Luc Carette, Liesbeth Greunlinx, Reinout Van der Veken, Peter Deprins, Koen Verstraete, Debby Hoste

Mentors: Prof. Dr. Steve Muylle and Nils Van den Steen

(6)

Abbreviations

B2B: Business to business

IOS: Inter organizational system

EDI: Electronic data interchange

E-commerce: Electronic commerce

ERP: Enterprise resource planning

SAP: Systems, Applications and Products

(9)

List of tables

Table 1: Relationship between the 3 different concepts ... 2

Table 2: Research objectives ... 18

Table 3: Information about the respondents ... 20

Table 4: Systems in different phases ... 30

Table 5: Value of integrated systems ... 35

Table 6: Situating in boxes (a) ... 39

Table 7: Situating in boxes (b) ... 39

(10)

List of figures

Figure 1: Data analysis ... 22 Figure 2: Indirect effect of an IOS on strategic performance ... 51

(11)

Chapter 1: Introduction

In a business to business (B2B) context companies have all sorts of relationships with their partners. Relationships with close collaborations or with a simple transfer of standard goods. Intense collaboration means working together to achieve strategic benefits. B2B relationships offer tremendous value when the proper relationship is implemented in the right context. The communication and exchange of data between partners in a relationship can be done through digital technologies, more specifically an inter organizational system (IOS). These systems are making their way to B2B exchanges (Yi, Soh, and Huang 2005). Firms start to use them, and they are proven to be valuable. Several studies identified the benefits of an IOS in interorganizational exchanges, so it is definitely an interesting topic to look at. There are operational and strategic benefits. For example, Malone, Yates, and Benjamin (1987) found that it enables the rapid transmission of information such as purchase orders and invoicing between partners at low cost, high speed and with less errors. On the other hand, there are strategic benefits such as an improved relationship (Rahim and Kurnia 2004). It is challenging to implement an IOS and several drawbacks exist. They are expensive and time consuming to install and the benefits differ according to the existing relationship. Therefore, many companies still use non-integrated systems such as email.

The literature shows that firms have different relationships. There exist a large number of integrated systems that can be implemented in those relationships. For example, firms can use a web based IOS where they share data, or they can send the data through electronic data interchange (EDI). It enables them to cut cost, have less errors and decrease the lead time. So, there is information available about relationships between firms, about integrated systems and about the benefits. However, a clear combination of all these concepts is missing. It is shown that the effect of digital technologies differs according to the existing relationship where you implement them. Implementing certain technologies in the wrong relationship can have negative consequences. So, there is a link between relationships, digital technologies and the benefits. The purpose of this master thesis is to look at how the benefits of an IOS manifest in each relationship. This is shown in table 1.

(12)

Transactional exchange Collaborative relationship

Non-integrated systems Benefits Benefits

Integrated systems (IOS) Benefits Benefits

Table 1: Relationship between the 3 different concepts

This brought us to the following research question:

What are the benefits of an IOS in B2B exchanges?

The study is executed in the following way. First of all, we make a distinction between transactional exchanges and collaborative relationships followed by looking at the digital technologies that are used in those relationships. Thereafter, the companies will be placed in one box of table 1 and the benefits of every box will be discussed. These benefits can be strategic or operational. We set out an explorative research by interviewing 9 companies to gain insights in those concepts.

The following structure is used in this dissertation. Chapter 2 gives an overview of the literature where we discuss the relationships between firms, the systems firms use and the benefits of those systems. Chapter 3 provides the research methodology. Chapter 4 describes the data received from the nine explorative case studies related to relationships, systems and benefits. Finally, we discuss the results by drawing conclusions of the findings and giving interesting insights for managers.

(13)

Chapter 2: Literature study

Synopsis

The literature study covers 3 different concepts. It starts with an overview of e-commerce in B2B exchanges. The distinction is made between integrated systems (IOS) and non-integrated systems. The second part covers the operational and strategic benefits of e-commerce. The latter is mainly focussing on relational benefits. The literature study is closed by defining 2 types of exchanges in a B2B setting. We call them transactional exchanges and collaborative relationships.

(14)

1 What is e-commerce

1.1 General

There are several definitions to describe electronic commerce. It is defined as "the sharing of business information, maintaining business relationships, and conducting business transactions by means of telecommunications net-works" (Vladimir 1996, p.3). Choudhury, Hartzel, and Konsynski (1998) state that it identifies potential trading partners for executing a transaction. In other words, e-commerce is forecasting, sales and procurement, product development collaboration, production planning and inventory management (Krishnamurthy 2002). It helps supply chain management to share knowledge, increase the speed of response, and reduce the costs of serving a market by improving information exchange between exchange parties (Aripov Jahongir 2014). Firms can use e-commerce as an e-marketplace for trading goods or they can use it as a tool to collaborate. This marketplace stands for "an inter-organizational information systems that allow the participating buyers and sellers to exchange information about prices and product offerings" (Bakos 1991, p.1676). In this thesis we divide e-commerce in integrated and non-integrated systems. The difference will be explained in the next paragraphs.

1.2 Integrated systems

1.2.1 General

Basu and Muylle (2011) state that integration means that companies integrate the information, computing and communication systems on an intra or inter firm level. This thesis focusses on the inter firm level. It is the automation of business tasks across the boundaries of different information systems. This integration can be vertical by integrating with the supplier and customer or horizontal where companies integrate with a partner by for example creating an integrated catalogue. A fully integrated marketplace means that there is a seamless data exchange between both buyers and sellers back offices (Lichtenthal and Eliaz 2003).

Integration means that the back-offices from different companies are interconnected (Tarn, Yen, and Beaumont 2002). They connect operations such as manufacturing, financials and distribution.

