Research Report E-business performance measurement · 2009-11-06 · E-business performance...

E-business performance measurement:Internal processes explored

Research Report

C. Matthew Hinton, David Barnesand Suzanne Mieckowskza

Open University Business School

Copyright © CIMA 2005First published in 2005 by:The Chartered Instituteof Management Accountants26 Chapter Street London SW1P 4NP

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E-business performance measurement 1

Contents

Abbreviations and acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. Literature review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.1 The growth of e-business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.2 The performance perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.3 Performance issues in e-business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.4 A framework for understanding e-business performance assessment . . . . 7

3. Research design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93.1 Rationale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93.2 Operationalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93.3 Methods of analysis and interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

4. Findings from the case studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.1 Aon Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.2 Rebankco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.3 IKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124.4 Creditinsure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124.5 E-Insure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134.6 MM Holdings Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134.7 ARB plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.8 Pharmco. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.9 RER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154.10 E-financial Management Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164.11 Amplebosom.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164.12 Legalco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5. Analysis of e-business performance measures . . . . . . . . . . . . . . . . . . . . . . . . . 18

6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

7. Summary and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217.1 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217.2 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Appendices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Appendix A: The impact of e-business on the internal business processes

of organisations – a research project at theOpen University Business School . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Appendix B: Advance question guidelines for participants . . . . . . . . . . . . . . . . . 31Appendix C: Semi-structured interview question framework . . . . . . . . . . . . . . . 32

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

List of figuresFigure 2.1 Areas for e-commerce performance assessment . . . . . . . . . . . . . . 8Figure A.1 E-commerce business process framework . . . . . . . . . . . . . . . . . . . . 26

List of tablesTable 2.1 Barriers to e-commerce development . . . . . . . . . . . . . . . . . . . . . . . 6Table 4.1 Breakdown of the twelve case study organisations . . . . . . . . . . . . 11Table 5.1 Performance measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Table A.1 Cross case comparison (clicks-and-mortar) . . . . . . . . . . . . . . . . . . 28Table A.2 Cross case comparison (dotcoms) . . . . . . . . . . . . . . . . . . . . . . . . . . 29

E-business performance measurement2

B2B Business to business e-commerceB2C Business to consumer e-commerceDTI Department of Trade and IndustryEDI Electronic data interchangeEFQM European foundation for quality managementERP Enterprise resource planningICT Information and communication technologiesJIT Just-in-time MRP Materials requirements planningONS Office of national statisticsTQM Total quality management

Abbreviations and acknowledgements

We would like to thank CIMA (the Chartered Institute ofManagement Accountants), OUBS (the Open UniversityBusiness School) and the numerous case study collaborators.

Executive summary


This project examines the impact of e-businesspractices for internal performance measurement.Using a case study approach, we investigatetwelve companies in different industries,including both manufacturers and serviceproviders. The cases include companiesundertaking business to business (B2B) andbusiness-to-consumer (B2C) e-commerce, andclicks-and-mortar converts to e-business as wellas dotcom start-ups.

The key finding from the study is that there is littleperformance evaluation taking place despite a desireamongst organisations to do so. Currently, there is noagreement as to which performance measures are effective,or how accurate such measures are. We observe widespreaddifficulty facing businesses in trying to measure the benefitsof e-business.

This study has developed a framework that allows e-businessperformance to be mapped at various stages. We look at theinvestment decision, operational processes, and delivery orend-state measures.

We recommended that organisations should map theirperformance activity and that management accountantsshould play a key part in this. Further, that a comprehensiveset of measures should be developed to help driveperformance activity.

Our findings highlight that organisations should not justimplement new technology without considering how the newtechnology can redesign their processes. And organisations,management accountants and academic researchers shouldseek ways of tracking the positive impact of e-businessbenefits. We conclude that management accountants shouldbe encouraged to promote the use of both qualitative andquantitative performance measures within their organisationsand organisations should attempt to map their performanceactivity.

We believe that this is an important area of research andrecommend further study to discover the extent ofperformance measurement in other e-businesses.


E-business has been defined as

‘the sharing of business information, maintaining businessrelationships, and conducting business transactions bymeans of telecommunications’ (Zwass, 1996).

At its simplest, electronic business may be defined as

‘doing business electronically across the extendedenterprise’ (Till, 1998).

In the late 1990s, new technologies started to be developedthat have enabled the Internet to be exploited commercially.This has led to the emergence of e-businesses that haveincorporated the use of the Internet into their operations.These can be dotcoms who undertake most of their activitiesonline or traditional bricks-and-mortar businesses, who havetransformed themselves to become clicks-and-mortarbusinesses.

Although much attention has been focussed on these newe-businesses, it is unclear what impact adoption of e-businesspractices is having on the way performance of e-businessprocesses is measured. Some recent research suggests thatdifferent approaches towards business performancemeasurement has implications for the practice ofmanagement accounting (Marr, 2000). Consequently, theprincipal objective of the research reported herein is:

‘To investigate the performance measurement implicationsof e-business and identify how this differs from moremainstream approaches, given e-business’ role inintegrating the value chain.’

This research was undertaken as an integral part of a largerempirical study being undertaken at the Open UniversityBusiness School (OUBS) investigating the impact ofe-business on the internal business processes oforganisations. Particular focus was placed on understandinghow organisations engaged in e-business, operate theirbusiness processes for order fulfilment and delivery, andwhether there were any common patterns. This was based oncase studies of different organisational types, includingexamples of B2B (business to business) and B2C (business toconsumer) e-businesses, using interview based qualitativeresearch methods.

We undertook extended interviews in the first 12organisations in the existing study. These were designed toprobe key staff specifically involved in the performancemeasurement process.

The rest of this report is structured as follows. Section 2reviews the literature and develops the framework. Section 3describes the research methodology. Section 4 presents thecase study findings, Section 5 the analysis and Section 6presents the conclusions. Finally, Section 7 provides asummary and sets out recommendations and plans forfurther research. The substantive project is described in moredetail in Appendix A.

Note:Some writers seek to distinguish between the terms e-business ande-commerce. However, this report seeks to make no such distinction,and is happy to use the terms more or less interchangeably.

1. Introduction

2.1 The growth of e-businessThe growth of e-business applications has been identified asa key area for business process innovation. The commercialapplication of the Internet and worldwide web (www) hasbeen driven by developments in the USA, where 42% of UScapital investment is spent on enhancing informationtechnology annually. Furthermore, 35% of growth in US grossdomestic product has been associated with growth ininformation technology (Papows, 1999). In addition, onlinebusiness trade of goods is set to grow from $43 billion in1998 to $1.3 trillion by 2003 according to Putman (1999).In the UK an estimated 63% of companies have a web site(ONS, 2001) and total e-commerce revenues were worthover £11 billion in 2000 and are forecast to rise to nearly£200 billion by 2004 (Forrester, 2002). There are many claimsbeing made about the impact of the Internet and e-business.Consequently, it is proving difficult for consumers andbusinesses alike to distinguish between the hype and thereality.

This new technology has the capability to radically transformsome industry sectors and supply chains, regardless ofwhether they are service or manufacturing based. Currentdevelopments are driven not by changes in production andtransportation but by changes in co-ordination, reflecting anew emphasis on the interaction between a wide variety ofmanagers, brokers and agents ranging across global as well asorganisational boundaries. As Evans and Wurster (2000)explain:

‘Information is the glue that holds value chains and supplychains together. But that glue is now melting. Thefundamental cause is the explosion in connectivity and inthe information standards that are enabling the open andalmost cost-free exchange of a widening universe of richinformation. When everyone can communicate richly witheveryone else, the narrow, hardwired communicationchannels that used to tie people together simply becomeobsolete. And so do all the business structures that createdthose channels or exploit them for competitive advantage’.

These processes are equally as important in e-business asthey are in traditional business. Whilst a web site mightcapture or even create demand, the concomitant supplyrequired for customer satisfaction, depends on effective andefficient operations management. The management of thee-business supply processes appears to be a neglected area ofstudy. However there seems to be a growing recognition thatsuccessful e-business depends on the business processes thatfacilitate order fulfilment and delivery (e.g. Keating et al.,1999; Hall, 2000).

The way that these business processes are managed ine-business may vary according to a number of factors,including:

• The types of e-business – business to business (B2B) orbusiness to consumer (B2C).

• The product – whether physical goods or intangibleservices are dominant.

• Whether the organisation is solely e-business based or alsoengages in traditional business.

• Whether order fulfilment and delivery processes fore-business are integral to, or separate from, these processesfor any traditional business being conducted.

• Approaches to performance measurement.• Organisational objectives – profit seeking or not for profits.• Organisational size – multi-national, SME, etc.• The fit with existing information systems and business

processes.

E-business is a young field of study and most of thepublished work has come from practitioner journals. Therehave, to date, been few examples of e-business relatedresearch being reported in the academic journals. Thereseems to be a dearth of published research examining theimpact of e-business on internal business processes, althoughthere has been some work examining its impact on externalsupply chains (e.g. McIvor et al., 2000; Evans and Wurster,2000). Research in this area can also usefully draw on studiesof what in many respects is the precursor of e-business, EDI(e.g. Threkel and Kavan, 1999; Hinton and Lawrenson, 2000).

Appendix A offers a more detailed exploration of theliterature relating the importance of e-commerce businessprocesses and a theoretical framework for their study. Thissection continues by highlighting some of the key issues forthe performance management agenda. These are thendiscussed with respect to their impact on e-businessperformance appraisal.

2. Literature review


E-business performance measurement Literature review6

2.2 The performance perspectiveAccounting measures of performance have been thetraditional mainstay of quantitative approaches toorganisational performance measurement (Otley, 2001).However, there has been much dissatisfaction with usingfinancial measures to evaluate business performance. Manyorganisations worry that financial figures are better atmeasuring the consequences of past decisions than they areat indicating future performance (for example earnings pershare). In addition, traditional accounting measures often failto support the investments in new technologies and marketsthat are essential for successful future performance (Eccles,1991). In recent years, a great deal of attention has been paidto the development and use of non-financial performancemeasures. A range of specific indicators has emerged wherebyperformance is assessed against externally oriented measuresas opposed to the internal, historical focus of financialmeasures. These include, for example, assessments of thequality of products and services, such as defect rates,response times, delivery commitments and so on. This hasmeant that performance can be assessed throughout a supplychain, spanning the operations of several organisations. Threefurther areas for non-financial measures are market share,customer satisfaction and benchmarking. Benchmarkinginvolves identifying competitors and organisations in otherindustry sectors that exemplify best practice in some processor activity, and comparing performance. The externalemphasis of benchmarking leads to radical improvementswhich would not be recognised by internally focusedmeasures (Holloway et al., 1999). Given this new perspective,Kaplan (1995) observes that there is a clear need formanagement accountants to accept the validity of lessquantifiable benefits and to translate strategic intent intooperational and managerial measures. Furthermore, Kaplanpoints out management accountants need to move awayfrom being ‘score keepers of the past to become designers ofthe organisations critical management information systems’.With part of this message in mind, a number of approacheshave been developed which attempt to bring togetherfinancial and non-financial measures into one coherentframework. The most widely used approaches are thebalanced scorecard and the European Foundation for QualityManagement (EFQM) scheme. The balanced scorecard(Kaplan and Norton, 1996) has proved particularly popularbecause it makes an explicit link between the strategiesadvocated by an organisation and the performance measuresused to monitor and control strategic implementation. Thereis not an all encompassing set of measures that are suitablefor all organisations, rather specific measures need to bedevised for specific circumstances. Furthermore, this approachdevelops performance measures which map on to the mainorganisational stakeholders (financial, customer, businessprocess, and innovation and learning) so that key successfactors are identified in each area (Otley, 2002). This helps tomake the distinction between capital investment appraisaland on-going performance.

