E-Business Environment and Analysis

Property and Construction E-Commerce Unit 2: Virtual Organisations

_________________________________________________________________________________________E-Business Environment and Analysis 18 Dr Boon Kee Low and Professor Brian Sloan

Unit 2: SECTION 2

E-Business Environment and Analysis

Learning OutcomesHaving studied this Unit and completed the activities it contains, you should be better able to:

Understand the business environment and conduct PEST analysis

Undertake SWOT analysis and ICT assessments for organisations

Understand the broader implications of e-commerce: organisational informatics and intermediation

IntroductionTo remain competitive, effective and efficient, an organisation not only needs to consider its internal processes,

it must also adjust continuously to external business environments. It needs to take into account new

competitors, new rules and regulations, a changing marketplace, changing workforce, and many other factors

arising from the emergence of e-commerce. The understanding of and the ability to analyse the business

environment are therefore crucial. In this Section of the Unit, we consider the general environment opportunities

and threats that affects all organisations, and study how organisations take the first step in making adjustments

by monitoring and analysing the environment. We will look at a representation of an organisation’s business

environment and classify its events as being political, economic, social or technological. We will also identify

four stages of conducting an environmental analysis using readily available sources of information as a basis. In

addition, strategic analysis techniques and the broader implications of technology implementation are discussed

later in the Section. We will conclude with a discussion on a relevant e-commerce issue, ‘intermediation’,

which affects many vertical industries, including the property and construction industry. For instance, in theproperty market, do we still need to visit an estate agent, since we can browse properties online? This Section

explains the current views and the implication of e-commerce on the intermediaries in the industry as e-

commerce has been widely regarded as a threat for ‘cutting out the middleman’.

Business EnvironmentAll organisations, both in the public and the private sector, from multinationals to small local concerns, operate

in an environment that, as it changes, offers both opportunities and threats to businesses. Figure 1 overleaf

illustrates an organisation in its environment. Events occurring in the business environment are placed closer to

the organisation if they are thought likely to have a direct impact, whether good or bad. Events are placed

further away from the organisation if they are less likely to have a less significant impact. All boundaries in this

figure are blurred. The immediate environment is the competitive environment. We examine this in more

details in Section 3 of this Unit. Compared to the daily operation of business processes, the broader business

environment describes general events less directly associated with the organisation, but as it changes it is capable

of offering significant opportunities and threats to the organisation. For example, the technological changes of

e-commerce in general give rise to both business opportunities and threats, as well as social changes.



Figure 1: The organisation in its environment

The business environment is subdivided into four sections in Figure 1. These may be categorised as the Political,

Economic, Social, and Technological environments in which all organisations operate at a national and

international level. This allows us to conduct what is often called a PEST analysis, so called because PEST is an

acronym of the four environments. You should note that there are many variants: some analysts include the

green Environment, and form the acronym STEEP; some add an O for ‘other’, a catch-all category for events

not easily classified under other headings, forming the acronym PESTO; others include Legal and

Environmental and form PESTLE. The models can also be described as DEPICTS (Demographic, Economic,

Political, Infrastructure, Competitive, Technological and Socio-legal) or DEEPEST (Demographic,

Epidemiological, Ethical and legal, Political, Economic, Social and Technological). All acronyms are effectively

describing an environmental analysis, usually conducted for a specified organisation, ideally by the managers as

an ongoing process, and the same basic issues are covered regardless of the particular acronym chosen. It is

clear that many events do not fit neatly into specific categories. For example, unemployment is a political issue,

but it is also an economic issue, a social one and a technological one. A legal requirement may be enforced

through political or social pressure, environmental or green issues might be related to the use of technology or a

particular European directive. E-commerce fits into almost all the categories given its diverse implications:

business and home uses of internet, online chat and dating, for example can be a social issue. The UK

government in the early part of the 21st century has been pursuing a national strategy of e-government, ‘internet

for all’ and is seeking to regulate the legal aspects of electronic communication through various Bills. These are

clearly seen as political issues which are relevant to businesses and individuals alike.

ENVIRONMENTAL ANALYSISThe process of environmental analysis can be carried out in four stages as shown in Figure 2 overleaf. It is first

necessary to understand the basic components of the business environment. It is important to have some

knowledge of the political process, the structure of the labour force and major technological advances that have

implications for organisations and to understand how the economy functions and how industries and businesses

are classified. Later in this Section, we look at this process of analysing the environment from two perspectives

– from the organisation out (external analysis) and from the environment in (internal analysis). Once we have a

broad understanding of the nature of the business environment, we can move on to stage 2. Stage 2 involves



selecting key drivers of change from the broadly understood business environment appropriate to a specific

organisation. Key drivers are those aspects of the environment known to have an important effect on the

particular organisation. This effect might be from its customers, or the way it operates, or its raw materials, or its

financing, or its staff. It may help to consider the various drivers that influence the inputs, the market for outputs

or the processes themselves.