(15)

The enterprise will become part of a big enterprise business system that will extend the enterprise resource system (ERP) to multiple companies. So, the ERP system will cover the entire supply chain within and between companies.

Companies can integrate in different ways. We make a distinction between 2 different types of integration:

• Enterprise application integration: The ultimate goal is to integrate independent ERP systems. This is done by coupling the application layer of the companies (Hasselbring 2000). It is a deeper way of integration because it integrates both the data and the applications (Basu and Muylle 2011). An example of an application is order payment or inventory handling. The SAP R/3 approach states that there needs to be some messaging service to integrate the ERP systems. There are several software products available that are specialized in messaging services and data transformation.

• Data integration: This is an easier level of integration where companies share their databases (Basu and Muylle 2011). The software application can access databases from other companies. In fact, data integration is often seen as "the standardization of data definitions and structures through the use of a common conceptual scheme across a collection of data sources" (Goodhue, Wybo, and Kirsch 1992, p.294).

1.2.2 Examples of integrated systems

The first example is electronic data interchange (EDI). It "involves the computer-to-computer exchange of business documents in a standard, machine-processable format between and among inter-organizational trading partners" (Angeles 2000, p.45). The introduction of web based EDI leads to lower switching costs in comparison with traditional EDI where the web is not used (Porter 2001).

The second example is extranet which connects internal departments ERP systems of a company or connects with partner companies to share information or to integrate business processes (Overby and Min 2001). A concrete example of an automated process is the acquisition of products that is

(16)

traditionally done by email. This process can be automated by connecting the internal systems of firms so that no human interaction is needed to execute the process.

The next example covers the integration of applications. It is a Web-based inter-organizational

information system (IOS) which is used for supply chain partners to have accurate and real time

demand and inventory data. This enables an electronic supply chain (Yao, Palmer, and Dresner 2007).

Lastly, it is important to make standards. There are web-enabled inter-organizational business process standards (IBPS), which are open specifications that can facilitate integration and automation of business processes (Bala and Venkatesh 2007; Gosain et al. 2003; Markus et al. 2006). Bala & Venkatesh (2007) state that IBPS are semantic standards that define the structure and format of business messages through a common language. They also give a standard to sequence the steps required to execute a business process among trading partners. They state that it improves the depth of the relationships through enhanced collaboration, cooperation and knowledge sharing. An example of a key web standard is the XML standard.

1.3 Non-integrated systems

There are a variety of non-integrated digital technologies available. Examples are market-based technologies such as email, websites, online marketplaces, social media, and mobile apps (Van Den Steen et al. 2020). Non-integrated systems provide one-way communication without automating processes across firms.

E-mail is a widely used tool to distribute information between firms. It covers data about the

products and services offered and more specifically about payments or product requirements (Bhatt and Emdad 2001). Another online tool that is frequently used by firms is a website to promote products or services. Websites reduce costs through efficiency and automation and increase the revenues because of improved customer service (Ba and Johansson 2008). The last example of a non-integrated e-commerce tool is an online auction in which online bidding takes place. An

(17)

auction is "a market place with an explicit set of rules determining prices and resource allocation based on bids from the market participants" (McAfee and McMillan 1987, p. 701).

2 Value of e-commerce in B2B relationships

This section covers the value commerce offers to B2B exchanges. We look at both types of e-commerce: integrated and non-integrated systems. The first part covers the operational values continued by the strategic / relational values in the second part. Both parts are divided in 2 subsections. The first section covers the general benefits of e-commerce because some papers did not make a specific distinction between integrated or non-integrated systems. The second section covers the specific benefits of an IOS. The third part describes the negative impact of e-commerce.

2.1 Operational benefits

2.1.1 Operational benefits of e-commerce in general

Many studies showed that the introduction of e-commerce has a positive impact on operational

performance. It eases the process of obtaining goods and services via the internet. This can be

through immediate data availability or ordering services and goods online (Kumar and Petersen 2006). It can also dramatically improve the product service level by reducing cycle times, lowering

errors and rework, providing real time information and by closing the gap between the customers and their offerings (West 2001; Woods 2001). In the future, this level of service will

become the standard for customer satisfaction (Rust and Kannan 2003). The use and implementation of e-commerce is very expensive because companies need to invest in upfront capital and resources. However, companies will derive the benefits through improved customer relationships, communications, customer satisfaction and response times (Kumar and Petersen 2006).

2.1.2 Specific benefits of an IOS

This part covers the specific benefits of an IOS. Malone et al. (1987) show that integrated systems have a positive impact on operational performance. It enables the rapid transmission of

information such as purchase orders, forecasting and invoices. This is called the electronic

(18)

like lower inventory costs (Malone et al. 1987). On top of that, companies experience many operational benefits like increased accuracy, downsized paperwork, labour force savings and

reduced inventory (Rahim and Kurnia 2004). The manpower savings can be through the reduction

of clerical staff (Naudé, Holland, and Sudbury 2000). A specific advantage of EDI is that it links the firms value chains and enables them to reduce the cycle times (Bergeron and Raymond 1997). To conclude, it is shown that an IOS results in an efficient workforce, reduced costs of

communication, and less errors. Hammer (2001) says that it reduces wasted time and improves production scheduling.

2.2 Strategic / relational benefits

Operational benefits are straightforward to explain because they are measurable such as a cost reduction or a shorter lead time. Strategic benefits are defined as the opportunity to achieve competitive advantage and to raise market share through strengthening of close relationships with trading partners (Reekers and Smithson 1994). We will discuss some strategic benefits and more specifically relational benefits. They are divided in general benefits of e-commerce (integrated and non-integrated systems) and more specific benefits of an IOS.

