Influences of electronic business tools on the people involved in

2003:119

C EXTENDED ESSAY

Influences of electronic business tools on the people involved in

industrial purchasing processes

Hendrik Vogel

C Extended Essay

Department of Business Administration and Social Sciences

Division of Industrial Marketing

Acknowledgements

This thesis was written for the Division of Industrial marketing at Luleå University of Technology, during a period from January until April 2003.

At this point I would like to take the opportunity to thank my supervisor Rickard Wahlberg for his kind help and support for writing this thesis.

Furthermore I want to express my sincere gratitude to Peter Edström from Volvo Lastvagnar AB in Umeå and Kjell Berggren and Joakim Sturesson from SCA Packaging Munksund AB in Piteå, who took their valuable time and contributed their empirical experience to this thesis in a nice atmosphere.

Luleå, April 2003

Hendrik Vogel

Abstract

While the public perception today sees a downturn of e-business after it gained very much attention in the years between 1999 and 2001, the use of e-business and its importance for the economy today is still growing. While much literature is written about the different e-business systems there is only some available about the effects on the organisational buying processes.

This study investigates the changes of the group of people which are involved in industrial buying processes through the introduction of e-business tools and in which way their involvement has changed. In order to achieve this research purpose this study contains a multiple case study of two companies, Volvo Lastvagnar AB in Umeå and SCA Packaging Munksund AB in Piteå, representing the important Swedish manufacturing and paper industry.

The outcome of this study is that more and more e-business becomes a regular element in

industrial purchasing processes. The results are faster processes with less people involved and a

split between strategic and daily purchasing decisions. The tasks of the purchasing department

are elevated towards strategic sourcing and the strategic designing of the electronic business

systems, while the employees are freer to do purchasing on their own within these systems.

Table of Contents

Acknowledgements Abstract

1 Introduction 1

1.1 Background of this study 1

1.2 Research purpose 1

1.3 Delimitation 1

1.4 Disposition of the study 2

2 Literature review 3

2.1 The buying center / Decision making unit 3

2.1.1 Role concepts for the buying center 3

2.1.1.1 The Webster and Wind model (1972) 3

2.1.1.2 The Robinson et al. model (1967) 5

2.1.1.3 The Bonoma model (1982) 5

2.1.2 Dimensional concepts 5

2.1.2.1 A five dimensional model by Johnston and Bonoma (1981b) 5 2.1.2.2 Dynamic three dimensional model by Ghingold and Wilson (1998) 7 2.1.3 A functional concept made by Johnston and Bonoma (1981a) 7 2.1.4 Influences on the structure and the members of the buying center 8

2.1.4.1 General models of influences 8

2.1.4.2 Single aspects influencing the structure of the buying center 9

2.2 The organisational buying process 11

2.3 Electronic business 11

2.3.1 Development, technology, and key concepts of e-business 11

2.3.1.1 The development of e-business 11

2.3.1.2 Definition of key terms 12

2.3.1.3 Market oriented concepts 12

2.3.1.4 Function oriented concepts 15

2.3.2 Benefits and differences in buying processes through e-business 16 2.3.3 Changes and influences of e-business on the buying center 16

3 Frame of reference 18

3.1 Frame of reference and the development of the research questions of this study 18

3.2 Emerged frame of reference 20

4 Methodology 21

4.1 Research strategy 21

4.2 Case selection 21

4.3 Data collection methods 22

4.4 Analysis method 23

4.5 Quality criteria 24

5 Empirical findings 26

5.1 Volvo Lastvagnar AB in Umeå 26

5.1.1 Background information about Volvo Umeå 26 5.1.2 Use of e-business at Volvo Umeå (Research question 1) 27 5.1.3 The purchasing processes after and before the introduction of

e-business tools at Volvo in Umeå (Research question 2 and 3) 29 5.1.3.1 The purchasing process of hand tools with a self-procurement system 29 5.1.3.2 The purchasing of capital equipment 30 5.1.3.3 The purchasing of packaging material with an EDI system 31

5.2 SCA Packaging Munksund AB 32

5.2.1 Background information about SCA Munksund 32 5.2.2 Use of e-business at SCA Munksund (Research question 1) 33 5.2.3 The purchasing processes after and before the introduction

of e-business tools at SCA Munksund (Research question 2 and 3) 34 5.2.3.1 The purchasing process for bearings with an EDI system

and with a self-procurement system 34 5.2.3.2 The purchasing of capital equipment 36