Examine the broad nature of theorganisation’s environment

Identify key drivers in an organisation’senvironment through a PEST analysis

Examine historical trends in key drivers, asavailable. What makes them change

Managers and key personnel at all levels considerappropriate strategies to deal with each scenario

Figure 2: Stages of environmental analysis

Stage 3 of the environmental audit is to monitor the movements of the key drivers. The purpose of this is to

identify likely opportunities and threats for the specific organisation.

As shown Figure 2 above, the first three steps of the analysis correspond to and substantiate the e-business

design approach introduced in Section 1, i.e. E-Business Process and Design.

Stage 4 is the culmination of the exercise. Monitoring the key drivers really means watching what is going on.

This can be done formally, in regular sessions during which managers present the movements of the key drivers

to decision-makers in the organisation. In many organisations, particularly SMEs, monitoring tends to be carried

out informally: decision -akers have a reasonable idea of the key drivers and take into account what they believe

to be their movements in deciding policies and strategies.

Some key drivers in an organisation’s environment can easily be monitored and even forecasted. Statistics

produced by the Office for National Statistics on economic and social data are readily available. Private

agencies, such as Incomes Data Services, provide data on industrial relations and human resource issues. Others,

such as Mintel, provide information on markets and consumers. Information about businesses can be gleaned

from their annual reports, but many organisations are now using their web sites to publish very up-to-date

information on their activities. Share prices, exchange rates and a wealth of information is available instantly on

the Internet. E-commerce is currently widely reported in the media. Furthermore there are many public (e.g.

University research centres) and private organisations (Forrester Research) undertaking research into the use of

e-commerce. For example, the UK government is active in harnessing the use of internet for business and has

carried out various surveys and studies that can be utilised as sources of reference for companies wishing to

undertake environment analysis.

required forstep 1 and 2of e-businessdesign



To start to build up a picture of events likely to have an impact on organisations, it is useful to be up-to-date in

current world and business news. The media offers serious business and finance orientated newspapers and

journals, such as the Financial Times, The Times, the Daily Telegraph and The Economist, as well as the

publications within the property and construction industry. Television news and comment programmes, such as

Panorama and the Money Programme are also useful sources of information. Radio 4 provides an excellent

coverage of news items in the morning and early evening. Regional and local press, television and radio stations

are important vehicles for organisations scanning a more geographically limited area. The regional media often

act as a sifting point for general news, selecting those items they consider of most interest to local people and

businesses. E-commerce is currently a prevalent subject in the media mentioned above. For example, the

development of legislation and tax issues - E-Communication Bill and IR35 taxation on ICT contractors appears

regularly in the press. We will cover some of the legislative and political issues later in the Module.

PEST ANALYSIS: MONITORING THE ENVIRONMENTMonitoring the business environment in a formal or informal way is seen as an essential part of good business

practice and constitutes stage 1 of our environmental analysis. In conducting a PEST analysis, an organisation

steps back and considers in some detail the environment in which it operates. Most successful organisations are

able to describe their immediate environment, their customers, their workers, their suppliers, etc. and – by

working out from there – they are able to see the way in which events in the general business environment couldinfluence them. This approach has the advantage that it is possible to focus on aspects of the environment

known to have an impact on the organisation. The disadvantage is that major events may be ignored if they do

not currently play a role. These events may suddenly move in and threaten the existence of the organisation.

The widespread and the rapid increase of WWW utilisation, for example, has threatened many traditional

intermediaries such as retailers.

Since all organisations operate in a sector of the general business environment, an understanding of how that

sector works and what is going on at the current time may be of interest. It makes it easier to anticipate new and

otherwise unexpected opportunities the organisation may wish to exploit, and to foresee and avoid any likely

threats. An understanding of the way in which the business environment is moving may allow an organisation to

predict future patterns of customer behaviour and needs. This is very important for e-business. Threats and

opportunities may come from quite unexpected quarters, as demonstrated through many dot.com upstarts.

Starting by looking at the general environment and moving to the specific environment may allow the

organisation to respond in anticipation of future likely trends rather than react to events as they occur. The

following are some self-assessment questions relating to business environments (Kalakota 1999):

• Do we understand the environment and industry trends?

• Do we understand technology trends?

• What are the priorities in the supply chain?• Who are our competitors?

Activity (Suggested Time: 30 minutes)Conduct a basic PEST analysis of the likely general environment for a small estate agent. Write down as many

phrases for each PEST heading, and use any sources available such as, the internet, government reports,

newspapers and magazines. Describe what are the opportunities and threats inherent from the events.