2.2.1 Strategic / relational benefits of e-commerce in general

In general, the use of e-commerce improves customer relationships, communication and customer satisfaction (Kumar and Petersen 2006).

The first benefit is the ability to find new business partners much faster (White, Daniel, and Wilkinson 2004). E-commerce helps you find new long- or short-term relational partners. However, the new relationships can have a bad impact on the existing ones because it increases competition. On top of that, it has a bad influence when you use the new firm to your own benefit and do not consider the existing relationships (Jap and Mohr 2002). The opposite is true when you use the new relationship to increase the value of the existing ones.

The next positive strategic value is that e-commerce offers an increased amount of outsourcing (Kotabe, Mol, and Murray 2008; White et al. 2004). Digital technologies are referred to as

(19)

“exchanges culminating in transactions between buyers and suppliers based on computer and information technology. Examples might include electronic (web-based) auctions, EDI, file-sharing protocols for product design, and perhaps even video conferencing” (Kotabe et al. 2008, p.15). The move to the middle hypothesis explains that increased use of IT to execute inter-firm transactions is associated with an increased level of outsourcing and a blurring of the organization’s boundaries and thus eventually in better relationships. The increase in outsourcing is independent of the type of relationship. An advantage of outsourcing is that firms will more and more participate in the collaborative relationship with their suppliers and thus eventually will have greater supplier networks (Kotabe et al. 2008). The relationship with your partners will evolve to co-creating products through extensive communication and data exchange supported by e-commerce platforms.

The following value is obvious. The introduction of integrated (connected ERP systems) or non-integrated systems generates lots of information and data (Salam, Iyer, and Srikantan 2001). The availability of information changes the nature of the relationship by focusing pure on performance aspects rather than on loyalty and past relationships. This means that trust is not that important anymore because companies can check every move within the supply chain.

The introduction of integrated and non-integrated systems changes the communication between firms (Mohr and Nevin 1990). For example, there is an increased person to person communication (White et al. 2004). The change of communication impacts the relationship by improving the product development phase. However, it can create conflicts and complexity when there is too much communication. On top of that, the richness of the communication might decrease. For example, an email is not rich in information because it does not offer verbal and symbolic communication. It remains important to have interactive communications while using digital technologies (Mohr and Nevin 1990). Mohr and Nevin (1990) further describe a difference in the content of communication. There is a difference between task orientated and socially orientated

communication. Task-orientated focusses on the use of internet to support aspects of the supply

chain such as inventory and production scheduling. Socially orientated is about the relationship itself. It is beneficial when the internet is used to support task orientated communication because they can promptly respond to inventory issues. However, for socially orientated communication the internet can be poor (Short, Williams, and Christie 1976; Sproull and Kiesler 1986).

(20)

Lastly, the introduction of e-commerce leads to a higher customization of products which leads to higher loyalty (Ansari and Mela 2003). This has a positive influence on the financial performance by increasing the profitability. E-commerce offers the possibility to do targeted marketing which is "useful for both customer acquisition and retention and can engender successful, long-term relationships" (Ansari and Mela 2003).

2.2.2 Specific strategic / relational benefits of an IOS

This part covers the specific strategic benefits of IOS. A couple of them have already been discussed in the previous part but we try to expand them to give a clear overview.

The first benefit is that an IOS stimulates firms to reinvent existing business processes which offers valuable strategic advantages (Angeles 2000). The introduction of an IOS often requires major adjustments to fit it within the business which means processes need to be adjusted and optimized.

The implementation of an IOS leads to improved relationships with trading partners (Rahim and Kurnia 2004). The electronic integration effect means that firms try to create coupled processes, in which the buyer and the supplier share information to create joint processes (Malone et al. 1987). This enables the creation of longer relationships with partners because you have shared databases (Malone et al. 1987). It is known that not integrating the processes and information systems can have negative impacts (Lee, Padmanabhan, and Whang 1997). These negative impacts are for example poor customer service, loss of revenues, ineffective transportation and missed production schedules.

The following positive value is similar to the previous one. Digital technologies enable firms to have

fewer, but longer relationships with suppliers (White et al. 2004). This is called the move to the

middle hypothesis. The increased use of IT enables firms to put more emphasis on important issues. The less important tasks are done by the IOS and employees focus on adding value in the relationship. It results in a more pro-active mentality when discussions between firms arise. The longer relationship can be with intermediaries, trough investing in shared processes and databases that allow closer relationships (Honeycutt, Flaherty, and Benassi 1998; Kalakota and Whinston

(21)

1997). However, it can also replace the existing relationship with the intermediaries because the internet enables direct contact between buyers and suppliers. This is possibly not the best option since it could increase the overall costs because intermediaries add great value.

On top of the already mentioned relational benefits, integrated systems offer “a huge advantage in

developing and sustaining relationships because it releases human resources and offers more efficient forms of communication and better data” (Easton and Araujo 2003, p.17). The

integrated systems can reduce the cost and increase the quality of communication. This ensures more efficient collaboration which leads to more innovative solutions. This leads to a bigger return and increases the financial value of B2B e-commerce.

2.3 Negative impact of e-commerce

This part covers a brief overview of the negative effects of e-commerce.

Digital technologies can be dangerous for B2B relationships. A reverse e-auction is often perceived as bad by suppliers (Tassabehji et al. 2006). It undermines the supply chain relationship and it has a bad impact on trust, loyalty and commitment. A reverse e-auction is less likely to be implemented in a collaborative relationship. An auction is associated with buyers trying to get the cheapest price by exploiting the suppliers. This reduces the supplier’s loyalty or the benefit for them to engage in jointly reducing the costs. So, suppliers do not want to invest in developing long term collaborative relationships since the main focus of buyers is the price. A reverse e-auction creates transactional and impersonal short-term relationships. On the other hand, spot markets and auctions can serve as a good tool for long term relationships. It is used as a vehicle for price discovery and this makes it easier to negotiate long-term contracts by obtaining real-time information about market demand.