2.3 Performance issues in e-businessInformation technology (IT) has long been used as a changeagent leading to greater efficiency and effectiveness. Thegrowth of the Internet and the opportunities this offers fore-business represent the latest phase in the application of IT.Whether for dotcom start-ups or for establishedorganisations converting to clicks-and-mortar, the move toe-business requires considerable financial investment, not justin IT but in changing processes and people. A recentquestionnaire, explored the degree of e-commerce activitytaking place, how and why organisations are engaged ine-commerce, and the factors that inhibit its development(Hinton and Lawrenson, 2000). Respondents from 954organisations identified what they perceived to be the mainbarriers to e-commerce development. These are shown inTable 2.1:

Table 2.1 Barriers to e-commerce development

Barriers Respondents %

Process change(change to existing ways of working) 447 46.8

Linkup with existing systems(legacy problems) 436 45.7

Implementation cost and financial barriers 361 37.8

IT skills shortage 342 35.8

Lack of customer take up 329 34.5

Transaction security 278 29.1

Lack of proven benefits 250 26.4

Legal issues 238 25.1

Total number of respondents = 954

The three main barriers posed by process change, technicalsystem legacy and implementation cost can all be seen aswithin an organisation’s control. By contrast, the otherbarriers tend to fall beyond organisational boundaries and areissues for government, specific industry sectors and the widereconomy. How then do companies justify such investments,and having made the investment how should they evaluateits worth? To do this requires some kind of performancemeasurement system for e-business. However, this isproblematic as a wide variety of new e-business models haveemerged which offer the potential for generating newrevenues or savings through electronically enabled processes.E-business offers the potential for incremental processchange (for example reduced cycle times, better sales andmarketing activity), and/or radical process change (throughdeconstruction and disintermediation, i.e. dismantling andreformulation of traditional business structures).Consequently, the degree of integration with existingprocesses varies widely. Accordingly, it is difficult todisaggregate the contribution of e-commerce channels fromthe entire portfolio of traditional business channels. Marr andNeely (2001) suggest that whilst these new business modelshave been explored, their performance measurementapproaches and needs have not. For these reasons, creating asingle benchmark or set of all-encompassing performancemeasures for e-commerce applications is not feasible (Jutla etal.,1999). Applegate and Collura (2000) have identified avalue framework which includes operating performance,knowledge assets, community penetration and brand equity.However, this has yet to be translated into a set of measureswhich can be applied generically.

Whilst the dotcom companies do not have a historicframework for investment appraisal it might be expected thatlonger established businesses would adopt a morehard-headed approach to investments in e-business. It might,therefore, be expected that such clicks-and-mortarorganisations would have clarity in their objectives for theire-business and about the level of performance from theire-operations needed to achieve those objectives. Thus, itmight be expected that successful established businesseswould follow good practice by setting clear businessobjectives in e-business and by linking those objectives tooperational performance that can be measured through anappropriate performance measurement system (Neely et al.,1996). However, investment in IT generally has provedproblematic as a number of intangible elements exist thatcannot be measured easily if at all (Hinton and Kaye, 1996).Equally, there has been a failure to establish any relationshipbetween IT investments and productivity gains (Lucas, 1999;Strassmann, 1999; Ward et al., 1996).

Many companies have found that whilst setting up a websiteis relatively easy the fulfilment of orders offline isproblematic because systems are not sufficiently efficient toseamlessly pass on order information and complete the orderwithout error and/or delay (Cox and Dale, 2001). Unless thegoods and services required by customers are producedefficiently and delivered effectively, neither customersatisfaction nor profitability can be achieved (McGuffog,1999). Achieving a competitive advantage in e-commercedepends on the extent to which the increase in connectivityoffered by the Internet can be harnessed to improveefficiency and effectiveness in the business processes thatproduce and deliver goods and services. As Dedhia (2001)argues success in the e-economy demands ‘continuousbusiness improvements … (from) … quality and businessprocess breakthroughs … (and) … constant improvements inresponding to customers’. Proponents of Total QualityManagement (TQM) have long advocated its application toan organisation’s business processes as a means of achievingsimultaneous improvements in efficiency and effectiveness.Consequently, Chou (2001) calls for the integration of TQMinto e-commerce. Dale et al. (2000) also note the potentialfor TQM to ensure the effective management of keyprocesses necessary for success in e-commerce. Theimportance of the management of business processes to theachievement of business excellence and quality improvementare emphasised by the central role assigned to them in manyof the models of business excellence, like those of the EFQMand Baldridge National Quality Award. The next sectionattempts to make sense of the disparate areas whereperformance measures have been used to assess e-businessapplications.

2.4 A framework for understanding e-businessperformance assessmentThe literature suggests that there are four areas where theperformance measurement of internal business process ine-business may be assessed. These are:

• Investment measures surrounding the selection andimplementation of an e-commerce system.

• Performance measures for incremental processimprovements.

• Performance of radical process changes.• End-state measures surrounding the performance of the

end product or service.

E-business performance measurement Literature review 7

E-business performance measurement Literature review8

With business conducted electronically, managingperformance means measuring both business processes andIT systems, because the two are inextricably linked and notalways easily distinguished. This has given rise to a range oftechnical performance measures that seek to measure therelative performance of the system response times,information flow and scalability in terms of the number ofusers and transactions a system can support (Jutla et al.1999). However, it should be noted that these measures onlyshow the performance of the systems supporting thebusiness processes and are not substitute for measuring theprocesses themselves.

End state measuresEnd state measures attempt to capture the performance ofthe fulfilment and delivery of goods and services. Intraditional business processes this may include assessmentsof customer satisfaction, sales and marketing activity. Forexample, WebQual is a method of providingcustomer-focused evaluation of web sites. The method isbased on the SERVQUAL methodology normally used inmore traditional business scenarios. Initial research suggeststhat WebQual can detect subtle differences in how Internetstores interact with customers (Barnes and Vidgen, 2001). Afurther area for e-business performance assessment centreson the measurement of web page hits and the subsequentratios with customers generated and repeat customers.

Figure 2.1 attempts to make sense of the key performanceareas in terms of business process flow:

Investment measuresInvestment measures reflect the financial appraisalorganisations engage in when making significant investments,especially in new technologies. Some of the reasons why thisis problematic have already been discussed, but it is worthnoting that the processes that an e-business application willinfluence are not taken into account using traditionalinvestment measures such as economic ratio appraisal (e.g.payback, return on capital employed, cost benefit analysis) oreconomic discounting appraisal (e.g. net present value,internal rate of return). One notable exception is the work ofLloyd et al. (2000) who have explored newprocess-focused measures, including analysis of theconfiguration of processes, in an attempt to assessprocess-technology interactions that may lead tocompetitive advantage. This appraisal method allowsinvestments to be compared by profile, rather than by simplemetrics such as NPV or payback in which most of theunderlying assumptions are obscured. Irani and Love (2002)report a shift in the post-implementation evaluation ofinformation systems from a process embedded in capitalbudgeting to one that recognises IT as integral to the fabricof an organisation’s infrastructure and as such a necessityrather than a choice. There appears to be little controversythat traditional capital budgeting is still valuable, but thecontentious issue is the degree of involvement financialappraisal should play.

‘Conversely, the lack of widespread application of manystrategic, analytical and integrated techniques, whichwould appear to partly address many of the shortcomings,may be considered to be due to their complexity,subjectivity and high dependency on resource for selectionand application’ (Irani and Love, 2002).

Performance measuresThere is potential to measure the performance of e-businessapplications by applying conventional process and valuechain measures to internal business processes and externaloperational processes at various points in a supply chain. Thisis easier to achieve where e-commerce has createdincremental process improvements, as processes arefundamentally the same as with traditional businessprocesses. By contrast, where e-commerce leads to radicalprocess changes, as with a reconfigured business model, it ismore difficult to devise measures for performance. Radicalprocess changes represent a slimlining of business processeswhich often leads to a blurring of both inter andintra-organisational boundaries, making performanceidentification problematic (Chorafas, 2001; Evans andWurster, 2000).

Figure 2.1 Areas for e-business performance assessment

Investment measures

Process and supply chain measures

Investment appraisalat implementation

End state measures

Performance of end product,service or supporting technology

Performance ofradical process

changes

Performance ofincremental process

efficiencies andeffectiveness

3.1 RationaleThis research is empirically based, its main aim being toidentify current, emerging practice in the management ofe-operations. As such, the research is essentially descriptive incharacter. This, as Meredith et al. (1989) argue, is the startpoint of the ‘the normal cycle of research’, in whichdescription is used to form the basis for explanation whichcan then be tested against reality until, through a series ofresearch studies, a theory can eventually be built. Theresearch seeks to examine the internal business processes oforder fulfilment and delivery in e-businesses, identifying anycommon patterns and contingent organisational andenvironmental variables. This requires a level of detail andin-depth understanding that is almost certainly best achievedthrough a case study approach. A case study is ‘an objectivein-depth examination of a contemporary phenomenon withinsome real-life context where the investigator has littlecontrol over events’ (Yin, 1994). Although both operationsand information management have strong quantitativemethodological traditions, calls for more qualitative researchhave been answered with increased case study work(Benbasat et al., 1987; McCutcheon and Meredith, 1993). Forareas where there is a paucity of empirical research andexisting theory seems inadequate, case studies may offer aroute to theory building (Eisenhardt, 1989; Meredith, 1998).

This research project therefore uses a case studymethodology to study organisations from amongst thoseengaged in e-business. This research is qualitative in natureand the sample of companies included is not intended to berepresentative in a statistical sense. Unlike quantitativeresearch, which uses statistical inference to generalise from asample to a larger population, qualitative research relies onlogical inference. As Yin (1994) points out ‘case studies aregeneralisable to theoretical propositions and notpopulations’. Where there is more than one case, replicationlogic can be used to generalise more widely. Kvale (1996)notes that the issue of qualitative generalisation has beentreated particularly in relation to case studies. Voss et al.(2002) assert that ‘case research has consistently been one ofthe most powerful research methods in operationsmanagement’ but acknowledge that it is more widely used inEurope than elsewhere. They further note that one of thechallenges of the method is the need to exercise care inattempting to draw ‘generalisable conclusions from a limitedset of cases.’ They suggest that triangulation may be used toincrease validity. Thus, early case studies may providebreakthrough concepts and theories which could then befurther tested through quantitative methods. In this way, itwould be possible to obtain a level of breadth, based onstatistical analysis, which would add to the depth obtainedduring the qualitative phase of the research.

3.2 Operationalisation Gathering sufficient data on business processes can only beachieved from within an organisation, therefore access to theorganisation was deemed a prerequisite for this study. AnOUBS questionnaire, which addressed broad issues to do withthe take up of e-business, identified a number oforganisations that were willing to participate in the study. Inthis way, the case companies were gathered not so as torepresent any kind of statistical sample, but rather, on theopportunistic basis of which companies were willing topermit sustained access for interview purposes. The generalapplicability of the case selection is not viewed from apositivist paradigm given the phenomenological nature ofthis study. Accordingly, it is possible to generalise from a veryfew cases, or even a single case, if the analysis has capturedthe interactions and characteristics of the phenomena beingstudied. It therefore follows that the patterns, concepts andtheories which have been generated in a particularenvironment can be applied in other environments (Husseyand Hussey, 1997).