6 Analysis 37

6.1 Within-case analysis of Volvo Umeå 37

6.1.1 The use of e-business tools at Volvo Umeå (Research question 1) 37 6.1.2 The influence of electronic business on the different roles of

the buying center at Volvo Umeå (Reseach question 2) 38 6.1.2.1 The purchase of hand tools at Volvo Umeå with

a self-procurement system 38

6.1.2.2 The purchase of capital equipment at Volvo Umeå 40 6.1.2.3 The purchase of packaging material at Volvo Umeå with an EDI system 41 6.1.3 The changes of the involvement of people in purchasing processes through e-business at Volvo Umeå (Research question 3) 42 6.1.3.1 The purchase of hand tools at Volvo Umeå with

a self-procurement system 43

6.1.3.2 The purchase of capital equipment at Volvo Umeå 43 6.1.3.3 The purchase of packaging material at Volvo Umeå

with an EDI system 43

6.2 Within-case analysis of SCA Munksund 43

6.2.1 The use of e-business tools at SCA Munksund (Research question 1) 43 6.2.2 The influence of electronic business on the different roles of the

buying center at SCA Munksund (Research question 2) 44 6.2.2.1 The purchase of bearings at SCA Munksund with an EDI system

and a self-procurement system 44

6.2.2.2 The purchase of capital equipment at SCA Munksund 46 6.2.3 The changes of the involvement of people in purchasing processes through e-business at SCA Munksund (Research question 3) 47 6.2.3.1 The purchase of bearings at SCA Munksund with an EDI system

and a self-procurement system 47

6.2.3.2 The purchase of capital equipment at SCA Munksund 48

6.3 Cross-case analysis of Volvo Umeå and SCA Munksund 48 6.3.1 Cross-case analysis for the use of e-business tools (Research question 1) 48 6.3.2 Cross-case analysis for the influence of electronic business tools on

the different roles of the buying center (Research question 2) 49 6.3.2.1 The influences on the roles of the buying center through the

introduction of a self-procurement system 49 6.3.2.2 The influences on the roles of the buying center through the

introduction of an EDI system 50

6.3.2.3 The influences on the roles of the buying center for the decision

and purchasing process of capital equipment 50 6.3.3 Cross-case analysis of the changes of the involvement of people in

purchasing processes through e-business (Research question 3) 51 6.3.3.1 The influences on the dimensions of the buying center through the

introduction of a self-procurement system 52 6.3.3.2 The influences on the dimensions of the buying center through the

introduction of an EDI system 52

6.3.3.3 The influences on the dimensions of the buying center for the

decision and purchasing process of capital equipment 52

7 Conclusions and implications 53

7.1 General conclusions of the study 53

7.1.1 Conclusions for the use of e-business tools (Research question 1) 53 7.1.2 Conclusions regarding the roles of the buying center (Research question 2) 53 7.1.3 Conclusions for the dimensions of the buying center (Research question 3) 53

7.2 Managerial implications 53

7.3 Implications for further research 54

List of references 55

Appendix: The interview guide 58

1 Introduction

1.1 Background of this study

This study deals with organisational buying behaviour, which has become a widely accepted term in the 60’s of the last century. The first important works in this field were published by Robinson, Faris, and Wind (1967) and Webster and Wind (1972). They focused on the organisational needs and the organisational behaviour to satisfy these needs. When it comes to organisational purchasing, there is according to Webster (1991), often a complex decision-making process behind with many people involved.

Organisational buying behaviour is an important issue for both sides of marketing, the buying and the selling side. McWilliams (1992) states that marketers who see their organisational customers only as “firms” will face problems. Instead it is important to identify and address directly the different people which are involved in the purchasing processes. Also for the organisation itself their own buying behaviour is an important issue.

Dwyer and Tanner (2002) state that every dollar which is saved in the total purchasing costs, has a much bigger effect on the company’s profits than an one dollar increased sales- volume. Furthermore the volume and the importance of buying behaviour grows with the trend of an increasing number of participants in industrial value chains.

