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Electronic Commerce: Definition, Theory, and Context

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 Electronic Commerce: Definition, Theory,
and Context
ROLF T. WIGAND
Graduate Program In Information Resources Management
School of Information Studies
Syracuse University
Syracuse, New York, USA

Electronic commerce is a relatively new concept that crept into the business vocabu-
lary during the 1970s. A picture of electronic commerce is emerging in which the In-
ternet will become the essential dial-tone for conducting business by the year 2000.
This contribution addresses definitional, theoretical and contextual issues including
the nature, drivers, enablers, and the magnitude of electronic commerce. The author
discusses the role of electronic markets, the effects of information technology on elec-
tronic commerce, interactivity, and the evolution of disintermediation to reintermedia-
tion. A definition and typology of electronic commerce are offered. Theoretical and
conceptual approaches to electronic commerce are advanced in terms of (1) transac-
tion cost theory, (2) marketing, (3) diffusion, (4) information retrieval, and (5) strate-
gic networking. Lastly, the author poses the question of how electronic commerce
adds value.

Keywords adding value, diffusion, disintermediation, EDI, electronic commerce,

electronic markets, enablers, information retrieval, interactivity, marketing, organiza-
tional fit, reintermediation, stragetic networks, transaction cost theory

Modern communication and information technologies can enable change in organization

structures and business processes, and they influence the competitive advantage of firms.
Under their influences markets gain increasing importance as a coordination form. But
also events within the market and market structures are experiencing changes due to the
increasing utilization of modern telecommunication media. The drivers, nature, and mag-
nitudes of these changes are the focal points and enablers of electronic commerce and are
addressed in this contribution.
Electronic commerce is a relatively new concept and has crept into the business vo-
cabulary no sooner than the 1970s. We encounter many economic activities that find
electronic support. The literature and trade press tend not to delineate clearly among
ª electronic business,º ª electronic commerce,º ª electronic markets,º and related terms.
Maybe we should not be surprised, as the field of electronic commerce and organizational
processes is subject to fast and often dramatic and externally induced technological
changes. The widespread use of personal computers, coupled with the proliferation of
telecommunication networks and the Internet, as well as their joint integration, has made
paper-free trading a reality, even for common citizens.

Received 3 September 1996; accepted 8 November 1996.

The author gratefully acknowledges support for research received from Rome Laboratory,
Rome, NY and the Volkswagen Foundation, Wolfsburg, Germany which contributed to this article.
Address correspondence to Professor Rolf T. Wigand, PhD, Director of Graduate Program in In-
formation Resources Management, School of Information Studies, 4-293 Center for Science and Tech-
nology, Syracuse University, Syracuse, NY 14244-4100, USA. E-mail: [email protected]

1
The Information Society, 13:1±16, 1997
Copyright € 1997 Taylor & Francis
0197-2243/97 $12.00 + .00
2 R. T. Wigand

Broadly speaking, electronic commerce includes any form of economic activity con-
ducted via electronic connections. The bandwidth of ª electronic commerceº spans from
electronic markets to electronic hierarchies and also incorporates electronically supported
entrepreneurial networks and cooperative arrangements (electronic networks). The mar-
ket coordination mechanism is their common characteristic. Services within the tourism,
finance, or insurance industries, but also product distribution and customer services, are
typical fields of application. Delineating among differing forms of electronic markets be-
comes even more difficult, as:
· Organizational boundaries change or disappear and, as market coordination forms,
may also find a place within organizations themselves.
· Value-added chains change, and value-added activities are newly distributed.
· Customers become part of the value-added chain, and private citizens become en-
trepreneurs on their own.
Many of the concepts and ideas presented here are based on the work of numerous
authors, including Benjamin and Wigand (1995), Ciborra (1993), Coase (1937), Malone
et al. (1987, 1989), Kirchner and Picot (1987), Picot (1982, 1986, 1991), Schmid (1993),
Wigand (1988c, 1995a, 1995b, 1995c), Wigand and Benjamin (1995), Wigand et al.
(1997), and Williamson (1975, 1979, 1985).
Electronic data interchange (EDI) and electronic mail, for example, are central busi-
ness tools underlying the operation of electronic commerce (Kilian et al., 1994). Yet it is
impossible to trade over EDI without a contractual agreement. Both EDI and electronic
mail today may be viewed as value-added network services, and they allow the user to
substitute electronic forms for their paper-based counterparts. Over 45,000 firms in the
United States alone exchange data electronically (Stewart, 1994, p. 78; Wigand, 1994),
and more than 60% of all U.S. firms utilize some form of EDI (Wigand, 1994).
Development of the Internet, as well as the World Wide Web (WWW), demonstrates
business and industry’ s increasing interest in and recognition of importance of electronic
commerce (Wigand, 1995a, 1995b). Solutions to buying and selling in these environ-
ments, how to handle electronic cash transactions, various security issues, and other top-
ics are emerging. The emerging strong interest in the Internet and WWW and the accom-
panying frenzied trend to find a role, presence, or niche by businesses worldwide is
reflected in the relevant trade literature, activity on the Internet (e.g., about 20,000 firms
still join the Internet monthly within the United States alone), and attention paid at major
industry conferences such as the annual Gartner Group conferences. With the advent of
the Internet and WWW, a new medium has emerged whose potential is more dynamic
than color printing, radio, or television. The appeal of such universal connectivity and ac-
cess is driving firms to the Internet. It appears that all this focused interest, current devel-
opments, and apparent perceived importance by the business world are resulting in a per-
ception that by the year 2000 the Internet is the universal dial-tone for conducting
business. The aim of all these efforts is to conduct business electronically with millions
of small and medium-sized firms and with millions of customers equipped with personal
computers and a modem, as well as those who will be equipped in this fashion within the
next 5 years. The WWW has become a viable part of firms’ long-range strategic plans.
The Internet phenomenon is indeed a paradigm shift governing both business and infor-
mation technology systems.
It may take time and considerable investments, but most observers agree that there is
no doubt that our computers, televisions, and some machines not yet dreamed of will one
day be a two-way window to the world through which we can tweak our bank accounts,
 Electronic Commerce 3

