Idea Group,.Entrepreneurship and Innovations in E-Business

Entrepreneurship
and Innovations
in E-Business:
An Integrative Perspective
Fang Zhao
Royal Melbourne Institute of Technology University, Australia
IDEA GROUP PUBLISHING

Hershey London Melbourne Singapore
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Library of Congress Cataloging-in-Publication Data
Entrepreneurship and innovations in e-business : an integrative perspective / Fang Zhao, editor.
p. cm.
Summary: "The book presents a comprehensive introduction of the concepts and practices of eentrepreneurship and e-innovation"--Provided by publisher.
Includes bibliographical references and index.
ISBN 1-59140-920-9 (h/c : alk. paper) -- ISBN 1-59140-921-7 (s/c : alk. paper) -- ISBN 1-59140922-5 (ebook : alk. paper)
1. Electronic commerce. I. Zhao, Fang, 1956HF5548.32.E586 2006
658.8'72--dc22
2005027701
British Cataloguing in Publication Data
A Cataloguing in Publication record for this book is available from the British Library.
All work contributed to this book is new, previously-unpublished material. The views expressed in this
book are those of the authors, but not necessarily of the publisher.
Entrepreneurship and
Innovations in E-Business:
Table of Contents
Preface ........................................................................................................ vi
Chapter I
Entrepreneurship and Innovation in E-Business: An Integrative
Perspective .................................................................................................. 1
Fang Zhao, RMIT University, Australia
Chapter II
Exploring Rhizomic Becomings in Post Dot-Com Crash Networks:
A Deleuzian Approach to Emergent Knowledge Dynamics .................. 18
Alexandra Steinberg, The London School of Economics and
Political Science, UK
Chapter III
Innovation and B2B E-Commerce: Explaining What Did Not
Happen ....................................................................................................... 41
Steve New, University of Oxford, UK
Chapter IV
How E-Entrepreneurs Operate in the Context of Open Source
Software...................................................................................................... 62
Ambika Zutshi, Deakin University, Australia
Samar Zutshi, Monash University, Australia
Amrik Sohal, Monash University, Australia
Chapter V
Personalized Relationship E-Marketing and the Small Medium-Sized
Enterprise .................................................................................................. 89
Clare Brindley, University of Central Lancashire, UK
Diane Wright, Manchester Metropolitan University, UK
Chapter VI
Strategies for Virtual Learning and E-Entrepreneurship in Higher
Education ................................................................................................. 107
Juha Kettunen, Turku Polytechnic, Finland
Mauri Kantola, Turku Polytechnic, Finland
Chapter VII
The Beginnings of a Postal E-Marketplace: Innovation or Natural
Evolution? The Corprocure Story ......................................................... 124
Kim Hassall, Melbourne University, Australia
Karyn Welsh, corProcure, Australia
Chapter VIII
Sensis.Com.Au: An Uprising Star of E-Innovation and
E-Entrepreneurship ................................................................................ 148
Chapter IX
Using E- and M-Business Components in Business:
Approaches, Cases, and Rules of Thumb ............................................. 159
Mikael Collan, bo Akademi University, Finland
Anna Sell, bo Akademi University, Finland
Ville Harkke, bo Akademi University, Finland
Bill Anckar, Omena Hotellit Oy / IAMSR, Finland
Chapter X
Entrepreneurial Opportunities On the Internet .................................. 179
Di Waddell, Deakin University, Australia
Mohini Singh, RMIT University, Australia
Ambareen Musa, General Electric, UK
Chapter XI
Online Information Privacy and Its Implications for
E-Entrepreneurship and E-Business Ethics ........................................ 200
Carmen Gould, RMIT University, Australia
Chapter XII
E-Organisation and Its Future Implication for Small and
Medium-Sized Enterprises .................................................................... 223
Gideon Azumah, University of Sheffield, UK
S.C. Lenny Koh, University of Sheffield, UK
Stuart Maguire, University of Sheffield, UK
Chapter XIII
A Prototype E-Business Model to Create a Competitive
Advantage in SMEs ................................................................................ 238
S. Pavic, University of Sheffield, UK
M. Simpson, University of Sheffield, UK
S. C. L. Koh, University of Sheffield, UK
Chapter XIV
Impact of E-Innovation on Corporate Procurement Control:
Electronic Marketplaces and Broad Spectrum Changes .................... 261
J. Doug Thomson, RMIT University, Australia
Glossary ................................................................................................... 288
About the Authors .................................................................................. 294
Index ....................................................................................................... 301
vi
Preface
The fast growth and business successes of Amazon.com, Dell, travel.com, and
others, and the bankruptcy of numerous dot-com firms worldwide in 1999-2000
have reinforced the importance of entrepreneurship and innovation in e-commerce and e-business. E-entrepreneurship and e-innovation are emerging disciplines for proactively responding to changes in the e-world. The dot-com crash
presented new challenges and new opportunities to entrepreneurs as well as
intrapreneurs and researchers to rethink and redefine the constructs of entrepreneurship and innovation for e-business. This author argues that a combination of entrepreneurship and innovation will be a crucial factor to the long-term
sustainability of e-commerce and e-businesses. While in this frenetically changing
competitive landscape, e-entrepreneurship and e-innovation help organizations
to gain competitive advantage, they raise important issues in their practices.
Entrepreneurship, in its narrowest sense, involves capturing ideas, converting
them into products and/or services and then building a venture to take the product to market (Johnson, 2001, p. 138). A noticeable trend in the study of entrepreneurship in recent years has been away from the subject of small business
per se toward the concept of entrepreneurship (Cornwall & Perlman, 1990;
Chell, 2001). This book reflects this trend by emphasising the concept of entrepreneurship itself, rather than the personality or psychology of small e-business
entrepreneurs in e-business.
Entrepreneurship represents organisational behaviour. The key elements of
entrepreneurship include risk-taking, proactivity, and innovation (Miller, 1983).
However, Slevin and Covin (1990, p. 43) argued that the three elements are not
vii
sufficient to ensure organisational success. They maintained that a successful

firm not only engages in entrepreneurial managerial behaviour, but also has the
appropriate culture and organisational structure to support such behaviour.
The book adopts a similar approach and treats entrepreneurship as organisational
behaviour that is related to change and innovation and discusses both external
and internal environmental elements and structures for fostering entrepreneurship and innovation in e-business environment.
From an economic perspective, entrepreneurship increases national prosperity
and competitiveness by virtue of its impact on employment creation and the
development of new goods and services (Zahra et al., 1999). Corporate entrepreneurship, that is, intrapreneurship, can be used to improve competitive positioning and transform corporations, their markets, and industries as opportunities for value-creating innovations are developed and exploited (Miller, 1983;
Naman & Slevin, 1993; Lumpkin & Dess, 1996). There is a firmly established
empirical base for claiming the effectiveness of corporate entrepreneurship
(Lumpkin & Dess 1996; Zahra & Covin 1995). The book examines the relationship between the economy and e-entrepreneurship and e-innovation and the
effect of corporate entrepreneurship on e-business success.
Is entrepreneurship related to innovation? Studies show that there is considerable overlap between entrepreneurship and innovation (Kanungo, 1999; Sundbo,
1998; Drucker, 1994; Schumpeter, 1934). Innovation is the specific tool of entrepreneurship by which entrepreneurs exploit change as an opportunity for a
different business or service. Moreover, innovation has to address market needs,
and requires entrepreneurship if it is to achieve commercial success (Zhao,
2004). Entrepreneurship is a change of state, a dynamic process, and a unique
event. Legge and Hindle (1997) believed that people who lead teams and
organisations to introduce innovations are entrepreneurs. Entrepreneurs seek
opportunities, and innovations provide the instrument by which they might succeed. Corporate entrepreneurship often refers to the introduction of a new
idea, new products, a new organisational structure, a new production process,
or the establishment of a new organisation by (or within) an existing organisation.
As Herbig, Golden, and Dunphy (1994, pp. 37 and 45) have observed: Innovation requires three basic components: the infrastructure; the capital; and the
entrepreneurial capacity needed to make the first two work.
Drawing upon the outcomes of the principal studies of entrepreneurship and
innovation, this book opens up a new field of debate and research about the role
of entrepreneurship and innovation in the e-world, namely, e-entrepreneurship
and e-innovation. E-entrepreneurship and e-innovation refer to broadly entrepreneurship and innovation in the context of e-business activities and operations. The theoretical constructs and the working concepts of e-entrepreneurship and e-innovation are developed and explored from various perspectives in
the book through comprehensive and collective studies by a number of researchers
and practitioners with e-business and management expertise.
viii
The primary purpose of the book is to explore the changes in the nature, process, and practice of entrepreneurship and innovation in e-commerce and ebusiness after the dot-com crash. The specific objectives are:
To characterize and define the main constructs of e-entrepreneurship and

e-innovation;
To examine the relationships and internal synergies between entrepreneurship and innovation in e-commerce and e-business;
To explore the economical, social, political, and organizational structural

elements in the rise and fall of e-entrepreneurship and e-innovation;
To investigate the effect of e-intrapreneurship, that is, e-entrepreneurship within organizations, on e-business;
To identify and corroborate best practices in e-entrepreneurship and innovation through best practice case studies;
To examine ethical issues relating to e-entrepreneurship; and
To speculate the future trends of the e-dimension of entrepreneurship and

innovation.
You will find the book extremely helpful if you belong to one of the following
groups:
Entrepreneurs and managers from micro-enterprises to multinational companies who have been engaged in or plan to start, e-commerce and/or ebusiness;
Lecturers and students in the subject areas of entrepreneurship and innovation;
Researchers and students who study the electronic business and technology aspects of entrepreneurship and innovation;
Government policy-makers and regulators who seek to address the significant issues in relation to e-commerce in the small and medium-sized
business sector; and
Anyone who is interested in the field of study.
This book helps e-business managers to formulate and implement strategies

that foster the development of e-entrepreneurship and e-innovation, and provides a greater understanding of the crucial issues in e-business operations in a
wide range of fields. As the present study is based upon both empirical and
theoretical research, the book is also a valuable resource for researchers and
students in the study field.
ix
A review of the current literature about e-business as well as entrepreneurship

and innovation found that there is hardly any English language literature investigating the dot-com crash from a perspective of entrepreneurship and innovation. The book intends to fill the knowledge gap and entails a better understanding of how significantly e-businesses rely on their entrepreneurial and innovative capacities, and how to develop these capabilities needed for sustainable
success.
The book provides readers with both theoretical and practical guidance to a
further study of e-entrepreneurship and e-innovation. The book presents a comprehensive introduction of the concepts and practices of e-entrepreneurship
and e-innovation. The book discusses the application of the concepts in e-business operations and management. Readers are able to appreciate the key issues involved in the development of e-entrepreneurship and e-innovation.
The book is organized into 14 chapters, addressing the objectives of the book. A
brief description of each of the chapters follows:
Chapter I sets the theme for the entire book. It identifies and explores the
synergies between entrepreneurship and innovation, analyses the factors that
foster an interaction between the two, and provides an integrative framework
for building entrepreneurial and innovative organization in the e-world. The chapter reports findings from a number of case studies of entrepreneurial and innovative dot-com companies and from a comprehensive review of entrepreneurship and innovation literature. This empirical study contributes to a better understanding of the existing theories and practices of entrepreneurship and innovation in organisations.
Chapter II introduces the work of Deleuze and Guattari, particularly their notion of rhizomic becomings to the study of emergent knowledge dynamics in
contexts of innovation. It shows how an analysis of rhizomic becomings can
assist to explore new and emergent patterns, channelling interpretation toward
the discovery of new combinations and creative assemblages in knowledge.
This is exemplified by the example of a qualitative study exploring knowledge
dynamics in e-business entrepreneurship since the dot-com crash. The results
highlight the forging of the conditions for innovation in new combinations of
lines of affect and lines of technology.
Chapter III critically challenges the nave view of Internet innovation and reflects on the extraordinary rise and fall of large numbers of e-entrepreneurial
intermediaries. Unlike much of the literature in this area, which has largely
focused on leading companies or the few successful hubs, this chapter concentrates more on the opportunities and obstacles that face small and entrepreneurial organizations, and the innovations which failed. It addresses two central
questions: Why did the Internet revolution not happen? What substantive ideas
for business practice can be salvaged from the wreckage? Drawing on a multistranded empirical study, this chapter seeks to explain the divergence between
the expected and realised degrees of e-business innovation.
Chapter IV presents experiences of two entrepreneurial companies in adopting

e-innovations. The chapter identifies current and future online business environments, especially in light of Open Source Software (OSS) being accepted
globally. Unlike proprietary software (such as Windows), OSS comes with its
internal implementation details (source code) visible both to its developers and
users, along with the freedom to change and redistribute this source. The significant implications of this unique style of software distribution for e-entrepreneurs are examined. Having a flexible strategic plan; possessing management
skills; providing excellent service; and having patience are some of the recommendations provided by interviewed e-entrepreneurs. When made part of the
decision-making process, these recommendations would enhance current and
future e-entrepreneurs in sustaining their business.
Chapter V aims to illustrate how technology innovations can be implemented in
the SME sector and to explore how technology innovation and marketing can
help each other in enhancing e-entrepreneurial companies. The chapter focuses on a UK-based marketing communications company which has developed an innovative personalized relationship e-marketing tool, utilizing mobile
technology aimed at the SME sector. Current marketing practices, such as database marketing and CRM systems, are discussed in terms of SME adoption.
The chapter provides a pragmatic guide to formulating SME relationship marketing strategies using e-innovations.
Unlike other chapters of the book which predominantly focus on the business
and/or industry sectors, Chapter VI seeks to explore the strategies for virtual
learning and e-entrepreneurship in higher education institutions. The study examines the pedagogical ICT strategy which is a specific functional strategy
that describes the strategic outlines for virtual learning and e-entrepreneurship.
The aim is also to explore the methods (such as the balanced scorecard (BSC)
approach developed by Kaplan and Norton) to communicate and implement the
strategy in an understandable and efficient manner. This chapter helps educational administrators to better implement strategies for virtual learning and eentrepreneurship.
Chapter VII illustrates the rise and fall of an e-entrepreneurial company embracing e-innovation. The case company corProcure, a postal e-marketplace
founded in partnership with 13 big corporations, was viewed by many as a
promising e-innovation star when it was launched. But the companys business
model failed. This chapter seeks to answer the questions: Why had the potentially largest buying cartel failed so quickly? What lessons were learned? What
was the right e-business strategy that needed to be implemented? The evolution of corProcure.com has been a learning curve for those involved, the initial
owners, the new owner Australia Post, but also for all the interested e-business
observers.
xi
Chapter VIII presents a case study of Sensis Search, a young successful ebusiness which was launched in July 2004. The case study sheds light on a
model of best practices in terms of the development of entrepreneurship and
innovation, in the current business environment where the overall economic
conditions worldwide have been improving, and investors confidence in hightech and e-business industries has been recovering. The e-entrepreneurship
strategy that Sensis Pty, the parent company of Sensis Search, has taken is
actually that of an intrapreneurship, that is, an entrepreneurship within an organization. The chapter explores the lessons, both good and bad, learned from the
case and identifies the areas for future research.
Chapter IX discusses using e- and m-business components in supporting and
enhancing existing businesses and in creating new business innovations. A framework illustrating two different approaches companies have to the adoption of eand m-business components is proposed. Three cases of how Finnish companies have, in an innovative way, used e- and m-business components to support,
to enhance, and to launch entrepreneurial businesses are presented. Based on
the illustrative framework and the cases, some rules of thumb for using e- and
m-business components are proposed. The aim of this chapter is to offer emanagers and e-entrepreneurs helpful insights for planning e- and m-business
component investments.
Chapter X explores the main constructs of e-entrepreneurship through a case
study of an Internet start-up company developed by two e-entrepreneurs. The
Internet is a new platform for setting up business providing entrepreneurial
opportunities to those who may not be capital rich. It enables people to turn
innovative business ideas into reality. It is also apparent from the case study
that like any other business, just an innovative idea is not enough, a business
plan and a revenue model are essential for developing the enterprise. The eentrepreneurs in the example had to make an enormous effort in marketing and
promotion of the business for customer acceptance.
Chapter XI touches on ethical issues in e-entrepreneurship. It reports the results of an Australian national survey which studied Australian Internet users
online information privacy values using a typology that combines specific demographic and attitudinal measurements with behavioural data. The chapter
contains a comprehensive examination of the internal, external/environmental,
and behavioural dimensions of information privacy, incorporating a comprehensive profile of each of the typologies categories along with a general profile of
total respondents. The implications of the findings for e-entrepreneurship and
e-business ethics are discussed.
Chapter XII incorporates several perspectives to examine how small and medium-sized enterprises (SMEs) use the network technologies and information
and communication technology (ICT) in their current business environment.
Through a literature review and interviews, the chapter analyses the various
xii
options for managing the transformation, and its effects, to ascertain the appropriate strategies within a range of SMEs. The results of this study reveal that
the SMEs journey toward becoming e-organisations can be classified into three
stages: 1/2-fusion, fusion, and the ultimate e-organisation stage. Based on this
work, strategic solutions are proposed for future SMEs intending to adopt Internet
and other network technologies.
Chapter XIII explores new ways for SMEs to create a competitive advantage
through the use of e-business. It examines the level of ICT use in SMEs and
identifies the drivers and barriers which owner-managers face in adopting ebusiness. Furthermore, it explores the degree of awareness amongst SMEs of
the opportunities available to them for developing their employees, their business strategies, and their attitudes toward the range of initiatives and options on
the use of e-business. Industry behaviour and organisational culture in relation
to the creation of competitive advantage through e-business are also explored.
Chapter XIV addresses the very important question of the impact of e-innovation, namely, Web-based global electronic procurement systems and marketplace on corporate governance in relation to organizational purchasing the
organizational structures and processes for procurement control. This is undertaken through an action research case study of the failures and successes of
competitor global organizations cooperatively establishing and utilizing a global
electronic marketplace. Specifically, the chapter investigates how electronic
procurement contributes to the adaptation and evolution of control structures
from highly structured, bureaucratic, and rigid to flexible, adaptable, freeflowing, and profitable, and these can result in substantial reductions in transaction costs.
In todays e-business context, technology, customers, competitors, and partners
can change rapidly. E-technology innovations can become obsolete in the blink
of an eye and customers can appear and disappear with a keystroke. In such
circumstances, it is crucial that e-business entrepreneurs, managers, and policymakers have an insightful knowledge and understanding of the complexities of
e-business and how to make e-entrepreneurship and e-innovation work for ebusiness.
As shown, e-entrepreneurship and e-innovation are critical to the sustainability
of e-business. Unfortunately, they are under-researched areas in e-business
management literature. While there are many publications, both academic and
professional, that talk about e-business and entrepreneurship, such as the books
authored by Timmons and Spinelli (2003) and Allen (2000), most of the publications place their focus on how to help micro enterprises and entrepreneurs set
up and run e-commerce.
Unlike the existing publications, this book was written from an integrative perspective of entrepreneurship and innovation to examine both strategic and operational issues around e-business after the dot-com crash. The book also con-
xiii
tributes to the development of the emerging disciplines of e-entrepreneurship

and e-innovation both theoretically and practically.
References
Allen, K. (2000). Entrepreneurship for dummies. New York: John Wiley &
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Chell, E. (2001). Entrepreneurship: Globalisation, innovation and development.
International Journal of Entrepreneurial Behaviour Research, 7(5),
206-206.
Cornwall, R.J., & Perlman, B. (1990). Organizational entrepreneurship.
Boston: IRWIN.
Drucker, P.F. (1994). Innovation and entrepreneurship: Practice and principles. London: Heinemann.
Herbig, P., Golden, E.J., & Dunphy, A. (1994). The relationship of structure to
entrepreneurial and innovative success. Marketing Intelligence & Planning, 12(9), 37-48.
Johnson, D. (2001). What is innovation and entrepreneurship? Lessons for large
organizations. Industrial and Commercial Training, 33(4), 135-140.
Kanungo, R.N. (1999). Entrepreneurship and innovation: Models for development. International Journal of Entrepreneurial Behaviour & Research,
5(4).
Legge, J., & Hindle, K. (1997). Entrepreneurship: How innovators create
the future. Melbourne: MacMillian Publishers.
Lumpkin, G.T., & Dess, G.G. (1996). Clarifying the entrepreneurial orientation
construct and linking it to performance. Academy of Management Review, 21(1), 135-172.
Miller, D. (1983). The correlates of entrepreneurship in three types of firms.
Management Science, 29, 770-791.
Naman, J.L., & Slevin, D.P. (1993). Entrepreneurship and the concept of fit: A
model and empirical tests. Strategic Management Journal, 14, 137-154.
Schumpeter, J. (1934). The theory of economic development. Harvard (reproduced, New York 1961).
Singh, M., & Waddell, D. (Eds.) (2003). E-business innovation and change
management. Hershey, PA: Idea Group Publishing.
Slevin, D.P., & Covin, J.G. (1990). Juggling entrepreneurial style and organizational structure How to get your act together. Sloan Management Review, Winter Issue, 43-53.
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Timmons, J.A., & Spinelli, S. (2003). New venture creation: Entrepreneurship for the 21st century. New York: McGraw-Hill/Irwin.
Zahra, S.A., & Covin, J.G. (1995). Contextual influences on the corporate entrepreneurship performance relationship: A longitudinal analysis. Journal
of Business Venturing, 10(1), 3-58.
Zahra, S.A., Kuratko, D.F., & Jennings, D.F. (1999). Guest editorial: Entrepreneurship and the acquisition of dynamic organisational capabilities. Entrepreneurship Theory and Practice, 23(3), 5-10.
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xv
Acknowledgments
The production of this book would not have been possible without the assistance of the institutions and the people to whom I am deeply grateful. I am
greatly indebted to the School of Management and the Business Portfolio of
Royal Melbourne Institute of Technology University, Australia, for their research grants and the time that was needed to undertake this project. I also am
indebted to all the chapter authors for their insights and excellent contributions
to this book. Also, special thanks go to all the reviewers of my proposal of this
book and reviewers of each of the chapters of the book for their constructive
and invaluable reviews and comments. A further special note of thanks goes to
the publisher Idea Group Inc. and Dr. Mehdi Khosrow-Pour for offering me an
opportunity to publish the book, and to the publishing team, in particular, Ms.
Kristin Roth and Ms. Michele Rossi, for helping me keep the project on schedule.
Finally, I wish to thank my parents, Deming and Peishen, and my daughter
Kelly for their love and warm support throughout this project.
Entrepreneurship and Innovation in E-Business
Chapter I
Entrepreneurship
and Innovation
in E-Business:
Fang Zhao
RMIT University, Australia
Abstract
This chapter argues that a combination of entrepreneurship and innovation
is a crucial factor to the long-term sustainability of e-commerce and ebusinesses. Entrepreneurship and innovation are positively related to each
other and interact to help an organisation to flourish. The chapter takes an
integrative approach to exploring the synergies between entrepreneurship
and innovation and to analysing the factors that foster an interaction
between the two. Case studies of entrepreneurial and innovative dot-com
companies were conducted to complement a comprehensive literature
review of entrepreneurship and innovation. This empirical study contributes
to a better understanding of the existing theories and practices of
entrepreneurship and innovation in organisations.
Copyright 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written
permission of Idea Group Inc. is prohibited.
2 Zhao
Introduction
The fast growth and business successes of eBay, Amazon.com, travel.com,
priceline.com, and so forth, and the bankruptcy of numerous dot-com firms
worldwide in 2000 have held potent management implications for IT innovation
and entrepreneurial organizations worldwide. E-entrepreneurship and einnovation are emerging disciplines for proactively responding to changes in the
e-business world. The dot-com crash presented new challenges as well as new
opportunities to e-business entrepreneurs and managers to rethink and reshape
their business strategy. This author argues that a combination of entrepreneurship and innovation is a crucial factor to the long-term sustainability of ecommerce and e-businesses. In this frenetically changing competitive landscape, an integrative approach to e-entrepreneurship and e-innovation will
enable organizations to gain competitive advantage and hold the key to ebusiness success.
This chapter investigates the relationship between entrepreneurship and innovation and their roles in organizational development, in general, and in dot-com
industries, in particular. A review of the current literature about e-business as
well as entrepreneurship and innovation found that there is hardly any English
language literature investigating dot-com experiences from a perspective of
entrepreneurship and innovation. Some studies have dealt with the process,
structure, and strategy of either entrepreneurship or innovation (Littunen, 2000;
Cornwall & Perlman, 1990: Caird, 1988; Casson, 1982), and others have touched
on the conceptual relationship between the two (Schumpeter, 1934; Drucker,
1994; Legge & Hindle, 1997; Kanungo 1998; Sundbo, 1998). However, there
have been few empirical studies that explore the synergies between the two.
Thus, the aims of this chapter are:
to contribute to an understanding of the complementary nature of entrepreneurship and innovation through an empirical study of dot-com companies,
and
to develop an integrative framework for building entrepreneurial and

innovative organization.
Data for this qualitative study were collected from three sources, using complementary methods. First, a review of principal literature about entrepreneurship
and innovation was undertaken to collate the existing theories about the two and
explore the conceptual relationships between them. Second, semi-structured
interviews were conducted to examine the perceptions of senior managers in ebusiness regarding entrepreneurship and innovation and the factors that contribCopyright 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written
ute to the development and integration of entrepreneurship and innovation.

Eleven senior managers involved in e-businesses in Australia were interviewed
between April and August 2004. These interviews focused on how the dot-coms/
e-businesses have been managed, how they have succeeded or failed, and what
lessons can be learned from their experiences. This chapter reports part of
findings of the interviews relevant to the main theme of the study. Third, case
studies of five dot-com companies were undertaken to explore organisational
practice and behaviour, and the correlation between business practice entrepreneurship and innovation in dot-com industries. Three of the case studies rely
on documentary research, while the other two rely on semi-structured interviews
with their senior managers. The companies that were selected for the case
studies and interviews encompass various business sectors (e.g., search engine,
online auctioneer and retailing, digital music provider, and online speaker portal),
operating in different nations and cultures, and have different histories, varying
in size and length of existence, but they serve to illustrate the main focus of the
chapter the interaction between entrepreneurship and innovation in ebusiness.
Literature Review
There has been no consensus in defining entrepreneurship and innovation in the
existing literature. Some studies have dealt with entrepreneurship and innovation
by investigating the personality and psychology of entrepreneurs and innovators
(Littunen, 2000; Caird, 1988; Casson, 1982). Others have talked of the nature of
entrepreneurship and innovation in organisations (Goffin & Pfeiffer, 1999;
Martin, 1994). This literature review summarises a diverse spectrum of views
about entrepreneurship and innovation and the relationship between them. The
review also touches on cultural issues because they have a profound influence
on the development of entrepreneurship and innovation (Herbig, Golden, &
Dunphy, 1994).
Entrepreneurship
Entrepreneurship, in its narrowest sense, involves capturing ideas, converting
them into products and/or services and then building a venture to take the product
to market (Johnson, 2001, p. 138). A noticeable trend in the study of entrepreneurship in recent years has been away from the subject of small business per
se toward the concept of entrepreneurship (Cornwall & Perlman, 1990; Chell,
2001). The chapter reflects this trend by emphasising the concept of entrepreCopyright 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written
4 Zhao
neurship itself, rather than the personality or psychology of small business

entrepreneurs.
Entrepreneurship represents organisational behaviour. The key elements of
entrepreneurship include risk-taking, proactivity, and innovation (Miller, 1983).
However, Slevin and Covin (1990) have argued that the three elements are not
sufficient to ensure organisational success. They maintained that a successful
firm not only engages in entrepreneurial managerial behaviour, but also has
the appropriate culture and organisational structure to support such behaviour
(Slevin & Covin, 1990, p. 43). This chapter adopts a similar approach and treats
entrepreneurship as organisational behaviour that is related to change and
innovation.
Entrepreneurs and Small Business Owners

Entrepreneurs are different from small business owners. Garland, Hoy, Boulton,
and Garand (1984) and Steward, Watson, Garland, and Garland (1998) argued
that small business owners were concerned primarily with securing an income
to meet their immediate needs and that they did not usually engage in innovation,
whereas entrepreneurs had higher achievement motivation and risk-taking, and
were inclined to innovation and change. This chapter presents a related
perspective in arguing that entrepreneurship and innovation are closely related
and complementary.
Corporate Entrepreneurship or Intrapreneurship

Drucker (1994) made an important contribution to the theoretical construct of
entrepreneurship in large organisations when he referred to corporate entrepreneurship or intrapreneurship. Antoncic and Hisrich (2003) argued that
intrapreneurship goes on within organisations, regardless of their size.
Intrapreneurship research has studied the individual intrapreneur, the formation
of new corporate ventures, and the characteristics of entrepreneurial organisation
(Antoncic & Hisrich, 2003). In this chapter, entrepreneurship includes corporate
entrepreneurship and intrapreneurship.
Innovation
For more than half a century, research and development (R&D) has been closely
associated with technological innovation (Miller & Morris, 1999). Invention is the
narrowest definition of innovation. Drucker (1994) maintained that there are
seven basic sources of opportunities to innovate. Only one of them is to do with

inventing something new. Thus, innovation is more than invention and does not
have to be technical. There are numerous examples of social and economic
innovations (Drucker, 1994). Innovation is a proposed theory or design concept
that synthesises extant knowledge and techniques to provide a theoretical basis
for a new concept (Sundbo, 1998; Bright, 1969). Hence, innovation has many
facets and is multidimensional. The most prominent innovation dimensions can
be expressed as dualisms: (i) radical vs. incremental; (ii) product vs. process; and
(iii) administrative vs. technological (Cooper, 1998).
Innovation can be radical and incremental. Radical innovations refer to pathbreaking, discontinuous, revolutionary, original, pioneering, basic, or major
innovations (Green, Gavin, & Aiman-Smith, 1995). Incremental innovations are
small improvements made to enhance and extend the established processes,
products, and services. However, this contradistinction does not necessarily
[correspond] to the more fine-tuned reality because radicality is a continuum
(Katila, 2002 p. 307). Product innovation, as the name suggests, reflects change
in the end product or service offered by the organizations, [whereas] process
innovation represents changes in the way firms produce end products or
services (Utterback cited in Cooper, 1998, p. 498). Some researchers have
categorised innovation into technological and administrative innovations. Technological innovation is about the adoption of a new idea that directly influences
the basic output processes, [whereas] administrative innovations include changes
that affect the policies, allocation of resources, and other factors associated with
the social structure of the organization (Daft, 1978, cited in Cooper, 1998, p.
497).
For the purpose of this chapter, innovation is defined broadly to include new
products, new processes, new services (including new uses of established
products, processes, and services), new forms of organisation, new markets, and
the development of new skills and human capital.
The Conceptual Relationship between Entrepreneurship

and Innovation
The conceptual relationship between entrepreneurship and innovation has been
discussed in the literature for many years. The economics of innovation, in
particular, have attracted increased attention in recent years (Grupp, 2001;
Arora, Fosfuri, & Gambardella, 2002; Stoneman, 1995). Sundbo (1998)
summarised the basic theories of the economics of innovation and identified
three competing paradigms in the current theoretical discussion of innovation: (i)
the entrepreneur paradigm; (ii) the technology-economics paradigm; and (iii) the
strategic paradigm.
6 Zhao
The entrepreneur paradigm can be traced back to the 1930s when Schumpeter
(1934) first attempted to establish a linkage between entrepreneurs and innovation in theory, and viewed the entrepreneur as innovator. He maintained that
innovation contributes to the growth of the economy because entrepreneurs
produce innovations. The concept of the entrepreneur as innovator underpins the
entrepreneur paradigm in which the role of the entrepreneur is highlighted in the
innovation process. According to this paradigm, only a person who founds a new
company on the basis of a new idea can be called an entrepreneur. Entrepreneurship is viewed as a creative act and an innovation. Entrepreneurship is about
creating something that did not previously exist. The creation adds value to the
individual and the community, and is based upon perceiving and capturing an
opportunity (Johnson, 2001). Bygrave and Hofer (in Legge & Hindle, 1997) held
similar views. They regarded entrepreneurship as a change of state, a dynamic
process, and a unique event. Legge and Hindle (1997) believed that people who
lead teams and organisations to introduce innovations are entrepreneurs. Entrepreneurs seek opportunities, and innovations provide the instrument by which
they might succeed. Corporate entrepreneurship often refers to the introduction
of a new idea, new products, a new organisational structure, a new production
process, or the establishment of a new organisation by (or within) an existing
organisation. As Herbig et al. (1994, pp. 37 and 45) have observed: Innovation
requires three basic components: the infrastructure; the capital; and the entrepreneurial capacity needed to make the first two work.
Innovation is the specific tool of entrepreneurship by which entrepreneurs exploit
change as an opportunity for a different business or service. There is considerable overlap between entrepreneurship and innovation (Kanungo, 1998; Sundbo,
1998; Drucker, 1994; Schumpeter, 1934). Moreover, innovation has to address
market needs and requires entrepreneurship if it is to achieve commercial
success (Zhao, 2001).
Case Studies of Synergies between

Entrepreneurship and Innovation
This section summarizes key findings from the 11 interviews and five case
studies conducted for the study. The interviews with senior managers from dotcom companies in Australia were aimed to examine their managerial practices
and perceptions of the role of entrepreneurship and innovation in running an ebusiness. The majority of the managers interviewed considered that entrepreneurship and innovation share an interdependent and synergistic relationship and
cannot actually be separated. For example, the CEO of Destra, a successful
dot-com company based in Australia, believes that entrepreneurship means

creating something out of nothing, and that it is a mindset, where anything is
possible and the only boundaries are those that we create ourselves. To him,
innovation means doing something that hasnt been done before or doing
something differently. His companys Destramusic.com was the first digital
music provider in Australia, going live between 1997 and 1998, far in advance of
their current competitors.
SpeakerDirect (www.speakerdirect.com.au) is a young Melbourne (Australia) based dot-com, providing an online speaker portal. The online speaker portal
business idea was developed in December 2003, and the portal was formally
launched in March 2004, illustrating the fact that the founders believed that speed
to market was one of the essential elements of their strategy, and a characteristic
of the e-market. The Web site system was developed from scratch with the
premise that the company wanted a corporate friendly and comprehensive tool
for both speakers and speaker-seekers. SpeakerDirect is actually a business
resource as well as a promotional platform. SpeakerDirect.com.au provides a
free service for corporations to search and select corporate speakers, however,
unlike their competitors, the company does not take engagement fees. The
company has an ambitious goal of becoming the number one global speaker
portal within five years and to connect up the entire business community.
From the perspective of the companys founders and directors interviewed for
the study, entrepreneurship and innovation mean risk (financial, emotional, and
personal):
Entrepreneurship is taking control and action on a concept or a dream in
the face of adversity. The tangible aspect of making that happen is where
innovation comes in. For example, I want people to communicate with each
other over long distances (the dream), therefore I am going to do something
about it and invest time and dollars to do it even when everyone is saying
it cannot be done/I am mad/it is too risky (entrepreneurship/the risk) and
a phone is designed to achieve this (the innovation to achieve the dream).
A combination of both is the big picture that requires tenacious and
passionate people to turn an idea into reality by being independent and in
control. (Interview Data, 2004)
The business model that the company has developed is in itself an example of a
combination of entrepreneurship and innovation it is the first of its kind,
replacing the idea of the client having to deal with many agencies separately, by
creating a one-solution portal. Another example of entrepreneurship and innovation is the system behind the Web site. This was designed to be multi-functional
(but streamlined) and very user-friendly for both speakers and seekers. One of
8 Zhao
the most innovative features is a bulletin board where companies can advertise
an event for which speakers can express an interest in being engaged for this
would be a useful tool for anyone who is time-pressed or needs a speaker at short
notice. Another key e-dimension of entrepreneurship and innovation that the
case company demonstrates is responsiveness to client and market needs. For
example, SpeakerDirect.com.au is seeking to position itself as a media tool
(e.g., by providing a service whereby speakers are available to journalists for
expert comment, gaining valuable and credible exposure, but without actually
being engaged on a fee basis). In the directors words, they have flipped the
agency concept on its head, and as a result, many seeker clients believe the free
service is too good to be true.
eBay, a widely successful start-up, is a classic example of entrepreneurship and
innovation in the e-business world. From its humble origins as a trading post for
Beanie Babies, eBay has become one of the worlds largest online trading
centres. It has created a whole new business arena which hosts over 150,000
entrepreneurs and about 30 million customers worldwide. The company has
constantly pursued new ways of doing business. For instance, eBay created an
innovative feedback system in which buyers and sellers can rate each other
following a transaction, thereby enhancing users experience and satisfaction.
Its PayPal payment-processing system also allows buyers to make electronic
payments to eBay sellers who cannot afford a merchant credit card account.
This opens up a whole new medium of exchange. As a result of such innovations,
it is estimated that eBays net revenues will grow to US$3 billion by 2005 (Hof,
2003).
Google, the Web search engine giant, is not only an entrepreneurial company in
terms of its aggressive growth strategy but also a pioneer of innovation. To
enhance the level and efficiency of its features and services, Google has
continuously improved its technologies. It created a services and tools section in
its Web site known as Google Labs to demonstrate its innovation and ask its users
to experiment with and provide feedback on the features and tools. Google
toolbar, Google Groups, and Google Answers are a few of their other innovative
e-business developments (Anonymous, 2004). The founders of Google, two
graduate computer students expressed their innovation mindset quite frankly,
Google is not a conventional company. We do not intend to become one. In this
respect, Google has persistently taken an unconventional way of designing its
business and concentrated on building a better search engine rather than
spending millions on marketing campaigns. It has innovated the existing technology to provide a fast, accurate, and easy-to-use search service that can be
accessed from anywhere at anytime. Never settle for the best is one of the
companys philosophies (Google, 2004). In fact, Googles strategy against the
fierce competition in the search engine provider market is one of constant
innovation and entrepreneurship through creating new and innovative services
and tapping new channels of revenues. For example, Google has recently
launched a string of new services, such as the free Webmail service, G-mail, and
Froogle, an online shop price comparison service (BBC News, April 29, 2004).
Most recently, Google took another unconventional step to sell its company to
the public. The floating approach is innovative and peculiar (in some analysts
view) as Googles management decided to sell its shares through an online
auction rather than the traditional allocation by big banks. It was reported that
this approach to the initial public offering (IPO) aimed to give the general public
a better chance to buy Googles stock before the shares begin trading, rather than
let investment banks decide who should own the shares. However, the floating
plan caused concerns that the impending float would fuel a second Internet
bubble. Analysts expected that Google would attract a market valuation of up to
US$40 billion (Clarke, 2004, BBC News, April 29, 2004). Amid a weak stock
market and a lukewarm investors response to Googles IPO proposal, the
companys executives had to reset the opening price from US$108-US$135 to
$85 and cut the number of shares offered from 25.7 million to 19.6 million. After
two days trading, Googles share price jumped 27%. All of a sudden, the value
of the young start-up dot-com became worth more than the Ford Motor Company
(Wood, 2004). By October 22, 2004, about two months after the IPO, Googles
share price had reached US$169, which almost doubled the initial IPO price
(Perez, 2004).
Amazon.coms success has everything to do with innovation and entrepreneurship. The company has been a pioneer in the dot-com industry since its beginning.
It was the first company to move a book retailing business online; the first to offer
its customers a one click program to streamline the buying process by storing
detailed customer information including credit numbers; and the first to use
collaborative-filtering technology to give customers an idea about what other
people with similar purchase histories have bought. Amazon.com was the first
company to develop the comparison-shopping program that directs its customers
to other retailers if it does not sell a certain product. Its affiliates program also
was also the first in the dot-com industry, having directed millions of customers
from its partners sites to Amazon.com. Undoubtedly, Amazon.com has always
been a first mover in e-business through continuous innovation (Mellahi &
Johnson, 2000).
These empirical studies of e-entrepreneurship and e-innovation demonstrate that
the success of e-business is inextricably linked to a combination of entrepreneurship and innovation, and that the two are enablers and key drivers of e-business.
10 Zhao
Issues and Challenges

Facing Entrepreneurship and
Innovation in E-Business
Todays e-business operates in a highly competitive marketplace where sustainable competitive advantage is almost impossible as there are minimal barriers to
new entrants and competitors in the marketplace. Innovation faces constant
challenges of imitation and erosion. There have been different views in the
literature about the benefits of first movers in e-business marketplace. Mellahi
and Johnson (2001) asked the question does it pay to be first to market or should
e-commerce firms wait for first movers to make an investment and then
cannibalize the idea with lower entry cost? The cause of the concerns are raised
by a general belief that it is safer and less expensive to imitate the first mover
in the e-business environment, where there is a higher level of technical
uncertainties and rapid rate of technological innovation. For instance, many new
dot-coms rushed to build an e-marketplace and chose imitation as a business
strategy rather than innovation. This author maintains that it is the lack of a
combination of innovation and entrepreneurship capacity that has caused the
demise of many imitators in the dot-com industry. The essence of innovation and
entrepreneurship is taking a new idea to market, not imitating a new idea without
taking into account the special needs of local markets, and being innovatively and
proactively responsive to environmental changes by introducing a new product,
process, service, or implementing a distinctive business model as did the case
companies studied in this chapter.
In the early days of e-business, it was likely that most businesses could be applied
differently online and off-line. Irrational exuberance was prevalent within the
market, and venture capitalists were prepared to take on much more risk.
However, since the dot-com crash, the market appears to have reverted to
traditional models and methods. More attention has been given to the fundamental structural components of e-business, such as flow of revenue. E-business, to
many companies, is now just seen as another channel to market (rather than
signalling the demise of off-line business as originally prophesized). Likewise,
many senior managers interviewed for the study indicated that there was no
difference in the concepts of entrepreneurship online and off-line. Traditional
business models are here to stay. For new e-businesses to succeed, they need
an innovative idea incorporated into a sound business model which is viable
economically and which is facilitated by knowledgeable and experienced people.
As such, those entrepreneurial and innovative e-business activities which
genuinely have utility for the customer (e.g., e-banking) are more likely to be
successful. For example, the difference between retailing and banking is that
11
while one is seen as an emotive and/or social activity, the other is perceived to
be a chore. Therefore, offering an electronic channel to facilitate the latter is
more likely to succeed than the former people want convenience and speed
when they bank, but they are more likely to value other factors which an online
channel may not necessarily be able to offer when they shop for goods and
services. In this respect, dot-com companies should endeavour to enhance
customer experience by offering tools on their Web sites which enable customers to personalize the shopping process and provide more personalized business
services.
In summary, the issues facing e-business today are that entrepreneurship and
innovation needs to respond closely to market needs and gain market credibility.
Ideally, there should be credibility built within the marketplace before inception
of the business. In addition, the intangibility of an online service needs to be
addressed in order to build brand awareness.
An Integrated Framework for

Building Entrepreneurial and
Innovative Organizations
Both the theoretical and empirical studies of this chapter demonstrate that a
combination of both entrepreneurship and innovation is crucial to e-business
success, and that they require systematic and organizational behaviour. In this
respect, organisations can foster entrepreneurship and innovation behaviour
internally through their strategy, structure, and processes (Cornwall & Perlman,
1990). Therefore, this author proposes an integrated framework for developing
innovation and entrepreneurship to help organizations including dot-coms to
obtain competitive advantage. The framework involves the 5 Ss of strategy,
system (structure), staff, skills, and style. This model is developed on the basis
of the principal management literature of Bartol, Martin, Tein, and Matthews
(2001), Robbins, Bergman, Stagg, and Coulter (2000), and Drucker (1994).
However, the complex and evolving nature of entrepreneurship and innovation
as shown in this chapter means that the proposed model might address only some
of the issues pertaining to entrepreneurship and innovation behaviour. Therefore,
the model should be seen as a starting point in developing effective organisational
strategy, structure, and culture to stimulate entrepreneurship and innovation
behaviour in organisations.
12 Zhao
Strategy
A well-defined and proactive strategy is central to an entrepreneurial and
innovative organisation. Such an organisation needs internally focused strategies
that propel growth and stimulate change within the organisation, as well as
externally focused strategies that actively seek out new ventures, acquisitions,
mergers, or joint ventures to achieve commercial success through innovations.
The strategy should be diverse enough to address a spectrum of technological,
financial, and human issues, and should be congruent with the future scenario
envisaged for the organisation. Given the close synergies between entrepreneurship and innovation, the strategy should be both entrepreneurial and innovative,
and should include methods of transforming established products and services
into something new that will add value to existing businesses. Meeting and
exceeding the changing needs of customers, as well as an emphasis on marketing
and the development of new markets, should be key management and entrepreneurial strategies.
Moreover, in the current turbulent e-business environment, developing
organisational capacity to acquire, create, accumulate, and exploit knowledge
should be an essential strategy in gaining a competitive advantage through
innovation. A good strategy depends on effective execution and requires an
appropriate system, a capable staff team, a wide range of skills, and an
encouraging and supportive management style that fosters an innovative and
entrepreneurial organisational culture.
System and Structure

The case studies of this chapter suggest that size, industry sector, and type of
organizations do not determine the extent of organisational capability in entrepreneurship and innovation, and that cultural and structural elements play a crucial
role. Generally speaking, flexible, adaptive, and open organizations are more
conducive to innovation and entrepreneurship, because a highly centralised
decision-making process restricts information flows and communication with
inter-firm partners and also stifles the motivation of e-innovation and eentrepreneurship. The control and management system should be flexible
depending on the changing situational conditions affecting each project or
program. Generally speaking, innovation is not fostered in tightly controlled
structures. Empowerment and delegation are needed, especially during the early
stages of innovation and product development. However, to secure a niche
market, an appropriate control system should be maintained to monitor quality
and costs, to meet tight deadlines, and to achieve predetermined objectives as the
project develops. An effective balance between freedom and control is required.
13
Staff
People are the most important assets in todays knowledge-based economy.
Staff members in an innovative and entrepreneurial organisation must be
creative people with a flair for innovation and entrepreneurial spirit, to realize its
value. They must be keen to change, and keen to exploit such change as an
opportunity. To succeed in its economic environment, an innovative and entrepreneurial organisation needs entrepreneurial project managers to promote and
coordinate the development of innovative projects as well as creative and
conscientious supporting staff to implement the projects. The right mix of people
is essential to the successful commercialisation of innovations.
Skills
Drucker (1994) maintained that systematic innovation requires the capturing and
monitoring of seven sources of opportunity: (i) the unexpected; (ii) incongruities;
(iii) process need; (iv) industry and market structures; (v) demographics; (vi)
changes in perception; and (vii) new knowledge. Clearly, an innovative and
entrepreneurial organisation needs a range of managerial and entrepreneurial
capacities and skills to handle innovation. These can be summarised as follows:
an ability to search for and identify innovative opportunities
the ability to develop effective plans to implement innovation and

commercialisation procedures
the ability to integrate research, design, and market information to convert

new ideas and inventions into commercially viable innovations
the ability to develop effective and realistic procedures for the evaluation
of R&D projects in terms of innovation, quality, and commercial value
a proactive attitude to the promotion of innovation through a strategic vision

the ability to create a cultural environment that fosters innovation and
entrepreneurship
Style
An ideal entrepreneurial management style for innovation should be open and
supportive, should encourage and nurture new product development, and should
identify new needs of customers, new users, and new markets through an ability
14 Zhao
to absorb information from various sources. The style of an innovative and

entrepreneurial organisation should provide employees with a culture of
empowerment and should enforce a reward system that provides incentives for
innovative and entrepreneurial behaviours, values, and assumptions.
Conclusion
This chapter has explored the synergies between entrepreneurship and innovation through a review of the principal literature in this field and case studies of
entrepreneurial and innovative organisations in the dot-com sector. The argument of the chapter is that a combination of entrepreneurship and innovation is
a crucial factor to the long-term sustainability of e-commerce and e-businesses.
The author has found that:
Entrepreneurship and innovation are positively related to each other and

interact to help an organisation to flourish.
Entrepreneurship and innovation are complementary, and a combination of

the two is vital to organisational success and sustainability in todays
dynamic and changing environment.
Entrepreneurship and innovation are dynamic and holistic processes in

entrepreneurial and innovative organisations.
The chapter also broadly discussed key issues and problems in the implementation of entrepreneurship and innovation in e-business. Because entrepreneurship
and innovation are systematic behaviours (Drucker, 1994), systematic efforts
are required to incorporate them into the operations of organisations. The 5 Ss
model is designed to address this need. Entrepreneurship and innovation should
be regarded as ongoing, everyday practice in organisations, and this chapter has
contributed to the development of such an attitude.
However, given the small sample size of interviews and case studies, and the
nature of this qualitative study, there are methodological limitations which do not
permit any generalization of the findings of the chapter to other situations. The
perceptions of the people interviewed may not represent those of the industry as
they are personal understanding of entrepreneurship and innovation based upon
their respective experiences. To minimize the limitations, this author chose two
small dot-coms in Australia to complement the case studies of the three leading
global players in the dot-com industry Amazon.com, Google, and eBay.
15
Nevertheless, these limitations infer that further systematic and comprehensive

research would be useful especially if it involves quantitative studies of a
larger sample size in different settings.
Acknowledgments
This author gratefully acknowledges the valuable assistance of Ms. Carmen
Gould in the data collection of the research project. The author is deeply indebted
to all the participants in the interviews for their constructive inputs to the project.
Special thanks go to RMIT University for an Entrepreneurship Research Fund
which entailed this research.
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18 Steinberg
Chapter II
Exploring Rhizomic
Becomings in
Post Dot-Com
Crash Networks:
A Deleuzian
Approach to Emergent
Knowledge Dynamics
Alexandra Steinberg
The London School of Economics and Political Science, UK
Abstract
This chapter introduces the work of Deleuze and Guattari, particularly
their notion of rhizomic becomings to the study of emergent knowledge
dynamics in contexts of innovation. It shows how an analysis of rhizomic
becomings can assist to explore new and emergent patterns, channelling
interpretation toward the discovery of new combinations and creative
assemblages in knowledge. This is exemplified by the example of a qualitative
study exploring knowledge dynamics in e-business entrepreneurship since
the dot-com crash. The results highlight the forging of the conditions for
innovation in new combinations of lines of affect and lines of technology.
Exploring Rhizomic Becomings in Post Dot-Com Crash Networks
19
Introduction
The reader may engage with this chapter in two different modes. First, it can be
approached in a social psychological mode as an exploration of the idea of
networking in e-business entrepreneurship, especially of the idea of new forms
of technological interaction in order to consider the issue of the emergence of
new knowledge. Specifically, I have in mind the issue of networking amongst ebusiness entrepreneurs via communication technologies (predominantly the
Internet), which specifically since the dot-com crash has brought forward new
creative dynamics of interaction not captured in the ways in which knowledge
dynamics is addressed in present studies. The aim is to get a better understanding
of these dynamics in order to explain emergent conditions of innovation.
On a second level, the chapter speaks to a post-structuralist literature, in that it
is an elaboration of the notion of knowledge dynamics as rhizomic becoming,
adopting Deleuze and Guattaris ontology of non-dialectic, aconceptual difference. This elaboration moves toward a critique of the very ubiquity and endless
utility of the dialectic idea as a way to address knowledge dynamics through the
suggestion that its appeal may conceal moments and movements where more
unexpected effects are taking place. Indeed, I suggest that there may be some
twists in the knowledge dynamics of post dot-com crash networks, where some
selected thoughts from a reading of Deleuze and Guattari specifically around the
notions of difference-in-itself and the rhizome, may lead one to read other
stories than pre-offered through contemporary literature on networks and
innovation.
Researching Knowledge Dynamics in

E-Business Entrepreneurship
E-Business Entrepreneurship, Knowledge, and
Innovation
Today, e-business entrepreneurship brings together two signs of change: advances in technological communication culture and changes in the organisation
of business life centred on the management of knowledge. E-business entrepreneurship is a young business sector, roughly 10 years old. With the development of the World Wide Web1 in the mid-1990s, new business opportunities
emerged for selling products and services. The new ways to spread information
20 Steinberg
quickly in digital form around the globe led to an explosion in the number of small
entrepreneurial businesses that focused on the use of new information and
communication technologies (ICTs) for business that is wholly or predominantly
conducted through Web sites. Over a short period of time, this new Internetenabled business (Whinston et al., 2001) emerged as a highly successful new
business type. Especially in the latter half of the 1990s a high level of new
business activity developed, a period that is often referred to as the dot-com
boom2 .
In this new business arena, knowledge is seen as one of the most significant
levers of innovation and its effective management is seen as a route to successful
innovation (Seely-Brown & Duguid, 2002). Internet-enabled business developed
quickly into a knowledge-based business arena of innovation, with the majority
of businesses concentrating on the selling and trading of services and solutions
over the Web (Whinston et al., 2001). Business types include firms that focus on
the provision of systems and solutions for infrastructure or service applications
on the Internet, Web pages offering specific information content (content
aggregators), Internet intermediaries such as consultancies through or about ebusiness, and firms concentrating on electronic commerce (business-to-business
and retail) (Whinston et al., 2001).
The development of the new sector of e-business entrepreneurship co-exists
with what is widely referred as the dot-com crash, a stockmarket crash in April
2000. What seemed to be an unstoppable growth of the e-business sector in the
1990s ended abruptly in April 2000 in a worldwide stockmarket collapse of hightech firms values (Ellis, 2001). In the UK alone, hundreds of dot-com firms
experienced bankruptcy (DTI, 2002). The dot-com crash meant a major turning
point, and its aftermath has opened up a start-from-scratch scenario that has
raised new questions as to how entrepreneurial innovation can be approached.
It also has reinforced the general focus on the importance of knowledge and its
management, both in business practice and policy.
Networking Post Dot-Com

In this chapter, I suggest that new theoretical flexibilities are required in response
to the dynamics that emerge when attention is focused at the meeting point of
communication technologies and business centred on knowledge. The network
may indeed be the central dynamic at this meeting point. There is increasingly
social scientific evidence that networks play an important role in the ways in
which business is conducted (Agre, 1999; Aldrich & Zimmer, 1986; Castells,
1996). Wittel (2001), most notably, argues for a new network sociality, a new
way of socialising via networking that is reshaping not only contemporary
business life but also social life in general.
21
During the dot-com boom, new networking practices emerged, such as First
Tuesday networking events where entrepreneurs and venture capitalists
mingled every first Tuesday of a month at an informal face-to-face event. The
aim was to bring people with business ideas together with people who could
potentially fund such ideas. First Tuesday networking enjoyed great popularity
nationwide and many similar but more locally focused e-business networking
events mushroomed during the dot-com boom.
However, with the dot-com crash, these networks changed. While the focus on
potential investors disappeared, the concept of networking has had a revival in
the form of online networking that offers ways for entrepreneurs to place each
other in contact in a combination of online introducer systems3 with face-to-face
networking. In these networks, the scope of networking had been extended to
a wider, seemingly more general theme: being connected. This is illustrated in the
two networks that I will examine in this chapter. Web-based networking with
integrated introducer systems have been highly successful in the UK with
growing membership numbers in the past three years; several of them have
membership numbers in the ten thousands and are expanding on an international
level.
The question this chapter is concerned with is how we can better understand how
these new and highly popular networks contribute to innovative dynamics in ebusiness entrepreneurship. When it comes to explaining innovation in knowledge-centred business, the predominant logic of thinking about knowledge
dynamics adopted is the dialectic one. This is evident in several streams of
research that focus on interaction and knowledge creation.
In organisation and management theory, for instance, knowledge dynamics in
innovation are studied as the social creation of knowledge through social
relations and social interaction (cf. Nonaka & Toyama, 2003; Nonaka, Toyama,
& Konno, 2000; Von Krogh, Ichijo, & Nonaka, 2000; Wenger, 2000). This work
emphasises social interaction as a key factor in knowledge emergence and bases
recommendations for innovation management on it (Kenney, 2001). Interaction,
crucially, is presumed to constitute innovation because of the dynamics of
learning that the dialogue amongst proactive agents engenders (cf. Seely-Brown
& Duguid, 1991). At the centre stands the assumption that it is mainly a dialectic
dynamic that brings forward creativity and innovation (Chell, 2000; Hoang &
Antoncic, 2003). Dialectics, in this context, is understood in a Hegelian way,
meaning a progressive evolution of ideas in the interplay of thesis, antithesis, and
synthesis (Hegel, 1977; Rosen, 1982).
The Hegelian stance of theorising dynamics is emblematic for a growing postCartesian literature that counters the classic individual-centred and static view
on knowledge by Descartes, which separated knowledge from its embodiment
and its social context (Hosking, Dachler, & Gergen, 1995). Most prominently,
22 Steinberg
Cook and Seely-Brown (1999) have drawn attention to the legacy of Cartesian
epistemology for organisation theory and have argued that in order to go beyond
the static Cartesian notion of knowledge units possessed by individuals, a
dynamic epistemology grounded in interaction is necessary.
Social psychologists also have argued for dialectics with regard to explaining
knowledge dynamics. They have shown how a dialectic perspective is useful to
highlight the dynamics of knowledge transformation in the inter-subjective and
mutual constitution of the social (Jovchelovitch, 2001; Markov, 2003; Moscovici,
2000). Consistently, authors seek to map out the knowledge relations that
individuals create in communicative interaction and explain social change
through the dialectic dynamics of social construction in everyday dialogues and
argumentation (Moscovici, 2000; Howarth, 2002). Similarly to organisational
theorists, the underpinning assumption is that new knowledge emerges from the
evolutionary progression of ideas in controversial debate. Argument and counterargument and the synthesis of different concepts is taken as the exclusive pattern
to explain how new knowledge emerges.
Beyond Dialectics
In this chapter, I suggest that in order to capture and explore knowledge
dynamics in the contemporary context of post dot-com-crash networks we need
to leave behind certain assumptions about the nature of knowledge dynamics
which we have tended to rely on to explain knowledge creation. Particularly, this
concerns the dialectic model as a way of thinking about knowledge dynamics.
Surely, there might be dialectic dynamics in network relationships engendering
new understandings about networking. However, dialectics no longer suffices as
the exclusive pattern through which we address the dynamics that networking
engenders.
Two issues are at stake here. First, if we want to account for innovation in
knowledge business, we need to be able to think about the emergent character
of knowledge, that is, we need to be able to capture not merely how existent
knowledge transforms but how new and unprecedented aspects arise that might
lead to new knowledge. Typically, with innovation what emerges is a something (Wagner, 1998) that does not relate to any pre-existent socially mediated
concept we might have in mind. Rather, this something forms a potentiality of
a new concept being forged. Second, if we are to better understand the dynamics
of such new and unprecedented aspects arising, we need to be able to think about
the creative patterns that foster such a process of emergence. By creative, I
mean patterns that might be different each time. Innovation can happen in
various different ways; they do not follow a proven, routine pattern or
procedure. Both aspects point to the unpredictable and surprising character
23
of innovation. While the dialectic perspective is useful to highlight how people

collectively reconstruct existent meanings and identities (Steinberg, 2003), it,
however, fails to address this precise aspect; the unpredictable and the new in
emergent patterns cannot be addressed, as the dialectic logic directs attention
predominantly to the realignment of a pre-existent, familiar concept or pattern
with the novel.
Emergence as Rhizomic
Post-structuralist thinkers Deleuze and Guattari (1987) argue that emergent
phenomena are part of a much larger, more diverse, and multiple becoming than
is represented by an epistemic logic of dialectics (Deleuze & Parnet, 1987).
Dialectics, they hold, subordinates our thinking about dynamics to conceptual
difference (Lambert, 2002) which exclusively addresses differences between
pre-existent concepts and directs attention to the emergence of the novel only
in relation to pre-existent concepts. Deleuze and Guattari radically oppose
dialectics and turn to an ontological notion of becoming that is continually
engendered by the repetition of difference-in-itself (Deleuze, 1994). For
Deleuze and Guattari, what moves a system forward is not conceptual difference, but rather a rich and multiple form of difference that bypasses the preexistent because it does not relate to it. Difference-in-itself is a difference that
is unprecedented, multiple, and, most importantly, one that makes itself
(Deleuze, 1968).
This philosophy of becoming emphasises that the dialectic of thinking is not
groundless. It depends upon an ontological work of dividing the world which
ensures that it can visibly bear the marks that ongoing communicative interaction
cuts into it. Deleuze and Guattari describe this work of dividing with the image
of the rhizome. In their seminal work A Thousand Plateaus, Deleuze and
Guattari (1987) write:
Non-parallel evolutions, which do not proceed by differentiation, but
which leap from one line to another, between completely heterogeneous
beings; cracks, imperceptible ruptures, which break the lines even if they
resume elsewhere, leaping over significant breaks . The rhizome is all
this. (Deleuze & Parnet, 1987, p. 26, emphasis added)
The rhizome challenges the notion of a unique direction of emergence; rather, it
portrays a dynamic that grows in simultaneous, multiple ways (Deleuze &
Guattari, 1987). Furthermore, the rhizome has no central or governing structure;
it has neither beginning nor end. A rhizome spreads continuously without
24 Steinberg
beginning or ending and exists in a constant state of play. It does not conform to
unidirectional or linearly progressive reasoning. This provides a stark contrast to
the dialectic assumption that emergence progresses linearly in tree-like patterns
of thesis, antithesis, and synthesis.
For the present purpose, the rhizome offers a logic of thinking about emergence
as a series of combinations of different (in-themselves) streams of becoming.
This is what Deleuze and Guattari describe as the emergence of new assemblages (Deleuze, 1990) through the crossing of different lines of becoming.
Assemblages can be defined as multiplicities; they express the potentiality of
multiple differences that are enmeshed variably and without a pre-existent fixed
concept or pattern of how they should be linked. Following Deleuze (1987), all
life consists of processes of assemblages, of new, unforeseen connections,
patterned in rhizomic ways. Consistently, any human body or object is the result
of a process of multiple connections (Colebrook, 2002).
Despite its appeal to address unforeseen connections and creative patterns of
emergence, the advantage of the rhizome image also is its disadvantage, as Eco
(1983, p. 57) points out, as the notion of connections and assemblages becomes
easily limitless:
The rhizome is so constructed that every path can be connected with every
other one. It has no center, no periphery, no exit, because it is potentially
infinite. (Eco, 1983, p. 57)
Those within and those engaging with new connections, therefore, have to
engage in forms of cutting that halt the flow of the rhizome in order to be able
to perceive it and to speak about them (Strathern, 1996). Here it is important to
bear in mind that Deleuze and Guattaris philosophy is an ontology of becoming
(Hayden, 1998), which implies that we are concerned with flow and movement
in the material and natural world rather than exclusively the meaningful world of
social sense (the case of dialectics).
Deleuze (1968) emphasises that as human beings we are part and parcel of both
worlds the social world of understanding and the material and natural world.
But in contrast to Hegel and other classic metaphysics, sense-making and
understanding do not provide the main and superior faculty that orders all sense
experiences in the material world (Bryant, 2000). Rather, Deleuze suggests a
disjunctive rather than harmonious functioning of the faculties of human reception. This means that, different human faculties such as understanding or feeling
are equally important in the creative process of movement. Different sense
experiences consistently disrupt each other, with different faculties of reception
being involved, such as intuition disrupting understanding.
25
Thus, a cutting of rhizomic becoming would mean its disruption by the faculty of
understanding in order for it to become incorporated in the social world of
meaning. The networks I explore next illustrate this: They enmesh contact and
friendship with elements of technology in new ways, which emerges as a
rhizomic dynamic that disrupts existent understandings of friendship and technology. What the interpretation then hones in on is how peoples understanding of
technology is variously cut by affect and how peoples affect is variously cut by
their understanding of technology.
In what follows, I illustrate the notion of rhizomic becoming that is variously
cut at the example of an exploration of two post dot-com crash networks.
Specifically, I present a new individuation that emerged from central cuttings of
new connections amongst various lines of technology and lines of affect: the
personal profile page.
The Study
An interpretative study was conducted exploring Londons e-business networks
using participant observation, interviews, and a focus group. The enquiry was
conducted over a period of four months (September 2002 to December 2002) and
featured 33 e-business entrepreneurs as well as seven e-business networks. At
the time of the study, the business arena of e-business entrepreneurship was in
a phase of reassessment of business after the dot-com crash. It was a time of
radically new phenomena of interaction being shaped, which made it particularly
relevant to an exploration of emergent knowledge dynamics.
In this chapter, I report a particular result from the participant observation, which
surfaced when exploring rhizomic becomings in networks. Networks had
emerged as the most important site for observation in the interviews. The course
of observation was determined through a snowball process (Huck, 2000). This
was a two-stage purposive sample that first turned to a social milieu that exposed
the minimal criteria of the context in question (e-business entrepreneurship as
defined by Whinston et al. (2001)), and second, was helped by respondents to
complete the sample by pointing to further locations of observation.
Through snowballing, the natural context of social life in the context in question
can be reproduced (Gaskell, 2000). This was a key aspect in establishing the
quality and public accountability of this qualitative exploration. As Gaskell and
Bauer (2000) have suggested, it is crucial for qualitative exploration to ensure the
openness of the research for the discovery of local surprise and novelty, enabling
the exploration to unfold according to the local context under study rather than
26 Steinberg
the expectations of the researcher. The snowball process addressed this

successfully and yielded seven networks altogether; two of which I report here.
Deleuzian Analysis
The notion of rhizomic becomings by Deleuze and Guattari (1987) indicates an
approach to analysis that lets us think beyond dialectics and that enables us to
channel interpretation in such a way that it lets us surface the emergence of
creative new assemblages. Essentially, Deleuze and Guattari introduce a new
vocabulary to think about dynamics and emergence. Their philosophy animates
analysis to think otherwise, which is in their sense to approach philosophy as
a tool kit from which to draw selectively in order to think about becoming in the
light of the analytical task at hand (Deleuze & Guattari, 1994).
Deleuze and Guattari were prolific inventors of concepts, to embrace this logic.
Their work teems with such concepts as nomadology, deterritorialization, lines
of escape, assemblage, intensity, rhizome, becoming, machinism, plateaus,
heterogeneous series, body without organs, and plane of immanence, to name but
a few. The Deleuzian approach is often loosely described as artistic by critics;
yet, authors increasingly take notice of Deleuzes approach because of his
capacity to overturn taken-for-granted assumptions (Bogue, 1989).
In what follows, I employ particularly three notions which suit the present
purpose of accounting for emergent knowledge dynamics in e-business entrepreneurship: lines, connections, and individuations. What lies behind this is not a
desire to be trendy, but the realization that in order to account for the emergence
of new concepts we need new words to express this especially in an
exploration of the dynamics of innovation.
To change my thinking to rhizomic mode when interpreting, I looked beyond
the dialectic categories of similarity (with existent concepts) and opposition (to
existent concepts) when interpreting. Rather, I wanted to highlight the various
and startling phenomena I had come across in the observation, pointing me to
events which did not translate into any pre-existent concepts about networking
and to new connections that would seem counterintuitive to be working together
(according to pre-existent categorisations of concepts), yet, nonetheless, worked
extremely well together.
First, lines provide the main routes of the rhizome. Some such lines will cross
over one another, others will merge, and yet others will proliferate chaotically.
A rhizomic line is any non-attributable micro-becoming that we can follow and
that proceeds in-between points. Lines are the routes that make a rhizome what
it is: de-rooted. Deleuze and Guattari (1987) describe lines as follows.
27
These lines are constantly crossing, intersecting for a moment, following

one another. it should be borne in mind that these lines mean nothing. It
is an affair of cartography. They compose us, as they compose our map.
They transform themselves and may even cross over into one another.
Rhizome. It is certain that they have nothing to do with language; it is, on
the contrary, language that must follow them, it is writing that must take
substance from them, between its own lines. (p. 203)
Lines can connect to anything, yet can be broken at any instant, only to take off
again in any direction. A line can be an event, a nonsense, a something, a
movement. Importantly, in comparison to dialectic lines of progression, lines do
not function in terms of lines with a beginning and an end. They do not translate
into pre-existent concepts, but rather pass in-between (Deleuze & Parnet,
1987) them. As Ansell-Pearson (1997) puts it, in rhizomatic-styled becomings,
becoming denotes the movement by which the line frees itself from the point and
renders points indiscernible (p. 136). In my thinking when interpreting, lines
were thus about attempting not to look for origins or destinations, but to focus on
the in-betweens, that is, on those aspects that were ambivalent to existing
evaluative dimensions such in the present networks which were breaking down
existent categorisations of online versus off-line networking and of business
versus private life.
Second, I focused on connections. Connections signify new combinations and
assemblages arising from lines twisting, converging, and crossing as well as
diverging; not aborescent but rhizomaniac (Mackay, 1997, p. 264). A connection can be a disruption, a rupture, a divergence, as well as a convergence. The
important aspect about connections is that what is connected functions well
together (Deleuze & Parnet, 1987) as this is what creates a dynamism of
movement. Furthermore, connections are, similarly to lines, ambivalent to preexistent categories. They are new, heterogeneous phenomena that do not allow
an interpretation in terms of unity, resemblance, or contradiction, but bring forth
new (non-dialectic) orderings. Hetherington (1997) has described a conceptual,
non-dialectical ordering as an ordering through similitude:
Similitude, is all about an ordering that takes place through a juxtaposition
of signs that culturally are not seen as going together, either because the
relationship is new or because it is unexpected. What is being signified
cannot easily be attached to a referent Similitude is constituted by an
unexpected bricolage effect. (p. 9)
28 Steinberg
It is this unexpected bricolage effect that is at the centre of innovation usually

perceived only in hindsight. They are the new connections that do perhaps not
make sense in terms of existing concepts or categorisations but nonetheless work
well together.
Third, the analytical focus on ambivalent lines and non-dialectic connections let
me concentrate the interpretation overall on the cutting of becomings, in the
sense that I looked for emerging patterns that came close to what Deleuze and
Guattari call haecceity:
There is a mode of individuation very different from that of a person,
subject, thing, or substance. We reserve the name of haecceity for it. A
season, a winter, a summer, an hour, a date have a perfect individuality
lacking nothing, even though this individuality is different from that of a
thing or a subject. They are haecceities in the sense that they consist
entirely of relations of movement and rest between molecules or particles,
capacities to affect or be affected. (Deleuze & Guattari, 1987, p. 261,
emphasis in original)
A haecceity is an intensity and new ordering that is becoming a new concept, yet
was not defined in its emergence through the relations to other pre-existent
concepts. Rather, through individuating, it gradually intensifies the energy of
lines running through it and enmeshes connections in new orderings to forge a
dynamic that allows them to be grasped by the faculty of understanding in that
it can be named and interpreted in meaning.
In the following section, I concentrate on the particular example of such an
individuation: the personal profile page. It came particularly close to forming a
haecceity: It was an intensity that emerged from a rhizomic becoming of lines of
affect and lines of technology that crossed and cut each other in new ways that
were ambivalent to the existent dialectic between virtual versus real world and
business vs. private life. These new cuttings worked extremely well together; the
personal profile page was at the centre of a dynamic of movement that
engendered new potentialities for interaction. To illuminate this, throughout the
following, I include excerpts from traces of the dynamics of the personal profile
page such as postings, visualisations and announcements on networking-sites,
personal messages, guestbook entries, and other micro-events that I experienced
when participating in networking.
29
Personal Profile Page and New