Hint: Political: the government’s legislative proposal to reduce ‘gazumping’ in the residential property market.

What are the potential implication if the proposed ‘seller’s pack’ is to be required for house selling?



Analysis Techniques The analysis of the competitive and general environment will provide the information necessary for developing

competitive strategies, and is required for early e-business design. Many approaches have been developed that

analyse particular criteria in the environment for a particular organisation. These include:

• EVR congruence – matches the demands of the environment with the values and resources of the

organisation;

• SWOT analysis – matches an organisation’s strengths and weaknesses with the environment’s opportunities

and threats;

• Boston Consulting Group matrix – balances products with product lines within the organisation through

analysis of the relative market share and the market growth rate;

• McKinsey/General Electric matrix – uses market attractiveness through a number of PEST and industry

criteria and the competitive position of the organisation through a number of organisational criteria;

• business profile matrix –based on the dimensions of market position and industry maturity;

• directional policy matrix – based on prospects for sector profitability and the organisation’s competitive

capabilities;

• Value chain analysis - based on analysing Porter’s value chain and identifying core competency of

separate activities and the linkages within them.

This Unit will focus on SWOT Analysis. For other analysis techniques described above, see the reference text

given at the end of this Section.

SWOT ANALYSISThe SWOT analysis provides a first step in determining organisational strategies. It involves an evaluation in

two strands: 1) internal appraisal for organisational strength and weakness, 2) external appraisal for

environmental opportunities and threats through PEST analysis. The appraisals give rise to a list of factors

called SWOT statements, which indicate the organisation’s strengths and weaknesses, and the environmental

opportunities and threats. However, it is difficult for an organisation to develop a proper strategy solely on the

basis of these factors as they are inter-dependant of each other as we will find out later. The organisation should

take a holistic view and make a combined assessment of the relative merits of these factors.

Table 1 describes a framework that is commonly used for comparing SWOT factors. It is based on a simple

PEST analysis of an estate agency - see Activity in the previous section. Let’s assume the PEST analysis

discovered that the rising public access to the internet and the advent of new internet technologies provide

opportunities for the firm to add value to its customer services. This is indicated by the ‘+’ signs under the PEST

headings. The property market is becoming competitive with many new entrants (e.g. virtual estate agents) and

many existing competitors are adopting the internet. As this could be viewed as a threat it would be shown by

the ‘- - ’ sign. Initial SWOT analysis shows that the staff including senior management is agile (understanding

the benefits of ICT and ready to embrace internet technology). It is also a small company and has a flexible

management structure. Hence, it has a good capacity for innovation. The analysis shows that the company has a

lack of manpower, resources for R&D, ICT skills and infrastructure.

The combined effects of the SWOT factors must be taken into consideration. After all, what use is a market

opportunity, if a company has no strength to turn it into a strategic advantage? For strategic assessment, an



overall impression of the above example shows that the company lies in the ‘early adopter’ or ‘visionary’

category which may be the first to exploit new technological innovations. However, this advantage is offset by

its incapability to transform the enthusiasm and vision into tangible benefits given the lack of relevant resources.

The threats from competitors may also be aggravated in the same sense as the company is unable to respond to

the threat of competitors, while the opportunity of new technology has become a ‘zero advantage’ or even a

threat as it turns could be taken up by a competitor.

PEST environment headingsRising public

access to

the internet

New

technologies

Likelihood of

competitors

innovation

Opportunities

and threats

Strengths and

weaknesses + + - -Capacity in

innovation++ +++ +++

Lack R&D

capacity- 0 0 - - -

Lack ICT skills

& infrastructure- - -

Table 1: Example of SWOT Analysis

With respect to the SWOT framework, Robson (1994) identifies 4 types of strategy:

• Strength-Opportunity: The company is playing from its strength to an opportunity. The main business

objective should focus on reducing internal weaknesses and external threats;

• Strength-Threat: This strategy aims to leverage on the existing strengths to avert threats;

• Weakness-Opportunity: This strategy aims to minimise weakness and maximise opportunity. It is suitable

for the above case where opportunity exists, but requires strengths where the company currently has a

weakness;

• Weakness-Threat: Company need to minimise both weaknesses and threats at the same time, without any

strength or competitive advantages. This is a tough strategy to implement and the company should seek to

avoid being in this situation.

The above example is a simple illustration and can be elaborated upon using more specific studies on the SWOT

factors. The ‘new technology’ indicator for example, is a generalisation. There are many types of technologies,

each impacts differently on business processes and hence can be used as a basis for further SWOT analysis. We

will study a ICT self-assessment method next.