order groceries, or broadcast our own views to anyone who is willing to listen. Many of
these things are already possible today, but maybe not yet in a user-friendly fashion (see,
e.g., Benjamin & Wigand, 1995). The effects of these developments will be modest at first,
probably more modest than has been predicted, as is usually the case with newer informa-
tion technologies. Most newer information technology is used at first to replace familiar
tasksÐ that is, they may perform familiar tasks better and more cheaply (Wigand, 1985).
Within our economic system, electronic commerce must be seen in the context of
markets. Markets are places of exchange. It is here where supply and demand meet. A
market is conceived to consist of all goal-seeking firms, government agencies, or individu-
als producing some commodity, as well as all firms, government agencies, and individuals
purchasing the commodity. Within this market, the exchange of goods and services takes
place. When the market is competitive, it is characterized by (1) many buyers and sellers,
(2) homogeneous products, (3) easy entrance to and departure from the market, (4) low
switching costs for consumers who wish to choose among suitable goods from competing
firms, and (5) the availability of perfect information. Information is an essential ingredient
for the functioning of any market and is exchanged frequently between buyer and seller,
such as when price information is exchanged. Perfect information denotes that consumers
will have all the information (e.g., through advertising, news media) they need to make in-
formed, rational decisions about which goods or services to purchase in the marketplace.
The market is viewed aside from the hierarchy as the second basic form of coordination
(Coase, 1937; Williamson, 1975, 1981a, 1981b, 1985). Between the two poles of ª marketº and
ª hierarchyº one can recognize a continuum of hybrid organization forms (e.g., clan and strate-
gic network; see Wigand et al., 1997) that offerÐ depending on differing task situationsÐ vary-
ing degrees of efficiency and, in turn, advantages. Based on efficiency reasons, the coordination
form of the market lends itself well to standardized transactions of performance relationships
that have little variability and are easily describable (see Wigand et al., 1997). Electronic mar-
kets, therefore, are one selected institutional and technical platform for electronic commerce.

Effects of Information Technology on Electronic Commerce

Information technology is vital for a modern firm’ s optimal performance today, as it aug-
ments the firm’ s capability to coordinate business transactions within the firm, but also
among firms such as between buyers and suppliers. In this context, Malone et al. (1987)
identified three effects of information technology, to which Wigand (1996a) added a
fourth one. All four effects may lead to reduced transaction and coordination costs:
1. The communication effectÐ Advances in information technology allow for more
information to be communicated in the same unit of time, thus reducing transac-
tion costs (Malone et al., 1987).
2. The electronic integration effectÐ A tighter electronic linkage between buyer
and seller is enabled (Malone et al., 1987).
3. The electronic brokerage effectÐ An electronic marketplace where buyers and
sellers come together to compare offerings (Malone et al., 1987).
4. The electronic strategic networking effectÐ Information technology (including net-
works) enables the design and deliberate strategic deployment of linkages and net-
works among cooperating firms intended to achieve joint, strategic goals to gain com-
petitive advantage (Wigand, 1996a; see also the section on Strategic Networking).
Thus the $4 billion to $5 billion home shopping market that McKinsey and other
consulting firms have predicted in the United States in 2003 will involve not new retail
4 R. T. Wigand