Data collection was principally through semi-structuredinterviews with executives with responsibilities for e-businessactivities within the organisations. Semi-structured interviewsgive researchers the freedom to explore interesting avenuesfor investigation as they emerge. It is particularly importantto be able to get close to the key organisational actors, notonly to gather factual data from them, but, perhaps moreimportantly, to gain an understanding of actions andmeanings in their context (Bryman, 1988). The interviewquestions were based on the theoretical frameworkdeveloped from the literature discussed above, to focus andbound the work. Seven central themes were identified:

1. context for e-commerce2. motivation for e-commerce3. internal changes arising from e-commerce4. external changes arising from e-commerce5. managing the process6. evaluating the use of e-commerce7. performance measures for e-commerce.

The prime source of data for this report was provided frominterviewees’ responses to themes six and seven, however,their responses to the other theme also provide valuablecontextual data. Interviews were conducted face-to-face,mostly at the organisations’ premises during 2001 and 2002.

3. Research design


E-business performance measurement Research design10

3.3 Methods of analysis and interpretationData analysis was undertaken using the Atlas.ti qualitativedata analysis software package. Atlas.ti is very similar to theNUD-IST software for the analysis of qualitative data. Texts –in this instance, the interview transcripts – were formattedand pulled into a hermeneutic unit within the frameworkAtlas provides. In Atlas the hermeneutic unit consists of theprimary documents, and the codes, quotations, memos andnetworks which are generated from the primary documents.Atlas is less well known than NUD-IST, although it performsall the same functions, and has the benefit of an enhanced,thus more intuitive, user interface. In analysing theinterviews, a preliminary set of pre-determined top levelcoding categories (based on the conceptual framework) wasimposed on the data, as recommended by Dey (1993). Hisadvice was also followed in the subsequent development oflower level codes within each category, as suggested by thedata. This is an iterative process because ‘categorisation ofthe data requires a dialectic to develop between categoriesand data’ to ensure that the categories are ‘groundedempirically and conceptually’, and that the analysis achieves‘reliability, efficiency and flexibility’ (Dey, 1993).

This section of the report contains the analysis of the 12 casestudy organisations. A synopsis for each case company isprovided in the following sections. Each case company isdescribed in turn, emphasising how the adoption ofe-business applications has changed its business processesand how the organisation has responded to this with respectto performance measurement. Where requested by thecompanies, pseudonyms are used and some case material hasbeen disguised in order to protect confidentiality.

As Table 4.1 illustrates, these include three manufactures, fivefinancial service providers, one legal service provider and oneretailer. Eight are in B2B e-commerce and four in B2C. Eightare clicks-and-mortar companies and four are dotcoms.

Table 4.1 Breakdown of thetwelve case study organisations

Clicks-and- B2B B2C mortar Dotcoms

Manufacturers 3 3

Financial services 5 2 5 2

Legal services 1 1

Retailers 1 1

Total 8 4 8 4

4.1 Aon LtdThis case examines the use of e-commerce within thereinsurance and specialist insurance divisions of the UKsubsidiary of a large US insurance broker. E-commerce is usedin business-to-business (B2B) dealings, as the companyoperates as an intermediary between its corporate clients andunderwriters on the London insurance market. The companyis focusing its e-commerce activities mainly on its ‘low-value’business, where the risks to their existing business areperceived to be low, and the potential benefits fromcost-savings high. E-commerce is primarily used in thecompany’s supply market where a secure website offersaccess to information for underwriters. In some instances,depending on the quoting arrangements, a structuredworkflow enables the contract to be negotiated whollyelectronically.

The company has not integrated its e-business processeswith other internal business processes. The e-commerceprocesses are run separately from all other processes and thestaff that handle e-commerce do not handle any otherbusiness. As such, e-commerce has brought little internalchange for most of the company. At the same time, thereappears to be a high degree of internal information systemsintegration, and considerable effort seems to have been madeto overcome legacy system problems. The company has alonger-term strategy in place to continue to extend anddevelop its e-commerce activities, with the aspiration ofbecoming a technological leader within the industry.

Currently, the company’s main motivation for engaging ine-commerce stems from the threat of competition and thepotential for disintermediation by insurance companiesdealing directly with clients. The company is also attracted bythe efficiency and cost-savings offered by e-commerce. Themain issues and obstacles identified by the company arecultural issues around the acceptance of new technology, andthe reluctance to move away from the face-to-face dealingwhich has been fundamental to the maintenance of trust onwhich the insurance industry relies.

The company has not used any pre-implementationinvestment appraisal techniques nor do they post-analysecost-benefits of IT/IS investments. However, they have beenkeen to develop performance measures that capture broadprocess improvements, such as metrics for volume and valueof e-commerce trading and the number of underwriters whoparticipate in a given month. These measures are adaptedfrom conventional measures for this industry.

4.2 RebankcoThe case concerns the central mortgage office of a large retailbank. Previously, mortgage sales were obtained fromcustomer contact with mortgage advisers based in localbranches. Customers who wished to secure a loan wererequired to fill in an application form manually, which wouldthen be posted to the bank’s central mortgage office forprocessing. Here the application would be progressed byconducting credit checks on the applicant and a valuation ofthe property to be purchased. Alternatively, customers couldapply over the telephone by calling the central mortgageoffice directly. Here, operators would take the caller’s detailsover the telephone, completing an application form for thembased on the verbal information provided. As part of thebank’s move to Internet banking, it is now attempting tomove some of its mortgage services online. However, thecompany’s retail website presently only has a ‘call me’ buttonto trigger a telephone call to the customer from the centralmortgage office.

The situation is complicated by the fact that the bank hasrecently taken over a major competitor, whose mortgageproducts are more developed than those of the bank;applicants are able to submit a mortgage applicationelectronically. The online mortgage applications are currentlystill processed within the former competitor’s offices. Thebank is in the process of merging the two operations, butcurrently it is obliged to run them in parallel. When theoperations are merged, all mortgage applications will be dealtwith by the bank’s central mortgage office. Whether receivedonline, by telephone or by post, applications will be handledby the same staff, using the same business process.

4. Findings from the case studies


E-business performance measurement Finding from the case studies12

Although e-commerce in the form of Internet retail bankingis a priority for the bank, online mortgage applicationprocessing is not. However, the bank is carrying out furtherdevelopment of its website and intends to extend the onlineapplication process to its own mortgage products. The bankfeels that a clear demonstration of customer benefit frome-commerce will be a significant issue in generating moreonline mortgage business.

Rebankco have not conducted any formal investmentappraisal and have a limited set of formal performancemeasures. They measure the number of visits to the website,product sales and some customer profiling, but do notproactively manage this. With this in mind, the bank isdeveloping this measure so that it is possible to measure thenumber of online applications enquiries with the number ofcompletions and to measure a customer fall off rate. Initialresults suggest that fall-off rates online are greater than fortraditional applications and the bank is looking to respondwith greater online support for customers. Rebankcorecognise that the measures they are working with only focuson the front end and that they are not capturingperformance of their full end to end process. This is in partdue to the problems they are experiencing with integratingthe e-commerce channel with existing processes.

4.3 IKSThe company is a multinational UK-owned insurance broker,placing insurance business for clients, advising on riskmanagement and providing funds management. Two yearsago, the company launched a web-based system aimed atmedium-sized company customers whereby claims could bereported and their progress checked electronically. Clients stillhave the choice at the moment of having their records issuedon paper, on CD or on a disk. But the company wouldeventually like a direct, electronic site-to-site transfer ofrecords. Loss adjusters can also interrogate the system tocheck policy cover. The company’s most recent e-commerceventure is the provision of the facility, through a partnerorganisation, to trade all insurance products and claims overthe Internet. The company has also set up partnerships withaffinity groups and is working with them to set up web-basedlinks to insurance products.

The organisation’s main objective in the use of e-commerceis to improve efficiency. It has many branch offices, bothdomestic and international, but can foresee a time whene-commerce will allow for a reduction in their number. Thecompany seems acutely aware of the cultural and socialissues involved in electronic commerce, recognising thatyoung people in particular are becoming used to workingwith e-commerce and expect to have products and servicesavailable over the Internet, often on an around-the-clockbasis.

The company does not conduct any formal performancemeasurement of its e-commerce activities. They point outthat where information is initially obtained from a website,and subsequently confirmed by telephone, there is an issue ofwhether performance measures would be tracking anelectronic, or a telephone transaction. The company doeshave financial measures by which it assesses its conventionalbusiness operations. Additionally, it reconciles a monthlybudget against the branch offices each month, but this is notbroken down into conventional versus electronic transactions:

‘We don’t break that down between the different methodsso one of the problems is that you may only besubstituting the benefits you will have got from existingchannels anyway.’

Clearly, the main obstacle IKS sees to developingperformance measures for its electronic operations is theproblem of disaggregating their benefits from thecontributions made by the other business processes.

4.4 CreditinsureThis insurer is a European-owned company whose mainbusiness is export credit insurance. The company has a ‘dualstrand’ e-commerce strategy, that comprises (1) business thatcan be confined within the existing clicks-and-mortarprocesses; and (2) a spin-off business (E-insure, described onthe next page) that offers an integrated automated on-linecredit and risk management package for online tradingcompanies.

The parent organisation’s e-applications are used to enhanceservice-side processes. It has developed a web-basedcommunication tool which allows applications for creditinsurance to be posted and agreed electronically, via adocument and messaging system. The communication tool isalso used as a marketing device for the company’s otherservices, e.g. debt collection. The parent company also uses itswebsite to try to market directly to clients, for example,inviting them to submit their details in return for a regularnews and information service.

The company’s motivation for e-commerce has been mainlyto achieve efficiency gains through customer-friendlyapplications, and greater information transparency. At thesame time, the company appreciates that there is reluctanceon the part of some of its clients to move to e-commerce.The company does not maintain live processing links with itssupply chain partners, the underwriters and the re-insurers. Itrelies on the existing system of three to four year writtencontracts. Present concerns about e-commerce relate to therole of the company’s intermediaries, primarily brokers, andhow they will fit with future strategy for online business. Atpresent some eighty per cent of the business comes throughintermediaries.

Evaluation of e-commerce activity focuses on two areas.Firstly, Creditinsure look at this from a cost of transactionperspective. However, it is difficult to isolate the contributione-commerce makes as part of the whole service offering.Secondly, Creditinsure analyses costs prior to, throughout andpost project completion. These broad project investmentmeasures are difficult to apply as invariably the scope of thee-commerce projects changes. Nevertheless, as a broadmeasure Creditinsure find project evaluation a useful activity:

‘One thing we do is we evaluate our projects, make sure weare getting the sorts of benefits that we envisaged in thefirst place, and therefore compare numbers. Have we beenable to reduce, for example, certain numbers of people?Have we been able to see that our costs of maintainingservice-side relationships with clients is reduced? It’s thosesorts of things that we look at’.

Given this, a key performance area is the assessment ofcustomer retention rates and Creditinsure use customersurveys to assess customer perceptions of their service,including e-commerce system efficiency.