ICT SELF-ASSESSMENTIn this part of the Unit, we will discuss a method for assessing the use ICT in organisation. The assessment is

based on a guide produced by the UK Information Society Initiative (ISI) Programme for Business (now, ‘UK

Online For Business’) that has addressed a variety of issues relating the implementation of ICT in organisation.

The objectives of the guide are to help organisations, particularly SMEs, to establish:

• How ICT are relevant to their needs;

• Which technologies will have an impact on businesses for the better;

• What is affordable and easily implemented;



• Benchmarks of ICT utilisation.

Using the guide company we can conduct a quick assessment, and identify what other information is required. It

contains nine sections focusing on the main business processes – marketing, sales, purchasing, exporting,operations, design & production, managing information, customer service and training. Each section has a

matrix consisting a series of questions relating to specific activities within the business processes, as shown by a

sample matrix attached. The assessment is accomplished by:

1. Answer the questions by giving a rating that best reflects the current performance of the organisation;

2. Choose a pragmatic benchmark (a better rating) that the organisation wishes to achieve;

3. Choose ‘a priority for action’ by identifying the most crucial area(s) that need to be addressed, or select the

largest gap between the above ratings.

Each the matrix is accompanied by case studies that can be used as reference and also suggestions for

technological solutions drawn from best practice and research. In addition, the guide provides explanation of the

technology and links resources and contacts require for further research. For further information, the guide can

be downloaded at:

http://www.ukonlineforbusiness.gov.uk/Advice/publications/max.htm

The following is the complete listing of questions, (plus potentials solutions) contained in the guide:

Marketing:

• Are you able to reach the widest possible number of potential customers and suppliers beyond your

traditional area? (Internet, Web site, CD-ROM, EDI, e-mail)

• And can you easily identify and target those potential markets worldwide? (Internet, Web site, database)

• Can your business provide comprehensive product and service information to customers when and where

they need it? (EDI, Internet, Web site, CD-ROM, e-mail, fax)

• Does your business find it easy – on demand – to generate and use standard literature such as price lists?

(database, document management systems, desktop publishing)

• Do you make sure that everyone in your organisation has timely access to important, fresh information (e.g.

regulatory changes, company news etc.)? (Internet, e-mail, videoconferencing, mobile communications,

Intranet)

Sales:

• Are your information resources, such as stock availability and pricing, available to customers and staff

outside working hours? (e-mail, mobile communications, Internet, Web site, CD-ROM)

• How quickly do you response to sales enquiries? (e-mail, Internet, EDI, networks, videoconferencing)

• How easy do you and your colleagues find it to provide customers with standard documents (such as

quotations) when working away from the office? (networks, mobile communications, group calendaring, e-

mail, Intranet, desktop publishing)

• Can you and your colleagues co-ordinate diaries, receive instructions and submit reports promptly while

visiting clients? (networks, mobile communications, group calendaring, e-mail, Intranet)

• Can you ‘close the sale’ and ‘move the money’ online to cut transaction time and cost? (Internet [payments],

EDI)



Purchasing:

• Can you identify potential new suppliers quickly? (Internet)

• Once found, can you check the background and capability of potential suppliers instantly? (networks,

Internet, Web site)

• Can you find out whether your suppliers have what you want in stock and order it immediately? (EDI,

Internet)

• Do you have ready access to all the relevant information so you can plan suppliers’ deliveries for maximum

efficiency? (networks, EDI, database)

• Have you taken out all the excess cost and delay within the purchasing process, from requisition to

payment? (e-mail, networks, EDI)

Exporting:

• Can new and existing customers review your catalogue and place orders from anywhere in the world?

(Internet, e-mail, Web site, EDI)

• How easily do you present to, and negotiate with overseas customers? (e-mail, mobile communications,

videoconferencing)

• How good are you at tracking goods in transit? (e-mail, EDI, Internet, mobile communications)

• Are you minimising the charge, risks and delays of currency exchange? (e-commerce)

• How well do you rationalise, co-ordinate and reduce the amount of documentation that accompanies your

exports? (e-mail, fax, document management systems)

• Can you communicate effectively with your customers in their own languages? (special translation software,

desktop publishing)

Operations:

• How easy is it to schedule meetings or other events when people are busy? (networks, group calendaring, e-

mail, mobile communications)

• Can staff switch between jobs to cope with absence and changing work priorities? (networks, e-mail, group

calendaring)

• How well do you manage projects? (networks, e-mail, groupware, project management software)

• Do you find it easy to convert a customer’s requirements into a production schedule for the production or

service? (networks, database, e-mail, spreadsheets)

• How do you control the amount of paperwork you generate? Is it always in the right place at the right time?

(document management systems, e-mail, EDI, CD-ROM)

• Are you in control of your cashflow? (EDI, spreadsheets, e-commerce)

• How good are you at controlling overheads – office space, phones, travel, etc.? (e-mail, mobile

communications, videoconferencing)

Design and production:

• How good are the members of your teams at sharing ideas, even when they are not all based in one place?