spending, but a switch of customers from shops and catalogues to computers and inter-
active television (Wigand, 1996b). An additional built-in dilemma here is that these new
services not only need to cover their basic costs in terms of actual service provision, but
they also need to be priced such that they can recover the cost of building the network
that delivers them in the first place. In essence then, the entertainment that many expect
to be beamed into people’ s homes some day must not only replace the trip to the local
video store, but it also must persuade customers to spend more on those pleasures than
they are now. However, in the Florida video-on-demand market trials by Time± Warner,
customers were unwilling to allocate additional funds to their entertainment budget. It
appears that this behavioral change will come in time, especially when completely new
services are being offered and applications are possible that we still have not dreamed of
and when users realize the added value achieved via these services and new applica-
tions. The same was true with other technologies in history such as the steam engine.

From Disintermediation to Reintermediation

It is becoming increasingly difficult to delineate accurately the boundaries of today’ s or-
ganizations. Driven by information technology’ s ability to produce even cheaper unit
costs for coordination, firms are implementing new links for relating to each other. Geo-
graphic distance is often of little concern as modern telecommunication technologies per-
form at very high speeds. These links take many forms, such as electronic data integra-
tion, just-in-time manufacturing, electronic hierarchies and markets, strategic alliances,
networked organizations, and others. The resulting new organizational forms indicate an
ongoing transformation of value chains due to technological change (Benjamin &
Wigand, 1995; Wigand et al., 1997).
In the past such linkages among firms were enabled through the mediating roles of
wholesalers, retailers, agents, distributors, brokers, warehousing operations, forwarders,
and ª jobbers.º Today examples abound in which these mediating roles have been re-
placed or eliminated. Benjamin and Wigand (1995, p. 67) demonstrate one such example
in conjunction with the purchase of a high-quality shirt acquired in three variants of value
chains within the shirt industry. Other examples are electronic home shopping services
such as the highly successful Peapod, the direct electronic purchase of flight tickets from
airlines, the bypassing of the insurance agent when purchasing insurance, etc.
This development has been labeled disintermediation and is depicted in Figure 1.
Disintermediation is the displacement or elimination of market intermediaries, enabling
direct trade with buyers and consumers without agents. Often suppliers and their cus-
tomers are linked directly today without any intermediaries. The previous intermediary
roles, sometimes called middle professions, of brokers, agents, etc. between manufacturer
and buyer/consumer (see Figure 1) may be replaced by an electronic market maker or by
value networks (e.g., common carriers, on-line market places), which, in turn, enable a
reintermediation. Electronic markets allow firms to reach very large customer groups at
very low costs (Benjamin & Wigand, 1995). Further discussion on market hierarchies
will be found in the section on transaction cost theory.

A Definition and Typology of Electronic Commerce

Although electronic commerce has been around for some time in the form of EDIÐ
within the trucking, automotive, and financial industries, for exampleÐ when viewing
this setting as a potential electronic market, one must realize that it is not understood
 Electronic Commerce 5

Figure 1. Disintermediation of the market hierarchy.

well. One must also make a distinction between markets for information and a market for
ordinary commodities on at least two counts (Ciborra, 1993, p. 103): On the surface, in-
formation can be considered a factor of production. Another perspective enters the pic-
ture when information itself becomes the commodity and when private markets have
formed in which information can be bought and sold as a commodity. Information then
takes on a more complex role as information has peculiar characteristics in that it is easily
copied, transmitted, sold without destroying it, and that it is expandable, diffusive, com-
pressible, difficult to establish property rights to at times, and sometimes it is a public
good (cf., e.g., Wigand et al., 1997; Ciborra, 1993; Wigand, 1988b).
The term electronic commerce is poorly understood and frequently used to denote
different meanings, very often depending on the individual’ s job function, professional
orientation and background, focal product or service, and type of information technology
deployed. One may identify upward of 30 different technologies that individually or mu-
tually enable electronic commerce. Electronic commerce is, of course, more than the
mere use of technology.
Electronic commerce denotes the seamless application of information and communi-
cation technology from its point of origin to its endpoint along the entire value chain of
business processes conducted electronically and designed to enable the accomplishment
of a business goal. These processes may be partial or complete and may encompass busi-
ness-to-business as well as business-to-consumer and consumer-to-business transactions.
Following this definition, the attempt in Table 1 identifies some criteria leading to-
ward a typology of electronic commerce (Wigand, 1995c). These various types of elec-
tronic commerce range and ascend from one-way teleshopping broadcasts via cable and
satellite television channels, via automated electronic markets, to electronic shopping on
the Internet and WWW, to full-fledged electronic commerce utilizing an electronic mar-
ket maker with a market choice or set-top box in the consumer’ s home. This latter stage
 Table 1
An electronic commerce typolog y
Buying choice/
Type of electronic commerce, Buyers’ deliberate Automatized decision made by Direct buying Potential for
by increasing electronic choice/decision at buying Deg ree of computer/software choice/decision full-fledg ed Role of
interactive capabilities time of transaction transactions interactivity on behalf of buyer made by human electronic market market maker