4.5 E-insureE-insure is a dotcom start up, spun out from Creditinsure(described on the previous page). The company is an attemptto harness the connectivity of the Internet to developbusiness that is considered to be outside of Creditinsure’sclicks-and-mortar operation. E-insure is an online provider ofcredit services to companies that trade online. Its productoffering is based on proprietary software that enables it toscreen and verify potential purchasers for credit worthiness,and insure the credit risks. It operates as an invisible portal,through which its clients can interface with their customersusing the clients’ own websites. This enables its clients toutilise their own names as they are recognised brand tradersrather than using E-insure’s own brand, which is notsufficiently recognisable.

When the company was first launched the overallperformance measures they first used were the number ofclients it signed, rather than profitability. As the company hasdeveloped its online offering to the out-sourced creditmanagement model, the primary measure of success is stillby and large the number of ‘signed contracts’. However, nowthat the business has been up and running for around twoyears, there is an increasing feeling that revenue generatedneeds to become a greater focus for performanceassessment. E-insure is now very much focused on the ‘cashburn rate’ and there is a lower tolerance for a high burn ratethan there had been at start-up. Consequently, steps havebeen taken to reduce costs, mainly through out-sourcingsome of E-insure’s own internal functions. Performanceassessment of internal functions has been undertaken withthis in mind, and the company now has what it describes as‘pay as you go’ HR, and ‘pay as you go’ legal departments.

There are specific performance measures which are applied tothe actual credit management process. Data is prepared on amonthly basis, and reviewed by the company. Key measuresare the number of registered buyers, number of transactionsper buyer, number of problem transactions as a percentage oftotal transactions, the number of dunning (reminder) letters,and responses to dunning letters. In addition, the averagevalue per transaction and the type of client that the companyis serving are measured. Traditional measures that any creditmanagement company would expect to apply are trackedclosely. These include time delay on invoice payments, buyerconcentration of sales, sales from certain types of buyers(either on a geographic or industry sector basis) or whetherone buyer represents a large proportion of a seller’s sales.Invoice measures include days overdue, average days overdue,and average days that sales are outstanding. E-insure believesthat it can provide a level of detail on all of this informationthat would not normally be available, and attributes this tothe electronic systems that it uses to track transactions andinvoices.

4.6 MM Holdings LtdThe company is a London based market-maker, primarilytrading shares in small and medium-sized companies. Thecompany has recently moved from a bricks-and-mortar to aclicks-and-mortar business model. Previously, all sharedealing was done over the telephone, but recently thecompany has developed a web-based information system toprovide information to investors and enable them to buy andsell shares online. The online trading facility is aimed at smallprivate investors, rather than large-scale institutionalinvestors whom the company expects will remain astelephone traders. Despite the move to some online trading,the company has not yet made significant changes to itsinternal operations. All share transactions are channelledthrough the dealers, whether they are received via telephoneor via the website. The company has recently invested in newinfrastructure for its internal information systems, enabling areduction of back office staff by approximately one-third.

The company’s main motivation in using e-businessprocesses is to test the connectivity of Internet-basedoperations. The company is seeking to transfer what itdescribes as its ‘bread and butter’ B2C trade from thetelephone dealing system, into a discrete, online systemwhich can nurture and operate a specialist, niche market. Thecompany maintains that online dealing can improveefficiency through lowering transaction costs, and will alsoenable the company to charge lower fees. Although theonline trade is described as low margin business, thecompany will achieve acceptable returns if volumes are high.The company hopes that its move to e-commerce will attractnew investors.

E-business performance measurement Finding from the case studies 13


MM Holdings have found it difficult to devise a performancemeasurement framework that captures these areas. Theyhave tried measuring website hit rate against turnover butthis has not been a useful measure as not all turnover isattributable to the online channel and hit rate does notrecord how many hits become online business or the volumeof that business.

4.7 ARB plcARB is the UK arm of a major European metals producer,serving a specialist niche market with a range ofmade-to-order products. The company has created aspecialist industry portal, developed in conjunction with anumber of its European competitors. The portal facilitatesaccess to all the participating companies’ websites therebyoffering a one-stop shopping facility for multiple products viaa group of suppliers. It enables customers, suppliers and otherdivisions within the company to communicate moreeffectively with each other. The collaboration minimises thecosts of establishing an e-channel for each of the suppliersand aims to enable the participants to compete moreeffectively with producers in other parts of the world, andencourage greater use of these products rather thanalternative materials.

Once accessed via the portal, ARB’s website operates at twolevels. Entry is via an open area, with general information. Thewebsite also has a search facility to enable customers toidentify which of the portal’s suppliers manufactures theproduct they require. From this website, only registeredcustomers are then allowed to access the secure websites ofeach of the portal’s companies. The ARB website seeks toaddress the needs of the full range of the different functionsof customers’ business from designers and specifiers,purchasing, accounts payable and so on. From the website,approved customers can make enquiries, request and receivequotations, place orders, receive acknowledgements, testcertificates, despatch notes and invoices. Additionallycustomers can register order queries and complaints, whetherthese concern the quantity or quality of goods despatched.Customers can track and trace their orders in themanufacturing process. Information on order progress isupdated every 24 hours, and late and potentially late ordersare flagged. ARB believes its website will offer an improvedservice to its customers and reduce its transaction costshelping it to survive in a fiercely competitive market.

The introduction of e-commerce had forced ARB to assessnew business technology in terms of how it can improveoperations rather than for its technical excellence. Itse-commerce applications capture a tremendous amount ofinformation and they are developing a performancemeasurement framework to utilise this resource. For example,every interaction they have with a customer is logged andreported on weekly at two levels. At a technical level there isa need to check the performance of the system to ensurethat user experience is satisfactory and that it continues todeliver the operational utility customers expect. At accountmanagers level the system provides feedback from thecommercial perspective in terms of customer perceptions. Sothe thrust of these measures is towards evaluating customerexpectations. Whilst no formal investment measures wereused, an initial business case was produced prior to systemimplementation. The case centred on gaining significantadvantage by improving customer experience. This hasprovided the backdrop for the process measures beingdeveloped. Given this, ARB state that they are interested in:

‘Understanding the amount of cost, not the product cost,but people cost that goes into managing a given customer.It’s not only about customers, it’s what route an ordercomes in. We want to understand the through cost for ane-transaction’.

The measures ARB use have not changed greatly with theintroduction of the e-commerce platform, but the system hasallowed ARB to analyse sales and orders to a far greater depththan conventionally, and to generate a far clearer picture ofprocess performance.

4.8 PharmcoThe company was founded as a research and developmentorganisation. It has recently received a government licence tomanufacture and sell its products, mainly therapeuticpharmaceuticals. The company is not using e-commerce insales, but rather, as a communication tool between its varioussites in the UK, the US, and Australia. It needs to be able tomanage documents very securely, as well as to control itsinventory of raw materials. It is also developing e-commerceapplications for financial accounting, and setting up linksbetween its various logistics groups and the accountsdepartment, with that information made available across keymanagerial functions. The company aims to move towardselectronic ordering. It presently uses a manual system, basedaround faxes, written and telephone orders. The companywould like to use e-commerce processes in order to assistproduction planning, especially as it requires and relies onspecialised, certified raw materials, and needs to be able tocheck on their availability. However it feels that it must firstget its manual systems running properly. As a small company,investment in IT poses two significant problems. First,specifying costly hardware that will not rapidly becometechnologically obsolete is problematic. Second, there areissues around software and IT training. There is a lack of timein which to provide training, which tends to be done on asemi-formal basis (e.g. during lunch hours).

The company does not have any formal financialperformance measures for e-commerce in place. Projects arereviewed upon completion in order to learn from theirsuccess or otherwise. The company’s main objective is tobring down its costs of goods sold. In aiming to achieve this ithas identified key success factors. One key success factorhere would be using an inventory management system toreduce its inventory levels. Whilst focussing on metrics likestock levels the company also recognises that it needs tomeasure the performance of its inventory informationavailable for all key managers. In a small company which atpresent has no revenue, finance is inevitably an issue. Thecompany quite freely admits that there are many issues thatit is facing in both understanding and implementingtechnology, and says that it would tend to spend anyadditional available resource on increasing manufacturingcapacity rather than on implementing electronically basedinformation systems and processes. However, theintroduction of its e-commerce systems has been thecatalyst for the company to develop a performancemanagement framework where the performance benefitsthat the system offers are recognised as being interwovenwith incremental improvements in other business processes.The performance of radical processes changes, to do withnew arrangements for linking the internal processes of thecompany across geographically spread sites, are provingharder to measure.

4.9 RERRER manufactures a range of industrial equipment usedmostly in fluid processing applications. As its products aretechnically complex, and its customers geographicallydispersed, the company mostly sells through agents anddistributors, who can offer the level of expertise required toensure that customers order the most appropriate equipmentfor their requirements.

Historically, RER received new equipment enquiries fromcustomers via sales agents or distributors. The enquiry wouldbe routed to the internal sales office via a letter, fax, ore-mail, where an RER engineer would select the correctproduct for the requirement by using paper based productperformance data. The customer would then be sent aproposal including price, normally via a fax. If the customerwanted to proceed, he would need to raise a purchase order,which when received by RER was then manually entered intothe RER central computing system and manufacturinginformation systems.

RER has developed a software tool to assist with equipmentselection, quotation and order entry. The tool sits as aweb-based interface between the organisation and itscustomers via an RER password-protected extranet. Byentering relevant required performance factors, the tool thenselects the appropriate product, prices it, provides allsupporting documentation (engineered drawings etc.) andgenerates a fully detailed quotation to the customer. If thecustomer decides to order the product, the program createsan order file that can be electronically transmitted to RER’smanufacturing computer system creating the seamless entryof the customer order. The tool is installed on an individualPC, normally that of the sales agent, but some customershave also installed it. The main function of the software toolis to support RER’s local agents, to ensure the best technicalsolutions are offered to customers and to reduce lead times.It has, also enabled RER to reduce its own headcount.

RER has a separate e-commerce tool for spares sales. Thisenables customers to place orders for spares via the RERextranet, accessible to RER’s registered customers. Theextranet displays real-time data on price and availability ofspares. Each customer has its own unique password, whichenables RER to offer differential prices to individualcustomers. Customers can place their orders on the website,indicating the selected parts number and quantity. Theextranet then sends a file through to RER’s central computersystem so that the spare part can be ordered, scheduled, andin due course picked and shipped. To encourage e-commerceuse, RER also offers a discount on spares ordered via the web.Over 80% of orders are now placed in this way. Use of theextranet speeds up the entire order cycle. Customers are alsoinvoiced electronically, and debtors days have been reducedsignificantly.

RER’s main motivation for its use of e-commerce is todifferentiate itself from its competitors by being a serviceleader, recognising that it can not hope to compete on pricealone. The company does not know whether its on-lineordering tool is increasing sales, arguing that in any event, itwould be difficult to know if any increase in sales areincremental or substitutional. This has made performancemeasurement problematic. The company believes that oncecustomers adopt e-commerce applications they will becomereliant on them and would not like to see them withdrawn.As such, RER sees e-commerce as a means of locking-incustomers and distributors to the web-based ordering processthereby raising the barriers to exit. The company has notmeasured customer perceptions yet, but plans to find acustomer oriented measure that identifies if additional ordervolumes are linked to their use of the e-commerceapplication.