The next negative impact is that the introduction of e-commerce leads to channel conflict (Webb 2002). Channel conflict is the case when one channel member perceives other channel member to be committed in practices that disturbs the company. E-commerce is defined as the strategic deployment of computer-mediated tools and information technologies to satisfy business objectives

(22)

(Hoffman and Novak 1996). The main reason behind this negative value is an increase in complexity after introducing e-commerce in supply chain relationships. Conflict can cause the loss of physical distribution points. On the other hand, conflict can also have a constructive effect by motivating firms to grow and find new business opportunities.

This paragraph provides more explanation on trust and loyalty when introducing e-commerce into relationships (Lawson-Body and O’Keefe 2006). E-commerce can take on different forms, it can for example be a website that facilitates certain interorganizational actions. The introduction causes that the company cannot get a sense anymore of their partners from a face-to-face discussion or from the appearance and location of the office. This can lead to a loss in value because it decreases the trust in partners. The lack of trust induces a lack of loyalty in the relationship and this will have a negative impact on the revenue. It is important to have a good relationship prior to the implementation of e-commerce to deal with the problem of trust. In this way, e-commerce can increase the customer loyalty by easing the exchange of information. The lack of trust can be solved with a website because trust is often based on website characteristics.

Companies are often in different parts of the world and technologies are used to move the relationships online. Trust will be important in the future because firms do not have the time to check partners extensively. A possible solution to the trust issue is trust infrastructure which is a set of technologies that allows buyers to evaluate their suppliers (Lichtenthal and Eliaz 2003). On top of that, in relational markets, non-integrated systems can provide an auditing function for existing relationships besides the use of the previous mentioned website (Easton and Araujo 2003).

(23)

3 Relationships in B2B exchanges

This section covers 2 main topics. First, the different relationships companies have with their partners. We distinguish 2 types of relationships (Jap and Mohr 2002). The second part covers the influence of different relationships on the benefits of e-commerce.

3.1 Different relationships

3.1.1 Transactional exchanges

A transactional exchange is a formal relationship where both parties try to maximize their own profit without considering the other one (Jap and Mohr 2002). According to Brodie et al. (1997) transactional marketing is an arms‐length, impersonal approach assuming an active seller to a marketplace inhabited by passive customers. Information is delivered to the marketplace in one direction and little feedback is returned in the other direction. Companies focus on the economics of the transaction such as quantity and price. They do not try to build beyond the sales event which means it is a company-centric model.

3.1.2 Collaborative relationships

In collaborative relationships firms work together to increase mutual benefit by exchanging information. Relational marketing is about building relationships with individual customers, retaining customers after the initial sale and strategic fit from customer manipulation to customer involvement (Brodie et al. 1997; Nevin 1995; Weitz and Jap 1995). The relationship is based on extensive information exchange (Naude and Holland 1996). It is a more friendly and deep relationship with better mutual understanding.

3.1.3 Different relationships existing together

Different relationships can exist together. E-market places offer benefits for companies to look for new opportunities next to the existing long-term relationships. They can introduce specific e-commerce tools for the existing collaborative relationships and have the benefit of immediate transactions through transactional exchanges (Grey, Olavson, and Shi 2005). For example,

(24)

companies continue to benefit by doing most of their transactions with existing relational partners and they can get rid of their excess inventory or capacity through a short-term transactional relationship using e-commerce.

3.1.4 Further distinction between relationships

This part contains a further distinction between transactional exchanges and collaborative relationships by looking at the business processes executed in the exchanges. Business processes can be seen as “a set of logically related tasks performed to achieve a defined business outcome” (Davenport and Short 1990, p.12) where a process is “any activity or group of activities that take an input, add value to it, and provide an output to an internal or external customer” (Harrington 1994). A transactional exchange mainly executes the trade process. A collaborative relationship executes the trade process and the decision support process. The processes can be supported by e-commerce tools.

We start with explaining the trade process. A transactional exchange does not go beyond the trade process. Digital technologies are used to ease the trade process without exchanging a lot information or using analytical models that enhance their ability to make more effective business decisions (Muylle and Basu 2008). There are 5 key trade processes identified (Muylle and Basu 2008): search, authentication, valuation, payment and logistics.

• Search: This is the process of finding relevant entities and objects for any business trade. Examples:

1. A virtual catalogue: These are catalogues that retrieve data from different suppliers and present this in a unified manner by means of an electronic catalogue management system (Dai and Kauffman 2002; Rajkumar 2001). A neutral catalogue fits every buyer and a specific one gives customized offerings to one single buyer.

2. E-marketplace: An electronic marketplace is "an inter-organizational information system that allows the participating buyers and sellers in markets to exchange information about prices and product offerings" (Bakos 1997, p.1676).

• Authentication: This helps ensuring the authenticity of the parties involved, as well as the quality of the products and services being traded. This is easier without e-commerce tools.

(25)

• Valuation: This is the process of price discovery, two types exist: (1) fixed pricing and (2) dynamic pricing. Fixed pricing can be achieved through integrated catalogues that offer products to several sellers. Dynamic pricing is supported through auctions and exchanges. • Payment: This covers the payment of the product.

• Logistics: This process enables the movement of products and resources within and between trading entities.

A collaborative exchange goes beyond the trade process. They go through a second process called the decision support processes which is about collaborating and putting more effort into the relationship.

There are 3 key decision support processes (Muylle and Basu 2008).

• Configuration: This process defines the wishes of the buyer. It helps buyers and sellers develop a tailored made product that fits customer expectations.