Emergent Orderings in Networks
Amongst the seven networks that were sampled in the snowballing process two
networks Ecademy and Ryze did not compare to the other networks. While
most networks would use their Web site as an online space to inform about the
network and advertise upcoming face-to-face networking events, the networking-sites of Ecademy and Ryze featured free personal profile pages for
members embedded in online introducer systems. The personal profile page
was highly popular amongst entrepreneurs: Almost every respondent in the
present study was a member of either one or both of the networks and had a
personal profile page.
Ecademy was initiated in the UK in 1998. In 2002, it had 20,000 members, with
a rising trend. Its mission reads as follows: to build the worlds largest
Trusted Business Network by connecting people to each other enabling
knowledge, contacts, and opportunities to be shared for World Wide Wealth.
(Excerpt from Web site Ecademy.com, 2002). Ryze has existed since 1996,
originated in Californias Silicon Valley and had 80,000 members in 2002, also
with a rising trend. Its mission was Extending members business networks
(excerpt from Ryze.com Web site, 2002). In addition to online networking, they
both feature monthly face-to-face networking events for members. Ryze had its
first face-to-face networking event in London in 2002.
In both networks, a membership is free and acquired via an online registration.
Membership can be upgraded to an advanced service (providing special member
search functions) for a monthly fee. Once one is registered, one gets assigned
a personal Web page (the personal profile page) through which one can publish
all kinds of information about oneself and ones business. Figure 1 shows the top
section of a (randomly selected) personal profile page on Ryze.
Once one is present on the network with a personal profile page, one is connected
to an online universe of personal profile pages and can browse the pages of other
entrepreneurs in related business fields or sub-networks (called tribes on
Ryze). Also, ones own page can be accessed by all other members of a network;
it also is searchable via a search tool. Browsing through personal profile pages,
one is presented with a rich and colourful range of personal universes of
knowledge, ambition, and experience. Besides a small standardised part of the
page (on Ryze, for instance, the top of the personal profile page features a prestructured space where entrepreneurs list their haves and their wants), the
larger part of the personal profile page is open to the content preferences of the
entrepreneur. On the personal profile page, network members post their profiles,
30 Steinberg
biographies, and photos, list their vitals, favourite quotations, hobbies, previous
jobs, and future career interests.
Members also have a range of profile and communication management tools at
their disposal. Via these tools, entrepreneurs can manage their contacts and
can track potential new network contacts. Examples are private messaging, a
guestbook feature via which a members message is publicly displayed on the
personal profile page of the addressee as well as the list of friends. To appear
on the list of friends (also on the personal profile page) requires that both
members have requested and confirmed their friendship online. Figure 2 shows
Figure 1. Randomly selected personal profile page on Ryze.com (2005)
Figure 2. Cut-out from a personal profile page on Ryze.com guestbook,

networks, and list of friends
31
a cut-out from the lower section of a randomly selected personal profile page,
depicting the guestbook, next to the list of friends and a list of sub-networks that
this member is involved in.
Hence, a common way of interacting was to contact other entrepreneurs by
browsing personal profile pages, and subsequently by sending a guestbook note
or personal message. As part of my own participation during the study, I would
receive networking messages such as the example shown below.
Ryze Guestbook entries
Anurag Mehra, 12/10/02
Hi, Alex, I have just started an e-learning company myself. Do check it out.
Let me know if you need anything.
Anurag
Karen Edelman, 10/25/02
Hi, Alex Just dropping by to say hello. Your profile is very interesting.
Stop by my site perhaps my services would be useful for you at some point.
Karen
Crucially, contacts acquired in this way were in-between business and private
interaction as on the one hand, the contact in the network could be for any
purpose or reason and had a feel of online chats to close friends to them, but at
the same time usually involved some form of assertion that for future business
opportunities one would keep each other in mind. This form of interaction was
ambivalent to business versus private interaction, but also, as we shall see, to
virtual versus real interaction.
The personal profile page brings together two lines of becoming: the technologybecoming of friendship and the friendship-becoming of technology, to phrase it
in Deleuzian terms. This means that friendship becomes a technology of
networking (technology-becoming of friendship), and technology becomes part
of the entrepreneurs socializing apparatus (friendship-becoming of technology).
Both the lines of technology running through the various tools of contact and
communication and the lines of affect emerging from the online communication
crossed each other in new ways and became each other. Together, this lets the
personal profile page emerge as a phenomenon that is different-in itself and
that intensifies around a large amount of creative energy, given the sheer
limitless ways in which technology and affect could intersect via this page.
The phenomenon of the personal profile pages is remarkably close to a perfect
individuality in the sense of a Deleuzo-Guattarian haecceity as it has a capacity
to affect others or to be affected by others (capacity to move and to bring forth
dynamics). On the surface, it seemed to form a technology image, but, in fact,
32 Steinberg
it was far more multiple: Emerging from new connections of lines of affect and
lines of technology, it created a dynamic in that what each becomes changes
no less than that which becomes (Deleuze & Parnet, 1987, p. 3). This means
that both new crossovers of affect and technology emerged as well as rearrangements within each of these lines. The personal profile page emerged as an
individuation from the various ways in which these lines cut each other; each of
which ordered technology-becomings and affect-becomings in different ways,
but highlighted the importance of their difference-in-themselves for the dynamics the personal profile page engendered.
Friendship as a Technology of Networking

The technology-becoming of friendship can be described as the dynamic
engendered by two lines crossing. First, as the slogan from Ryze illuminates
(Figure 3), there is the aspect of the sheer limitless potentiality of expansion of
ones personal network via the technology of the personal profile page. At the
same time and second, this potentiality of unlimited growth is variously cut by
several tools that make ones contacts publicly visible on the personal profile
page.
The list of friends is the tool at the centre of this becoming. As we have seen in
Figure 2, it is featured on each personal profile page, embedded into an
automatism that tracks online interaction. More precisely, the list of friends is a
dedicated space on the personal profile page that is automatically generated; it
adds the names of ones contacts to a list whenever a new friendship is
confirmed. The list of friends opens up ones potentiality of interaction to an
unlimited array of contacts. The list of friends can extend widely without any
rules about where the lines of connection should stop and the boundaries of the
personal circle of friends are defined. Consider the statement by the network
user below.
If theres someone with whom I have common business interests, I add
them to my list of friends, and then a link to their page appears on my page,'
explains Kaups friend Anne Fitzpatrick, Executive Director of the Bostonbased Rock & Roll Library and a Ryze user. Excerpt from "The Press on
Ryze, published on Ryze.com, 2002
The statement also illustrates how friendship is not attributed via the notion of
face-to-face interaction: This is the image of friendship qua network it is also
the image of friendship that becomes a tool, a technology.
This technology-becoming of friendship extends ones private network and despite
the sheer limitless expansion of ones network, the crossing of lines of technology
33
Figure 3. Cut-out from Ryze
Figure 4. Cut-out from Ryze.com visualisation of friendship
that made contacts visible cut the rhizomic growth of the network. On Ryze, for
instance, in addition to the list of friends as a list of names, the entrepreneurs ties
to other network members also is depicted graphically on the personal profile page,
featuring thumbnail photographs of ones contacts (Figure 4).
This feature in Ryze creates an image of the lines of connection running through
the network, illustrating the chain of people via whom one is connected to other
entrepreneurs. While, again, this feature invites one to make new contacts in
order to become more connected to other entrepreneurs, the visibility is
important as it cuts into the limitlessness of this line. Through the guestbook, the
photographs, and the list of friends, the visibility of friendship became a
technology that connected making contacts online with ones real reputation
and thus enabled it to make sense in the real world of entrepreneurs. Consider
the following excerpt from a networking message distributed to all members by
Ecademy.
Ecademy Networking Message
Check your personal reputation with fellow members
Fellow Ecademist.
Now you can check your personal reputation with fellow
Ecademy members and rate members in your personal
Ecademy network:
http://www.ecademy.com/module.php
34 Steinberg
The visibility of ones friends creates a relationship of similitude, seen from the
outside, from the standpoint of another perspective (Hetherington, 1997, p.
43); in other words, it creates an ordering of the lines of connection established
by their difference in a relationship between sites rather than their Otherness
deriving from a site itself (ibid, p. 43). In this way, the network becomes real
for entrepreneurs in such as way that the technology of the network becomes
part of ones socialising apparatus. This is the friendship-becoming of technology.
Technology as Part of Entrepreneurs Social Life

The lines of technology that run through the network take another route of
crossing lines of affect: The technology-becoming of friendship also is a
friendship-becoming of technology. The technology of visualisation of ones
acquaintances becomes part of ones everyday way of socialising with others.
I wrote that the ways of interaction via these networks are ambivalent to the
concept of virtual (online) vs. real (off-line). There are various new tools that
reinforced the becoming entangled of the technology with the daily life of
entrepreneurs. An example is e-mail notifications informing the network member about a movement on ones personal profile page. This can be, for
instance, a notification about a profile visit (see e-mail excerpt below), a
guestbook entry, or a request for friendship.
Profile Visit
Alexandra,
Steve Collins has looked at your profile.
http://www.ecademy.com/
You can see who else has looked at your profile here:
http://www.ecademy.com//
Ecademy
Connecting Business People http://ecademy.com
Another example is a weekly summary e-mail of ones online activities in the

form of statistics of visits and traffic on ones personal profile page.
35
email Ryze stats

HITS
Your Ryze page : 6* (cumulative)
Average Ryze home page : 91*
Average Ryze home page w/photo: 260*
To increase your hits, add a photo on your Ryze
homepage, at: http://www.ryze.org/photo.php?lr=weekly
FRIENDS & GUESTS
Friends you link to: 0
No Friends yet?? GET THE MOST VALUE or of RYZE by
leveraging your Friends Networks:
http://www.ryze.org/invite.php?lr=weekly
Friends linked to you: 0
Guestbook entries: 0
Contacts: 0
The friendship-becoming of technology also is present in other ways. Entrepreneurs would often post photographs of friends on their personal profile pages.
These photographs usually show friends and acquaintances in a leisurely setting
such as in homes, holidays, restaurants, or occasionally, at weddings. The
important aspect hereby is that these friends are mostly friends from the network
shown in the private context of the entrepreneur: The friendship technology has
begun to cross over affect in real life there is no distinction into real or
virtual.
As a newly-appointed CEO, I have special needs for business contacts.
Thanks for creating Ryze! Ive not only made many great business contacts,
but also lots of personal ones! Great job. Bob Glass, CEO, Creative
Science SystemsExcerpt from Member Testimonial Section. (published on
Ryze.com, 2002)
While some authors have drawn attention to problems of establishing trust via
online communication, focusing attention on the lamentable absence of proximity
in online networking or virtual networking (cf. Lash, 2000; Rheingold, 1994;
Tucker & Jones, 2000), I suggest that in the present networks the new ways in
which lines of technology and lines of affect become enmeshed create conditions
for rearrangements in lines of affect that depended primarily upon technologies
rather than the face-to-face aspect of human interaction. The more a member
can prove via the list of friends, guest-book sign-ins, and photographs that he or
she has friends, the more this person is deemed trustable and successful.
36 Steinberg
Together, these new connections of business and private life, of real and virtual,
forge the conditions for a new ordering of the network; it creates the conditions
for new creative assemblages. The personal profile page generated new
potentialities for trusted interaction and allowed lines of affect that are inbetween the flow of the real life and the virtual, blending them together in a new,
different, and innovative form of business-private interaction. This is an unprecedented form of interaction that has reinvented the concept of networking; as it
creates new conditions for interaction, it presents in itself an innovative and
different becoming.
Implications and Conclusion

In his reading of contemporary society as a highly technologically mediated
network society, Manuel Castells suggests that in informational networks a
culture of real virtuality emerges. This is a reality in which appearances are
not just on the screen through which experience is communicated, but they
become the experience (Castells, 1996, p. 373).
The findings presented in this chapter have shown a particular mode in which two
post dot-com crash networks become such a real virtuality. The Deleuzian
analysis uncovered the dynamics that make these networks a phenomenon of
movement and creative energy. The personal profile page stands at the centre
of it, ordering the experience of networked entrepreneurs in new ways.
Entrepreneurs social lives are no longer connected mainly to a local community
of businesses, but come via the list of friends and network messages; via lines
of technology that get intermingled in new ways with friendship. Reputation and
business credibility is no longer solely created in face-to-face relations.
These findings raise new questions about the future reverberations of these new
connections. The rearrangements in lines of affect and lines of technology go
beyond those potentially captured in dialectic relations between real and virtual
and between business and private. They are different in-themselves, that is, they
do not translate into a mere synthesis between these classic divisions. Rather,
they are likely to forge new concepts, just like the personal profile page has
emerged as a new concept of networking, assembling elements such as the
guestbook, the list of friends, and photographs of close friends.
The Deleuzian analysis has been invaluable to recognise the personal profile
page as an intensity of creative becomings as such; it has enabled me to single
out the personal profile page as an individuation of a dynamic process of
emergence in-the-making. This aids our analytical possibilities of distinguishing
creative and emergent dynamics from other dynamics that might merely
37
reproduce and recreate existing concepts. It gives us a handle to describe the

micro-cosmos of becomings, which might not be realised conceptually at the time
but which bears first cuttings that allow us to see new emergent conditions for
innovation.
The present analysis was only possible by keeping the analysis itself inbetween bypassing what Deleuze (1987) calls the grille of invested
evaluative dimensions (such as online versus off-line or business versus private
life) when interpreting. This mode of engaging with emergent dynamics does not
dictate the story that emerges, and indeed, that has not been the objective. But
in following these paths that the Deleuzian philosophy suggests, this chapter has
promoted an exploration in the spirit of rhizomic connections in an attempt to
estrange the conventional and taken-for-granted, while opening the interpretation up to the imagination of new emergent concepts.
This chapter has been an illustration of what could be developed into a new
method of the explorative interpretation of conditions for innovation in knowledge-related contexts. Far from being complete, this chapter has merely
presented a first attempt in this direction. Somewhere between the ethnomethodological and the sceptical, the social psychological and the ontological,
this chapter has itself been something of a rhizomic journey connecting points of
a story rarely narrated as such.
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Endnotes
1
Graphical user interface of the Internet
Since then, entrepreneurship in e-business is often referred to as dot-com

business. The name derives from the com suffix of many business Web
sites. A dot-com firm is one whose business is wholly or predominantly
conducted through such a site, as opposed to traditional businesses which
may be represented online but continue to operate primarily off-line.
An online introducer system is software that can be integrated into a Web

site to support the registration and interaction management of an online
community. It allows registered users to send messages to other registered
users, to visualise their networking contacts, and to create links between
other users.
Innovation and B2B E-Commerce: Explaining What Did Not Happen
41
Chapter III
Innovation and
B2B E-Commerce:
Explaining What
Did Not Happen
Steve New
University of Oxford, UK
Abstract
The massive wave of enthusiasm for B2B (business-to-business) e-commerce
generated with the dot-com boom led many to believe that a fundamental
transformation of how firms bought and sold products was just around the
corner. The new wired world of commerce would lead to real-time,
Internet-driven trading, with significant implications for amongst other
things the nature of buyer-supplier relationships, pricing, and the
management of industrial capacity. Despite the excitement, such a
transformation has largely failed to materialise, and whilst there has been
a limited uptake of B2B innovations (for example, the use of online reverse
auctions), the fundamental character of B2B trade has remained mostly
unchanged. Drawing on a multi-stranded empirical study, this chapter
seeks to explain the divergence between the expected and realised degrees
of innovation.
42 New
Introduction
The extraordinary rise and fall of the late 1990s technology bubble was not the
first speculative boom of its kind and presumably will not be the last. As with
the successive 19 th century booms relating to the railways, the frenzy was
accompanied by an astonishing explosion of rhetoric, folklore, and intellectual
and managerial fashion crudely, hype. This led to a significant flurry of
innovation, particularly in the founding of large numbers of Internet-based
intermediaries (hubs or exchanges Bakos, 1991, 1998; Bloch & Catfolis,
2001; Barratt & Rosdahl, 2002; Le, Rao, & Truong, 2004). Investors and
organisations poured vast sums into these ventures and, for the most part, lost
their money. Consultants and investment banks made shrill claims that
interorganisational trade would be transformed, but the predicted revolution
failed to materialise.
I address two central questions in this chapter. The first is the simple question:
Why did the revolution not happen? The second is: What substantive ideas for
business practice can be salvaged from the wreckage? This is an important task;
to adapt George Santayanas famous quip, those who do not understand the past
are condemned to repeat it.
One feature of published work in this field is that there has been relatively little
solid empirical material; on the other hand, there has been a great deal of
generalised comment and unsupported speculation regarding the causes and
consequences of the bursting of the B2B bubble. Day, Fein, and Ruppersberger
(2003) present an analysis that emphasises the similarities with other shakeouts
associated with disruptive technologies.
This chapter reports the results of a multi-stranded investigation into the extent
to which organisations are prepared to make use of the Internet in buying and
selling, and into the patterns of life and death of B2B exchanges. Unlike much
of the literature in this area, which has largely focused on leading companies or
the few successful hubs, this chapter concentrates more on the opportunities and
obstacles that face ordinary organisations, and the innovations which failed.
The logic behind this is that there is often much to be learnt about the process of
innovation from the mundane and the typical. The purpose of this study was not
to recount the organisational success stories of leading firms others have done
that before, and the potential benefits of B2B e-commerce are well documented
(e.g., Sculley & Woods, 1999; Timmers, 2000; DeMaio, 2001; Raisch, 2001). For
this study, the challenge was to understand the reality of organisations experiences, and to gauge the key issues and obstacles that they face.
43
Background: The B2B Phenomenon

A simple starting point to the complex origins of the B2B e-commerce
phenomenon lies in the well-established technologies of electronic data interchange (EDI). At the beginning of the 1990s, for many industries, the direct
system-to-system transfer of data over proprietary networks following industry
standard protocols had become a routine element of doing business. The
technology allowed significant savings from both increasing the speed and
accuracy of data transmission, and in some cases was progressing to more
advanced uses whereby buyers and suppliers could not only manage routine
transactions but also see into each others systems, facilitating such operational innovations as collaborative planning forecasting and replenishment,
and vendor managed inventory. In addition, electronic linkages also were
developing for the easier sharing of technical and design data, encouraging interfirm collaboration in technical design. The downside of these interorganisational information systems were the considerable hook up costs
incurred by the parties involved, a fact which limited the adoption of the
technologies by smaller suppliers, often faced with meeting the costs of linking
their own systems with the non-matching requirements of several customers. In
parallel, in the academic literature, there was a limited debate as to the long-term
effects of these technologies on firms switching costs, and good arguments
could made for expecting both a reduction and increases in market stickiness,
and the consequential shift to purer markets or growing hierarchies,
respectively (Malone, Yates, & Benjamin, 1987; Bakos, 1991). The debate was
rather theoretical, and was rather neglected outside of a handful of learned
journals.
The arrival of the Internet, and its adoption by businesses as a serious tool for
business, however, radically changed the character of the debate. Three key
features of the Internet and two innovations transformed the horizons of
possibility. The Internet was ubiquitous, cheap, and being built around the idea
of a standard and simple set of technical protocols relatively easy for firms
to adopt. The two innovations the search engine and the online auction
opened up a range of new possibilities for online B2B trading. Over time, two
basic connected perceptions emerged regarding the potential for a new approach.
The first of the perceptions was that the Internet could radically transform
procurement and sales processes, collapsing the costs and timescales of trading.
Prospective buyers could seek out prospective suppliers very rapidly, and
suppliers could present vast quantities of searchable information on their
products and capabilities. Furthermore, buyers could use Internet mechanisms
to identify the cheapest supplier in real time using multilateral reverse auctions.
44 New
Correspondingly, suppliers could be more responsive in their pricing. The scope

for these new approaches to yield substantive benefits was widely acknowledged.
The second perspective, however, took these new potentials as heralding
something far more significant than some dollars shaved off administrative
transaction costs. As Bill Gates (1995) stated, the Internet will carry us into a
new world of low-friction, low-overhead capitalism, in which market information
will be plentiful and transaction costs low. This vision of the future initially
fuelled enthusiasm for online business-to-consumer (B2C) retailing, but after
a while many observers realised that the B2B market was of a vastly larger
scale. B2B e-commerce was held to signify a fundamental change in the way
capitalism works (Prigg, 2000; Tapscott et al., 2000). A report by AT Kearney
(2001) suggested the emergence of differentiated value networks that would
redefine entire industries and value chains, and that that e-markets can
dramatically affect the power balance in todays value chain. Partly driven by
an almost ideological faith in the nature of markets, this position assumed that
supply markets for corporate purchasers would be transformed: The features
which stopped industrial markets behaving like the theoretical, equilibriumfinding markets of the neoclassical model (small numbers, constrained flows of
information, high switching costs, high barriers to entry) could be removed by the
new technology, reaping substantial efficiency gains. For these gains to be
realised, however, new market institutions would be needed to act as hubs
between buyers and sellers, and these even if charging just a tiny fraction of
the throughput stood to reap phenomenal economic rewards. These hubs
were to be the killer application of the B2B Internet revolution (Sculley &
Woods, 1999). As a result, an Internet land grab emerged as entrepreneurs and
existing market participants sought to establish themselves in the controlling
positions in their chosen market or industry.
As time has passed, many of these new intermediaries have fallen by the wayside
and their fate is examined later in the chapter. However, it is important to note
that there is far more to B2B e-commerce than online exchanges and marketplaces, and some organisations have achieved significant advantage through the
use of e-procurement and the use of so-called private exchanges. However,
many organisations have struggled to develop their e-procurement or e-marketing activities, and it is interesting to explore why this might be so.
Methodology
The investigation described here used multiple research methods. First, an e-mail
questionnaire was sent to over 4,000 firms who supply the major UK utilities,
45
generating 240 usable replies that provided information on these companies as

both buyers and sellers. Second, follow-up telephone interviews with a dozen of
these firms helped provide greater insight into their experiences. Third, this was
complemented by nine case studies (involving site visits, multi-informant interviews, and documentary analysis) involving a range of both public and private
sector organisations. Fourth, the work used a database of 663 e-marketplaces
and B2B hubs constructed by Meakin (2002). This large database represents a
significant slice of the population, although there is no way of definitively
establishing what percentage it represents. Grubb (2000) estimated 1,400 B2B
exchanges had been launched; Levaux (2001) estimated a thousand or so.
Caspar (2000) cited an Andersen Consulting study that claimed there were 7,500
by late 2000. Day et al. (2003) claim a peak of 1,520. (For reasons discussed next,
all these figures must be taken with considerable caution).
The sample for the e-mail survey was firms in the Utilities Vendor Database
of the Achilles Group a B2B company whose activities concentrate on public
and regulated procurement (see www.achilles.com). The pool of companies
represented a broad range of firms supplying the UK utilities sector. Our
approach was to initially use a very brief questionnaire and to use the immediacy
of e-mail feedback to refine the structure and examine the effect on response
rates by adapting the number and sequence of questions asked. The survey was
administered in the autumn of 2001, and we e-mailed just over 4,000 organisations,
reaping over 240 usable replies (we asked firms about either their purchasing or
selling, or both). However, due to our adaptive design, we did not collect data on
all questions from every respondent. Participants were entered into a drawing to
win a 50 gift voucher.
The mechanism of the questionnaire was to send a plain text e-mail, for which
the answers could be simply overtyped on the reply and returned. We did this to
avoid using e-mail attachments (which might be blocked by firms firewalls), and
to avoid the need for respondents to access a Web page (we knew that for at
least some of the smaller firms involved, whose access to the Internet was by
standard telephone line, this requirement would be a disincentive). We also
offered each participant access to the findings of the report, and a brief
benchmarking report comparing their response with other (anonymous) firms.
Due to the exploratory nature of the research, we have not employed formal
scaling or rigorous hypothesis testing in the interpretation of the data; the full
analysis is still in progress. Here, we present an overview of the descriptive data,
which in this case we believe is more instructive than looking for intricate
correlations of scores. As we were dealing with non-anonymous returned
questionnaires, we were able to additionally incorporate further public domain
information about the organisations into our analysis, including financial information and (subject to data protection constraints) data from the original database.
46 New
The median turnover of the respondents was 11m, with the median number of
employees being 124.
The qualitative aspects of the research entailed a series of visits to nine
organisations with a view to finding out which issues and aspects of B2B ecommerce at the top of their agendas; we sought (within the time and budget
available) as wide a selection of organisations as possible (large, small, public,
and private sector), and sought to let managers and staff in these organisations
largely steer the direction of the discussions. This rather unstructured approach
meant that we did not (nor did we expect) to collect commensurate or matching
data from these organisations; however, it helped us engage with some of the
underlying issues regarding B2B and e-procurement, which we suspect would
have been rather lost if we had framed the meetings too strictly in our own terms.
We believe this trade-off to be particularly important given managers propensity
to discuss aspiration in these areas as if it were current fact, and the way in which
interviewees responses may sometimes encapsulate that which they have read
in professional magazines rather than the actual experience of their organisations.
However, the serious downside to this approach is that much of the material
generated is not directly relevant to issues at hand, and of course generalisations
are even more problematic than with survey data.
Methodological trade-offs also were needed in the analysis of the B2B hubs.
Much of the writing on these initiatives has assumed that relatively few of them
would survive, for example, Levaux (2001) estimated that only 200 would still be
around by 2003. Drawing from the prior database, this phase of the research
worked through 302 e-marketplaces with a highly structured search process
which entailed examining the Web site (where available) and using two search
engines (Factiva and Lexis-Nexis) to collate news and PR-agency coverage
(typically from trade journals). There are obvious problems with these secondary
sources not being wholly accurate or reliable; on the other hand, for some of the
initiatives we examined, these reports are the only accessible information left.
Where necessary and possible, e-mail messages were sent to the exchange to
gain further information.
This highly structured process allowed the systematic analysis of data regarding
each of the initiatives and also allowed a rational decision to abandon the search
for information on a particular exchange and move on to the next one. This
Taylorist approach to data gathering proved particularly effective, as experimentation showed that without a programmed cut-off point, a great deal of time could
be spent searching fruitlessly for exchanges which were the equivalent of
vapourware initiatives which were announced in the press but subsequently
disappeared without trace.
A key aspect of the data collection process was the classification of the B2B
initiative according to a set of dimensions (such as type of exchange, industry,
47
etc.). These included whether the site was alive, dead, or had a continued
existence via merger with or acquisition by another initiative. Sites that appeared
to be dormant were contacted via e-mail, but if the link was broken and the email returned, it was assumed the operation had closed. If the site appeared to
be in a state yet to go live it was left until the end of the project and then
rechecked if it was still pending, it was ignored.
During the course of the data collection, it became clear that it was not easy to
judge the level of activity or indeed in some cases the seriousness of intent of the
initiatives. Many of the marketplaces described what they did in principle, but
displayed no evidence that the site or the services provided were genuinely
operational. This transpires to be a major problem when investigating organisations
that may or not be viable, and which exist in a business context where it is not
in the actors interests to be completely honest about their current degree of
success. What was needed was an indication of substantive activity an
Activity Test. We eventually settled on a simple proxy for being genuinely
alive: whether there was any reported quantitative indication of the transaction
volume (in number of transactions or dollar value) or throughput. These were
deemed to be Actives. However, this does not imply that the initiatives were
financially viable; an exchange could have throughput but not make any profit.
There is clearly a risk of type one error in this classification, in the cases where
an Active site has simply not gotten around to releasing some indicative numbers,
or there is some other strategic reason for obfuscation. There is also a type two
error for marketplaces that falsely declare activity. However, as there will be a
general incentive for initiatives to publicise their vitality in order to attract
participants, this seems a reasonable criterion to apply. Bykzkan (2004)
describes another attempt to score the activity of e-marketplaces, but, from
the experience gained in the current study, it is difficult to see how his approach
could be operationalised in practice.
Sudden Birth and Lingering Death

of B2B Exchanges
Figure 1 illustrates that given the extensive reportage of the death of B2B
a surprising number of initiatives remained alive, in that there was still a Web
presence of some kind. However, out of the 302 studied, we identified only 29
who passed the Activity Test of providing quantitative evidence of any
substantial kind of any kind of activity.
Interestingly, the small difference between sites passing the Activity Test and
those not was not statistically significant (using the chi-squared test at the 0.1
48 New
level of significance). So marketplaces able to publish throughput figures seem

to be no more likely to be still alive than those not. This can be explained by
two ideas: The relatively low capital and operating costs for pure play Internetbased businesses (and the relative ease of fundraising during the boom years)
can mean that sites with meagre levels of real activity may be able to sustain
some type of Internet presence for some time as they simply burn off the initial
investment. This is a significant point. Day et al.s (2003) study uses the
construct that a marketplace exists and continues to operate our work
points to the fact that these two things are separable concepts.
Second, one way of attracting sufficient buyers and suppliers to participate in an
exchange would be to charge minimal fees, or to offer attractive but expensiveto-provide services, thereby making continuing operations unviable.
There are a very wide range of schemes for classifying different types of
exchange. Here we adopt that proposed by Ramsdell (2000), which is summarised
in Table 1.
Figure 1. Survival of B2B e-marketplaces comparison of whole sample

with those passing the success test
Alive
M&A
Dead
0.0%
20.0%
Activity Test (N=27)
40.0%
60.0%
80.0%
Overall (N=302)
Table 1. B2B marketplace types (after Ramsdell, 2000)

Type
Product
Typical
Owners
Suppliers or 3rd
Parties
Type of
Market
Fragmented
Industry
Buyers
Buyer power
dominated
Function
3rd Parties
Non-fragmented
Description
Horizontal e-marketplace usually formed around a supply
market that cuts several industries (e.g., MRO market)
Vertical e-marketplace, usually revolving around an
industry sector (e.g., Chemical Industry)
Focuses on services and capabilities rather than products,
such as Supply Chain Integration (SCI) or Project
Management.
49
Table 2. Breakdown of marketplaces by category

Type
Percentage
Function
38%
Product
35%
Industry
27%
Type of B2B
Figure 2. Status of exchange types

Industry
Product
Function
0%
20%
40%
60%
80%
100%
percentage
Alive
M&A
Dead (N=231)
The classification of exchanges transpires to be a rather complex matter, as

there are many instances of hybrid and unconventional approaches. However,
in this study we found that the total sample where categorisation was possible
was split roughly equally between the categories as shown in Table 2. Figure
2 illustrates the status of these categories; again, there is no statistical significance between the types of exchange.
The lesson that emerges here is that despite the widespread assumption in the
prescriptive and speculating writing at the time, no one particular exchange
model turned out to be dominant.
The emergence of B2B needs to be understood in the context of the technology
boom of the late 1990s, and Figure 3 plots the date of first announcement against
the value of the NASDAQ composite index. This pattern is illustrated in more
detail in Figure 4, which illustrates the lifelines of exchanges by category.
The data presented in Figures 3 and 4 points to some interesting speculation. On
the one hand, the close match of announcements to the NASDAQ index is
suggestive that much of the enthusiasm for B2B intermediaries was driven as
much by the potential of making money from investors in the heat of the
technology investment boom as it was by the desire to build genuinely viable
businesses. Simply setting up some kind of intermediary B2B organisation is not
in itself capital intensive (although making it really deliver value to buyers and
50 New
30
6000
25
5000
20
4000
15
3000
10
2000
1000
price
Frequency
Figure 3. Announcements of marketplaces
Oct-02
May-02
Dec-01
Jul-01
Feb-01
Sep-00
Apr-00
Nov-99
Jun-99
Jan-99
Aug-98
Mar-98
Oct-97
May-97
Dec-96
Jul-96
Feb-96
Sep-95
Apr-95
Nov-94
Jun-94
Jan-94
Time
First Announcement (N=209)
NASDAQ Composite
suppliers may be). Therefore, it seems unlikely that the decline in the launching
of B2B initiatives is completely explained by the difficulty of raising funds as the
boom subsided. If, on the other hand, the motivation for many of the enterprises
was simply to get to the investment markets quickly, then the sharp drop off in
announcements between April 2000 and February 2001 makes more sense.
Figure 4, however, suggests that the fate of the initiatives cannot be explained
by looking at the launch date. A very cynical view might expect that those
Figure 4. Birth and death of e-marketplaces (n = 193)
DEAD
MERGED/
ACQUIRED
ALIVE
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
Jul-99
Jan-99
Jul-98
Jan-98
Jul-97
Jan-97
Jul-96
Jan-96
Jul-95
Jan-95
Jul-94
Jan-94
Time
51
launched at or just before the frenzy might be the least likely to survive, being the
most driven by fashion and being subject to the least rigorous degree of scrutiny.
However, if this is the case, it is not clear from the data. Furthermore, it does not
seem that the early initiatives were more or less likely to fail than the later
starters. A key point in the consideration of this data is that many of the initiatives
may well be alive, and yet not very active, and not generating very much or any
revenue. As nearly all the initiatives are small private businesses, it is generally
very difficult to get convincing or informative data on their financial and
operating performance. The fact, however, that so few pass the Activity Test
is perhaps indicative that the task of bringing buyers and suppliers together is far
more complex than many initially thought. To explain why this might be, it is
sensible to begin by reviewing the impact of e-commerce to ordinary companies and this brings the discussion to the survey and case studies.
Experiences of B2B E-Commerce:

Initial Observations
Before we turn to the substantive data gathered by the survey and the cases, it
is worth noting some incidental aspects of the research that we found interesting.
First, an immediate feature of the survey was the large number of e-mails
(roughly 10%) that were returned as undeliverable even though we had used
contact e-mails provided by the firms themselves to a database to which they
paid a fee. Following up these cases revealed several potential problems: Many
firms had changed the format of their e-mail addresses; individuals had left the
organisation; and a surprising number were addresses based on non-company email systems (for example, Hotmail or Freeserve), and the addresses were
no longer active. For reasons we discuss next, we think this is a significant
finding. A second and surprising observation was that eight of the responses
were returned by conventional post rather than by e-mail.
For reasons of available space, we concentrate here on just three aspects of the
substantive research findings: the impacts of e-commerce on buying, selling, and
the character of the buyer-seller relationship.
Buying: Commodification and Specification

We suspected that much of the hype surrounding B2B e-commerce was based
on a nave view of corporate procurement. For example, many of the B2B
enthusiasts over-emphasise the extent to which corporate purchasing is about
52 New
buying commodities or highly standardised products for which price is the only
salient variable. We sought data from supplier organisations about the nature of
their sales on two dimensions: First, the degree to which their output was
commoditised in the sense that the goods or services provided were standard
off-the-shelf items, or bespoke for a particular customers needs. Second, we
asked about the extent to which buyers play a role in the specification of their
own requirements: In some cases, buyers spell out exactly what they want; in
others, the seller specifies the solution according to an assessment of the buyers
needs; in many cases, the exchange requires a process of dialogue between the
buyer and seller. Much of what has been written about B2B e-commerce has
assumed a particular model of inter-company trade, emphasising standardized
products specified by the customers (e.g., from an online catalogue). From the
supplying firms who responded to the e-mail questionnaire in this study, this
amounted to less than 19% of sales. This is a significant finding, as it indicates
that (if the result were indicative of the general case) more than 80% of B2B
trade is not amenable to the impersonal, price-oriented, online catalogue mechanisms which have been one of the key archetypal images of B2B. Firms also
differ from each other by supplying different combinations of goods, services,
and works. The firms in the e-mail survey provided a good mix here, with 60%
providing goods alone or in some combination with works and services, and the
remainder selling some combination of works and services. Of the firms that sold
goods, three quarters sell them as part of a more complex package involving more
intangible elements. Again, much of the discussion about B2B has thought only
in terms of simple products, but the reality is far more complex.
Buying: Use of the Internet

We asked organisations about the use of the Internet in the purchasing process
and found extensive use, especially in terms of seeking information from
suppliers Web pages (see Figure 5).
Telephone interviews confirmed that respondents interpreted the term online
marketplaces very broadly and organisations often view distributors in these
terms. Also, it seems that a crucial role of suppliers Web pages is simply
providing further contact data postal addresses and telephone numbers. The
other info response includes using standard search engines to find, for
example, press coverage on a supplier. This mundane but valuable facility
transpired to main current impact of the Internet on the procurement function,
and is a significant observation only in as much as that it falls considerably short
from the idea of a closely-coupled supply chain or a virtual community. In
our case studies, we noted that the opportunity for finding new suppliers did
not seem to excite much enthusiasm amongst the organisations; the Internet
53
Percentage of Responding
Firms
Figure 5. Purchasers use of the Internet

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Internet Supplier Web
Pages
Internet - Online Internet - Other

Directories
Info
Online
Marketplaces
None of the
Above
(n = 167 for this question)
could make getting information slightly faster, but was not perceived by the case
participants as being fundamentally different from using the Yellow Pages. This
is an apparently mundane but significant finding; much of the early excitement
about the role of the Internet was based around a notion that it would reduce
search costs (see Bakos, 1991). This appears not to be much of an issue or,
if it is, there is only marginal advantage in a marketplace system over a simple
Google search.
Buying: Inter-Organisational Systems

Although the B2B hype emphasises the electronic linking of organisations
procurement systems to their suppliers systems, we found that only half of the
Percentage of Responding
Firms
Figure 6. Purchasing organisation and methods

60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Computerised
Purchasing System
Centralised Purchasing
Department
Formal Tendering
Procedures
54 New
supplying firms had computerised purchasing systems, with the same proportion
having centralised purchasing systems (see Figure 6).
These findings are interesting in that it suggests that for smaller organisations at
least, the idea of inter-linked systems along the supply chain is likely to remain
something of a fantasy without considerable innovation in both information
technology and business practice amongst many firms. This is not to say that this
cannot or will not happen; however, were these findings to be representative, it
would appear that there is a major task of supplier development ahead for those
firms which wish to cascade integrated supply chain practices.
Buying: Purchasing Measurement and Control

Much of the enthusiasm for e-procurement has focused on the enormous scope
for reducing the costs of purchasing bureaucracy and transactions processing.
Rather than go through an internal purchasing department, users can order
what they need from their desktop, with automatic budget controls keeping
spending within predefined limits: Many B2B enthusiasts have predicted the
demise of purchasing departments as a result.
While not denying the great potential for these types of savings, this study points
to some important qualifications. This is because there is more to purchasing than
transaction processing. First, effective procurement requires higher-level, strategic management in regard to external issues such as supplier development,
collaboration on business processes, and supply policy. In other words, there is
much more to good purchasing than simply finding the lowest price. Second,
there are more complex internal issues than simple budgetary controls a prime
function of procurement systems is the control of fraud, and, in the public sector
in particular, organisations procurement systems are constrained by a complex
regulatory framework. So while e-procurement can yield significant savings on
elements of the procurement process, it does not do away with the need for
specialist procurement staff with real purchasing expertise.
These considerations of organisation and structure lead to the questions of
measurement. The participants in our study all struggled with quantifying both
the performance of purchasing and in determining reliable costs for the purchasing process itself. This issue has two important consequences for the adoption
of e-procurement and B2B.
First, without effective metrics of how well a purchasing process is performing,
the appeal of using Internet-based innovation to reduce costs is rather blunted.
Indeed, for managers in some of the organisations in this study, the key
motivation was to ensure compliance with a system of bureaucratic controls
rather than a hunger to reduce expenditure. This seems a particular issue if an
55
organisations culture rewards risk aversion; we found organisations where

purchasing managers principal goals seemed to be to stop things going wrong
and to maintain a steady equilibrium. In such organisations, mechanisms of
measurement and reward work against dynamic innovation in procurement
systems.
Second, in other types of organisations, the measurement of purchasing works
to give a misleading focus on short-term savings. In some organisations, the
dazzle of dramatic savings in headline prices achieved by B2B innovation (for
example, online reverse auctions) has mesmerized firms into forgetting that the
important cost is the total cost of acquisition and ownership. The phenomenon of
suppliers lowballing to win a contract, then working hard to claw back their
margin by, for example, raising post-contract complexities, is well known and
understood by procurement professionals. Equally, costs associated with delivery, quality, warranties, and post-sale support can easily dominate the initial
purchase price. It appears, however, that in some organisations it has become
politically convenient to brush aside these concerns and focus on impressive
sounding reductions in headline prices. In such cases, there is a clear risk that
such an approach may backfire in the longer term.
Selling: Communication and Customer Relationships

B2B has often been presented as though it is all about purchasing. But is essential
to understand the other side of the coin how it affects selling organisations.
We asked suppliers about various aspects of their relationships with customers
(see Figure 7).
100%
80%
60%
40%
Don't Know/N/A
REGULAR Email
contact with
Customers
"PARTNERING"
with any of your
Customers
Other
ELECTRONIC
LINKS with any
of your
Customers
0%
EMARKETPLACE
Membership (for
sales)
20%
EDI with any of
your Customers
Percentage of Responding Firms
Figure 7. Customer relationships
CUSTOMERS
56 New
Although only roughly one-third used electronic links such as EDI, the use of email was very widespread. E-mail is clearly a dominant aspect of firms use of
the Internet, but it is useful at this point in the discussion to consider the earlier
finding regarding the poor quality of e-mail addresses. It seems fair to say that
although the firms in our study are largely reliant on electronic communications,
there are many examples where the process of managing these communications
is rather amateurish, and, specifically, where the organisational infrastructure
for managing these systems are underdeveloped. (It is worth noting that in the
authors own institution, there are cases of administrators continuing to use email addresses to send and receive messages from accounts labeled after longdeparted colleagues; published contact e-mail addresses are often personalised;
and there are few managerial systems for systematically managing the filing
of e-mails). Electronic communication for all its benefits brings with it a
need for an administrative infrastructure, and associated investment and training.
Selling: Use of Web Sites

The use of Internet pages for selling firms varied considerably, with many firms
using the opportunity for both information and handling queries. Far fewer
organisations used the Web sites for transactional purposes and for many the
mechanism for handling orders was merely the provision of an e-mail address for
the sales department (see Figure 8).
Figure 8. Use of Web sites for selling

80%
70%
Percentage
60%
50%
40%
30%
20%
10%
Don't Know/N/A
NO Website
NONE of the
ABOVE
ORDERS by
Customers
QUERIES by
customers
TECHNICAL
information about
the
products/services
you supply
ON-LINE
CATALOGUE for
customers
DETAILED
information about
the company (e.g.
Financial data)
PRICE
information about
the
products/services
you supply
0%
57
The study highlighted the various roles that the Internet might play in the sales
and marketing strategies of supplying firms. Much of the B2B literature presents
a very passive role for suppliers their role reduced to supplying commoditised
goods and participating in price-driven auctions, or merely providing the fulfilment
of orders placed through online catalogues. In contrast, we found that organisations
have various proactive approaches to using the Internet. Our case studies
included a small manufacturer of specialist architectural electrical equipment,
who made considerable use of the Internet as a marketing intelligence tool a
member of the marketing team systematically trawled the Web for news relating
to suitable building projects in key overseas markets. For this firm, the crucial
marketing activity was working with the specifiers rather than the immediate
customers, and to avoid any type of marketing which presented their products as
commodities, or easily comparable to competitors products. In this case, the use
of online catalogues was not at all a priority, as this would be entirely out of step
with its relationship marketing philosophy.
Impact on Buyer-Seller Relationships

A key question for B2B e-commerce is its effect on the power balance in supply
relationships. Figures 9 and 10 indicate some interesting contradictions in
participants perspectives. (High and Low Impact here refer to participants
expectation of the impact of the Internet on customer relationships in the next
five years. Dont Knows and Not Applicables are not included on these
graphs).
Figure 9. Predicted effects on price changes to customers
90%
80%
70%
60%
50%
Total (N=184)
High Impact (N=83)
Low Impact (N=101)
40%
30%
20%
10%
0%
UP
DOWN
NO CHANGE
Expectations
58 New
Figure 10. Predicted effect on prices paid to suppliers

80%
70%
60%
50%
Total (N=136)
High Impact (N=67)
Low Impact (N=69)
40%
30%
20%
10%
0%
UP
DOWN
NO CHANGE
Expectations
Figure 11. Predicted effect on power position relative to customers

70%
60%
50%
40%
Total (N=158)
High Impact (N=75)
Low Impact (N=83)
30%
20%
10%
0%
MORE Powerful
LESS Powerful
No Change
Expectations
An interesting contrast here is that a large group of respondents expect their

suppliers prices to decline while the prices they charge to customers remain
unaffected. This imbalance is also reflected in the way in which firms viewed the
likely shifts in power (see Figures 11 and 12).
One interpretation of these data is that there is perhaps an unwarranted degree
of optimism and maybe even complacency in the responding firms. This
intriguing and contradictory finding echoes previous findings regarding firms
views regarding the power consequences of supply chain integration and
partnership relationships (see Burnes & New, 1996; New, 1998).
59
Figure 12. Predicted effect on power position relative to suppliers

70%
60%
50%
40%
Total (N=184)
High Impact (N=86)
Low Impact (N=96)
30%
20%
10%
0%
MORE Powerful
LESS Powerful
No Change
Expectations
Conclusion
This chapter has presented some of the data from a multi-method study into the
reality of B2B e-commerce. Its general conclusions are to point toward a picture
which is considerably at variance to the extraordinary hyperbole generated by
the business media, consultants and some academics about the potential impact
of B2B.
A key element of this picture is that much of the theorising about the potential
impact of B2B has started from an inaccurate and deeply misleading image of
a) what organisational buying and selling is like, and b) the degree of sophistication of much of the supply base. Here, we found firms who were a considerable
distance from supply chain cybermastery (Berger & Gattorna, 2001) and
appeared not to be surging forward on the crest of the Internet wave
(Friedman & Blanshay, 2001, p. 2) and for whom the reality of B2B relationships
are more complex and richly textured than the rather Spartan and highly
depersonalised images of the electronic marketplace.
The boom and bust in B2B e-commerce could be accounted for by a number of
explanatory stories. Day et al. (2003) focus on the idea of a competitive
opportunity attracting many players, many of whom die in the rush. The fact that
so many of the e-marketplaces have failed simply reflects brutality of the land
grab. Good ideas attract much interest, and there is not enough gold to go
around. An analogy could be that the innovations at the turn of the 20 th century
that initially encouraged the founding of hundreds of car companies but only
a few can become Ford and GM.
The story that emerges from the research described here is different. It suggests
that the B2B hype was based on a fundamental misreading of the nature of inter-
60 New
organisational buying and selling, and the rush was for fools gold. Many of the
presumptions of the B2B model were not true, and, in consequence, innovators
lost a great deal of money. From this wreckage, one might salvage a reminder
of the idea that innovators have a duty to understand in detail the nature of the
markets into which they wish to enter.
These observations are clearly contingent on the degree to which the data
gathered here is representative of other populations. However, the use of the
triangulated approach in the broader research project has indicated to us that this
line of inquiry is worth continuing.
Acknowledgments
The author would like to acknowledge the significant contributions of Tony
Meakin, Ruth Southworth, and Mark Siddall, to this work, and to Achilles Group
Ltd for financial assistance. Earlier versions of this work were presented at the
EurOMA conference, Lake Como, in June 2003.
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62
Zutshi, Zutshi, and Sohal
Chapter IV
How e-Entrepreneurs
Operate in the
Context of Open
Source Software
Ambika Zutshi
Deakin University, Australia
Samar Zutshi
Monash University, Australia
Amrik Sohal
Monash University, Australia
Abstract
The Internet has become an integral part of our everyday lives and it is
often difficult to imagine how we ever functioned without it. This chapter
presents experiences of two entrepreneurial companies, one of which has
survived the dot-com bubble burst. The chapter identifies current and
future online business environments especially in light of open source
software (OSS) being accepted globally. Unlike proprietary software (such
as Windows), OSS comes with its internal implementation details (source
code) visible both to its developers and users, along with the freedom to
change and redistribute this source. The significant implications of this
unique style of software distribution for e-entrepreneurs are examined.
How e-Entrepreneurs Operate in the Context of Open Source Software
63
Having a flexible strategic plan; possessing management skills; providing

excellent service; and having patience are some of the recommendations
provided by interviewed e-entrepreneurs. When made part of the decisionmaking process, these recommendations would enhance current and future
e-entrepreneurs in sustaining their business.
Introduction
The aim of this chapter is to explore the usage of OSS in e-entrepreneurship and
to identify the attributes and skills necessary for an e-entrepreneur. E-entrepreneurship is defined as the notion which principally uses the Internet to
strategically and competitively achieve vision, business goals, and objectives. Eentrepreneurs use the World Wide Web (WWW) to interact and complete
virtual transactions both with other businesses (B2B) and their consumers/
customers (B2C).
The notion of an e-entrepreneur has recently gained recognition amongst both
academics and practitioners. An e-entrepreneur has many similarities with that
of an entrepreneur, especially with respect to the attributes and traits required
to be successful. Concurrently, the major differences between the two are
primarily in the resources (such as infrastructure and setup costs) required to
start the business.
Over the last two decades, most businesses have experienced substantial change
brought about as a result of globalisation and the Internet. Maintaining a
competitive advantage to simply survive is a continued battle for many businesses. The Internet, however, has provided companies with numerous opportunities irrespective of the nature of the products and services offered to
customers. Many companies now make use of the Internet and provide customers through their Web site information such as store opening hours, store
locations, contact details, and listing of their products and services. However, for
a majority of these businesses a large proportion of the sales revenue is still
generated through activities conducted at the physical stores. One example is
Telstra, which in addition to having nationwide physical stores also does sales
and online billing (Telstra, 2004).
The number of companies performing their business activities through the
Internet is increasing rapidly while still maintaining a physical store presence to
enable customers to see and feel their products before making a purchasing
decision. Satisfying the needs of conventional customers who prefer to complete
face-to-face transactions is recognised by many businesses. One example
being the Borders bookstores (Borders, 2004). Then, there also are companies
64
who only have a virtual presence and complete all their advertising, marketing,
and transactions through the Internet. Amazon.com (Amazon.com, 2004) is a
perfect example of this type of organisation. Brand recognition, customer
service, and customer satisfaction are the main ingredients for any company,
whether operating solely as bricks and mortar, online, or a mix of the two
(Mottl, 2000).
The concept of entrepreneurship has been in existence and researched by
academics for some time. Due to the lack of literature in the area of eentrepreneurship, the authors have sought guidance and direction from the
entrepreneurship literature to realise the following objectives:
Identify attributes of e-entrepreneurs.
Identify if being an e-entrepreneur is more advantageous than simply being

an entrepreneur.
Examine open source software in the context of e-entrepreneurship.
Identify the similarities and differences between entrepreneurship and eentrepreneurship.
Chief executives of two e-entrepreneurial organisations were interviewed to

obtain insights into the concept of e-entrepreneurship. Some of the issues
explored in the interviews included:
attributes of an e-entrepreneur,
role played by open source software (OSS) in the information technology
sector,
impact of OSS on existing and future e-entrepreneurs, and
role played (if any) by government in supporting e-entrepreneurs.
The next section presents an overview of the literature examining the dot-com
crash, entrepreneurship, and open source software (OSS). This is followed by
the section that describes the research methodology used to conduct the
interviews. Case studies of the two companies interviewed is then presented
identifying the various aspects of being an e-entrepreneur with respect to the
current technological environment including OSS. The last section presents the
conclusions and future research directions.
65
The Dot-Com Crash:

Did It Change the World?
The arrival of the 21 st century was accompanied by the dot-com crash with
hundreds of companies around the world laying off thousands of employees and
filing for bankruptcies. Competition amongst the remaining companies, however,
has not diminished. Companies that have survived have merely shifted their
value propositions to meet (or chase) new marketplace needs (Spiegel, 2002,
p. 30). Success stories of companies that have survived and moreover thrived
following the crash are no less amazing (see Anonymous, 2003; Spiegel, 2002).
A number of parties have been blamed for the dot-com crash that include but
are not restricted to venture capitalists, investment banks and brokerages, and
the Federal Reserve Bank (Mills, 2001). Another factor that has been attributed
to the dot-com crash was that the majority of these businesses were established
and run by young entrepreneurs who lacked the essential experience in
planning, organising, and managing businesses (Foster & Lin, 2003, p. 456).
These arguments also have been substantiated by The New York Times and The
Industry Standard studies (Infante, 2001) where lack of human resource
planning has been noted as a contributing factor leading to sexual harassment and
legal suits against the companies, further crippling them following the crash (see
also Dvorak, 2001). Duck (2004, p.14) listed seven mistakes that resulted in the
crash: too many competitors; short-term mentality; undisciplined growth;
unrealistic revenue projects; inexperienced management; underestimated costs
of establishing a national brand; and lack of customer-centered focus. It is the
authors view that as opposed to the traditional models, entrepreneurs and
investors alike failed to foresee long-term funds allocation and put in place
contingency plans.
The dot-com crash has not meant that the Internet is no longer used for
undertaking business transactions, rather it is being used more than ever before.
Whether a company started using e-technologies before or after the crash, it is
imperative that they offer security to their customers and avoid hackers from
their Web sites. Conry-Murray (2001) and Dvorak (2001) have highlighted
security issues that companies should address to protect their customers such as
debugging their sites regularly, minimum use of cookies, and not putting too many
advertisements on their Web sites.
Over the past decade there has been a substantial increase in the uptake of the
Internet by businesses primarily as a marketing tool. The Internet has enabled
even small businesses with limited resources to instantly communicate their
products and services to their target markets and audiences globally. Worldwide
companies are being encouraged to join this phenomenon. For instance, speakers
66
at the Dubai Strategy Forum mentioned a number of attributes required to

improve economic performance. This included the need for accepting information technologies and a strategic structure that wipes out bureaucracy and
encourages entrepreneurialism, where managers manage, innovators innovate,
and the teams are rewarded for their successes (Anonymous, 2002, p. 1).
The next section identifies the attributes of entrepreneurs and reviews the
relevant literature in the area of e-entrepreneur(ship).
Entrepreneurship and Its Relationship

to e-Entrepreneurship
The concept of entrepreneurship has been evident in economics and sociology
studies since the early 18th century (Becker & Knudsen, 2004). A number of
entrepreneurship definitions have been mentioned in the literature. Mulcahy
(2003, p.165), while citing the Oxford Dictionary defines an entrepreneur as a
person who undertakes or controls a business or enterprise and bears the risk of
profit or loss. Thompson and Randall (2001, p. 290) describe entrepreneurs as
those individuals who sense opportunities and take risks in the face of
uncertainty to open new markets, design and develop new and improved products
and processes (see also Legge & Hindle, 1997; Kuratko & Hodgetts, 2001).
A number of traits and skills that entrepreneurs possess are cited in the literature.
According to Chris Dyson, a business analyst, there are nine traits that depict a
persons entrepreneurial characters. These traits include: personality, integrity,
initiative, commitment, drive and determination, directiveness, confidence, selfdirection, selling, and leadership (cited in Tams 2002, p. 399). Cherwitz and
Sullivan (2002, pp. 24-25) similarly comment that an intellectual entrepreneur
is depicted by having attributes such as realistic and attainable vision, taking
risks and seizing opportunities, using available resources to achieve the vision by
using collaboration, teamwork, and innovative strategies (see also Jablecka,
2001, p. 376). From these definitions, it can be inferred that successful
entrepreneurs need to possess attributes such as vision, opportunity-seeking,
leadership, and management skills.
As highlighted earlier, for the purpose of this chapter, the authors have defined
e-entrepreneurship as a concept which principally uses the Internet to strategically and competitively achieve vision, business goals, and objectives. eentrepreneurs have been defined as those individuals who use the World Wide
Web (WWW) to interact and complete virtual transactions both with other
businesses (B2B) and customer (B2C) (see Thompson & Stickland, 2003). Eentrepreneurs have come under focus after the dot-com crash that resulted in the
closing of hundreds of businesses and thousands of people left unemployed.
67
Practitioners, consultants, academics, and governments are investigating the

causes behind this crash that left many other industries dependent on information
technology crippled for months. Contingency measures are now being put in
place to avoid similar crashes in the future. A study of 42 entrepreneurs based
in the Greater London Business area who survived the dot-com crash was
conducted during the last quarter of 2002 by the London School of Economics
and Political Science (Steinberg, 2004). Using a triangulation method, the study
found that businesspeople were in the process of jointly developing a new
[under]standing of what success and decision-making means via e-business
networks (Steinberg, 2004, p. 4) and, accordingly, developing coping strategies
to avoid similar downfalls in the future.
One of the factors that contributed toward the demise of many e-entrepreneurial
companies was the lack of human resources and communication between sellers
and customers. To address such issues and provide potential e-entrepreneurs
with an understanding and practicalities of the business world, many multinational organisations are now working with their prospective employees with the
aim of providing them with an in-depth understanding of business operations.
Media entrepreneurship is one such program that has been launched by
Hewlett-Packard (Canada) Ltd. (Bolan, 2002). The program primarily uses
Linux as being open sourced, allowing users (students) to acknowledge that there
are no limitations in software development. Robert Miller, national business
development manager responsible for education and healthcare at HP, commenting on the program said (Bolan, 2002, p. 19):
The dot-com boom/bust saw a lot of technologically astute people become
empowered with vast amounts of capital funding, but they lacked the
business sense or financial management skills to fully exercise their plans.
Some of them were smart enough to bring in business people that had that
kind of savvy, but it was a very awkward culture mix because there were two
totally different kinds of mindsets.
Globally, companies and individuals are being encouraged to embrace the
Internet as a means of developing a business advantage. For instance, the eBusiness Forum Working Group D5 (WG D5) in June 2003 identified the key
challenges (including those encountered in communication and policy formulation) to encourage Greek companies to enter the area of e-business (Neofotistos
& Yagoulis, 2003). WG D5 consulted with a number of Greek private and public
sector companies involved in e-business and provided a number of recommendations to smooth the process of conducting business through the Internet. These
included being aware of issues of privacy, protection of personal information,
promoting communication, and the training the e-entrepreneurs (Neofotistos &
Yagoulis, 2003).
68
An individuals prior understanding and knowledge in business studies and

cultural background affects how much new knowledge and information is
required to develop a collaborative business plan. This finding was realised by
Foster and Lin (2003) when exploring the impact of individual students learning
in e-business and e-commerce environments. By using cognitive perspective in
the study of students from different cultural backgrounds, Busenitz and Lau
(1996) found that people from some cultures produced more entrepreneurs than
others (see also Thornton 1999). Similar results have been found in a recently
completed study across eight countries including Australia, Slovenia, Mexico,
North America, Finland, Scotland, South Africa, and Kenya (Morrison, 2000).
Business plans of new ventures in New Zealand in 2000 were compared to
identify the percentage of Internet usage as part of the e-entrepreneurship
competition based on the Mckinsey model (McQueen, 2004). At the end of the
phase two of the competition, it was found that individuals with pervious IT
background, education, business experience, or personal interest had a much
higher Internet component in their business plans than participants with traditional business experience such as those for the fields of accountancy, retail,
entertainment, and games.
Open Source Software (OSS)

vs. Proprietary Software
Proprietary Software Model
In the recent past, much high-profile software (including Microsoft products
such as Word and Windows XP) have been distributed under a license that treats
the software as a black box. The software is supplied in compiled or binary
form, meaning that a computer can read and execute it directly. However,
programmers are unable to study the internals of the program. They are
forbidden to understand in detail how the program works, they are not permitted
to modify its working and they can redistribute neither the software in its original
form, nor in any derived or modified form. Typically, a single company or an
individual holds copyrights on proprietary software (Anonymous, 2004). These
copyrights are used in conjunction with licensing agreements to deny the
freedom or openness to modify and redistribute the software. Proprietary
software is software that is not free or semi-free. Its use, redistribution, or
modification is prohibited, or requires you to ask for permission, or is restricted
so much that you effectively cant do it freely (FSF 2004).
69
From the point of view of the software vendor, the proprietary software model
utilises restrictive licensing and secrecy to safeguard intellectual property
(IP). It is possible that the development of the software could be regarded as
entrepreneurship.
However, from the point of view of an e-entrepreneur looking to leverage
existing technology, proprietary software may not seem like an attractive option,
since modification and redistribution of existing proprietary software is forbidden. Furthermore, providing key services related to deployed proprietary software may not be possible due to the unavailability of the internal source code.
Another problem is what is commonly referred to as vendor lock-in. A
proprietary software vendor by definition is the only organisation with the legal
capacity to improve and enhance their proprietary software products. Hence, an
e-entrepreneur wishing to deploy proprietary software is locked in to the
vendor. No other organisation or individual (including the e-entrepreneur) can
provide improvements or custom modifications. For instance, Microsoft is the
only organisation that can provide security updates and bug fixes for the
proprietary Windows operating system. In effect, any user of Microsoft Windows faces vendor lock-in. Unless and until Microsoft decides to issue a security
update or a bug fix, users must helplessly use the software in whatever condition
it is in. This argument is developed further under the discussion of OSS below.
Free and Open Source Software Model

When referring to OSS, the authors have used the Open Source Initiative (OSI)
definition (OSI, 2004a). OSS involves access to the underlying source code. In
addition, for a license under which software distributed is to be considered open
source, it must permit redistribution of the software without requiring a royalty.
Redistribution must be permitted in source as well as compiled (ready-to-run)
form. Modification of the software and creation of derived works must be
permitted. There are some other clauses that must be satisfied for a particular
software package to qualify as OSS (OSI, 2004b). However, the criteria are
arguably the most fundamental and, to someone not familiar with the OSS
paradigm, perhaps the most revolutionary. Many organisations and Web sites
use the term free software (FSF 2004) whose meaning and interpretation is
very similar to OSS, with free implying freedom to access and modify the
source as well as redistribute unmodified and modified versions. Strictly speaking, the definition of free software might preclude certain software from being
considered free even though it might be considered OSS. Since all free
software would be considered OSS, we will use that term for simplicity and to
avoid the confusion that comes from free, meaning at no charge. Interestingly, while it is possible that OSS and free software can be obtained for no or
70
very little cost, e-entrepreneurs should note that it is entirely possible for OSS and
free software to be commercial (i.e., a source of revenue). For instance, Red
Hat produces an open source product called Red Hat Enterprise Linux, an open
source operating system that is sold by annual subscription. Subscribed customers are entitled to receive ongoing security updates, errata fixes, and new
features as they become available for the duration of their subscription.
Research Methodology
In this chapter, we have adopted the exploratory methodology (see Peil et al.,
1982; Spencer, 1982) to identify the trends of how OSS has been and would
impact the entrepreneurs as the usage of Internet and other technological
methods to conduct business continues to increase. Conducting interviews as a
method of exploratory research has been accepted in academia. For instance,
Murray (1996) used case study methodology to identify the role of venture
capital investments in newly established technological firms. Conducting interviews as a research methodology offers a numbers of advantages: giving
flexibility to both interviewers and interviewees in setting up a mutual time;
increasing the interviewers control on the direction of the questions and an
opportunity to further explore issues; providing undivided attention of the
interviewees; and, last but not the least, providing insight into non-verbal
observations such as body language (see May, 1993; Burns, 1998; Peil et al.,
1982; Spencer, 1982; Reddy, 1987; McNiff, 1988; Yin, 1994).
As previously mentioned, e-entrepreneurship is a new and under-researched
area, hence, the authors were working in unfamiliar terrains. Case study as a
research methodology has been accepted when attempting to overcome the
uncertainty of having clear measuring instrument (see Wallace, 1984; McCutcheon
& Meredith, 1993; McGuire, 1995; Palmer & France, 1999; Corbett & Cutler,
2000).
Chief executives from two entrepreneurial organisations were interviewed in
September 2004 for their experiences of setting up, running, and maintaining their
businesses in light of growing technological changes. According to the Australian
Bureau of Statistics (ABS) classification, Company A can be classified as
micro with only four employees, while Company B can be classified as small
with 25 full-time employees (see Steinberg, 2004). The focus of the interviews
was on the role of OSS in todays entrepreneurial world where considerable
focus is being placed on functions of the Internet for completing business
transactions. After receiving consent from the interviewees, the interviews were
tape-recoded and subsequently transcribed and written up as case studies.
71
These were then sent back to the interviewees for verification of the content, and
any changes as required, were accordingly made. This step was undertaken to
reduce limitations (e.g., generalisation, reliability, information overload, validity,
rigour) accompanied by the case study methodology (see McNiff, 1988; McGuire,
1995; Burns, 1998; Kitazawa & Sarkis, 2000).
Please note that to protect the confidentiality of the interviewees and their
respective organisations, their names have not been disclosed and are referred
to here as Company A and Company B, respectively. Nonetheless, as far as
possible, direct quotes from the interviewees have been incorporated in the
following sections.
Case Study Findings

Company A
With its head office currently based in regional New South Wales (NSW),
Australia, the company was established and registered as a partnership business
in early 2003 and then become a proprietary limited company in January 2004.
The company is focused on developing and deploying Web commerce and
Linux-based network solutions (Company A Web site) and has successfully
secured and completed projects in both the open source area and commercial
world projects for both Australian and foreign-based companies including in the
UK and the United States. The companys open source content management
product has been ranked in the top 2% of the active projects at the SourceForge
dot-net site which has over 8,000 projects and downloads listed on its Web site
(Company A Web site). Even though the company and its members have a strong
background and focus on Linux, it also provides software solutions for pocket
PCs, the Palm Operating System (Palm OS), and Microsoft Outlook.
The mission and vision of Company A, in addition to generating and increasing
its revenue, is to move toward the area of embedded media. Interviewee A
considers embedded media to employ devices and solutions on single chip
computers running on open source software. Each of the Company A directors
have expertise in areas of programming, administration, and management,
respectively, and are on the path of expanding the company.
The motivation and flexibility offered by working for oneself was one of the
driving forces for the interviewee to establish his own company. The interviewee
also wanted to have the flexibility to adjust quickly as changes in the external
environment and technology took place without going through the bureaucratic
72
levels often found in a large organisation. Technology itself is also the passion
of the company. This is still a motivating factor for all the personnel involved,
which is steadily pushing the company forward. The interviewee believes that
this is true of other companies such as Adobe and Apple, where he feels that the
vision of the company and the passion of its technologists had kept them going
despite management changes.
One of the themes that intrigued the interviewers was how the concept of OSS
that involves freely distributing your knowledge can result in generating business
for the company. Under an open source license the source code is distributed
along with the ready-to-run version of the software product. The interviewers
were keen to ascertain how this apparent giving away of intellectual capital could
result in profit for the person/organisation involved. It appears that OSS is gaining
momentum and acceptance around the world, and these issues are becoming
more relevant, especially for e-entrepreneurs.
To answer the query, interviewee A commented that the writers of a program
are generally accepted as having the authoritative knowledge. To elucidate his
point he gave the following example: If a program is released as OSS, the writer
not only shares, but also demonstrates, his or her knowledge in a manner that can
be subject to scrutiny by experts. In addition, other organisations that require
tailoring of the program to their specific needs may contact the writer to do the
customisation for them.
This is where dollars come into the picture. The interviewee has had similar
experiences. A London-based company contacted the interviewee when they
wanted him to make changes to their program source code so that it was
compatible with the companys accounting system. Since the companys experts
had the source code of the product available to them, they could, in theory, do the
customisation themselves. However, this would involve them first becoming
familiar with the internal details of the software and then modifying it. Costbenefit analysis by the company showed that it was easier and more economical
for them to ask the interviewee to utilise his knowledge and expertise to deliver
the modified code. The interviewee estimates that the work took him approximately 20 hours to complete while his customers might have had to spend several
man-days to achieve the same result. So, the interviewee was able to acquire
highly specialised, lucrative business without having invested in marketing or
publicity services. The client, on the other hand, was able to procure a software
system that fitted their needs in less time and for less money than if they had done
it by themselves. So, it was a win-win situation for both parties involved.
In interviewee As view, the Internet, due to its ubiquitousness and near universal
accessibility, can be very effectively used as a marketing medium and MySQL
AB, the popular open source database product vendor, is a classic example. In
less than a decade, the MySQL database server has become internationally
73
recognised and widely used, including in customised forms. High-profile clients

include Sony, Suzuki, and Sabre Holdings (MySQL, 2004).
It should be noted that not all the software produced by Company A is OSS. Some
software is released under the general public license (GPL) (Derekgnu, 2004)
and qualifies as OSS. In other cases, clients may purchase software under a
commercial licence agreement from Company A. This agreement allows the
client to use the product and to view the source code and covers the provision
of regular service by Company A such as providing further customisation and
enhancements. Under this license, the clients are not allowed to modify the
source. Essentially, this is Company As strategy to be able to effectively support
their clients. If too many modifications are made to the code, Company A would
have to extensively study the modified version before being able to provide
enhancements. It also can be seen as a precaution taken by Company A to avoid
legal repercussions arising from claims of failing to provide adequate support as
per the license agreement of the customised program. However, if the buying
organisation changes the source code without obtaining prior consent from
Company A, the latter is under no legal obligation to be able to support the
changed version of the code. Of course, the client is free to approach Company
A and/or other software solution providers to collaborate on customised versions
subject to additional costs.
During discussions with Interviewee A, an interesting point emerged: Company
A does produce open source software but also utilises open source software
tools. Company A has obtained commercial services from Red Hat Linux related
to their open source Linux-based operating system. They also are developing
some software for embedded systems which may turn out to be a derived and
open modification of existing open source software.
If an individual is contemplating to become an entrepreneur or change himself or
herself from an entrepreneur to an e-entrepreneur, they have to first consider a
number of alternatives and subsequently take appropriate decisions. One needs
to decide whether they would be deploying new software or leverage the existing
software. Further considerations regarding licensing agreements (OSS or proprietary or a mix of both) also would be required.
In views of Interviewee A, Open source [should be considered] as a serious
alternative for people [who] are trying to do [something new]. Statistically, more
than 50% of the Web servers in the world run open source software, which is
generally [] Apache, [] the most popular Web server in the world.1 MySQL
is the best or the most popular database for Web-based projects. Company A
does still utilise proprietary software, such as MYOB for its accounting needs
since it helps them conform to the appropriate standards and legislation. MYOB
runs on the proprietary Microsoft Windows operating system. Except in instances where the clients request that supplied programs remain closed source,
74
Company A generally licenses its software as OSS and believes that other
organisations should do the same.
Interviewee A commented that the decision whether or not to go OSS for their
software is a business decision and dependent on its vision, current position in the
market, current/existing new code development, and future plans. One needs to
keep in mind that like any other material product, software and code have their
own life cycle and the business decision should incorporate the potential life of
the code, accordingly.
Interviewee A also made two points of direct relevance to e-entrepreneurship.
First, as an e-entrepreneur, if you are trying to develop a novel solution, you can
focus on the entrepreneurial aspects by using existing, reliable, open source
software to avoid re-inventing the wheel. Second, as a provider of innovative
IT solutions, an e-entrepreneur faces a more level playing field since organisations
are not locked-in. Hence, they can turn to the e-entrepreneurs to provide
support, maintenance, and enhancement of OSS.
The interviewers also were interested to know the support, if any, provided by
the government to Company A and whether being based in a regional area it was
eligible for any specific government funds. Interviewee A indicated that he had
approached the state government for assistance and there had been some
progress. The response, however, has not always been very speedy which
sometimes is a challenge for small, struggling firms looking for assistance as they
may not be operating after a few months. The problem is sometimes further
compounded by the bureaucratic structure of the governments. The difficulty
experienced by regionally based organisations is convincing the officials of their
innovative ideas who are sometime reluctant to provide capital for new ideas that
may be regarded as being too risky. A classic example is trying to get funds for
OSS projects as the question raised by government officials is the same as the
authors: How can one make money by giving away their knowledge and
expertise?
Company B
The company has been providing innovative, competitive solutions based on open
systems and open source technology to its customers since the late 1980s. The
company aims to develop strong, ongoing relationships with its clients and longterm partnerships, based on mutual growth and respect with industry vendors
(Company B Web site). Services provided by the company fulfil customers
needs in areas of: consulting; application development; and training in software
programs such as Unix, Linux, Windows systems administration and network
management, and Web-based solutions to name a few. In addition to serving a
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number of small and medium-sized Australian-based customers, Company B

also has successfully completed projects and provided training to a number of
large organisations including Hitachi, Telecom Australia, Kodak Australasia,
University of Melbourne, Mobil Oil Australia, CSIRO, RACV Insurance,
Rockwell Areospace, ANZ Bank, Ericsson Data Australia, and VDO Instruments (Company B Web site).
When the interviewee first started working in the computer industry, not only
was the industry in its infancy with huge-sized computers, a much smaller
percentage of people had access to computers as compared to today. The
majority of people involved in the industry at the time were young males generally
categorised as geeks. Only large professional organisations such as insurance
companies and banks were using computers. The interviewees introduction to
the potential for online collaboration and the spirit of OSS occurred in the late
1980s. At the time, only a small team of professionals had access to the Internet.
He recalls participating in an online newsgroup where he would ask questions
about the C++ programming language and on occasion receiving advice from
Bjarne Stroustrup the creator of C++. However, the state of the technology
at the time meant that only technically skilled people could take advantage of this
online community and near-instantaneous communication. Interviewee B realised
that there was a great business opportunity in this area if people at large could
access the Internet using tools that they could learn to work with relatively easily.
Unfortunately, initial feasibility studies indicated that the level of capitalisation
available was not sufficient to fund the infrastructure needed to realise such an
opportunity. The way to make an entry into the field was by doing consulting
work based on the emerging Internet technologies and the related open standards
and software.
One of the areas in which Company B has competitive advantage is in the area
of OSS as it was one of the pioneering companies. The company also has a very
high reputation in providing superior client service and catering to clients
specific needs. Hence, the company receives many of its projects through
referrals as has happened in one of its recent projects when an Australian
University on recommendation from another university contacted the company
to tailor its student database to comply with the federal governments reporting
guidelines by using the ERP system. In this instance, the company made use of
existing codes from open source framework called Open for Business, along
with their expertise in programming to successfully complete the project in less
than half of the time and cost than if the company had to write the source code
from scratch. By using existing codes on the OSS, the company can reduce the
price of their products and accordingly is more competitive than its counterparts.
By having access to codes and research and development (R&D) at their
disposal, the company also is able to provide prompt service as compared to other
large software companies who may not have their respective service offices in
76
Australia. The company does not bind its clients into a lifetime contract and the
latter have full access to their codes that they can decide to move to another
vendor/company if they wished without being penalised/disadvantaged in any
way.
Working toward the betterment of the mankind by sharing his knowledge and
expertise with others while operating in an exciting, dynamic sector are the
motivations for Interviewee B to remain as an e-entrepreneur. One of the
challenges encountered by the company and others in the information technology
sector is when trying to market their products to third parties and businesses. It
has been noted that most technology experts do not have marketing and business
skills that can often disadvantage them in the marketplace.
Interviewee B and his company had different experiences while interacting with
the government sector. At the time of the interview, Interviewee B had been
working with the federal government to create a document/database that would
provide access to all government agencies on the procurement of open source
software. The document would explain legal ramifications if the third party
decides to take up the OSS modules from the document. The database also would
act as a networking site for individuals and organisations who wish to safely use
OSS modules. The federal government is consequently working to remove
impediments towards the adoption of open source. At the state government
level, the focus is still at industry development. The New South Wales (NSW)
government recently announced a US$40m Linux project which is one of the
largest in the world.
Company B had been in operation long before the dot-com crash, and the authors
were interested in understanding how the company had survived it as opposed
to many other unfortunate competitors. Interviewee B noted that unlike other
new companies emerging at the time with hundreds of people being employed in
the company within weeks, the number of employees had remained more or less
the same in Company B. Many people contemplating to expand their wealth also
had invested huge funds in their newly established companies. Company B,
however, did not receive any such funds. This does not imply that Company Bs
products and services were any less reliable or competitive. Nonetheless, its
experience had cautioned them against investing or accepting impulsive projects
and funds alike. Thinking and operating strategically as well as employing
experienced staff saved the company while other businesses vanished within
days after the dot-com crash. In an attempt to capture the already saturated
market, new information technology companies spent huge amount of resources
and was another reason for their failing: not conducting sufficient market and
competitive analysis, a prerequisite for establishing and running any type of
business.
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Interviewee B cautioned existing and new entrepreneurs of being aware of

globally existing patents for various programs and software codes as even
without their knowledge the programmer could be held liable for potentially
plagiarising other patented softwares. He proposed that for emerging economies
and businesses to be successful, it was essential that the software patent system
be either made redundant or more flexible with clear guidelines with a database
for searching all the existing patents.
When asked about the future of e-entrepreneurship, Interviewee B commented
that this was going to expand in the coming years. To emphasise his point, he gave
the example of the music industry. Until very recently, popularity in the music
industry was gained by singing face-to-face to a wider audience and generally
it took years to get a reputation and make money. In this current era, however,
by using the technology and the Internet, the singer can make hundreds of copies
of the music on CD and simultaneously distribute it worldwide capturing the
global music market. This would not have been possible using the traditional
manufacturing and distribution system.
Interviewee B strongly believes that for existing and future e-entrepreneurs and
information technology companies it is essential that laws relating to patents
should be changed, otherwise the progress could come to a standstill. Entrepreneurs also need to be aware and cautious of the situation and take comprehensive
legal consultation and protection.
Discussion
For an e-entrepreneur, the software tools used are likely to be the enabling factor
of the novel service being provided. In fact, the entrepreneurial product may be
software or a combination of hardware equipment and software. Given that such
is the case, how should various entrepreneurs decide whether to use software
solutions and/or which model to use for development?
To become a successful entrepreneur, it is essential that a person learns from the
experience of others and avoids making the same mistakes. The reoccurring
themes within the literature and interviewees complement each other. Halloran
(1991), for example, discussed the 20 commonly experienced pitfalls which
should be avoided, including: having unrealistic expectations; short-sighted
financing arrangements; missing the target market; buying costly and ineffective
advertising; and inconsistent and chaotic management.
Explaining the similarities and differences between an entrepreneur and an eentrepreneur, Interviewee B viewed that both have similar attributes and skills.
78
Both need to be able to visualise future potential [that is] above and beyond just
the vision for making money. One major difference between the two is that
while working in the information technology sector, an e-entrepreneur requires
comparatively less funds and infrastructure when starting a business and,
consequently, less total investment dollars. Once a comprehensive market and
competitor analysis has been undertaken and the service that would be delivered
has been finalised, only access to the Internet is required to start the business,
which can be done from any location.
Andal and Yip (2002) postulate that companies should combine traditional and
new-economy bases of competitive advantage into their business models in order
to be successful in e-business. The generally accepted e-bases (Andal & Yip,
2002, p.1) include community effects, first mover advantage, fulfilment/delivery,
technology, teamwork, and scalability. They also suggest that some e-business
start-ups failed to implement these advantages effectively or found that they
needed to be augmented with traditional bases of competitive advantage. For
instance, the e-base first mover advantage should be combined with traditional
product/service advantages. Getting to the market first with a novel product or
service can result in significant benefits such as in the case of Amazon.com and
Yahoo. Also, while the use of new and emerging technologies is considered an
e-base of competitive advantage, realistically, most technology can be easily
replicated. Despite this, some companies, notably Google, have been able to
convert technology into an asset and sell it.
The interviewees comments indicate that they are at least intuitively aware of
such implications. Both Interviewees A and B perceived a business opportunity
in connection with an emerging technology, namely, embedded devices and the
Internet, respectively. At the same time, they also realised that over-committing
themselves merely on the basis of new technology did not make business sense,
and they relied on other sources of revenue such as consulting work and Web
development to acquire the infrastructure and capital to develop their eentrepreneurial ideas.
Interviewee B mentioned that the fact that they were the pioneers in the industry
of open source solutions was a major source of competitive advantage, thus,
underscoring the first-mover e-base of competitive advantage. However, Interviewee B regards their use of OSS as another and perhaps less traditional
source of competitive advantage. By candidly disclosing to their clients the fact
that a solution is based on open source software, the clients are reassured that
they can, should the need arise, go to other vendors for maintenance, support, and
development. There is also an undercurrent of transparency at work; when a
company agrees to provide an OSS solution, their entire system is potentially
subject to scrutiny by their clients. This may give the clients a sense of
confidence; a vendor supplying a completely open solution that can be verified
79
by independent technical staff must surely believe in the technical quality of their
product.
A possible interpretation of the comparative ease with which certain technological functionality can be replicated is that the intrinsic value of the software that
provides such functionality does not amount to much. In cases like these, OSS
offers the opportunity for an e-entrepreneur to focus on services that are enabled
by or based on technology rather than wasting resources developing technology
which will soon be replicated and widely available anyway. Certainly, it is still
possible to try and sell technology, as Google has done. But this involves ensuring
that ones technology is constantly evolving at a rapid enough pace to consistently stay ahead. As pointed out by Interviewee B, such research and development (R&D) can be prohibitively expensive for e-entrepreneurs, particularly in
the Australian market where capitalisation can be harder to come by than, say,
in the United States.
Teamwork amongst a diverse mix of people with varied skill sets and experience
is another commonly cited e-base of competitive advantage (Andal & Yip,
2002). Apart from the contributions from team members within the organization,
making software available in open source form allows participation from the
wider community. One of Interviewee As open source projects has built up a
virtual community of users, some of whom are able to contribute by asking
questions and reporting errors that enabled Company A to enhance the quality
of their product. In some cases, they are even able to offer patches snippets
of software code that add functionality or repair an error. Interviewee B also is
aware of this effect and mentioned that Company B is an organization that tries
to contribute its expertise and knowledge to the improvement and enhancement
of OSS that they deploy. Interviewee B considers the process a way of
bartering IP. In this sense, releasing software developed by an e-entrepreneur
as OSS is not giving away something at no charge, it is an offer to exchange and
share expertise, knowledge, and time with the possibility of mutual benefit to the
developer(s) of the software and the wider community. Successfully trading IP
with the global community is potentially a very powerful way of harnessing the
synergy arising from a team of diverse backgrounds and abilities.
Based on the understanding developed from the experiences of the interviewees,
the authors have identified the following three key requirements for being a
successful e-entrepreneur in the field of OSS.
1.
Being Technically Competent

Both interviewees recognised the critical importance of technical ability.
Interviewee B mentioned the depth of knowledge required and the wizards on Company Bs staff. Interviewee A also is emphatic on the need
80
to be technically sound. By definition, e-entrepreneurial activities are

strongly dependent on the underlying technology. The e-entrepreneur must
not only be thoroughly familiar with the state of the art of the relevant
technology but also possess a deep understanding of the underpinning
principles in order to be able to analyse trends and foresee opportunities.
Interviewee B does caution that in the context of Company B, high quality
technical ability is often found in people who are unable to liase well with
customers, and it can be a challenge to find staff that strike the right balance
between being tech and suit. Hence, the latter can act as a marketing
challenge when tech experts need to explain their product in laymans
language to their customers.
2.
Taking the Customer Service Perspective

Interviewee A, while emphasising technical ability of the product, insisted
that the focus should be on what the technology can do for the consumer.
Ideally, the technology should be transparent and the customer should see
the benefits of the technology without needing to understand the details. In
many cases, they should not even have to care whether the solution is open
source or not. What should be clear to the consumer is what the technology
can enable them to do and what the e-entrepreneur can make possible for
them via the services related to the technological product. These views hold
for Interviewee As e-entrepreneurship plans in embedded media small,
portable devices which must, by their very nature, be consumer specific.
They are also relevant to Company As online content management system
products. The base product itself is available to everyone, but the true
source of revenue comes from consumers wanting services based on the
existing product. These services include maintaining the customers online
presence and customisation of the base product to deal with customerspecific requirements.
Interestingly, while Company B operates in a slightly different arena, the
customer service and technology transparency issues are the ones that they
strongly identify with. For instance, they have a product called the small
business server. This is meant to be a turnkey solution that can be set up
quickly and easily. It provides small businesses the most commonly needed
functionality such as Internet connection sharing and acceleration, e-mail,
anti-virus, fire walling, and file and printer sharing. It so happens that the
software installed on the server is all OSS. However, in Interviewee Bs
experience, the customer does not necessarily care or need to know
that this is the case, as long as they are instructed on how to use and
administer it. Further, Interviewee B asserts that the open source nature of
the software in this product ensures that they have full access and complete
control over all aspects of the software functionality, thus placing them in
81
a position to provide maintenance and service as long as the customer is

willing to pay for such services.
3.
Being Clear on the Reasons for Going OSS

Neither interviewee recommends OSS as a panacea. It is clear from both
their interviews that a number of factors influence their choice of whether
a solution is made OSS or not. In fact, while doing some consulting work,
Interviewee B recalls being specifically asked to provide proprietary
software-based solutions, which Company B was comfortable providing.
Hence e-entrepreneurs should not perceive OSS as the next bandwagon
or something to be done purely out of ideological reasons. The interviewers,
as well as some existing literature (see Cusumano, 2004), caution against
this. Still, there can be solid business reasons for focussing on OSS as
evidenced by the activities of big business such as IBM, Sun, Red Hat, and
Novell (Mahoney & Naughton, 2004). In fact, both Companies A and B
produce or have produced offerings and services based on proprietary and
open source software. One or more of the following reasons have been
compelling enough for both Companies A and B to go open source:
To harness the distribution and marketing power of the Internet

Interviewee A decided to release Company As content management
system under an open source license over the Internet. The idea was to
make it easy and obligation free for prospective customers to download and
use the product. If they were technically inclined, they also could inspect
the source and assure themselves that the product was technically sound.
While there are a large number of people who have chosen to use this for
free, they have at least become aware of the existence of the product and
Company A. Further, some of the users have requested services and
support for which they have paid Company A. Interviewee B made the
observation that in order to get commercial entities to try out ones
software, the fact that it is open source gives them further incentive. This
is because a potential customer is ensured that they can make some use of
the software even if the original vendor is not readily available because they
have the code and can modify it to suit their purposes, if the need arises.
Avoid re-inventing the wheel. When the functionality of the product and
the services are paramount (such as Company Bs turnkey product), the
software itself is the means to an end. Therefore, it makes sense for an eentrepreneur to make use of the readily available OSS rather than having
to devote valuable resources to rebuild what has already been done (and
often done well). For e-entrepreneurs seeking to move quickly and offer
novel services, this can be a major motivation. Interviewee B finds that by
82
avoiding a lot of duplicated R&D, they are able to provide cost-effective

solutions.
Interaction with the community. Interviewee A acknowledges that Company A has indeed benefited from the questions, suggestions, and contributions of the online community that uses their open source content management product. Interviewee B views his Company Bs building solutions
based on existing OSS as bartering IP. Company B benefits from the IP of
the developers of existing OSS and in turn feeds back expertise to these
open source projects.
Get an edge over proprietary software vendors. An e-entrepreneur may

have an idea for a new product or service that can be enabled by a software
package (or, indeed, the product may be a software package itself). It is
often the case that the e-entrepreneur would struggle against the big
businesses that offer similar products/services based on proprietary software. By releasing their product as OSS, the e-entrepreneur can get the
attention of some potential customers who are deterred by the higher prices
or the closed nature of the proprietary vendors. These potential customers
could become a source of revenue based on custom modifications and other
support-related activities. Of course, if there are already a number of OSS
solutions available, then the e-entrepreneur should try to come up with a
different idea.
Apart from the discussed business reasons, a strong ethical undercurrent did
seem to underlie some of the issues outlined by the interviewees. For instance,
Interviewee A saw releasing a proprietary product as OSS after it had reached
its end of life as one way of letting customers know that they were not being left
in the lurch. By granting access to software that Company A had previously
developed under a proprietary license, users of that software would be able to
continue to use and maintain the product well after Company A declared it as
discontinued, if they so wish. For Interviewee B trying to make the world a
better place is more important than making a buck.
Another common factor is the passion for technology and the excitement that
comes from developing new technology or watching the technology evolve by
following and perhaps collaborating with the open source software community.
As a result of these findings, we agree with Mahoney and Naughton (2004) when
they say that for some companies, OSS can be a strategically valuable weapon.
However, the idealistic tendencies of both interviewees would cause us to stop
short of agreeing completely with them when they say that it is difficult to find
the ideals of freedom, volunteerism, and a shared community of values in
todays world of Monetized Open Source.
83
Conclusion
In this chapter, we have examined the increasing usage and growing acceptance
of open source software within the technological world. E-entrepreneurship is a
growing field and the experiences of two e-entrepreneurs trying to survive in this
competitive field were presented. The underlying attributes and skills necessary
for an e-entrepreneur are very similar to that of becoming an entrepreneur.
These include: being a visionary; the ability to develop short- and long-term
strategic plans; providing leadership; developing flexible structures; and remaining responsive to changing environmental and market demands.
Presented next are the recommendations we have elicited from the interviewees
that can enable e-entrepreneurs to be successful in their ventures.
Flexibility in Strategic Planning and the Work

Environment
There is a need for maintaining flexibility when doing business irrespective of the
organisational size. Especially in this technologically-dominated business world,
the organisation needs to have a flexible structure so as to be able to respond to
the ever-dynamic and ever-changing environment. At the same time, long-term
strategic decisions should be made which reinforce the vision of the company.
Provision of High Levels of Service

A high emphasis needs to be placed on providing regular and outstanding service
to clients. A companys reputation (communicated though word-of-mouth)
plays a major part in obtaining repeat business from existing clients and attracting
new clients.
Developing Basic Management Skills

A successful e-entrepreneur must acquire basic management skills and attributes such as leadership, negotiation, and business planning. Furthermore, a
balance needs to be maintained between the technical demands and the business
demands of the company, especially those relating to people management
customers, suppliers, and employees. Motivating employees will remain a key
task for managers regardless of the type of organization.
84
Taking the Long-Term Perspective

Establishing a new business requires significant commitment in terms of effort
and financial resources over a significant period of time. Hence, returns in the
short-term should not be the motivating factor. Building a robust and stable
business requires patience. One way of maintaining motivation over a long period
is to ensure that all individuals involved keep an open mind and enjoy the journey
that can provide numerous challenges and highly satisfying outcomes.
Listening to Technologists
In order to maintain a competitive advantage, it is imperative that managers
regularly communicate with their technical personnel since they are ones who
will have firsthand knowledge of what is happening in the technological world.
This chapter has contributed to our understanding of OSS and e-entrepreneurship. The literature highlights the need for further research in this area,
particularly to do with small businesses with Internet usage (Steinberg, 2003).
Gaps in the existing literature in the area of OSS and e-entrepreneurship needs
to be filled with more studies. One way this could be initiated is by more
qualitative studies incorporating both in-depth case studies and focus-group
discussions exploring experiences of e-entrepreneurs in the current technological environment. The experiences of entrepreneurs who have now become eentrepreneurs also need to be further explored.
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Endnote
1
Netcraft (www.netcraft.com), in fact, reports a 67.92% market share for

the open source Apache Web server in October 2004, which is a bare
0.07% change since October 2003.
Acronyms Used
ERP
enterprise resource planning
IP
intellectual property
MYOB Mind Your Own Business (accounting software package)

OSS
open source software
SAP
Systeme, Anwendungen, Produkte in der Datenverarbeitung, mean

ing Systems - Applications - Products in data processing [url:wiki_sap]
SQL
structured query language
Personalized Relationship E-Marketing
89
Chapter V
Personalized
Relationship
E-Marketing and the
Small Medium-Sized
Enterprise
Clare Brindley
University of Central Lancashire, UK
Diane Wright
Manchester Metropolitan University, UK
Abstract
Many small businesses are beginning to adopt at least tactical solutions to
enhance relationships between themselves and their customers. This chapter
focuses on a UK-based marketing communications company which has
developed an innovative personalized relationship e-marketing tool, utilizing
mobile technology aimed at the SME sector. Current marketing practices,
such as database marketing and CRM systems, are discussed in terms of
SME adoption and whether the tool, Sign-Up.to is an effective replacement
for established CRM systems. The authors conclude that while the case
study company has developed a tool that will aid SMEs with their relationship
marketing, the philosophy of relationship marketing must already be
imbedded within the SME. The authors intention is to illustrate how
90
Brindley and Wright
technology can be implemented in the SME sector and to explore how

technology and marketing can help each other.
Introduction
It is recognized that the small business demonstrates certain characteristics that
are not conducive to long-term strategic planning. Indeed, many small businesses
perceive that the level of risk associated with marketing and marketing decisions
is prohibitive and any marketing undertaken by a small business tends to be
limited to a more tactical marketing communications approach as opposed to a
strategic approach.
Studies (Ritchie & Brindley, 1999) indicate, however, that the small or
medium-sized enterprise (SME) is rapidly becoming aware of the potential
for competitive advantage that can be gained via e-marketing. Research has
indicated that the initial primary impact of e-marketing is in terms of the
businessto-customer relationship, with SMEs developing Web sites to provide
basic product range information (Ritchie & Brindley, 2000). The evidence
suggests that while some SMEs are developing their strategic thinking about the
potential use of the Internet, this is still primarily focused on the marketing
communications and sales strategies. Changes in the wider business environment have led to significant adaptations of technological advancements in the
field of marketing, such as the use of specific software. Much of these
developments have taken place alongside the shift from transactional aspects of
doing business with a customer to relational aspects. Technology has therefore
provided businesses with a means of collecting and manipulating customer data
that will aid loyalty management, such as the introduction of sophisticated
measurement systems, customer targeting based on lifetime value, and defection
analysis. In confirmation of this, Zineldin states Relationship marketing will not
be established without IT-based relationships using advanced technological
tools (2000, p. 7). As a consequence, therefore, the use of CRM software
systems is becoming more widespread. At the same time, smaller businesses are
starting to address the wider opportunities associated with e-marketing (Brindley
& Ritchie, 2001), and many are beginning to adopt at least tactical solutions to
enhance relationships between themselves and their customers.
This chapter focuses on a case study of a UK marketing communications
company which has developed an innovative personalized relationship e-marketing tool, utilizing mobile technology aimed at the SME sector. The majority
of current technological systems designed to aid the marketing efforts of
organizations are geared to the larger companies rather than to the SME sector.
91
The aim of the chapter is to explore whether the new e-marketing tool, SignUp.to, can help SMEs use technology to develop their relationship marketing
efforts, while avoiding the issues and costs of implementing the more established CRM systems. The chapter begins with a discussion of marketing
practice in terms of database marketing and CRM before moving onto explore
the experience of SMEs and technology application. A section on CRM and
SMEs is included. The e-marketing tool developed by the case company is then
described and examples of its application are given. Conclusions are then drawn
to its effectiveness in aiding SME relationship marketing strategies.
Background
As mentioned, many of these tactical solutions have been focused on marketing
communications, as the SME begins to take advantage of the technological
developments. To consider these developments in more detail, it is clear that the
manipulation of customer data is important to feed the new obsession with
measurement reinforced by the argument put forward by Buchanan and Gillies
(1990) that what gets measured or lends itself to measurement is likely to be
implemented. Measuring relies on the manipulation of data; in the case of
marketing, this is customer data. The use of specific customer data, while
fundamental to many aspects of marketing, is traditionally associated with two
specific areas, namely database marketing and direct marketing. Given the
confusion that surrounds the distinction of these terms, it is appropriate at this
point to dwell on them in some depth.
Fletcher, Wheeler, and Wright (1997) define database marketing as how to use
market data to the best advantage through whatever medium. They list three
aims for database marketing: strategic improvement through better use of
marketing information; the identification of strategic advantage through the use
of customer and market information (product/service development); and the
development of long-term customer loyalty evident in the reduction in brand
switching and the enhancement of cross selling. The basic requirements for
database marketing also are presented, namely a relational database (information from different files linked by a common field), a query language for access,
software for market segmentation analysis, forecasting, merge/purge functions,
and others. Thus, the database should be able to be manipulated in a useful
manner. Peters (1997) argues that companies need to use customer information
in a structured fashion if they are to gain value from it and build customer
relationships. Customer information files for relationship marketing purposes
should include profitability information, so that the lifetime value of the customer
can be forecast (Gronroos, 1996).
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The functionality of database marketing is recognized by Sisodia and Wolfe

(2000, p. 185) who refer to it as automated transactional marketing. Murphy
(2000) notes that databases are often product-oriented, not customer-oriented,
again underlining their functional (short-term) as opposed to their strategic (longterm) nature. Morris, Brunyee, and Page (1998, p. 361) indicated even earlier
that database marketing is nothing more than building detailed customer
intelligence files, that permit ongoing, customized communications. Thus,
database marketing is seen by many as a tool to help maintain contact with a
customer. By contrast, relationship marketing goes much further than that,
focusing as it does on the development of an ongoing long-term relationship.
The other area of marketing often associated with concentrated data manipulation is direct marketing. Bird (2000, p. 16) defines it as any advertising
activity, which creates and exploits a direct relationship between you and your
prospect or customer as an individual. Fletcher et al. (1997) see it as a way of
using direct media for a target market. There is a strong emphasis on measurability and return on investment, thus often encouraging a short-term focus.
While still thought to be primarily used for marketing communications, Long et
al. (1999, p. 5) recognize the role that both database marketing (DBM) and
direct marketing (DM) have played in the development of relationship marketing (RM): Companies have identified personal data as the foundation of direct
marketing and database marketing, which are two of the immediate forbears of
relationship marketing in consumer markets. Thus, in the academic world, there
is a developing recognition, that while undisputedly linked, RM is not the same
as DBM or even DM.
Customer relationship management (CRM) is a further development in technology and appears to be even more closely linked to relationship marketing if only
by name. Definitions of CRM focus on the organization driving the relationship.
For example, Galbreath and Rogers (1999, p. 162) define CRM as activities a
business performs to identify, qualify, acquire, develop, and retain increasingly
loyal and profitable customers by delivering the right product or service, to the
right customer, through the right channel, at the right time and the right cost.
CRM integrates sales, marketing, service, enterprise resource planning and
supply-chain management functions through business process automation, technology solutions, and information resources to maximize each customer contact.
CRM facilitates relationships among enterprises, their customers, business
partners, suppliers, and employees. Another definition offered by Hamilton
(2001) interprets CRM as being the process of storing and analysing the vast
amounts of data produced by sales calls, customer-service centres, and actual
purchases, supposedly yielding greater insight into customer behaviour. CRM
also allows businesses to treat different types of customers differently, in some
cases, for instance, by responding more slowly to those who spend less or
93
charging more to those who require more expensive hand-holding. Therefore,

the use of CRM software systems presents on the face of it a potential solution
to the small business and it is understandable that the SME may consider
exploring CRM developments as the next stage on from database marketing and
direct marketing when seeking to develop the opportunities presented by emarketing.
Indeed the SME sector has generally been recognized as the seedbed of
inventiveness, creativity, and innovation (DTI, 1994). Smallbone, North, Vickers,
and Roper (2001) identified a positive link between innovation and business
performance within SMEs. However, differences between sectors (e.g., manufacturing and services) may prevent the treatment of SMEs as homogenous in
regard to developing conclusions and advice on imbedding organizational learning to foster and sustain innovation. As well as sectoral differences, there also
is the issue of size. For example, the micro business may be totally dependent on
the owner/manager to sustain innovation.
Unfortunately, the owner/managers zeal for the development of new concepts
and ideas an innovation orientation can dominate or exclude a dedication
to the principles of customer orientation. The idea comes first and the check for
market acceptance second. Thus, innovation and entrepreneurial flair without
the application of marketing may not only prove unsuccessful in the short-term
but also in the failure to imbed the knowledge and cultural changes necessary to
sustain longer-term performance. Ideally then, there should be a symbiotic
relationship between marketing and entrepreneurship. Doyle (1998, p. 225),
quoting Peter Druckers view that management have only two key tasks:
marketing and innovation, reinforces the accepted view that the two are
intimately interlinked. As Geroski (1998, p. 1) illustrated, it is vital to think
creatively about marketsas it forms the basis for successful strategic innovation.
It is widely recognized that innovations in the areas of knowledge transfer and
communications represent significant opportunities for competitive advantage
(de Geus, 1988; Slater & Naver, 1995). Kanter (1997) believes that engendering
innovation is key to ensuring companies remain competitive and are market
leaders. According to Kanter (1997), appropriate skills and attributes include
comfort with change, clarity of direction, thoroughness, participative management styles, persuasiveness, persistence, and discretion. Quinn (1985) produced
a similar inventory of the necessary characteristics for the innovators and
entrepreneurs, which are crucial to success for innovative small companies.
Often, the role of organizational learning is explored as a possible explanation
for the failure of SMEs to sustain their innovative advantage, although they are
still continuing to survive. The issues associated with the time that they needed
to devote to innovation encompass being too busy running the business to worry
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about such developments and is perhaps a reflection on the nature of the

problems encountered by the smaller organization. At issue here is not the
recognition of the importance of innovation, but the human resource capacity
necessary to devote to this work and therefore become acquainted with new
technology. In terms of technology, Smallbone et al. (2001, p. 305) identified that
technology may be underutilised and is more commonly used in medium-size
firms as opposed to small firms.
Research suggests that SMEs possibly lag behind in their utilization of e-business
technology because of the lack of opportunity for organizational learning. A view
supported by Dawn, Bodonik, and Dhaliwal (2002) who identified that Canada
is exemplified by low e-business readiness due to the low adoption of e-business
applications i.e. if they dont use the available technology how can the SMEs
exploit its benefits? Similarly, Brown and Lockett (2004) also identify the low
engagement of SMEs in e-business as do Houghton and Winklhofer (2004). They
argue that trust in a third party is an important requirement in the adoption of
higher-level complexity e-business applications by SMEs. Trust is a key antecedent of take-up, either by the SME themselves or their customers. This is what
Houghton and Winklhofer (2004, p. 380) call a trusting and committed relationship. Similarly, Smallbone et al.s (2001) survey indicated a slow take-up of
online selling within their sample of SMEs, suggesting that this may be due to
consumer reluctance in terms of trust/security.
If it is assumed that there are barriers to innovation within SMEs, then it seems
pertinent to explore Smallbone et al.s (2001) premise that supply-chain initiatives may support innovation perhaps what Dawn et al. (2002) call opportunities to co-commercialize innovations. Indeed for Smallbone et al. (2001), there
is a clear link between innovative propensity and the involvement of the SME in
external networks. External links that may help reduce risk, improve costs. Yet
Freel (2000) and Chell and Baines (2000) recognized that smaller firms tend to
have fewer external linkages. However, Coviello et al. (2000) point out that
focusing on the tactical approach limits marketing to its traditional framework of
transactional marketing. They point out that what is likely to happen is that by the
very nature of a small business it could adopt a relational approach and may be
more likely to practice an interaction and network approach to marketing.
Thus, there is a dichotomy between SMEs being innovative but not necessarily
in all quarters; for example, they may develop an innovative product that is not
innovative in terms of process (Damanpour, 1991). This viewpoint is contextualized
by Dawn et al. (2002) who argued that SMEs inherently facilitate innovation and
that the Internet can facilitate clusters of SMEs, with members of the supply
chain working together (Ritchie & Brindley, 2001). The issue is compounded
when one views e-business innovation as a continuum (Daniel, Wilson, & Myers,
2002; Peet, Brindley, & Ritchie, 2001). In this chapters case study, Sign-Up.to
is operating like a portal cluster.
95
For Dawn et al. (2002, p. 139), it is SMEs (like Sign-Up.to) that create and
commercialise evolutionary new technologies and directly output new innovations. It is argued that innovation networks enable communication facilities to
reach the right people, creating partnerships of stakeholders and aggregation of
their competencies for greater chances of innovation success (Jutta, Bodorick,
Weatherbee, & Hudson, 2002; Kaufmann & Totdling, 2001 cited in Dawn et al.,
2002). These networks and partnerships may be viewed as another form of
relationship. Similarly, CRM systems are developed to enable communication
between buyers and suppliers.
Main Focus of the Chapter

CRM Systems
Consequently, these issues could go some way to explaining why the recent
development of CRM systems has tended to focus on larger organizations and
are apparently inappropriate for the smaller business. More recently, there have
been criticisms related to the implementation, effectiveness, and success of
CRM systems, and Gartner Research (2001) suggests that the failure rate is
around 65%. A key factor is that vendor hype, product immaturity, and product
cost are contributing to user dissatisfaction (Frost & Sullivan, 2000). Bearing in
mind the potential costs involved both financially and in terms of the time taken
to implement fully, the risks could be great for the SME where resources are
often limited. These issues serve to confirm the scepticism of small businesses
toward marketing, especially when their specialisms are often outside marketing.
Consequently, marketing is not always a priority, so the steps taken to begin to
utilize technology from a more strategic approach could be thwarted.
Taking a more philosophical approach, further problems can be found in todays
implementation of CRM. Law, Lau, and Wang (2003) suggest that such an
approach is dated and that customers should no longer be treated as passive
groups and assigned to some categories. They state that the approach to CRM
should be changed, focusing on the customer as the starting point. Although many
organizations may accept that relationships should be two-way, putting this into
practice becomes difficult and the technology available under the guise of CRM
perpetuates this problem. Research undertaken by Wright and Hurlstone (2004)
questioned whether CRM systems were indeed customer focused, as many do
not provide products that focus directly on benefits to the end consumer but sell
benefits based on increased efficiency to the organization. Another criticism is
that CRM systems tend to embody standardized views of relationship manage-
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ment processes, and therefore are a long way from the customer managed
relationships talked about by Law et al. (2003).
The Case Company: Sign-Up.to

This chapter uses a case study of a UK-based marketing communications
company that has attempted to identify and address the issues and risks of
existing CRM tools for the SME while exploiting the benefits that technological
developments have brought. The company has consequently developed an
innovative personalized relationship e-marketing tool, aimed at the SME sector.
This tool is called Sign-Up.to and has been designed to establish a personal
dialogue with potential customers, gradually exposing them to the organizations
messages.
Sign-Up.to is an online application that allows the user to take control of data
capture, processing, campaigning, management, and analysis, across all channels without technical expertise. In this tool, the threads of database marketing,
direct marketing, and relationship marketing are evident and are discussed.
In the Sign-Up.to model, the basic requirements for database marketing as
referred to by Fletcher et al. (1997) are evident including a relational database,
software for market segmentation analysis, forecasting, and a merge/purge
function. The Sign-Up.to database can include a wide range of information about
the consumer, which can be updated at any time by the consumer. Whenever it
is updated, all member company databases are immediately updated, so consumers do not need to remember to change their details with every company they are
subscribed to. This encourages cross selling across member companies. Data
can be captured from Web forms and SMS messages or can be transported from
an existing database. Any survey questions or additional data can be added to the
registration process, and all captured data is automatically verified via a double
opt-in. It also is possible to perform very detailed targeting of the database. The
Sign-Up.to model handles and structures data by using products and consumer profiles to organize information. The product is a powerful form of
mailing list (a product could represent a Web site newsletter, a competition, or
a special offer for example) whereas a consumer profile contains an individuals
contact information and basic personal details. Products are created in the
system and people subscribe to these products. This is how data is captured
and allows the organization to gain the users permission to contact them. When
someone subscribes to one of the products, details from their profile are attached
to the product and disclosed to the organization a product, therefore, contains
a list of consumer profiles. The distinction between products and profiles allows
a business to perform very detailed targeting of their database. This targeting
97
allows them to send relevant and personalized information to subscribers, thus

catering to individual needs.
Since Sign-Up.to is designed to be a communication tool using direct media to
reach a specific target market, then the influence of direct marketing is also
obvious. Messages can be created and sent via mobile and via e-mail directly to
the target market. The correct type of message can be sent to recipients based
on their preferences, so personalized, regular contact can be maintained with
thousands of contacts easily. The time and date for sending can be selected at
any point up to a year in the future. Sign-Up.to seems on the face of it to conform
to the definitions for direct marketing as tracking and data manipulation is an
important feature of the tool a point that is raised by Bird (2000) as being a
feature of direct marketing. Whenever an e-mail campaign or an SMS is
executed, the tracking feature allows the company to keep a copy of each
message sent, details of who it was sent to, and statistics about the message.
These statistics provide an invaluable insight into the target audience, allowing
the organization to see what particular content and subjects work best with
specific groups of consumers, what time they read the messages, and even see
how different content structures affect click-through rates. By paying attention
to this information, the business can constantly improve campaigns, making them
more relevant for the audience.
Sign-Up.to vs. CRM Systems

The research indicates that the Sign-Up.to tool has moved down the CRM path
as the messages become personalized and individual needs are catered for. If
CRM and RM are about building loyalty and loyalty has been identified as one
of the enduring factors of a positive relationship, then Sign-Up.to should be able
to secure such loyalty with permitted, appropriately targeted messages and take
the small business in this direction. A particular feature that is useful for small
businesses is the ability to target by location and often making it local can
make it much more personal. For example, if someones favorite restaurant
around the corner from their office gets permission to contact them and then emails the consumer on Monday with a lunch special offer, there is a high chance
that they will redeem it because they have already expressed an interest by
signing up. Indeed, mobile is such a personal medium that local offers work far
better as it is less intrusive when the consumer knows the sender. They also are
more likely to use word of mouth communications when the sender is local
another feature of relationship marketing.
The tool also has addressed some of the issues associated with CRM systems.
As mentioned, a CRM system would be prohibitive in cost terms for a small
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business, whereas the Sign-Up.to tool is much more accessible to the small
business, with an initial setup fee, no charge for e-mails sent, and SMS charges
at low rates. A further criticism is the passivity of the customer and the
customers lack of involvement in what should be a two-way relationship.
However, because Sign-Up.to is a permission marketing system, it ensures that
the customers, who are being communicated with want the relationship because
they have volunteered (opted-in) to be marketed to. This enables the organization
to begin to establish a dialogue and ensure that communications are personal,
anticipated, and relevant to each consumer. As the dialogue progresses, this
offers consumers an incentive to give deeper levels of permission more
information on themselves and agreement to offer them more services and
information on offerings. So in this sense, Sign-Up.to begins to develop (albeit
tentatively) what was customer relationship management to customer managed
relationships.
However, although Sign-up is going someway to address the issues raised
regarding CRM systems and their drawbacks for the small business, it also has
highlighted an interesting anomaly regarding innovation. Although the SME
sector has been seen as innovative, the sector has not taken-up the opportunity
of the Sign-Up.to product in the numbers originally anticipated in its business
plan. The product has been actively sold to the small business sector and received
with great enthusiasm, but has yet to be adopted by a significant number of
SMEs. However, what is interesting is the type of organization that has adopted
it with tremendous success. One such organization is V2 Music, Richard
Bransons record label. After a highly successful trial, V2 Music, home to artists
such as Paul Weller, Stereophonics, and Estelle, adopted the Sign-Up.to platform
to manage their worldwide e-mail and mobile marketing and fan communication.
The Sign-Up.to platform has allowed V2 to integrate more than 100 separate
databases into a single system used by all worldwide offices providing a global
view of fan data and allowing localized e-mail and mobile campaigns to be run
by V2 staff without the need for technical training. This integration has already
saved V2 an estimated 150,000. The adoption has been hugely successful,
consolidating V2s databases and improving communications to their fanbases.
The features have meant that V2 staff can be creative but, more importantly, can
measure how effective their communications are on a case-by-case basis,
creating a responsive community environment.
Another organization that has successfully implemented the product is BT and
their Mobile Commerce Platform. Sign-Up.to designed, produced, and now
maintain the mobile commerce system for BT, named Click&Buy. This uses a
system based on the Sign-Up Mobile Marketeer platform to enable BTs micropayment systems to securely accept and authorize orders by SMS. Other
organizations adopting the Sign-Up.to tool are Duracell as well as the Thai
government.
99
These are not organizations that were originally targeted as potential customers
and indeed came upon Sign-Up as a result of an Internet search and saw the
potential for their own business. In the case of V2 and BT, awareness of
technological developments are crucial as a means of establishing a competitive
advantage, as well as providing means of communication that will appeal to their
own target audiences, who, especially in the case of V2, are likely to be
progressive innovators or early adopters. It could be this awareness and the need
to adopt innovative techniques that have enabled these organizations to see the
potential of such a tool.
In response to this shift in their target market, Sign-Up.to have developed a tool
named FanBase which allows artists and labels to capture and store fan data, run
e-mail and mobile marketing campaigns, track results, and even generate
revenue directly using premium SMS from what is probably their most valuable
asset their fans.
Paradoxically, although a huge technical or training investment is not necessary
and indeed is a feature of the tool, it is those organizations for whom the tool was
designed (i.e., the small businesses who have not adopted it) and yet those that
have the expertise and the financial backing to adopt more expensive and more
technical solutions have welcomed the simplicity and effectiveness of SignUp.to.
Future Trends
In functional terms, the developers of Sign-Up.to have seen the potential for
future developments, and an optional feature is recently available that allows
acceptance of mobile payments, which could signify a further step along the ecommerce pathway for SMEs. However, there is still the need to continue to
address the issues that have been raised in the context of the small business and
the need for a more strategic approach to their e-marketing. Possibly, therefore,
the next set of developments could be to move SMEs further along the emarketing developmental pathway by offering comparative data, or there could
be a greater opportunity to develop the theme of customer managed relationships
by generating more customer feedback, so that ultimately the customer is the
starting point. There could be the potential for further integration of messages,
not only between mobile and e-mail but also via other channels. As McDonald
(2003) pointed out, a single integrated process, shared information, and a shared
technology platform make for a total customer experience, decrease the chance
of experience disconnect and increase the potential to retain customers.
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The reasons for the apparent lack of acceptance of this product among small
businesses may be threefold. First, it could be seen that the customers (i.e., the
SMEs ) lack of familiarity with the technology could be acting as a barrier to
purchase. Smallbone et al. (2001, p. 305) identified that technology may be
underutilised and is more commonly used in medium-size firms as opposed to
small firms which may suggest that the target market for Sign-Up.to needs to be
reviewed. There also is the owners/managers technical competence to consider; a distinction may be drawn between those that are comfortable with
technical developments and those who are not. The dependence on the owner/
manager, typical in the SME sector, could be limiting take-up.
Smallbone et al.s (2001) survey indicated a slow take-up of online selling within
their sample of SMEs but they suggest that this may be due to consumer
reluctance in terms of trust/security. Thus, if the case company while exemplifying the innovativeness recognized by the DTI (1994) is to be successful, it
needs to act as a trusted bridge with its supply chain partners. The company
mirrors a number of the characteristics of innovative best practice (DTI, 1994)
in that the owner is a visionary, enthusiastic champion of change and knows his
customers. These are characteristics that bridge the marketing/entrepreneurial
interface. However, as the product is sold online, larger companies who may
have the necessary technical expertise in-house are comfortable with the
technology, whereas the smaller company needs a trusted individual to sell them
the proposition in the first place. By removing the Sign-Up.to owner from the
equation, trust becomes more difficult to engender.
Moving customers of Sign-Up.to along the adoption continuum (Peet et al., 2001)
is the next challenge. One set of customers, the early adopters of Sign Up.to,
have realized its benefits and are open to more innovative applications as seen
with V2 and Fanbase. These early adopters also have put their trust into SignUp.to and are now viewing the company as part of their supply chain. Therefore,
these customers become the product champions that can cascade the innovation
to members of their own networks (e.g., other suppliers, chambers of commerce,
business clubs). Thus, the low take-up of the Sign-Up.to product means that its
benefits are not cascading through the SME network.
Also, as technology is renowned for its me too products, it is necessary for
Sign-Up.to to continue to innovate. Innovation for the product lies in the hands
of the owner of Sign-Up.to and as he exhibits the innovative characteristics
identified by Roffe (1999), then it seems likely that product innovations will
continue. Roffe (1999) argues that different skills are needed for the different
steps of the innovation process, namely:
idea generators,
information gatekeepers in touch with knowledge sources,
101
product champions to promote new practices,

project managers to keep the work on track, and
leaders who encourage and sponsor.
Sign-Up.to has moved through the first three phases and now has to focus on the
final two stages.
Indeed, on the one hand, these leaders may be seen as other SMEs or SME
support agencies, or, on the other hand, the Sign-Up.to owner has to be prepared
to sell the product face-to-face and employ staff to act as demonstrators to keep
the work on track and instill the confidence that necessary support is available
online.
Conclusion
Although Sign-Up.to is providing small businesses with the opportunity to gain
competitive advantage via new technological developments, there is still the
argument that this is a tactical tool used as a substitute for the more strategic
approach that is often lacking in the small business. The tool also focuses
primarily on marketing communications rather than developing more strategic
thinking about the potential use of the Internet. Despite these limitations, the tool
addresses some of the criticisms that have been levelled at CRM systems in
terms of cost and customer involvement. It has taken advantage of technological
developments to adapt database marketing and direct marketing and make them
accessible and workable. The tool enables the small business to enhance
relationships with customers and potentially start to address the wider opportunities associated with e-marketing. If SMEs are encouraged to think strategically, then the tactical tool (Sign-Up.to) will aid the implementation of the
strategy and help them achieve their objectives. However, the lack of strategic
thinking, inherent techno-phobia, and the issue of trust hamper Sign-Up.tos
marketability. As Sign-Up.to operates in a highly competitive, technologicallydriven market, then the issue for the owner is how to maintain an innovative
advantage. Organizational learning, both in his own company and within his
customer companies, appears to be a key factor.
The chapter has discussed whether Sign-Up.to is an effective replacement for
a CRM system or if indeed it is one. It is certainly marketed as a relationship
marketing tool, but the authors argue that although it has a role to play in
implementing a relationship marketing strategy, to call it a CRM system is a
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misnomer. However, Sign-Up.to uses permission marketing, so it could be

argued that it can take the SME along the relationship marketing pathway.
So, is Sign-Up.to better than other CRM tools in engaging SMEs with technology
to aid relationship development? Certainly this is an innovative relationship
development tool insofar as it is technically simplistic and affordable, but its
success depends on whether the SME that adopts Sign-Up.to has a RM
philosophy in place. If Sign-Up.to is only used as a tactical tool, then it could
possibly be subject to the same criticism as established CRM systems.
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Brindley and Wright
Appendix
Terms and Definitions
CLV (Customer Lifetime Value)
The value that a customer brings to an organisation over time
CRM (Customer Relationship Management)
The process of storing and analysing the vast amounts of data produced by
sales calls, customer-service centres and actual purchases, supposedly
yielding greater insight into customer behaviour. (Hamilton, 2001)
DBM (Database Marketing)
The ability of a company to use the vast potential of todays computer and
telecommunications technology in driving customer-oriented programmes
in a personalised, articulated, and cost-effective manner. (Rapp, 1989)
DM (Direct Marketing)
An interactive system of marketing which uses one or more advertising
media to effect a measurable response, from a defined target market.
Permission Marketing
A two-way permitted dialogue between business and customer that focuses on providing relevant, timely, and specific information to a specific
target market.
RM (Relationship Marketing)
Relationship marketing is the ongoing process of engaging in cooperative
and collaborative activities and programmes with immediate and end-user
customers to create or enhance mutual economic value at reduced cost.
(Parvatiyer & Sheth, 2000)
SME (Small/Medium Enterprise)
Defined by the EU as a company that has less than 250 employees.
Strategies for Virtual Learning and E-Entrepreneurship in Higher Education
107
Chapter VI
Strategies for Virtual