4.10 E-financial Management LtdThis small financial management company runs the financeand accounting function for other companies and providessome financial consultancy services. The company’s maincustomers are SMEs, often themselves technology,computing or service-based, where many of the businessprocesses lend themselves to the online model. E-financialManagement describes itself as a ‘halfway house’ because itsservices are both traditional and e-based. Although started asan on-line only business, it soon recognised that some of itsclients were not willing or able to use a fully onlineaccounting solution. The original motivation in setting up thecompany was to exploit the benefits of e-commerce within ahighly information rich environment, but this has to someextent had to be scaled back because of the value manyclients put on face-to-face dealing. Technology remains a keyissue for the company. The company’s own internal systemsare not yet fully integrated because it has been unable to findan appropriate software package. Externally, integration isalso problematic. The issue is not one of client confidentiality,but rather of the necessary software and technologyplatforms to enable E-financial Management.com to accessthe necessary transaction information between its clients andtheir bankers.

It is perhaps not surprising that of all the case companies,E-financial Management is the one most focused onperformance measurement. It maintains that appropriate andaccurate methods for assessing e-business have not beenfully developed, and while this is the case, traditionalmeasures for performance assessment remain applicable andare still effective. Most of these are financial, but thecompany does use ‘softer’ measures in assessing its internalstructure and staff effectiveness. Central to this is theidentification of utilisation rates for staff, and relativecomparison of performance of e-commerce systems throughinvolvement with benchmarking activities with differentorganisations and through DTI initiatives. In the future, thecompany would like to develop an online solution that can beused with much larger clients. At the moment it feels that theaccounting package it provides is adequate for SMEs, but notfor very large clients. The way forward lies both in finding theright technological solution, and making the investmentcommitment to that solution. The company recognises thatas the online offering is expanded appropriate newperformance measures will need to be developed to managethis expansion.

4.11 Amplebosom.comThe company sells specialist clothing, mainly aimed at theolder customer, as well as those who may have difficultyfinding what they require elsewhere. Amplebosom.com beganlife as a mail order business and it retains its printedcatalogue alongside its online operations. They feel that thisapproach allows customers to ‘look through the shopwindow’, find what they require and order in the way theyare most comfortable with. The company says it is aiming, asfar as possible, for a P2P (person to person) focus in itsbusiness model. Technology has been, and remains, a keyconcern for the company. Online customers e-mail theirorder, and those ordering from the printed catalogue order bytelephone or post. Whatever the method received, all ordershave to be re-keyed into the company’s main system. Thecompany’s lack of a more integrated system is largely due tobad computer advice at start-up. The company has noInternet links with its suppliers and it has to fax all orders. Itdescribes some of the suppliers as being ‘in the Stone Age’and not prepared to do business online, or with a smallcompany. The company outsources its delivery, websitedesign and computer maintenance operations.

As with many of the other case companies, very little formalperformance measurement is carried out:

‘Once we’re making money and measuring that our ordersare getting despatched within 24 hours, then what do wemeasure after that?’

Nevertheless, the company feels that it has a reasonableknowledge of its customers, although it maintains that ‘untilyou’ve sold to a lot of customers, the figures don’t meananything.’ Given this, they recognise the need to measurecustomer perceptions of service and retention figuresresulting from marketing activity. The company is currentlytrying to build up further sales and a brand for itself throughmarketing efforts. Accordingly, they are looking to refine theirunderstanding of their customers through end statemeasures such as customer perceptions, value and frequencyof orders.

4.12 LegalcoThis is a London based dotcom, employing around 25 people,that was set up two years ago by a team of lawyers. Thecompany believes that access to law requires access toinformation. Information is at its most powerful when it ispresented simply and without jargon, and the bestdisseminator of information is the Internet. Through Legalco’swebsite, clients, whether individuals or companies, can accessa range of free or very low cost (via an annual subscription)legal advice services 24 hours a day. The site also enablesclients to purchase reduced or fixed price packages for suchthings as conveyancing, will writing, etc., for individuals andpersonal injury claim settlements for small companies. Thewebsite hosts a directory that enables people to ask forquotations from law firms in their local area. The law firmspay a fee to be included in the directory. The companybelieves the main advantage of its dotcom model is theanonymity offered to customers, at least in their initialapproach for legal advice. Legalco has continued toexperiment with its operations and its products. The companyblock purchases such commodities as conveyancing anddivorce processing. Its main role is to check reliability andquality of its suppliers. Legalco has a number of high profiledirectors and backers from the legal and banking professions.A major motivating factor was the desire to reshape the legalindustry, which it sees as backward and inefficient. As such itsspecific operational objectives are speed and efficiency, aswell as increasing the company’s PR profile through itsInternet presence. The company says that it has very goodtechnical staff and has not experienced any significantproblems of functionality. The venture has been a greatsuccess, generating very positive cashflow.

Financial measures form the mainstay of how they evaluatetheir e-commerce activities:

‘It’s dead simple. Cash in the bank. That’s it. There’s nothingmore complex than that.’

Despite this clear financial emphasis, the company measuresa range of other performance indicators which associatetechnical and customer focussed measures. For exampleclick-through rates help inform its thinking about how itsbusiness processes can be reconfigured to provide additionalrevenue. However, it is the more intangible areas ofperformance assessment that are the most challenging. Withthis in mind, Legalco is experimenting with how best to seekfeedback from customers about their experience, usingfollow-up emails and phone calls. It is also keen to try tomeasure the quality of it’s suppliers (the law firms andbarristers it deals with). It has always been very consciousthat the money invested in the company relies on processesand expertise to be successful.



This section brings together the variety of performanceactivities observed in the 12 case organisations. Table 5.1presents the specific performance measures identified in thecases, with respect to the e-business performance assessmentframework presented in Section 2.4.

In the majority of circumstances the case study companieshave yet to establish a formal performance measurementframework for gauging the performance of their e-commercesystems. They see this as being hampered by difficulties inseparating out the benefits of the e-commerce system fromthe rest of the organisational processes. In the case of IKS,their e-commerce system is interwoven with their telephoneoperation so disaggregating benefits is problematic. Equally,the implementation of e-commerce applications demands alevel of integration with existing business processes. Thisassimilation of the new technology is an ongoing process,making the fixing of performance measures problematic (aswith Rebankco).

Investment measuresGenerally there is a lack of investment appraisal. The majorityof companies do not conduct either any investment appraisalor post-analysis of the costs and benefits of e-commercesystems. One exception is Creditinsure who analyse costsprior to, throughout and post project completion. These broadproject investment measures are difficult to apply asinvariably the scope of the e-commerce projects change.Nevertheless, as a broad measure Creditinsure find projectevaluation a useful activity. The dotcom companies tend tofocus on general profitability measures for the business as awhole, rather than specific investment appraisal (Legalco usecash flow as a proxy measure and E-insure look at revenuegeneration and cash burn rate). However, this is a featurecommon to a lot of small and medium sized organisations. AtARB no formal investment measures were used, however aninitial business case was produced prior to systemimplementation. The case centred on gaining significantadvantage by improving customer experience and this hasprovided the backdrop for the process measures beingdeveloped.

Process measuresA number of organisations have tried developing a range ofprocess measures. Measures include the volume ofe-commerce business, and the number of users. For example,Rebankco will try to capture application completions andcustomer fall off rates. Aon Ltd record the number ofunderwriters using the system, whilst E-insure record thenumber of registered buyers, number of transactions perbuyer and percentage problem transactions. In addition,E-insure record the average value per transaction and thetype of client that the company is serving are also measured.Traditional measures that any credit management companywould expect to apply are tracked closely. E-insure believesthat it can provide a level of detail on all of this informationthat would not normally be available, and attributes this tothe electronic systems that it uses to track transactions andinvoices.

Process measures have not changed greatly for e-commerceapplications within the manufacturing companies (ARB andRER) and are invariably adapted from conventional measures.For example, at ARB every interaction they have with acustomer is logged and reported on weekly at two levels. At atechnical level there is a need to check the performance ofthe system to ensure that user experience is satisfactory andthat it continues to deliver the operational utility customersexpect. At account managers level the system providesfeedback from the commercial perspective in terms ofcustomer perceptions. So the thrust of these measures istowards evaluating customer expectations. In recognisingthat their e-commerce processes are embedded with theirgeneric business process, Pharmco have taken a holisticapproach and are trying to use traditional measures acrossthe whole range of processes. This of course means that theyare not able to isolate the contribution made by theintroduction of e-commerce.

End-state measuresThese commonly focus on some assessment of customerperceptions of the service they receive. For example, where atangible good is supplied organisations are trying to measurecustomer satisfaction with delivery and retention figuresresulting from marketing activity (e.g. Amplebosom). Where aservice is provided more qualitative measures are utilised.Creditinsure assess customer retention through the use ofcustomer surveys. Legalco is experimenting with techniquesto measure customer perceptions of quality.

There is a clear desire amongst the case companies tomeasure the contribution of their e-commerce applications.However, problems arise concerning the issue of what tomeasure and how accurate the newer measures are (see forexample ARB, E-insure). The speed of change in terms ofapplication development, customer take-up and thereshaping of industry sectors complicates the identificationof performance measures. Some organisations haveresponded by transferring traditional measures, but theseonly begin to capture incremental process changes. Wheree-commerce creates radical change none of the casecompanies have found a means of measuring theperformance of this new process and industry structure (forexample Creditinsure).

5. Analysis of e-business performance measures

E-business performance measurement Analysis of e-business performance measures 19

Case

Aon Ltd

Rebankco

IKS

Creditinsure

E-Insure

MM Holdings

ARB plc

Pharmco

RER

E-FinancialManagement

Amplebosom

Legalco

Investment measures

No formal investmentmeasurement ofe-commerce activities.

Broad project investmentmeasures.

Some financial measures:revenue generated asfocus for performanceassessment, alsointerested in cash burnrate. These measuresrelate to process.

No formal investmentmeasures instead aninitial business case wasproduced.

Some assessment ofcashflow.

Process measures

Volume and value of e-commerce trading.Number of underwriters in a given month.

Measure website visits, product sales andsome customer profiling.Developing a measure for online applicationsenquiries and completions to measurecustomer fall off rate.

Budgeting measures but problemsdisaggregating e-commerce operations fromother business processes.

Number of ‘signed contracts.’Number of buyers, number of transactionsper buyer, number of problem transactions aspercentage of total, the number of reminderletters.Invoice and sales data.

Website hit rate against turnover.

Through cost for an e-transaction.Analysis of sales and orders.

Performance benefits that the system offersare recognised as being interwoven withincremental improvements in other businessprocesses, so attempting to apply traditionalmeasures.

Adaptation of traditional performancemeasures.Utilisation rates for staff.Comparison of e-commerce systemsperformance through benchmarking activities.

Order completion measures.

Trying to measure the quality of suppliersfeeding into their processes.

End-state measures

Assessment of customer retention rates.Customer surveys to assess customerperceptions of service, includinge-commerce system efficiency.

Plans for customer oriented measurethat identifies if additional ordervolumes are linked to e-commerceapplication use.

Trying to measure customerperceptions, value and frequency oforders with a view to understandingcustomer retention.

Customer feedback on experience.Click-through rates.

Table 5.1 Performance measures


This section presents the findings in terms of the key themesthat have emerged. These concern the motivation fore-commerce, e-commerce’s influence on business processchange and the subsequent impact on performancemeasurement. Lastly, the implications for future research areconsidered.