• Collaboration: This process supports joint or collaborative work. It enables interactions between multiple people from different organizations. This can be done using web-based computer and communication technologies such as e-mail or a shared data repository. • Business intelligence: This includes the provision of information about the business, market

conditions and trends.

3.2 Effect of relationships on the benefits of e-commerce

The effect of digital technologies on relationships varies. It can create long lasting relationships, but it can also undermine long term relationships that have been built and established over the course of many years (Jap and Mohr 2002). The reason is that you need to consider the inter

organizational relationships where you imbed the digital technologies (Jap and Mohr 2002). So,

the benefits of implementing digital technologies depend on the existing relationship between firms. Implementing the wrong digital technology can have a bad impact.

Digital technologies have different benefits such as information sharing, increasing the reach to new customers and offering real-time dynamic pricing (Jap and Mohr 2002). These 3 benefits were stated in the previous section and their outcomes differ according to the existing relationship.

(26)

First of all, information sharing using the web in a collaborative exchange is beneficial because partner firms already established trust in the relationship. They just want to improve the efficiency of the process by increased digitization. Information sharing in a transactional setting is less beneficial because partner companies might receive competitive data.

Secondly, the increased reach by using digital technologies is not perceived well in a transactional setting because firms use it to act in favour of their own welfare which harms current relationships. In a collaborative relationship firms are less likely to think that partners try to harm the company by increased search. Lastly, a collaborative relationship does not benefit from having dynamic pricing because it harms the relationship in the long term. However, in a transactional exchange this approach of taking dynamic pricing eases the process.

We learned that the success of digital technologies implementation depends on the existing relationships. This is further proven by Easton and Araujo (2003). They prove that the implementation differs according to type of market where e-commerce tools are implemented. There are transactional markets and relational markets. In transactional markets firms simply execute transactions. In relational markets buyers and sellers share a great deal of information.

(27)

Chapter 3: Methodology

Synopsis

The study took a qualitative approach to gain insights in the research objective. The first part explains the research objective which is the investigation of relationships and digital systems. We continue by describing the research methodology. Nine explorative case studies were used to collect data. The data was analysed by assigning codes to important parts of the interview. Similar parts were merged, and conclusions were made. The last part covers the validity and reliability adapted to the specific characteristic of qualitative research.

(28)

1 Research objective

The nature of the phenomenon under research led to the use of qualitative research. The purpose was to gain knowledge of real-world companies which allowed us to understand the following subject. Table 2 shows a clear overview of the research objective. Companies have various relationships with different partners where digital or specifically integrated systems are used. Transactional exchanges and collaborative relationships are the two main relationships identified in the literature study. We investigate the dependency between relationships and integrated or non-integrated system and determine the benefits of the implementation of for example an non-integrated system in a transactional exchange. Besides looking at the relationships, digital systems and benefits, we also look at the reason for implementing or not implementing integrated systems and collaborative relationships. This is illustrated by the arrows on table 2.

Transactional exchange Collaborative relationship

Non-integrated systems Benefits Benefits

Integrated systems (IOS) Benefits Benefits

Table 2: Research objectives

2 Research methodology

2.1 Method

Qualitative research was used because it offers the most efficient manner to collect the data we needed. Respondents were contacted through personnel connections and LinkedIn. They did not receive lots of information prior to the interview. However, we provided them an extensive explanation of the overall topic by phone which allowed them to prepare for the interview. The advantages of qualitative research are that we can examine real word situations and look at the views and perspectives of different experts in the field (Yin 2011). These experts are able to provide valuable insights because they are dealing with the subject on a daily basis. Qualitative research strives to collect, integrate, and present data from a variety of sources of evidence as part of any

(29)

given study which allows us to look at the differences between firms (Yin 2011). In-depth interviews were used to gain insight into the technologies and relationships firms use. These interviews allow us to look at the underlying motives and attitudes of the experts (De Pelsmacker and Van Kenhove 2014). An unstructured list of questions was used because the respondent has greater knowledge than the interviewer related to the phenomenon under research (De Pelsmacker and Van Kenhove 2014). The questionnaire provides a scenario that contains the main aspects. This questionnaire is not structured in a fixed way which ensured that we could let the respondent speak freely when needed. The interviewer asked additional questions to have all the necessary information. Yin (2011) stated some useful tips that helped us conduct the interview. It is important that the interviewee talks a lot because he has all the knowledge about the subject. On top of that, an interview protocol (questionnaire) was used as a guide to conduct the interview in a partly structured way.

The following disadvantages are typical for qualitative research (De Pelsmacker and Van Kenhove 2014). First of all, the quality of the interview depends on the interviewer. This was partly solved by making an extensive list of questions that should definitely be asked. The second disadvantage is that the conclusions that follow from an interview are less reliable because there exist many interpretations. We solved this by interviewing 9 different respondents to make sure that the findings are based on similarities and actual facts related to the interviews.

2.2 Case studies

Nine explorative case studies were conducted to gain knowledge about the technologies and relationships in a B2B exchange. In depth interviews were used which take up to one hour. We stopped at 9 case studies because we felled that no new valuable information was received during the last couple of interviews. We asked every company for the most suited person for the specific topic. On top of that, we chose to interview businesspeople who had knowledge about the sale side or the purchase side. After many phone calls we interviewed 4 people from the sales side and 7 people from the purchase side. The CEO’s had knowledge from both sides. We interviewed both sides because there might be a difference. The names, function, company and sector related to the different interviews can be found in the table 3.