(e-mail, video and data conferencing, groupware)

• Do you find it easy to know which of several versions of information (e.g. drawings, price, lists, etc.) to

work to? (networks, database, EDI, e-mail)

• Can you get work-in-progress approved quickly and cheaply? (EDI, e-mail, video and data conferencing)

• Is your design system suitably linked to your manufacturing and buying systems to cut time-to-market?

(networks, manufacturing resource planning software)



• Can you create support documents (manuals, safety guides, etc.) as fast as you can deliver the products you

make? (networks, Internet, desktop publishing)

• How well can you keep up with published information about new techniques and products that your

business could use? (Internet, Web site)

Managing information

• Do you find it easy to get a quick, accurate snapshot of your business’ overall performance? (networks, e-

mail, fax, spreadsheets)

• Is everyone in your business able to contribute to business planning, no matter where they are or how busy

they are? (networks, e-mail, spreadsheets, video and data conferencing)

• Does your business know ways round information ‘bottlenecks’ (where communication is slowed down)?

(networks, e-mail, EDI, Internet, mobile communications)

• Do your systems help you capture meaningful information and discard the meaningless? (groupware,

document management systems, networks)

• Are you able to find relevant files and records easily and quickly, including archived company information?

(CD-ROM, document management systems, networks)

• Do you and your colleagues find it easy to organise large amounts of information so that it is available as

and when needed? (networks, database, scanners, CD-ROM)

• Can your business present accounts in a way that non-financial staff can comprehend? (spreadsheets,

desktop publishing)

Customer service:

• Do your systems enable staff to deal with routine customer enquiries quickly and devote time to more

complex customer needs? (e-mail, networks, document management systems)

• Are you able to track and immediately report on work-in-progress when taking care of a customer enquiry?

(document management systems, networks)

• Can you exchange complex information (drawings, schedules, specification etc.) with customers, regardless

of time and place? (video and data conferencing, Internet, e-mail, EDI)

• When away from the office, can your field staff access all the information they need to complete any job on

site? (mobile communication, CD-ROM, Web site)

• Do your systems enable you to collect and act on customer feedback? (Internet, e-mail)

After deciding on a particular issue to address, you will need to find out more about the technologies suggested

as the potential business solutions. A good starting point is reading through the other publications of ISI:

• ‘Doing Business in the Information Society – how to apply communication technologies to help yourbusiness’.

• ‘How technology can work for you’ Series – seven how-to guides book investigating in detail at implementingthe internet and World Wide Web, e-mail & fax, mobile communications, videoconferencing, CD-ROM,networking and EDI in business.

• Multimedia@work - containing case studies on the use of multimedia technologies.

All of the above publications can be found at the UK Online for Business Web site:

• http://www.ukonlineforbusiness.gov.uk/Advice/advicepublicationsframe.htm



Activity (Suggested Time: 30 minutes)Assume you are employed by an IT department in a construction firm. The firm has asked you to prepare a

document for a workshop on strategic planning and ICT auditing.

How would you proceed with the task?What will be the likely content of the document ?

Technology in Organisations Implementation of technology in organisation and business processes requires the reassessment of issues in a

broader context. Technologies are often assumed as being ‘plug-and-play’ entities, while studies have shown

that introducing them without addressing their social-economic dimensions (e.g. business needs, culture, learning

requirements and incentives) can cause problems. It has been established that most technology invested for

operational purposes in the past failed because of the lack of strategic planning. Betts et al. (1993) and the UK

Construction Task Force (1998) noted the importance of defining business context and sorting out culture prior

to the use of technology. In the property professions, similar observations have also be made.

These observations imply the need for co-evolutionary systems between technology and its social dimensions as

indicated in several literature sources i.e. ‘technology strategy connection’ (Earl 1989), ‘technology push vs.

strategy pull’ (Betts et al. 1993) and ‘co-maturation model’ (Hinks et al. 1997, Aouad et al. 1999). The latter in

particular was introduced to reflect the holistic use of technology interrelated with ‘people’, ‘culture’ and

‘process’. These systems correspond to the e-commerce developments within the field of organisationalinformatics which foster deeper understanding of technology and organisational change. With the emergence of

new and untested technologies for e-commerce which are associated with new customer and market needs,

organisational informatics will be a crucial field for nurturing e-commerce within and between organisations.

The following case studies will substantiate this and highlight the importance of considering non-technological

issues when organisations acquire new technologies. These studies are repeated here from Unit 1, pp20-21.