Based on the evidence, we can conclude that there areill-defined motives for the adoption of e-commerce, and thate-commerce applications fail to lead to radical and/orintegrated process change. Applications are currently treatedas an isolated entity, kept apart from the traditionaloperational processes. In part, this reflects the degree ofexperimentation taking place. It is against this backdrop thatthe case organisations have tried to assess the performanceof their e-commerce applications with varying success.

The main conclusion from the research is that there is a lackof formal performance measurement in e-commerce, withlittle evidence of any evaluation of the impact ofe-commerce investments or of the performance ofe-commerce operations. Where formal performancemeasures are applied, they are used on an ad hoc basis andthere is no agreement as to which e-commerce performancemeasures are effective. Common performance measures arefrequently adapted from existing, traditional measures, wherethese exist. One area of interest that is emerging is the needto measure the performance of customer perceptions ofusing these new business channels.

6. Conclusions

7.1 SummaryThis project has examined the impact of e-business practicesfor organisations in their measurement of the performance ofinternal business processes. However, before performancemeasurement activity could be considered it was firstnecessary to understand some of the business processesbeing reshaped by the new technology.

The broader research project has identified various models ofthe business processes used for order fulfilment and deliveryin e-business. These were drawn from a variety of case studyorganisations. The cases helped to explore potentialdifferences in the key dimensions of manufacturing versusservice organisations, business to business versus business toconsumer operations, and clicks-and-mortar organisationsversus dotcom startups.

As discussed in Appendix A, a number of key themes haveemerged. A central theme is the availability of the technologythat is driving investments in e-business. Organisationsseems to be driven by a fear that they will be placed at acompetitive disadvantage if they fail to adopt e-business.Consequently, there is no clearly articulated strategicperspective. Further evidence of this is that e-businessinvestments are only automating existing processes. Theirpotential to redesign processes is largely being overlooked.This situation is compounded by the lack of integrationbetween e-operations processes and traditional processes.E-operations are being run as a discrete set of processes outof a desire to reduce the risk to the existing business or touse the e-business systems as a learning exercise prior to anyexpansion of these operations. The lack of process integrationis also being hampered by legacy system issues. Problemsassociated with the incompatibility of existing informationsystems and e-commerce applications are believed to be amajor encumbrance to information system integration. This isalso driving the isolation of e-business operations frommainstream operations.

Clearly, this context has implications for the application ofperformance measurement techniques. Scant attention isbeing paid to the performance evaluation of either ongoinge-operations, or to evaluating the impact of e-commerceinvestments. Given the importance of e-commerce to thesecompanies and the cost of some of the investments made,this seems surprising. A logical assumption might be thatthese initial investments in e-commerce would be subject tothe closest scrutiny, as organisations seek to determine thefuture scope and direction of their e-business. Where formalperformance measures are applied, they are used on an adhoc basis and there is no consensus as to which e-commerceperformance measures are effective. This seems a neglectedarea of study and practitioners are evidently confused.Despite this, several of the case study companies areexploring or adapting potential longer-term performancemeasures and applying these at various stages of theire-operations. This study has attempted to map theirperformance activity onto a framework which recognises keyareas for performance measurement. These are:

• Investment measures surrounding the selection andimplementation of an e-commerce system.

• Performance measures for incremental processimprovements.

• Performance of radical process changes; and• End-state measures surrounding the performance of the

end product or service.

The use of this framework has highlighted some interestingfindings. The case companies exhibit a clear desire to measurethe contribution of their e-commerce applications. However,problems arise concerning the issue of what to measure andhow accurate these measures might be in the new context.The broad lack of investment appraisal or post-analysis ofcosts and benefits has already been mentioned. This situationis compounded by the difficulty in isolating benefits andattributing them solely to the e-business application, and inmany cases the scope of the project shifts significantly overtime making the initial investment scenario obsolete.

7. Summary and recommendations


E-business performance measurement Summary and recommendations22

Several organisations have tried to develop measures thathelp to identify the performance of their e-operationsprocesses. The most successful of these measures tend toadapt existing measures that would be used to measuresimilar operational activity within traditional operations. Thesuccessful application of these measures occurs wheree-commerce represents only an incremental processimprovement. Assessing the performance of radical processchange is proving more illusive. In this way the tendency fore-commerce to merely automate existing business processesappears to have some benefits in terms of the transfer ofperformance related knowledge and the comparability ofperformance data between traditional operations ande-operations. Similar findings were evident betweenmanufacturing and service organisations. Interestingly, someorganisations have begun to take a holistic approach and areusing conventional measures across the entire organisation.The value of the organisational level measures is traded offagainst the inability to isolate the contribution specificallyattributable to their e-operations.

Some organisations are using end-state measures as asurrogate performance measure. The focus is on theperformance of the end product or service. This appears to beof most benefit where e-operations were introduced toimprove some component of service delivery. Accordingly, themeasures being developed tend to be qualitative in natureand address key issues around customer satisfaction,retention and perceptions of service or product quality.

This research has highlighted several interesting areas forfurther study, summarised in the recommendations below.Our continuing research will explore and develop furthermany of the issues raised in this report, including theorydevelopment.

7.2 RecommendationsSeveral recommendations can be made as a result of thefindings of this project. These reflect both general guidanceon the adoption of e-business technology for operationalactivity as well as specific guidance related to the assessmentof organisational and process related performance. Theconclusions also provide an indication of the issues forfurther research.

Several important themes have emerged from this study (seeSection 6) and the broader study (see Appendix A).Consequently, further attention needs to be paid to theongoing motives for developments of e-commerceapplications. At the same time there is a need to understandwhy organisations are limiting the scope of their e-commercesystems. Furthermore, what implications (and limitations) arethere from the integration of existing processes with the newprocess opportunities offered by e-commerce technology?

Given this:

Recommendation 1: organisations should consider howthe new technology can redesign their processes.In particular, they need to consider how this might be used tofacilitate the integration of their own internal operations aswell as the operations of their supply chain network. In thisregard, organisations should be mindful of the potentialtechnological issues associated with system integration.

Naturally, these issues have consequences for theperformance management of e-business operations. Howuseful are the initial, somewhat tentative measuresorganisations are using and how could these be refinedand/or adapted for future scenarios?

Recommendation 2: organisations, managementaccountants and academic researchers should seek waysof tracking the positive impact of e-business benefits.The benefits reported as a result of investment in e-businesstechnology have generated savings from operationalefficiencies. However, these benefits are proving hard tomeasure. They include for example improved informationflow and better relationships with customers. Furthermore,organisations are keen to measure performance despiteproblems concerning what and how to measure performancein this fast changing area. The difficulty in measuring suchbenefits does not diminish their significance. Quite thereverse, their importance should encourage all concerned(organisations, management accountants and academicresearchers) to seek ways of tracking their positive impact. Assuch:

Recommendation 3: management accountants should beencouraged to promote the use of both qualitative andquantitative performance measures within theirorganisations.With this objective, it is recommended that:

Recommendation 4: organisations should attempt to maptheir performance activity.A suggested way of achieving this is to employ theframework for performance measurement developed as partof this study. This recognises the key areas whereperformance of an e-business application may be considered.Further research is required to assess the usefulness of thisframework as a way of understanding e-commerceperformance, and to explore the range of specific measuresorganisations are currently using within this context. Onerecommendation would be:

Recommendation 5: for management accountants andacademic researchers to develop a comprehensivetoolbox of measures that organisations may use as adriver for performance measurement activity.CIMA should consider ways in which it might encourage itsmembers to promote this process. In addition, it may beappropriate to test the transferability of good practice inperformance measurement between organisations, bothwithin and beyond industry sectors. In this regard, it will beuseful to assess whether the toolbox of measures is anappropriate vehicle for this transfer of knowledge.

In order to further this agenda it is necessary to continuework with the existing case study organisations to provide alongitudinal dimension. This will mean that an assessmentcan be made of the applicability and robustness of thespecific measures in use over time. It is also desirable toextend the range of cases. Whilst the existing cases haveprovided a reasonable spread of organisational types (forinstance services, manufacturers, B2B, B2C, dotcom start-ups)it is inevitable that results will be limited in terms of theirrepresentativeness. Accordingly:

Recommendation 6: further cases and survey work shouldbe sought to expand the range of industry sectors andscope of performance measurement practice.Indeed, the cases so far have offered substantial qualitativeunderstanding of the issues surrounding performancemeasurement and e-commerce, and it may be appropriate toconduct large scale survey based work to discover the extentof performance measurement practice in other e-businesses.

E-business performance measurement Summary and recommendations 23


The impact of e-business on the internalbusiness processes of organisations –a research project at the Open UniversityBusiness School

Appendix A describes the existing research being undertakenby the Open University Business School (OUBS).

BackgroundThis work investigated the impact of e-business on theinternal business processes of organisations. Particular focuswas placed on understanding how organisations engaged ine-business operate their business processes for orderfulfilment and delivery, and whether there were any commonpatterns in their business processes.

E-commerce business processesThe literature from both operations management andinformation management can usefully inform the study ofe-operations. Although operations management andinformation management have evolved from different roots(operations management from scientific management andoperations research; information management fromcomputer science) they have some common conceptualunderpinnings. Three principal commonalities are: systemstheory (and in particular the transformation model), theconcept of process flows and the differentiation betweenconstituents of hardware and software.

An operation can be thought of as an activity in whichresource inputs are transformed into outputs. This mayinvolve the transformation of customers, materials andinformation in the production of outputs of physical goodsand/or intangible services (Slack et al., 2001). Traditionally theacademic study of operations has tended to focus onoperations at the micro-level (e.g. Vollman et al., 1997).However, modern approaches to operations managementtake a more holistic view of organisational activity,emphasising the linkages between the variousmicro-operations that constitute an organisation’smacro-operations. From this follows the idea of a businessprocess as a logical sequence of interconnected activities thatuse organisational resources to create products and servicesto meet customer needs (Childe et al., 1994). Suchperspectives of operations fit well with the broader strategicmodels of organisational activities, such as Porter’s (1985)

value chain. Operations management is especially concernedwith the business processes that comprise order fulfilmentand delivery. The business process literature (using titles suchas business process improvement, business processreengineering and business process redesign) drawsextensively on systems theory (Armistead and Harrison,1995). This literature emphasises that business processes arelikely to cross boundaries inside organisations (typically thosebetween functions) and between organisations. Thusoperations management needs to be viewed holisticallywithin the broad context of the organisation rather thanwithin the narrow confines of a functional discipline(Armistead and Machin, 1997). Supply chain managementtakes the business process perspective of operationsmanagement further, and goes beyond the boundaries of theorganisation to encompass relevant operations inside theorganisations of suppliers and customers (and suppliers’suppliers, and customers’ customers).

The notion of flow, as exemplified in the business processperspective, is prevalent in operations management.Techniques such as production flow analysis, processflow-charts, and service blueprinting are widely used toassess the movement of materials, people and informationwithin business processes.

Writers taking a strategic perspective, notably Hayes andWheelwright (1984), distinguish between two broadelements of operations management: structure (the physicalelements of operations especially the nature, extent andscope of its technology) and infrastructure (the way in whichthe technology of the operation is planned and controlled,the quality managed, the workforce managed and organised,etc). These may be thought as the hardware and softwarerespectively, of operations management.