(30)

Name Function Company Sector

Nick Cash Procurement manager Ecover maintenance products

Eddy Bultinck Purchase manager Durabrik construction

Koen Braekman CEO Verona Pro window producer

Johan Van Wesemael Business Development Manager Buyse metallurgy

Luc Carette Sales Manager Roxell forage containers

Liesbeth Greunlinx Purchase manager Roxell forage containers Reinout Van der Veken Purchase manager Atlas Copco compressed air Peter Deprins Purchase manager Katoennatie logistics

Koen Verstraete CEO

Verstraete

IML labels

Debby Hoste Product manager Alsan bathrooms

Table 3: Information about the respondents

3 Data collection

The data was collected using in depth interviews. Prior to the interviews, we analysed the website, Facebook and LinkedIn page. The interviews were recorded which helped us to focus on the interview and not worry about remembering the content. The recorded interviews were written down for the data analysis. Most of the interviews were conducted on site where the company is located or through a videocall. All interviews were in Dutch except from the one with Ecover which was in English.

4 Data analysis

The data analysis moves through five phases (Yin 2011). We cover the most relevant phases. The first phase is the compiling phase where all the interviews were written down in excel. There is an excel tablet for every interview, but the goal is to obtain one large excel tablet that contains all the interviews. While writing down we made sure that every word was clear for the interviewer. Rereading and relistening all interviews helped with familiarizing our self with the data. After doing

(31)

it a couple of times we were able to get a clear understanding of the data and the patterns within the interviews.

The second step is disassembling the data. We decided to code relevant parts of the data to be able to ignore the unimportant things. The codes were chosen to make sure that all the relevant information for the study was captured. After lots of trial and error we came up with 2 different type of codes that were most useful for the researcher. The first type of codes is part of a higher conceptual level:

Relationships, integrated system, non-integrated system, value of a certain system, reason for implementing a system, reason for a system in a certain relationship, value of a relationship,

impact on relationships

These codes enabled us to group different parts of the data. For some groups we needed a clearer coding with codes that stick more closely to the original content of the interview. So, we split up the integrated and non-integrated systems in different phases and the value of the system is split into integrated and non-integrated systems using the following codes:

Exploration, collaboration, ordering, payment, integrated system, non-integrated system

The third phase is reassembling the data to get a clear understanding of the content. This was done in excel using pivot tables. We ordered the data by playing with different pivot tables. The final table shows all codes with their corresponding data. For example, we are able to see the values of a certain system according to different respondents. This enables us to write down every important and relevant value in chapter 4.

Figure 1 shows the pivot table that was made during the data analysis process in Excel. The first types of codes such as impact on relationships, integrated systems and non-integrated systems can be seen. By for example clicking on integrated systems we can see the explanation of every integrated system in every phase within every company. Figure 1 shows more details for the first code: value of a certain system. The second type codes are integrated and non-integrated systems.

(32)

After clicking on integrated system, we see the explanation related to the value of a non-integrated system within every company.

(33)

5 Validity and reliability

5.1 General

A valid study is one that has correctly collected and interpreted the data. This leads to conclusions that reflect and represent the real world that was studied (Yin 2011). Many qualitative researchers avoid the terms validity and reliability. Agar (2011) states that reliability and validity do not fit the details of qualitative research. These terms are optimal in a quantitative research but not in a qualitative research. There needs to be a method that is appropriate to qualitative research without losing the importance of it. Guba (1981) introduced a model to assess the trustworthiness of qualitative data which is the identification of truth value, applicability, consistency and neutrality.

5.2 Truth value = credibility = internal validity

Due to the exploratory nature of this research K.Yin (2013) argues that this test does not apply to our research. It is difficult to apply this to qualitative research because it is not easy to justify the making of an observed causal relationship (Johnson 1997). Krefting (1991) says credibility is the accurate descriptions or interpretations of human experience that people who also share that experience would recognize the descriptions. A strategy to increase the credibility is triangulation. There exist four types of triangulation. We use the triangulation of data resources to fully understand the concept by maximizing the range of data collected (Knafl and Breitmayer 1986). This was done by interviewing many different companies for the same subject. The increase in credibility is also improved by increasing the trustworthiness of the human instrument (Miles and Huberman 1984). We do this by getting a great degree of understanding of the phenomenon under consideration and through excellent investigation skills by analysing the literature.

(34)

5.3 Applicability = external validity = transferability

Applicability is the degree to which the findings can be addressed to alternative contexts. It is the ability to generalize the findings to larger populations. This is difficult in qualitative research because one of its basic goals is to understand a phenomenon in relation to its context (Recker 2013). The main reason of this research was to generate insights on the dependency between relationships and integrated systems. Lincoln and Guba (1985) said that the responsibility for the transferability is the duty of the person who wants to transfer the findings to another context. There is descriptive data that allows comparison. The reader can use the methodology part to decide if he/she can extend the findings to another context.

5.4 Consistency = dependability = reliability

The third criterion of trustworthiness relates to the consistency of data, whether the findings would be the same when it would be replicated by the same subject in a similar context (Krefting 1991). The goal of reliability is that replicating the testing procedures does not alter the findings (Krefting 1991). We try to minimize the errors and biases. Liguori et al. (1959) state that reliability is concerned with the consistency, stability and repeatability of the respondents as well as the interviewers to collect and record information accurately, but qualitative field setting could be violated via unanticipated variables. Duffy (1985) stated that the key to qualitative work is to learn from the respondents rather than control them. We assured consistency by making a fixed list of questions. The same questions were asked in every interview and every respondent got the same explanation of the underlying topic. However, there is always variability expected in qualitative research (Krefting 1991). Every interview was similar, but we cannot rule out differences which is inherent to qualitative research. Another increase of the consistency can be attained by describing the data gathering, analysis and interpretation. This is done to provide information of how repeatable the study is or how unique the situation is (Kielhofner 1982). Another risk is related to the participating subjects. Informants may want to make things seem better or worse than they are, or they give the answer that the interviewer wants to hear (Liguori et al. 1959).We solved this by making sure that the respondent had great information about the nature of the project, and we tried to make it as relaxing as possible to allow the respondent to tell the truth. After several interviews

(35)

we gained more knowledge about the subject and were able to conduct improved interviews which leads to some differences. This increase in insight is described by Guba (1981). He says that the concept of dependability implies detectable variability which is variability that can be referred to identified sources.