CASE STUDIES 1 - ‘CAN’T USE, WON’T USE!’ Recognising the potential of Lotus Notes, a suite of electronic publishing, digital library and communication

software, Price Waterhouse purchased the software to maximise knowledge sharing and collaboration among its

distributed offices (Orlikowski 1992). The ICT department regarded the software as revolutionary and expected

it to ‘catch-on’ within the firm. Staff were assumed to share this vision and would motivate themselves in

learning how to use it. The software usage was later found only to be central around the support staff in the ICT

department, while the targeted primary users, the consultants were uninterested, reluctant to devote their already

busy schedule, change their working habit to accommodate the learning requirements. Without proper incentive

schemes, the consultants would rather spend their ‘billable hours’ (i.e. 20-30 hours for initial training) to attract

new businesses, serving than learning a system whose value wasn’t clear to them. In contrast, a similar Notes

development in another consulting firm (Ernst & Young, [Davenport 1997]) is more successful with proper

management strategy in which the use of the technology was instructive and embedded within the business

processes.



CASE STUDIES 2 - ‘VERSION ANXIETY’The Price Waterhouse case described above is a classical example of technology discrepancies in organisations.

Technology discrepancies happen because the technology envisioned does not transpire as the technology in use.

This discrepancy is also affected by a current ICT management trend: the assumption that any advance of

technology is good. With the waves of new technologies (and their discourse) emerging from the state of e-

commerce, there is a tendency for managers to focus on technical sophistication and spend resources on

‘upgrading’ to bundles of sophisticated hardware and software. This can cause problems, such as the risk and

cost implications of investing in technology ‘not-used’, e.g. the recent warning over migration to Windows 2000

and the attack on the idea that ICT investments automatically lead to successful outcomes. Moreover, this

tendency can result in the neglect of the critical intangible requirement of technology implementation, for

instance business needs, integration and provision incentives and training, as demonstrated by the Price

Waterhouse case.

Activity (Suggested Time: 90 minutes)Read and write brief notes on the following articles under the Organisation Change section of the Conference

Proceedings of the Understanding the Digital Economy, http://mitpress.mit.edu/ude.html

1) Rob Kling and Roberta Lamb, IT and Organizational Change in Digital Economies: A Socio-TechnicalApproach

2) Wanda J. Orlikowski, The Truth is Not Out There: An Enacted View of the “Digital Economy, Conference

3) Kathleen M. Carley and H.J.Heinz, Organizational Change and the Digital Economy: A ComputationalOrganization Science Perspective

Intermediation DISINTERMEDIATION - CUTTING OUT THE MIDDLEMAN? Due to the efficiency of the the internet, the transaction costs for facilitating various online business functions is

reduced. As discussed in the earlier sections of the Unit, many routine business processes can be centralised and

automated through the effective use of ICT. These subsequently result in a situation termed disintermediation,which challenges many existing intermediaries with the possibility of role replacement. OECD (1999) typified

two possibilities which are applicable to the property and construction industry. The first involves intermediaries

referred to as ‘margins’ which are located between producers of tangible goods and consumers, e.g. distributors

within the construction materials supply chains. Disintermediation of margins may occur if material suppliers

and manufacturers choose to maintain relevant intermediary functions in-house and deal directly with customers.

The second category occurs in the service sectors (e.g. estate agents, consultants etc.) where information is

asymmetrically possessed. Through the capabilities in provision of information, e-commerce enables such

information to be obtained more readily and often without the intermediaries involved. For examples, virtual

estate agents may gain market share from existing players simply by making property information more readily

accessible. Studies have shown that current views on disintermediation are simplified and anecdotal. A common view is

that it is a phenomena unique to the internet. However, similar examples such as directing marketing already

exist in many conventional marketplaces. The impact of e-commerce disintermediation in the consumer sectors



is unlikely to be more pronounced than what has already occurred through various direct marketing mediums.

The role of intermediaries is often perceived as a single unified service (e.g. property surveying) which may be

dislodged altogether by the internet, despite its aggregated nature in the form of added value business processes,

such as customer support and location speciality. Think back to Porter’s Value Chain that we studied earlier.

The fact that intermediaries exist with economy of scale and scope in conventional marketplaces also indicates

their business value added abilities, many of which will not be simply replaced by the sole use of ICT.