Teleshopping via television Yes One-way Limited, No Yes Hig h and successful Hig h
(e.g ., QVC) only one-way but only partially
electronic
Automated market (A): simple, Yes and no Larg ely yes Hig h Larg ely yes No Limited, only Small
larg ely automated transactions transaction and
(e.g ., EFT, EDI, SWIFT, processing system
value-added services)

6
Automated market (B): simple Yes One-way Hig h Generally no Yes Hig h and successful Medium
transactions with some human only
choices/decisions required
(e.g ., SABRE, APOLLO,
stock market transactions)
Mobile and wireless cellular Yes No Hig h No Yes Hig h Small
phone/PCS-based applications
(e.g ., construction industry)
Electronic shopping (e.g ., via Yes No Hig h No Yes Hig h Hig h
Internet, WWW)
Full-fledg ed electronic commerce Yes Mainly Hig h No Yes Hig h Very hig h
utilizing electronic market one-way
maker with market-choice box only
(e.g ., available in the future via
500 cable television systems,
phone, maybe wireless, etc.)

Note. From Wigand (1995c).

 Electronic Commerce 7

will not be very practical without the use of an effectively working intelligent agent as-
sisting the consumer in searches, comparisons, and evaluations. It appears that in all con-
ditions the buyer’ s deliberate choice or decision at the time of the transaction is assumed
or required. Some transactions may be automatized buying transactions.
Interactivity tends to be high in most electronic commerce settings. It appears also
that the higher the degree of interactivity, the more perfected the electronic market might
be, although one needs to realize individuals’ limits in their willingness and desire to be
interactive in some settings (Dittlea, 1995). We have observed a plethora of interactive
services over the last decade, ranging from on-line networks to two-way cable television
to telephone-based banking and investment services. They change the way we inform, ed-
ucate, work, play, manage our resources, and entertain ourselves. Such interactive ser-
vices are changing rapidly how businesses connect with customers and suppliers. More-
over, interactive services can personalize the information people need and use it in a
manner suiting them best (see the later discussion on liquid marketing). Interactive ser-
vices are easy-to-use telecommunications-based services designed for information ex-
change, communication, transactions, and entertainment. Voice-based telephone informa-
tion services generate more than $600 million per year in the United States. Interactive
services, it appears, should encompass four essential features in order to ensure their ac-
ceptance: (1) The device or service must replace a process that is inefficient, costly or
boring, (2) consumers must not be asked to choose between competing technologies, (3)
consumers must not feel ª trackedº or that privacy is threatened, and (4) consumers must
perceive that the use of the service (and information technology) is relatively easy and
user-friendly.
Table 1 suggests also that the more perfected the electronic commerce and as an
electronic market, the less the buying choice or decision is automated or made by a com-
puter or software on behalf of the buyer. In most forms of electronic commerce, a direct
buying choice or decision is made by a human being, and ultimately, such as with stan-
dard EDI, this is of course always a human decision.
The role of the market maker varies considerably with the various forms and types of
electronic commerce. The market maker’ s most prominent role is evident when the mar-
ket maker is the driver of the electronic market and can offer single-source channels, as is
the case in teleshopping, electronic shopping, or the full-fledged electronic commerce sit-
uation through the use of a market choice or set-top box.

Theoretical/Conceptual Approaches to Electronic Commerce

Five different approaches are advanced here through which one may view electronic
commerce.

1. Transaction Cost Theory

Economists have classified transactions among and within organizations as those that (a)
support coordination between buyers and sellers, that is, market transactions, and those (b)
supporting coordination within the firm. Figure 2 depicts a typical market hierarchy pro-
gressing from ª manufacturerº to ª wholesaler,º ª retailer,º and ª consumer.º The associated
respective transaction costs are shown as well. Williamson (1981b) points out that the
choice of transaction depends on a number of factors, including asset specificity, the par-
ties’ interests in the transaction, and ambiguity and uncertainty in describing the transac-
tion. Transactions may then be broken down into production and coordination costs (e.g.,
8 R. T. Wigand

Figure 2. Market hierarchy and transaction costs in a stepwise fashion. From Wigand (1995c).