The strongest influence on changes of organisational buying and selling activities of the last years is most likely the introduction and the development of e-business systems (Kalakota, 1999 and Osmonbekov, 2002). These systems are not so much a technological development as they are a business development which is enabled through new technologies. Similar Dignum (2002) states that e-commerce is not an issue of only installing new IT components, for becoming a success, the introduction of e-business systems must be accompanied by changes of the organisational structure.

1.2 Research purpose

As stated above, the importance of e-business and organisational buying behaviour is still growing. The overall aim of this study is to gain a better understanding of the links between these two subjects. The objective of this study is to investigate the changes concerning the group of people involved in organisational buying processes which occur through the introduction of different e-business tools. Therefore the research purpose can be formulated as:

How does electronic business influence the group of people involved in organisational purchasing processes?

1.3 Delimitation

This study focuses on the purchasing processes of industrial companies. Due to limitations

of time and costs only Swedish companies are studied. But this can be outweighed through

the selected companies’ international focus in their production and market orientation.

1.4 Disposition of the study

An outline of this study is given in Table 1

Chapter 2 Provides an overview of existing literature concerning organisational buying behaviour, e-business, and the influences of e-business on the organisation

Chapter 3 Develops a conceptual framework for this study and research questions will be formulated

Chapter 4 Discusses possible and selected research methods: research strategy, data collection, case selection, analysis, and quality criteria

Chapter 5 Presents the collected data from the cases

Chapter 6 Analyses the findings of the cases and makes a comparison between both cases

Chapter 7 Provides a summary, draws conclusions and gives proposals for managerial implications and future research

Table 1: Disposition of the study

2 Literature review

The academic literature concerning organisational buying behaviour can generally be classified in three areas according to Wind and Thomas (1980):

• the buying center, which is defined as the group of people which are involved in organisational buying processes

• the organisational buying process

• the factors affecting the organisational buying center and process

This work focuses on the first and the last area. Furthermore a short description of organisational buying processes is provided as background information. In the following section the literature concerning these areas will be reviewed, beginning with a description of the different ways to classify and describe the group of people which are involved in organisational buying processes.

2.1 The buying center / Decision making unit

The first recognition of a group of people involved in an organisational buying process, which consists of people from inside and outside the purchasing department was made in 1956 by Cyert, Simon, and Trow (referred to in Johnston and Bonoma, 1981b). Several different authors later introduced different terms for this group of people and called them buying center, buying committee, buying task group, or decision-making unit (Wallström, 2002). In the following section the terms referring to the different authors will be used. The introduction of the term buying center for the group of people involved in organisational buying processes was made by Robinson, Faris, and Wind in 1967 and will be used mainly in this work. The group or buying center related research streams were classified by Kauffman (1996) as concerning: concepts of buying centers, membership, influence of members, and communication aspects.

To investigate the structure of a buying center, different concepts were developed by different authors. In this chapter important role concepts, dimensional concepts, and one functional concept are reviewed. At the end of the chapter 2.1 different concepts and theories regarding influences on the composition of the buying center are presented.

2.1.1 Role concepts for the buying center 2.1.1.1 The Webster and Wind Model (1972)

Webster and Wind developed in 1972 a model based on role theory which gained much attention. According to them an organisational buying situation occurs when a member of an organisation mentions a problem which can be solved through a buying action.

Organisational buying behaviour takes place when organisational members “define a buying situation and identify, evaluate, and choose among alternative brands and suppliers.”

Webster and Wind define the buying center as the group which contains all members of the organisation who are involved in this organisational buying process. The buying center consists of five different roles. To gain an understanding of the relations and the behaviour of the group, the role expectations, the role behaviour and the role relationships should be considered. The five roles, which they developed, are:

a) Deciders

The deciders are the people who make the final decision due to its informal or, especially

for important purchases its formal authority.

b) Buyer

The buyer is the member of the organisation which has the formal responsibility and authority to choose suppliers and to execute the contractual arrangements due to the decision of the decision makers. Often this role is occupied by a member of the purchasing department. His authority is bigger at the later stages of the buying process, while e.g. his influence on the development of specifications for a purchased product is limited.

c) Influencer

Influencers are people from inside or outside the company who add information to the decision process or have influence on the decision criteria or the evaluation of the organisation‘s needs.