Learning and
E-Entrepreneurship
in Higher Education
Juha Kettunen
Turku Polytechnic, Finland
Mauri Kantola
Turku Polytechnic, Finland
Abstract
This chapter presents the strategies of higher education institutions and
how they can be described using the balanced scorecard approach. The
pedagogi cal ICT strat egy describes the virtual learnin g and eentrepreneurship in higher education. Strategic themes are presented to
describe what management believes must be done to succeed and achieve
the desired outcomes in virtual learning and e-entrepreneurship. Strategy
maps are used to describe the strategy in a graphical representation. In
addition, the study presents an example of the cooperation between a
higher education institution and a spin-off company. This chapter helps the
educational administrators to better describe and implement strategies for
virtual learning and e-entrepreneurship.
108
Kettunen and Kantola
Introduction
Higher education institutions (HEI) usually try to adapt their strategies to the
local community, to society as a whole, and to educational policy. HEIs are trying
to ensure competitiveness and employability for their students. To a large extent,
the competitiveness is based on good skills in information and communication
technology (ICT). They are linked to entrepreneurship, which is seen by the
local stakeholders and educational authorities to create economic growth and
welfare.
The primary purpose of this study is to explore the strategies for virtual
learning and e-entrepreneurship in higher education. The pedagogical ICT
strategy is a specific functional strategy, which describes the strategic outlines
for virtual learning and e-entrepreneurship. The aim also is to explore the
methods to communicate and implement the strategy in an understandable and
efficient manner.
Strategic management is a matter of developing the organisation and its
present activities to achieve the desired objectives in the future (Fidler, 2002;
Davies & Ellison, 2003). The new strategies of HEIs typically reflect the existing
strategies, which are tailored to meet the needs of the organisation and its
stakeholders. The strategies are typically fairly stable, but they reflect the
changes in society, economic development, and educational policy.
The strategies typically focus the activities on specific fields of education
according to the needs of the local community or society. Another typical
strategy is the operations excellence theme. HEIs usually try to improve their
quality, achieve more, and reduce costs. These strategies also can be found in
the business literature, where Porter (1990) has presented the strategies of focus
and overall cost efficiency.
The balanced scorecard (BSC) approach developed by Kaplan and Norton
(1992, 1993) is used in this study to describe a pedagogical ICT strategy. The
strategy must be understood before it can be implemented. The balanced
scorecard creates a shared understanding of the selected strategies because it
translates the strategy into tangible objectives and balances them into four
different objectives: customer and regional development; financing; internal
processes and structures; and learning and growth. The significance of the
present study is to show how the competitive strategies and the balanced
scorecard can be applied in HEIs.
A qualitative study is made based on the concepts of strategic planning and the
balanced scorecard approach. The focus on interpretation in how the participants make sense of these rather than numerical exactness is the strength of
qualitative research. When a qualitative study is carried out, qualitative data are
109
required to clarify and illustrate the meaning of findings. Typically, a relatively

small number of cases is studied preserving the individuality of each of these in
the analyses.
The overall strategy of Turku Polytechnic emphasises high-quality learning. The
pedagogical strategy is a functional specific strategy, which provides outlines for
the development of education to promote the overall strategy. The pedagogical
ICT strategy focuses on the pedagogical strategy to the virtual learning and eentrepreneurship. The strategies of the educational departments are aligned with
the functional strategies. The balanced scorecard can be used to communicate
and implement both the overall and specific strategies.
The establishment of new businesses is an effective way to transfer new
knowledge from higher education to the local environment. The spin-off activities result from the transfer of people and know-how from the HEI. The transfer
of the skills and tacit knowledge embodied in the human capital differentiate this
technology and knowledge transfer mechanism from technology sale, licensing,
joint ventures, and alliances (Davenport, Carr, & Bibby, 2002). The spin-off
activities and e-entrepreneurship are means to implement the strategic plan of
HEIs.
This chapter is organised in that the next section presents the overall strategic
outlines of the HEI and presents how balanced scorecard can be used to
communicate and implement the strategy. Then, the pedagogical ICT strategy is
presented, including virtual learning and e-entrepreneurship. Strategic themes
and strategy maps are used to describe the strategy. An example of a spin-off
company and e-entrepreneurship are then presented. Finally, the results of the
study are summarised and discussed in the concluding section.
Strategic Planning in Higher Education

Strategic Outlines for Educational Institutions
Strategic planning is needed to move an organisation from its present position
to a desirable but uncertain future position. The strategic plan is a description of
the route described by the mission to a desirable future position described by the
vision (Wheale, 1991; West-Burnham, 1994). The strategic plan is a holistic
description of how an organisation adapts to its environment and develops its
activities for a better future.
The competitive strategies by Porter (1990) provide the general strategic
framework for the planning of the strategy in different kinds of organisations.
110
These strategies also have been applied successfully in educational institutions

(Treacy & Wiersma, 1995; Kettunen, 2002). Turku Polytechnic has selected
the focus strategy, which concentrates on the most promising clusters of
Southwest Finland. The focus strategy is combined with the strategy of costefficiency, which enables resources for high-quality learning and research and
development.
The focus strategy means that the organisation selects a market segment and
builds bonds with the most important partners within the selected segment.
Finnish polytechnics are higher education institutions, which aim to serve their
geographical regions particularly well. Each polytechnic has selected its occupational groups, where they educate experts. The focus strategy enables the
polytechnics to enhance their knowledge in their specific market segments.
The most promising growth clusters in Southwest Finland are ICT, biotechnology, and the metal and maritime industries. ICT is especially suitable for
entrepreneurship training and incubator activities, because the ICT industry is
based to a large extent on the knowledge of graduates obtained in education. ICT
is not a capital-intensive industry with high entry barriers for most graduates.
When an organisation selects a cost-efficiency strategy, it delivers a combination
of price and quality that is recognised by customers and stakeholders. It is a
natural choice for educational institutions, which typically have predetermined
unit-priced funding and annual budgets. The strategy aims to remove the
overlapping activities to achieve cost reductions. Even though the cost-efficiency strategy does not primarily aim to focus the activities it achieves also
focusing on specific activities. The focus and cost-efficiency strategies complete each other.
Balanced Scorecard Describes the Strategy

The balanced scorecard is used to translate the strategy and vision into tangible
objectives and measures, which can be communicated and translated to the staff
and external stakeholders. The balanced scorecard approach also can be used
to plan and evaluate strategies (Kettunen, 2004). The balanced scorecard has a
balanced mix of objectives in the different perspectives to indicate the strategy.
The perspectives can be defined according to the needs of the organisation.
The perspectives can be defined in higher education as follows:
1.
Regional development and customer. The perspective includes the

desired objectives of regional development. It also describes the value
created for students and employers in the internal processes.
111
2.
Finance. The financial perspective describes the public funding and

external outcome. The funding is aligned with the internal processes and
structures in the budget of an organisation.
3.
Internal processes and structures. The internal processes and structures perspective describes the internal sequential processes and structures of organisational units. These processes create value for customers.
4.
Learning and growth. The learning and growth perspective describes the
drivers for future performance and what learning and capabilities are
required in the internal processes.
These perspectives have been found to be necessary and sufficient across a

wide variety of organisations in the private and the public sectors (Kaplan &
Norton, 1996, 2001). The balanced scorecard was originally developed for
business companies. The desired objectives of the private sector are typically in
the financial perspective, but in the public sector organisations the financial result
is typically not the primary objective. Therefore, it is reasonable to place the
customer or recipient of the services at the top of the hierarchy.
The customer-oriented process begins by defining the objectives of the regional
development and customer perspective asking, What value do we create for our
customers in the internal processes? Then, the process continues by asking,
What are the objectives in the financial perspective to enable the internal
processes? and What is the cost-efficient way of producing the services?
Finally, the process asks, What capabilities and learning are required to achieve
the objectives in the internal processes?
The Pedagogical ICT Strategy

The pedagogical ICT strategy of Turku Polytechnic is based on the development
plans of the Finnish Ministry of Education (1999, 2003a). The purpose is to
increase the pedagogical research and develop virtual learning in order to
increase the competitiveness. Education should provide skills for applying,
managing, and evaluating the information flow of the modern e-networks and
knowledge society. The plans emphasise the importance of local networks,
which combine ICT, modern cooperation methods, independent learning, public
and private partnerships, regional development, and entrepreneurship.
The pedagogical ICT strategy is part of the pedagogical strategy of Turku
Polytechnic. The pedagogical strategy is a functional strategy, which provides
general outlines for the development of education. The pedagogical ICT strategy
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emphasises the development of virtual learning and e-entrepreneurship. The

pedagogical strategy is aligned with the other functional and department strategies.
E-business is defined in the European e-business Report as automated
business processes (both intra-firm and inter-firm) over computer mediated
networks (European Commission, 2004). It has been done in full accordance
with the definition used by the OECD (2004). E-entrepreneurs can be generally
characterised as entrepreneurs who take advantage of the Internet. They are not
necessarily expert in ICT or Internet technologies, but there may be many who
are interested in including an Internet component in a more traditional business
(cf. Benjamin & Wigand, 1995; Bakos, 1998; Coates, 2004). Virtual learning and
e-entrepreneurship are tied to each other in education.
The pedagogical development includes new working and learning environments,
new content production methods, content production, communication and interaction in the e-networks, guidance and evaluation, information security, and
copyright. The pedagogical development produces a wide range of teaching
methods, contents, and cooperation with working life. The purpose is to provide
skills to meet the needs of the local, national, and international partners in the
public and private sector.
New forms of communication and virtual communities emerge in e-networks,
when virtual learning is developed. The Finnish Virtual Polytechnic, which is a
joint development network of all the 31 polytechnics in Finland, has adopted a
widely used approach of developing virtual education. Guidance and support are
important at the beginning. These are followed by independent learning and
support. Finally, teachers and students can use various flexible methods of virtual
teaching and learning (cf. Collis & Moonen, 2001). The approach of developing
virtual learning can be described as follows:
1.
Guided and supported virtual learning. Guided and supported virtual

learning is based on teaching based on collaboration in groups where the
teacher and students interact with each other using different kinds of digital
software and equipment. The education may include pair and group tasks,
which may entail discussions and negotiations on the e-networks.
2.
Independent learning in e-networks. The students study and solve

problems independently using the virtual material in e-networks supported
by the instructions. Independent learning does not include interactive
support given by the instructor or interactions with other students.
3.
Various methods of learning. Implementation includes several kinds of

flexible learning methods. The teaching has long-distance and contact
sessions. The study takes several forms. The students may study indepen-
113
dently, in pairs, larger teams, or they may take lectures. The students use
e-networks, and the learning may take place on campus, at the working
place, or at home. The presence of the students is required both in the live
meetings and virtual environments.
Strategic Themes
Strategic themes describe what management believes must be done to succeed
and achieve the outcomes in the different perspectives. They are in line with the
objectives and describe the causal relationships between them. Each organisation
has a unique set of strategic themes, which are specific to the organisations
potential to create value in its environment. The strategic themes also are linked
to the organisations internal processes because the essence of the strategy is
in the activities (Porter, 1996).
The strategic themes of the pedagogical ICT strategy have their roots in
educational policy, the needs of local community and the practices of the
development work in virtual learning and e-commerce. The specification of
strategic themes caused extensive thinking at Turku Polytechnic. The general
strategic statement and strategic themes can be written as follows:
Virtual learning skills and e-entrepreneurship for working life:
Various pedagogical methods are used in virtual learning.

Virtual learning is included in the curriculum.
Teacher teams are used to plan and implement the study modules.
The learning material is used in a broader context.
The change of virtual learning contents between the HEIs is increased.
The entrepreneurship and intrapreneurship culture of the HEI is promoted.
The pedagogical methods include especially problem-based and virtual learning with the emphasis on the interactive skills and self reflectivity of students.
Virtual learning requires a shared understanding and teamwork of teachers. The
virtual learning material is mobile and is used in other degree programmes, the
Open Polytechnic, and other polytechnics through the National Virtual Polytechnic. There are cooperative production teams for virtual learning material. The
material is bought and sold by the partners of the production teams among the
different institutions. This supports the entrepreneurship of teachers.
114
Strategy Map
The strategy map developed by Kaplan and Norton (2001, 2004) is a graphical
representation of the functioning of the organisation. The strategy map helps the
employees and stakeholders to understand why the objectives of the organisation
have been set and how the desired objectives can be achieved. It is like a road
map, which describes only the essential characteristics of the strategy in a simple
way.
The description and communication of strategy requires an understandable
organisational theory of value creation. Strategy maps can be used to translate
the strategic themes into objectives located in the different perspectives. They
also provide tools to describe the causal linkages between the objectives. The
measurement system indicates the strategy through a sequence of relationships
between performance drivers (leading indicators) and outcome measures (lagging indicators).
The strategy map clearly communicates the objectives of an organisation and
describes why they have been set. The strategy must be understood before it can
be turned into action. The objectives, corresponding measures, and performance
targets are derived from the organisations strategy and vision and balanced into
four different perspectives. The performance of organisational units and workers can be directly linked to the strategy.
Figure 1 describes the strategy map of the pedagogical ICT strategy of Turku
Polytechnic. The regional development and customer perspective includes
lagging indicators that report on the desired outcomes of an organisation. The
financial perspective is always linked with the internal processes and structures.
The internal processes illustrate the value chain describing the sequential internal
processes and organisational units cooperating with each other. The learning and
growth perspective includes the capabilities and learning of employees, which
are the driving forces of future performance.
Regional Development and Customer Perspective

The first objective of this perspective is to equip all the students with good virtual
learning skills so that they can use them in working life and adult education.
According to the pedagogical strategy, Turku Polytechnic is moving from a
closed learning environment toward an autonomous and open expert organisation
and network facilitating continuous learning. The polytechnic develops and
provides learning and working environments, which enable the experiments and
study of new activities and procedures together with the companies and other
working life organisations.
115
Another objective is to provide entrepreneurship skills. Various learning methods

include projects, practical training, and theses, which are part of the entrepreneurship training and shared with spin-off companies and other customer
organisations. Research and development produce methods of modern entrepreneurship training and incubator activities. In addition, continuing education
includes virtual learning and e-entrepreneurship training.
The objective also is to achieve customer satisfaction with e-networking.
Customer satisfaction is what virtually every organisation is trying to achieve.
The purpose of the Polytechnic is to support customers virtual learning skills,
working life skills, and e-entrepreneurship skills. The purpose is to create longlasting customer relationships, which enable life-long learning and continuous
cooperation between the educational institution and customer organisations.
The Financial Perspective

The first financial objective is to obtain sufficient funding from the Ministry of
Education. The degree programmes and longer educational programmes in
continuing education are funded by the Ministry. It also funds some part of the
research and development and certain development projects of major national or
regional importance.
Another financial objective is to obtain sufficient funding from the City of Turku.
The funding from the Ministry of Education is paid to the City of Turku, which
is the owner of Turku Polytechnic. The City of Turku contributes a minor share
of the funding. The city supports some software, which is used at Turku
Polytechnic. It finances and develops, for example, shared intranet and extranet
solutions of the city organisations.
The objective also is to increase the external funding. External funding is
obtained mainly for continuing education, research and development, and
services provided by the Polytechnic. The funding bodies include the European
Social Fund (ESF), other funds, companies, public sector organisations, and the
Finnish Virtual Polytechnic. The external funding is used to create new contents
and improve the quality of education.
Internal Processes and Structures Perspective

Research and development (R&D) is used to create content and methods of
virtual learning. Content also is required in cooperation and networking with
other educational institutions. The content of virtual learning is typically developed at the same time as the curriculum development. Research and develop-
116
ment also supports the development of infrastructure, library, and information

services.
The Pedagogical Support Unit of Turku Polytechnic promotes educational
development in many different ways. The support activities of virtual learning
include the development and implementation of new methods of virtual learning.
Educational development also includes many other development approaches
such as problem-based, work-based, and research-based learning. These approaches can be combined with virtual learning.
Quality assurance (QA) is based on documented procedures. The development of quality assurance has been agreed in the Bologna Process by the
European Ministers (Berlin Communiqu, 2003). Quality assurance is at the
heart of the setting up of the European Higher Education Area (EHEA) by 2010.
Each HEI has the responsibility for quality assurance representing their academic and organisational autonomy. This provides the basis for accountability
within the national quality framework. The purpose of the EHEA is to increase
student and staff mobility in Europe.
The ICT infrastructure is a combination of data networks, systems, equipment,
and software. They include wireless networks, modern audiovisual solutions, and
personal mobile learning equipment. The ICT Unit of the Polytechnic is
developing an electronic learning portal constructed on the existing information
services, digital information sources, e-business instruments, virtual learning
environments, and existing network services of the departments. Physical and
virtual learning environments are developed interactively with each other taking
care of information security.
The library provides the main electronic sources and databases for students and
staff. The library helps them in finding the relevant pieces of information and
provides equipment for information processing. The librarians teach on the
degree programmes and personnel training and participate actively in virtual
learning projects. Cooperation between the support staff, teachers, students,
researchers, and the members of the working life organisations is necessary.
Electronic journals and books reduce the proliferation of printed material.
Virtual learning is expanding at Finnish HEIs. The government has set a target
to provide at least 30 credits of virtual education for each bachelor student
(Ministry of Education, 2003b). Virtual learning provides alternative ways of
studying, especially for those who work during their studies. The replacement of
contact learning with virtual learning helps the working students to avoid dropout.
The virtual learning platform also can be used to carry out other activities such
as tutoring during practical training, study counselling, international projects, and
continuing education.
Cooperation with other HEIs is an important characteristic of the internal
processes and structures. Turku Polytechnic participates in many production
117
teams of the Finnish Virtual Polytechnic. Typically, the production team of

several institutions makes a written contract, agreeing to produce virtual learning
material. The contract also defines the financial transactions between the
institutions. Cooperative and entrepreneurial teacher teams are usually needed
within an institution to participate in the production teams.
Networking is a way of producing large study archives from small virtual
learning materials. The network itself is used as the instrument of guidance,
where the instructors and learners can select the information according their
specific needs (Silander & Koli, 2003). The purpose is to use the learning
material several times in different learning combinations or at different educational levels. Often the smaller modules correspond best to the various needs in
working life situations of adult education.
Learning and Growth Perspective

Strategic awareness is created in the strategy process, where the expert team
for virtual learning prepares the strategic plan with the experts and management
team of the polytechnic. The existing strategy and the changes in the environment and technology are evaluated in order to update the strategy. The strategy
is approved by the Board of Turku Polytechnic. Finally, the strategy is communicated and implemented using the balanced scorecard.
Personnel training is an important way of introducing new methods and software
used in virtual learning and e-entrepreneurship. The departments of the PolyFigure 1. Strategy map of the pedagogical ICT strategy
Regional
development and
customer
Finance
Internal processes
and structures
Learning and
growth
Virtual learning skills for working life and education

Entrepreneurship skills
Customer satisfaction of e-networking
Funding of the Ministry of Education
Funding of the owner of HEI
External funding
R&D
Pe dagogical
supp ort
QA
Infrastructure
Library
Virtual
learning
Cooperation
Ne tworki ng
Strategic awareness of virtual learning

Personnel training
Capabilities of quality assurance
118
technic are responsible for the short-term education and working life periods of
the personnel. The Personnel Development Unit of the Polytechnic arranges
longer personnel training and creates preconditions for the implementation of the
pedagogical ICT strategy.
The capabilities of quality assurance have been developed constantly, while the
quality system of Turku Polytechnic was developed. The procedures of quality
assurance have been documented and are also used in virtual learning. The
procedures and documents include evaluations of the Finnish Higher Education
Evaluation Council, the quality manual of the institution, internal audits, internal
target discussions, and feedback from students and employers.
E-Entrepreneurship
of a Spin-Off Company
A Spin-off Company as a Partner
The spin-off companies result from the transfer of people and intellectual
property from educational institutions. The continuous transfer of skills and tacit
knowledge embodied in human capital differentiates the mechanism of technology transfer from technology sale, licensing, joint ventures, and alliances
(Davenport et al., 2002). The supporting of start-up companies is an effective
way to transfer the expertise of HEIs to working life and make it commercial.
The case of Mansoft Tietotekiikka Ltd. is used as an example to illustrate how
the pedagogical ICT strategy of Turku Polytechnic is implemented and how
technology transfer takes place. Mansoft Tietotekniikka Ltd. is a spin-off
company in software business and application development. The company was
established by a senior lecturer at the Polytechnic. He is still the managing
director of the company.
The purpose of Mansoft Tietotekniikka Ltd. is to develop the expertise to achieve
customer satisfaction. In order to achieve this aim, the products are tailored to
meet the needs of the customers. The strategy of Mansoft Tietotekniikka Ltd.
also includes the cooperation with Turku Polytechnic as described by Adamsson
and Puukka (2004). The company has planned solutions for specific needs of
knowledge-based organisations. It also carries out consulting, maintenance
services, and several boxed products with a fixed service. As a financially
independent and customer-oriented company, it aims to be a productive and safe
partner in long customer relationships.
119
The company has been developed in a sustainable way. The business profit has
always been ploughed back into the company and product development. All eight
young permanent employees of the company are graduates of Turku Polytechnic. One of the main principles of company policy has been to offer permanent
positions to young experts starting their careers in the ICT business.
The managing director of Mansoft Tietotekniikka Ltd. is a member of the Turku
Polytechnics Advisory Board. The advisory boards of Finnish polytechnics
include members from working life and help the polytechnics to develop the
curriculum to meet the needs of companies and other organisations. The advisory
board is a network of experts who helps the polytechnic and the participating
companies to adapt to the changes of the environment and conceive new
development ideas.
The recruitment of the company is focused on the final year students of Turku
Polytechnic. Turku Polytechnic has arranged the education so that students can
participate in the companys projects. The arrangement of the ICT fair is another
mode of cooperation between Turku Polytechnic and Mansoft Tietotekniikka
Ltd. The ICT Fair is organised in Loimaa, where Turku Polytechnic operates.
The fair helps local small companies to recruit new staff, market their services,
and participate in regional development.
According to the company owner, some customers have expressed their opinion
that the company should have older experts to achieve credibility, but the
managing director has felt that the young staff brings more flexibility and fresh
ideas and fewer predetermined attitudes regarding the business culture. The
company is represented by the managing director, who takes care of the business
relationships and project management. The software and system development
are left to the younger colleagues. The long experience of the manager and the
fresh ideas of the young colleagues complement each other in the company. This
is an important characteristic of the social capital and competitive advantage of
the company.
Cooperation in Software Development

Turku Polytechnic has designed project management software for itself and
other knowledge-intensive organisations. The software Projektori was created
in association with Mansoft Tietotekniikka Ltd. Originally, Projektori was
created to manage development projects on the intranet. Then the R&D unit of
Turku Polytechnic expanded the use of the software into other project-related
activities. It can be used, for example, to manage project plans and disseminate
project information on the Internet. These features make the software a useful
tool in many publicly funded projects.
120
The software was designed to be used in data networks so that cooperative

projects can use different kinds of intranet and extranet options. There is a
general understanding about the roles between the partners. Turku Polytechnic
is responsible for content planning and production while Mansoft Tietotekniikka
Ltd. takes care of the database planning and implementation.
The guidelines for the cooperation can be found in the strategic plans and quality
assurance manual of the Polytechnic. The cooperation with the spin-off company is regional development, which is an important characteristic of Finnish
polytechnics. The quality manual contains guidelines for project management.
Many of the basic principles of cooperation and software solutions can be traced
from the commonly observed needs of databases and action models of large
organisations (Groth, 1999).
The Projektori software is not only a technical instrument to arrange documents;
the use of the software changes organisational behaviour into high-quality
project management. The software guides the individuals and units to the process
and team-oriented organisational culture. It also provides an interactive connection and a virtual meeting place for public sector institutions, private sector
companies, and other working life organisations.
Turku Polytechnic also has sold the Projektori software to some other large
knowledge-intensive organisations in Finland with the cooperation of Mansoft
Tietotekniikka Ltd. The user rights of the software can be purchased by installing
the application to the customers server. It also can be rented as an application
service provider (ASP) solution by locating the application and its database on
the servers of Mansoft Tietotekniikka Oy. The rent includes both the application
and its daily database back-up.
The Projektori software can be connected with other software such as the
Puplikaattori software which is software designed for e-publishing. This software is the result of cooperation between the Publication Unit of Turku
Polytechnic and Mansoft Tietotekniikka Ltd. Both software can be purchased
and used as independent solutions. The software helps to increase the Webbased resources, which are increasing in educational practice (Collis & van der
Wende, 2002).
Conclusion
Information and communication skills are needed in the modern knowledge
society. These skills are among the basic professional skills in most industries.
The ideal is an individual who is aware of the information sources, has the
information reading skills, is capable of acquiring and communicating information
121
efficiently, evaluating the information acquired, and using the information in an

ethically and legally correct way.
High-quality and flexible learning is the overall strategic statement of Turku
Polytechnic. The strategy focuses on the needs of the growing clusters in
Southwest Finland. The ICT cluster is one of the most prominent clusters
including software development and mobile telephones and TV production.
Nokia Mobile Phones Ltd. is one of the best-known companies in this region. The
strategy also focuses on entrepreneurship training, which includes e-commerce,
incubator activities, and other forms of entrepreneurship.
The pedagogical ICT strategy is a specific functional strategy aligned with the
overall strategy, other functional strategies, and department strategies at Turku
Polytechnic. The pedagogical ICT strategy describes the strategic plan of virtual
learning and e-entrepreneurship. The strategic themes of the pedagogical ICT
strategy include various pedagogical methods, the inclusion of virtual learning in
the curriculum, the role of teacher teams, the use of learning material in a broader
context, transactions between other educational institutions, and entrepreneurship culture.
The balanced scorecard approach is useful in accomplishing the strategic
themes, objectives, and measures for virtual learning and e-entrepreneurship.
The strategy map was used to translate the strategy into a graphical representation which clearly describes the objectives in the different perspectives of the
balanced scorecard. It was used to describe the main characteristics of the
strategy to achieve better expertise in virtual learning and e-entrepreneurship.
An example of the implementation of the pedagogical ICT strategy was
presented. This example illustrates a case of how a spin-off company was
established and how it cooperates with the educational institution. Project-based
education is followed by recruiting graduates. The competitive advantage of the
spin-off company is based on continuous cooperation with the HEI and the
innovative and fresh ideas of the graduates employed.
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124
Hassall and Welsh
Chapter VII
The Beginnings of a
Postal E-Marketplace:
Innovation or Natural
Evolution?
The corProcure Story
Kim Hassall
Melbourne University, Australia
Karyn Welsh
corProcure, Australia
Abstract
This e-business case study of the corProcure enterprise is instructive as it
reflects three recurrent themes of the dot-com period:
1.
First, the seemingly powerful but unstable corProcures business

model was created between a number of large corporate institutions in
response to the corporate pressure to enter the dot-com world.
2.
The quick revelation that the initial business model was incompatible
for the founding corporate partners.
The Beginnings of a Postal E-Marketplace
3.
125
The buyout of the venture by one of the partners, Australia Post, and
re-engineering the direction of corProcure for a more workable emarketplace business direction. This was considered to be the way
forward.
This evolution, learning curve, and redirection of the e-purchasing cartel

was in one way just a snapshot at the macro-level of what happened to many
ventures during the dot-com boom. At the micro-level, the change in
direction was reflective of a more pragmatic business sense approach,
when all the late 1990s hype was stripped away from the initial e-business
model. The new business model incorporating an e-marketplace also
reflected the need for the new owner to diversify into non-traditional
products as part of new e-business and e-logistic strategies. These strategies
were being examined globally by Postal Authorities.
Introduction
In 2001, the Universal Postal Union and the World Bank released a report that
proposed that the Post Office was potentially headed for being a sunset industry
unless it addressed the issue of its product erosion (UPU, 2001). A further
international postal e-logistics report examined various ways that this postal
sunset industry mentality could be addressed and the actual declines arrested
through the introduction of some critical strategies (Hassall, 2003). In Australia,
however, since the advent of the dot-com wave, what was the local postal
authority doing to stem the stagnation in the demand for its traditional postal
products? Was it trying to leverage the new Internet-based technologies, thus
enabling a range of new services?
What the Post Office did was change its focus to internal e-procurement and
implement utility bill payments. As well, Australia Post instigated a warehousing
and fulfillment business, which ran in parallel to the existing postal network.
What was perceived to be the e-business showstopper was its partnership with
13 other major corporates, in a buying consortia called corProcure
(www.corprocure.com). This buyers club began life at the tail end of the dotcom hype in 2000. By January 2002, the 13 partners cleared the deck chairs and
allowed Australia Post to purchase the corProcure entity and technology. Why
had the potentially largest buying cartel failed so quickly? What lessons were
learned and what was the obvious e-business strategy that needed to be
implemented?
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Hassall and Welsh
Background to the Evolution of a Postal E-Marketplace

In 2003, a study into the impacts of e-logistics and e-business and what it might
mean to the traditional post office was published through the Universal Postal
Union (Hassall, 2003). The research surveys spanned 40 countries with the
summary findings being refereed by the e-commerce Unit, Postal Technology
Branch of the Universal Postal Union (UPU). The UPU, which is a division of
the United Nations, is the coordinating and representative body of all national
postal authorities at the international level. The research findings were listed on
the UPUs Web site in January 2004.
E-Postal Research Findings

In a reassessment, (Universal Postal Union and World Bank Report, 2001), the
global post office needs not become a sunset industry, as was suggested, if it
were to embrace new electronic products. Many of these products could be
facilitated by the adoption of new Internet-based technologies and the processes
that this technology may play in enhancing the traditional postal services. The
first round of this research was conducted by the Centre for Freight & Logistics
Research, as a Delphi survey through 28 interviews across some 11 countries.
The highest scoring strategy emerging from the survey was to embrace new
electronic products. With regard to the specific electronic and logistics products
described in Figure 1, the proposition for a postal e-marketplace scored highest
in the future directions estimates with some 43% more important in future
strategic and business focus than at the current time. In fact, 8 of the 12 options
had a future importance factor of some 25% greater than their current perceived
importance. This chapter examines the history and potential for the launch of a
major postal e-marketplace from Australia in what is a rapidly changing
electronic and Internet environment.
Fundamental Business Issues for Markets and Even

Postal E-Marketplaces
To be effective, markets require participants to share their business processes
(e.g., purchasing). Companies are increasingly unwilling to standardise these
processes as they seek to maintain their uniqueness as a competitive advantage
and control over their supply chain for purchasing direct goods. This is not the
case, however, for indirect goods. For this reason, horizontal marketplaces have
better success in connecting traders than do vertical ones.
127
Figure 1. List of postal options sorted by of future strategic and business

importance
Future Increase in Importance Of
e-Postal Strategies
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
e-Marketplace
Freight&W arehouse Ability
Delivery Strategies
Freight Ability
Track/Trace
W arehouse Ability
Bank License
Multi Language
Utility Payments
Customs Clearances
Site Evaluation
Pre-Paid Products
Source: UPU Web site 2004
Marketplace security is another big issue for corporations. Most will purchase
direct and indirect goods from online environments that sit behind the corporate
firewall.
The Need for New Services as Deregulation Grows on

the Home Front
While postal volumes were declining in many countries during the 1990s (UPU
database of Postal Statistics, www.upu.int), on the Australian domestic scene,
micro economic reform also was occurring. This meant continued deregulation
across many industries including the Postal Industry. Following an Industry
Commission review in 1992, Australia Posts monopoly was reduced in 1994 and
more services were opened up to competition. Australia Post retained a
monopoly over mail weighing up to 250 grams and with a minimum charge of
$1.80. This meant that couriers and freight operators could pick up and deliver
much business and industrial mail, which was heavier or cost more than this price
threshold. In 1995, GiroPost, a multi-bank Eftpos option was introduced as
part of a range of financial transactional services, such as utility bill paying, at
Post retail outlets. In 1995 as well, a five-year postal network renewal program
costing $500 million began, aiming to equip Post with the latest technology for
mail processing and delivery operations.
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Hassall and Welsh
The Australian National Competition Council (NCC) again reviewed Australia

Posts operations in March 1998 and recommended an almost complete deregulation of mail services by 2000, except for standard personal letters sent by
households within Australia. Australia Post would be exposed to competition in
93% of its services, compared with only 50% in 1998. Australia Posts
submission to the Council had argued for the retention of the current position,
with a review in 2003. Linda Nicholls, the chair of Australia Post, had commented that the report went further and faster than Post believed was practical.
She noted that the NCC had no plans for any safeguard if the changes had
unexpected outcomes. Graeme Samuel, the then president of the National
Competition Council, responded that Post was abnormally profitable with returns
double that expected from such a business.
The New Focus at the Global Postal Level

Australia Post, and other postal organisations around the world, are challenged
as revenue from traditional sources is under threat from electronic alternatives.
Posts competitors, including other postal organisations, have increasing global
ambitions and search for new markets and opportunities that exploit network
economies of scale. Posts customers expect them to understand the customer
and their businesses to a greater degree than ever before and to be able to
interact with them online.
E-business is acting as a catalyst for innovation and value creation. Online
shopping, although turbulent, will continue to grow providing Post with a raft of
opportunities. The proportion of personal bills being presented and paid electronically is increasing at the expense of payment by mail or payment in person at post
offices. There also is renewed growth in purchasing goods and services online
as industries review areas that can save cost and add efficiency to the daytoday procurement process. Improved productivity through efficiency gains is a
key driver of e-business in many organisations including Postal Authorities.
Thomas E. Leavey, director general of the Universal Postal Union, was quoted
in Australia Posts 1999-2000 Annual Report:
For postal services the challenge is to be totally immersed with customer
concerns, proactively seeking to determine their needs and listening to
their evaluation of the services provided. Customer focus is now central to
the strategy of every successful business from banks to manufacturers
and dominates the dynamics of the business environment of the new
millennium.
129
What has Changed on the E-Logistics

and E-Business Front to Support a
Postal E-Market Business?
The major operational finding from the first round of Delphi analysis into future
Postal e-business options (Hassall, 2003) was that some track and trace
mechanism be available to customers for selected postal products. The major
future strategic and business initiative, however, was to offer an e-marketplace to small businesses (SMEs) and to large businesses. Such an emarketplace concept is new to Postal Authorities. As such, there are many
variations in both applications and marketplace business rules that will sit behind
any chosen e-postal marketplace model.
Gaining acceptance for such a new product, be it an e-marketplace itself, is
fraught with many challenges for the traditional Post Office culture. However,
should the e-marketplace become successful in any particular country, then this
concept will generate considerable interest internationally, perhaps more so than
any postal product has done within the last 30 years.
An Overview of E-Marketplace Fulfillment

In the case of an e-marketplace, fulfillment and delivery services can be
achieved:
1.
through a number of third party logistics providers selected by the buyer,
2.
through the marketplace owners fulfillment processes and services, and
3.
through logistics providers that are also e-booth holders on the marketplace.
(This is certainly a powerful option for international buyers who want to
attain fulfillment in the offshore country where the purchase will be
fulfilled.)
This third option is a considerably important option for international companies

wanting to physically trade in, for example, Australia. Who do you call for service
X? Try the marketplace. This could be for office space, financial advice, freightforwarding services, even a bottle of champagne for a birthday, and so forth.
Getting the balance right with fulfillment is often very customer specific. Various
marketplaces offer B2B and B2C services through express carriers, nonexpress transport carriers, and even through the post office itself. A postal e-
130
Hassall and Welsh
Figure 2. Variations of marketplace fulfillment

E xternal
L o g i s tic
S e r v ic e s
In t e rn a l L o g is tic
S e rv ic e s
P ro d u c ts
E-Platform
Source: Supply Chain Review, August 2001
marketplace should offer similar services for B2B and B2C clients, that is, those
services that also are offered by other online trading hubs or other e-marketplaces.
Difficulties with B2B Fulfillment through the Post Office

It is very simplistic to talk of B2B, however the subclassifications of B2B are
quite large. This was pointed out at the OECD/ECMT e-transport and elogistics Summit (Nemoto & Visser, 2001). However, for a marketplace, the
easiest way to offer B2B services is in fact to list B2B providers that offer B2B
services. Certainly Postal authorities such as LaPoste and Deutsche Post, via
Danzas and AEI, as well as New Zealand Post have all acquired a range of
premium and non-premium B2B logistics providers to supplement their postal
parcels capability.
Provision of a warehousing and freight capability, did in fact score second to
the establishment of an e-marketplace in terms of future strategic importance
(see Figure 1). It is probably in the best interests of a traditional postal authority
who may be inexperienced to the requirements of B2B that B2B fulfillment
services be available through its own marketplace, as opposed to a single channel
offered by a long-term preferred supplier. In this way, much wider combination
of fulfillment services can be offered, with significant flexibility to any customer
requiring these B2B services.
A third B2B option was examined in the initial research (Hassall, 2003): that B2B
capability be offered by the postal authority but with differing customer service
standards to those offered to existing Postal products. In discussions with both
La Postes warehousing and fulfillment divisions, as well as Deutsche Post
Logistics, it was seen as somewhat unfavourable to mix B2B with the existing
postal network. To provide B2B freight and warehousing at differential service
131
levels, new freight entities were acquired specifically for such purposes. These
operations often worked out of independent terminal and distribution centres.
From a marketplace perspective, B2B fulfillment agents and services should be
listed on the e-marketplace These services will not be sought through the
marketplace owner but from specialised buyers that may even be e-booth
holders on the marketplace themselves.
B2C can be Expanded in the Marketplace through New

Delivery Options
B2C is considered the expert domain of each domestic Postal Authority. But
could this change in the future? Table 1 lists 12 home delivery strategies. The
several Postal authorities that participated in the e-postal business research
(Hassall, 2003) offered less than half these listed options.
Table 1. Current and future variations of home delivery strategies

STRATEGIES for
Household Delivery
1.
Continual Household Attempt
Yes/Maybe
Greater
Recipient
Complexity
No
2.
After-Hours Delivery
No/Maybe
No
No
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
Maybe
Maybe
Maybe
3.
Attempt one delivery, phone

follow-up for second attempt.
4. Phone booking for initial
delivery slot.
5. Attempt home delivery,
failure redirected to retail
agent for customer pickup
6. Attempt delivery to home
parcels box
7. Customer pickup from retail
key-hole site
8. Customer pickup from secure
depot storage
9. Delivery agent to retail agent,
by direct drop
10. Initial delivery to preferred
post office of choice.
11. Delivery agents loads orders
direct from retail site not a
specialised distribution hub.
12. Optional flexible delivery
strategies as stated on the
customer order form
Greater Channel
Complexity
Land Use
Variation
No
Source: Supply Chain Review, December 2001
132
Hassall and Welsh
Certainly it is to be expected that further specialised home delivery services will

appear on the home shopping front, which will be competitors to the post office.
New mixtures of delivery strategies will emerge and will offer a higher level of
customer satisfaction, more so than any single option or delivery strategy.
Certainly the specific commodity to be delivered also will restrict many of the
householder delivery choices. High value goods and bulky goods such as garden
furniture have even generated niche operators for such deliveries where the
population base is very large.
International Fulfillment Opportunities Emerging for

B2C and B2B
Emerging from an analysis of international Internet purchasing requirements
(Supply Chain Review, December 2001), the following new demand patterns
became apparent. This shift showed that there was considerable scope for new
international postal services to emerge in the support of both B2B and international B2C.
In both cases, an international 5-business-day service, or certainly a less than a
7-day service, would be a highly favourable option, well worth further consideration by international postal authorities. This option of a deferred express
service can generally reach not only capital cities but also major regional cities
in other countries. The service would be far more acceptable than the 10-day
international air services, the basic international parcels service currently
offered by postal authorities.
Table 2. Expectation of delivery domestic and international comparisons

Type of Order
Service Standard
Domestic
< 2 days
5 to 7 days
9%
International Standards Offered
<= 2 days
Actual % surveyed
91%
<= 5 days
<= 7 days
14% (express)
>= 10 days
86% (Normal)
International Preference
Consultant/Large Business
5%
82%
13%
Small Business/Household
0%
7%
93%
0%
Source: Hassall, 2001
133
Other International E-Marketplace

Considerations
Is Internet Purchasing Being Accepted Globally?
Purchasing advantages through an Internet medium was, and still is, considered
to be one of the greatest benefits of sourcing suppliers from the Web. In a
business-to-business (B2B) sense, this is hypothetically true. Take a small or
even medium-sized manufacturer in Europe or the United States. This manufacturer sources three inputs into his or her business production line. There may be
dozens of suppliers who produce the inputs that this small company would not
know about if the suppliers do not have a Web site. The suppliers may be in an
adjacent state or, in a European context, an adjacent country. If language is no
barrier to the suppliers Web site, then better business deals can, with some
confidence, be done.
In an Australian B2B context, an island continent with only 0.3% of the
population of the new Europe and North America but nearly one half of the
geographic area, a small manufacturer will almost certainly know all the potential
suppliers for his requirements. Unless the Web offers cheaper, or more reliable,
international sources for the manufacturers inputs, B2B product sourcing is
significantly more limited than if this company was being operated from a
European, U.S., or even an Asian base. That is, it is more limited unless the base
is moved to one of these locations where cheaper inputs can be sourced.
However, if the manufacturer remains in Australia, it is arguable that the
purchasing power of the Internet is limited for B2B buyers.
Language Barriers
Although it is becoming more common since 2003, very few Web sites could be
converted into the chosen language of the potential Web customer. This means
that a potential supplier to a manufacturer, who may be a near neighbor, may not
communicate his or her existence to that potential customer because the Internet
site is established in only one language. This has since been recognized as a
barrier, and, as a result, software vendors now build these options into packages
being sold.
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Hassall and Welsh
Disintermediation: Another Difference between B2B and

B2C
Purchasing new goods and services through the Internet is a reality because the
Web now provides connectivity where information linkages were previously
non-existent. B2C customers will no doubt surf and stumble across any new
selling site.
To consider that the impersonal Web site supplier would replace a more
personalized sales force for business products is probably only true at the margin.
In all probability, this dis-intermediary nature of the Web will not prevail over
a non-relationship-based B2B suppliers. This was the essence of a presentation
on Chinese partnering and business relationships delivered at the 5th International
Conference of Quality Management and Innovation held in Melbourne, Australia
in 2001 (N S Y Yeung). A Web site may attract short-term diversion and
competition within a B2B environment, but long-term relationships are also worth
considerable value to all businesses. Entrants into the Chinese B2B domain, for
example, should consider the balance with this distinction between an impersonal
Web site and long-term personal business relationships. B2B relationships often
encourage the uptake and use of Web-based marketplace trading activities.
Avoiding the Market Conflict of Interest: The Postal

Owner Interest vs. a Public Marketplace
The marketplace should facilitate trade between buyers and sellers of any
services even if it is in competition to the post office itself. For example, new
courier services, new express delivery services, new competitor logistics
services, and a myriad range of other services could be seen as a threat to
existing postal products or services supplied by the post offices preferred
contractors. Such existing products have the potential to be vetoed from a new
marketplace because they are perceived as competition to existing products.
This is a real concern. This possibility, that existing preferred suppliers or the post
office itself can dictate what suppliers in marketplace categories can or cannot
list, will immediately shrink the full potential reach of the marketplace. However,
competition from the marketplace itself for existing postal products is often more
a perceived threat than an actual threat, especially as some 95% plus of market
revenue will come from offshore sales. In the marketplace, the customer is king,
not the marketplace owner.
135
Payments: Great but in Which Currency: Dollars,

Dinar, or Drachma?
One major problem that needs to be addressed early on in the internationalisation
process is the clearance of cheques and credit cards across a range of e-booth
holder currencies. Certainly not accepting cheques or making one single
payment option in only one currency is unacceptable to most countries where
trade occurs on the Web.
At the Micro Level B2B and B2C Customer

Transactions Are Different
The dynamics are different in a B2C transaction. An easy payment process is
the foundation of any customer-friendly operation. A number of B2C payment
methods advertise themselves as easy to use and completely secure and,
therefore, have been adopted by online retailers. In the B2B community,
payment has moved from being largely paper-based despite the large amounts
of cash exchanged to credit card or electronic funds transfer. A number of
products are on offer by banks, banking consortiums, financial institutions, and
pure-play dot-coms. The problem is choosing the right option. Most payment
processing vehicles can be expensive and have hidden costs, which are rarely
highlighted in the promotional and marketing materials.
Through a marketplace, however, an exact same platform could be configured
for a B2B customer as well as the B2C customer. With the smaller B2B buyer
or supplier paying for their purchases via credit card or EFT, there is very little
between the two models. The larger buyer, however, sees their electronic
transaction being fed directly into their enterprise resource planning (ERP)
system. This frees considerable resources for both organizations, thus reducing
the cost of sale when accessed via a marketplace.
Are Customers Ready for

an E-Marketplace?
Australia Posts traditional customer base can be segmented into three very
broad groups: majors, SMEs, and consumers (see Table 3). The majors
segment is the most important to Post.
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Hassall and Welsh
Table 3. Australia Posts customers

Customers
Majors
SMEs
Consumers
Description
Proportion of
Posts Total Revenue
Posts 360 largest customers, spending

>$500K pa each
Approximately. 35,000 businesses with
charge accounts with Post
Ascertained from cash sales. Will
contain some SOHO, micro, and other
small businesses who do not have charge
accounts.
49%
19%
32%
Source: Australia Post (Annual Report 1999/2000b, based on 1999/2000 revenue

figures)
Any new e-venture which Posts e-business activity needs to leverage off
include:
The Post brand: trusted, reliable, highly regarded, and marketplace sustainable;
Australia Posts retail outlets (4,500 Australia-wide): Posts bricks

provide it with an unmatched retail network;
The payment processing infrastructure that supports GiroPost (Australia

Posts Banking facility) and bill payment;
The ability to offer end-to-end solutions to their customers;

The breadth of the delivery network; and
Australia Posts database and addressing capabilities.
In general, Posts customers are satisfied with Posts performance. However,

Australia Posts National Major Customer Monitor (November 2000) reveals
some opportunities for Post to serve their major customers better.
These opportunities include:
improving Posts business processes

increasing flexibility
simplifying and improving account invoicing and reconciliation
137
The major customer group, while only 360 in number, provides Post with almost
half of its total revenue and is believed to provide an even larger share of the
organisations profit. It was estimated that the top 50 customers contributed
26.3% of revenue but an estimated 42.5% of profit.
Apart from their financial weight, there are other significant reasons why this
group of customers is of great importance to Post:
In an increasingly competitive environment, these customers are the most

likely targets for competitors.
But most importantly, these customers have a vital strategic importance as

they are more likely to be possible alliance partners in new offerings and
may provide Post with new revenue streams or any new value chain. This
may be particularly true of mail houses and billing and financial institutions.
Customer E-Technology and Their Internet Environment

within Australia
In November 2000, the National Office of the Information Economy (NOIE)
published a comprehensive report entitled The Current State of Play. The
report builds a picture of Australias online performance in the global information
economy. Highlights of the report include:
The ABS (Australian Bureau of Statistics) estimated that 48% of the adults
in Australia, or 6.6 million people, accessed the Internet from August 1999
to August 2000.
The estimated value of Business-to-Business [B2B] e-commerce activity

in Australia for the year 2000 is US$5 billion. Australia ranked 8th out of
the 20 countries surveyed.
From February 1999 to February 2000, the percentage of small businesses

online in Australia increased from 48 to 60%.
Globally, Jupiter Communications in 2001 estimated that there were over

1,000 trading hubs. This figure is expected to double by the end of this year
and reach 20,000 by 2002.
Did this Internet connectivity mean that a new Postal e-marketplace is possibly
a timely new strategic option?
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Hassall and Welsh
Australia Post Joins the corProcure Business Venture: The Difficulties Become
Apparent ImmediatelyOn July 5, 2000, 14 of Australias largest companies gave
birth to a buying cartel known as corProcure. The new e-marketplace was
unveiled as displaying cooperation between the big fourteen or was it? The
14 were identified as being Amcor, ANZ, Australia Post, BHP, Coca-Cola,
Amatil, Coles Myer, Fosters, Goodman Fielder, Orica, Pacific Dunlop, Qantas,
Telstra, and Wesfarmers. In a joint statement to the Australian Stock Exchange,
the companies said they would each be a shareholder in the corProcure initiative.
According to the eCommerce Report (July 2000), The total value of their
indirect spending on goods and services stood at over A$300 billion annually.
It was anticipated that the goods and services traded through corProcure would
include office and cleaning supplies, fuel energy, telecommunications, facilities
management, human resources services, legal services, promotions and advertising, computer services, insurance, and capital expenditure items. The article
goes on to say corProcure is committed to the development of an open-platform,
standards-based, and multiple-industry regional trading network.
Suppliers to the big fourteen became a little nervous as this cartel potentially
cut across deals already inked by some of the companies. It was anticipated that
a savings of 5 to 8% could be achieved across each of the categories of goods
and services.
There also were some concerns around which technology was to be used as the
big fourteen were using various technologies and systems. It was not at all
clear to them that an e-marketplace is a well-defined entity and that eprocurement is a defined technology. According to corProcures Web site, a
number of different types of online catalogues could be supported. The eCommerce
report (July 2000) goes on to say in the industry it is well accepted that a
common catalogue is both the holy grail of procurement, and no more attainable
or accessible than the legendary cup has been for centuries, Internet or no
Internet.
Australia Post joined corProcure to improve its purchasing and supply chain
efficiencies. Price Waterhouse Coopers (PwC) worked with Australia Post to
identify the value:
of Posts total nonstrategic spending;

of the amount that Post was willing to commit to corProcure; and
to Post in joining corProcure.
139
Table 4. The core value drivers for the corProcure venture

Purchasing
Power
Process Efficiency
Supply Chain
Integration
Aggregated
Content/
Community
Industry best
practices
Aggregate
buyers into
consortiums
Electronic product
searches/catalogues
Volume pricing
Electronic order taking

and management
Improved
visibility across
market supply
chains
Reduced lead
times
Better
information for
supplier
negotiation
Supplier
consolidation
Spending and
control reports
Electronic requisition
and approval
Reduced
inventory levels
Bench-marking
Auto replenish
Rationalisation of
product lines
Improved
logistics
management
ERP Integration
Monitoring/
control reports
Discussion
forums
Electronic bill
presentment and
payment
Improved information
access
Better spending control
APS integration
Reduced transaction
costs
Knowledge
management
Product
information and
reviews
Frequently
asked questions
Industry
collaboration
Market
Efficiency
Online market- making
mechanisms to match
buyers and suppliers
- e-catalogues
- auctions
- exchange
- bid processes
Access to broader range
of suppliers and buyers
Improved information
access
Risk of single-sourcing
reduced while volume
benefits are maintained
Newsletters
Network effect
Source: corProcure personal communication, 2004
It was found that within Australia Post some $521 million, or 64% of the total
identified spent, could be channelled through corProcure to obtain benefits
through spending consolidation and supply chain efficiencies.
Australia Post identified two significant elements preparing for and participating
in corProcure. During preparation projects, Post needed to accelerate strategic
sourcing and implementing e-procurement systems. The benefits would be:
exercise purchasing power across all Post business units;

cutting down maverick spending;
capturing information through reducing manual order processes;
140
Hassall and Welsh
supply chain integration; and

market efficiency.
Saving for Australia Post alone ranged from benefits of $10 to $30 million dollars.
Background Problems for the corProcure Group

In 1998 and 1999, the Australian procurement was introduced to electronic
procurement. The two largest players at the time, Ariba and CommerceOne,
were competing fiercely in the offshore market and decided to enter Australia
with the goal of replicating their successes from the United States. What they
failed to recognise was that:
1.
There is a finite supplier market in Australia.
2.
Australian business culture prevented the disruption of long-term relationship between buyers and suppliers.
3.
The procurement function as a whole was not as developed in Australia as

that of the United States where procurement had begun to be recognised
at a strategic level.
4.
The U.S.-based electronic procurement technology proved to be too costly

(U.S. currency was high) for the perceived benefits it represented.
5.
Finally, the back-end systems integration confused the market and potential
clients.
The Australian market was not convinced that the benefits would outweigh the
cost of implementation, so the two largest software players scaled back and
dramatically reduced their operations in Australia in 2001 and 2002.
Concurrently, two Australian buying groups were developed: Cyberlynx and
corProcure. They each had different technologies (Ariba vs. CommerceOne)
and two sets of support companies that sponsored their development. Merging
purchases and collaborating to buy non-competing products at lower prices
seemed like a good idea. However, what resulted was a strong resistance from
suppliers whose negotiated rates (based on volume price reduction) no longer
justified doing business with those large customers. After all, each of those large
founders already had negotiated rock bottom prices and was requesting a few
additional percentage point savings; supplier margins had been reduced too far.
To make this transition even more difficult, no large sponsor was willing to
commit their entire spending to play the game. In addition, wanting to connect
141
from anywhere to anywhere proved too difficult and again too costly for the
perceived benefits.
While the largest Australian companies had formed the two most envied
procurement groups in Australia, most have now scaled back to their old
procurement ways, for example, CBA and Australia Post have respectively
adopted Cyberlynx and corProcure.
As a new era begins, how will corProcure and Cyberlynx both succeed in a
market as more players such as ANZ ebiz, Optus Marketsite, Shells OptiBuy, Australia-wide loading, Smartbuy, and other government sponsored
agencies were offering e-market options? How should corProcure position itself
to succeed in a market that was all too wary of the failed promises of electronic
procurement?
Projects connected with e-business in Australia Post were allocated some $92
million as capital investment funds during 1999to 2000 and 2000 to 2001.
Between 15 to 20% of these costs pay for infrastructure that will in itself not
contribute to revenue but is necessary to accommodate the availability, scalability,
security, and flexibility required for future e-business activities. Developers
should be aware of such facts.
Australia Post Buys corProcure: January 2002

In less than two years, the corProcure cartel had gained no traction in the purely
domestic market. Besides the non-uniformity of technology, corProcure suppliers were supplying to cartel members externally and not through the marketplace. In January 2002, Australia Post purchased the corProcure shell. Most of
the large companies, however, have continued to trade in some corProcure
categories after the Postal buyout.
Australia Post acquired corProcure in 2002 primarily for its technology. However, it was believed that upon purchasing corProcure the technology had the
capability to address business issues such as:
extending the use of the mails network (letters business was in decline);
improved access for customers to information and services to Post;
third-party logistics and collaboration with other parties; and
a logistic push via physical parcel hubs (smaller business and transport
centres).
Australia Posts technology strategy for 2002 and 2003 was to ensure the best
possible outcome for Post to deliver:
142
Hassall and Welsh
cost reductions;
improved value of IT investments.
improved time-to-market;
creation of competitive advantage using technology;
greater secure, reliable, and flexible connectivity between Post and its
customers and partners; and
Australia Post established the use of corProcures technology (July 2002) as the
preferred e-procurement gateway for its own entire business. Purchasing
arrangements were restructured so that goods and services could be purchased
by corProcure and used by Australia Post. Australia Post at the time was seeking
to increase the volume of online procurement transactions while also increasing
the use of corProcures services. Australia Post proposed to affect this by
including a preference for its contracts with suppliers to use the Australia Post
e-procurement gateway.
It was also worth noting that 50% of Deutsche Posts e-cista electronic
marketplace was eventually sold in 2003. This was the reverse of what had
historically happened to corProcure.
corProcures New Evolution in 2004:

A Buyers Hub Becomes an
Open Marketplace
In early 2004, the corProcure Board approved a new e-business model for
corProcure. Considering the insignificant commissions being received since the
2002 buyout (see Figure 3), there was possibly no choice. Against the initial
forecasts, corProcure was not channelling billions of dollars in spending, but less
than $100 million through the hub. Commission was less than 1% of this amount.
Any new direction must revolve around the development of a much more
widespread, even global, e-marketplace, and not a tight-knit buyers club with a
purely domestic focus.
This change in strategy mirrored, quite coincidentally, the international ebusiness postal research that been posted on the Universal Postal Unions Web
site in that very same month. (Hassall, 2003). The potential reach of a reborn
corProcure could and should, realise a totally new revenue and commission
stream, which is forecast to be 10 to 20 times greater than it had seen in its
previous incarnation.
143
corProcure dot-com was now to focus on attracting active trading Internet

users in over 40 countries to its newly focused global trading platform. New ebooth holders would pay a minimal subscription cost and minimal transaction
fees. The only future hope for any e-market in Australia is to become part of a
global market network. The days of just dealing with a handful of buyers was now
over. Staying domestic would have seen the business wind up by the middle of
2004. This international focus is a must for Australian e-business. It is an all too
salient fact that all Australian Internet businesses should heed.
The Two E-Market Growth Strategies

Strategy 1: The International SME Market
Australia represents less than 0.3% of the populations of the European Union and
the USA combined. Australias online businesses similarly represent about 0.4%
of the active businesses trading on the Internet, from the top 44 trading
countries.
In moving corProcure from being a small, domestic, buyers hub, to an international marketplace with global sellers reaching global buyers, corProcures
connectivity would be arguably augmented enormously.
Table 5 reflects an estimate of the SME businesses target that corProcure could
globally attack. These are SMEs that were trading online on a regular basis at
the beginning of 2004. Table 5 reflects the target of just 0.01% of these
businesses (one in every 10,000) in a phased manner, over the next three years,
that is, attracting some 13,700 businesses as e-booth customers to the marketplace.
Figure 3. corProcure revenue and commission 2002 to 2004
0 .4
40
0 .2
20
0
0
2 0 0 2 /0 3
($m)
0 .6
60
Market
0 .8
Commission
100
80
($m)
Market Spend
C o rP ro c u r e M a rk e t S p e n d v s C o m m is s io n
20 03/04
Y e ars as co rP roc u re
M a rke t C o m m is s i o n
M a rke t S pe nd (es t)
Source: corProcure personal communication, 2004
144
Hassall and Welsh
Table 5. Estimated potential SME target spends via corProcure (top 44

countries)
Europe
North America South America
42.07
55.37
million
million
Estimated fees and commissions
5.68
million
Oceania
Asia
Other
0.67
million
32.09
million
1.41
million
Total
$137.3 million
AUS Spend
$4.5 million AUS
Source: Centre for Freight & Logistics estimates 2004: Top 44 countries
The assumptions for all these businesses:
They are SMEs, which is a highly conservative assumption.
Using a market subscription fee of $200 Australian and a transaction fee

of just 1.25%.
Have a maximum trading revenue of $A200.000, which is again a highly

conservative assumption, and whose Internet revenue is only 10% of this
amount.
Thus, the corProcure marketplace could generate a commission of about $4.5

million dollars Australian per annum.
When compared to the current domestic spending through the market of around
$70 million, the expanded spending of some $137 million is a considerable boost.
Subscriptions as well as transaction fees would considerably lift the under $1
million commission received since the 2002 Post buyout of the cartel.
It should be noted that the expected Australian domestic contribution to the
commission stream is less than 8% of the forecast total marketplace commission.
Table 6. Estimated potential ME target spends via corProcure (survey only)

Domestic Trade
International Trade
$1.66 billion AUS

$416 million AUS
Spend
Spend
$20.8 million commission $5.2 million Commission
Total
$2.08 billion AUS Spend
$26 million Commission
Source: corProcure personal communication, 2004 (forecast)
145
This would indicate that keeping corProcure as a domestic entity would be to

cripple its potential. The future market focus must essentially be global.
Strategy 2: Domestic Advertising to the Medium

Enterprises
The second strategy was a purely domestic strategy. It targeted 1,000 medium
enterprises with revenue each between $20 million AUS and $50 million AUS,
and staffs between 100 to 300 employees.
The feedback from the 2004 telephone call centre survey suggested that a
staggering 59.5% of all respondents were interested in trading both domestically
and internationally on the marketplace. This result was some 30% points higher
than expressions of interest in traditional variations to new postal products. On
the domestic front, this finding reversed the notion that only major B2B corporate
enterprises would be the major marketplace users.
In essence, the potential revenue and associated commissions from the marketplace (Table 6) will be in the order of five-to-one, skewed to the medium
enterprise clients versus the SME target. The first trading year will confirm these
figures. However, what is certain is that there is a very realisable role for both
the global small and medium enterprise player and the domestic and international
medium enterprise clients to be represented in this marketplace. Both client
bases will help in delivering a successful outcome for the marketplace itself.
Such forecasts will be fascinating to follow.
Conclusion
The corProcure story is an interesting case study which also reflects much of the
associated fashion of the time. As the initial large corporations buyers group,
which was begun in 2000, collapsed and was sold off in 2002 to a Postal
Authority, a significant reengineering of the e-business concept then began. This
initial reliance on the throughput of the large corporate customers failed, and the
second strategic rethink was effectively forced in 2003. However, it was not until
the middle of 2004 that the global open marketplace strategy was adopted, and
it is the very nature of this non-postal product offering that is beginning to be
successful. Even though an e-marketplace is a non-traditional Postal product the
2003 e-Postal research undertaken for the Universal Postal Union (UPU)
suggested that from a strategic direction an e-marketplace was a very strong
offering for all Postal Authorities.
146
Hassall and Welsh
The evolution of corprocure.com has been a learning curve for not only those
involved, the initial owners, and the new owner Australia Post, but also for all the
interested e-business observers. The initial buying cartel failed. This was largely
due to the fact that the all large corporate members did not have a collaborate
culture in participating in what was a totally new e-business venture. Collaborative strategic intent for joint corporate ventures is still to be fully realised in
much of the e-business world.
The Australian experience somewhat bears this out, but it seems that not all
business models will work. Certainly the ME and SME markets are expected to
be the stable bread and butter for the marketplace, although some very large
corporations may well take up an e-booth or even a bounded hub for their own
clients within which to trade.
Certainly, the new direction of the e-marketplace has been encouraging. The
next step is to trade off the profile of the corprocure.com reach globally and to
connect several thousand international MEs and SMEs. This strategy is being
pursued. Commentators could possibly criticise that the international market
should have been placed ahead of the local domestic market, which is very small
when measured against the full reach of a global e-market. To revisit the 2004
strategy in two years will be even more instructive to review the expectations of
the corProcure e-marketplace forecasts against actual revenue and retained
commissions.
Acknowledgments
We would like to express sincere thanks to the Australian Postal Corporations
e-business division, corProcure, for making this case study available. This
included access to key staff, consultancy reports, financial data, forecasts,
future international strategies, and to selected clients.
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editions. Australia Post, Melbourne.
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Australia Post Project (2000). External network connection assessment