Wigand et al., 1997; Benjamin & Wigand, 1995; Malone et al., 1987). In this context, co-
ordination costs include the transaction (governance) costs of the information processing
necessary to coordinate the work of people and machines performing primary processes
(Malone et al., 1987, p. 485). Transaction costs may be viewed as the economic equivalent
of friction in a physical systemÐ that is, if friction is too great, no or at least impeded
movement will occurÐ suggesting that if transaction costs are high, no or little economic
activity is likely to occur. These costs are comprised of the following four types:
· Search costsÐ the cost of searching for products, sellers, and buyers
· Contracting costsÐ the cost of setting up and carrying out the contract
· Monitoring costsÐ the cost ensuring that the terms of the contract have been met
· Adaptation costsÐ the cost incurred in making changes during the life of the contract
Firms will choose transactions that economize on coordination costs. As information
technology continues its rapid cost performance improvement, the unit cost of coordina-
tion transactions will approach zero, thus enabling the design of innovative coordination
transactions to fit new business needs (Benjamin & Wigand, 1995). The ever-increasing
and innovative use of the World Wide Web (WWW) to conduct business and WWW-re-
lated forms of electronic commerce are clear examples of firms’ desires to economize on
transaction costs. Figure 2 suggests that transaction cost savings may be achieved through
the use of information technology within the entire market hierarchy and resulting market
or industry value chain. Benjamin and Wigand (1995) present an example of the purchase
of a high-quality shirt with empirical cost figures clearly demonstrating actual savings in
transaction costs resulting in lower purchase costs for the consumer. Moreover, this ex-
ample demonstrates nicely how the potential elimination of entire levels within the mar-
 Electronic Commerce 9

ket hierarchy (e.g., wholesaler, retailer) may occur. The latter is clearly observable in sev-
eral markets and industries, as already mentioned in the discussion on disintermediation
versus reintermediation. One may argue that with cheap coordinative transactions, inter-
connected networks and their strategic deployment, and easily accessible databases, there
would be a proportional shift of economic activity to cheaper electronic communications
channels to conduct a firm’ s business.

2. Marketing
All marketing efforts are based on the basic premise that there is a specific consumer au-
dience. Consumers are specific firms or individuals within an industry who have needs
that can be filled by other firms operating within a specific market.
Three main foci of orientation within the marketing effort are identified: customer
orientation, product orientation, and profit orientation. A customer orientation denotes (a)
an attitude and a pattern of conduct, as well as (b) the extent to which a firm tries to de-
termine what its customers want and then gives them what they want. A product orienta-
tion is predicated on the view that consumers will recognize and appreciate products for
superior merit and bestow their patronage on firms. A profit orientation denotes the clear
identification of products, services, and related activities that distinguish themselves by
(a) high demand among customers and (b) high levels of profitability.
The basic challenge faced by a firm, then, is to identify needs and provide linkages
between the firm and its customers. In order to maximize such linkages and relationships
to customers, a firm needs to form hypotheses and understanding about present and po-
tential customers, addressing such questions as:
· What affects customer behavior?
· Which channels (face-to-face, advertising, WWW, publications, etc.) reach
customers?
· What is the degree or strength of need or desire for the product or service?
· What are the appropriate appeals (or arguments) to which customers are most re-
sponsive?
· What is the customers’ responsiveness to different types of sales devices?
After these questions have been answered, the marketing dimension entails five gen-
eral activities:
1. Identifying and selecting the type of customer whom the firm chooses to culti-
vate and learning the firm’ s requirements.
2. Designing products, know-how, and services that the firm can bring to market in
conformity with customer desires.
3. Persuading customers to acquire and adopt products, know-how, and services.
4. Displaying, moving, and to some extent storing products, know-how, and ser-
vices after they have been developed by the firm.
5. Identifying potential products and services and their applications.
In designing products, acquiring and developing know-how, and deciding how much
and what specific services to offer, firms will unquestionably benefit from having a clear
picture of their target customer. Electronic commerce can provide a direct linkage, an
electronic marketing and information channel, between these target customers and the
firm. Considerable rethinking has occurred based on such a customer-centric perspective
as it enables new forms of relationship marketing. The term liquid marketing suggests it-
10 R. T. Wigand