The views of the property industry are that e-commerce and the use of the internet will not simply replace the

role of property professionals. This is due to the knowledge-intense nature of their work that does not just rely

on the availability of information. Property professionals exist because of their expertise in adding value to

property information. It is easy to buy CDs on the internet but buying an investment property is much more

complex. For many property deals, particularly expensive investments, the buyer needs to know a lot of detail

about the property. Personal contact may be necessary so that a full discussion can be mediated between the

seller and the buyer to define what is exactly the deal that will best meet the needs of both parties. Hence, for

expensive property investment deals and residential sales, personal contact and seeing the property may not be

replaced easily through the availability of information over the internet, and by clicking a mouse button. Rather

than acting as ‘information channels’, the RICS (Royal Institution of Chartered Surveyors) anticipates the role of

property professionals shifting towards that of 'information interpreter or manager' of more readily available

information, in a longer term. It may be possible for clients to obtain access to the basic market data on the Web,

and then for the property professionals to tell them what he/she thinks about the information. This view has been

echoed by Dunsmore-Hardy of the National Association of Estate Agents (see, Easier.co.uk case study above)

There is an assumption that new business dynamics occur in e-commerce which do not already apply in

conventional marketplaces. Work from the FAIR1 project has indicated that disintermediation is more often

associated with trade and competition policy, i.e. failures in responding to competition and defective working

relationships within the supply chain. ICT is often negatively regarded as the impetus of disintermediation,

rather than it acting as a catalyst for competitiveness. Research has shown that the use of ICT in supply chains

and the service industries can bring about opposite outcomes. Through economic theory (transaction cost),

Sarkar et al. (1995) have elaborated that a greater extent of intermediation or the emerging of new intermediaries

is likely to happen. In particular they concluded that ICT can reinforce existing intermediary structure andprovide new intermediary opportunities. In the property market, it is very important that the property

professionals must keep in close contact with buyers and sellers to keep them informed of progress. Success in

this type of marketing often depends on the strength of the relationship built-up between all the parties. The

technology employed by easier.co.uk, provides exactly the type of facility (e.g. just-in-time information tracking

of ‘property in a chain’) required to enable the functions discussed above. Does this replace the middlemen? Yes

and no. Yes, organisations that fail to respond to these changes will be eliminated – through competition, and

No, in the sense that new organisations such as easier.co.uk are the new middleman. You may also have

noticed that existing organisations are embracing ICTs. For instance, many existing estate agents are responding

to the new competition by enhancing their services through their own websites (e.g. the Edinburgh Solicitor

Property Centre website). We will look later into the use of ICT at a strategic level - the implementation of a

proper strategy for competitive advantage.

1 Forecasts and Assessment of Socio-Economic Impact of Advanced Communications & Recommendations, EuropeanCommission's project in the ACTS (Advanced Communication Technologies and Services).



RE-INTERMEDIATION The above discussion has indicated a greater extent of intermediation is possible through the reinforcement of

existing intermediary structures and new intermediary opportunities. Existing intermediaries can re-align

themselves within their marketplaces according to the e-commerce dynamics. This process, which is also

termed ‘re-intermediation’, coincides with the observation of the property professionals who envisage a shift of

their role from ‘information broker’ towards ‘information interpreters’. The OECD (1999) indicates that

intermediaries, such as property professionals, are less vulnerable to disintermediation because their services are

‘knowledge intense’ and add value to the information concerned. However, these indications should not be

interpreted as a pretext for complacency, given the current trends of knowledge driven innovation and

knowledge ‘commoditisation’ within the e-commerce dynamics. The latter particularly means the digitisation of

knowledge into products that can be marketed and managed in the same ways as tangible commodities, such as

books and CD. It is possible in the future that professional expertise can be readily purchased online, in digital

form. This also parallels the trend of innovation in services firms in which the terms ‘products’ and ‘services’

are interchangeable, and the current legislative developments in providing package and standard information in

the UK (England and Wales) property market to avoid ‘gazumping’ – what about buying a ‘seller pack’ online?

These trends are likely to affect the future role of intermediaries in the service sectors and may become the basis

for re-intermediation.

The second motivation for re-intermediation arises from the new and various requirements of the internet as a

trading medium, such as matching and establishing trust between new trading partners; facilitating secured

environments for business transactions. While the developments of business-to-business e-commerce

increasingly incorporate financial and legislative significance (electronic payments and electronic exchange of

legally binding documents), most of the current intermediaries are for information provision. The provision of

information is currently a high growth area of e-commerce. Existing firms and new start-ups are emerging to

provide online information services. These online information service providers are currently referred as

‘infomediaries’ (Information + Intermediaries). Given the current state of the internet with information

overload, the role of infomediaries becomes essential to enable businesses and consumers to find the right

information according to their individual and specific preferences. The following describes six categories of

infomediaries which are currently emerging in the e-commerce markets:

• Directories and search services - A directory service provides searching facilities for various types of

information such as indices of company websites and concise professional information. Directory services

can exist in the form of browseable (specialised) databases, or keywords search of generic database

(Infoseek, Lycos);

• Malls - A virtual mall has more than two commercial sites linked to it. It can be distinguished from the

above ‘directories’ category in terms of the additional infrastructure supports it provides for the hosted

commercial sites, e.g. virtual shop-front, online shopping carts;