(unpublished). Australia Post, Melbourne.
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Hassall, K. (2001). Trends and hindrances in e-logistics: An Australian Perspective. Proceedings of the OECD conference on e-Transport, Paris.
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egg or an ostrich Egg? Universal Postal Union (United Nations), Postal
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upu_information_society/the_e-logistics_challenge_for_t he_post_
office_a_phoenix_egg_or_an_ostrich_egg_en.pdf
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strategic management. Australia: Prentice Hall.
Kalakota, R., & Robinson, M. (2000). e-Business roadmap for success. MA:
Addison Wesley Longman.
Morphy, E. (2001, September 24). Easy payments crucial for B2B success. ECommerce Times, p 4.
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of play. Department of Communication, Information Technology and the
Arts, Canberra.
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communication technology on urban logistics systems. Proceedings of the
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online at www1.oecd.org/cem/online/ecom01/Nemoto.pdf
Ohlson, K. (2001). IBM sets sights on securing B-to-B Web payments, 26,
Framingham, U.S.
PriceWaterhouse Coopers (2001). Procurement trends and implications.
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Internet age Case studies in postal reform, UPU Bern and World Bank
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148 Zhao
Chapter VIII
Sensis.Com.Au:
An Uprising Star of
E-Innovation and
E-Entrepreneurship
Fang Zhao
Abstract
Sensis Search, a young entrepreneurial dot-com launched in 2004, is the
first mover in redefining the Australian search market and creates a new
paradigm for Internet searches that delivers relevant, quality local, and
global results. This chapter focuses on exploring the experiences of Sensis
Search and identifying key issues of its operation. Data for this qualitative
case study was collected mainly from two primary sources: (i) a documentary
research into Sensis business reports, online newsletters, memos, agendas,
and other official publications, and (ii) an in-depth interview with a senior
manager of sensis.com.au. The case study illustrates how Sensis has been
managed, how it has succeeded, and what lessons can be learned from its
experience.
Sensis.Com.Au: An Uprising Star of E-Innovation and E-Entrepreneurship
149
Introduction
In 2002, Sensis Pty Ltd was launched as a new corporate brand and company
name to replace the Pacific Access Pty Ltd, a wholly-owned subsidiary of
Telstra Corporation, Australias largest telecommunication company. According to the CEO of Sensis, the name of the company Sensis reflects the essence
of todays business keeping people in touch through appealing to the key
human senses of sight, sound, and touch, using different media print, voice,
online, and wireless (Sensis, 2002). To strengthen the strategic position of Sensis
in online advertising business, the company acquired CitySearch Online and
BMC Media Ad Sales, adding new lines of advertising business to Sensis. After
two years operation driven by an aggressive growth strategy, Sensis has
developed into one of Australias leading advertising and search companies,
offering a suite of print, online, voice, and wireless products designed to bring
buyers and sellers together any time, anywhere. Sensis Pty Ltd has a team of
over 3,100 employees, among whom 2,300 are directly employed by Sensis and
800 by its wholly-owned subsidiary the Trading Post Group of companies.
Sensis products and solutions include:
Sensis Search (www.sensis.com.au) an Internet search engine that

utilises some of the most comprehensive and up-to-date product and
service listings in Australia, with a much greater emphasis on local and
national businesses. The Web site was launched in July 2004 and used by
59% of Australians with more than 5 million visitors every month, according
to a recent Neilsen/NetRatings (Sensis, 2004a).
Yellow Pages with more than 14 million copies in circulation, the

Yellow Pages print directories are found in virtually every home and
business in Australia.
White Pages print and online business directories.
Whereis Whereis products and services are the location (digital

mapping) and navigation brand of Sensis Search.
Sensis1234 With sensis1234, callers can find a business (and residential listings) through a single number, whether they know the business name
or not.
MediaSmart Provides consulting services on the best sites and

advertising formats to reach your target market.
City Search Australias leading online culture and lifestyle guide,

offers tailored Internet solutions.
150 Zhao
Trading Post a print and online private and classified advertisements

directory for goods and services.
JustListed.com.au a new commercial and residential online real estate

portal currently based in Sydney, where its inventory includes over 42,000
rental and sale properties and 1,670 real estate agents. Due to the very
successful performance of the portal, Sensis plans to develop it into a
national, online real estate portal.
As shown, Sensis Search (sensis.com.au) is a key component of Sensis multiple

dimensions of business and plays a central hub role in the interfaces between
online and print searches of information. This chapter focuses on exploring the
experiences of sensis.com.au and identifying key issues of its operation. Data for
this qualitative case study was collected mainly from two primary sources: (i) a
documentary research into Sensis business reports, online newsletters, memos,
agendas, and other official publications, and (ii) an in-depth interview with a
senior manager of sensis.com.au. The case study focuses on how Sensis has
been managed, how it has succeeded, and what lessons can be learned from its
experience.
Sensis Search: Creating a

New Paradigm for Internet
Search in Australia
Sensis Pty Ltd launched its search engine Sensis Search (sensis.com.au) in July
2004, which constitutes all the online/electronic portfolio of Sensis Pty Ltd
including
www.whitepa ges. com.au,
www.yellowpa ges. com.au,
www.whereis.com, and www.CitySearch.com.au (Sensis, 2004c). By doing so,
Sensis Search is able to provide Australians with fully blended search results
across local proprietary and global Internet content. For example, Australians
can use sensis.com.au to find a local florist anywhere in Australia and also to
locate and purchase a pair of shoes in New York. The search engine provides
local, commercial, and global searches from which customers can get blended
results from local Yellow Pages, White Pages, CitySearch, and Whereis
data, combined with global Web content. Sensis Search is the first mover in
redefining the Australian search market and creates a new paradigm for Internet
searching that delivers relevant, quality local and global results. Sensis Search
represents a world first among search engines as it integrates Internet Web
page content and structured content (e.g., the Yellow Pages directory) into a
151
one-stop shop for searches, unlike other search engines such as Google, where
these services are available but under different URLs. As such, searches can be
performed locally, nationally, globally, and throughout the Sensis sites. The
strategy to develop synergies among Sensis businesses contributes to the
success of Sensis and Sensis Search. The focus on and pursuit of Sensis Search
for relevant, local, and quality return results herald the maturity of online search
services. The success of the online search is no longer measured by the volume
or the size of the Internet index but by the extent of meeting specific users
search needs. Moreover, Sensis Search provides Australian users with very
easy access to commercial content through Internet access. Commercial
content is classified under nine categories: products, services, people, places,
events, jobs, cars, houses, and consumer classifieds, which might include
searches of Sensis directories such as the Trading Post.
Due to the initial success of Sensis Search in managing to provide the most
innovative and comprehensive online search engine in Australia, Sensis management decided to expand the business further. In December 2004, Sensis acquired
one of Australias most successful mapping and street directory businesses,
Universal Publishers Pty Ltd. The acquisition has significantly strengthened the
market share and position of Sensis Search which now boasts the largest and
most up-to-date database of navigable mapping content in Australia. Unlike its
competitors, as one line of its business, Sensis Search provides nearly 100%
geographic coverage of Australia and its contents covers everything from urban
streets, to points of interest, four-wheel drive tracks in the remote outback, and
smaller roads youd never see on a normal map according to the CEO of Sensis
Pty Ltd (Sensis, 2004a, p. 1). This aggressive growth strategy of Sensis through
acquisition aims to accommodate the increasing demand of Australias local
consumers for localised advertising and map-based search to find local businesses, products, and services. Sensis Searchs digital mapping business now
serves more than 18 million digital maps online every month through its
Whereis brand on the www.sensis.com.au site (Sensis, 2004a).
To survive and succeed in todays fierce competition in the search engine
industry, Sensis Search pursues two complementary lines of businesses online
advertising and online search. The market share of Sensis Search online
advertising has now exceeded 23% of online advertising in Australia, and,
meanwhile, it has seized approximately 70% of the combined search and
directories market in Australia (Sensis, 2004b). According to the Online Advertising Expenditure Report issued by the Audit Bureau of Verification Services,
the revenues from online advertising grew by 58% to AU$300 million in the 2003/
2004 financial year in Australia. The stellar growth in online advertising is both
an opportunity and a challenge to Sensis Search. The company develops its
corporate strategy and direction focusing on local online search within Australia,
thus becoming the major player in local Australias search through providing
152 Zhao
relevant and complete localised business information. The success in providing

relevant and quality search results to meet specific user searches helps boost the
online advertising business of Sensis Search as well as the entire business of
Sensis Pty Ltd.
Sensis Search, the online/electronic portfolio of Sensis Pty Ltd, recorded a
40.7% growth for the year 2004 and 34% online usage growth for the same year
(Sensis, 2004b), while Sensis print business only grew by 5.6% compared with
the previous financial year (Sensis, 2004d).
Key Lessons Learned

Sensis Searchs experience presents several fundamental management lessons
for the business operations and development of todays dot-coms and ebusinesses. This section examines and explores these lessons.
First, the success of Sensis Search is one of combined innovation and
entrepreneurship in the e-business world (thus called e-innovation and eentrepreneurship). Todays e-business operates in a highly competitive marketplace where sustainable competitive advantage is almost impossible as there are
minimal barriers to new entrants and competitors in the marketplace. Innovation
faces constant challenges of imitation and erosion. There have been different
views in the literature about the benefits of first movers in the e-business
marketplace. Mellahi and Johnson (2000) asked the question Does it pay to be
first to market or should e-commerce firms wait for first movers to make an
investment and then cannibalize the idea with lower entry cost? The cause of
the concerns are raised by a general belief that it is safer and less expensive to
imitate the first mover in the e-business environment, where there is a higher
level of technical uncertainties and rapid rate of technological innovation. For
instance, many new dot-coms rushed to build an e-marketplace and chose
imitation as a business strategy rather than innovation. This author argues that
it is the lack of a combination of innovation and entrepreneurship capacity that
has caused the demise of many imitators in the dot-com industry. The essence
of innovation and entrepreneurship is taking a new idea to market, not imitating
a new idea without taking into account the special needs of local markets, and
being innovatively and proactively responsive to environmental changes by
introducing a new product, process, service, or implementing a distinctive
business model. Sense Searchs success has clearly been contributed by the first
mover advantage (being the first company in the world that took its directory
products online).
153
Both empirical and theoretical studies show that innovation interacts with
entrepreneurship to achieve business success (Zhao, 2005; Kanungo, 1999;
Drucker, 1994). The key elements of entrepreneurship include risk-taking,
proactivity, and innovation (Miller, 1983). However, Slevin and Covin (1990, p.
43) have argued that the three elements are not sufficient to ensure organisational
success. They maintained that a successful firm not only engages in entrepreneurial managerial behaviour, but also has the appropriate culture and organisational
structure to support such behaviour. Thus, there is clearly overlapping and
interdependence between entrepreneurship and innovation. Both are needed for
firms to be successful and sustainable. Furthermore, entrepreneurship is related
to the development of new products and services. Innovation is sometimes not
necessarily related to new products but concerns doing something differently and
better. While entrepreneurship is related to working with new products and
services, it is not necessarily about doing things better. Innovation, however, is
about doing something better by doing it differently. As such, entrepreneurship
carries extra financial and risk issues because of the newness of the venture.
According to the experience of the companys senior manager interviewed for
the study, there are no conceptual and/or practical differences in terms of online
and off-line entrepreneurship and innovation. The approach is the same, regardless of the online or off-line environment, although the skill set required is
obviously different. The company believes that entrepreneurship and innovation
are crucial to their success and innovation should be inculcated into the
organisational culture and is developed internally. It includes encouraging staff
to interact with customers and undertake research and development. Sensis
Search is not only an entrepreneurial company in terms of its aggressive growth
strategy but also a pioneer of innovation. Sensis has claimed to be the first
company in the world that took its directory products online. Sensis Search has
identified seven factors which it believes drive innovation and which it has
subsequently applied to all new product areas:
1.
Clear vision communicated throughout the company
2.
Development of a culture of innovation through rewarding people and

taking calculated risks
3.
An organic organisational structure rather than having a central group

of IT managers, producers, and product managers, each product unit
employs their own staff with their own responsibilities and P&L statements
4.
Job role clarity
5.
Accountability and responsibility
6.
Clear key performance indicators (KPIs)
154 Zhao
7.
Sufficient funding, realistic revenue expectations, and people positively

motivated
The entrepreneurship strategy that Sensis Pty has taken is actually that of an
intrapreneurship, that is, entrepreneurship within an organization. Sensis
story indicates that development of entrepreneurship and innovation should be
dependent on the size of the company. For instance, the Sensis group includes
large, established companies such as Yellow Pages, and the much younger and
relatively smaller Sensis Search. Yellow Pages is built on an established,
traditional business model, while the Sensis Search approach is entirely different.
As such, there is a need to separate the companies and to allow new business
units within the group to quarantine space, where they can grow (within set
time frames), using different people with different rewards, finances, and so
forth, rather than trying to fit in with the old models.
Second, Sensis Search can be viewed as a successful start-up of a new
generation of dot-coms which are more mature in terms of business models and
information technologies, focusing more on justification and accountability of
business processes and outcomes than on a can do mentality only. The post2000 e-business successes generally tended to be those that were first to market
and which were sufficiently funded to weather the crash. These companies also
managed to maintain their people and stay sufficiently focused on their core
strategies, rather than diversifying too greatly. Therefore, they have distinctive
features from their counterparts in the earlier days of e-commerce. In hindsight,
e-commerce failures tended to be the Me2 brands (see Endnote), which were
merely copying existing, successful e-commerce models under the premise of
build it and customers will come, wholly failing to recognise the power of
established branding.
Sensis Search is Australian-based but competes against global giants such as
Microsoft, Yahoo, and Google. As such, they have identified two ways by which
they can be competitive. The first is by providing a higher amount of business and
commercial content, and the second is by having good relationships with global
partners in order to deliver their solutions in the most efficient and cost-effective
manner. For instance, Sensis Search has partnered with Fast, a Norwegian
company specialising in algorithmic search technology which powers the Sensis
Search engine. It has continued to achieve strong growth and to develop leading
edge online search solutions for Australians. It offers its advertisers the
opportunity to put their companies existing print content online at little or no
additional cost. For example, businesses do not need to have a Web site to be
found on sensis.com.au but simply be listed on the Sensis Yellow Pages online
site.
155
Third, successful dot-coms require sufficient funds and people skills, as well as
adherence to the seven-step innovation model. Sensis Pty has made significant
investment in developing its online/electronic dimension of its business as a longterm corporate strategy. Generally speaking, there appears to be a shortfall in
people with specific expertise in e-commerce in Australia. This may be because
international demand is high and it takes time for the right skills to be taught in
universities. The shortage in human resources and skills remains a significant
barrier to online entrepreneurship and innovation in Australia. Sensis believes
that retention of staff is a very significant driver of innovation, and as such, they
have developed reward systems which will commit their people to the company
and offer them recognition, training, and opportunities. The ompany also has
developed relationships with universities and regularly engages speakers to
address staff.
Other lessons learned from Sensis Search are also fundamental. According to
the Sensis CEO, the key factors contributing to the companys success are
Sensiss continued focus and commitment to its people and customers. Survey
data showed that its customer satisfaction improved 10% in 2004 and its
employee satisfaction has continued to rate up to 10% higher than the Australian
average with regards to key satisfaction measures (Sensis, 2004d). In addition,
there is a need to be realistic (particularly if the company is competing against
established players), and to identify what differentiates the company from its
competitors and the sustainability of that differentiation. Further, companies also
should have firm milestones, which can be derived from a user point of view,
customers, brand recognition, or advertising, with which to gauge the progress
of their investment. Finally, a calculated risk assessment is crucial to an online
business. Companies should know when to let go or substantially change their
model or sell it to others in order to go to the next level.
Conclusion and Future Research

The overall improvement of economic conditions worldwide in 2003 and 2004
and the recovery of investors confidence in high-tech and e-business industries
have refueled the growth of e-businesses. Indeed, the public interest in Googles
IPO launch in August 2004 is an indicator of the recovery. After two days
trading, Googles share price jumped 27% and the companys value (around
$US29 billion) equaled that of the Ford Motor Company (Wood, 2004). According to the projection made by Forrester Research, online sales will grow at a yearover-year pace of 19% to US$225.9 billion in 2008 in the United States. Further,
the number of online shoppers also will increase significantly, and nearly 5 million
156 Zhao
new United States households will shop online every year (TechWeb News,
August 5, 2003). The mega economic environment entails a positive and
promising future for e-business, although there are many challenges and hurdles
that need to be surmounted. There is clear evidence as provided by companies
like Google, Yahoo, and Amazon.com as well as the case company of this study
that e-innovation is alive and well. Consumer behaviour has changed, and people
are more likely to accept new Internet technology than five years ago. Eentrepreneurship and e-innovation will help an e-business get to the stage
where they are profitable and sustainable.
However, dot-coms also are facing greater challenges than ever. First, dot-com
industries need to achieve sustainability, due to a more uncertain economic
environment and the increasing complexities of new technologies and a more
globalized economy. Second, the business success and fast expansion of
Amazon.com, Dell, travel.com, and the like through e-business partnerships
reinforce the value of strategic alliances. Corporate e-partnerships will be a
crucial factor and play a key role in the future development of e-business
activities. In the frenetically changing competitive landscape of todays business
world, few organizations can rely only on their internal strengths to gain a
competitive advantage in national and/or international markets. Continued
expansion to global markets will push more international dot-coms to form
strategic alliances in e-business. Yahoo, Google, e-Bay, and E*trade provide
good examples of global expansion using alliances with local e-businesses
worldwide for smaller players who will follow the trend to go global. Finally, the
key principles of total quality management (TQM) will be the fundamental
cornerstone to e-business success, which include customer focus, and continuous improvement and measurement to achieve customer satisfaction. The failure
of many e-businesses and the dot-com crash have on the whole been caused by
poor quality customer services and support, problems with Web site security and
technologies, and weaker change management (Janenko, 2003).
Future research could focus on:
the complex, dynamic, and sophisticated structures under which e-business

can operate,
identification of the e-business networks and relationships that are most

likely to succeed, and how they succeed,
the specific nature and characteristics of the operations of dot-coms in

different industry sectors and in different country settings,
the impact of specific e-business technological innovations on specific

functional areas of e-businesses, and
157
the effectiveness of the current technological trend of one size fits all ebusiness solutions built on industry best practices for e-business.
References
Janenko, P.M. (2003). E-business: The illusion of automated success. The TQM
Magazine, 15(3), 180-186.
Kanungo, R.N. (Ed.). (1999). Entrepreneurship and innovation: Models for
development. London: Sage Publications.
Mellahi, K., & Johnson, M. (2000). Does it pay to be a first mover in ecommerce? The case of Amazon.com. Management Decision, 38(7),
445-452.
Sensis. (2002). Pacific Access launches new corporate brand Sensis.
Sensis. (2004a). Sensis acquires leading directory mapping business, Universal Publishers. Growth in digital mapping drives merger.
Sensis. (2004b). Online advertising growth no surprise to Sensis.
Sensis. (2004c). Sensis.com.au redefines Australian search market.
Sensis. (2004d). Sensis exceeds FY 04 targets: Strong core business growth
maintained, reinforced by continuing diversification of the Sensis
business.
Slevin, D.P., & Covin, J.G. (1990). Juggling entrepreneurial style and organizational structure how to get your act together. Sloan Management
Review, Winter Issue, 43-53.
Steinberg, A. (2003). The re-definition of expert knowledge in e-entrepreneurship: A study on the sense-making of success and decisionmaking amongst e-entrepreneurs in the wake of the dotcom crash.
London: London School of Economics.
TechWeb News (2003). Steady growth projected for online retail. Information
Week, August 5.
Wood, D.B. (2004, August 23). Googles debut in the stock markets sends a
mixed signal; a weaker-than-expected pre-market auction, followed by two
brisk days of trading, tells a tale of tech IPO market. Christian Science
Monitor, p 2.
158 Zhao
Zhao, F. (2005). Exploring the synergy between entrepreneurship and innovation. International Journal of Entrepreneurial Behaviour & Research,
11(1), 25-41.
Endnote
Me2 brand: The term Me2 brands refers to merely copying existing,
successful e-commerce models under the premise of build it and customers will come, wholly failing to recognize the power of established
branding.
Using E- and M-Business Components in Business
159
Chapter IX
Using E- and M-Business

Components in Business:
Approaches, Cases,
and Rules of Thumb
Mikael Collan
bo Akademi University, Finland
Anna Sell
Ville Harkke
Bill Anckar
Omena Hotellit Oy / IAMSR, Finland
Abstract
This chapter discusses using e- and m-business components in supporting
and enhancing existing businesses and in creating new business innovations.
A framework illustrating two different approaches companies have to
adoption of e- and m-business components is proposed. Three cases of how
Finnish companies have, in an innovative way, used e- and m-business
components to support, enhance, and launch businesses are presented.
Based on the illustrative framework and the cases, some rules of thumb for
using e- and m-business components in business are proposed. The aim of
160
Collan, Sell, Harkke, and Anckar
this chapter is to offer managers helpful insights for planning e- and mbusiness component investments.
Introduction
It is quite clear that electronic (e) and mobile (m) commerce are here to stay
and that they give established companies a set of new alternatives to conduct
their businesses and opportunities for starting new companies. In general, we
can characterise e- and m-commerce as the different ways of supporting and
conducting business over the Internet (e) and/or with mobile devices (m).
Examples of e-commerce can be a store operating exclusively on the World
Wide Web (e.g., Amazon.com) or a company offering only very limited services
through the Internet (e.g., e-mail-based reservations). m-commerce can be
understood in equally diverse ways, indeed there may be a number of different
definitions for e- and m-commerce which are all correct. Due to the possibility
of very diverse views in understanding what e-commerce and m-commerce are,
in this chapter, we refer to the application of e- and m-commerce techniques to
business as using e- and m-business components.
There are, and have been, many misperceptions as to what e- and m-commerce
are, about what they are not, and especially about how and how much they
generate value. These misperceptions have led to a number of spectacular
failures, such as those of the online grocer Webvan and the Internet clothing
retailer Boo.com, which for their part have made many managers feel suspicion
toward applying e- and m-business components in their companies.
The aim of this chapter is to support managers in understanding what kind of eand m-business components would possibly suit their companies. A key issue in
assessing the suitability of e- and m-business components for a company is
understanding the orientation that the company has in its approach to e- and mbusiness components (i.e., is the company a technology- or a business-orientated
e- and m-business component adopter?). Observing the different orientations of
approaches of different companies to adopting e- and m-business components
helps managers to better understand the orientation of their own company and
may significantly reduce the risk of misinterpreting the e- and m-business
component investment needs of the organisation.
It cannot be argued that e- or m-commerce would be almighty forces that
guarantee success. Indeed, if such statements are made, they are undoubtedly
wrong. However, there are a number of positive experiences from successfully
using e- and m-business components to enhance and to revitalise existing
businesses, such as the British grocer Tesco, whose online endeavour Tesco.com
161
is profitable. Another example is the e-commerce early adopter Lands End.

There also have also been successful starts of new businesses, such as that of
the profitable online community Classmates.com.
The successful applications of e- and m-business components are often the
result of insightful innovations, more specifically, insightful innovations within the
core business (idea) of the company. A business innovation can be to replace an
old way of doing business with a new way, or by introducing a business idea that
has never been tested before. In many successful e- and m-commerce cases, the
success has often come from the insightful application of existing technology that
a company has used to support, enhance, or extend its core business (Coltman,
Devinney, Latukefu, & Midgley, 2001).
There is a wide amount of literature about how companies should use their
competencies to gain competitive advantages and how they should go about
updating their operations and ways of doing business in the changing world. Core
competence thinking, usually attributed to Prahalad and Hamel (1990) is one way
of characterising how companies can build competive advantage through
consolidating skills and technologies within companies to core competence
areas. Such consolidation is reached through enhanced communication and
constructive managerial involvement in the areas, which have been identified as
the strengths of the company. The basis of the competitive advantage of a
company, according to the core competence thinking, can be the systematic
application of the things the company does best in everything the company does.
Creating competitive advantage through concentrating and developing core
competencies is one issue, while retaining the competitive advantage is another.
Companies need to change in order to keep up with the changes in their
environment, otherwise they are likely to lose their competitive advantage (i.e.,
ways of applying core competencies must change as the competitive environment changes). The efforts that companies make to change have been given
different names and concentrated on different issues within the organisation of
a company (e.g., TQM, reengineering, right sizing, restructuring, cultural
change, and turnaround). Despite the different approaches, the basic goal has
been the same to make fundamental changes into how business is conducted
to cope with the changing environment (Kotter, 1995).
We can view e- and m-business components as tools that can be used to
transform the business processes to retain competitive advantage, or as the core
competence area of a company. In fact, we can view e- and m-business
components as any other core competence or tool of business transformation.
For the companies that base their business idea on e- and m-business components, they are parts of the core competence areas, while for other,s they are
tools to retain competitive advantage.
162
Companies with an existing core business that decide to analyse enhancing their
operations with e- and m-business components should keep their eye on the ball,
that is, on their core business, and not get carried away (Ross, Vitale, & Weill,
2001). We want to point out that creating core competencies out of e- and mbusiness components is as difficult as creating any core competencies, hence,
very difficult.
If companies utilise e- and m-business components to transform their core
business(es), it is very important to critically analyse if the revenue logic of the
business changes. If the revenue logic remains unchanged, then it is to be
expected that also the valuation principles of the business most likely remain
unchanged. In other words, there is no reason to draw the conclusion that e- and
m-business components will miraculously increase the profitability of the company. Indeed, overstatements of the value of e- and m-component-based
companies and investments have been common enough (Glasner, 1999; Kanter,
2001).
Value creation in e- and m-business is one of the most important issues in
deciding about e- and m-business component investments. Amit and Zott (2001)
discuss the sources of e-commerce value creation based on six different
theoretical frameworks and summarise that each of them suggests possible
sources of value creation. It has been argued in many occasions that e- and mbusiness offer the companies that utilise them enhanced potential for greater
earnings through the new possibilities they enable due to convenience, speed,
ease-of-use, cost- and labour savings, and enhanced communications (Lederer,
Mirchandani, Sims, 2001). By using e- and m-business components, companies
can increase the possibility of reaching higher earnings in the future. However,
using e- and m-business components does not necessarily mean that such higher
earnings are reached. This is why it is important to understand the effect of the
enhanced potential to the value of the business, the mistakes that have been
made, and when potential has been misrepresented as value (Fernandez, 2003).
There are some models available for measurement of potential, for example, the
real options approach is a collection of methods to understand, measure, and
value potential. The real option approach offers valuation rules that can be used
to assist in the analysis of the profitability of e- and m-business investments in
companies (e.g., Mehler-Bicher & Ahnefeld, 2002). Like with any other
methods, the correct use of the methods used in the real options approach is
important. All methods can be made to show desired results; at the end of the day,
it is in the interest of everyone to be realistic.
In the next section, we will propose a framework to illustrate the different
orientations that companies have in approaching e- and m-business component
investments. This is followed by a presentation of three cases from Finnish
companies that illustrate adoption of e- and m-components in business. Based on
163
the introduction, the proposed framework, and the cases, three rules of thumb for
successful application of e- and m-business components are proposed and
shortly discussed. The chapter closes with a summary and conclusion.
The Technology- and

Business-Oriented Approaches
To E- and M-Business
In the introduction, we argue that there are undoubtedly a number of different
definitions for e- and m-commerce and that business components or concepts
that are based on e- and m-technology e- and m-business components,
can be used in different ways. We point out that e- and m-business components
can be used to support existing core businesses by replacing old ways with new
e- and m- methods and for creating totally new core business areas. In both of
these ways, companies can retain their competitive advantage.
We feel that it is important to separate companies according to their orientation
to e- and m-business component investments and starting e- and m-business. Do
companies develop technology and utilise existing (or create new) business ideas
to commercialise the technology, or do they develop business ideas and utilise
existing (or create new) technology to commercialise the business ideas?
To discuss this interesting issue, we propose a framework that illustrates the two
different orientations of approaches. This framework is useful in understanding
the different approaches and in raising questions about the difference in risks and
possibilities that they entail to the success and profitability of e- and m-business
component investments.
Companies with core competence areas in technical research and development
of e- and m-business components often succeed in their e- and m-business by
researching and developing new technology to do new things or to do old things
in a more technically advanced (better) way. These companies mostly use the
technology-oriented approach to e- and m-business innovation (see Figure 1).
The technology-oriented approach is based on the notion that new technology
will create business, meaning, this technology will make us money if we can
figure out how to sell it. The companies that use the technology-oriented
approach to e- and m-business fund the development and commercialisation
of the majority of new e- and m-technology.
Companies with a core competence in other areas than R&D usually do their eand m-business by using the business-oriented approach (see Figure 2) and
164
Figure 1. Technology-oriented approach
utilise available or future e- and m-technology in their core business areas. Their
e- and m-business supports their core business areas, and often the decision to
adopt e- and m-business components is justified on cost savings or maintaining
competitive advantage.
The business-oriented approach is based on the notion that we need to have
a good business concept and revenue logic, then find the matching technology to
realise it. This includes finding cost savings for an existing business, and the basis
of the approach is: We could make money if we had this technology.
The separation of the technology- and business-oriented approaches may seem
to be trivial, because no matter which approach we have to achieve success, a
company needs to have both the right technology and the right revenue logic.
Indeed, it is intuitive, however, it is too often forgotten. Because it is easy to
understand the differences in the technology- and business- oriented approaches, it may become easier to understand and identify the potential for
failures of e- and m-business component implementations. Starting from understanding the core competence areas and their effect on the orientation and
approach of companies to e-and m-business innovations, it is easier to pinpoint
the risks that managerial myopia and misunderstandings connected to the
orientation may cause.
In the next section, we will present three business innovations based on e- and
m-components which are actual implementations from Finnish companies.
Finland is a country of 5 million inhabitants in Northern Europe, ranked by many
surveys and analysts as one of the countries with the highest penetration of the
Internet and mobile devices.
165
Figure 2. Business-oriented approach
Some E- and M-Business Cases

We explore three cases that present business innovations that use e- or mbusiness components to enhance existing core business of companies. A short
background of the companies and their business is given, then the innovation is
described, and the viability of the innovation discussed.
Case 1: Omenahotellit Hospitality Online1

In spite of the fact that many players in the travel industry have been forerunners
in the field of IT, the information systems and technologies used in the hospitality
sector have, as a rule, been constructed to support or extend but rarely to
radically alter or replace the existing, conventional business models. The
traditional services and functions continue to exist along with the new technological solutions, and the business models have tended to remain relatively unchanged after the implementation of new technologies and systems. Thus,
information and communication technologies (ICT) primarily have been
used to broaden the market share (by making the product available to more
people), to cut costs, and/or to enhance the efficiency of a particular business
process. However, we will continue to witness the emergence of many innovative and interesting business models even in the somewhat conservative
accommodation sector with the great advances in ICT, the progress in the
next generation of Web sites and services, and the increasingly positive attitudes
among consumers to embrace the Internet as an advanced commercial medium.
Omenahotellit (Omena2 Hotels), a new Finnish hotel chain, is a good example
of a company which fundamentally builds its operations on a new, innovative eCopyright 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written
166
business model. The company challenges the traditional service concept used by
most other players in the accommodation sector by fully exploiting the Internet
and other forms of ICT in its operations. Spurred by new insights as well as
innovative and successful attempts and methods to utilise IT and the
Internet in the travel sector (e.g., the paths shown by successful low-cost air
carriers), Omenahotellit has developed an IT-enabled business model previously
unseen even on a global scale in the accommodation sector.
The basic idea in the operational concept of Omenahotellit and the main promise
of the company is to offer travelers high-standard hotel accommodation at prime
locations (in city centers) at a truly affordable, fixed room rate. High class, yet
inexpensive, prices may seem like an impossible equation, but Omenahotellits
business model excels in cost-efficiency by offering the core product of hotel
operations a room for the night without expensive built-in auxiliary
services. Maximum occupancy per room is four persons. All rooms are similar
in terms of size, amenities, and interior design, and they certainly do not pale in
comparison with the typical 4-star hotel rooms offered by the main competitors
on the Finnish market as far as the room size and amenities are concerned.
The inexpensive room rate offered by Omenahotellit is largely a result of the
radical cost-cutting achieved by truly maximizing the use of IT and the Internet
in the reservations and payments, reception procedures, customer safety and
convenience, as well as management and maintenance tasks.
The entire booking/cancellation process is handled by the customer himself or
herself through the companys proprietary online reservation system at
www.omena.com. The customer makes a reservation, pays for it by using
secure online banking/credit card payment solutions, and receives a booking
confirmation which shows the room number and the key to the room a 5-digit
numerical personal door code which is valid throughout his or her stay. The
customer also can book and pay for extra services such as pay-TV services and
broadband Internet access when booking their room, or later through the in-room
TV. Companies and organizations that have signed a key customer agreement
with Omenahotellit do not have to pay for the reservation online, but can choose
to get an electronic invoice (which is automatically generated and sent by the
reservation system and entered in the ledger) instead. As a result, even the
traditional invoicing tasks have been fully automated.
All Omena hotels operate without a reception desk or reception personnel, as all
traditional reception tasks have been completely automated using IT. Since all
reservations have already been paid for and the room keys have been delivered
electronically in advance, there is no need for check-in or check-out procedures
such as handing over keys or charging the customer. The entrances are equipped
with Internet-connected electronic service points kiosks through which
walk-in customers can make reservations and pay with their credit cards.
167
Also, customer safety and convenience are highly IT-supported, without compromising security. All doors are always locked, and only guests with a valid door
code can enter the premises. The entrance and the hallways are monitored by
recording surveillance cameras, and the digital recordings can be accessed
remotely by the security personnel. In case of emergency/problem situations, the
guests can contact the security company through the in-room TV or by phoning
the help desk (on duty 24 hours). Through the TV system, the customers also can
get all the necessary hotel information and contact the service company for
maintenance or extra housekeeping and so forth.
Many time-consuming management and maintenance tasks, such as providing
key partners and government authorities with important data, have been almost
completely automated. The lists of rooms to be cleaned are automatically
generated and delivered to the housekeeping staff by e-mail every morning. The
hotel room textiles (e.g., bed linens, towels, etc.) are ordered from the laundry
service directly by the system based on the number of rooms booked and the total
number of occupants.
The business model of Omenahotellit also marks originality when observing the
companys organizational structure: Since the routine tasks have been arranged
according to self-service principles and automated using IT, the company is, to
a certain extent, managed by its customers and by computerized systems.
Omenahotellit has, in fact, only one employee the managing director. Instead,
the company draws on a rather extreme outsourcing strategy, relying on a large
network of partners to handle tasks such as: (i) project management relating to
opening new hotels (architects and engineers); (ii) IS (hosting, system monitoring, etc.); (iii) housekeeping (cleaning and maintenance); (iv) security; (v)
customer service; and (vi) marketing. The company has no office facilities but
is operated through laptop management using a virtual, largely paperless
office. The foundation stone in Omenahotellits strategy is the proprietary online
reservation and hotel administration system (launched in May 2003), which has
been tailor-made for Omenahotellits exceptional, automation-based business
model.
Omenahotellit has set up an ambitious expansion plan: The company wants to
operate almost 40 small units, a total of 2,000 rooms3 , in the 30 to 35 largest cities
in Finland by the year 2008. From 2006 onward, the company also will aim at an
international expansion, primarily into the neighboring countries.
The main driving factor in Omenahotellits chosen strategy was that a company
cannot exploit, in full, the many potential benefits of IT and e-commerce by using
new technologies just to support (or as an extension of) existing processes and
operations. Although many big players have been able to attain a dominant
position on both traditional and electronic markets (largely thanks to their
established reputation and sufficient financial resources), it can be argued that
168
such a phenomenon reflects the insecurity and lack of trust among online
customers in the early phases of e-commerce rather than superiority in terms of
online value creation. Optimizing the special advantages offered by IT and ecommerce requires, as a rule rather, pure e-business models and a lack of
restraints set by existing bricks-and-mortar operations. For Omenahotellit, this
meant focussing exclusively on the electronic sales channel, thus not offering
alternative sales channel such as call centers or sales offices not even
reception desks or personnel.
Value creation is a complex process which strongly relates to every aspect of a
companys operation and the choices it makes (i.e., what it sells and how its
products are marketed). The key value proposition of Omenahotellit primarily
relates to: (i) the provision of real-time information, instant gratification, and high
quality of content and applications online; (ii) simplicity of lodging (no check-in/
check-out procedures); (iii) and especially a fixed room rate and a very attractive
price/quality ratio. The low prices are the end result of numerous factors, the
most important of which are:
A full automation of many tasks with a resulting reduction in labor costs in

comparison to hotels using traditional business models.
Customer self-bookings: Following both intuitive logic and established

theory, Omenahotellit reasons that online self-bookers, which clearly cut
costs for suppliers in comparison to reservations handled by a sales
workforce, both can and should be rewarded in the form of lower rates.
Disintermediation4 : No middlemen are used in the booking process, meaning that no commissions have to be paid to intermediaries. The savings are
returned to the customers in the form of inexpensive prices.
At present, four Omena Hotels are in operation in Finland, but several new units
will be opened in the next two years, primarily by transforming existing office
spaces located in city centers into new, modern hotels.
Thus far, the marketing efforts of Omenahotellit have been limited, but more
massive advertising campaigns will be carried out as soon as the number of hotels
increases to 8 to 10 by middle 2006. In spite of that, the first year of operations
has showed promising figures, with room occupancy rates clearly exceeding the
expectations set for the initial period and passing the break-even margin at a
surprisingly early stage. The early adopters were primarily young people, groups,
and families who recognize the value of an inexpensive room which can
accommodate four persons, a fact which is confirmed by the extremely high
average number of guests per room (2.45). However, a significant increase in
the number of business travelers has taken place in the recent months, as more
and more companies learn about this new, interesting alternative.
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In this brief case study, we have presented Omenahotellit, a new Finnish hotel
chain which challenges the conventional service concept used by most other
players in the accommodation sector by drawing on a new, innovative e-business
model. In doing so, we have aimed at providing insights as to the opportunities
the Internet and IT can offer even in a sector which justly can be characterized
as conservative. In addition, we have highlighted a number of important issues
that are at the core of the customer value creation process in an online
environment, where new modes of competition emerge.
Case 2: The Helsinki City Transport Company mTicket

The Helsinki City Transport Company provides public transport services for the
Helsinki metropolitan area. The company operates buses, trams, subway lines,
and ferries to the islands outside the city centre. In 2003, the company sold 93.4
million bus, 56.8 million tram, 55.4 million subway, and 1.3 million ferry fares,
altogether 206.9 million fares.
For smoothly running public transportation, customers need easy and fast ways
for paying their fares. In 2001, the regular HKL customers usually paid with
travel cards, in the form of smart cards, but the customer group using the public
transportation less bought their tickets either from vending machines, service
counters, or the drivers of the various vehicles, causing extra work and slower
operation. Also in 2001, the company decided to develop a mobile ticketing
ser vice for its customers. T he system, developed by Plusdial Ltd
(www.plusdial.net), was first piloted in trams and the Metro (subway) and was
expanded to wider use in 2002.
The system is extremely simple to use for the customer. The user sends an SMS
containing the code a 641 to a service number and receives, within a minute,
a SMS- ticket, valid for one hour that can be shown to a ticket controller. The
ticket is billed in the customers telephone bill, just as any service line call or
similar.
The system benefits to an occasional user of public transportation are obvious:
It is easy to use and requires no cash or other means of payment, no ticket counter
or vending machine, no registration, and makes boarding public transports faster,
since there is no hassle with the ticket.
The system has proven to be a success: In 2003, 55% of the single-fare tram
tickets were purchased via SMS. In all of the HKLs transports, the percentage
of SMS-tickets was 9.4% of all single fare tickets, or around 130,000 tickets per
month.
From the service providers point of view, the system also has proven to be
beneficial: Easy ticketing increases ticket sales, freeing the drivers from selling
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tickets makes transportation faster, and costs for printing and distribution as well
as investments in vending machines decrease. The ease of use of the system has
even decreased the amount of passengers travelling without a valid ticket.
The basic technological innovation underlying the system is simple: building a
system that can distribute valid ticket code via SMS to the customers and through
mobile terminals to the controllers. The business model innovation is by far more
crucial: There are clear benefits for the users of the system compared with the
earlier ways of buying tickets. The core benefits of mobile electronic business
are encompassed by the system: It is used on the move, is simple to use, and
satisfies a need that can arise unexpectedly. The success of the system proves
that a well-designed mobile system, satisfying a true existing need of the
customers, will be used to its full potential.
Case 3: Finnair and BookIT Check-In with SMS

Airlines are globally struggling to reach profitability through cutting costs and
streamlining operations, while news of rising oil prices and airline bankruptcies
continue to flow in (Jonas, 2004). At the same time, providing value for
customers remains important. E-ticketing is one of the biggest trends in the
airline business, reaching almost 100% in the United States, while other countries
are following suit (Michels, 2004).
Check-in is another area where airlines have sought to restructure operations
through offering customers unmanned computerized check-in kiosks and online
check-in self-services. These alternatives are said to offer the customers
freedom and time savings, while cutting down on personnel costs for the airlines.
The situation in Finland is the same as elsewhere; Finnair Airlines is facing
increased competition from budget airlines and needs to provide its customers
with novel services in order to maintain its competitive edge.
In October 2004, the Finnish company BookIT Ltd launched, in cooperation with
Finnair Airlines, a service for participants in their frequent flyer program to
check in to their flights with their cell phones; a service that they claim to be
unique in the world. The service enables customers to move straight to the
boarding gate and bypass the check-in desk, thus saving the customers the
aggravation of standing in line and lightening the workload of check-in counter
personnel.
In contrast to e-check in, it gives the user the added freedom to use the service
wherever (e.g., in the taxi or in his or her hotel room) without needing to boot up
their laptop. The service can be used on all cell phone models and with any
operators subscriptions, without having to modify any settings or download
additional components. It is easy to use; BookIT CEO Jussi Salonen states The
service operates on a one-button principle it identifies the user automatically
171
without passwords or codes. Using the service is so simple that even operating
instructions are unnecessary. He also states that the guiding idea was that he
did not believe in the fast advent of broadband Internet for everyone, instead he
deemed it sensible to build applications for an existing technology, in the checkin case the short message service (SMS).
In addition to emphasizing the importance of utilising an existing infrastructure,
he underlines the necessity for know-how regarding commercialization of ideas.
Organizing an international supply chain, marketing, and customer support is a
bigger endeavor than technical details. Before starting any entrepreneurial
venture, the business logic must be in place. He brings up the example that there
is no sense in building an SMS-based service to a country where sending SMSs
is free of charge and the operator cannot charge for it.
While submitting this chapter, the service has only just launched, and it is too early
to give predictions of usage numbers, customer satisfaction, or the overall
success of the service. The logic of launching this service in a country where cell
phones are ubiquitous and SMS services widely used seems sound. The service
can very well claim its place alongside e-check-in and check-in kiosks, provided
that the service is as easy to use as promised. Widening the service to include,
for example, Finnairs partner airlines, might be feasible in most of Europe where
SMS usage is common.
Three Rules of Thumb

Next, we will propose three rules of thumb that may guide managers wanting to
explore why, when, and how to implement e- and/or m-business components in
their businesses, or to launch a new business based on e- and/or m-business
components. The rules of thumb presented are explained and analytically
commented and (we hope) will give managers easy to follow advice on some
basic issues on adopting e- and m-business components in businesses.
Rule 1: E- is Not Free

From the point of view of profitability, investing in e- and m-business components
is just like any other investment that managers make in their organisations, they
must be profitable. In other words, the investments are profitable only if the
proceeds from the investments pay for the investments and give an adequate
return on the invested capital. Investments in e- and m-business components
cannot be said to be categorically riskier than any other types of investments, risk
for each investment must be assessed separately.
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Valuation of e- and m-business component investments is to be made using

realistic estimates of future cash flows. Some common mistakes causing overly
optimistic cash flow estimates from e- and m-business components are caused
by erroneous expectations such as:
It is an error to expect that e- and m-business components are somehow

cheaper than other investments. It is a notorious fact that information
system investments that are a relatively close match have a bad track
record for when it comes to being able to stay in budget. It is enough to
observe the problems many companies are facing when implementing (e.g.,
SAP and other ERP systems).
It is an error not to calculate costs of changes that have to be made to other

existing ways of doing business for enabling e- and m-business components
to work. These costs have to be included in the total cost of e- and mbusiness component investments.
It is an error to think that the additional potential that is brought by e- and

m-business component investments will necessarily be realised. While the
case that all potential realised is the optimal case, how many times do things
play out in the best possible way? When valuing potential, one has to
understand the valuation methods, their possibilities, and especially their
limitations.
It is an error to expect that e- and m-business components bring profits, only

because they represent the latest in technology (Sarker & Wells, 2003).
This is something that we call the engineers approach and it does not
work. Latest technology is exciting, however, it does not guarantee
profitability. It is easy to point out a number of cases where superior
technology has not been the one adopted by markets, such as Beta vs. VHS
video standard and OS/2 vs. Microsoft Windows.
Correct expectations are based on pragmatic thinking and on a realistic view of

the world. Sometimes even a slightly pessimistic attitude toward the future may
be especially useful for new businesses struggling with limited resources. Many
small entrepreneurial businesses cannot wait long for the potential from e- and
m-business component investments to be realised, they need the cash fast.
Examples of cases where e- and m-component investments can deliver almost
immediately and hence the harvesting of the gains from the investment can be
started relatively fast are:
173
Situations where e- and m-business components can be used to replace more

expensive existing ways of doing business (see the Omena Hotellit case)
Situations where e- and m-business components can be used to enable a

way of doing business that is otherwise prohibitively expensive to the
company
Situations where e- and m-business components add value to the customer

in a way that it significantly supports the business value chain (see the
BookIT case and the HKL case)
Bottom line: e- is not free it pays to analyse profitability realistically show

me the money. This line of thinking is often more compatible with the businessoriented approach to e- and m-business component investments than with the
technology-oriented approach. Having analysed consumer potential, consumer
needs, markets, and business logic already at the beginning of the development
cycle lessens the risk of unrealistically high revenue expectations.
Rule 2: Right Time at the Right Place

You may have the best idea in the world, but it does not fly if you are not at the
right time in the right place. This oldie-and-goodie is especially true for e- and mbusiness components and means that if the innovation is not yet in the utilisation
phase, or a business concept innovation lacks existing technology, it is likely that
the revenues are further away. Managers must ask themselves:
Is their project technology-oriented or business-oriented?

If their project is technology-oriented, is there underlying, sound business
logic? For example, is there enough potential consumer interest in the
product or service to make adoption possible?
If their project is business-oriented, is the needed technology in place? For
example, does a sufficient percentage of the targeted consumer segment
own the necessary mobile device technology to use the service?
An illustrative example of this is how the highly hyped WAP services were not
able to take off, while the phones were not at the right level. In a Finnish survey
answered by 485 consumers in 2001, 86% of the respondents had a GSM mobile
phone, but only 7.6% had a WAP-enabled phone (Anckar & DIncau, 2002). At
the same time, WAP was being labelled a failure and companies were quickly
moving their efforts away from consumer-centred applications. A survey made
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three years later, in January 2004, showed that the adoption of advanced
handsets in Finland was still at a low level, below 5% for smart phones (Carlsson,
Hyvnen, Repo, & Walden, 2004).
A study conducted in 2001, asking mobile commerce companies what they
thought to be the largest barriers to mobile commerce, among other things,
reported that the companies thought the availability of mobile devices to be the
least of conceivable barriers (Carlsson & Walden, 2002). It seems that companies do not have sufficient knowledge of the environment they are operating in
(i.e., the actual market situation regarding the diffusion of the necessary
technologies to the consumer). The availability of suitable devices in shops does
not necessarily mean they have found their way to the hands of the consumers.
It can be argued that since a significant majority of consumers did not own a
suitable device in 2001, the possibilities for a large-scale WAP success were slim
to none at the time. The marketing of WAP services was essentially marketing
of a technology, not marketing of value-adding services, which also meant that
the average consumer could not see a reason to upgrade his or her device.
If the time is right but the place seems not to be, it makes sense to see if
the place can be constructed at an acceptable cost; For example, NTT
Docomo achieved this by heavily subsidizing easy-to-use i-Mode-enabled
replacement mobile phones, thus effectively constructing the right environment for i-Mode success (Digital 4Sight, 2001). They succeeded in bringing
interactive mobile services to the everyday life of millions of Japanese
consumers. This kind of strategic marketing is an example of a successful
business-oriented approach to m-business innovation done proactively.
If the place is right but the time is not, it makes sense to wait and see or to
licence out or sell the idea to someone else willing to wait or willing to be
proactive. For example, many governments in Europe sold their 3G
bandwidths to private companies with the desire to get in place 3G services
that they were not ready to invest in themselves.
Bottom-line: Right time at the right place means a higher probability of success.
Technology without business logic or business logic without technology does not
constitute the grounds for successful implementation of e- and m-business
components.
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Rule 3: Old Customers Learn New E- and M-Tricks

Sophisticated e- and m-business elements can be adopted by unsophisticated
customers, if they are made easy to use and if they offer substantial benefits to
the customer. Instead of nice-to-have services companies should aim at
offering must-have services (Jrvenp, Lang, Takeda, & Tuunainen, 2003).
Again, hot technology does not sell itself, it has to be marketed to the consumer
in the shape of value-adding services that are easy to use. Ease of use, important
in e-business conducted online, has been found to be even more essential in a
wireless m-business context (Venkatesh, Ramesh, & Massey, 2003).
When customers see a good concept, they become more interested and are likely
to adopt the technology. If the product or service that is based on an e- or mbusiness component is not complete in a way that it delivers the promised
functionality or value added, it is defective like any other malfunctioning product.
Independent of the approach (technology- or business- oriented), the product
must be finished before launch, or there may be irreparable damage done to the
possibilities to reach large-scale success. The minimum requirement for the fast
adoption of any new innovation that replaces an old one is that it works at least
as well as the old one. New e- and m-business component-based services can
replace existing old ways if they are so much better that they justify learning.
Customers must want to adopt; when there is a will, there is a way.
All the presented cases illustrate a clear added value to the customers: The
Omena Hotellit Internet booking system has lowered the room price and thus
made the product very interesting due to the direct cost reduction that has been
passed on to the consumer. The HKL mobile ticket and Finnair/Book-IT cases
illustrate a value added for the customer in the form of added convenience and
speed. In the HKL case, the product has already proven to be successful;
learning how to send a text message and receiving an m-ticket is more than fully
compensated by the fact that one no longer needs to carry spare change to be
able to travel by local traffic in Helsinki.
There is established literature on technology acceptance and adoption that
supports our third proposed rule of thumb.
Bottom-line: Look at the e- and m-business components with the eyes of the
customers. If the product justifies the cost of learning, then where there is a
will there is a way.
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Summary and Conclusion

This chapter discusses an interesting issue of companies using e- and m-business
components in their businesses. Some use them to support and enhance their
existing core businesses and some to create new core business areas, in either
way they are often perceived as providing a way to keep up with the competition
and to retain the competitive advantage of businesses.
A framework is proposed that presents the different orientations of approaches
that companies have to e- and m-business. The framework illustrates the fact
that different orientations perhaps also affect the factors important for the
success and profitability of e- and m-business component investments in
companies. This intuitive framework sheds light on an issue that has been in the
minds of many and also discussed in the philosophy of invention discussions,
however, not often used in the e- and m-business arenas.
Three cases from Finland are presented that show how different companies
having the business-oriented approach to e- and m-business investments have
utilised technology to support and enhance their core business ideas and, in the
case of Omena Hotellit, built a new core competence that relies on the use of an
e-business component, namely an e-booking system.
Three rules of thumb are proposed integrating the ideas in this chapter.
Profitability and realistic approach in valuing e- and m-business component
investments, the orientation to commercialisation of e- and m-business in
companies, and the importance of looking at the e- and m-business component
with the eyes of the customer.
This chapter offers some shortcuts to managers thinking about e- and m-business
component investments for asking the right questions. Businesses are like
snowflakes, there are never two exactly the same, however, when things get too
hot, businesses, like snowflakes, melt. Hopefully, the proposed rules of thumb
help managers to keep their heads cool when thinking about elaborate e- and mbusiness schemes.
Acknowledgments
We would like to thank Professor Dr. Jussi Puhakainen for his helpful comments.
177
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Endnotes
1
This section largely builds on the paper Omenahotellit: A Room with a

View for the Internet Generation (Anckar & Patokorpi, 2004), which won
a best paper nomination at the 10th Americas Conference on Information
Systems (AMCIS), New York, 2004.
Finnish for apple.
Which translates into a market share of approximately 4%.
Disintermediation points toward an elimination or reduction of intermediaries altogether due to direct producer-consumer relationships.
Entrepreneurial Opportunities On the Internet
179
Chapter X
Entrepreneurial
Opportunities
On the Internet
Di Waddell
Deakin University, Australia
Mohini Singh
Ambareen Musa
General Electric, UK
Abstract
This chapter highlights and discusses entrepreneurial opportunities on the
Internet. It provides a brief introduction to entrepreneurship, examines the
characteristics of entrepreneurs, and talks about cyber entrepreneurs. It
includes a case study which demonstrates the opportunities and challenges
of cyber entrepreneurship. The case study illustrates the ease of setting up
a business on the Internet by the younger generation with little capital and
resource requirement. It highlights the fact that an intensive marketing
campaign, perseverance, and some technical knowledge are important
traits of cyber entrepreneurs. The other issues apparent from the case study
are an opportunistic mindset, innovation, and the ability to create value
where there was none before.
180
Waddell, Singh, and Musa
Introduction
Entrepreneurship has long been considered an important economic activity.
The past 20 years has witnessed an explosion of research into entrepreneurs and
their actions (Venkataraman, 1997; Hannafey, 2003) with considerable emphasis on the elements that constitute successful entrepreneurship.
There is no doubt that entrepreneurship has tremendous impact on the economy
and on society. In 2004, a report by the Global Entrepreneurship Monitor (GEM)
stated that a considerably large number of people are engaged in entrepreneurial
endeavours around the world. Based on a sample of 34 countries representing
a total labour force of 566 million people, GEM research estimates that 73 million
adults are entrepreneurial (Acs, Arenius, Hay, & Minniti, 2005). The study also
reveals that entrepreneurial activity varies significantly by geographic region,
types of business, and entrepreneurial motivation. For example, the proliferation
of the World Wide Web, the vast network that links computers around the globe
via the Internet and opens up oceans of information to its users, has spawned
thousands of entrepreneurial ventures since its beginning in 1993.
It is not surprising that entrepreneurs are as varied as the kinds of businesses they
start. For every characteristic or behavior that defines one successful entrepreneur, you can find another completely different, yet successful, entrepreneur
who displays different characteristics and behaviors. For example, there are four
broad categories: the home-based entrepreneur, the serial entrepreneur, the
traditional entrepreneur, and, more recently, the cyber entrepreneur. The first
three categories are self explanatory, but the birth of the commercial Internet
gave rise to the cyber entrepreneur, one who takes pride in the fact that they do
not have a bricks-and-mortar operation. Cyber entrepreneurs transact all their
business with customers, suppliers, strategic partners, and others on the Internet
and deal in digital products and services that do not require bricks-and-mortar
infrastructure like warehousing and physical distribution (Allen, 2003).
To add to this, Venkataraman (1997) points to a lack of previous research
acknowledging the integrated and contextual nature of entrepreneurship. Most
researchers define the field solely in terms of who entrepreneurs are and what
they do, independent of the situations in which they find themselves (Shane &
Venkataraman, 2000).
What is Entrepreneurship?
There are about as many definitions of entrepreneurship as there are people who
have written about the subject.
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Entrepreneurship has long been described by researchers and writers with terms
such as new, innovative, flexible, dynamic, creative, and risk-taking. Many
authors have said that identifying and pursuing opportunities is an important part
of entrepreneurship. Other authors have said that entrepreneurship involves the
creation of value, the process of starting or growing a new profit-making
business, the process of providing a new product or service, and the intentional
creation of value through organization by an individual contributor or a small
group of partners. Another definition of entrepreneurship that has been used is
the process of creating something different with value by devoting the necessary time and effort, assuming the accompanying financial, psychological, and
social risks, and receiving the resulting rewards of monetary and personal
satisfaction (Coulter, 2003, p. 4).
To go back to basics, the word entrepreneurship derives from the French
words entre, meaning between, and prendre, meaning to take. The word
was originally used to describe people who take on the risk between buyers and
sellers or who undertake a task such as starting a new venture (Barringer &
Ireland, 2005, p. 5). At this juncture, it is important to distinguish between
inventors and entrepreneurs as they differ from each other. An inventor creates
something new. An entrepreneur assembles and then integrates all the resources
needed the money, the people, the business model, the strategy, and the riskbearing ability to transform the invention into a viable business.
Therefore entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. The essence of
entrepreneurial behaviour is identifying opportunities and putting useful ideas
into practice. The tasks called for by this behaviour can be accomplished by
either an individual or a group and typically requires creativity, drive, and a
willingness to take risks (Barringer & Ireland, 2005, p. 5). It does not have to be
a new product and/or service, but a new insight and the preparedness to be
committed and take risks.
Whereas most people think of entrepreneurship as launching a new business, it
is often considered to be an individuals activity. However, ongoing firms also
can behave entrepreneurially. Typically, established firms with an entrepreneurial emphasis are proactive, innovative, and risk-taking. That the degree of
entrepreneurship can be dependent on the type of industry also is significant. For
example, where there is environmental instability, it is more likely to facilitate
entrepreneurial activity.
What is an entrepreneur then? An entrepreneur is one who creates a new
business in the face of risk and uncertainty for the purpose of achieving profit and
growth by identifying significant opportunities and assembling the necessary
resources to capitalise on them. The three primary reasons that people become
entrepreneurs and start their own firms are:
182
1.
To be their own boss because either they have had a long-time ambition
to own their own firm or they have become frustrated working in traditional
jobs.
2.
Pursue their own ideas some people are naturally alert, and when they
recognise ideas for new products or services, they have a desire to see
those ideas realised.
3.
Realise financial rewards this motivation is typically secondary to the

first two and often fails to live up to its hype (Barringer & Ireland, 2005).
Regardless of the motives for being an entrepreneur, it is the act of creating

business (i.e., perceiving an opportunity, assessing and risking resources to
exploit the opportunity, managing the process of building a venture from an idea,
and creating value) that makes it the entrepreneurial act.
Characteristics of Entrepreneurs
Entrepreneurs are not of one mould; no one set of characteristics can predict
who will become entrepreneurs and whether or not they will succeed. Indeed,
diversity seems to be a central characteristic of entrepreneurs. However, even
given this wide variety of definitions of entrepreneurship, we can detect some
common themes.
Although theory in entrepreneurship is said to be underdeveloped (Shane &
Venkataraman, 2000), the literature does reveal a preoccupation with the
success or failure of individual entrepreneurs and firms (Venkataraman, 1997).
It is more valuable to have a more comprehensive view of successful entrepreneurship which is based on both foundational classics and more recent literature
in the field. This results in a view of entrepreneurship that reflects elements of
innovation (Schumpteter, 1934), social and economic change (Menger, 1892),
risk (Mill, 1848; Knight, 1921), and reward (Hawley, 1901; McClelland, 1961).
These elements of successful entrepreneurship are generally recognised in the
more recent literature which advocates a focus on the behaviour of creating new
ventures (Gartner, 1988).
By combining the diverse perspectives of elements, an entrepreneur
appears to exhibit the following characteristics:
Vision Entrepreneurs are considered successful, in part, if they visualise

a future not seen or thought possible by others in their industry (Hamel &
183
Prahalad, 1994). Also, key to entrepreneurs success is their ability to enact

that vision or actually create the future that they envisioned. As without
action, it can only be a dream.
Innovation As entrepreneurs are people who create new markets, new

products, and/or new services, it involves changing, revolutionising, transforming, and introducing new approaches or systems. Innovators, therefore, endow resources with a new capacity to create wealth (Drucker,
1985). Importantly, innovation allows entrepreneurs to stay ahead of
imitators whether it be by evolution of processes or revolution of ideas
(Shane, 2003).
Passion for the business This passion typically stems from the
entrepreneurs belief that the business will positively influence peoples
lives. This passion explains why people leave secure jobs to start their own
firms and why billionaires such as Bill Gates of Microsoft and Michael Dell
of Dell Computers continue working after they are financially secure.
Passion is particularly important for an entrepreneur because, although
rewarding, the process of starting and building a new firm is demanding.
Entrepreneurship is not for a person who is only partially committed. A
caution, it is important to be enthusiastic about a business idea, but it also
is important to understand its potential flaws and risks. An entrepreneur
also must remain flexible enough to tweak the idea when it is necessary to
do so (Barringer & Ireland, 2005).
Product/customer focus This underscores an understanding of the

two most important elements in any business. An entrepreneurs keen
focus on products and customers typically stems from the fact that most
successful entrepreneurs are, at heart, craftspeople. This is important to
remember, particularly in an era when it is tempting to envision new
businesses resulting from every advance in technology (Barringer &
Ireland, 2005).
Opportunity identification Whether opportunities are created or

opportunities are identified, entrepreneurs seize opportunities. Entrepreneurs special talent lies in recognising and exploiting particular opportunities (Shane & Venkataraman, 2000; Shane, 2003). Sarasvathy, Simon, and
Lave (1998) show that successful entrepreneurs see opportunities where
others tend to see risk. Moreover, they can spot opportunities that turn the
commonplace into the unique and unexpected (Mitton, 1989, p.12). The
concept of opportunity identification thus spills over into elements of vision
and innovation.
Creating value This involves the ability to fashion a solid business idea
into a viable business. This means developing a business model, putting
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together a new venture team, raising money, establishing partnerships,

managing finances, leading and motivating employees, and so on. It also
demands the ability to translate thought, creativity, and imagination into
action and measurable results (Barringer & Ireland, 2005).
Growth Traditional definitions of entrepreneurial success have included

tangible growth indicators such as revenue growth, increase in market
share, and growth profits. But, it is sometimes at the neglect of considering
the intangible outcomes in growing a business and pursuing opportunities as
they arise.
Social and economic change Arguably, a key outcome of entrepreneurial activity is reward for the individual entrepreneurs. Longenecker,
McKinney, and Moore (1988, p. 70) find that entrepreneurs are more likely
than others to approve of actions that maximise personal financial
rewards even when such rewards come at other peoples expense. Thus,
entrepreneurial activity can bring about economic and social change both
positive and negative (Baumol, 1990). Positive benefits may include
advancements in technology, increased levels of employment and productivity, and enhanced quality of life as well as improved efficiency (Kirchhoff,
1991). In contrast, negative outcomes such as environmental damage,
social disruption, and violation of individual rights may occur. While there
is an expectation that entrepreneurial activity will advance the economy
and society, some innovations can be argued as achieving quite the
opposite.
Financial risk Almost always entrepreneurs actions involve financial

risk, both for individual entrepreneurs and for external investors (Shane,
2003). A return on funds invested in the business is often uncertain but
it is that uncertainty that, in the first place, provides the opportunity for profit
(Rumelt, 1987). The success of entrepreneurs is closely tied to the way they
perceive and manage risk (Sarasvathy, Simon, & Lave, 1998).
Tenacity despite failure Because entrepreneurs are typically trying

something new, the failure rate associated with their efforts is naturally
high. Developing a new business idea may require a certain degree of
experimentation before a success is attained. Setbacks and failures inevitably occur during this process. The test for entrepreneurs is their ability to
persevere through setbacks and failures. In fact, a certain measure of fear
is healthy when pursuing new ideas (Barringer & Ireland, 2005).
Overall, there appears a consensus of opinion that an entrepreneur has to have

a vision which is innovative about which they have a passion. This is while they
are customer-oriented and have the ability to identify an opportunity as well as
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creating value with the expected outcome of growth as well as fundamental

change. Ironically, the notion that entrepreneurs are prepared to take risks is a
myth, and, in fact, it is not unusual for entrepreneurs to fail they just never give
up!
Although these studies have identified several characteristics entrepreneurs
tend to exhibit, none of them has isolated a set of traits required for success.
Added to this conundrum, Schumpeter (1934) proposed creative destruction
which is defined as the process whereby existing products, processes, ideas, and
businesses are replaced with better ones. He believed that through the process
of creative destruction, old and outdated approaches and products were replaced
with better ones. Therefore, rather than taking a checklist approach, we should
recognise the important role that the entrepreneur plays. It is a process a
process being a set of ongoing decisions and actions. Entrepreneurship is not a
one-time phenomenon; it occurs over time. It involves a series of decisions and
actions from initial start-up to managing the entrepreneurial venture, to even, at
some point, exiting it.
Particularly in the technology arena where current and potential entrepreneurs
face new challenges and opportunities in a time when the conventional wisdom
regarding ways of doing things and what it takes to be successful no longer holds.
In this industry, there are major driving forces that need be considered.
First is the role of information which is now readily available to practically anyone
from anywhere on the globe at any hour of the day and in almost any format. The
almost instant availability of almost any type of information has radically changed
the nature of the economy. This, in turn, affects the context of entrepreneurship.
Second, technological trends where all organizations, regardless of size, type, or
location, use some form of technology to do their work. Although some industries
are by necessity more technology-intensive than others, all organisations use
some type of technology. And there is no doubt that trends in technology are
changing the way we work and the type of work we do. Four key technological
trends that are affecting the context of entrepreneurship are the increasing rate
of technological change and diffusion, the increasing commercialisation of
innovations, increasing knowledge intensity, and increasing recognition that
advanced information technologies are the cornerstone of successful businesses. Third, globalisation is where the linkage of economies and cultures that
fosters a business and competitive situation in which organisations have no
national boundaries. And, finally, changing demographics identifies a series of
vital statistics of population: The worlds population is growing geometrically and
at a very fast rate; the worlds population is getting older and younger at the same
time; the worlds population continues on the move; most of the worlds
economically active people live in cities and urban areas; and the division of the
worlds population into three broad bands (poor, middle, and upper classes)
(Coulter, 2003, pp. 42-49).
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All these considerations are evident in the next case study where entrepreneurial
opportunities on the Internet are illustrated.
Case Study: rentfast.com.au

It all started in May 2001. Two international students, Michael and Lisa, were
looking for accommodation in Melbourne, Australia. They were both enrolled in
IT undergraduate degree programs at two different universities. House hunting
was a difficult and demanding task for both these students as they had to attend
lectures and at the same time visit real estate agencies during business hours to
find accommodations. Due to a heavy workload at a university, comprising
lecture attendance, completing assignments and projects, and keeping up with
readings, they wished they could browse a Web site which consisted of
information on shared accommodations for students. The idea of an online
accommodation service for international students was thus conceived.
Although Michael had some interest in setting up and owning a small business,
without capital and a business plan it was only a desire. As the problem of finding
suitable accommodations intensified for them, Michael and Lisa initiated discussions with other international students in their respective universities to ascertain
the demand for an online accommodation service. They met with personnel in the
international arm of one of the universities to understand the international student
recruitment and enrollment process. They needed to know if the university would
be prepared to offer an additional service, such as accommodations, to international students as they accepted them to pursue studies at these universities. At
this same time, RMIT University was encouraging students to participate in
business plan competitions. These competitions support students to come up with
an idea and convert it into a business plan. Prizes for this competition ranged from
$1,000 to $30,000. The format of the competition was adopted from Michigan
Institute of Technology in the United States. The group of students working
together could be from different disciplines and universities. Each group was
given a mentor who was an academic with relevant interest, experience, and
knowledge.
Michael and Lisa were students at RMIT University and the University of
Melbourne, studying for bachelor programs in the information technology
discipline. They came up with an idea which was a real-life problem for
international students in Australia. They both formed a group and participated in
the business plan competition at RMIT University.
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Development Process
The competition was a motivating factor for Michael and Lisa to start work on
a business plan for a small start-up business on the Internet. They brainstormed
issues regarding accommodations from other international students in Melbourne,
identified suitable real estate agents, and investigated the legal requirements of
signing a lease and securing a property. They were enrolled in IT degrees which
gave them sufficient knowledge of setting up a business on the Internet.
Business and Revenue Model. An important consideration for any

business is to have a revenue model to foresee income streams and profits.
These entrepreneurs were to establish a business on the Internet, generally
referred to as a cyber business to provide a broker service to the students
and to the real estate agents. The agents would provide a list of properties
to be included in the database, and the student would pay for the service.
Three methods of payment considered suitable for this venture were
electronic funds transfer, payment on arrival in Australia, and payment by
credit card. The pros and cons of each method were considered carefully.
An electronic fund transfer required 72 hours with high bank charges.
Unless a payment was made upfront, there was no way of knowing if a
customer was genuine. At the same time, the real estate agents required a
payment within 24 hours to hold a property for a customer. Thus, payment
on arrival in Australia was ruled out, leaving the credit card payment
method to be the only apt scheme. This was considered the best, as it
enabled instant payment and identified genuine customers, with lower
charges than electronic funds transfer.
The business model was a start-up cyber business offering broker service and
was developed with the guidance of a mentor who had extensive knowledge of
entrepreneurship, substantial experience in particular industries, or was an MBA
or other business discipline postgraduate of the University. A networking night
was organised to establish teams. Once the team was confirmed, the entrepreneurs carried out a survey with the clients to identify issues pertinent to finding
accommodations in Australia. These included:
the type of accommodation international students preferred,

whether customers were prepared to pay for a service that would allow
them to secure accommodation before their arrival in Australia,
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if customers would be prepared to sign a lease without physically seeing the

property,
the number of students coming to Melbourne to study each year,
who the competitors were in this business.
a breakdown of the numbers from each country,

status of residential colleges to determine how many students would be
renting privately, and
These surveys were accomplished via a questionnaire handed out to new

international students at the University of Melbourne and at RMIT University
during the orientation programs. Other international students were contacted via
their associations. Some data on the number of international students arriving in
Australia each year also were obtained from the Australian Bureau of Statistics.
An analysis of the data gathered revealed that about 50% of the students wanted
to secure accommodations before they arrived in Australia. Survey findings
indicated a clear need for such a service for international students. This gave
Michael and Lisa the confidence to embark on the business plan for a start-up
business on the Internet. They decided to call it rentfast.com.au.
Customers and Suppliers

This business was dealing with customers who were global and purchasing a
product without physically inspecting it. To be successful, it was absolutely
essential to develop trust with these customers. To do this the following issues
were considered:
They were mostly first time international students who had never been to
Australia before.
Most of them being from South East Asia would have never rented a
property before this as they live with parents and in joint families.
It was important to win both customer and supplier trust and to educate
them about both the rental market and the Australian Tenancy Act to
ensure that they understood the legal and contractual issues they would be
entering into.
All partner relationship management issues had to be considered in detail.