self as a suitable and appropriate descriptor of this evolving setting. It denotes the disin-
termediated, frictionless, personalized, individually accessible, customer-centric, immedi-
ate, cooperative, dynamic, rapid, fluid, computer-to-computer or -person, on-line, and in-
teractive nature of this new form of relationship marketing.
Moreover, the concept of liquid marketing is enabled by the Internet’ s use and while
being interactive with those individuals within the target group: It allows for customized,
almost interpersonal-like interaction, if one uses the interactive multimedia, cooperative,
and feedback capabilities of the WWW, coupled with, for example, the application of
such features as agents, avatars, network dynamic functions, cookies, cacheing, and the
customer’ s willingness to complete profile information forms. This potential for interac-
tivity certainly makes the medium highly attractive as requests, requirements, etc. cer-
tainly can be customized. Truly dynamic webs are expected by 1999, enabling virtual ap-
plications, logic applications, collaboration, interaction, dynamic transactions, and
entertainment. Moreover, such interactivity, sometimes called interactability, makes pos-
sible the often missing feedback loop in this communication process. Feedback, in turn,
allows one to shape and incrementally customize the very next step in the diffusion and
communication process reflecting the target customer’ s needs (see the later discussion on
diffusion). Such customization is almost impossible when viewing the diffusion process
via traditional advertising as a communication channel. Future electronic commerce mar-
keting strategies may demand that we attempt to bring in the buyers and hook them to
products and services offered such that it is very difficult for customers to leave or
switch, resulting in competitive advantage.

3. Diffusion
Diffusion is the social process by which an innovation is communicated through certain
channels over time among members of a social system (Rogers, 1995). This process clearly
resembles the task at hand in the electronic commerce setting; that is, a task or transaction
needs to be communicated to a set of firms or customers (members of a social system) within
a market or an industry. The communication channel typically chosen for the present pur-
poses is that of an electronic connection in the form of electronic data interchange (EDI), the
use of the Internet, or the WWW. From a diffusion perspective, in which time, speed, and
cost vis-‚ -vis effectiveness are of essence, such electronic diffusion means are indeed timely,
cost-effective, and focused methods and channels of reaching target customers described ear-
lier. The rate of diffusion or adoption is determined by the characteristics of the innovation
(e.g., the relative advantage, compatibility, complexity, trialability, and observability).
The communication channel chosen determines, in part, the likelihood of making a
successful linkage with the target customer. General diffusion principles posit that, ide-
ally, successful communication occurs in a face-to-face setting with the target audience
or customer. However, this is often impracticable or too expensive. Substitutes for face-
to-face settings are chosen and the mass media come into play. The use of mass media for
advertising purposes is often a vague undertaking, since one cannot be sure that one’ s
message truly reaches the intended target. Mass media follow a passive one-to-many
communication model whereby a firm reaches many current and potential customers
through efforts that allow the customer limited forms of feedback. Often a compromise
between the two extremes is desirable, such as the use of the mass media, followed up by
a face-to-face meeting within smaller groups, etc. The Internet and WWW facilitate an
interactive multimedia, one-to-many communication model, where feedback from the
customer plays an ever-increasing important role.
 Electronic Commerce 11

Electronic messaging via the Internet comes close to this ideal, that is, using a cost-
effective one-to-many medium while still reaching specific, targeted individuals, assum-
ing a critical mass of users of this medium. Internet and WWW capabilities require the
development and application of new concepts and models for diffusing and marketing
products and services.

4. Information Retrieval
Firms tend to be overwhelmed with information stored in central databases, as well as
dispersed documents (e.g., correspondence) in various places throughout the organiza-
tion. In electronic dissemination, it is obvious that the users can readily retrieve informa-
tion once the information is stored on the system. Many databases are available within
firms that could be accessed through the Internet. The Gartner Group reports, for exam-
ple, that firms produce 3 billion pages of printout daily in the United States alone. In
1995 600 billion report pages were produced at an estimated cost of over $30 billion.
This was done to ª freezeº digital information into a form that cannot be modified or
searched, loses its timeliness rapidly, and requires a massive infrastructure for storage
and retrieval (Bair, 1996). At the same time, Yahoo, the WWW directory company, adds
7000 new Web sites to its directory each day.
Most numeric data are already on line and are being exploited extensively by such
trends as data mining for various applications. This information glut needs to be made
available, if appropriate of course, in a format conducive for use by outside users, that is,
customers and suppliers. The design of such information, databases, etc. often determines
their successful use. In this sense, a customer or end-user orientation must be employed
in the design of the system. Unless such design is inviting, encouraging, timely, informa-
tive, and user-friendly, the success of the system is highly questionable (Taylor, 1986).
Text and document retrieval experts face considerable challenges by finding means to
search and retrieve both structured and unstructured information on-line while making
needed information available instantly whenever and wherever it is needed.
Presently, we still search by going separately to several different search tools, al-
though meta-search engines, that is, universal finders, have surfaced. It appears that one
can envision a future soon in which the user enters an inquiry from a universal finder to
search all enterprise databases asking common language questions such as, ª Find all sales
from 1990 to present for our five top grossing products, broken down by sales region and
which products and reports demanded EPA considerations.º