5.5 Neutrality = confirmability

The fourth criterion of trustworthiness is neutrality which is the freedom from bias in the research procedures and results (Sandelowski 1986). This is provided by ensuring that the findings are solely a function of the respondents and the conditions of the research. There were no other motivations or perspectives involved during the research (Guba 1981). Triangulation was used to strengthen the researcher’s ideas by getting multiple data sources and theoretical perspective. There will always be some bias due to the researcher, but we focused on obtaining and writing down neutral results (Lincoln and Guba 1985). An advantage is that our background nor our personal history had influence on the quality of the research (Ruby 1980). We had few experiences with the subject before starting this research, but the interest was high.

5.6 Addressing the errors

Brink (1993) stated that errors are one of the key factors that affect validity and reliability. The greater the error the less truthful and accurate the findings will be. The first error is related to the researcher. They have the tendency to observe subjects and interpret findings in the light of their own values. This was solved by writing down every interview in detail and by coding the data. Thereafter, we were as objective as possible during the analyses. In this research the social context is not considered as a risk. The interviews were conducted individually and in a neutral environment. Lastly, the risk about data collection and analysis was solved by clearly presenting the methods used for collecting data and carefully documenting the field notes (Liguori et al. 1959).

(36)

Chapter 4: Findings

Synopsis

This chapter covers the results obtained in the interviews. The word partner is used to refer to a supplier or / and customer since we do not make any distinction between the 2. The first part describes the different relationships firms have with their partners. The distinction is made between transactional exchanges and collaborative relationships. Thereafter, we discuss the different systems firms use to communicate with each other. Is it integrated, not integrated or something else? This is followed by explaining the values of integrated and non-integrated systems. There are operational and strategic benefits. To conclude, we place every company in a quadrant according to their relationships and digital systems.

The first 2 parts are structured in the same way. It starts with an explanation of the different systems and relationships. Followed by the reason for choosing a particular relationship or digital system. The part about the values makes a distinction between the benefits of integrated and non-integrated systems.

(37)

1 Relationships

Companies have many different relationships with their partners. To make it simple and clear we will make the same distinction that is used in the literature. This is because the practice showed many similarities with the theory. So, a distinction is made between transactional exchanges and collaborative relationships. The latter is most common but sometimes we also see more arms-length transactional exchanges. In the next sections we discuss the different relationships.

1.1 Transactional exchanges

Transactional exchanges are less common in a B2B environment. An example of a transactional

exchange is the acquisition of paper, pens or other products that are not important for the company. These are relationships where companies do not really care a lot and just make the transaction without much more. They do not have the intention to collaborate and the choice between companies is based on price. However, most of the companies stated that they still require a certain quality or specification of the product. A transactional exchange does not mean that they have a short relationship. Companies try to establish a long-lasting relationship with most of their partner. However, a short relationship is possible in case of project-based or one-off projects. Then the relationship goes no further than the making of the deal based on a couple of requirements and price.

Transactional exchanges can be divided in 2 categories. The first one is where companies work on a project basis. They transfer the product once without further collaboration. An example is the delivery of windows by Verona Pro for the construction of a new hospital. They requested a certain number of windows without further collaboration. The second type of transactional exchanges is where there is a high transfer of goods without further collaboration. The goods are standard and less important for the company such as packaging material to ship the product. It is ordered in high amounts but not part of their core business. Values are not discussed in this part because they were not clearly mentioned by the companies.

(38)

1.2 Collaborative relationships

1.2.1 What are collaborative relationships?

Every company stated that they mainly have collaborative relationships with their partners. This means that the relationship goes beyond the process of simply making a transfer of goods. It involves deep and long-lasting negotiation’s which can take up to one year. The products exchanged are tailor made which means it is not a standard product like Coca Cola. Companies transfer lots of

information such as the specifications of the product, the terms within the contract and data about

the inter organizational supply chain.

Managers interacting in collaborative relationships have extensive knowledge about the product

and the operations of the company because they sell or buy a tailor-made product. The product has

to fit within the organization, and it needs to have the right specifications. For example, Verstraete states that the acquisition of lacquer is difficult because it needs to be compatible with other raw materials and the production process. Therefore, great knowledge is required to optimize the negotiations.

An element that a couple of companies stated was that they try to innovate as one team and keep each other in touch about ongoing innovations. Sometimes they even collaborate on doing research and development. The purpose is to optimize every company within the supply chain.

Next, most companies said that they meet more often which means that they have more

face-to-face contact. In general, they have more communication such as more emails, phone calls…

A very interesting quote was stated by Ecover: “It is a bigger risk and bigger reward kind of thing”. They invest more energy, time and money in the relationship, but they get a bigger reward. The more energy you put in, the more you get out of it. This reward can be for example new business opportunities or innovations. However, it is not possible to have strategic relationships with every partner because it is to time and money consuming. It is important to spread your resources.

So, collaborative relationships are used to collaborate, share knowledge and increase the value of the product. This sounds very promising, but it remains important to keep track of other important aspects such ass staying competitive. Companies should closely monitor the costs because earning profit remains important. However, collaborative relationships can help achieving lower costs and prices through collaboration.