The real estate agents needed some form of security that the tenants would
honour their commitment and not change their mind when they arrived in
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Australia. This would save them loss of time, effort, and money if a
customer changed his or her mind. It also would have a negative impact on
their relationship with their landlord.
Scepticism of the online world required a greater effort from the entrepreneurs as the suppliers (real estate agents) needed a lot of convincing to
accept that international students would be good tenants.
The selling point with the suppliers was an emphasis on the advantages such
as less administration costs, less students to deal with face to face, less
paperwork, and a zero vacancy rate due to customers starting to pay rent
as soon as the property becomes available.
To secure a property, a security bond and one month rent in advance had
to be paid by the tenant.
For any online business, developing and maintaining a relationship with its
customers is important. Therefore, for Michael and Lisa, it was important to
ensure that their customers knew exactly what was involved and also what
product they were paying for. To provide tenants with as much information as
possible about the rental property, it was important to help them while they were
still overseas to view the apartment layout and facilities. This could be accomplished via virtual tours with an immersive 360 degree image of the property
online. The tenants could view each room of the property, zoom in, zoom out, and
pan around each room. To help the customers determine the dimensions of the
room, a floor plan of each property was incorporated using some programming
code. This made the virtual tour interactive with a compass panning around on
the floor plan showing what the tenant was viewing. A map showing where each
property was situated relative to different universities in Melbourne also was
included.
To help international tenants understand the rental market in Australia, literature
on tenant responsibilities, average rent of different type of properties in different
areas, explanations of rental processes, and maps of different regions were
presented as links on the Web site. The business plan was completed with all the
relevant details of the business. The rental business processes were addressed
in detail from the student browsing the Web to them physically coming to
Melbourne and picking up the keys to their property.
As part of a competition, the business plan had to be presented to a panel of
judges. A prototype had to be constructed to show how things would work and
to identify flaws if any. Developing a prototype at this stage also had the
following advantages:
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The information flow and processes became much clearer. It also helped
determine new and better ways of doing things.
It provided a good idea of how big the whole system would be and the length
of time it would take to fully develop it.
The usability issues were incorporated right at the onset. As mentioned, the
only communication channel between rentfast.com and its customers was
the Web site. Therefore, it had to be easy to use and understand, as well
as culturally sensitive since the customers were international students
whose first language was not English.
Another consideration was that the real customers could be students

parents and not just students. In most cases, the parents have a big
influence on the students decision of where they would stay, as the parents
are most often the source of financial support. Therefore, explanations of
issues in greater detail were included.
It helped determine the sections of site information that needed to be

secure.
It provided a clearer picture of what it was aiming for to other people.

It was easy to explain the service this business was going to offer to
business partners.
At the prototype stage, the payment method was not included because although
the confidence of the real estate agents was gained through a number of faceto-face meetings, gaining the support of the banks proved to be more difficult.
This was due to the banks requiring an actual physical location for the business
which could not be provided by the fully online business.
Team Orientation. The mentor allocated to this project was an experienced and well-qualified academic who provided support all throughout the
development stage. He asked questions that helped address numerous
technical and business issues. He provided motivation that all first-time
entrepreneurs would have appreciated. At a later stage, a programmer
joined the team to help develop the business system.
Business Plan Presentation. Michael and Lisa presented to the panel of

judges their plan for a start-up cyber business. The presentation initiated
much interest among the members of the audience, some of whom offered
to provide support in promoting the business. The panel of judges was very
impressed by the business plan format. It included diagrams and was easy
to read and understand. The business plan won a $5,000 second prize in the
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competition. This money, together with $12,000 contributed by Lisa and

Michael, covered the costs of developing the system and hosting the site.
The RMIT Business Plan Competition also gave this project much publicity
across the University. Another set of users for the business was found
when the study abroad unit from the University approached Michael and
Lisa to use this service for exchange students.
System Development. The next step was to develop the whole system.
Lisa designed the Web site which was the front-end of the cyber business.
The back-end proved to be more work intensive because credit card
information is very sensitive and a secure link was needed. This required
advance level codes for which a programmer was hired. The database used
was php/MySql, which is open source and requires no license fees, it is
robust and scalable. Other reasons for using this database are that it is
freely available, could handle a large database, has been tried and tested as
a database server, and could be easily linked to the HTML files on a Unix
server via php scripts.
Once the information flow and processes were determined, a good idea of what
rentfast would look like became apparent and the development of the Web-based
business commenced. The system development started off with system analysis
and business requirements analysis sessions. This was done by Michael, the
programmer, and Lisa. The Web site was mapped out on paper, and the
functionality was defined in detail. All constraints were discussed, and a first
version of the Web site was created on paper. Lisa overviewed all developments,
and Michael took charge of the financial side. Financial issues were heavily
dependent on the uptake of this cyber business by relevant customers. While the
number of hits on a site can be encouraging, however, in an online business,
completed transactions are more useful. There was no way of predicting the
success of this business, although one advantage of an online business is that it
is not capital intensive. A cyber business does not require physical premises with
the associated lease, rates, bills, insurance on assets, and has less employees.
The only assets required were a fax machine, a camera, a tripod, different lenses,
a few laptop computers, relevant software (virtual tours and floor plans), and the
Web site itself.
The system development process was expected to take about three months. A
programmer was hired for this period of time. To develop the system, the mentor
suggested the use of Xtreme programming (XP) methodology. This programming technique is based on values of simplicity, communication, feedback, and
courage. It brings the whole team together with enough feedback to enable the
team to see where they are (Lindstrom & Jeffries, 2004). It helps to find bugs
in the programs more quickly.
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The business system development started in late November 2001. The Web site
should have been ready by February 2002. However, the project did not go as
well as anticipated. There were two parts to the Web site, the public site and the
administrative site. The public site would be the part of the Web site the
customers would access and use, and the administrative part was for the rentfast
staff to monitor customers, upload properties, and to run reports on both
properties and users of the site. The administration part was important from the
entrepreneurs points of view to further develop and build the system.
The Web Site. To capture important customer information, e-mail addresses were needed from prospective clients. To do this, the Web site was
designed to ask the customers to register before they could access the
database of properties. They could view the brochure part of the Web site
but not the properties. The registration established where the customers
were from, their e-mail address, type of property they were looking for, how
many bedrooms they preferred, what university they would be attending,
and approximately when they would arrive in Australia. This information
allowed the rentfast.com team to decide on the type of properties they
should load onto their databases. For example, there was no need to put
three bedroom properties on the database, when most of the customers
were looking for one bedroom apartments.
The Web site also included functionalities that helped students through the
application process. Some of these were:
It allowed them to view the property by taking a virtual tour supported by

interactive floor plans.
It allowed them to shortlist a list of the properties they were interested in.
It allowed them to submit a list of properties they were interested in.
It allowed them to fill in a property profile to enable rentfast to respond by

sending them information on properties matching their profile.
It allowed them to save this shortlist, come back to the Web site another
day, and select more or drop some properties.
It allowed them to check the status of their application, whether it was
pending, in progress, accepted, or rejected.
After a few months of intensive work, the Web site seemed to be quite far from
finished. The functionalities were more complicated than anticipated. The
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reason for this was that more constraints needed to be added than what was
initially considered. To ensure that no junk data was included in the database,
much data cleaning had to take place.
At this same time, a number of companies were contacted to host the Web site.
Problems encountered here were that either these companies could not support
the php-based MySQL or were very expensive. Initially, a U.S.-based company
that could support MySQL was selected, but because of an inability to provide
a 24-hour and 7-day per week hosting service, a refund was obtained from this
company in order to select another host. In the meantime, the programmer hired
to develop the system had expanded his business and agreed to host
rentfast.com.au.
As the system developed, the entrepreneurs had to incorporate the payment
system to support credit card payment. They approached a number of banks in
Australia, who scrutinised the business plan and then rejected the application due
to the following reasons:
According to banks, a cyber business was a high-risk business, as transactions were to be made without the physical presence of a card.
This was a fully online company with no actual physical premises.
The financial statements did not show sustainable cash flow.
This was only a service and did not sell an actual product.
One transaction could be as high as $2,000 on the card and so charge backs
would end up costing a lot of money to the banks.
This was a start-up business and had no track record.
Being an online company there were no assets, so it was not credible
enough for a merchant facility.
The only way for this business to go ahead was to incorporate the telegraphic
transfer payment system. The Web site was launched at the end of May 2002.
Students could view a database of properties and apply online for any property
in which they were interested. The business was now up and running. At this
stage, the mentor helped Lisa and Michael by suggesting the implementation of
a flat fee charged to the real estate agents instead of students. This would have
meant ongoing income for Lisa and Michael.
Marketing. At this point, brochures were designed with the intention of

distributing them to international students from all universities within
Australia and to selected International Development Program (IDP)
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offices in Asia. IDP is an education agent overseas supporting Australian

universities student recruitment. IDP has offices all around the world for
prospective students who wish to apply to study in any Australian university. Lisa considered this an ideal way of promoting the business. Although
a lot of detail was provided to IDP, the offer was not taken up due to
scepticism of an unproven business. It was difficult for them to accept
anything other than faceto-face negotiation and information sessions.
With considerable convincing, RMIT University agreed to assist and sent
the company brochure with their normal acceptance/enrollment forms.
Each setback enabled Michael and Lisa to think of newer and better strategies
for making the business a success. Further brainstorming with international
students at RMIT University and the University of Melbourne was organised.
This highlighted the fact that many students from South East Asia need to do the
IELTS English test to be admitted to an Australian university. To help these
students, there are many English language schools in Asia. The schools were
contacted to see if they would distribute the rentfast brochures to students. They
agreed to help. This was only one avenue, not enough, however, for the business
to be a success. At this same time, Lisa discovered that the business could be
advertised in a magazine that IDP distributes to all its offices around the world.
Although this advertisement was expensive, the entrepreneurs had little choice.
International students also get their information from friends and relatives.
Almost one in five currently enrolled international students knows someone in his
or her country who is planning to travel to Australia to study. This secondary or
word-of-mouth marketing was another way of promoting the business. Lisa and
Michael contacted the RMIT Association of International students and the
Melbourne University Overseas Student Service to pass their message along.
These two organizations mail their magazine to all their currently enrolled
international students. Brochures for rentfast were mailed together with the
magazine at a reasonable rate.
The business at this stage started getting hits and was flooded with e-mails by
the middle of June 2002. It highlighted the demand for specific types of
properties. For example, one bedroom apartments were preferred over larger
accommodations. The entrepreneurs tried to build a relationship with the
prospective customers by responding to their e-mails with relevant, polite, and
friendly e-mails. Additional help also was offered.
Eventual Outcome. The business achieved 150,000 hits during the period
of May to September 2002, but only five customers paid online and fully
utilised the service. From the system development point of view, this was
a success as it did what it was supposed to do (i.e., offer an online service
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for international students to investigate accommodations in Australia).

From the business point of view, it was not successful as the proportion of
completed transactions was minimal. Michael and Lisa measured their
success, not in financial terms, but as that of a learning experience. They
have since moved on to other ventures.
Interesting cyber entrepreneur issues identified were:
It was comparatively easy to get the customers interested, but extremely

difficult to close the sale with a completed transaction.
The customers were to pay the bond, first months rent, and a broker
service charge before arriving in Australia, which was difficult for them to
accept. The reason being suspicion and a lack of trust in an online business.
For many, this way of doing business was very new and intimidating.
In spite of the virtual tours and interactive floor plans, many customers
preferred physical inspection of properties.
Many customers were new to rental issues of contracts, bonds, and

payment upfront, and so were reluctant to use the service. This would be
compounded when customers were from international countries where
legal requirements differed.
Of interest, this service was more popular with exchange students from
European countries at universities in Australia as compared to students
from Asia.
Although Lisa and Michael have moved on to other IT positions in large

organisations, the rentfast.com concept has evolved into other global businesses
such as RentFast Apartment Locating Service (www.rentfastcharlotte.com)
and RentFAST: Charles Reinhart.com.
Discussion
This case study is an example of an Internet start-up company developed by two
cyber entrepreneurs. The Internet is a new platform for setting up business,
providing entrepreneurial opportunities to those who may not be capital rich. It
enables people to turn business ideas into reality. It also is apparent from the case
study that like any other business, just an idea is not enough, a business plan and
a revenue model are essential for developing the enterprise. Cyber entrepreCopyright 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written
196
neurs in the example had to make an enormous effort in marketing and promotion
of the business for customer acceptance. This is probably due to online
businesses being unproven, and a change in the business culture. So how do these
cyber entrepreneurs fit the characteristics identified by researchers?
Lisa and Michael had a vision a sense that there was an opportunity to
accommodate international students and that technology is a significant enabler
of this vision. But to have a vision and not act upon it is merely a dream. Hence,
they were innovative in designing a new service, it was technology-based; it was
one of the first, allowing these entrepreneurs to stay ahead of other competitive
innovators. It is evident throughout the discourse that these two cyber entrepreneurs had the passion for the business. During the development of this project,
they were fully committed despite considerable difficulties, and they remained
flexible when it came time to negotiate with crucial stakeholders when required.
Their enthusiasm was contagious in that they were able to convince sceptical
parties to support the venture despite it being new and unproven.
But motivation for such a venture needs practical strategies for it to become
reality in this instance, they knew and understood their customer base. It
was based on personal experience as they knew that there was a large cohort
of potential clients and that such a Web site service was conspicuous by its
absence. They used the competition as a catalyst for the initial idea, and the real
opportunity was utilising the Internet. The process of gaining acceptance and
support for the venture confirmed that it was viable as a business, as they were
able to translate their vision by being creative in developing the system on the
Internet as confirmed by the successful hit rate. Thus, the value creation led to
personal growth, particularly with respect to the intangible aspects of increased
self-confidence and improved business acumen.
The consequence of their venture is that the Internet has once again come to the
fore as a platform for entrepreneurs. For example, it will now change the habits
and expectations of international students when searching for accommodation.
This case is but one example of the countless opportunities in which those with
vision and commitment can capitalise on the Internet as a vehicle for converting
dreams into reality.
This of course is not in isolation. To take risks without considering the
consequences is being foolhardy. Entrepreneurs are not gamblers per se, but
take calculated risks in that they balanced the possibility of success with risk
that is within their capacity to manage. In most instances, entrepreneurs are
linked to short-term outcomes, whereas, in the case of technology-based
application, they are more long-term oriented. This leads to an important
characteristic in that entrepreneurs are not afraid to fail. In fact, such a term
is not in their vocabulary as it is considered part of the learning cycle.
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As stated earlier, the distinctive characteristic of cyber entrepreneurship is that

it pertains to technology-based business. In this instance, as well as appealing to
those who are technologically savvy, team effort and partner relationship
management issues were identified as being critical for completing the project.
Their positive attitudes and ability to think of new strategies to deal with setbacks
are seen to be entrepreneurial characteristics essential for success. Motivation
from the competition gave these entrepreneurs that extra encouragement,
although it is their persistent and persevering nature that saw the completion and
implementation of the project. They identified customer issues addressing global
and cultural applications as well as developing trust with all participants as being
important for online start-up businesses.
In summary, cyber entrepreneurs are faced with many challenges. These include
issues of setting up a business based on technology, winning the confidence of
the stakeholders to accept and support an online business, acquiring financial
assistance, developing secure transactions, and turning it into a successful
venture by getting customers to accept.
Conclusion
There are many implications for cyber entrepreneurs arising out of the driving
forces in the technology-based industry. These include continual turbulence and
change, reduced need for physical assets, vanishing distance, and compressed
time. Change is a fact of life in todays business context. In addition, success in
todays economy does not rely simply on physical assets. Value can be found in
tangible factors such as information, people, ideas, and knowledge. Also, the
influence of physical distance on organizational decisions has disappeared. A
cyber entrepreneurs potential market can be found anywhere, but so can
competitors. As the limitations of physical space have disappeared, so have the
limitations of time. The instant interactivity between customers and businesses,
between employees, and between companies and suppliers has created a context
in which marketplace advantage can be temporary if an organisation does not
stay on top of the changes (Coulter, 2003, pp. 49-52).
From the issues discussed, it can be concluded that an entrepreneur is someone
who creates a new opportunity in the marketplace and assembles the resources
necessary to successfully exploit that opportunity. Entrepreneurs have the ability
to see opportunity where others do not because they have a well-developed
opportunistic mindset. The businesses they create are generally growth-oriented
and innovative; they create value where there was none before; they disrupt the
economic equilibrium, and they change the way we do this.
198
Describing what entrepreneurs do in any particular industry is not an easy task.

No two entrepreneurs specific work activities are exactly alike. In a general
sense, entrepreneurs are creating something new, something different. They are
searching for change, responding to it, and exploiting it. The Internet is a virtuous
opportunity for cyber entrepreneurs.
References
Acs, Z., Arenius, P., Hay, M., & Minniti, M. (2005). Global Entrepreneurship
Monitor, 2004 Executive Report, Babson College and London Business
School. Retrieved March 17, 2005, from www.gemconsortium.org
Allen, K. (2003). Launching new ventures: An entrepreneurial approach
(3rd ed.). Boston: Houghton Mifflin.
Barringer, B., & Ireland, D. (2005). Entrepreneurship: Successfully launching new ventures. NJ: Pearson Education.
Baumol, W. (1990). Entrepreneurship: Productive, unproductive and destructive. Journal of Political Economy, 98(5), 893-921.
Coulter, M. (2003). Entrepreneurship in action (2nd ed.). NJ: Prentice Hall.
Drucker, P. (1985). Innovation and entrepreneurship: Practice and principles. Amsterdam: Elsevier Butterworth-Heinemann.
Gartner, W. (1988). Who is an entrepreneur? Is the wrong question. American
Journal of Small Business, 15(2), 32-40.
Hamel, G., & Prahalad, C. (1994). Competing for the future. Boston: Harvard
Hannafey, F. (2003). Entrepreneurship and ethics: A literature review. Journal
of Business Ethics, 46, 99-110.
Hawley, F. (1901) Reply to the final objections to the risk theory of profit.
Quarterly Journal of Economics, 15, 603.
Kirchhoff, B. (1991). Entrepreneurs contribution to economics. Entrepreneurship, Theory and Practice, 16, 93-112.
Knight, F. (1921). Risk, uncertainty and profit. Chicago: Chicago University
Press.
Lindstrom, L., & Jeffries, R. (2004). Extreme programming and agile software
development methodologies. Software Development, 21(3), 41-60.
Longenecker, J., McKinney, J., & Moore, C. (1988). Egoism and independence:
Entrepreneurial ethics. Organizational Dynamics, 16, 64-72.
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McClelland, D. (1961). The achieving society. Princeton, NJ: Van Nostrand.

Menger, C. (1892). On the origins of money. Retrieved March 17, 2005, from
http://cepa.newschool.edu/het
Mill, J. (1848). Principles of political economy with some of their applications to social philosophy. London: John W. Parker.
Mitton, D. (1989). The complete entrepreneur. Entrepreneurship, Theory and
Practice, 13(3), 9-20.
Rumelt, R. (1987). Theory, strategy and entrepreneurship. In D. Teece (Ed.),
The competitive challenge. New York: Harper and Row.
Sarasvathy, D., Simon, H., & Lave, L. (1998). Perceiving and managing
business risks: Differences between entrepreneurs and bankers. Journal
of Economic Behavior and Organization, 33(3), 9-20.
Schumpteter, J. (1934). The theory of economic development. Cambridge,
MA: Harvard University Press.
Shane, S. (2003). A general theory of entrepreneurship: The individualopportunity nexus. Northhampton, MA: Edward Elgar.
Shane, S., & Venkataraman, S. (2000). The promise of entrepreneurship as a
field of research. Academy of Management Review, 25(1), 217-226.
Venkataraman, S. (1997). The distinctive domain of entrepreneurship research:
An editors perspective. In J. Katz & R. Brockhaus (Eds.), Advances in
entrepreneurship: Firm emergence and growth (vol. 3). Greenwich: JAI
Press.
200 Gould and Zhao
Chapter XI
Online Information
Privacy and Its
Implications for
E-Entrepreneurship
and E-Business Ethics
Carmen Gould
Fang Zhao
Abstract
This chapter reports the results of a national survey which investigated
Australian Internet users attitudes and behaviours toward online
information privacy using a typology that combines specific demographic
and attitudinal measurements with behavioural data. The chapter contains
a comprehensive examination of the internal, external/environmental, and
behavioural dimensions of information privacy, incorporating a profile of
each of the typologies categories along with a general profile of total
respondents. The implications of the findings for e-entrepreneurship and ebusiness ethics also are discussed.
Online Information Privacy and Its Implications for E-Entrepreneurship
201
Introduction
In the e-business world, owning consumer data is essential to the development
of customer relationships. Consumer knowledge can lead to value-added
product offerings and marketing communications if businesses know what their
customers already like and might need, reducing costs (Dembeck, 1999) and
improving sales. Ultimately, collecting consumer data can help organisations
enhance the level and quality of service or product they provide, enabling them
to make gains in terms of competitiveness and efficiency. However, there also
is a potentially negative cost because this practice can raise information privacy
concerns and may have legal, ethical, and strategic implications.
Information privacy has been defined as:
the claim of individualsto determine for themselves when, how, and to
what extent information about them is communicated to others. (Westin,
1967, p. 7)
Arguably, the Internet has had the biggest impact upon information privacy than
any other technology. As a place to eavesdrop, cyberspace is without peer in
all of human history (Wright, 1993). For instance, the Internet can facilitate the
explicit or covert collection of consumer data using a variety of methods. Being
a fully digital medium, a consumers lifestyle and profile can therefore be
reduced to bits and bytes (Attaran, 2000), revealing a digital persona (Gindin,
1997) and presenting a variety of violations of social norms, one of which is
invasion of information privacy. However, in its defence, the Internet also is an
enabler of other privacy functions, such as physical privacy, through the states
of solitude, and to some extent anonymity. Nevertheless, consumer online
privacy concerns relating to the information practices of commercial entities are
at an all-time high in public consciousness. Many consumers feel that their lives
and personal preferences are being used and exchanged without their knowledge
or consent, which has compromised the growth of e-commerce and inhibited
consumer trust toward online business.
Information privacy is therefore now a core consideration of business policy,
not only in order that organisations meet consumer ethical obligations or the legal
requirements of Australian data protection legislation, but also because there are
sound commercial reasons which indicate that fair information practices can be
beneficial to business. In fact, it is commonly acknowledged that consumer
privacy concerns have resulted in direct and indirect negative impacts on the
commerciality of the Internet. For instance, Jupiter Communications indicated in
202 Gould and Zhao
1999 that consumer concerns about privacy would effect a loss of $18 billion in
e-commerce revenue by 2002 (cited in Scholtz, 2001).
Clarke (1999) suggests that there are three implications of how consumer
privacy concerns can affect the sale of goods and services in the Internet
environment:
the opportunity cost of lost sales

a shift in demand back to off-line business channels
the intangible cost of privacy to consumers
In addition, those companies who do not comply with consumer privacy demands
could encounter negative publicity and a decrease in share price (The Economist
Intelligence Unit, 2001).
Clearly, if consumers believe that their privacy concerns are being addressed,
then this could be beneficial to e-commerce. Therefore, Attaran (2000) asserts
that businesses could view privacy as a threat and act defensively, or treat it as
an opportunity and be proactive in maximising the gains. Many companies
choose the latter, however reactionary firefighting may not have the desired
effect of reducing privacy concerns. For instance, Meridien Research (2002)
suggests that a lack of understanding of privacy issues in the finance sector has
led to misdirected spending toward technical solutions such as encryption,
arguing that they do little to mitigate the risks to consumers and merely serve to
increase the costs associated with good privacy practice.
In contrast, Culnan and Bies (1999) argue that proactive privacy strategies can
serve as a market segmentation variable. On a practical level, fair information
practices also make good business sense; Citigroup reported how they had saved
money by only sending direct marketing material to people who indicated that
they wanted it (The Economist Intelligence Unit, 2001); Culnan and Armstrong
(1999) found that organisations gain business advantage through customer
retention when they use procedures to protect individual privacy, while a further
argument supporting consumer information privacy is that by letting people optin on mailing lists you will create a more valuable list, thereby reducing
transaction costs (Scholtz, 2001). Privacy protections can in fact be designed to
ensure more accurate files and bring about more efficient data management,
representing savings for a business. It is, Smith (1993) argues, when systems
have to be retrofitted to accommodate privacy demands that the costs accumulate.
203
Consumer Privacy as a Factor of Consumer Trust

Upholding consumer information privacy may not only be good for business in
terms of increasing information efficiency and reducing privacy concern, it also
may help to engender consumer trust online. Trust has been declared the sine
qua non of the digital economy (Papadopoulou, Andreou, Kanellis, & Matrakos,
2001). Indeed, Rao and Singhapakdi (1997) assert that customer trust is an
organisations most precious asset. The absence of confidence-engendering
measures such as physical proximity, handshakes, body language, and so forth
may not be exclusive to Internet relationships, however, the online environment
also suffers from a lack of common legal jurisdiction, along with the high
perception of risk normally associated with recent technology (Clarke, 2001).
For Internet commerce to continue to develop and grow, there must be a
relationship of mutual trust between buyers and sellers (Fukuyama, 1999),
however, privacy concerns will inevitably harm this process, potentially turning
long-term relationship-based business deals into short-term transactional ones.
In fact, Harrison-McKnight and Chervanys comprehensive model of customer
trust in an e-commerce relationship indicates that Web site information practices (including the use of privacy policies and seals) is a major influence on trustrelated Internet behaviours such as purchasing (2001). Enhanced customer trust
also increases the likelihood that a relationship will be continued. The question
for many companies should therefore not be how much good information
practices will cost, but what the price of not having them would be.
Consumer Privacy as an Ethical Choice

Under ethical theory, e-businesses have an obligation to treat consumer information fairly. Indeed, many consumers, employees, and shareholders do not view
the practice of making commercial gain from the sacrifice of ethical principles
as appropriate. As a result, corporate liability is no longer limited to products and
services, but extends to their processes and their associated consequences for
individuals and society (Posch, 1993). Many financial analysts even view ethical
performance as a measure of corporate performance.
One way that organisations can govern their ethical behaviour is to view their
interactions with society as part of an implicit social contract. This implies that
organisations have an obligation to be socially responsible and comply with social
norms, such as respect for information privacy (Milne & Gordon, 1993). In such
a situation, consumers consent for their information to be collected, as long as
their information privacy rights are respected.
204 Gould and Zhao
Increasingly, consumers are applying social criteria to purchasing decisions

(Reder, 1995), and therefore expect ethical corporate behaviour (Creyer, 1997).
Murphy and Laczniak (1981) and Singhapakdi, Rawwas, Matra, and Ahmed
(2001) both found that consumers initially make an ethical judgement about an
organisation that is likely to influence their purchasing behaviour. In addition,
Creyer (1997) found that customers rewarded ethical corporate behaviour
through a willingness to pay a higher price, and while consumers were still likely
to buy from an unethical firm, they would want do so at lower prices, in effect
punishing the unethical acts.
Unethical information practice also may break the consumer value chain,
where consumers return to Web sites, receive offers, and provide feedback for
ongoing improvement (Culnan, 1999). Further, Culnan (1999) found that when
fair procedures are in place to protect individual privacy, customers showed a
greater willingness to disclose information to businesses.
In effect, consumer privacy can be viewed as an ethical choice (by both
consumers and companies), as a factor of consumer trust, which is imperative
in the online environment, and as good business practice in terms of efficiency
of information systems.
Formulating a Privacy Typology

Information privacy concerns may manifest in specific consumer attitudes and
behaviours. If individuals can be categorised according to their privacy orientations, it may be possible for businesses to sufficiently meet their privacy demands
and manage the contextual and individualistic nature of online information
privacy. Therefore, this chapter reports and discusses the results of an empirical
study which aimed to identify and model Australian Internet users online
information privacy orientations by combining specific demographic and attitudinal measurements with behavioural data.
The foundation for this research lies in Westins tripartite typology, developed in
conjunction with a regular American consumer opinion poll by Harris &
Associates, based upon their attitudes toward privacy(1). The most recent poll
conducted in 2003 found that at one end of the spectrum are privacy fundamentalists (26% of consumers). The fundamentalists are most protective of their
privacy, and therefore are unlikely to engage in behaviour that might compromise
it. At the other end of the spectrum are the minority privacy unconcerned
(10%) who least value their privacy, frequently trading it off in favour of other
interests or values. Between these extremes lies an intermediate group Westin
refers to as privacy pragmatists, who though concerned about their privacy, try
205
to reach an equilibrium between the potential benefits and threats associated

with yielding their privacy (Taylor, 2003).
In summary, Westins model is succinct and is certainly well acknowledged in
the literature, however, it fails to capture the subtle distinctions between and
within each category. Indeed, one could argue that in an environment such as the
Internet, where privacy appears to be even more context-dependent than
traditional off-line environments (Sheehan, 2002), it may be impossible to
accurately depict the nuances of online privacy in a tripartite model. Further, the
original model is based on responses to three closed-ended attitudinal questions
which do not encompass the many underlying dimensions of information privacy.
Westins typology is also based on a study of American consumers, therefore,
cultural differences (including privacy legislative frameworks) may mean that it
is not applicable to Internet users of other countries.
Finally, it also is important to note that privacy, like other values, predicts but does
not confirm behaviour. Privacy is the desirable, however, our actions are relative
to both the individual and the context (Hofstede, 2001) because even the most
private individuals may find themselves trading off privacy in favour of other
competing interests. Any substantial instrument should therefore include both
attitudinal and behavioural measurements.
The Privacy-Sophistication Index (PSI)

This study extends Westins typology by utilising an instrument that measures the
underlying dimensions of online information privacy by combining demographic
and attitudinal information with the behavioural characteristics of Internet users.
We refer to the resultant typology as the privacy-sophistication index (PSI).
Privacy refers to individuals attitudes and behaviour toward online information privacy, while sophistication refers to the level of the individuals Internet
experience. Thus, Internet users are defined as experienced or inexperienced according to factors such as length of Internet use and number of
activities performed online (e.g., banking, shopping). As such, the typology is
developed:
1.
inexperienced privacy unconcerned (IPU)
2.
experienced privacy unconcerned (EPU)
3.
inexperienced privacy pragmatist (IPP)
4.
experienced privacy pragmatist (EPP)
206 Gould and Zhao
5.
inexperienced privacy concerned (IPC)
6.
experienced privacy concerned (EPC)
In order to develop a validated measurement instrument and privacy typology, it

was necessary for the dimensionality of the construct information privacy to be
considered. The internal, external/environmental, and behavioural privacy factors were identified after a comprehensive review of the literature, pilot tests,
and discussion with expert judges.
Internal Factors
1.
Trust
Privacy and trust share an interdependent relationship; trust is both
necessary for and dependent on privacy (Fried, 1996, p. 212). When people
disclose personal information to a Web site, they trust that the information
will remain confidential and our privacy will be maintained.
There are three constructs of trust:
i)
disposition to trust, including personality and cultural factors;
ii)
institution-based trust, or the perceived propriety of the conditions

within which trust is required, including laws, regulations, and so forth;
and
iii)
initial trusting beliefs, including reputation, initial contact, and so forth.

(Papadopoulou et al., 2001; Harrison-McKnight & Chervany, 2001)
Each of these constructs appears to have an effect on the way people value
privacy. For instance, Lyon (1996, p. 15) posits that in a highly-regulated
environment, concern for privacy is less apparent. This is measured in the
PSI by the extent to which third-party verification devices for privacy
practices (such as TRUSTe) influences data disclosure. Further, reputation, or an individuals perception of the organisation, also may lower or
raise our privacy thresholds. In fact, initial trusting beliefs even extend to
the industry in which the organisation resides, as some sectors are
perceived to be more trustworthy than others (Long, Hogg, Hartley, &
Angold, 1999). This factor is measured in the PSI by the extent to which
a Web sites reputation influences data disclosure.
2.
207
Perceived value of benefits received in exchange for loss of privacy

Individuals often trade-off privacy in return for implied or expected benefits
in return. These may include tangible rewards such as competition entry or
a free gift for completion of a market research survey, or less tangible
benefits such as the convenience of a Web site remembering your
registration details, thus streamlining the purchasing process. These benefits may therefore affect an individuals willingness to relinquish privacy
(Phelps, Nowak, & Ferrell, 2000; Sheehan & Grubbs Hoy, 2000; Long et
al., 1999). This factor is measured in the PSI by the extent to which the
value received in exchange for the information will affect an individuals
willingness to disclose personal information.
3.
Familiarity/previous history with the organisation involved

Peoples previous experience with an organisation fundamentally shapes
their future interactions. Sheehan and Grubbs Hoy (2000) and Lyon and
Zuriek (1996, p. 15) assert that the more familiar individuals are with an
organisation, the less they are likely to believe that their privacy will be
compromised. Of course, this relies on the individual experiencing only
favourable encounters; a negative experience with an organisation may
actually raise our privacy levels even if it does not end the relationship. To
this end, the PSI measures the extent to which individuals depend on their
familiarity with a Web site before disclosing personal information to them.
4.
Perceived risk
When individuals enter into a transaction with an organisation, they
consciously or not will make an assessment with regard to the extent of
the potential harm to themselves. There are many factors that contribute to
perceived risk in the context of privacy. If the individual has been subject
to a privacy invasion previously, or the perceived propriety of the conditions
is low, concern for privacy is likely to be high. Perceived risk may change
over time; this may be due to the direct effects of the relationship with the
organisation (e.g., positive or negative encounters) or indirect factors such
as a heightened awareness of threats to privacy due to media reports
(Smith, Milberg, & Burke, 1996). The PSI assesses the relationship
between perceived risk and privacy by measuring the extent to which the
sensitivity of the data required and the reputation/trustworthiness of the
Web site influences data disclosure.
5.
Individual personality factors

Smith, Milberg, and Burke (1996) found that a number of personality
factors influenced concern for information privacy. Distrust was found to
positively correlate with concern, as did paranoia and the extent to which
an individual engages in social criticism.
208 Gould and Zhao
External/Environmental Factors
6.
Information management practices

One of the most significant influences on our privacy thresholds is the way
in which our information is managed (Long et al., 1999). Information
management practices include:
i)
control over information;
ii)
transparency of information collection;
iii)
intended primary and secondary uses of the data;
iv)
whether the data will be shared with other entities;
v)
type, amount, and age of the information requested; and
vi)
level of anonymity offered.
Behavioural Factors
7.
Privacy-seeking behaviour
Individuals may adopt a number of strategies to protect their privacy online.
These include hard technological approaches such as encryption or using
anonymising software, or their soft counterparts, such as the use of a
separate e-mail account for junk mail or setting Internet browsers to
detect and reject cookies. Non-technological alternatives include inaccurate or incomplete data disclosure, or other avoidance strategies. This
behaviour is a product of our values rather than an influence on privacy,
therefore, individuals who exhibit privacy-seeking behaviour are likely to
value privacy more highly (Sheehan, 2002; Phelps, Nowak, & Ferrell,
2000). To this extent, the PSI measures individuals privacy-protecting
behaviours.
8.
Internet experience
A number of studies have found that privacy concerns are inversely related
to Internet experience. The more sophisticated people are in terms of
Internet usage, the lower their privacy thresholds are likely to be (Culnan,
1993; NUA, 1998). The direction of the influence between the two
constructs is, however, less apparent. On the one hand, privacy may
influence experience. For instance, Smith, Milberg, and Burke (1996) found
that individuals were less likely to engage in activities which may require
data disclosure if they had high levels of privacy concern. In the context of
the Internet, this may suggest that concern for privacy may prevent
209
individuals performing online activities such as purchasing goods or services, thereby increasing our Internet experience. Yet, equally, an individuals Internet experience may alter their privacy thresholds. Phelps, DSouza,
and Nowak (2001) found an inverse relationship between privacy concern
and purchase behaviour among catalogue shoppers; thus, the more experienced shoppers were less concerned about privacy. In other words,
positive online experience may serve to allay our concerns and decrease
our privacy thresholds in future interactions. In this study, we posit that
experience is a defining influence on peoples online information privacy
thresholds. As such, the PSI measures Internet experience in terms of
length and frequency of usage, and the number of online activities the
individual has performed, including purchasing goods or services, online
banking, or participating in online chat.
9.
Frequency of data disclosure

Sheehan (2002) found a correlation between privacy concern and the
frequency with which individuals register for Web sites; those individuals
who most highly valued privacy were less likely to disclose personal
information. The PSI, therefore, measures the frequency with which
individuals disclose information to Web sites.
10. Complaining behaviour

Smith, Milberg, and Burke (1996) found that individuals with higher levels
of concern for privacy were more likely to contact official agencies or
companies regarding information management practices, while Sheehan
(2002) supported this contention by correlating privacy concern with the
frequency with which an individual complains to their Internet service
provider (ISP) about unsolicited e-mail. However, given the proliferation of
unsolicited e-mail since 1998 when Sheehan conducted the study, it could
be argued that although many individuals may still consider junk mail to
be an invasion of privacy, it may not be feasible to complain to an ISP after
every instance. The PSI, therefore, measures the likelihood of an individual
contacting a consumer watchdog organisation, the Privacy Commission
(an Australian federal organisation) or their Web service provider in the
event that they had an unresolved complaint about the way their personal
information was treated by a Web site. Further, it was posited that the most
concerned individuals would be more likely to contact the Privacy Commission.
210 Gould and Zhao
Demographic Factors
11. Gender
A number of studies have found that women exhibit more privacy concerns
than men (Dembeck, 1999; Cranor, Reagle, & Ackerman, 1999; Sheehan
& Hoy, 1999), although Phelps, Nowak, and Ferrell (2000) found no
differences between the sexes and Milne and Boza (1999) reported that
men appeared to be more concerned than women.
This may be startling news to some theorists who believe Internet communication transcends physicality, arguing that with visual anonymity one can
adopt the online persona of ones choice. Nevertheless, behavioural
differences between the sexes does occur, such as in purchasing (Sheehan,
1999). Therefore, if online behaviour is related to privacy concern (both as
an antecedent and consequence), we may expect differences according to
gender. Further, Allen (2000) posits that although in cyberspace both sexes
face threats to their privacy, like traditional spaces, women are more
vulnerable to this peril. It is beyond the scope of this chapter to debate such
a claim, however, if this perception is shared among women, concern for
privacy will undoubtedly be higher than mens.
12. A g e
Sheehan (2002) found that older respondents exhibited the lowest and
highest levels of privacy concern. The literature pays scant regard to the
reasons why age may affect peoples privacy thresholds, but we can
hypothesise that older individuals may be less familiar with technology and
therefore have an insufficient understanding of the risks to information
privacy online (e.g., an over- or under-estimation). This study, therefore,
also investigates the relationship, if any, of age with information privacy
thresholds.
13. Level of education/knowledge of privacy management
A number of studies have found the most educated respondents exhibit the
highest levels of concern for privacy (Sheehan, 2002; Lyon & Zureik, 1996,
p.15). This may be simply because they are more aware of the practices
that constitute a threat to their privacy (e.g., technical knowledge of
programs such as cookies), or, alternatively, if we posit that educated
individuals are likely to be more affluent than their less-educated counterparts, we could look to Maslows hierarchy of needs (1987) and suggest
that higher-order needs, such as the need for privacy, become more
important when fulfilment of basic needs is effortless. Equally, wealth also
corresponds with enhanced choice for the consumer. To this extent, it is
posited that those individuals most concerned about privacy would be more
211
knowledgeable about issues such as privacy law. The PSI, therefore,

assesses respondents basic knowledge of privacy legislation in Australia.
14. Geographic location
Privacy, like many values, is derived from the culture in which people are
raised (Hofstede, 2001, p. 34) and, as such, aspects of privacy beliefs differ
worldwide. Donaldson and Dunfee (1994, cited in Milberg, Burke, Smith,
& Kallman, 1995) describe privacy as a hypernorm, a principle that is so
fundamental to human existence that [it serves] as a guide across all
cultures. Anthropological evidence appears to concur with this theory
(Michael, 1994), however, the extent to which privacy is valued differs
globally, nationally, and even within sub-cultures (Perrolle, 1996, p. 50;
Westin, 1967, p. 29). Each society negotiates privacy differently (Westin,
1967, p. 12), and a clear example of this is the diversity of approaches to
privacy regulation globally. Milberg et al. (1995) proposes that a countrys
regulatory approach may even in turn influence its inhabitants privacy
values. The relationship between geographic location and online information privacy orientation was therefore investigated.
Methodology
A national survey of Australian Internet users was conducted in early 2004 in
order to administer the instrument developed as described in the previous section
of this chapter. A total of 8,150 Australian Internet users were invited to
participate in the research by e-mail notification which included a hyperlink to an
online questionnaire published on the researchers university Web site. The
sample was obtained from a commercial list broker, and stratified to represent
the Australian Internet population, by state and gender, in accordance with the
characteristics recorded in the 2000 census published by the Australian Bureau
of Statistics.
Invitations were sent over a 24-hour period between the 5th and 6th of February
2004. Seven hundred and three usable surveys were received, representing a
10.4% response rate.
212 Gould and Zhao
Findings
Summary of Results by PSI Segmentation
Figure 1 depicts the classification of respondents in the present study according
to the privacy-sophistication index typology. The results clearly reveal that EPC
users constitute the majority (41%), with a large disparity between this group and
the next closest, EPP (28%), and IPC (10%). In fact, the combined IPU and EPU
segments only represent 8% of total respondents. Therefore, we may suggest
that Australian Internet users not only appear to highly value information privacy,
they have had a rich Internet experience within which they have formed their
views.
The survey found that the inexperienced privacy unconcerned (IPU) Internet
users are represented by all age groups but are more predominantly female. They
infrequently go online, reflected in the low number of activities they generally
perform, however, the majority have used a Web-based e-mail service and made
a purchase using the Internet. Most IPU users will provide all personal
information requested of them by Web sites, nevertheless, the reputation of the
organisation and the time required to provide the data are important to them. The
majority are unaware of privacy issues and this is consistent with their behaviour;
IPU users do not check for Web site privacy policies or employ any privacy
protection tools, and would do nothing in the event of an unresolved privacy
complaint.
The inexperienced privacy pragmatist (IPP) Internet users tend to be older, of
mixed gender, and exhibit moderate Internet use (two to three times a week).
They perform a relatively wide range of online activities, but the total average
is on the whole low for this category. The majority have used Internet e-mail,
Figure 1. Australian Internet users by PSI segmentation
213
while slightly less than half have purchased or banked online. Disclosure of
personal information to Web sites is dependent on the circumstances within
which the request is made, and the IPP user will consider the reputation of the
organisation, the sensitivity of the information required and whether the data will
be shared with other parties. The majority have a basic knowledge of privacy
issues, and they occasionally check for privacy policies on Web sites, however,
they do not utilise any privacy-enhancing methods in general. In the event of an
unresolved privacy complaint, the IPP user would contact a consumer watchdog.
The inexperienced privacy concerned (IPC) Internet users tend to be older
and of mixed gender. They exhibit moderate Internet use but perform the lowest
number of online activities of all the Internet users, the most common of which
is the use of Web e-mail. Disclosure of personal information to Web sites is
dependent on the circumstances within which the request is made, however, the
reputation of the organisation, the sensitivity of the information required, how the
data will be processed, and whether it will be shared with other parties is very
important. The majority have a basic knowledge of privacy issues; they always
check for Web site privacy policies before disclosure of personal information,
however, they do not utilise any privacy-enhancing methods. Nevertheless,
those who do so are likely to use hard technological tools such as anonymiser
programs. In the event of an unresolved privacy complaint, the IPP user would
contact their Internet service provider.
The experienced privacy unconcerned (EPU) Internet users tend to be
younger males, accessing the Internet at least once a day and performing a wide
variety of activities online, although these are commonly more practical and less
social in nature. Most will provide all personal information requested of them by
Web sites, and there is no one factor which will dissuade them from doing so,
although the reputation of the organisation making the request rates highly. The
majority of users within this category are unaware of privacy issues; they do not
check for Web site privacy policies or employ any privacy protection tools, and
would do nothing in the event of an unresolved privacy complaint.
The experienced privacy pragmatist (EPP) Internet users are fairly equally
represented by all age groups and both sexes. They go online at least daily and
perform a wide variety of both practical and social online activities. Disclosure
of personal information to Web sites is dependent on the circumstances within
which the request is made, however, the reputation of the organisation, the
sensitivity of the information required, and whether it will be shared with other
parties is very important. The majority have a basic awareness of privacy issues;
they sometimes check for Web site privacy policies before disclosure of personal
information, however, they do not utilise any privacy-enhancing methods.
Nonetheless, those who do so are likely to use hard technological tools. In the
event of an unresolved privacy complaint the EPP Internet user would contact
a consumer watchdog.
214 Gould and Zhao
The experienced privacy concerned (EPC) Internet users tend to be of

homemaker age, equally represented by both males and females. They
frequently access the Internet and perform the highest number of online
activities of all Internet users. Disclosure of personal information to Web sites
is dependent on the circumstances within which the request is made, however,
the reputation of the organisation, the sensitivity of the information required, and
whether it will be shared with other parties is very important to EPC users. The
majority have a basic awareness of privacy issues, and they take action to protect
their information privacy by always checking for Web site privacy policies
before disclosure of personal information, and employing privacy-enhancing
methods such as deleting cookies from their computers. The majority of EPC
Internet users would contact a consumer watchdog in the event of an unresolved
privacy complaint, however, a significant proportion would contact the Privacy
Commission instead.
Summary of Online Behaviours of Total Respondents

Surveyed
Factors Influencing Personal Data Disclosure to Web Sites
The survey found that before disclosing personal information to Web sites, the
most important factor respondents took into consideration was the reputation or
perceived trustworthiness of the organisation (4.73 out of a possible 5). Other
factors which were considered important to very important were whether the
information would be shared with other organisations (4.55), the sensitivity of the
information required (4.51), and the respondents familiarity/previous history
with the Web site (4.14). Less important were how the information would be
processed (3.96), the value the respondent would receive in exchange for the
information (3.81), and whether the Web site has external Web verification
(3.62). The least most important factor in data disclosure was the time required
to provide the information (3.41).
Online Activity
Internet e-mail (e.g., hotmail/yahoo) proved to be the most popular online activity
among users (90.3%), while 78.5% had purchased goods or services online,
closely followed by online banking (78.4%), and paying bills online (e.g., to utility
companies) at 71.6%. One-to-one chat services such as Messenger were used
by 43.7% of respondents, while 23.9% had participated in group chat (e.g.,
Web-based).
215
Checking Privacy Policies

Contrary to previous reports (Culnan & Milne, 2001; Lessig, 1999, p.160), nearly
all respondents sometimes or always checked Web site privacy policies before
disclosing personal information (45.4% and 32.3%, respectively); this was
significantly higher than a U.S. report which suggested only 35% of consumers
did so (Princeton Survey Research, 2002). Only 20.2% of respondents reported
that they never check Web site privacy policies.
Complaining Behaviour
In the event of an unresolved complaint concerning the way a Web site processes
personal information, one-third of users (31.9%) would contact a consumer
watchdog organisation, followed by their Web service provider (26.3%), and
then the Privacy Commission (21.5%). However, nearly one-fifth (19.9%) of
respondents would do nothing.
Awareness of Privacy Legislation

Two-thirds of respondents were aware that there is privacy legislation in
Australia which encompasses both public and private sector organisations
(65%).
Privacy-Protecting Behaviour
Over half of the respondents (52.3%) had engaged in at least one method of
protecting their privacy. Of those, the most popular method was to use
anonymising software (60.6%), contrary to a survey of U.S. Internet users
which found that only 5% used such a tool (Princeton Survey Research, 2002).
This was closely followed by setting Internet browsers to reject cookies
(57.3%). Low-technology methods, such as setting up a separate e-mail account
for junk mail and faking personal information, also were popular (45.9% and
34%, respectively), while only 9.8% of users had sent encrypted mail.
Frequency of Internet Use

The majority of respondents reported high Internet usage, going online several
times a day (36%), or daily (32.3%). One-fifth of users accessed the Internet
216 Gould and Zhao
three to four times a week (21.2%), while the least frequent users (one to two
times per week) represented 9.8% of respondents.
Implications of the Findings for

E-Entrepreneurship and E-Business Ethics
One of the significant findings from the survey was that unlike other extant
studies, the majority of Australian Internet users were classified as privacy
concerned. This finding has profound implications for e-entrepreneurship and
e-business ethics.
As e-business deals with products and services in cyberspace, it is far more
complicated to legally control Internet activities than bricks-and-mortar ones.
Therefore, consumer privacy protection may be more of an ethical issue, rather
than a legal one. Unethical behaviours in e-business, such as abuse of information privacy, spam, illegal use of intellectual property, and so forth have
already greatly harmed the credibility of e-entrepreneurship and undermined
customers confidence and trust in online transactions and other e-business
dealings. As discussed previously, the consequence of such unethical behaviours
can be damaging not only to a single organisation, but to e-business as a whole.
Privacy and trust share an interdependent relationship; trust is both necessary for
and dependent on privacy (Fried, 1996, p. 212). Therefore, the basic constructs
of e-entrepreneurship should contain the notion of online ethical responsibility,
which requires e-entrepreneurs to safeguard the privacy of customers information in order to obtain their trust. For instance, this issue may be addressed by a
sound privacy management system which encompasses the principles of fair
information practice. These include:
1.
principle of openness,
2.
principle of individual access and correction,
3.
principle of collection limitation,
4.
principle of use limitation,
5.
principle of disclosure limitation, and
6.
security principle. (Bennett, 1992, p. 96)
There also are further practical implications for e-entrepreneurship. The survey
results indicated that the most important precursor to data disclosure for
217
individuals is the reputation or perceived trustworthiness of the organisation

involved in the transaction, while familiarity rates as third most important. This
suggests that establishing a reputable brand could be even more imperative for
e-businesses than for bricks-and-mortar organisations. Nonetheless, the results
of this research indicate that there is clearly an issue of consumer trust online.
The question that needs to be resolved, therefore, is how can e-entrepreneurs
foster trust in cyberspace? Of course, there is little physical affirmation within
online relationships or transactions, however, consumer trust is not unattainable
in the Internet environment. We cannot easily influence an individuals disposition to trust, however, we can consider the other constructs of trust. For instance,
online organisations may attempt to increase the perceived propriety of online
transactions by bringing privacy policies and opt-out notices to a consumers
attention prior to collecting their data. Reference also might be made to the
individuals rights under current legislation. An individuals initial trusting beliefs
also may be influenced by testimonials from other consumers, links to trusted
third-party Web sites, or membership of privacy Web seal programmes. Alternatively, the mistrust may be directed toward the Internet medium. Therefore,
the solution may lie within the education of Australian Internet users toward the
rights and resources available to them, not only by privacy advocacy organisations,
but on e-entrepreneurs Web sites and their related industry organisations.
Given that the study found that there is a relationship between information
privacy and certain demographic characteristics such as location and gender, a
sound approach for e-entrepreneurs would be to consider their target population
before developing data collection strategies. For instance, as the survey finds
that women appeared to be more pragmatic than their concerned male counterparts, Web sites with a female target audience could emphasise the value of data
disclosure what will individuals receive in return, while one targeting men may
want to accentuate how consumer information privacy is upheld. Interestingly,
however, males had the highest reported usage of privacy-enhancing tools (an
average of 1.22 tools out of a possible 5, compared to 0.93 reported by females).
In fact, over 10% more men than women had used at least one tool.
Finally, the study also found an inverse correlation between the constructs
experience and total privacy (as measured by responses to questions
regarding the OECD Data Protection Principles). Thus, inexperienced Internet
users had higher total privacy values than their experienced counterparts,
which is consistent with the findings from a number of studies (Culnan, 1993;
Stone & Stone, 1990; NUA, 1998). The implication of this finding is that eentrepreneurs should give special consideration to new Internet users by
introducing them to privacy-enhancing methods and technologies and reinforcing
their value.
218 Gould and Zhao
Conclusion
This chapter reports and discusses the results of an empirical study which aimed
to identify and model Australian Internet users online information privacy
orientations by combining specific demographic and attitudinal measurements
with behavioural data. The resultant privacy-sophistication index clearly illustrates the subjectiveness of online information privacy and groups Australian
Internet users according to a range of privacy-related characteristics, which
could assist e-entrepreneurs to further understand the role of information privacy
in cyberspace and hence better interact with customers in e-business operations.
Arguably the key finding from the survey is that the majority of Australian
Internet users appear to be highly sensitive toward online information privacy
and suggests privacy management must be an ongoing priority for e-entrepreneurs. This study also finds that there are differences in privacy-related attitudes
and behaviours between the sexes, although there does not appear to be a
significant correlation with any other demographic factor. Therefore, e-entrepreneurs who run gender-oriented businesses should consider the implications of
these findings in relation to their privacy protection strategies.
Although there are methodological limitations which may affect the validity of
the results, this study provides e-entrepreneurs with an in-depth insight into
Australian Internet users attitudes and behaviours toward online information
privacy, the knowledge from which, may be applicable cross-culturally.
Some e-businesses may choose to use information privacy practices as a market
segmentation variable (Culnan & Bies, p. 162), and the PSI profiles may assist
in this respect. There is evidence to suggest that good privacy can actually result
in gains to e-commerce, therefore, a proactive approach toward consumer
privacy may not only be socially responsible, but strategically sound.
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Endnote
1
Many of the Westin-Harris survey reports are available on the Privacy and
American Business Web site www.pandab.org.
E-Organisation
223
Chapter XII
E-Organisation and Its