5. Strategic Networking
Networking, that is, the deliberate design and deployment of networks enabling new or-
ganizational forms, includes all four of the preceding topics, without which networking
could not take place. Networking in this sense goes beyond the traditional means of
reaching the target customer. This importance was already demonstrated in an empirical
National Science Foundation-funded study by Wigand within the microelectronics indus-
try and the role of industry, government, and universities (Wigand & Frankwick, 1989).
Other authors, including Ciborra (1993), Jarillo (1993), Sydow (1993), Wigand (1996a),
and Wigand et al. (1997), have stressed the importance of strategic networks and collabo-
ration. Wigand et al. (1997) emphasize strategic networks as a distinct organizational
form, that is, as being separate from other organizational forms: hierarchy, market, and
clan. Networks have been studied as social systems, organizations, individuals and
12 R. T. Wigand

groups, entire industries, and political and social communities (see Wigand, 1988a). In
the present context they can be seen as a specific organizational form designed for the
purpose of carrying out economic activities between the organizational form of ª marketº
and ª hierarchy.º Under particular conditions we can label networks strategic networks, as
they reflect connotations of long-term, rational importance, being proactive, selectivity,
complexity, intention and coherence (Sydow, 1993, pp. 80± 81). In accordance with Jar-
illo (1988, p. 32; 1993, p. 149), Sydow (1993, pp. 81, 82), Wigand (1996a), and Wigand
et al. (1997), strategic networks are defined here as the long-range, deliberate, coopera-
tive, and goal-oriented organizational forms among distinct but related organizations that
enable such network member organizations to gain or sustain competitive advantage vis-
‚-vis their competitors outside the network, by optimizing transaction costs and minimiz-
ing coordination costs. Trust is an essential element of strategic networks that developed
often prior to the formation of such networks and must be viewed as an important mecha-
nism lowering transaction and coordination costs. Ideally, all member organizations con-
tinue to add value over time through adaptation, novel applications, learning, sharing of
feedback, etc., which, in turn, will determine the strategic network’ s success.
This approach enables interaction with customers and suppliers that is simultaneous,
almost fluid, efficient, flexible, interactive, may be collaborative, conducive to innova-
tion, and adds value to processes and the firm. Electronic networking suggests the use of
listservs, electronic bulletin boards, direct electronic inquiries, transaction-capable and in-
teractive websites, and others.

Is Electronic Commerce Adding Value?

In the often trendy striving toward the development of ever newer and better approaches
for the management of organizations, firms eagerly followed one fashionable concept
after another. Current movements, as well as those of the not all too distant past such as
total quality management, empowerment, quality circles, or reengineering, were viewed
as the all-around cure for many problems of the firm. Within such trendy developments it
is becoming more and more difficult to recognize a truly rich idea with value for the fu-
ture (Wigand, 1995d). Could the strong push toward electronic commerce be nothing
more than just another of those trends? In the final analysis, as with the introduction of
any new information technology and its applications, we must ask ourselves: Are we
adding value? Recent developments seem to suggest that ideal organizational forms are
gaining shape along the concept of the horizontal organization (Wigand, 1995d). This
concept is based, among other factors, on the strategic determination of core processes,
the redesign of work processes, and the alignment of information and communication
technology with organizational goals, strategies, and core processes (Wigand, 1995d). All
of these activities require that the understanding of the firm’ s own competitive position
and its knowledge about possibilities to achieve necessary competitive advantage is a
given.
The change affects essentially the model for organization design, the functional hier-
archy that was so dominant during the last half century. Moreover, core processes need to
be found that not only are central to the entire firm, but that also incorporate suppliers
and customers, and it makes us wonder about the actual boundaries of the firm that seem
to expand increasingly. In this context, process stands in the foreground; that is, it is not
what firms produce deserves focal attention here, but rather how they produce. But even
when firms have identified the right processes, to build them or to change them becomes
difficult and is a task not to be underestimated. Information and communication technolo-
 Electronic Commerce 13