Information management literature also displays these keyfeatures of transformation, flow, and soft and hardinfrastructures. Like operations management, systems theoryunderpins much of the thinking in information management(Checkland and Holwell, 1998). The transformation model liesat the heart of the consideration of any information system,although its focus is the processing of information. Similarly,the analysis of information flows is central to theunderstanding of information systems. As with operations,the boundary-spanning property of information isemphasised. The added value to be realised from information,as input and output to business processes, has beenrecognised throughout and between value chains, mostnotably by Porter and Millar (1985) and with respect toe-business by Evans and Wurster (2000).

Information management also has its own set of methodsand techniques to aid this analysis (e.g. SSADM, data flowdiagrams, systems flowcharts etc.). Commonly, thesemethods identify a system as having a set of inputs, a set ofoutputs, and a set of processes that convert inputs to outputs(Avison and Fitzgerald, 1995).

Appendix A

The differentiation between hardware and software has longbeen a key consideration in information processing, despitethe inextricable link between the two. Indeed, the recent andrapid application of information technologies seems mainlyto be driven by a kind of technological determinism fromwithin the organisations that these technologies serve.

Consequently, the study of the processes of order fulfilmentand delivery in the Internet era necessitates an understandingof the interaction between operations management andinformation systems (Lyons, 1998). As Grover and Malhotra(1999) note,

‘this interface is critically important at this juncture,particularly more so since it is highly relevant and not verywell understood’.

Yet this is not virgin territory. The impact of e-commerce onsupply chain management has clear echoes of a previous ITapplication in operations management, namely EDI (Threkeland Kavan, 1999). The business process re-engineering (BPR)literature emphasises the use of IT in the transformation ofoperational activity (Knights and Willmott, 2000; Jahnke andTijok, 1998; Loeffler et al., 1998) and the impact ofinformation systems integration on business processimprovements (Bhatt, 2000; Weerakkoddy and Hinton, 1999).However, previous research has mostly focussed on ITapplications which were commonplace prior to thewidespread adoption of the Internet and its associatedtechnologies. For example, Venkatraman’s (1994) frameworkfor assessing IT-driven organisational change could, perhaps,be used in the examination of transformations driven by theadoption of e-operations. However, as it precedes the adventof e-commerce, both historically and technologically, it mayhave its limitations.

The dramatic increase in connectivity offered by the Internetcan create almost unlimited information flows within, andespecially into and out of organisations. It can be conjecturedthat the successful adoption of e-commerce in anorganisation’s operations will largely depend on the extent towhich information flows can be harnessed to enhance themanagement of the affected internal business processes. AsAmar (1999) argues,

‘how well a business of any form or size repositions itself inthe marketplace and adjusts its practices in the light of theevolving principles of the Internet will decide for it thedifference between success and the struggle for survival.’

Therefore, the implications for e-operations, including thepotential benefits available, seem to centre on the degree ofintegration that an organisation can achieve within andbetween its business process and its information systems.Industries are finding the adoption of Internet-based forms ofe-commerce a more complex process than they hadanticipated. This is particularly the case when this adoptioninvolves integration with internal applications systems andexisting methods of doing business (Chan and Swatman,2000).

A Framework for e-commerce business processesInvestigation of the management of business process in ane-commerce organisation needs to consider the extent ofintegration both internally and externally. Consideration ofintegration can be drawn together under three headings thatcan be used as the basis of a theoretical framework forempirical research (Barnes et al., 2002).

Business process integrationInternal business process integration concerns the extent towhich the business processes for e-commerce within aclicks-and-mortar organisation (i.e. one conducting bothe-commerce and traditional business) are integrated with thetraditional business processes. External business processintegration is the extent to which the business processes areoutsourced, including the extent to which any suchoutsourcing for e-commerce is integrated with outsourcingfor traditional business. Another key concern is how theinterface with the external supply chain, forwards andbackwards, is managed, especially any disintermediatingeffects of the new technology. Equally, where there isre-intermediation, or the formation of strategic alliances, lackof standardisation can be a key issue. As Choi and Whinston(2000) state,

‘e-commerce business interoperability is built upontechnological interoperability, which provides an opencomputer and networking structure. However,technological standards at the infrastructure level arerelatively easier to reach than those at the applications andbusiness process levels.’

Information systems integrationThe consideration of information systems integration needsto encompass the extent to which information systems areintegrated internally (both across functions, and betweene-commerce and traditional activities) and externally (alongthe supply chain to suppliers and customers). It also needs toinclude the extent to which existing (i.e. legacy) informationsystems are able to facilitate integration (e.g. through the useof EDI, ERP or CRM) or, indeed, to circumvent the Internetaltogether. As Davenport (2000) says,

‘EDI is sometimes described as an expensive technology,but its costs pale in comparison to the human costs ofagreeing on information and process standards’.

E-business performance measurement Appendix A 25

E-business performance measurement Appendix A26

The operating contextDue regard also needs to be paid to the operating context inwhich e-commerce is taking place. This can be consideredunder three broad headings: customer context, e-commercecontext, and organisational context. The customer context isthe extent to which the organisation is engaged in B2Band/or B2C e-commerce. As Mahadevan (2000) notes,

‘the Internet economy allows an organization to positionitself at an appropriate level of the supply chain, dependingon the nature of its business’.

The e-commerce context is concerned with the presentbusiness model (i.e. whether it is a dotcom, or aclicks-and-mortar organisation), the path to that model andthe extent to which the business processes and informationsystems have had to change to facilitate the adoption ofe-commerce. The organisational context concerns factorssuch as the organisation’s objectives (profit-seeking ornot-for-profit), its size (multi-national, SME), itsorganisational culture, its industry sector, and other relevantfactors that influence its business activities. Figure A.1illustrates this theoretical framework, demonstrating theinterrelationship between these factors.

Figure A.1 E-commerce business process framework

Operating context

Focus: MNE, SME, for profits,not for profits

E-commerce model: clicks-and-mortar,dotcom start-up

Customers: B2B/B2C

Business process integration

Internal: clicks and bricks processes

External: outsourcing of clicks processesbetween clicks and bricks processes

Information systems integration

Internal: across functions between clicksand bricks processes

External: with customers/with suppliers

Research objectives The main objectives of the work undertaken at OUBS were:

• To identify and describe various models of the businessprocesses used for order fulfilment and delivery ine-business.

• To identify how various organisational and environmentalfactors may affect or constrain its choice and operation ofthose processes.

• To develop a series of testable propositions that will formthe basis of future research projects in this area.

Research methodsExamples were sought from B2B (business to business) andB2C (business to consumer) e-business. The research wasexploratory in nature, and so assessed the order fulfilmentand deliver processes that support e-business by analysingcurrent practice. This involved the examination of howorganisations process materials, customers and informationinternally as well as how they interface with their externalsupply chain. The research aimed to model these processesand identify key factors which impact their operation.

The aims of these case studies were to identify the contextand motivation for e-commerce, internal and externalchanges arising from e-commerce, how the process has beenmanaged and their approach to the evaluation andperformance management of their e-commerce applications.

The interview questions were aimed at discovering the firms’objectives for their e-commerce activities, how they weremanaging their e-operations and how they were adaptingtheir operations and related performance measurementpractice to incorporate e-commerce. The questions werespecifically structured around the areas and issues identifiedfor the framework. In particular, whether processes forconventional business and e-business were integratedinternally and externally; whether the information systemssupporting these processes were similarly integrated,internally and externally, and what impact, if any, theorganisational context had on the e-operations. The interviewquestions were open-ended, aiming to gather as muchinformation as possible about the impact of e-commercewithin the organisations, but also upon its impact on theorganisations’ customers, supply-chain partners,intermediaries, as well as interaction with competitors.Interviews were tape recorded to facilitate subsequenttranscription. The advance question guidelines for participantsand semi-structured interview question framework may befound in Appendices B and C.

FindingsSome of the key findings from each of the cases have beendrawn together in a cross case comparison displayed in TablesA.1 and A.2, covering the clicks-and-mortar and dotcom casesrespectively. The organisations display a range of uses ofe-commerce, which as Table A.1 shows, covers both B2B andB2C business models. The focus of the use of e-commercealso varies. In most cases the main focus is customers (ARB,RER, MM Holdings, IKS, and Rebankco). However, it is notconfined to customers, as in some cases, the focus is ratherthe company’s distributors (RER), suppliers (Pharmco, Aon andIKS) and/or its own internal users (Pharmco). Theorganisation’s motives for use of e-commerce can be broadlycategorised as either associated with improving efficiency(Pharmco, IKS, Creditinsure) or effectiveness (RER, MMHoldings) or both (ARB plc, Aon Ltd). Rebankco stands out, asit seems to have no clear motivation for its use ofe-commerce.

The risks and problems in the use of e-commerce identifiedby the organisations can be broadly classified as eithertechnologically related or socio-organisationally related.Technologically related problems include a lack of IT supportand a shortage of skilled staff (Pharmco), the lack of agreedoperating standards in the industry (Aon Ltd), problems ofintegrating e-commerce business processes and informationsystems with those of the conventional business (Aon Ltd,MM Holdings, IKS) and the costs of IT investments (Pharmcoand Aon Ltd). Socio-organisationally related problemsincluded cultural problems internally (ARB, RER, Aon Ltd, MMHoldings) and externally with supply chain partners (ARB plc,RER, Aon Ltd, MM Holdings, Creditinsure and IKS).



Case

ARB plc

RER

Pharmco

Aon Ltd

MM Holdings

IKS

Rebankco

Use of e-commerce

Internet portal.

Software tool for orderingprocess.

Primarily emailcommunications internallyand using web-basedinformation systems tocheck suppliers’ stock.

Information exchange forrisk placing andunderwriting.Used for low-valuehigh-volume business.

Online share dealing.

Online claims reporting.Sale of insurance productsvia partner organisations inother industry sectors.

Online mortgageinformation, application,valuation.

Motivation

Move away from EDI.Customer focus.Reduction of supply chaincosts.

Differentiation fromcompetitors.

To support manufacturingproduction planning.

To speed up exchange ofinformation and establishcontract.Desire to eliminateperceived threat fromcompetition.Desire to create clientloyalty, ‘stickiness’.Lowering of transactioncosts through clientself-service.

Test of connectivity.Using the Internet channelto leverage increasedbusiness.Desire to target privateinvestors as a ‘high growth’market.

Need for 24/7 operations.Improved efficiency.

Acquisition of competitorwhose online systems aremore advanced.

Risks and problems

Resistance to change bothinternal and external.Ensuring successfulcollaboration.

Resistance to change bothinternal and external.Establishment of priorities.Cultural issues.

Recent loss of IT supportfollowing a de-merger.Would prefer to use surplusfinancial resource toincrease. manufacturingcapability.IT/IS training andimplementation.

Lack of industry standards.Conservative attitudewithin the industry.Towards technology fit ofe-commerce systems withthe company’sconventional systems.Risks associated with beinga technology leader.

Expensive investment inIT/IS.Cultural issues; conservativeindustry; negative image ofshare dealers.

Difficulty of collaborativeventures.Multiplicity of saleschannels = multiplicity ofprocesses.

Lack of conviction aboutbenefits from e-commerce.Non-interoperability ofprocesses.

Competitive advantage

Re-intermediation andcollaboration; raisedbarriers to entry.

Differentiation.Raising exit barriers.

Better co-ordination withinthe supply chain.

Differentiation on cost andtechnology.Attempt to create barriersto exit.

Position as market-leader.Tapping into new andpotentially fruitful markets.