Future Implication for
Small and MediumSized Enterprises
Gideon Azumah
University of Sheffield, UK
S.C. Lenny Koh
Stuart Maguire
Abstract
E-organisations are expected to be one of the promising organisational
forms in this Internet cultural era (ICE). E-organisations are different from
traditional organisations; and most traditional organisations are evolving
toward becoming e-organisations. These are organisations established
and operated, based on the Internet and other related technologies in an
environment referred to as Internet Culture, whereby organisations will be
placing the Internet at the centre of their business and encouraging
ubiquitous use of networked technologies. This chapter incorporates
several perspectives to examine how small and medium-sized enterprises
224 Azumah, Koh, and Maguire
(SMEs) use the network technologies and information and communication

technology (ICT) in their current business environment. Through the use of
a literature review and interviews, we analyse the various options for
managing the transformation and its effects to ascertain the appropriate
strategies within a range of SMEs. The results of this study reveal that the
SMEs journey toward becoming e-organisations can be classified into
three stages: 1/2-fusion; fusion; and the ultimate e-organisation stage.
Based on this work, strategic solutions are proposed for future SMEs
intending to adopt Internet and other network technologies.
Introduction
The Internet has gone from being a communication tool, used by a small sector
of professional society (academics and military) to something that has permeated
much of the business, corporate, and consumer world. Some of the largest and
most able technological and information consuming organisations have seen this
as an opportunity to create a totally new market for their products and services,
and some have concentrated much of their day-to-day operations expenditure
around the Internet to this end. This new technology has found a place in almost
all organisations, as diverse as charities, public services, and corporate business.
Both small and large enterprises have been motivated to use the technology,
driven by the fear that they may be missing out on a great worldwide business
opportunity by not being on the Internet, thus making them evolve toward
becoming e-organisations.
In this chapter, e-organisations are companies which are established and
operated, based on new technologies, such as the Internet and other related
network technologies in an environment referred to as the Internet cultural era
(ICE). The ICE can be defined as an environment where organisations are
placing the Internet at the centre of their business and encouraging universal use
of networked technologies for delivering their business processes, with emphasis
on transparent communication and readiness to innovate and take chances on
new ideas. Three economic entities, namely the government, organisations, and
individuals, are the key players in the ICE.
Furthermore, in the 21 st century and beyond, the Internet is one area of
technological development that has and will continue to revolutionise modern
organisations and the communication world like nothing before. It also is a
medium for collaboration and interaction between individuals, their computers,
and many business and non-business organisations without regard for geographical location. Shorter product development time, greater flexibility, mass-
E-Organisation
225
customisation, reduced costs, and higher expectations from customers are the
several outcomes envisaged in the ICE.
Despite the demise of the dot-com ventures in the 1990s, the use of the Internet
still has a strong and dynamic impact on todays economy. As early as 1997,
Schwarzer et al. noted that among the most frequently postulated characteristics
and advantages of new ICT and Internet-enabled organisation settings are: high
flexibility in a rapidly changing environment; customer-focused business and
service models; and increased competitiveness. From an organisational perspective, the Internet has grown into a tool for achieving timely delivery of quality
services and operational efficiencies, such as e-procurement, tele-working, and
online banking. In conjunction with this, much evolutionary network support
software on the use of the Internet within and across organisations to enhance
business efficiency and create sustainable competitive advantages have been
developed. The use of electronic data interchange (EDI) has become a
common underpinning technology to support exchange of information and
dealing with order transactions with suppliers in the supply chain. Increased
recent emphasis on the implementation of radio frequency identification (RFID)
in the physical logistics field also can be identified. Such developments would not
only support and strengthen the capability of organisations to manage business
processes electronically, either via the Internet, intranet, or extranet, but would
challenge the adaptability of the existing organisational form and the strategy
formulation method in the ICE.
In this chapter, the researchers incorporate several perspectives to examine how
small and medium-sized enterprises (SMEs) use the Internet and other network
technologies in their current business environment. It is anticipated that ICT will
be used to improve information flow, both internally and externally, with all the
benefit that this should bring to the organisation. In this chapter, we examine the
drivers that led SMEs to adopt the new Internet technologies and what strategy
formulation processes SMEs took to enable realisation of their e-organisational
goals.
Through a combination of literature review and interviews, we analyse the
various options for managing the transformation and its effects, to ascertain the
appropriate strategies within a range of South Yorkshire-based SMEs. Based on
this work, some strategic solutions are proposed for future SMEs intending to
adopt Internet technologies, in order for them to be able to overcome these
transitional, organisational, and information barriers. In addition, recommendations on how SMEs can use the Internet to innovate, create value, and enhance
and sustain their competitive advantages also are proposed. Finally, the authors
propose the key differences of e-organisations, the processes and structures that
must change, and those that must take their place to enable e-organisation to
function properly. The opportunities for developing strategic alliances are
analysed and used as the basis for further research.
Literature Review
The Internet is a powerful enabling technology that can be used, wisely and
unwisely, in almost every industry, and it plays a critical role in organisational
strategy formulation processes (Porter, 2001). However, the use of the Internet
differs among organisations. Over a decade ago, Maes (1994) noted that eeconomy enterprises were now focusing on strategic choices that companies can
make with regards to product innovation and novel coordination processes such
as electronic trading. Previous research on virtual organisations (Goldman &
Nagel, 1993; Hardwick, Spooner, Rando, & Morris, 1996; Byrne, 1993) concentrated on teamwork and individuals, and more broadly persons on computers and
machines linked to networks to perform global functions, information sharing
communities, gender, and cultural issues on the Internet. The near synonyms for
e-organisation are virtual organisations or e-enterprises, where the
organisation intensively uses network technologies, and the organisations and
individuals in it have a commonality of purpose or interest, which collectively
make up an identifiable and coherent business entity (Cothrel & Williams, 1999).
The concept of all forms of virtual organisations is still in its infancy (Franke,
1999). The term has been used to describe different forms of recent entrepreneurial activity that thrives on networking. Within a virtual organisation, technology is seen as a tool to provide for rapid communication among those with
common interests, and the human dimension would provide the stimulus to
encourage e-operations. According to Muller (2000), e-organisations are
organisations that use and continually explore the impact and benefits of
information and communication technology (ICT) tools on organisations and on
the markets in which they operate.
The early 1990s introduced the concepts of virtual organisations, e-enterprises,
e-organisation, and all the e-terms as a particular form of corporate network
organisations. The term virtual organisation was first coined by Mowshowitz
(1986); the academic world paid little attention to this new organisational form
and even now there is still little work done on e-organisations in SMEs. However,
growing interest was identified in virtual organisation after Davidow and Melone
(1992) worked on the virtual corporation. Such work has spawned many
researchers to start researching on e-commerce and e-business, although these
were applied in large enterprises, there is no reason why such a concept and
application cannot be adopted to modern SMEs.
Many authors have created a variety of different e-terms and definitions to
describe this new form of network organisation that has caused confusion in the
e-terms, where sometimes their underlying concepts overlap, in short virtual
organisations or e-organisations can serve the overall functions and needs of any
kind of organisation that actively uses network technology to achieve its business
E-Organisation
227
goals and mission (Byrne, 1993). E-terms such as virtual company (Goldman &
Nagel, 1993), virtual enterprise (Hardwick et al., 1996), and virtual factory
(Upton & McAfee, 1996) can all fall under the umbrella of e-organisations and
be applied to modern SMEs, but that has not been actively researched.
Byrne (1993) developed a virtual corporation model and stated in the definition
that virtual corporations is a network of independent companies suppliers,
customers, and even rivals linked by information technology to share skills,
costs, and access to one anothers market. The corporate model is fluid and
flexible in that a group of collaborators could quickly unite to explore opportunities. We foresee that SMEs are among the modern day organisations that can
exploit these benefits (and not only the large organisations).
A network technology such as Internet, intranets, and extranets plays a central
role in the development of the e-organisation. Individuals in different organisations
work together and cooperate with others concurrently rather than sequentially
via computer networks in real time to fulfil business activities. These areas which
SMEs can explore, have not received much research attention. In the context of
establishing strategic alliances with suppliers, the network technology could
support supply chain management (SCM) through improving efficiency in the
procurement of items from suppliers, reducing inventory requirements, expediting design and orders, and engaging in mutually beneficial collaborations with
suppliers. For example, through the use of an e-procurement tool, a paper
manufacturing company in China managed to provide visibility of data and
leverage supplier negotiations for the centralised purchasing group. The tool
allows the company to control their suppliers when purchasing operating
resources; hence, it has resulted in cost savings (Koh, Dong, & Arunachalam,
2004). The tool also interfaces with SAPs material management (MM),
financial/accounting (FI), and controlling (CO) modules; therefore, it automates
many purchasing and payment tasks. Although this was applied in a large
enterprise, there is no reason why such a concept and application cannot be
adopted to modern SMEs.
Additionally, it has been noted that the opportunity to apply Internet technology
exists all along the company and industry value chain systems, offering considerable potential for improving operating efficiency, reconfiguring value chains,
and lowering costs (Yen & Ng, 2002). The study also suggested that various eprocurement software packages reveal that the purchasing processes can be
streamlined to eliminate or reduce considerable manual handling of data and by
substituting this with electronic communication (e.g., e-quotation, e-purchase
orders, e-acceptance, and e-shipping notices).
In contrast, inappropriate use of the Internet could result in business failures
(e.g., selling inferior products over the net.) If one customer has a bad
experience, they would tell many of their friends about it. With the global
efficiency of the Internet, this news can easily spread on a larger scale. Hence,
online businesses need a better understanding of appropriate organisational
strategy formulation processes in order to sustain their competitive advantages.
Large, well-established organisations generally manage their business processes
using the foundation of the traditional economy (i.e., rigid information sharing
and low strategic network collaboration). Therefore, they might experience
greater difficulties in adapting to the ICE than the new entrants and SMEs, which
are usually set up with incorporation of the concept of the ICE. Nevertheless,
large and well-established organisations might be better suited to take advantage
of the Internet if they are prepared to invigorate their business strategies. They
possess much of the required complementary assets and resources for developing and carrying out the ICE initiatives (Tripsas, 1997). Also, they tend to offer
a mix of clicks and bricks and are better known than new entrants and SMEs,
thus giving them the benefit from an increased customer trust (Steinfeld, Mahler,
& Bauer, 1999; Gulati & Garino, 2000).
To date, the existing organisational and management theory that examines the
virtual network organisation is not clear and does not provide more than a basic
explanation about boosting technological developments related to emerging
business opportunities to be seized by flexible organisations in a global, volatile
marketplace (Burgess, 1994). Similarly, no in-depth analysis has been carried out
regarding the management of virtual organisations and the key success factors
that play a decisive role on the viability and potential success or failure of these
fluid organisations (Davidow & Malone, 1992).
This review shows that SMEs requires clear support to compete in the ICE.
Despite the extensive research, mainly in large enterprises, that showed success
of the use of Internet and related network technologies, little can be found that
signifies the adaptation of those strategies in SMEs. Although the fusion SMEs
are innovative and able to differentiate themselves in the market, they are not
fully incorporating Internet and the related network technologies into their core
business and hence are not regarded as a type of e-organisation. SMEs face
greater pressure than their counterparts in the supply chain. Hence, to be able
to formulate clear strategy to compete in the ICE and make the desired
transformations, e-organisation will be valuable to SMEs.
Based on the findings from the literature review, an empirical study has been
carried out among 24 South Yorkshire-based SMES to identify the emerging
forms of organisations in the ICE. In addition, we explored the adaptability of the
existing strategy formulation processes for these organisations that would enable
them to create sustainable competitive advantages, innovations, and developments.
E-Organisation
229
Many Internet and organisational scholars find it difficult to choose the best
research methods for the new Internet organisations. Relevant research has
generally been fragmented and narrow in scope, making comparisons difficult
(Bradley, 1999). Though there were many communication media available to us,
such as face-to-face, mail, e-mail, and telephone, we chose telephone interviews
as our primary method of collecting the required data for this research. This
allowed questioning of appropriate individuals in the SMEs to elicit particular
information to look for patterns among facts, values, and behaviours to make
generalisations and conclusions. The main attraction of telephone interviewing
is that it enables us to collect the research data from the appropriate individuals
more cheaply and quickly.
The empirical study involves telephone interviews with 24 organisations based
in South Yorkshire that were randomly selected from the Chamber of Commerce
database of SMEs in the region. The 10th number was drawn from a poll of 1 to
20 numbers and was used in selecting the target SMEs. Some 56 organisations
were originally contacted from the database using a random selection of every
10th SME on the list by e-mail and only 24 agreed to participate in the study.
These included manufacturing, engineering, service, and IT-oriented. The
interviewees range from director or owner-manager, and IT personnel to general
managers. Only one interview per company was conducted. The verification of
results was carried out through a telephone follow-up.
A mix of closed and open-ended questions is included in the questionnaire
instrument, which was designed to conduct the structured interviews. This
provided a collection of quantitative and qualitative data, and enabled comparison
based on rating, ranking, and individual contextual analysis. The quantitative data
was analysed using SPSS.
Results, Analysis, and Discussions

The results of this study have revealed that the SME journey toward becoming
e-organisations can be classified into three stages: 1/2-fusion; fusion; and,
ultimately, e-organisation stage. Figure 1 shows the proportion of these emergent
organisational forms.
The 1/2-fusion organisations are those with minimum use of the Internet and
network technologies. Their main business processes are still managed by using
Figure 1. The emergence of organisational forms
80
60
40
20
0
1/2 Fusion
Fusion
E-organisation
the traditional economy approach. Such technology is perceived to be an addon rather than an integral part of their business, for example, an organisation that
has a basic Web site and uses e-mails for internal and external communication.
The fusion organisation is one with committed and intensive use of the Internet
and network technologies. Their main business processes are managed by using
these technologies, and they perceived such technologies as an integral part of
their business, for example, an organisation that uses e-commerce. The eorganisation is one that uses these technologies as the core of the business for
managing the entire business processes, from the point of receiving a customer
order, to processing the order and parts, and supplying and delivery, for example,
an organisation, that uses e-business or online business. Based on this classification, the results indicated that none of our samples qualified to be an eorganisation. The evolution toward becoming e-organisation is not far removed
from the fusion categories as could be seen in Figure 1.
Table 1 shows the sizes and industrial sectors of the emergent organisational
forms. It was found from this study that almost 80% of the SMEs in the sample
are fusion organisations. They were mainly high-tech SMEs. In the near future,
it may be possible for the fusion organisations to evolve very rapidly to become
e-organisations. The remaining 20% of the SMEs that formed the 1/2-fusion
organisations are mainly from the service sector. The fusion organisation was
found to be the most complex due to simultaneous operations of both traditional
and network techniques. The majority of these forms are based in the manufacturing, service, and IT sectors. The results showed that various sizes of
enterprises would emerge over time, which can take the form of e-organisation.
Since 96% of our sample is SMEs, the results would only be inferred to the SMEs
environment.
Figure 2 shows the results of the drivers or motives for using the network
technologies. We explore the motives why SMEs implement these new network
E-Organisation
231
Table 1. Size and industry sectors of the new organisational forms

Industrial Sectors
Size
Manufacturing IT
Small
(1-49 3
4
employees)
Medium
3
1
(50-249
employees)
Large (>250 1
0
employees
Types
of A
1
5
emerging
B
6
0
forms
of C
0
0
organisation
Total
7
5
Service
8
Engineering
0
Others
2
Types of emerging forms

of organisation
A B
C Total
3
14
0 17
6
3
0
1
0
0
1
1
0
0
5
0
19
0
0
0
0
0
19
5
0
19
24
Keys: A: Fusion, B: Fusion and C: e-organisation
Figure 2. Driver for using network technologies

100
Reasons
More
Purposes
Business or
Advertising
80
60
Percent
40
20
0
Fusion
Fusion
technologies and use other forms of ICT tools. The results revealed that the
fusion organisation has more than 90% intention of using these technologies than
the fusion in organisational management, advertising their products or image
to the whole world, channel of creating business, and so forth,. In addition, both
fusion and fusion SMEs have shown that they do not fully exploit the Internet
and other network technologies regardless of their organisational forms. The
result reinforces suggestions that SMEs are slow in Internet uptake in the UK.
We also tried to examine the number of visitors to SME Internet sites and the
reasons for such frequency. It must be noted that the reason for visiting these
sites could not be accurately accounted for because there is no means of
recording whether the visitors indeed were of any real benefit to the SMEs. The
results also indicated that fusion SMEs attracted more visitors than the fusion
SMEs. The reason was that fusion SMEs have more use of the Internet and other
network technologies than the fusion SMEs. For example, the use of online
order taking by the fusion SMEs has created many repeat purchases and
supported e-customer relations management (e-CRM). Nevertheless, the
fusion SMEs are not in a position to fully incorporate e-CRM (Jelassi & Enders,
2005), in their business due to lack of true understanding of its impact as well as
resource and skill shortages.
Figures 4 and 5 show whether the Internet, other network technologies, and ICT
help or facilitate SMEs to remove some organisational and geographical barriers.
A positive result indicated that both organisational and geographical barriers for
both staff and customers have been reduced. This view also was supported by
Bannett, Greve, and Park (1994) who stipulate that the impact of the Internet on
business processes and communication has increased access to such a large
audience and range of people, and this increased the ability of organisations to
leverage the value of information to a scale that has never before been possible.
The impact of the Internet, other network technologies, and ICT on the decisionmaking process has revealed that these technologies help to facilitate faster
decision-making. Figure 6 shows once again that fusion SMEs who incorporate
Figure 3. Number of visitors to SMEs site

100
Visitors to Site
>10000
8000-9999
5000-7999
3000-4999
<2000
80
60
Percent
40
20
0
Fusion
Fusion
Figure 4. Breakdown in organisational barriers

100
Within
Organisation
80
Very
Greatly
Greatly
Good
60
40
20
0
Fusion
Fusion
E-Organisation
233
Figure 5. Breakdown in geographical barriers

100
Geographical
Barriers
Very
Greatly
80
Greatly
60
Per cent
Good
40
20
0
Fusion
fusion
Figure 6. Time taken in decision-making

100
DecisionMaking Time
80
Very
Quickly
60
Quickly
Good
Percent
40
20
0
Fusion
1/2 fusion
much of the Internet and other network technologies into their day-to-day
business activities take a shorter time to make a decision than the -fusion
organisations owing to the need of a quick response to customer demand.
Increasing the speed in decision-making is essential. Norburn & Birley (1998)
noted that success goes to firms that value experimentation those that utilise
trial and error are able to gather data quickly and assimilate it and those who
accept failure, learn from it. With the support from the Internet and other
network-related technologies, the results clearly demonstrated that fusion SMEs
have reaped success from this.
Furthermore, the interview also revealed that SMEs leaders and managers
expectations on the use of the Internet both now and in the future are 100%
positive. This unequivical belief means that they are planning to use Internet and
related network technology more fully, but they need a clear strategy formulation
process for their transformation to e-organisation. We can infer this outcome has
pointed to both management researchers and managers to put in more effort to
reveal and exploit more of the business benefits of using the network technologies through further research and innovative exploitation.
Figure 7. Organisational efficiency

100
Very Greatly
Greatly
Good
80
60
P er cent
40
20
Fusion
fusion
Figure 8. Organisational innovation

Organizational
Innovation
100
Very Greatly
Greatly
Good
80
60
Percent
40
20
Fusion
fusion
In the ICE, every business manager has a deep concern over strategic issues.
Thus, these important business elements were not ignored in this research. The
strategic elements covered were whether the Internet, other network technologies, and ICT had brought any efficiency, innovation, and flexibility in the studied
organisations. The results showed that the fusion SMEs again were harvesting
more of the strategic gains than the fusion SMEs. These results are shown in
Figures 7 and 8.
The interview results suggested that it is through the Internet and other network
technologies that SMEs have been able to put their business on the Web to offer
products or services nationally or internationally and also to be able to compete
effectively. Also, for these SMEs to succeed, they need to identify their set of
E-Organisation
235
core competencies and to determine what kinds of competencies online competitors bring to the scene. They will then leverage alliances strengths to gain a
competitive advantage. It can be added that, for SMEs to succeed in the future
they will need to drop the heavy attachment to the traditional method of doing
business and switch fully to an e-organisation methodology. They also will need
to find a way to leverage their strengths in such a way that they can offer
something better than their traditional competitors who do not use the new
network technologies. To leverage their strengths, it was suggested that
organisational innovation could play a critical role. These innovations range from
better selection, better service, better prices, and more interesting photos, and
brief, but eye-catching, articles on Web sites. This type of innovation has been
successful in attracting attention and inviting repeat buyers for the fusion and
fusion SMEs.
It must be noted that none of the sample organisations have reported any bad
encounters in all of the aspects we investigated, namely, breakdown in
organisational barriers, breakdown in geographical barriers, time taken in
decision-making, organisational efficiency, and organisational innovation. The
next stage of the study is to enlarge the sample to reveal both success and failure
of these organisational forms.
Conclusion
This study has found that the application of the Internet and other related network
technologies promise significant returns to SMEs. In particular, using Internet
technologies both within enterprises and across the supply-chain could provide
a real opportunity, not only for operational improvement but also for innovative
strategic positioning. However, significant questions and fear of risk obscure
potential investment in these technologies. The technical know-how and expertise on how to create value from it is still a big problem impeding many SMEs
evolving toward becoming e-organisations and, more importantly knowing how
this value will be shared and exploited among other SMEs is not fully realised.
Based on these findings, we conclude that the business strategies identified from
these fusion and 1/2-fusion organisations that are adaptable to achieving eorganisation in the ICE are:
Size of organisation appears to not be a factor to be competitive.

Success of organisations does depend on effective use of the Internet.
Success of organisations does not solely depend on the use of high-tech

network technologies.
Strategic partnerships with suppliers is a prerequisite.
The action plan for companies to strive toward e-organisation status could
include training on the use of the Internet, subcontracting e-commerce, a kind of
keiretsu network, and building strategic alliances.
It must be noted that the findings identified are based on the current respondents
available. However, the initial conclusion on the three types of emerging organisational
forms is valid and could be further expanded. The overall results show the lack of
adaptability of the existing business strategy formulation in the ICE.
Acknowledgment
The authors would like to acknowledge all the SMEs directors, owner-managers,
IT personnel, and general managers who responded and cooperated with us in
this study.
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238
Pavic, Simpson, and Koh
Chapter XIII
A Prototype E-Business
Model to Create a
Competitive Advantage
in SMEs
S. Pavic
M. Simpson
S. C. L. Koh
Abstract
This study explores new ways for SMEs to create a competitive advantage
through the use of e-business. It examines the level of ICT use in SMEs and
identifies the drivers and barriers which owners/managers face in adopting
e-business. Furthermore, it explores the degree of awareness amongst
SMEs of the opportunities available to them for developing their employees,
their business strategies, and their attitudes toward the range of initiatives
and options, on the use of e-business. Industry behaviour and organisational
culture in relation to the creation of competitive advantage through eCopyright 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written
A Prototype E-Business Model to Create a Competitive Advantage
239
business also are explored. Case studies and literature review are used to
collect information from and about SMEs in the UK. The results of these are
employed to propose a prototype business model, named CATE-b
Competitive Advantage Through e-business.
Introduction
The economic environment in which businesses find themselves today is perhaps
the most turbulent in history. It is dominated by three powerful influences:
globalisation, knowledge and information revolution, and structural change of
organisations (Booz Allen Hamilton, 2002). Therefore, in this new era of the eeconomy, the traditional starting point for strategic business thinking in small
and medium-sized enterprises (SMEs) is no longer appropriate. Small
Business Services statistics show that SMEs are the backbone of the UK
economy (99.8% of all UK businesses), yet, they are slow to adopt e-business
as the basis for business communications and transactions (DTI, 2003). This may
inhibit their current and future operational efficiency and innovation by limiting
the competitive advantage that e-business could bring to their businesses.
Aims and Objectives

Thus, this chapter focuses on the following areas:
1.
Review both academic and practitioner literature related to IT, e-business,

and different business models, which have arisen due to recent technological advances.
2.
Identify the drivers and barriers which owners/managers face in adopting

e-business.
3.
Investigate the degree of awareness amongst SMEs of the opportunities

available to them for developing their employees and their business
strategies.
4.
Analyse attitudes toward the range of initiatives and options, and the degree
of take-up, on the use of e-business.
5.
Develop a competitive advantage through e-business (CATE-b) prototype

model for SMEs to facilitate organisational effectiveness and speed in the
new era of e-economy.
240
As the last aim suggests, the outcome of this research is a new prototype CATEb model. Its development was underpinned by the general alignment models
(Scott Morton, 1995; Chen & Ching, 2002; Fillis, Johansson, & Wagner, 2003),
was based on advanced theories and reasonable assumptions, and was shaped
throughout by interviewing practitioners in nine SMEs. The prototype model
represents a framework for the development of an e-business strategy for
SMEs. Pragmatically, it was assumed that such SMEs would like to build their
e-business strategy on the existing technology without taking the radical approach to e-business.
The primary research methods used for this chapter were literature review and
interviews with nine owners/managers of SMEs. A viable prototype of an ebusiness model was constructed based on the literature reviewed and nine case
studies. This study has adopted an exploratory research approach (Yin, 2003)
with the purpose to provide a level of understanding of SMEs behaviour, their
adaptability to the new economic demands, and the possibility of creating
competitive advantage by using e-business. This research is based on a multiple
case study methodology (Yin, 2003) in which semi-structured interviews were
used to collect data from SMEs owners/managers. Considering the well-known
difficulty in obtaining real-life data of this kind, the choice of companies in which
to carry out the study was pragmatic and opportunistic, rather than purposive.
Access to all companies was achieved via senior managers who were all
personally known to the researcher. The role of the researcher was to interpret
events (Yin, 2003). Two detailed in-depth case studies are reported here and
summary results are provided for the other seven SMEs investigated.
Literature Review
Internet usage continues to grow strongly throughout the world. In contrast to the
field of dot-coms, many traditional firms have found viable applications for the
Web technology (Coltman, Devinney, Latukefu, & Midgley, 2001). The
dynamic development of information technology has resulted in major reforms
of the traditional business environment and the way business is performed.
Spearheading this transformation is the continuous spread of the Internet whose
users all over the world will probably reach 1 billion in the next 10 years (Mentzas,
241
Halaris, & Kavadias, 2001). This is already offering enterprises the ability to
make direct contact and easy electronic transactions with clients throughout the
world, often resulting in dramatic cost decreases and impacting severely on the
way enterprises seek a competitive advantage. As a consequence, the Internets
role has been enlarged from a global communication vehicle to a key platform for
global business development (Apostolou & Mentzas, 1999).
The performance of SMEs is an important issue for the economic growth of
modern societies. It has been suggested that if SMEs are to create a competitive
advantage in the new e-economy, they need to rethink their strategies, improve
their attitudes toward the ever-growing need for change, and enhance their
existing skill profile (DTI, 2003). To deal with these global changes and
influences and to still keep their competitiveness, SMEs need government
support end encouragement (Bennett, Robson, & Bratton, 2001). During the past
three years, the UK Government has spent 67m, more than any other country,
on a comprehensive programme to get UK businesses online. The aim was to
increase the e-business readiness of SMEs (Booz Allen Hamilton, 2002). The
challenge for the government was to convince generally reluctant SME owner/
managers of the need to listen to external advice and persuade them to act on that
advice. However, many owners have fervent beliefs about the uniqueness of
their business, which leads them to become doubtful about new advice (Simpson
& Docherty, 2004).
SMEs Competitiveness in the New E-Economy

The term competitive advantage is one of the most enduring themes in the
business strategy literature, and its theories have been well established (Porter,
1985, 1986; Ansoff, 1965; Barney, 1991). Porter (1995, p. 16) points out that the
idea of competitive advantage underpins many business books. He defined it as
the value a firm is able to create for its buyers that exceeds the firms cost
of creating it (Porter, 1985, p. 3). Based on Porters definition, that competitive
advantage is the result of the strategies adopted by a firm with a purpose to add
value to customers. This will consequently position a firm advantageously and
enable it to compete over a period of time. The overall argument is that a
company has a competitive advantage when its profit rate is higher than the
average for its industry, and it has a sustained competitive advantage when it
is able to maintain this profit rate over a number of years. The well-known basic
condition to gain a competitive advantage, which must be satisfied, is that the
amount of value customers place on the companys goods or services must
exceed the cost of production. In other words, the concept of value creation lies
at the heart of competitive advantage (Porter, 1985).
242
In the traditional model, managers concentrate on being effective and competitive by putting well-understood products on the market. However, at the
beginning of IT expansion in the early 1990s, Venkatraman (1994) argued that
to invent value in the new environment, managers must reverse traditional
thinking about the value chain in which businesses define themselves in terms of
their products. Since then, many other researchers have supported the idea that
in the new world of e-technology this traditional value chain needs to be reversed
(Poon & Swatman, 1999; Kalakota & Robinson, 2001; Daniel, 2003). Thus, the
new challenge posed by the business revolution is that if SMEs are to remain
competitive they must achieve mastery of information and relationships in the
new virtual e-economy.
Drivers and Barriers in Adopting E-Business

Despite the fact that 1.9 million small businesses in the UK are connected to the
Internet, surpassing the governments original goal of 1.5 million (DTI, 2003), the
UKs Federation for Small Businesses (2002) research indicates that the use of
the Internet by SMEs is still relatively undeveloped. SMEs still tend to use the
Internet only to send e-mails, transfer files or documents, or gather information.
Although this statistical evidence suggests that new media technologies are
being used by SMEs, Table 1 shows a range of factors thought to be influencing
SMEs and their managers when deciding whether or not to adopt and invest in
modern technologies.
E-Business
There is no universally accepted definition of e-business. To make the term ebusiness clearly understood, in this chapter, we adopted the definition used by
IBM (Van Hooft & Stegwee, 2001, p. 44):
A secure, flexible, and integrated approach to delivering differentiated
business value by combining the systems and processes that run core
business operations with the simplicity and reach made possible by Internet
technology.
E-business is a powerful vehicle for different kinds of improvement within a
company. It can be used for effectively managing the transformation of a
traditional business strategy that represents the old economy into a new strategy
for the e-economy that symbolises a modern and visionary business approach
243
Table 1. Examples of drivers and barriers for adopting an Internet strategy

in SMEs
Drivers
Improve business competitiveness (Chapman
et al., 2000)
Opportunity to try out new e-business models
(Sadowski et al., 2002)
Availability of better and faster
communication and information channels,
accessible global market (Chappell et al.,
2002)
Opportunities, based on cost, rather than for
strategic reasons (Sadowski et al., 2002)
As a company grows in size it becomes more
difficult to communicate with its customers so
that e-business and the Internet become more
important (Daniel & Myers, 2000; Actinic,
2002; UK Online, 2002)
External pressures by new customers and their
value proposition of what, when, and how
they want it, at the lowest cost (Kalakota &
Robinson, 2001)
To enhance customer relationships (Daniel &
Myers, 2000); UK government provides help
from the point of view that the Internet is a
good thing (Martin & Matlay, 2001)
The Internet as a lifesaver for ailing
businesses (Wroe, 2002)
Technology brings more flexibility, and SMEs
are more adaptable to change because of their
size (Carrier, 1994; dAmboise &
Muldowney, 1988); SMEs can act faster
(Katz, 1970) and are more receptive to new
ideas and techniques (Hitt et al., 1991; Woo,
1987)
The Internet provides less costly and a more
effective channel for advertising, marketing,
and distributing goods and information
services (Verity & Hof, 1994; Hoffman &
Novak, 1996)
As data has become more abundant and less
costly, SMEs could use information in a more
sophisticated way (Fann & Smeltzer, 1989)
Barriers
Lack of SME information pertinent to SMEs (Chappell
et al., 2002)
Mistrust of the IT industry (Van Akkeren & Cavaye,
1999)
e-technology readiness and adoption vary by industry
sector (Bodorick et al., 2002; Martin & Matlay, 2001)
Limited resources in terms of time and effort to
incorporate IT facilities (Chappell et al., 2002).
The older the SME the less likely they were to use etechnology (Daniel & Myers, 2000; Simpson &
Docherty, 2004)
High running costs, lack of awareness of what etechnology involves, shortage of technological skills,
insufficient knowledge and education, absence of help
and time (Darch & Lucas, 2002)
Perceived benefits by owner/managers in SMEs
(Iacovou et al., 1995; Kirbi & Turner, 1993; Thong &
Yap, 1995) Owner/managers do not necessarily think
that the Internet is a good thing.
Most businesses prefer to use ICT to augment changes
in how they connect with their customers and reduce
costs through more efficient management of their
internal processes (UK Online, 2002)
Lack of education, IT skills, and computer literacy as
well as unwillingness of managers to be responsible for
technological change (Kalakota & Robinson, 2001;
Kirby & Turner, 1993; Thong & Yap, 1995; DTI,
2003; Local Future Group, 2001)
SMEs lack the human and financial resources and
capabilities of large firms (Ettlie, 1983; March, 1981);
lack of financial resources makes it critical for SMEs to
pick their strategies carefully (Lynn et al., 1999)
Many SMEs use computers only to send e-mails and
set up simple Web sites (DTI, 2003); slow rollout of
broadband has also frustrated many SMEs (FSB, 2002)
(Van Hooft & Stegwee, 2001). Although e-business allows for the extended
organisation to be connected together (Van Hooft & Stegwee, 2001), it is still a
relatively new and underdeveloped practice in UK SMEs (Waters, 2000;
Federation for Small Businesses, 2002). Therefore, for owners/managers who
have become aware of the benefits associated with e-business applications and
wish to duplicate these results, knowledge and understanding of e-business and
its practices are essential (Kalakota & Robinson, 2001; Local Future Group,
244
2001; DTI, 2003). Interestingly, King and Clift (2000) argue that e will soon
be dropped and that e-business will be business as it comes to be generally
understood. The key to e-business success is to understand how customers work
as well as adapting the management of the business. It is a simple yet powerful
concept which connects customers, employees, suppliers, and distributors to the
business systems and information that they need (Van Hooft & Stegwee, 2001;
Rodgers et al., 2002; Koh & Maguire, 2004).
E-Business Models
The emergence, growth, globalisation, and interest in Internet technology have
resulted in the creation of various e-business models relating to Internet
strategies. There are many e-business models, but not all of them are suitable for
this study. To make the classification of these models easier, we identified three
different kinds of e-business models:
supply-chain management-based models,

operations-based models, and
strategic models.
Since this chapter focuses on the area of strategic management, we aimed our
research toward the strategic approach to e-business models. These models,
presented next, propose a fairly solid base for the adoption and integration of ebusiness strategy in an organisation. However, these existing models are lacking
the unity that brings the industry, IT, an organisation, and human factors together.
For example, Afuah and Tuccis (2001) framework offers strategies and tactics
for this new electronic era and is valuable for both researchers and managers
trying to make sense of this new world. On the other hand, Jelassi and Enders
(2005) take a more classical approach, applying the ideas of Porter (1985). None
of these approaches appear to give a complete picture of what is actually needed
to create a competitive advantage in SMEs using e-business. This suggests that
a new e-business model is needed which supports the following goals: customer
focus, the Internet technology as a core competence, organisational readiness,
lower cost, and greater efficiency. Only by integrating the Internet into an overall
strategy will this powerful new technology become an equally powerful force for
competitive advantage (Porter, 2001). The main problem to date is that this has
not been done to any meaningful extent (Wagner, Fillis, & Johansson, 2003).
The MIT90 Framework is a model that uses IT-based capabilities of the
organisation (Morton, 1995). In this model, an organisation can be viewed as
245
being composed of five interrelated components: management processes, structure, strategy, technology, individuals, and roles. These components closely
interact with one another, so changes to any of the components will require
changes to the others to bring their objectives and activities back into alignment.
This framework was originally developed to guide organisations through their
adoption of IT as an organisational and strategic resource from their computerautomated environments (i.e., data processing, automated reporting, computer
integrated manufacturing, etc.). This was done in the context of the traditional
business model. It is looking at micro-factors affecting the adoption of e-business
and not individual factors. The underlying assumption in the model included the
adoption of a new organisational strategy and IT. For the organisation to benefit
from this shift, all parts must be designed to work together. However, the MIT90
framework does not suggest its applicability to e-business (because it is a
business model with a focus on IT) or indicate the sequence of events that leads
to success.
A framework for moving to an e-business model was developed by Chen and
Ching (2002). This model is based on the MIT90 framework and its purpose is
to guide the successful transition from a traditional organisation to an e-business
model. In this model, it is suggested that all aspects of organisational operations
must be synchronised and co-aligned. The authors suggest that the organisation
needs to first change its strategy and technology, which is in line with the ideas
of Morton (1995). The authors believe that this will determine the structure,
management process, individuals, and roles. They draw upon resource-based
theory, which will bring sustained competitive advantage to the organisation.
However, this model does not take into consideration the owner/managers
attitude toward change, organisational readiness, and stages of adoption, external pressure, size and age, IT skills and knowledge, and so on. This is a major
limitation of the approach by Chen and Ching (2002).
A conceptual model of e-business development has been developed by Fillis et
al. (2003). This conceptual model attempts to consider how a range of internal
and external factors influence attitudes toward e-business, as well as its
implementation as part of the companys business strategy. Factors considered
in the model are: macro-factors, industry/sector factors, and firm/managerial
factors. Many important factors that might influence successful adoption of an
e-business strategy have been taken into consideration, however, this is a
theoretical model and has not yet been tested so far as we know. In addition, this
model does not suggest when structural changes will occur and what will happen
at the macro-level, industry-level, and firm-level. In reality, it only presents
barriers and benefits of e-business adoption rather then the sequence of events
that could lead to success.
246
Results and Analysis

The following sections give an overview of the background and the level of ebusiness integration in the selected companies. Two case study companies were
analysed in detail on the basis of both being manufacturing companies and both
using e-business applications. These characteristics made the comparison
possible. The remaining seven case study companies were discussed separately
due to their diversity and general lack of e-business usage.
Case Study 1: Gripple Ltd

Gripple Ltd is a Sheffield, UK-based manufacturing company founded in 1988.
The company employs 147 people and had a turnover of 14.6m in 2004. The
Gripple is a device invented by the chairman of the company and is recognized
as the worlds most innovative way of joining, tensioning, terminating, and
suspending wire and wire rope. Most of their products are exported, and they
have a number of sales offices and agencies around the world but all manufacturing takes place in Sheffield. The company is strategically driven and highly
innovative in applying the latest manufacturing technology to new products.
Innovation through new product development has remained the core of the
companys successful strategy. Due to strategic and operational positioning, the
company invested in technology right from the beginning. Now, the company has
an enterprise resource planning/just-in-time (ERP/JIT) system, and has a very
strong research and development (R&D) department. Their latest technological
investment is in a novel Loadhog (a reusable device for securing boxes to a
pallet instead of shrink wrap plastic). This forward-thinking strategy and
investment in the appropriate IT infrastructure has opened a wide global market
to the company. In terms of ICT, the company is successfully using e-mails as
an efficient internal and external communication tool, a Web site which positions
them in the worldwide market, and e-commerce where they are able to order and
pay online and maximise accessibility and speed. Nevertheless, the company is
disadvantaged in the area of supply chain integration with other companies
whose owners/managers are lacking the same enthusiasm for IT investment and
are preventing Gripple from achieving full e-business integration. For example,
the companys managers still need to use a telephone and fax machine to make
sure that final material orders and deliveries are taking place as planned. This is
due to a high percentage of human errors experienced in the past and the lack
of appropriate IT infrastructure in their suppliers. To complete the supply chain,
Gripple Ltd may need to help their business partners (suppliers and customers)
by defining hardware/software/Internet service provider configurations, which
247
would consequently emphasize the importance of close relationships between

supply chain partners as a prerequisite to adopting e-business. In particular, the
company may need to initiate the building of an electronic business to business
(B2B) and business to customers (B2C) relationship. These can be realised by
using an extranet that enables the company to share part of the businesss
information or operations with suppliers, vendors, partners, customers, or other
businesses. This will enable business partners to develop a real appreciation of
the power of the Internet.
Case Study 2: SMP Europe

SMP Europe is a Yorkshire, UK-based motor vehicle parts manufacturing
company with 250 employees and a turnover of 15m in 2004. SMP Europe was
trading under a different name until 1996. The original company was formed in
1967. The company expanded gradually over the years. However, their main
products were copies of original motor vehicle parts, and the company performance had reached a peak and business had started to decline in the early 1990s.
Thus, the company went from winning to losing rather quickly, as they did not
have the ability to generate new value through innovation. They also ignored
rapid advances in technology, and their rather outdated computers brought a
previously very successful company to a standstill. The control of the company
was poor, with low efficiency and high production costs. Lack of investment in
better technology and the declining stage of the industry life cycle (producing
copies of original parts) forced the owner of the company into a joint venture with
a firm in the United States. However, in 1996, SMP Europe took back a
controlling interest in the original firm, and they are now a wholly-owned
subsidiary. In 1999, the owner of the company realised that their future was in
innovation rather then in making copies. As a result, another company was
acquired. This positioned SMP Europe as a manufacturer with an innovative
marketing approach. Moreover, in 2002, they invested 1m in a new IT
infrastructure. Due to a previously poor IT infrastructure, it took 18 months for
the company to come back to where they started from before the IT upgrade.
They also invested in staff training, a new telephone system, a new enterprise
resource planning (ERP) system, and a new customer database. These investments were only a start for the company in terms of e-business applications.
They are now willing to learn from their mistakes and try to keep up with the
latest technological advances in the future.
248
Analysis of Two Case Studies

Although both enterprises have an annual sales turnover of approximately 15m,
it is interesting to note that Gripple Ltd employs almost 50% less staff than SMP
Europe. In the interview with SMP Europe, it was confirmed that this is because
the company employs low skilled staff and the organisation is not using their new
IT infrastructure to its full potential. On the other hand, Gripple Ltd has an almost
fully integrated system and it is only waiting for suppliers and customers to
participate in technological advances to complete the integration of their supply
chain. SMP Europe, who is presently on the brink of integration, showed that
managers of profitable companies must anticipate the need for self-transformation and change when they can, not only when faced with difficulties. Their
refusal to change resulted in stagnation of the business and loss of the ability to
generate new value through innovation. The company went from winning to
losing as they ignored rapid advances in technology. Our point here is that
technology and e-business strategies should be treated as simply another
technique for reinventing or rather rejuvenating the business.
Furthermore, during the past three years, the UK government has spent 67m
on a comprehensive programme to get UK businesses online and to increase the
e-business readiness in SMEs (Booz Allen Hamilton, 2002). Although government policy has been formulated to promote information technology and communications for SMEs, our experience is that SMP Europe did not use UK online
for business or any other government-related agencies. It can be argued that if
they can change their attitudes toward these initiatives, they could start taking
advantage from them. On the other hand, Gripple Ltd is very much aware of the
government initiatives in relation to improving SMEs technological standards.
Unlike SMP Europe, Gripple Ltd is involved in many initiatives run by the
government, and they also use support and help available to their full advantage.
In addition, if the UK government is to make SMEs leaders in the G8 countries,
it has to recognise the importance of human resources capacity that will support
new technological advances. The government needs to commit and concentrate
on the importance of owner/managers and their perception of e-business and the
potential benefits of the technology that will contribute to the future successful
adoption of e-business applications (Poon & Swatman, 1997). Above all, the UK
government needs to rethink their strategies and focus on more efficient ways
of passing the message through to SMEs.
However, just knowing the importance and structure of e-business is not enough.
SMEs need to create and implement a plan that allows them to make the
transition from an old system to a new e-business organisation. Although for
Gripple Ltd, the e-business planning process may sound like common sense, for
SMP Europe the e-business planning is much more difficult. However, to
implement an e-business strategy correctly requires an ongoing commitment of
249
time and energy. Our research shows that both companies are willing to make
that commitment at this moment in time with a note that although they represent
traditional companies, the owner/managers beliefs are that technology has
changed and will continue to change the way they do business.
Summary of Other Case Studies

Most of the companies looked at in this study were micro-businesses with less
than 10 employees; one company was a small business with 25 employees.
Micro-businesses generally suffer from a lack of resources, particularly financial resources, and this impacts on their behaviour toward any investment. In the
interviews with the seven other owners/managers of SMEs, it was confirmed
that they do not like to be pushed by anyone, especially by the government or the
DTI in terms of their technological and organisational readiness. Our interviews
revealed that companies would like to take a step at a time and incorporate ebusiness in their existing strategies gradually and when they feel they are ready.
These findings support our earlier recommendation in this chapter that a new ebusiness model is needed that will help SMEs in this transition period. All seven
owners/managers interviewed stated that they would like to change their
business strategies but tend to stay entangled in the old way of doing things. The
reasons for this are that these owners/managers are lacking appropriate skills
and knowledge and do not have enough information on where to seek help. It can
be argued that these findings support the challenge for government to convince
generally reluctant SME owners/managers of the need to take external advice
(Hankinson, 2000; Hankinson, Bartlett, & Ducheneaut, 1997; Simpson &
Docherty, 2004). In addition, issues regarding government initiatives, skills, IT
experience, and willingness of SMEs to upgrade their existing technologies need
to be emphasised. Although government policy has been formulated to promote
information technology and communications for all SMEs (DTI, 2003), our
experience is that all seven organisations had never heard of UK online for
business. The following statements collected from the interviewees illustrate this
point:
Ive never heard about UK online for business. Government should find
better ways of communicating the information to local businesses, other
than leaflets which we consider as junk mail.
Not heard about UK online for business. Government never listens to what
practitioners have to say. They do their business, we do ours. We would like
to change our strategy but dont know how.
250
I dont know who UK online for business is. I am unaware of any help
promoted by UK government. I would really welcome any government
initiative to help me, mainly financially to set up a Web site.
We used some government agencies, but they are not useful. I tried to find
some information about my business and the government representatives
were very unhelpful. They sent me to find information myself. They dont
communicate their ideas and plans to us and they dont talk to us.
Furthermore, this research confirms previous findings of the DTI (2003) that
companies below 50k turnover found the cost of even basic IT equipment
impossible to afford. The lack of broadband connections is reported to have
frustrated small businesses (Federation for Small Businesses, 2002). However,
our research did not find any evidence to support these assertions. Nevertheless,
skills and organisational capabilities have come out as potential problematic
issues for SMEs. We found enough evidence to support Local Futures Groups
(2001) findings that if SMEs increase the level of technical skills across the board
that will encourage further technological implementations. The following quote
from an interviewee illustrates this:
We could do business without the Internet technology but we would like to
get more out of it. It is expensive. We have some applications but they are
not used properly, it is a skill problem.
Positive experience with IT has been noticed throughout the case studies with
only one exception. One SME representative mentioned that the organisation
raced onto the Internet at an early stage only to discover, quite painfully, that the
Internet and technology did not spell automatic success. However, the owner is
very aware of the advances in the Internet technology and is preparing a plan to
implement new e-business applications at a later stage.
Our research identifies that in order to implement e-business, most of the
companies interviewed are facing a complete overhaul of their existing strategies for which they are not ready at the moment. Some simply because of
unsuitability of the industry sector they trade in, and others because they are not
ready to take the next step. This study on the whole suggests that a new
conceptual model is needed which could be used as a general tool for creating
competitive advantage in SMEs, providing that owners/managers are receptive
toward the usefulness of an e-business strategy and its implementation. This
complements the study of Bharadway (2000) who argued that the ICT skills of
SMEs owners/managers play a vital role and that IT capable firms outperform
251
others on profit and cost-based performance measures. Although additional

research in this area is needed, there also is some firm evidence supporting
recent studies of Kalakota and Robinson (2001) that global reforms, technological transformations, and socio-economic changes will continue to affect SMEs
and the UK economy as a whole. In that respect, this study confirms Coltman
et al.s (2001) findings, which argue that traditional firms have found applications
for Internet technologies. Our research shows that technology has indeed
transformed the traditional business environment and impacts on how businesses
perform.
Our findings open an area for further study as we could not find measurable
evidence that e-business always creates a competitive advantage in SMEs.
However, our two in-depth case studies show that there is a potential that when
companies integrate the Internet into their overall strategy, the new technology
will lead to a competitive advantage. On the other hand, the remaining seven case
studies showed that, although they use some form of technology to run their
businesses, they are far from creating a competitive advantage from it. At this
stage, our advice to SMEs would be: If organisations are to create competitive
advantage and win e-customers, it is absolutely essential for businesses to have
a sound and well-resourced integration plan of new technologies. Although this
approach may seem to be common sense, it is surprising to see how frequently
this is not applied in SMEs practice.
Prototype of a New E-Business Model

Although limited, our study clearly shows that SMEs need to create and
implement a plan that allows them to make the transition from an old system to
a new e-business organisation. To help SMEs manage this transition period, we
propose a prototype of a new e-business model named competitive advantage
through e-business (CATE-b) as shown in Figure 1.
We call it a prototype because it is based on limited evidence and would require
further development, refinement, and verification. Nevertheless, it is important
to stress that this prototype model has a sound basis in the comprehensive
literature review and was complemented by a limited number of case studies.
The proposed prototype is regarded as an adaptable solution where a company
with an old legacy system uses existing IT applications and builds upon them at
their own pace. This way, companies with or without external financial support
(e.g., provided by the government) can minimise risks associated with developing
an IT enterprise requiring expensive planning and investment. Our research
identified two critical areas in a traditional value chain, which supports theories
252
Figure 1. CATE-b prototype model

Traditional Value System
Traditional approach to creating
competitive advantage
Global Market
ICT and Internet
E-business as
Core
Competence
Suppliers/Buyers
Superior:
Efficiency
Quality
Innovation
Customer
Responsiveness
Resources
&
Capabilities
Differentiation
Global Market
Value
creation
ICT and Internet
Low cost
Buyer/End
Consumer
Higher profits/
Growth
Stage 1
IT
infrastructure
Stage 2
Change of
Organisationa
l structure &
business
strategies
Stage 3
Systems
within
organisation
Stage 4
Information
Flow/Full
Integration
and models on a reversed value chain (Poon & Swatman, 1999; Kalakota &
Robinson, 2001; Daniel, 2003).
As the starting point of e-business integration in SMEs, we propose four building
stages:
Stage 1: Implementation of appropriate IT infrastructure. This is an IT
infrastructure integration, which is seen as a starting element of an ebusiness implementation strategy. An SME needs to provide and invest in
Figure 2. Traditional value chain design (Source: Hill and Jones, 1998)
Traditional Value Chain
Becomes primary activity

Becomes primary activity
Support Activities
Input
Company ICT and Internet infrastructure

Human resources
Step 1
Step 2
Step 3
Step 4
R&D
Product
Marketing
/Sales
Service
W
hat customers want?
What customers want?
W
hat is
What
ise-business
e-business vision?
vision?
After
After sale
sale service?
service?
Information,
Information,
Communication,Feedback?
Communication,
Feedback?
Output
Primary Activities
253
Figure 3. E-business planning approach (Source: Kalakota and Robinson, 2001)

Why some companies stagnate...?
Why some companies grow...?
Where do we
need to be 3
years from
now?
And next year?
Work
backwards
Goal
Goal
Where
should we
be next
year?
And next year?

And next year?
You are here
Time
You are here

Time
Incremental Approach
Thinking Ahead Approach
An incremental approach
to company's development
will not work in the ebusiness world.
An e-business vision
combines a clear
understanding of where
you need to be with what
needs to be done.
the hardware and software required for the business to work. It seems
clear that the first step in a successful e-business strategy is having the
companys own systems in order (Feller, 2000; Porter, 2001). Our study
showed that companies that are highly IT capable and employ more skilled
staff outperformed others in terms of profit.
Stage 2: Changed organisational structure and business strategies. This is
looking at structural change within organisations. At this stage, a company
accepts that the Internet technology will become integral to their business
and the value chain is reversed. This is seen as an important element of
sustaining value creation by firms in the future. Organisations need an
integrated and coordinated approach toward knowledge, technology, and
relationship management (Walters, Halliday, & Glaser, 2002a, 2002b). In
our study, we identified that companies which refuse to change and adapt
to the new environment when necessary experience many difficulties.
These are related to the overall success, profit, and the growth of the
company.
Stage 3: Integration within an organisation. This is a complete internal
integration. The business goal is to focus on cost reduction and internal
efficiency (Cheng, Li, Love, & Irani, 2001). Our research showed that
SMEs who are able to integrate internally are more successful and employ
skilled and knowledgeable staff.
254
Stage 4: Full integration with free information flow between suppliers,

organisation, and customers. This is the final and full integration with a
free information flow, where the business goal is to create market value and
competitive advantage by using the Internet technology. This stage enables
supply chain integration and more effective in-sourcing and outsourcing. It
also allows for sophisticated online business to interrelate internally as well
as externally (Van Hooft & Stegwee, 2001; DTI, 2000). SMEs presented
in this study have not yet reached this stage of full integration. However,
this stage is seen as an essential part of implementing an e-business
strategy.
It is important to stress that the four basic elements of e-business integration
should not be seen as a linear process, but rather as the building blocks of
various factors helping SMEs to take a step at a time and when ready. The
proposed building stages of integration support the governments e-business
adoption ladder model (Kaplan & Norton, 2003) and contradict Levy and
Powells (2003) statement that the stage model is inappropriate and misguided.
In addition, all four elements of e-business integration have been seen as key
enablers of a full e-organisational integration that will allow free information flow
between suppliers, the organisation, and customers. In exchange, this would
create profitable growth that provides a customer-tailored product and service
and add superior value to the firm (Porter, 1985).
The proposed prototype model is based on our findings and literature review, and
it determines the strategic elements that translate into an enterprise that is both
efficient and flexible, allowing the company to adapt, change, grow, and
innovate. The relationship between value creation, innovation, and integration
forms the core of e-business planning. This approach allows the company to take
either a short- or long-term solution. The short-term solution is where a company
uses existing applications and builds upon them in their own time. The long-term
solution is where a company starts over with new applications as the core
business. This way, companies with no financial support can minimise risks
associated with an expensive enterprise framework planning and investment
approach.
Conclusion and Implications

In this chapter, we have reviewed the current literature, government support for
SMEs, benefits and barriers of adopting and implementing e-business strategies
in organisations, and proposed a new prototype model, which suggests new ways
255
of creating competitive advantage through e-business. Guided by the general

alignment models and literature review, we presented a prototype model CATEb that develops an e-business strategy for SMEs. It can be used for SMEs that
do not want to take the radical approach to e-business and could build upon their
existing technology, and also for SMEs that start over with new applications as
a core business.
Our proposed agenda builds upon existing capabilities of the organisation and will
ensure a proper fit with the strategic goals of the organisation as a whole. We
expect this prototype model to aid SMEs in taking full advantage of the current
publicity surrounding e-business, while avoiding projects which can turn out to be
costly and disadvantageous. However, we anticipate that owners/managers will
be facing some difficulties while implementing a prototype CATE-b model. For
example, many organisations still have 20-year-old legacy IT systems which
cannot be discarded, so it makes it harder for organisations to integrate.
Furthermore, owners/managers may experience difficulties such as employee
resistance when attempting to transform an old business design, based on
physical realities into a new design rooted in the digital virtual requirements of
tomorrow. Whatever the limitations of the prototype model CATE-b may be, our
belief is that the benefits are greater than those offered by alternative models.
E-business offers greater operational advances and opens wider markets than
traditional business models. SMEs must follow the new trend of e-business if
they are to stay profitable and continue to trade. Larger empirical research,
followed by in-depth case studies, will be carried out to test the validity of current
findings and suitability of the prototype model.
Our conclusion is that successful managers should anticipate the impact of
recent economic and technological changes on their current businesses. Going
digital is not a luxury anymore, it has become a necessity. However, digitalisation
requires a systemic approach and gradual integration and application depending
on the size and the capital available in the organisation. To thrive in todays
dynamic environment, companies must consciously choose the next phase in
their growth and evolution. This is the age of continuously assessing their ebusiness processes. The challenge confronting todays manager is in the
creation, execution, and ongoing evolution of a successful e-business plan. So the
message to SMEs would be: to be customer focused; value creation is a
continuous process; transform business processes into digital form; start small,
build on success, and learn.
256
Acknowledgments
We would like to thank all those managers and directors involved in the
interviews for their time and generosity.
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Impact of E-Innovation On Corporate Procurement Control
261
Chapter XIV
Impact of E-Innovation
on Corporate
Procurement Control:
Electronic Marketplaces
and Broad Spectrum
Changes
J. D. Thomson
Abstract
This research addresses the very important question of the impact of einnovation, namely, Web-based global electronic procurement systems and
marketplace on corporate governance in relation to organizational
purchasing the organizational structures and processes for procurement
control. This is undertaken through an action research case study of the
failures and successes of competitor global organizations cooperatively
establishing and utilizing a global electronic marketplace. Specifically, the
research investigates how electronic procurement contributes to the
adaptation and evolution of control structures from highly structured,
bureaucrati,c and rigid to flexible, adaptable, free flowing, and profitable,
and these can result in substantial reductions in transaction costs.
262
Thomson
Introduction
This chapter explores and analyses the complex electronic procurement
marketplace architectures and their inherent uncertainties, as well as broad
spectrum changes. An electronic procurement governance model is placed
in an electronic marketplace context. The electronic marketplace case studied
comprised more than 25 major global mining, minerals, and metals organizations
who were not only competitors in the marketplace but also were the collusive and
cooperative founding shareholders of a vertical, direct, global electronic market.
These marketplace competitors collectively invested more than US$100 million
in the electronic market venture.
The objectives of the study were to research how organizations in hyperturbulent conditions (McCann & Selsky, 1984) comprehend electronic procurement broad spectrum changes cross-sectionally and longitudinally in terms of
adaptation at the organization level, and governance models at the industry level
(Meyer, Goes, & Brooks, 1993; Huber & Glick, 1993). The multi-level nature of
electronic procurement change processes occurs at the industry level where
boundaries shift and are breached as rivalry intensifies; at the inter-organization
level where competitors are drawn into networks of symbiotic relationships that
overlay competitive relationships with collaborative and collusive ones; and at
the organization level where top management teams formulate corporate governance strategies intended to align the organization with industry conditions
(Huber & Glick, 1993).
This study addresses the following research questions which include:
Must organizations adopt radically new procurement governance strategies

in order to survive in hyper-turbulent environmental conditions? (Meyer et
al., 1993)
Are electronic procurement transaction costs important? (Williamson, 2002a)
Conceptual Framework
Organizational Hyperturbulence
In the 1990s and early 2000s, rapid technological changes created organizational
environmental turbulence which peaked around the time of the dot-com crash
(Figure 1).
263
Figure 1. Environmental changes and organizational variables assessed

(adapted from Meyer et al., 1993)
Under these environmental circumstances, there is a need to promote freeflowing forms of self organization and electronic procurement governance
through the principle of minimum specification (Commons, 1934), and adaptation
and resources are central problems (Axelrod & Cohen, 1999). Without slack
resources, active adaptation is constrained because innovations such as electronic procurement cannot be protected and cultivated. There are no rules to the
game (Morgan, 1997), so there is a need to develop approaches to electronic
procurement corporate governance that foster an open-ended evolution which
relies on competition to sort between modes of governance (Williamson, 2002a).
Electronic procurement facilitates marketplace transactions where incentive
intensity and adaptation are more, administrative controls less, greater innovation
anticipated, and incentives apply (Williamson, 2002a). While electronic procurement transactions may differ in attributes, they align with their governance
structures which differ in cost and competence, and so provide a measure of their
economy (Williamson, 2002b) (Figure 2).
The corporate governance of electronic procurements in organizations originally
idealistic and democratic, which eventually come to be dominated by a small,
self-serving group of people who achieve positions of power and responsibility
(Michels, 1915), cost more to support than networks and are less adaptive. The
Figure 2. Type 5 hyper-turbulent (vortical) environment
bu y
make
Outsour ce non-core activities
Organisatio n
So cial vor tices
(hi erarchies)
So cial vor tices
Market
enviro nment
Social enclaves
partitioning
264
Thomson
corporate governance of electronic procurement analytical frameworks around

variation, interaction, and selection assist in the understanding and management
of such complex adaptive systems (Axelrod & Cohen, 1999). Through electronic
procurement, it may be possible to select for specific buyer or seller activity
strategies rather than whole buyer or seller activity, while noting the need to
tolerate uncertainty (Dorner, 1989; Hofstede, 1983).
Research Methods
Longitudinal Action Research Through Case Studies
Kemmis (1997) expressed the view that action research aims to help practitioners investigate the connections between their theories and their day-to-day
practices it aims to integrate the research act into the setting so that research
can play a direct and immediate role in the improvement of practice, and it aims
to overcome the distance between researchers and practitioners by assisting
practitioners to become researchers. Kemmis and McTaggart (1988) defined
action research as a form of collective self-reflective enquiry undertaken by
participants to improve the productivity, rationality, and justice of their own
practices, as well as their understanding of these practices and the situations in
which these practices are carried out. Kemmis and McTaggart (1988) stress that
action research is collaborative, though it is important to realize that the action
research of a group depends upon individual members critically examining their
own actions. Schons (1987) metaphors are the master class in musical performance. Mintzbergs (1987) central concept is that of something which emerges
that is literally crafted from the overlay of experience or intentions, from the
ability to take raw data from the past and present and use it to advantage for
learning and gradually shaping the future, working carefully with what is, while
nurturing and shaping the possibilities for what might be; managers may have to
live strategy in the future, but they must understand it through the past, and only
by coming to understand the patterns that form in their own behaviour do they
get to know their capabilities and their potential. This crafting strategy, like
managing craft, requires a natural synthesis of the future, present, and the past
and is consistent with Morgans (1997, p. 267) chaos-complexity ideas on the
art of managing and changing context in which appropriate forms of selforganization can occur, that managers help to shape emergent processes of
self organization while avoiding the trap of imposing too much control.
Yin (2003a, 2000b) suggests that case studies can help provide an understanding
of what is happening contemporaneously, and then making this data available to
a wider audience for their judgement as to what may be applicable in their
265
circumstance. This is well suited to the needs of this research. In Campbells

foreword to Yins (2003b) case study research methodology, he suggests that
case studies can meet a long awaited need for a mid-way option between
scientific positivism and social science.
The Context
Figure 3 provides an overview of the typical architecture of an organizations
electronic connections through electronic markets or hubs, to its buyers and
sellers. The purchasing (see Endnote 1) (procure-to-pay) activity (Figure 4) is
a component of the overall procurement (see Endnote 2) activity (buy-make-sell)
of an organization (Figure 3).
On Both Sell Side and Buy Side, It Is Necessary to

Provide Services
The process shown in Figure 4 indicates the necessary Web-based electronic
procurement processes between a buyer and a seller (supplier).
To deliver off the shelf commodity products within a specified time frame and
to have a returns policy, there is a need to process each Web-placed purchase
order for personalisation, to track the purchase order status, and to keep the
buyer informed. Electronic-enabled supply chain logistics fulfilment options
Figure 3. Typical electronic procurement and purchasing governance

architecture
O r g a n iz a ti o n
e - e n a b le d
b u s in e s s
v e r t ic a l
hub
Su
e ll
p eprlis e/ r s
S u p p li e r s
e -e n a b l e d
P u r c h a s e /S e r v ic e
O r d er
O t he r
B 2B hu bs
e -e n a b l e d
S a le s O r d er
(or oth er?)

B 2 B H u b?
C
B u syteorms /e r s
C ustom ers
h o r iz o n t a l
hub
e -e n a b l e d L o g is tic s
e -e n a b l e d L o g is tic s
E x is t in g
E DEIx aisnt di n fa
g x
e - e n a b l e d L o g i s t ic s
E x is t in g
E D I an d fax
M a k e
Firewall
B u y
Firewall
ED I and fax
S e ll
266
Thomson
Figure 4. Typical electronic procurement procure-to-pay processes

1. Loading catalogue
2. Register supplier
3. Evaluation/register supplier
4. Solicit bids
5. Join bids
7. Select supplier
buyer
8. Award
www
10. Purchase Order accepted
eprocurement 11. Order tracking info
9. Issue Purchase Order
supplier
13. Order tracking info

15. Transmit invoice
16. Request payment
15. Transmit invoice
6. bidding
12. Transport/insurance info
17. Payment
bank
14. Delivery/receiving
include in-sourcing, outsourcing, and virtual warehousing through suppliers.