• Spot market makers - An intermediary specialised in matching buyers and sellers of particular types of

products or services. It may function in various forms such as auction houses, barter network where goods

are exchanged (instead of paying with money);

• Virtual resellers - An intermediary who reuses and repackages existing product information and gears it

towards specific market needs. Usually product-focused, this category of agent does not carry any inventory

or sell products directly, but may provide added value to the information provided, e.g. advertising and

selling of specific category of book for a large bookseller;

• Publishers - Publisher websites that offer content for various purposes of consumption. They may appear

more or less as online newspapers or magazines;



• Forum and user groups - Facilitators for interactive information such as discussion, product-related

feedback, specific type of knowledge sharing. Product-related discussion groups for instance may be

created to connect consumers to producers.

The above models for infomediaries are increasingly being utilised by existing companies or new start-ups to

create competitive advantage or new markets. T he models can also be combined to provide various e-commerce

solutions, for instance virtual resellers (of a certain products) may also provide product news (publishers) and

organising online product discussion (Forum and user group). In the property professions, various

informediaries exist in some of the categories described. For instance, companies such as ESPC and Drummond

Miller may publish their own corporate news and service details (‘Publisher’); online directories of property

information (‘Directories and search services’).

Table 3 overleaf describes the intermediary models currently employed, with several additional models proposed

by the OECD. As we noted earlier, these models emphasise the role of infomediaries and are particularly geared

towards consumer-orientated transactions. The Table also shows several examples of existing intermediaries.

As the demands of business-to-business e-commerce grows, firms such as GE TradeWeb and Loren Data Corp.

(see the Table), are emerging to provide for more complete business procurement requirements, involving the

exchange of legally binding documents and electronic payments. To enable this within the property and

construction sectors, new intermediaries will be required to fulfil the specific transactional needs at various

stages of the construction cycle and this offers opportunities for new and existing businesses. In the later stages

of this Module we will have many opportunities to study the new e-commerce intermediaries in the industry.



Informationprovision

(infomediaries)

Legaldocumentexchange

Electronicpayments

(OECD models)

Directories Search services

Malls Publishers

Virtual resellers Forum and user groups Financial intermediaries

Spot market makers Intelligent agents

Evaluators/Auditor

(Examples) DETR Material Exchange 1

UKBRP 2 Realbid.com 3

Entrust Tecnhology Inc. 4 Certco 5

Netbanx Ltd. 6 GE TradeWeb 7

Loren Data Corp . 8 ProC-document ? ProC-payment ?

ProC-procurement ? ProC = Property and Construction

1 The DETR and BRE website that matches buyers and sellers of construction waste. (cig.bre.co.uk/connet/mie/)

2 Resource pages for building professions containing company directories and forums. (www.ukbrp.co.uk)

3 Offers various services for early procurement of commercial properties. (www.realbid.com) 4, 5 Provides consultancy and technology solutions for digital signature and various aspects (authentication, integrity, non-

repudiation) of certificate solutions for secured transactions of documents. (www.entrust.com and www.certco.com)

6 Provides a secure debit and credit card transaction clearance system developed for simple WWW billing and merchant

transactions. (www.netinvest.co.uk/ncr/netbanx/)

7 EDI ‘mailbox’ intermediary for small businesses to exchange purchase order, purchase order acknowledgment, invoice and

functional acknowledgment forms over the WWW, it also provides a directory for matching of potential trading partners.

(www.getradeweb.com/)

8 EDI services for private and public procurement in the US, include consultant listing and news on various government

procurement information. (www.ld.com)

Table 3: Intermediary Models



Activity (Suggested Time: 60 minutes)1. The music industry is currently undergoing many changes due to the implications of technologies for online

music provision such as a MP3. Conduct a PEST analysis of the music industry and a research into the

recent media coverage on this subject such as the rise of Napster (formerly a free internet facility for sharing

of MP3 files) and the legal proceeding against it - instigated by 5 largest music organisations. What are the

music industry response to the changes? Put your research into context by drafting an essay entitled:

‘Intermediation in the Music Industry’.

2. In this section we have focused our discussion on the property market, while new e-commerce

intermediaries are also emerging in the construction industry. Can you identify them?

SummaryIn this section of the Unit, we have looked at the interface between the organisation and its immediate PEST

environment and introduced environmental analysis as a means of monitoring the business environment. There

are many approaches for environment studies. We focused on the SWOT analysis and the basic ICT assessment

questions promoted by the UK Online for Business Initiative. Implementation of technology in any organisation

and industry has broader implications than technology considerations. This Section has considered some case

studies related to ‘organisational informatics’, and the industry wide views on the implications of e-commerce on

traditional intermediaries.

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