Responding to customerneeds.Exploiting non-obviouspartnerships (e.g. withother sector).

No obvious source atpresent.

Table A.1 Cross case comparison (clicks-and-mortar)


Case

Creditinsure

Use of e-commerce

Web-based communicationtool allowing creditinsurance applications tobe posted and agreedelectronically, via adocument and messagingsystem.

Motivation

Achieve efficiency gainsthrough customer-friendlyapplications.Greater informationtransparency.

Risks and problems

Competition betweenparent activities andE-insure activities.Reluctance on the part ofsome of its clients to moveto e-commerce.Reliance on intermediariesmay undermine furthere-commerce developments.


Process related efficiencygains.Better cost and projectmanagement.

Table A.1 Cross case comparison (clicks-and-mortar) continued

Case

E-Insure

E-financialManagement

Amplebosom

Legalco

Use of e-commerce

Integrated automatedon-line credit and riskmanagement package foronline trading companies.

Online informationexchange for outsourcedfinancial management.

Online B2C clothing retail.

Online informationprovider for legal advice.Portal to a range of legalservice providers.

Motivation

Use experience of creditmanagement to leverage e-commerce.Differentiated businessfocus.

Service can be provided nomatter where clients arebased.Provide flexibility andservices which can becustomised to client need.

Perceived gap in themarket.Advantage in terms ofstockholding.

See legal services asessentially information-based, thus amenable tothe dotcom businessmodel.Create a new model forlegal services.

Risks and problems

Conflict with the parentcompany over the role,focus and fit of thee-business.

Internal systemsintegration is problematicdue to legacy systemissues.

Insufficient internalintegration.No Internet links withsuppliers.

Need to improve itsinternal efficiency.


Open new businesschannels.

Differentiation throughflexibility and service.Better co-ordination withcustomers.

Offer new channel tomarket.

Re-intermediationproviding quality of servicebenefits.Trade on anonymity ofproviding legal adviceonline.

Table A.2 Cross case comparison (dotcoms)

Seven of the case companies seem clear about the basis onwhich they are seeking to achieve a competitive advantagefrom their use of e-commerce. These include improved supplychain co-ordination to raise entry barriers for competitors(ARB, Pharmco, IKS), differentiating their service offering toraise exit barriers for customers (RER, Aon Ltd), improving

customer service (MM Holdings and IKS), better costmanagement (Creditinsure) and entering new markets (MMHoldings, IKS). Rebankco stands out as it seems to have noclear idea about e-commerce can be used to achieve acompetitive advantage.


As with the clicks-and-mortar organisations, the dotcomstart-ups cover both B2B and B2C applications. However, inall cases the applications are customer facing. Motivesinclude improving effectiveness and flexibility (E-financialManagement) and recognising the potential for new marketsor radical new business models (Legalco, E-Insure,Amplebosom). A common problem for dotcoms in this studyappears to be the lack of internal system integration.Competitive advantage is being derived from either creatingnew business channels (E-Insure, Amplebosom) or offeringgreater customer service flexibility (Legalco, E-financialManagement).

ConclusionsMotivations for e-commerceThe findings from the case study organisations suggest thatinvestment in e-commerce is primarily technology driven. Themain motivation appears to be to make use of the Internetfor business because use can be made of it. Underlying this isa fear of being left behind by competitors, that if thecompany does not seize the opportunities on offer, it may beleft at a competitive disadvantage by those that do. Thisperspective was evident regardless of industry sector.

Companies do not always seem to have a clearly articulatedstrategic logic for their e-commerce investments, and do notappear to be following Wigand’s (1999) proposition to aligntheir use of ICT with their business processes. Improvingbusiness process performance seemed to be a largelysecondary consideration. All companies seemed to be seekinglower operating costs through the potential efficiency gainsavailable through e-commerce, although some recognisedthat this would take time to achieve. Whilst some companiesspoke of using e-commerce to improve customer service andcreate customer ’stickiness’ some of this may have beenposthoc rationalisation. Other espoused motives includedtargeting specific niche markets, and a desire to learn aboute-commerce by engaging with it.

The barriers to increased use of e-commerce fall into twodistinct categories. There are clear cases where technologicalbarriers are evident, such as legacy systems, and the lack ofindustry standards and open systems. However, a moreconstraining set of barriers focus on social aspects. It is clearthat some sectors exhibit conservative, sometimestechnophobic, organisational and industry cultures and thatthis permeates a number of the case study organisations. Thisis notable in several of the financial services organisations.

E-commerce and business process changeMuch has been made in the professional and academic mediaof the role e-commerce can play in stimulating businessprocess change. It has been stressed that this new technologyhas the capability to radically transform ways of doingbusiness and help organisations realise dramatic processimprovements by slimlining existing processes and enhancingthe flow of information throughout and beyond anorganisation. However, the case study organisations provide adifferent picture, as it would appear that investments ine-commerce are tending to automate, rather than re-designexisting processes. This reinforces existing, largely functionallybased, organisational structures rather than creatingprocess-based structures. This may be a surprising findingespecially given all the interest in business process re-engineering (BPR) over the last decade, much of which wasdriven by those who saw the possibilities for IT drivenbusiness process improvement. It very much runs counter tothe calls for the ‘obliteration rather than automation’ ofexisting organisational activities led by Hammer (1990) andother advocates of BPR.

A further conclusion from the cases is that their e-operationsare commonly run as a discrete set of processes. There is littleor no integration between e-operations information systemsand those of the bricks-and-mortar operations. In some casesthis perhaps stems from a desire to keep e-commerce as aseparate activity, either to reduce the risk to existing businessand/or to learn as much as possible from early forays intoe-commerce. In other cases, problems with IT hardware orsoftware militate against integration. Indeed, a furtherconclusion is that legacy systems and a lack of industrystandards are major encumbrances to information systemsintegration. The legacy system issue is primarily an internalfactor within organisations, and is particularly acute whereorganisations have been subject to merger and acquisition.This is by no means surprising as to undergo anorganisation-wide IS change is bound to involve majorexpenditure. However, it is clear that ongoing ISincompatibility represents a significant barrier to theintegration of e-business within larger organisations. It ismuch easier and cheaper for small business to undertakecomplete wholesale replacement of both hardware andsoftware. The lack of industry standards is, of course anexternal issue, but it has a major impact on those companiesoperating in an industry that relies on the widespreadinteraction of many inter-linked organisations offering veryspecialised services. This is typically the case in the financialservices industry and is perhaps typified by the insuranceindustry. It is clear that in this sector in particular greater useof e-commerce B2B is being held back by lack of agreedstandards.

The Open University Business SchoolResearch project on electronic commerce and businessprocessesThank you very much for agreeing to take part in aninterview on e-commerce. Here is a short list of questions.This is intended to serve as a general guide to the issues onwhich we will be seeking your comments.

1. The context for e-commerce

2. The motivation for e-commerceWe will ask you to tell us something about when yourorganisation first began using e-commerce, and about themotives and objectives which are driving your e-commerceapplications.

3. Internal changes arising from e-commerceAre your e-business processes integrated with conventionalbusiness operations within your organisation?

Have your conventional business operations changed as aresult of e-commerce?

Is there integration between the organisation’s internalinformation systems? (As between, for example, sales andmarketing, manufacturing and accounting functions?)

4. External changes arising from e-commerceHave you been able to integrate your e-business processeswith those of your supply chain partners?

If so, has there been any noticeable effect in terms of addingor removing intermediaries to and from the supply chain?

5. Managing the change to e-commerceWhat were the most significant issues in making the changeto e-commerce?

6. The futureWhat are your future plans for the use of e-commerce?

7. Performance measures for e-commerceAre you using any formal or informal performance measuresfor e-commerce?

Appendix B


Advance question guidelines for participants


Preamble:In the research we are interested in the way thatorganisations are using e-commerce, and in particular theway that the organisation is managing its business operationsas a result of using e-commerce.

1. The context for e-commerce(a) Please give a brief profile of your organisation and its

activities.(Note: or confirm details with them if significantinformation has been gathered prior to interview.)

(b) When did your organisation start using e-commerce?(c) What is the e-commerce business model (e.g. dot com

start-up, clicks-and-mortar)?(d) Do you use e-commerce for B2B or B2C?(e) Please describe the nature and scope of the activities that

you undertake using e-commerce.(f) What proportion of your organisation’s business is

transacted using e-commerce?

2. Motivation for e-commerce(a) What motivated your organisation to adopt

e-commerce? (e.g. competitive pressure,technology-driven)?

(b) What are the organisation’s objectives in its use ofe-commerce?

3. Internal changes arising from e-commerce(a) To what extent are your e-business processes integrated

with conventional business operations within yourorganisation?

(b) How have your conventional business operations changedas a result of e-commerce?

(c) To what extent are your information systems integratedwithin the organisation?(i.e., do they have separate systems within theorganisation,e.g. for sales and marketing and manufacturing. To whatextent is there a dichotomy between functions andprocesses in terms of informational flow?)

4. External changes arising from e-commerce(a) Have you been able to integrate your e-business

processes with those of your supply chain partners(customers, suppliers etc.)?

(b) Have you been able to integrate your informationsystems with those of your supply chain partners(customers, suppliers etc.)?

(c) Have your organisation’s e-commerce processes had anynoticeable effect in adding or removing intermediariesto/from the supply chain?

5. Managing the process of change to e-commerce (a) What were the most significant issues in managing the

process of a change to e-operations?(Prompt for both positive and negative issues/whetherthere were any technical, financial or organisationalfactors that significantly helped or hindered the process.)

(b) What advice might you give to a similar organisationcontemplating a move to e-business?

6. Evaluating the use of e-commerce(a) What are the issues that still need to be resolved before

your organisation can move further forward withe-commerce?(How do they intend to resolve these issues?)

(b) What are your future plans for the use of e-commerce?

7. Performance measures for e-commerce(a) How do you evaluate the success of your e-commerce

activities?(b) What (formal) measures are you using to assess the

performance of your e-commerce activities?(c) How do these measures differ from the performance

measures you use in your conventional businessactivities?

(d) How useful/accurate are these measures?(e) What do you see as the main issues in devising and

implementing suitable performance measures fore-commerce activities?

8. Any other issues?Are there any other operational or general issues which arerelevant and which we have not touched upon?

Appendix C

Semi-structured interview question framework

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Choi, S. Y. and Whinston, A.B. (2000) Benefits and requirementsfor interoperability in the electronic marketplace, Technologyin Society 33-44.

Chorafas, Dimitris, (2001) The Internet supply chain: impact onaccounting and logistics, Basingstoke, Palgrave.

Chou, D.C. (2001) Integrating TQM into e-commerce,Information Systems Management, Fall.

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Dedhia, N.S. (2001) E-commerce quality,Total Quality Management, 12 (3), 397-402.

Dey, I. (1993) Qualitative data analysis: a user friendly guidefor Social Scientists, Routledge, London.

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July 2005

The Chartered Instituteof Management Accountants26 Chapter StreetLondon SW1P 4NPUnited Kingdom

T. +44 (0)20 7663 5441F. +44 (0)20 8849 2262E. [email protected]

CIMA (The Chartered Institute of Management Accountants) represents members and supports the wider financial management

and business community. Its key activities relate to business strategy, information strategy and financial strategy. Its focus is to

qualify students, to support both members and employers and to protect the public interest.

ISBN 1-85971-574-5

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