Electronic logistics fulfilment requires a high degree of flexibility in infrastructure, people, and skills to adjust to various product mixes and unpredictable
demand patterns. Electronic fulfilment logistics may be in-house, outsourced, or
virtual. Technology upgrades, re-engineered business processes and an infrastructure to support logistics have to be provided to attain transaction cost
efficiencies. Changed governance structure may result in disintermediation of
intermediaries in the value/supply chain when using electronic supply arrangements, because buyers may attempt to go direct to the manufacturers.
The Core Functionality of Electronic Procurement Is

Automating the Procure-to-Pay Process
The core interest in electronic procurement is automating the procure-to-pay
process at the buyers and sellers desktops. Multiple sellers want access to a
buyers desktop computer and to provide their electronic catalogues. The buyer
can then select a product, obtain approval, and the purchase order is then
electronically transmitted to the supplier, subsequently tracked through a B2B
portal, followed by electronic invoicing and payment. Lowering the transaction
costs of supply logistics in the procure-to-pay process can be expected
because of the potential for disintermediation of entities between the producer
of the product and the buyer. When a buyers inventory in a given direct (see
Endnote 3) or indirect (see Endnote 4) product (includes maintenance, repair,
and operation [MRO] (see Endnote 5) supplies) reaches a certain predetermined
267
point, the buyers electronic system can be set to automatically send a message
to the supplier in a language both can interpret.
Principal Perceptions
Large organizations acknowledge the need to apply electronic procurement.
Their principal perceptions are often gained from the many promises made by
consultants and the IT industry for the electronic automation of the entire
procurement process. Sellers are challenged to get their catalogues online to
offer content and its management, to maintain branding, to avoid commoditisation
of their products, and to want buyers decisions to be less price-based and more
service-based that is, on a value for money basis. This creates a tension for
sellers as to whether to join a B2B electronic market portal or try to retain their
current buyer base and offer their own electronic services to their existing if not
expanded buyer (customer) base, or both.
Architecture of Buyer-Seller-Portal Relationships

Include Both Centralized Portal Hubs and Decentralized
Networked Approach
The structure of the buyer-seller-portal relationships include centralized portal
hubs and decentralized networked approaches that mimic the overall structure
of the Internet (Figure 5) with distributed systems. Low-cost providers and
implementers of electronic procurement software link buyers and sellers.
The emergence of more efficient electronic markets enables smaller sellers to
compete with the largest sellers. Buyers can now expand rather than consolidate
their seller base. Sellers are able to bid on contracts, negotiate terms, and
Figure 5. Corporate Governance: heirarchies or networks?
shareholders/other stakeholders
(networks: the firms intranet, business web extranet, customers and marketplace internet)
Board
Market
environment
Hierarchy
Hierarchies or networks
(or both)
straddling markets?
Networks
268
Thomson
transform the process into a purchase order the specialization of B2B

purchases across industries lends itself to customized solutions that sellers can
put in place to encourage direct interaction with buyers.
Case Study: Use of Electronic

Procurement Data to Provide
an Analytical Framework
This case study explores the use of an electronic procurement database to
facilitate electronic marketplace transactions and to provide an analytical
framework for electronic procurement governance.
Electronic procurement data for individual product purchases can be grouped in
to commodities and can be charted according to their procurement governance
arrangements (Figure 6).
Select for Specific Buyer or Seller Activity Strategies

Rather Than Whole Buyer or Seller Activity
Figures 7 and 8 are case studies demonstrating a summary view of how
electronic procurement data was applied to provide an analytical framework for
low
Figure 6. Transactions involving buyers, sellers, and an electronic

marketplace
Buyer power transaction governance
Strategic governance of transactions
S
S
Electronically
connected
B
B
Electronically
connected
B
Electronically
connected
B
S
Number of buyers B
Commodity transactions
B
S
B
Seller power transaction governance
high
Marketplace transaction governance
Electronically
connected
Number of sellers S
high
Market forces efficiency
low
269
Figure 7. Supply positioning analysis of $8b procurement spend top 49

commodities
Buyer power transaction
governance
$110m
few
Fuel s &
Lubricants
$368M
Rig, Well &

Offshore Services
$87M
Buyers
Conveyors and
Parts
$65M
Engineering
Services
$306 M
Fixed Plant Spares
and Machining
$185M
Consultancy
Services
$75M
Office Equipment
and Supplies
$15M
Civil Works
$370 M
Maintenance
Services
$192 M
Contract
Labour
$60M
Industrial
Mobile
Equipment Hire
$75M
Packaging
$26 M
many
Contract
Mining
$355M
Property
Leasing
$45 M
Fleet
Management
$35M
Rail Transport
$486M
Computers/
IT Services
$320M
Steel
Products
$112M
Site Services
$499M
Explosives
$125M
Underground
Mining Equipment
$75M
Scrap
Paint
$85M
$93M
Slag Handling
$64M M
Draglines
$125 M
Safety
Equipment
$46M
Strategic transaction
governance
Energy
$610M
Earthmoving
Equipment
$308M
Rolls and
Roll Services
$60 M
Environmental
Services
$55M
Limestone
$45 M
Railway
Locomotives and
Slag Handling
$64M M
Aviation
Services
$26 M
Port Services
and Charges
$42M
Electrical
Consumables
$58 M
Seller power transaction

governance
Sellers
many
Iron Ore
$420M
Grinding Media
$44 M
Industrial
Consumables
$58 M
Marketplace transaction governance
Coal
$310M
Furnace
Consumables
$160M
Chemicals
$110m
Railway
Locomotives and
Services
$50M
Dredging
$49 M
Consultancy
Services
$75M
Drilling Supplies
and Services
$86M
Road Transport
and Freight
$492M
Travel
$110M
Telecommunications
$41 M
Zinc
$85M
Chartering
$626M
Other Steelmaking
Raw Materials (inc.
Alum, Alloys)
$134M
few
Consequential Risk to Company Operations
Figure 8. Energy industry use of electronic procurement database

Buyer power
Consultancy
Computers
Services $13.8
and Software
M
$10.7 M
Vehicle Parts
Transformers
$13.2 M
Plant Hire
$4.9
M
$8.0 M
High
Cable
$5.3 M
Electrical
Labour Hire
Consumables
$14.6 M
$7.1 M
Travel and
Accommodation
$9.2 M
Industrial
Consumables
$5.3 M
Lighting
Safety and
$0.7 M
Clothing
Cleaning
$0.9 M
$1.0 M Utilities
Low
Office
Equipment
$0.7 M
Marketplace
Fuel /
Lubricants
$2.0 M
$1.4 M
Poles /
Cross arms
$1.2
M
Quarry
Products
$1.2 M
Low
Source: Raw Invoice analysis

(excludes ASP)
Pipes /
Fittings
$2.8 M
Vehicle Hire
$3.2 M
Office
Expenses
$3.8
Transport / M
Strategic
Marine $5.4
M
Aviation
Spares $21.8
M
Electronics
$4.6 M
Insurance
$5.7 M
Industrial
Hardware
$0.7 M
Marine
Engines
$19.7 M
Surveillance
Equipment
$2.1 M
Fabricated
Hardware
$1.5 M
Pumps
$0.9 M
Steel / Metals
$2.8 M
Distribution
$3.0 M
Cost of commodity (TCO)
Legal
$2.3 M
Networks IT
Equipment
$2.8 M
Seller power
High
270
Thomson
strategic and other sourcing activities. This enables procurement strategy

selection to be based on actual and up-to-date specific buyer and seller activities.
Selection for specific buyer or seller activity strategies can be undertaken, rather
than for whole buyer or seller activity
Similarly, an energy sector business unit use of the electronic procurement
database for strategic sourcing activities is shown in Figure 8.
Case Study: The Inter-Organization

Level Where Competitors Become
Collaborative and Collusive
This case study explores the inter-organization level where competitors are
drawn into networks of symbiotic relationships that overlay competitive relationships with collaborative and collusive ones.
Selected for this purpose is the development of a global electronic market from
soon after its inception through its early development period. The industry
selected for this research had been under continuous cost and pricing pressure
for many years. Cost reductions and operational efficiencies have been vigorously pursued. Until recently, the search for further cost reductions continued as
a primary objective. The procurement function was centrally involved in meeting
this continuing improvement objective, and electronic commerce presented itself
as a new tool to be applied to this purpose. Business-to-business (B2B)
electronic procurement marketplaces offered the prospect of a radical next step
in the evolution of strategic sourcing, and provided the ability to globally optimise
the selection of products (goods and services) to achieve lowest cost whole-ofuse results. The new Internet-based technology offered the promise of allowing
complex global enterprises to manage their procurement activities on a global
basis and local companies to achieve global reach in securing their procurement
needs.
The global electronic markets plan initially proposed the establishment of an
Internet-based B2B procurement marketplace to facilitate the procurement of
goods and services to the industry sector companies worldwide yielding sustainable value to owners, buyers, and sellers. An independent company, the global
electronic market was to be founded by global industry sector shareholders. The
global electronic market would design, develop, operate, and manage the
marketplace to be open to all buyers and sellers who wished to participate;
neutral, neither buyer or seller-centric; global, reaching all major regional
markets; independent, financially and in approach; and secure and confidential,
as to relationships and trading information.
271
The global electronic market was perceived as having the distinct potential to
become a valuable, stand-alone company with strong initial public offering (IPO)
potential, if successful. The IPO value for the global electronic market was
estimated to be more than US$1 billion, based on the financial forecast contained
in the plan. The key success factors for the marketplace were building critical
mass (liquidity) quickly through a compelling seller and buyer adoption effort;
rapid execution of the business plan; and continuous innovation in products and
services offered by the global electronic market, including introduction of a wide
array of value electronic added services that are tailored to the needs of the
industry participants.
Benefits to Buyers Lowest Total Cost of Ownership

Solutions
This particular global industry included approximately 200 buyer companies,
each with revenues in excess of US$50 million, and with an accessible spend,
that is, spending that could logically be put through a procurement marketplace,
totalling about US$140 billion per annum. Smaller companies and related
industries could be included to expand marketplace size further to US$200 billion
per annum. The amount of electronic procurement activity potentially impacted
by this marketplace was enormous. Buyers could expect the marketplace to
deliver improved cost across this spend by enabling better decision-making and
selection of items, based on superior information and comparison of alternatives;
identifying the lowest total cost of ownership solutions; shortening selection
time frames, due to online, up-to-date catalogue access; facilitating purchasing
aggregation, uniform pricing, and improved contract compliance across the
buyer organization; offering sophisticated pricing and bidding tools, such as
online auctions, reverse auctions, and requests for quotes uniquely tailored to
individual business needs; and offering connectivity with buyer enterprise
resource planning to streamline and automate buyer procurement processes and
cut costs.
Benefits to Sellers but Many Marketplaces Were Facing

Problems in Attracting Sellers
The seller universe for this industry was conservatively estimated to include
35,000 companies, varying greatly in size, geographic reach, and sales volumes.
Sellers would be attracted to participate in this marketplace for a number of
important reasons, including opportunities to directly target a large community of
relevant buyers to more efficiently gain sales and market share; easy access to
272
Thomson
an expanded buyer base through global participation; lower cost of delivery

through the streamlined online buy/sell process, and also from savings in
inventory and warehouse costs that result from improved supply and logistics
planning by both buyers and sellers; lower cost of catalogue production, issuance
of standard price list updates, and management of special buyer discount
programs; and lower selling and marketing costs. To the extent sellers were able
to service other industries from their established position in the marketplace, they
would further reduce their setup and connectivity costs across multiple systems.
It was recognized that seller adoption was a critical area of focus for the
business. Many marketplaces were facing problems in attracting sellers. The
key issues raised by sellers revolved around concerns that their products would
become commodities with consequential loss of revenue; costs to become
electronic enabled were substantial; and sellers may be required to join numerous
exchanges to maintain markets.
Benefits to Shareholders: Sharing the Risks and

Development Costs
The founding shareholders would benefit from the substantial advantages
promised to buyers by participation in the marketplace. In addition, the shareholders also would share in the benefits from their direct equity ownership in the
global electronic market. These benefits also promised to be substantial and
included value through retention of an ownership position in a business entity with
good projected earnings and strong IPO potential at attractive market pricing
multiples that significantly exceeded then shareholder industry multiples; and
synergy by sharing the risks and development costs of an electronic procurement
solution relevant to the industry. In the absence of this project, each individual
shareholder company would have to spend considerable resources to join
multiple marketplaces that were likely to only deliver a fraction of the supply
chain capability planned for the global electronic market. Also, founding shareholders would have a degree of control in the form of the opportunity to guide the
development of a marketplace that would cater to the specific needs of the
founding shareholders industries, while also allowing sponsors to better understand and be an early starter with implementation compared to non-shareholders;
and the gaining of knowledge by providing an opportunity to immerse staff from
founding shareholder businesses in a technology-driven, cutting edge electronic
business process redesign that will support other work within shareholder
businesses in the future. The dozens of mirror teams created within shareholder
companies would support the capture and sharing of that knowledge.
273
Technology Issues: Reputable Software Providers

Selected
The marketplace would utilize a robust, sophisticated technical architecture to be
provided by Commerce One and SAP Markets. The software provided by these
companies, and tailored to solutions to be developed in collaboration with the
global electronic market team, were at the heart of the functional and financial
objectives of the marketplace. The technology partners were contractually
responsible for the delivery of a functional software tool that met rigorous
performance specifications. The technology contract contained 149 specific
software functionalities to be delivered.
The Competition Did Not Have Critical Mass of Owners

to Attract Sellers, or a Base of Transactions That Would
Sustain the Business
There were several vertical procurement marketplaces in the industry already
that would share potential market space. While they had been active in some
cases for more than 12 months, they did not possess the key strengths embodied
by global electronic market. Instead, they were backed by venture capital or
single company funding, which slowed their development progress and market
acceptance, and they did not have the critical mass of owners/participants to
attract sellers to participate, ensure a base of transactions that would sustain the
business, and provide the attractive suite of products that would attract more
customers to their exchanges.
Essential to Develop Momentum, Value and Services to

Move on from a Transaction Processing-Based Business
Competition in this emerging business space was intensifying. There were a
number of other vertical exchanges, targeted to other industries that could
overlap with this global electronic market over time. The existing competitors in
the industry could consolidate and receive backing from a group of buyers or
sellers who otherwise would be natural participants in this marketplace. Horizontal exchanges would continue to form around unique product offerings that seek
to cut across the global electronic market offerings, as certain sellers chose to
organize in that configuration. Regional exchanges also would continue to form,
seeking to build wider offerings than the horizontal exchanges and seeking to
exploit regional affiliations and unique regional market needs. The sell-side
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exchanges also were expected to integrate back into the procurement exchange
space over time, and to build wider offerings to their customers once their
success was established on the sell-side. Another scenario saw the potential for
value electronic-added service providers to bleed throughput away from the
global electronic market if services were offered in more compelling forms
elsewhere. For all these reasons, it was essential that this marketplace gather
and maintain its momentum, do a better job of delivering value to both buyer and
seller participants, and develop a distinct and valuable array of value-added
services that moved it on from simply a transaction processing- based business.
This global electronic market was expected to rapidly attain leadership status
because of its wide industry sponsorship. This sponsorship offered the ability to
build a truly global marketplace with solutions tailored to industry needs, a wider
range of value-adding services, along with a significant pool of people and
financial resources to support the development process. The global electronic
market had staked out a strategic position by announcing its intention to form, and
now it must execute well and rapidly in order to capitalize on being first to market
with a broad, comprehensive global solution. The ownership profile of global
electronic market brought with it access to substantial throughput, and advanced
the collective shareholders readiness time table for electronic procurement.
This ownership affiliation was considered to be a huge advantage for the global
electronic market at the time.
Product Development: Establish Links to Buyers and

Sellers, Services and Supply Capabilities
The global electronic market planned three sequential releases of products
(goods and services) for the marketplace based on an objective to capture early
value and market share, then moving into more advanced value-added services
offerings as rapidly as possible. These releases were to establish links to buyers
and sellers, purchase order and invoicing facilities, buyer-initiated auctions,
request for proposal/ request for quotation (RFP/RFQ) capabilities, credit and
payment facilities, as well as foreign exchange management and catalogue
maintenance services. Next was to create capabilities for the provision of
common warehousing, sophisticated data usage and management, access to
advanced financial services, logistics services, and strategic sourcing. Finally, it
was necessary to create capabilities for the provision of uniquely tailored
solutions to participants supply chain needs.
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Market Development Using Surveys and Contact with

Industry Buyers, Sellers, and Shareholders
Marketing efforts would include market surveys and initial contact with major
global sellers to the industry in order to assess seller attitudes and beliefs,
understand readiness for electronic commerce, and test availability of catalogue
content to support the global electronic market. Input would be sought from the
shareholders as to those specific vendors who needed to be targeted for early
entry into the marketplace in order to maximize marketplace liquidity. Personnel
from regional operating centres of the global electronic market in conjunction
with representatives of the shareholders companies, would then undertake the
direct marketing and enrolment efforts. Marketing would be targeted at senior
personnel within selected companies, downstream processors, strategic sellers,
MRO sellers, office sellers, and contract engineering firms. The plan called for
the early adoption of 3,600 sellers globally.
Seller Adoption and Catalogue Strategy: Sellers to

Retain Ownership of and Responsibility for Catalogue
Content
The initial focus would be on identifying those sellers who would maximize global
electronic market liquidity. It was expected that approximately 3,600 sellers from
the global pool of 35,000 could support about 80% of the transaction volume in
key MRO and consumables segments. These high-priority sellers would be
further ranked and targeted based on their importance to the founding shareholders, their significance within their market segments, and their readiness and
willingness to deliver relevant electronic catalogue content to the global electronic market. The regional organization structure would facilitate this seller
adoption effort by leveraging existing seller relationships. The catalogue content
to be developed would be detailed enough to support the value propositions of
both buyers and sellers, and would support value-added services over time. To
the greatest extent possible, sellers would retain ownership of the catalogue
content. Responsibility for content accuracy and depth of presentation would
reside with sellers, and would be managed by them as defined by marketplace
rules and processes. The financial plan provided for US$20 million to be used as
incentives for the early enrolment of key sellers and development of important
catalogue content.
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Challenges: Building the Customer Base

The global electronic market must attract buyers and sellers in all of the regions
as rapidly as possible. Maximizing throughput would create the greatest savings
to users and would minimize the global electronic market development funding
demand on the founding shareholders. To ensure this happened, a sophisticated
seller rollout program was developed. A key component of this was a clear
demonstration of the benefits that sellers would enjoy by participating. A
thorough understanding of seller supply chain economics was required to achieve
this. Pricing strategies were developed that made early participation particularly
attractive. The global electronic market was fortunate to be supported by
founding shareholders motivated to participate. They had the potential to bring
a high spend level to the business early on. A detailed buyer adoption program
also was developed for buyers who were not founding shareholders. This
involved making contact with all key industry participants around the world.
Challenges: Regulatory Compliance

Regulatory compliance safeguards were developed to ensure that marketplace
practices were acceptable to regulatory authorities in the European Union, the
United States, as well as in other jurisdictions. The need to ensure that all
transfer-pricing arrangements were well documented, robust, and capable of
withstanding challenge from tax authorities were clearly identified.
Challenges: Complexity of Technology Necessary

Required Highly Structured Platform Development and
Alignment of Principal and Agents
The complexity of technology necessary to realize the global electronic market
vision required that platform development be very highly structured. For this
reason, a world-class provider, Commerce One/SAP Markets, was tentatively selected. The achievement of key platform capability delivery targets was
to be ensured through contractual incentives and/or penalties as well as by
diligent project management. Enablement of buyers ERP systems to transact
business with the marketplace also posed a major challenge. To ensure maximum
support for this work, the marketplace needed to develop comprehensive change
process guidelines and adaptor kits for all major ERP products, certify selected
consultants in their use, and provide continuing technical support with Commerce
One/SAP Markets.
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Challenges: Human Resources

It was essential that the global electronic market obtain sufficient staff of the
highest calibre. It needed to aggressively recruit and hire top quality management
that would in turn serve to attract others key managers. It was expected that
several permanent employees would be sourced from the founding shareholders.
Additionally, the electronic market was hoping to borrow staff from founding
shareholders as temporary personnel who would be needed for the ramp-up
process. Appropriate safeguards would be employed to protect competitively
sensitive information. To the extent that these temporary personnel were not
available, it would be necessary to use outside consultants to bridge the gap. All
founding shareholders were competitors.
The global electronic marketplace aimed to reshape procurement for the global
resources industry by establishing a B2B Internet-based marketplace between
multiple buyers and sellers for outsourcing general purpose products purchases.
All founding shareholders were competitors and included Alcan Aluminium
Limited, Alcoa Inc., Anglo American plc, Barrick Gold Corp, BHP Billiton,
Corporacion Nacional del Cobre de Chile (CODELCO), Companhia Vale do Rio
Doce (CVRD), De Beers Consolidated Mines Ltd., Glencore Int AG; Imerys,
Inco Limited, MIM Holdings; Newmont Mining Corporation, Noranda Inc.,
Normandy Mining, Pechiney, Penoles; Phelps Dodge Corporation, Rio Tinto, the
Votorantim Group, WMC Limited, and Morgan Stanley Dean Witter. The global
electronic marketplaces greatest success was predicted to be through electronically enabling commodity marketplace transactions (low-value, high-transaction
numbers), rather than as an intermediary between an otherwise one-to-one
buyer-supplier, longer term contractual relationship.
Challenges: Corporate Governance

The global electronic marketplace was funded by venture capital contributed by
marketplace competitors in one industry it was a case of competitors becoming
collaborators. But by being in the one industry sector, there were products,
commodities, and sellers (suppliers) in common; therefore, founding shareholders had many common interests. The governance drivers were market efficiency, aggregated content, supply chain integration, process efficiency, and
purchasing power. The governance structure was directed by a Board of 15, with
8 regional offices globally. A comprehensive sustainable electronic procurement
market was planned on the basis of an innovative, open, neutral, independent, and
global procurement marketplace, governance voting rights based on equity
ownership, and the guidance of 10 electronic procurement principles. These
principles were marketplace neutrality, purchase functionality, no barriers to
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operations, 24x7 operation, content and confidentiality, back office integration,

value-added services, one technology vendor, support buyer and seller adoption
programs, links with other exchanges, and the maintenance of the segregation of
buyers and sellers information to ensure independence.
Challenges: Range of Programs

There were a range of programs to encourage and support participation by
buyers and sellers with an offering of complementary supply logistics services
across global regions and the provision of purchase functionality and best
practices. The participants were to evolve to best practice in a staged way with
all participants able to easily participate in the marketplace. There was to be
seller catalogue content and confidentiality, tight integration with a diverse range
of back office systems, improved total supply chain management, core business
services were to be offered from day one, and one technology vendor would be
held liable for marketplace creation and performance. Rapid liquidity was to
establish itself through aggressive buyer and seller adoption programs, with the
support of open and flexible integration with other electronic marketplaces and
exchanges.
Challenges: Prospective Revenue Generation and Major

Risks
Prospective revenue generation for the global electronic marketplace was to be
cash positive after 24 months, with a maximum equity investment from shareholders of US$130 million. Business benefits and implied IPO were valued at an
order greater than US$1 billion.
Outcomes
1st to 6th Month
Founding shareholder procurement statistics were collected and these indicated
an US$18 billion throughput after five years with ramp-up of spending. Pricing
of transactions would start at 1% of the value of the transaction, declining over
time to 0.5%. Revenue was to be based on throughput and pricing percentages.
Build costs included Commerce One licenses and installation, maintenance,
hosting, and other software costs. Catalogue development costs were costs to
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acquire stock keeping unit items in an inventory. Implementation consulting costs

were estimated to be $4 million for Years 1 and 2, with start-up costs for regional
networks estimated to be US$10 million. Corporate costs would principally be for
41 to 47 staff over 5 years, with burden rates at 25% and recruiting costs $12
million over 3 years. Facilities requirements would be based on 150 sqft/full-time
employees (FTE).
7th to 12th Month

Immediately after the market was established, the next steps were for four
electronic procurement capability releases. Major cost items were technology,
human resources, and general and administrative costs. Major risks were
perceived as the development of seller catalogues, maintaining momentum,
technology, personnel, ERP links, and the competition.
A memorandum of understanding was signed by all founding shareholders.
Phase 1 was the limited launch proof of concept and architecture arrangements. The first phase, proof of concept testing, tested order acknowledgement
by involved shareholders and discussed lessons learned. However, the proof of
concept outcomes raised more questions than answers.
13th Month
The corporate governance privacy policy largely involved discussions between
the global electronic market and founding shareholders about the confidentiality
of marketplace participant information and the corporate governance of treasury
policies. A corporate governance overview at that time called for a refocus on
seller education and enrolment, organizational build out, 35 buyer integration
projects, a re-write of the business plan and budget, a refocus on resources, and
business build out to the customer. The corporate strategy and business
development spending was below that planned, the catalogue content management offering needed to be significantly enhanced, customer communication
remained a significant challenge, and the focus moved to creating a preeminent
marketplace for the industry. Resourcing and recruitment continued to be
issues.
14th Month
Founding shareholders views on corporate governance were requested, particularly on the annualised year-end expenditure and savings on electronic
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marketplace throughput. However, the original ramp-up program was found to

be unrealistic due to technological complexity and the execution challenge.
15th Month
There was a move away from transaction fees to membership fees by the global
electronic market because it could see that a revenue base of principally
transaction fees would not be sustaining. A new business plan was developed
which provided a more realistic picture for the future and foundation for scale
up. The recruitment goal was to hire between 30 and 45 people. The shareholder
incentive plan for global electronic market employees, particularly for the CEO
had no clear outcome the founding shareholders seemed reluctant to agree a
plan. There were revised forecasts, with emphasis on execution and integration
followed by a more rapid ramp-up in throughput in subsequent years. The cash
positive point was tentatively proposed to be moved on six months.
16th and 17th Months

Corporate governance was focussed on the user agreement and the privacy
statement, auction terms, electronic catalogue procurement terms, catalogue
content terms, and the fee schedule. The marketplaces limited role was as a
facilitator of purchases. The marketplace was not intended to be used by
consumers, with access to and use of the marketplace to be through a username
and password. The entire risk associated with use of the marketplace resided
with the authorized users. Authorized users were not to reproduce, duplicate,
copy, sell, or resell access to the marketplace. The legal governance of the
market was to be under the Laws of England (its corporate headquarters and
company registration was located in the tax haven of Bermuda). It was
confirmed that the marketplace now planned to turn cash positive six months
later than had been originally planned. The original ramp-up had been confirmed
as unrealistic due to technological complexity and the execution challenge. There
was a need for liquidity by seller on boarding, buyer integration, platform
completion, organizational build out, and commercialisation of value-added
services. A membership fee levy was to be applied.
A new Web site was launched, but there continued to be corporate governance
sensitivity about the buyer pricing revision of the membership fees. The changes
to the initial membership fees was based on tiered buyer membership fees, a
take or-pay spend commitment with two bundled options to choose from. The
low number of sellers currently signed, while increasing, was still of concern.
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18th Month
The selection of application service provider was made. The global electronic
market was now a global corporate with 100 employees, 120 trading partners,
128 projects, 11 auction events, electronic catalogues, and regional offices
established or being established in six global regions. As a business, it was
making its statement. Positive cash flow was now pushed out a further six
months. There were two objectives taking primacy: to put in place the remaining
corporate governance and to update the business plan.
19th and 20th Months

Following a review of operations, a number of unknowns were identified by the
founding shareholders regarding the key factors influencing predicted revenue
streams.
21st and 22nd Months

The focus remained on continuation of buyer integration and seller on boarding
programs. Other key challenges were the provision of content; buyer business
buy-in; and change management with both buyers and sellers. Any equity
appreciation was now downgraded to being a bonus. The global electronic
market had not met the any of the targets set only a few months previously.
23rd and 24th Months

The global electronic marketplace proposed its revised business plan which
emphasised a focus on buyers and sellers. By now a harsh business climate had
developed for founding shareholders. There was an acknowledged need for
restraint in ongoing investments and frustration at the lack of progress. The
principal issue became that of value to buyers and risks to revenue streams. The
global electronic market at this time had an average spend rate of only US$5
million per month.
Summary
After 24 months, founding shareholder disillusionment existed; trust was eroding; and functionality was not available. Many technology issues remained
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unresolved, and these severely affected transaction volumes. The trading

environment was difficult, the industry was suffering commodity price pressure,
and investor confidence in the dot-com sector had all but evaporated. Most buyer
transaction revenue which had a corresponding seller transaction fee associated
with it was anticipated from a small number of buying organizations already
within the shareholder group. No founding shareholder was going to continue
investing in electronic procurement benefits if it was not going to reduce the
organizations transaction costs. The promised electronic procurement functionality was still not available in a proven, stable environment. However, after a
further 24 months, this global electronic market had established electronic
procurement connections with 251 buyer locations, 6,500 sellers (suppliers),
4,710 request for quotation suppliers, 8,000 active trading relationships, 2.2
million catalogued items (SKUs), 2.5 million procure to pay transactions
(annualised), and US$3.2 billion volume throughput (annualised), and was touted
as a success.
Conclusion
Changed Governance Structures Did Not Result in
Disintermediation of Intermediaries in the Value/Supply
Chain When Using Electronic Supply Arrangements
The researched evidence suggests that changed governance structures which
included electronic marketplaces did not result in disintermediation of intermediaries in the value/supply chain when using electronic supply arrangements.
This was because the founding shareholder buyers found that the manufacturers
already had relationships, often contractual, with their intermediaries, as did the
buyers themselves. In the short term, it was not possible in most cases to obtain
supply direct from manufacturers. However, this prospect, driven by the
potential for transaction cost reductions and other improved efficiencies will
drive further changes in the supply/value chain arrangements between buyer and
supplier. Many organizations also anticipated they would recoup investment in
electronic procurement solutions by aggregating and reducing the number of
suppliers, so achieving increased supplier discounts based on increased purchase
volume through fewer suppliers (Wittman & Cullen, 2000). This also was found
not to be the case in the short term, because the manufacturers and their
intermediaries had margins to protect for their own survival. Also, the transaction
costs of the buyer organizations for the installation of the necessary software and
hardware to participate in the electronic marketplaces eroded the transaction
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cost benefits gained from any reductions in their transaction costs in dealing with
their supplier through the electronic marketplaces.
The attention of industry seemed almost totally concentrated on the 80% of
purchase orders for 20% of the buyers spend, that is the purchase of commodity
products, not the procurement of development products. This led to a number of
misconceptions about the value propositions. The electronic marketplaces found
it difficult to get to the transaction volumes necessary to survive on the slim
margins to be obtained from each transaction, even assuming the end-to-end
procure to pay technology was working, which it was not. The structure of the
buyer-seller-portal relationships were expected to shift from a centralized portal
hub to a more decentralized networked approach that mimicked the overall
structure of the Internet with distributed systems. Low-cost providers and
implementers of electronic procurement software were expected to emerge to
link buyers and sellers. This has not yet happened for the multi-national
organizations, many of whom remain tied to the surviving global electronic
marketplaces. With the emergence of more efficient electronic markets, this
would enable smaller sellers to compete with the largest sellers. Buyers could
expand rather than consolidate and reduce their seller base. However, the
actions taken by the founding shareholders were to reduce their numbers of
suppliers and deal only with major suppliers or agents. This has effectively cut
out direct contact between the multi-nationals with the smaller supplier, developer, or manufacturer. Such major buyer organizations need to review the
facility of an electronic database to quickly, accurately, and easily to track each
procurement transaction. Using electronic procurement data, there is no need to
limit the number of suppliers. When this occurs, the smaller operators, who are
often the innovators and the entrepreneurs so necessary for adaptation and
survival of the larger organizations, will be connected directly with the larger
organizations. Until such time, much intellectual property potential will remain
dormant and unused.
Resources Available for Start-up Innovations

The pace of reform in this hyper-turbulent environment was furious, but there
seemed to be resources available for start-up innovations, such as the regional
and global marketplaces researched. These amounted to over US$100 million for
the global electronic marketplace. The corporate governance of the global
electronic marketplace was based upon the offer of transaction cost benefits to
buyers through being the lowest total cost of ownership solution. There were
benefits to sellers, but many marketplaces were facing problems in attracting
sellers. The benefits to the founding shareholders were in sharing the risks and
the transaction costs of development. Of course, there were technology issues,
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but the global electronic market selected reputable software providers. However, the electronic market competition took some time for a critical mass of
owners to attract sellers, or a base of transactions that would sustain an
electronic marketplace business. The global electronic market was quick to
realize that it was essential to develop momentum, value, and services, and to
move on from a transaction processing-based business. Challenges were in
building the customer base, regulatory compliance, complexity of technology
necessary required highly structured platform development and alignment of
principal and agents, and obtaining skilled and qualified human resources.
Benefits Had to Be Made Convincing at the Working

Level
For most founding shareholders, the benefits from directing their indirect
procurement transactions through the regional electronic market had to be made
convincing at the working level. Some founding shareholders procurement
personnel considered that the deals and relationships they had already achieved
were better than anything the regional electronic market had developed or could
develop. There was some rejection at the working and mid executive levels to
participate. Shareholder electronic procurement staff at these levels considered
their companies large enough to have sufficient buying power in their own right,
without carrying the extra transaction costs, risks, and other disadvantages for
perceptions of (unproven) benefits. The hype and rhetoric about electronic
business was giving way to a reality. At these levels, there also were issues of
credibility and loss of power and control. If founding shareholders procurement
staff could see little evidence of the electronic market putting together better
deals than they could, it was going to be difficult for the electronic market to be
convincing. Also, some founding shareholders procurement staff assessed that
success of the electronic market arrangements would threaten their own jobs.
Technology Delays
There had been technology delays by all parties, including founding shareholder
ERP and other incomplete back office systems, and incomplete buyer-seller
connections. Technical connectivity with all founding shareholders and their
suppliers was difficult and time consuming, so B2B communication was troublesome. Neither buyers nor sellers could transact unless the B2B technology and
connections were working efficiently and effectively.
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Used to Managing Steady State Organizations

Many executives in the major founding shareholder organizations who were to
plan and implement the technological changes were used to managing steady
state organizations there were few executives in the organizations researched
who were ready to accept and cope with the difficulties of these massive
technological innovations. This was particularly so when many did not have the
knowledge or the expertise to do so, and there was little guidance, research, or
experience to provide assistance despite the rhetoric from the various consulting
organizations it became a very threatening time for many executives.
Essentially, most of the executives had gained their positions in the major mature
organizations through being conformists, not innovators or entrepreneurs. They
were mainly cautious people who looked for incremental improvements, and
were not risk-takers or management revolutionaries. They had a lot to lose if they
failed, and they had seen or even experienced how unforgiving their organizations had been in dealing with those associated with failed ventures. This was
particularly noticeable in the differences in personalities and approach of the
different CEOs.
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Endnotes
1
To purchase: the act or an instance of buying; something bought; acquisition

through the payment of money or its equivalent (Oxford Dictionary).
To procure: to get by special effort; obtain or acquire; to bring about; effect;

to contrive; to cause (ibid).
A direct product purchase is when an organization procures a product that

is necessary for the ongoing core business.
An indirect product purchase is when an organization procures a product

that is necessary for the support of the business such as office equipment,
professional services, or educational tools.
Maintenance, repair, and operation (MRO) supplies are indirect goods and
services required to operate an organization and include recurring items
such as office supplies, professional services, travel, and entertainment
expenses, as distinct from the cost of goods sold and human resource/
management expenditures. MRO items typically represent 20% of operation resources.

6
287
Portals provide access to large amounts of supplier catalogue information

and enable electronic commerce transaction over the Internet. The power
of portals is the ability to translate buyer and seller information over a
variety of communication protocols, however, all data does not need to
reside on their servers. Technology enables buyers to exit the electronic
procurement application and hyperlink to a sellers Web site. This enables
portals to bring more sellers into the content network, while enabling them
to keep the content maintenance at their site.
Market makers attempt to capitalize on the B2B Internet commerce
opportunity by aggregating buyers and sellers, and earn revenue from
transaction fees, agency fees, access fees, and advertising fees.
Application service providers assist organizations with their electronic
commerce strategies through value-added software products and services.
Vertical markets are those focused on one industry and aggregate buyers
and sellers over the Web.
Horizontal markets are broadly focused and offer services across a range
of different industries and aggregate buyers and sellers over the Web.
As the U.S. Navy began to execute their competitive sourcing program, it

became clear that competitive sourcing alone would not achieve the
necessary savings, nor would it result in the most efficient Navy infrastructure. The business units that are commercial in nature and appropriate for
competition are often integrated with inherently governmental functions
and cannot easily be competed. The Navy determined that a broader,
systems-engineering approach would be pursued to achieve maximum
benefit and prevent sub-optimization. This approach, known as strategic
sourcing, is consistent with the reinvention process. Strategic sourcing
begins by reviewing an entire organizations functions to determine how
related functions should best be organized or eliminated to achieve the
maximum benefit. This review highlights those tasks or functions that show
potential for execution in a manner different from currently conducted.
After this review, decisions can be made as to which methods or processes
can be employed to achieve the maximum benefit. The key step in the
strategic sourcing process is properly defining the organizations functions.
288
Glossary
Glossary
B
Balanced Scorecard: The concept of the balanced scorecard (BSC) was
created and introduced by Kaplan and Norton (1992) more than a decade ago.
The BSC aims to provide a clear picture of the overall performance of a company
in a single snapshot. In the knowledge-based economy, competitive advantage
lies in an organizations intangible assets which include core competency;
knowledge and skills; employee motivation; information technologies and databases; efficient and responsive operating processes; innovation in products and
services; customer loyalty and relationships; and political, regulatory, and
societal approval (Kaplan, 2001). The BSC combines four different perspectives
- financial, customer, internal business processes and innovation and learning of enterprise performance rather than emphasizing one perspective at the
expense of the others. In other words, the BSC intends to evaluate the
companys performance in a more balanced, comprehensive, and holistic way.
The underlying assumption is that there are inherit synergies between financial
measures and non-financial measures (Chapter VI).
C
Customer Lifetime Value (CLV): The value that a customer brings to an
organisation over time
Glossary
289
Customer Relationship Management (CRM): The process of storing and

analysing the vast amounts of data produced by sales calls, customer-service
centres and actual purchases, supposedly yielding greater insight into customer
behaviour.
Corporate Entrepreneurship or Intrapreneurship: Corporate entrepreneurship is generally defined as entrepreneurial behaviour in an established
organization. Corporate entrepreneurship is important not only for large corporations but also for small and medium sized enterprises.
D
Database Marketing (DBM): The ability of a company to use the vast
potential of todays computer and telecommunications technology in driving
customer-orientated programmes in a personalised, articulated and cost-effective manner.
Direct Marketing (DM): An interactive system of marketing which uses one
or more advertising media to effect a measurable response, from a defined target
market.
Dot-Com Crash: Arrival of the twenty-first century was accompanied by the
dot-com crash with hundreds of Internet companies around the world laying off
thousands of employees and filing for bankruptcies.
E
E-Business: E-business is a comprehensive term used to describe the way an
organization interacts with its key constituencies including employees, managers, customers, suppliers and partners through electronic technologies. It is a
broader construct than e-commerce. While e-commerce is part of e-business
and is often used interchangeably with e-business in publications, e-commerce
is limited to business exchanges or transactions over the Internet only.
E-Entrepreneurship: E-entrepreneurship describes entrepreneurship in ebusiness. The e-dimension of entrepreneurship incorporates all the key elements
of entrepreneurship including risk-taking, proactivity, and innovation in building,
running and managing e-business.
290
Glossary
E-entrepreneurship is also defined as the notion which principally uses the

Internet to strategically and competitively achieve vision, business goals and
objectives.
E-Entrepreneurs: E-entrepreneurs use the World Wide Web (WWW) to
interact and complete virtual transactions both with other businesses (B2B) and
their consumers/customers (B2C).
Entrepreneurship: Entrepreneurship, in its narrowest sense, involves capturing ideas, converting them into products and, or services and then building a
venture to take the product to market (Chapter I). Entrepreneurship represents
organisational behaviour. The key elements of entrepreneurship include risktaking, proactivity, and innovation (Chapter I).
E-Innovation: E-innovation can be broadly defined as innovation that is related
to e-business. Technology e-innovation is only one aspect of e-innovation. It may
include establishing and/or implementing innovative processes, service, strategy,
structure, technology, etc, in relation to e-business.
E-Organization: In this book, e-organisations are organisations which are
established and operated, based on new technologies, such as the Internet and
other related network technologies in an environment referred to as the Internet
cultural Era (ICE).
E-Procurement: In most cases electronic procurement (e-procurement) refers
to business-to-business electronic trade. It is undoubtedly a central function of
e-businesses and plays a key role in the e-supply chain, as purchasing goods and
services is always an integral part of the supply chain.
E-Marketplace: Most e-marketplaces offer online exchange transactions and
auctions. The e-marketplaces or e-hubs, can be divided into four categories in
terms of their core business activities: (i) maintenance, repair, and operating hubs
(MRO), (ii) yield management hubs with a focus on operating resources or
advertising, (iii) exchange hubs, and (vi) catalogue hubs that focus on noncommodity items (Kaplan & Sawhney, 2000). There is another classification of
e-marketplaces in terms of the industry sectors involved: vertical and horizontal
e-markets.
Glossary
291
I
Innovation: Innovation is a proposed theory or design concept that synthesises
extant knowledge and techniques to provide a theoretical basis for a new
concept. Innovation thus has many facets and is multidimensional. The most
prominent innovation dimensions can be expressed as dualisms(i) radical
versus incremental; (ii) product versus process; and (iii) administrative versus
technological (Chapter I).
Internet Cultural Era (ICE): The ICE can be defined as an environment
where organisations are placing the Internet at the centre of their business and
encouraging ubiquitous use of networked technologies for delivering their
business processes, with emphasis on transparent communication and readiness
to innovate and take chances on new ideas. Three economic entities, namely the
government, organisations and individuals, are the key players in the ICE.
Intrapreneurship: See corporate entrepreneurship in this Glossary.
M
M-Commerce: In general we can characterise e- and m-commerce as the
different ways of supporting and conducting business over the Internet (e) and/
or with mobile devices (m). M-Commerce can be understood in equally diverse
ways. There may be a number of different definitions for e- and m-commerce,
which are all correct. Due to the possibility of very diverse views in understanding what e-commerce and m-commerce are, in this book, we refer to application
of e- and m-commerce techniques to business as using e- and m-business
components.
O
Online Advertising: Online advertising refers to employing the Internet as a
means of advertising and a source of exposure to the consumers who use the
Internet to research purchases.
Open Source Software: Open Source Software (OSS) involves access to the
underlying source code. In addition, for a license under which software distributed is to be considered Open Source, it must permit redistribution of the
292
Glossary
software without requiring a royalty. Redistribution must be permitted in source

as well as compiled (ready-to-run) form. Modification of the software and
creation of derived works must be permitted. There are some other clauses that
must be satisfied for a particular software package to qualify as OSS. However,
the above criteria are arguably the most fundamental and, to someone not
familiar with the OSS paradigm, perhaps the most revolutionary. Many organisations
and websites use the term Free Software, whose meaning and interpretation
is very similar to OSS, with free implying freedom to access and modify the
source as well as redistribute unmodified and modified versions. Strictly speaking, the definition of Free Software might preclude certain software from being
considered Free even though it might be considered OSS. Since all Free
software would be considered OSS, we will use that term for simplicity and to
avoid the confusion that comes from Free meaning at no charge (Chapter
IV).
P
Permission Marketing: A two-way permitted dialogue between business and
customer that focuses on providing relevant, timely and specific information to
a specific target market.
R
Relationship Marketing (RM): Relationship Marketing is the ongoing process of engaging in cooperative and collaborative activities and programmes with
immediate and end-user customers to create or enhance mutual economic value
at reduced cost. (Chapter V)
S
Search Engine: Search engine refers to a program that searches for key words
in files and documents found on the Internet.
Small/Medium Enterprise (SME): Defined by the EU as a company that has
less than 250 employees. However, the size of a SME may vary in different
country context.
Glossary
293
T
Total Quality Management (TQM): TQM is generally defined as a comprehensive management approach to improving quality of service and product. It
refers to both a philosophy committed to customer satisfaction and continuous
improvements and a set of guiding principles that set the foundation for an
organization to improve quality.
294 About the Authors
About the Authors
Fang Zhao (PhD) is senior lecturer and senior supervisor of PhD, Doctor of
Business Administration (DBA) and Masters at the School of Management,
Royal Melbourne Institute of Technology University (RMIT), Australia. She is
the sole author of a recently released research book, Maximize Business Profits
Through E-Partnerships (2005, IRM Press).She has published internationally
approximately 40 refereed research works in the areas of innovation and
knowledge management, entrepreneurship, e-business management, performance measurement, and TQM. She was a post-doctoral research fellow at the
Centre for Management Quality Research, RMIT, before joining the School of
Management.
***
Bill Anckar is the CEO of the hotel chain Omena Hotels Ltd. and an associate
research fellow at the Institute for Advanced Management Systems Research
(IAMSR) at bo Akademi University, Turku, Finland. His research focuses on
consumer adoption of electronic and mobile commerce, in particular applications
and services relating to travel and tourism. His work has appeared in several
books and international journals, as well as in proceedings of numerous international conferences.
About the Authors 295
Gideon Azumah is a researcher at the University of Sheffield Management

School, UK. He earned his first degree from the University of Ghana in
psychology and his masters degree in international business economics from
Seoul National University, South Korea. He is currently working toward a
doctorate (PhD) in e-organisations. Gideons research interests are: eorganisations, e-business, e-logistics, e-things, production planning and control,
SMEs, competitive advantage, supply chain management, and knowledge management.
Clare Brindley was principal lecturer at Manchester Metropolitan University,
UK. She has extensive publications in the fields of women entrepreneurship, risk
management, and supply chain relationships. Dr. Brindley is a member of the
Charted Institute of Marketing and the Institute of Small Business and Enterprise, as well as being an editorial board member of a number of leading
international journals.
Mikael Collan works as a researcher and a teacher at the Institute for
Advanced Management Systems Research at the bo Akademi University,
Finland. His research interests include modeling and valuation of investments,
with a focus on investments with a high degree of uncertainty (R&D, e- and mcommerce, and large industrial investments with long economic lives). His
research interests further include application of intelligent and soft systems
methodologies in business and in foresight (SOM, ANN, intelligent agents, and
fuzzy logic).
Carmen Gould has worked as a research fellow for the Smart Internet
Technology CRC Project at RMIT Research Development Unit. Ms. Gould
recently completed her PhD within the School of Management at RMIT
University, Melbourne, Australia. She also holds an Honours degree in quality
management from Salford University, UK. Her research interests include
information privacy and the Internet, societal impacts of the Internet, ecommerce, and Internet methodologies. She has had a number of publications in
these areas.
Ville Harkke is a researcher at the Institute for Advanced Management
Systems research and the Turku Centre for Computer Science at the bo
Akademi University, Finland. His current research interests include mobile
commerce business models, mobile systems impact on work processes, and
knowledge mobilisation in healthcare environments.
Kim Hassall is associate professor and director of the Urban Logistics Studies
Group, Melbourne University (Australia). Mr. Hassall began his career as an
applied mathematician in a network optimisation role with the Defence Signals
Directorate in 1977. In 1987, he became a principal transport economist in
Canberra for the Bureau of Transport Economics working in both OR and
econometric areas. In 1989, he was appointed national transport economist for
the Australian Postal Authority in Melbourne. While there, he also held positions
as manager of transport operations and manager of transport strategy. He has
represented Australia as a national expert in e-commerce logistics. He has
published widely in areas of transport costing, urban logistics, and strategic ecommerce, both nationally and internationally. Mr. Kim was also a board
member of the Australian Trucking Association as director of Urban Strategy.
Mauri Kantola is quality manager and senior lecturer of telecommunication and
e-business of Turku Polytechnic, Finland. He was previously the quality manager
of the Polytechnic of Southwest Finland and the researcher at the Turku School
of Economics and Business Administration. Mr. Kantola holds the master of
social sciences (economics) degree from the University of Turku and is finishing
his doctoral dissertation on network analysis in the Department of Sociology of
the University of Turku. He is interested in the quality assurance and the
structural issues of the telecommunication sector and the field of higher
education.
Juha Kettunen is the rector of Turku Polytechnic, Finland. He was previously
director of the Vantaa Institute for Continuing Education, University of Helsinki,
and director of the Advanced Management Education Centre, University of
Jyvskyl. He holds a PhD from the University of Bristol, UK, and a DSc from
the University of Jyvskyl, Finland. His main fields of research include
educational policy, strategic planning, educational administration, quality management, and management education. Before his career in higher education, he
was working as an economist at The Research Institute of the Finnish Economy.
At that time, the research interests included public finance and labour market
policy.
S.C. Lenny Koh (BEng - Hons, PhD, MIEE, MCMI, MIOM) is a deputy
director of MBA in eco-business and a lecturer in quantitative methods and
management at the University of Sheffield, Management School, UK. Her
research interests are in the areas of production planning and control (particularly in MRP, MRPII and ERP), uncertainty management, modern operations
management, logistics and supply chain management, e-business, e-organisations
and sustainable manufacturing. She has published widely in various international

and national academic journals and conferences. She is associate editor of the
International Journal of Operational Research, an editorial board member of
the International Journal of Logistics Systems and Management and
Benchmarking: An International Journal, serves as a chair and on the board
of committee of various international conferences, and a referee for several
international journals in these disciplines.
Stuart Maguire (PhD) is a lecturer in the Management School at Sheffield
University, UK. He has worked in the area of information systems (IS) for
several firms in both the private and public sectors. He has also completed over
20 years working within business and management schools in the United
Kingdom. During this time he has been able to undertake research in over 150
organisations. Stuarts current research interests are information strategy,
customer listening tools, the intelligent organisation, supply chain management,
and the role of the internet within SMEs.
Ambareen Musa is e-commerce manager for GE Consumer Finance, UK. She
earned a Bachelor of Business Information Systems at RMIT University in
Australia. Ms. Musa has had quite a variety of experience starting from setting
up RentFAST, an online accommodation service for international students in
Australia. She then moved on to set up a cross sell program among the 26
different businesses at General Electric in Australia promoting sharing of
knowledge and information. In 2004, she decided to move to the UK to take up
the e-commerce manager role for GE Consumer Finance to set up their business
to consumer Internet distribution channel.
S. Pavic is a doctoral student at the University of Sheffield, Management School,
UK. Her particular research interest is in the new ways of creating competitive
advantage through the use of e-business in small and medium-sized enterprises.
M. Simpson (PhD) is a lecturer in business studies at Sheffield University
Management School (UK) and teaches operations management and marketing.
His research interest is in the area of performance measurement, organizational
improvement and competitive advantage and concentrates on small and mediumsized enterprises.
Steve New is a lecturer at the Sad Business School and fellow of Hertford
College at the University of Oxford (UK). Originally a physicist, his background
includes work in the aerospace, automotive, and consulting sectors, and his
research work has focused on operations and supply chain management. He was
formerly a lecturer at the Manchester School of Management, UMIST. Dr. New
works as a consultant for a range of organisations and is a regular speaker at
industry and academic conferences.
Anna Sell is a PhD candidate at Turku School of Computer Science and a
researcher at the Institute for Advanced Management Systems Research
(IAMSR) at the bo Akademi University, Turku, Finland. She has worked as a
teacher in the field of electronic commerce and is currently working on her
dissertation, focusing her research on mobile personal calendar systems usage
and user needs. Her main interests include electronic and mobile commerce,
mobile HCI, and mobile time management applications.
Mohini Singh is associate professor in information technology and e-business
at RMIT University, Australia. Her research interests are in the areas of eadministration, e-business management strategies, B2B e-business issues, virtual communities, and IT value. She has published widely in the areas of ebusiness and new technology and innovation management. Her publications
include books, book chapters, journal articles, and conference papers. She is the
principal editor of E-Commerce Diffusion: Strategies and Challenges (Heidelberg Press) and E-Business: Innovation and Change Management (Idea
Group Publishing). Singh is currently working on a collaborative project on eadministration with INT-Evry in France. She recently completed a large
research project on e-business evaluation in Australia. More information is
available at www.rmit.edu.au/bus/bit/mohini_singh.
Amrik Sohal is a professor in the Department of Management at Monash
University (Australia) and associate dean (research degrees) for the Faculty of
Business and Economics. His research and teaching is in areas of operations/
manufacturing management, quality management, supply chain management,
and technology management. He has published more than 100 journal articles
and co-authored three books. He has received research grants from the state and
federal governments, the Australian Research Council, and Monash University.
In 2001, Professor Sohal received the Vice-Chancellors Award for Postgraduate Supervision. In 2004, he received an award for research excellence from the
International Association for Management of Technology.
Alexandra Steinberg is a teacher and doctoral researcher in organisational
psychology at The London School of Economics and Political Science. Her
current research scrutinises the interface of organisational change, knowledge
management, and social psychology, and advocates a different view to the muchstudied subjects of knowledge dynamics. Ms. Steinberg holds a Bachelor of
Science (Honours) in business studies from Mannheim Study Academy, Germany, and a MSc in organisational and social psychology from the London School
of Economics and Political Science, UK. Ms. Steinberg is an experienced
organisational change consultant and coach, having worked in this role for five
years in both Europe and overseas.
J. D. Thomson has managed $2,000 M of national projects; developed
international innovative defence and industry capability policy papers for defence and government including defence industry policy; developed high-tech
project delivery benchmarking and best practices; established an electronic
procurement statistics database for $4b pa of purchases; researched transaction
costs of tendering; studied defence/industry interface best practices; and was
awarded a fellowship to study interfaces in Singapore, Israel, Sweden, Holland,
Germany, UK, and later in the United States and Japan. Mr. Thomson was a
visiting research fellow at ADFA/UNSW for five years, and vice president of
the Systems Engineering Association Australia in 1999. Recently, he has worked
for a global corporation in strategic electronic business, has developed a road
map for electronic business global roll out, and has researched electronic supply
chain logistics models.
Di Waddell is an associate professor in management programs at Deakin
University, Burwood campus, Australia. She is responsible for the development,
implementation, and evaluation of postgraduate and undergraduate courses and
teaches in the areas of quality management, change management, and strategic
management. These subjects are offered both on-campus and off-campus. She
holds a PhD (Monash), Master of Education Administration (Melbourne),
Bachelor of Education (Melbourne), and Bachelor of Arts (LaTrobe). She has
published and presented many papers on resistance to change, leadership, ebusiness, quality management, and forecasting for managers. Her publications
include three books: Organisation Development and Change (Nelson-Thomson
Learning), E-Business in Australia: Concepts and Cases (Pearson Publishing)
and E-Business Innovation and Change Management (Idea Group Publishing). She has taught in both public and private education systems for many years,
as well as presenting specifically designed industry-based courses.
Karyn Welsh is an account executive with expertise in business development,
account management, and communications within dynamic and competitive
industries. She has a track record in business analysis and business planning in
relation to strategic account development and considerable experience in
developing comprehensive management proposals for winning and adding value

to existing businesses. She has been responsible for business development
planning, profitability, revenue growth, and quality customer service in respect
of a portfolio of strategic accounts.
Diane Wright is principal lecturer at Manchester Metropolitan University (UK),
where she has a significant role in academic enterprise. Prior to working at the
University, Wright spent a number of years as a marketing director and
consultant. Her research interests focus on the area of relationship marketing
and small business, and she is a member of the Institute of Small Business and
Enterprise.
Ambika Zutshi is a lecturer in the Bowater School of Management &
Marketing, Deakin University, Australia. Her qualifications include a bachelors
degree in environmental sciences, a masters degree in environmental management, and a PhD. Her current research is focused in the area of triple bottom line
reporting, the role of various stakeholders in the planning and implementation of
environmental management systems, business ethics, and supply chain management. She has articles published in journals such as Business Process Management Journal, Managerial Auditing Journal, Management of Environmental Quality: An International Journal, and The International Journal of
Environmental and Sustainable Development.
Samar Zutshi holds a bachelors degree in computer science from Madurai
University in India and a masters degree in information technology from
Monash University. He is currently completing a PhD at the Faculty of
Information Technology, Monash University. His research focus is on contentbased multimedia retrieval. He has been using OSS for several years and plans
to release the software developed for his PhD as OSS. He is interested in doing
further inter-disciplinary research at the management-IT interface.
Index 301
Index
A
Amazon.com 9, 64
Australia 150
B
B2B (see business-to-business)
B2B bubble 42
B2C (see business-to-consumer) 63
balanced scorecard (BSC) 108
BookIT 170
business-oriented approach 164
business-to-business (B2B) 20, 41, 63
business-to-consumer (B2C) 63
C
Commerce One/SAP Markets 276
commercialisation 163
competitive advantage 161, 241
competitive advantage through e-business
(CATE-b) 239, 251
competitive strategy 109
complaining behaviour 209
conceptual difference 23
confidence-engendering measures 203
consumer 202
consumer knowledge 201

consumer privacy 203
consumer profile 96
corporate entrepreneurship 4
corporate governance 267
corProcure 125
CRM 90, 95
customer 91, 110
customer trust 203
cyber business 187
cyber entrepreneur 180
cyber entrepreneurship 179
D
database marketing (DBM) 92
Deleuze 19
Deleuzian analysis 26
delivery 131
Dell , Michael 183
deregulation 127
Destra 6
Deutsche Post Logistics 130
digital map 151
direct marketing 92
disintermediation 266
dot-com 125
302 Index
dot-com boom 20
dot-com crash 2, 18, 65
dot-com industries 3
E
e-banking 10
e-business 1, 19, 129, 152, 159
e-business entrepreneurship 19
e-business ethics 216
e-business models 244
e-commerce 1, 41, 160
e-commerce relationship 203
e-customer relations management (e-CRM)
232
e-economy 241
e-enterprise 226
e-entrepreneur 62
e-entrepreneurship 2, 63, 107, 148, 152,
156
e-innovation 2, 148, 156, 261
e-logistic 129
e-marketing 90, 126, 152
e-operations 226
e-organisations 224
e-term 227
eBay 8
EDI (see electronic data interchange)
education 210
efficiency 184
Eftpos 127
electronic data interchange (EDI) 43, 225
electronic procurement 263
electronic procurement governance model
262
entrepreneurship 1, 2, 64, 93, 148,
152, 180
ethics 203
GiroPost 127
global electronic market 262
Google 9
Gripple Ltd 246
H
Helsinki City Transport Company 169
higher education 109
I
ICTs (see information and communication
technologies)
i-Mode success 174
independent learning 112
information and communication technologies (ICTs) 20, 108, 165
information management 208
information privacy 201
initial public offering (IPO) 9, 271
innovation 1, 19, 41, 148, 152, 179, 183,
261
intellectual property (IP) 69
inter-organisational information system 43
internal process 111
Internet 19, 42, 150, 202, 208, 223
Internet cultural era (ICE) 224
Internet-based intermediaries 42
interorganisational trade 42
intrapreneurship 4, 154
IP (see intellectual property)
IT infrastructure integration 252
K
key performance indicators (KPIs) 153
knowledge 18
knowledge dynamics 19, 21
Finnair 170
free software 69
learning 111
Leavey, Thomas E. 128
longitudinal action research 264
G
Gates , Bill 183
gender 210
M
m-business 159
Index 303
Me2 154, 158

MIT90 Framework 244
mobile commerce 98, 160
mTicket 169
N
NASDAQ 49
networking 21, 117
O
Omenahotellit 165
online advertising 149
online auction 3, 43
online business 189
open source initiative 69
open source software 62
opportunity identification 183
organizational hyperturbulence 262
owners/managers 243
P
pedagogical methods 113
php/MySql 191
Plusdial Ltd 169
post dot-com 20
Post Office 125
postal e-marketplace 126
privacy 202
privacy typology 204
privacy-protecting behaviour 215
privacy-sophistication index (PSI) 205
Projektori software 120
proprietary software 68
PSI (see privacy-sophistication index)
R
radio frequency identification (RFID) 225
relationship marketing 92
rentfast.com.au 186
RFID (see radio frequency identification)
rhizomic becoming 19
risk 207
S
SCM (see supply chain management)
search engine 3, 43, 151
Sensis Pty 149
Sensis Search 149
Sensis.Com.Au 148
Sign-Up.to 89, 96
small and medium-sized enterprises (SMEs)
90, 225, 239
small business 4
SME (see small and medium-sized enterprises)
SMP Europe 247
SMS-tickets 169
SpeakerDirect 7
spin-off companies 118
SPSS 229
start-up innovations 283
strategic management 108
strategic planning 109
strategy map 114
supply chain 266
supply chain management (SCM) 227
T
technology bubble 42
Telstra 63
Tesco.com 160
total quality management (TQM) 156, 161
trust 203, 206
Turku Polytechnic 109
U
Universal Postal Union 125
utilities vendor database 45
V
value chain 204, 266
vapourware 46
virtual learning 107
virtual organisation 226
virtual tours 189
304 Index
W
Web technology 240
Westins model 205
World Wide Web 63, 180
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Entrepreneurship

IDEA GROUP PUBLISHING

Published in the United States of America by

sufficient to ensure organisational success. They maintained that a successful

To characterize and define the main constructs of e-entrepreneurship and

To explore the economical, social, political, and organizational structural

To examine ethical issues relating to e-entrepreneurship; and

To speculate the future trends of the e-dimension of entrepreneurship and

Lecturers and students in the subject areas of entrepreneurship and innovation;

Anyone who is interested in the field of study.

This book helps e-business managers to formulate and implement strategies

A review of the current literature about e-business as well as entrepreneurship

Chapter IV presents experiences of two entrepreneurial companies in adopting

tributes to the development of the emerging disciplines of e-entrepreneurship

Entrepreneurship and Innovation in E-Business

to develop an integrative framework for building entrepreneurial and

Entrepreneurship and Innovation in E-Business

ute to the development and integration of entrepreneurship and innovation.

neurship itself, rather than the personality or psychology of small business

Entrepreneurs and Small Business Owners

Corporate Entrepreneurship or Intrapreneurship

Entrepreneurship and Innovation in E-Business

seven basic sources of opportunities to innovate. Only one of them is to do with

The Conceptual Relationship between Entrepreneurship

Case Studies of Synergies between

Entrepreneurship and Innovation in E-Business

dot-com company based in Australia, believes that entrepreneurship means

Entrepreneurship and Innovation in E-Business

Issues and Challenges

Entrepreneurship and Innovation in E-Business

An Integrated Framework for

System and Structure

Entrepreneurship and Innovation in E-Business

an ability to search for and identify innovative opportunities

the ability to develop effective plans to implement innovation and

the ability to integrate research, design, and market information to convert

a proactive attitude to the promotion of innovation through a strategic vision

to absorb information from various sources. The style of an innovative and

Entrepreneurship and innovation are positively related to each other and

Entrepreneurship and innovation are complementary, and a combination of

Entrepreneurship and innovation are dynamic and holistic processes in

Entrepreneurship and Innovation in E-Business

Nevertheless, these limitations infer that further systematic and comprehensive

Entrepreneurship and Innovation in E-Business

Exploring Rhizomic Becomings in Post Dot-Com Crash Networks

Researching Knowledge Dynamics in

Networking Post Dot-Com

Exploring Rhizomic Becomings in Post Dot-Com Crash Networks

Exploring Rhizomic Becomings in Post Dot-Com Crash Networks

of innovation. While the dialectic perspective is useful to highlight how people

Exploring Rhizomic Becomings in Post Dot-Com Crash Networks

the expectations of the researcher. The snowball process addressed this

Exploring Rhizomic Becomings in Post Dot-Com Crash Networks

These lines are constantly crossing, intersecting for a moment, following

It is this unexpected bricolage effect that is at the centre of innovation usually

Exploring Rhizomic Becomings in Post Dot-Com Crash Networks

Personal Profile Page and New

Figure 1. Randomly selected personal profile page on Ryze.com (2005)

Figure 2. Cut-out from a personal profile page on Ryze.com guestbook,