Figure 3. Adding value within the organizational fit of information technology, business
processes, and goals/strategies. From Wigand (1995d).

gies play a decisive role. Their potential can only be exploited when their deployment
and fit are appropriate (see Figure 3). The right alignment of processes overlaid with in-
formation and communication technologies is the basic premise for successful transfor-
mation to the horizontal organization (Wigand, 1995d).
We recognize the missing immediate correlation of information and communication
technology deployment and value added. Of higher importance is to pay focused atten-
tion to the business strategy or the firm’ s goals. These derived demands placed on the in-
formation technology have to be seen in conjunction with demands resulting from the
concrete organization of business processes. ª Adequateº means in this context that the re-
lationship is reciprocal: On the one hand business strategy and processes define their de-
mands on information technology, and on the other hand information technology is the
enabler for new strategies and processes. The trick is to identify the optimal point for the
deployment of information and communication technologies, that is, the optimal organi-
zational fit and alignment (Wigand, 1995d). This, unquestionably, is also true for elec-
tronic commerce.
In order to achieve the appropriate organizational and strategic fit, several iterations
of implementation efforts will be necessary, each followed by improvements, adaptation,
and learning processes, and analogous to the self-regulatory mechanisms of a cybernetic
system. When the optimal relationships among information technology, business strate-
gies, goals, and processes have been developed, all mistakes have been corrected, and the
organization has adapted to the changes, one may then and only then expect the antici-
pated improvements in efficiency and effectivenessÐ that is, the adding of value occurs
(Wigand, 1995d). These relationships are depicted in Figure 3. Added value may be real-
ized in various forms, such as various types of cost reductions, cycle time reductions, in-
ventory reduction, cash flow improvement, sales increases, customer service improve-
ments, productivity increases, opening of new marketing and distribution channels, gains
in competitive advantage, and the enabling of just-in-time delivery.
Aside from adequacy, the principle of innovative deployment of information and
communication technology counts. Especially with regard to international competition,
14 R. T. Wigand

the deployment of information as a production factor must occur in novel and unique
ways as much as possible. Ciborra (1994, p. 19) recommends for this a deliberately para-
doxical procedure: that is, by following of often contradictory guidelines within existing
work processes, thinking patterns and behaviors may be softened or may even be dis-
solved entirely. He argues that his seven paradoxes describe a new ª systematicº organi-
zational approach in order to control the development of innovative information systems
(p. 20). They are suited to enhance learning processes and creativity and to place the need
for control into the background.
The striving toward innovative information technology solutions on the one hand and
the striving toward appropriate organizational fit on the other are the key for overcoming
performance boundaries of the organization. Affected are not only the traditional bound-
aries of the firm with regard to geographic limitations, distances, speed, and working
time, but also awareness limitations of the employees in the organization. Through the
continual balancing of information technology, business goals, strategies, and entrepre-
neurial processes on the one hand, and the awareness about the expansion of entrepre-
neurial boundaries and limits on the other, it becomes possible to realize the vision of the
horizontal firm. This is supported and encouraged by the steadily growing potential of in-
formation and communication technologies. It is important to view and apply current de-
velopments in electronic commerce within this context.

Conclusion
The perspectives on electronic commerce presented and the implications to be drawn here
are the realization that the world of economics is essentially borderless, as well as bound-
aryless, and those who do not see this will create more difficulties for themselves and
their organizations than otherwise. Kenichi Ohmae (1991, 1995) has eloquently argued
this perspective and has expressed the need to work toward a global economy and a
global logic. Those organizations wishing to remain competitive and use strategy to their
advantage will seek a balance among the strategic triangle, according to Ohmae, the triad
region including the United States, Europe, and Japan.
Almost all aspects of human existence come down to an issue of economics; whether
this is good or bad is uncertain. But the fact remains that if human existence is held in the
power of economy, then the national and international organizations of the world must
turn their focus outward, rather than remain internally focused (Wigand, 1996b). Many of
today’ s organizations focus only on those improvements that are internal and are not cre-
ating a management perspective seeking a globally united economy. A novel way of
thinking must be established focusing not only on the internal, but lending itself to a bet-
ter understanding of the external environment as well. In a borderless world the key is a
balanced combination of both perspectives. Only those organizations that alter their out-
look of management to combine both environments will remain competitive in the global
market of tomorrow’ s world. Electronic commerce, it seems, will be one major contribu-
tor toward shaping this borderless and boundaryless world of economics, and, in turn,
will help firms to expand markets and boundaries.

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