(39)

1.2.2 Value of collaborative relationships

Next, we discuss 3 values companies mentioned related to collaborative relationships. First, collaboration lowers the production cost and therefore lowers the final price of the product. Companies are able to communicate the most optimal fit with customer requirements at the best price. For example, a garage door producer needs gears from Buyse. During the negotiation, they first asked for gears with straight corners but Buyse suggested that it is cheaper to produce them with round corners without a reduction in quality. This is an easy example that shows how collaboration can lower the production cost.

The second value is that this relationship allows you to have a connection with people working at the company you are doing business with. This means that if there is a problem, it is easier to call them and ask for a solution. In comparison to a transactional exchange where you hardly know anyone from the other company you are doing business with.

The third value of collaborative relationships is the uniqueness. Every relationship is different. Firms collaborate to innovate, improve the supply chain and develop the relationship. On top of the uniqueness of the relationships, firms are able to produce innovative and exciting new products that can increase their competitive advantage.

1.3 Reasons for choosing a particular relationship

In this section we discuss the reasons for choosing a particular relationship. Firstly, it depends on the underlying product. Companies make use of a transactional exchange when the product is not

essential/important which means that it is not part of the core business. There is a lower risk for

the company if the product fails. So, it is less rewarding to put a lot of effort in establishing a collaborative relationship. An example is the purchase of pens in a construction company. They just buy the cheapest pen. An example of an important input that is used in the production process of Verstraete is the lacquer to manufacture labels. This lacquer is part of the core business which leads to a collaborative relationship with the supplier to have the best possible lacquer for their specific labels.

The second reason many companies stated is the revenue a certain product generates. They set up a transactional exchange for products that generate a small part of the company’s revenue.

(40)

The third reason is about the characteristics of the product. The manager from Buyse stated: “We do not sell Coca Cola or Mars”. In a B2B setting, most of the products are tailor made through collaboration. They do not have a standard product which means that a relational setting is needed to collaborate. For example, Buyse makes tailored made steel parts for garage doors.

The last reason deals with switching costs. Companies enter into relationships because it is too time consuming to repeatedly check if the supplier can deliver qualitative products on time at the correct price. Switching to another supplier could mean higher costs and lower service levels.

2 Integrated and non-integrated systems

2.1 General

This topic covers the different systems companies use within B2B exchanges. It ranges from fully automated and integrated processes to simply sending an email or a letter. More automation means that there is less human input. The use of integrated systems between companies depends on 4 different phases. The different phases are ordering, payment, collaboration and exploration. Ordering is sending an order to a supplier. Payment is the process that covers sending an invoice and paying the invoice. Collaboration is working together to obtain a tailored made product. Exploration is the beginning of the relationship where companies search and verify new partners. Table 4 shows the different systems and the phases they support. A ‘+’ means that they use integrated systems. A ‘-’ means that most of the interaction is done with face-to-face communication or with non- integrated technologies such as email.

Phase Systems exploration - collaboration +/- ordering ++ payment +

(41)

2.2 Non-integrated systems

Firms use many non-integrated systems, a few are written below: • Email

• Face-to-face meetings • Phone calls

• Skype • Letters

Every company said that doing business without non-integrated system is not possible. These technologies are mostly used in the collaboration and exploration phase. We explain the systems used during the different phases in the next sections.

2.2.1 Exploration phase

In this phase companies hardly use any digital technologies besides email. Companies find new partners on fairs, LinkedIn or trough other non-integrated technologies. This is followed by face-to-face meetings to establish trust because they have few information about each other. The manager from Buyse clearly explained that the first connections between companies are mostly made through your own network. This is followed by investigating their website and a lot of meetings. This phase can last up to one year and integrated systems are not in place.

2.2.2 Collaboration phase

The collaboration phase is mostly done through face-to-face meetings, emails or shared files. Companies sit together to talk about their needs, the specifications of the product and the terms of the contract. Many companies stated that the use of email is very important in this phase. For Example, firms send reports and plans that clearly indicate the specifications and turnover of the product. Automation and integration during the collaboration phase is proven to be difficult. A great example of a non-integrated system is the one from Verona pro. They use a tool to communicate and collaborate with their customers. Customers receive an URL link that contains a Pdf document that shows different pages enabling them to see the product specifications, the orders,

(42)

status of the orders and extra announcement. Data is transferred in one way, from Verona Pro to the client.

2.2.3 Ordering phase

This is the most integrated phase. However, in companies where the ordering phase is not integrated it has the following steps. The ERP system gives a signal that a product needs to be ordered. The purchaser goes into the system and initiates the order manually. In some cases, the email with the order form is sent automatically by the ERP system. However, sometimes employees still have to make the order form and send it through email to the supplier. This is for example the case in most of the companies within the construction sector.

2.2.4 Payment phase

The payment process is mostly non-integrated but, in some cases, it is done with minimal human interaction. In the non-integrated case the ERP system gives a signal that an invoice needs to be send. The employee goes into the system and sends the invoice manually. The actual payment is done in collaboration with the bank and requires human interaction.

2.3 Integrated systems

The research showed that integrated systems are fairly new in most of the companies. They are slowly moving to more automation and integration. Only a couple of companies interviewed use fully integrated systems and it is only used in the ordering phase. However, many companies use variants of integrated systems to automate processes between them and partner companies. Only Durabrik used an online tool named BIM that enabled them to collaborate in an integrated way. It is a tool where different experts can draw parts of the house and it is then automatically converted into one design. The findings in this part mainly cover the ordering phase. The payment phase is mostly done through non-integrated systems like email. However, some companies stated that they send the invoice with EDI. The research showed that there are 2 different ways of integration which are semi-integrated and fully integrated. They are discussed in the next 2 sections.

An investigation of the benefits of an IOS in B2B exchanges