d) Users

The users are the people inside the organisation which actually use the purchased product or service. They can influence the decision either direct or indirect, when the decision makers consider their needs. When users are directly influencing the decision process they stand in a conflict between their own and the company’s requirements (Tanner, 1998). For the organisation their commitment can be very important, because the users behaviour often decides about the success of a purchase (Backhaus, 1999). Furthermore the users often have knowledge and experience with the quality and other characterisations of the product what can be useful in the decision process.

e) Gatekeepers

The gatekeepers control which information goes into and out of the buying center. So they can slant the perceptions of the group, because they are a kind of filter between the information sources and the buying center members. This role is often captured by the purchasing agent, who is the first interface between the company and its existing and potential suppliers but the role can also been taken by engineers and secretaries. Lau, Razzaque, and Ong (2003) see the task in controlling and also managing the information, e.g. translating the information into a form, what can be used by the other organisational members.

Additional role: The controller

Some literature also mentions the controller as an additional role (Dwyer and Tanner, 2002).

The controller has an impact on the buying process because he controls or sets the budget for the purchase.

Webster and Wind (1972) also state that the different roles must not always be occupied by different people. One person can have different roles as well as different people may have the same role. As an example they mention that there can be different influencers and that the buyer often also has the role of the gatekeeper, which gives him importance, because he often manages the contacts between members of the buying center and the suppliers.

Furthermore the roles are not static through the buying process, but can vary between the

different steps of the purchasing process. While the buying center does not exist as a formal

group through the trend of multifunctional teams in purchasing sometimes formal groups of

influencers are created. (Ford, 2002). They consist of people belonging to different

organisational departments and shall combine the knowledge of people with different

personalities and backgrounds. Barnard (referred to by Tanner, 1998) suggested generally

three ways how people can become participants in decision processes. They can assume the role, receive it from a manager, or take or receive the role from somebody who is subordinated in the organisation.

2.1.1.2 The Robinson et al. model (1967)

Earlier than Webster and Wind (1972) Robinson, Faris, and Wind (1967, p.101) named four roles which are included in a buying center:

• Users

• Buying influences

• Decision makers

• Purchasers

Contrary to Webster and Wind (1972), Robinson et al. (1967, p.161) state that there is rarely only one decision maker and furthermore that the buyer is a key decision making unit. His position contains the selection of suppliers and the negotiations give him a great significance and the “gatekeeping“ function of the buying process. The buying influences are classified by their organisational function: marketing, product engineering, manufacturing, research and development, finance and accounting, and general management.

2.1.1.3 The Bonoma model (1982)

Ten years after Webster and Wind (1972) developed their role concept, Bonoma (1982) created a role concept which contains many similarities with the model made by Webster and Wind (1972), but it consists of six roles instead of five which are also described more in detail by him. The six roles are:

• Initiator

• Decider

• Influencers

• Purchaser

• Gatekeeper

• Users

The only complete new role compared with the Webster and Wind model (1972), is the role of the initiator. While in the Webster and Wind model this role was implicated in the definition of a buying situation, it is an extra role in the Bonoma concept. The initiator recognises that a problem of the company can be avoided or solved through a buying process and so he starts this buying process.

2.1.2 Dimensional concepts

2.1.2.1 A five dimensional model by Johnston and Bonoma (1981b)

Johnston and Bonoma (1981b) state that industrial buying behaviour can be seen as a

complex network of interactions within a formal organisation. The buying center is a

communication network which has its origin and structure not only in the formal

organisational structure, but also emerges from the relationships of the individuals and the

processes they are involved in. While most of the models which were explaining

psychological aspects of buying behaviour had been only qualitative, Johnson and Bonoma

specified five dimensions of the structure and communication in the buying center which

can be measured.

1) Vertical involvement

The vertical involvement contains the number of authority levels which exert influence on the buying decision. They define six different levels: ownership, top management, policy level management, upper level management, lower level operating management, and production work / clerical employees.

2) Lateral involvement

The lateral involvement counts the different departments and divisions which are involved in the communication process and have influence on the buying decision.

3) Extensivity

The extensivity displays the total number of individuals involved in the communication network.

4) Connectedness

The Connectedness indicates to which extend the members of the buying center are linked with each other. It displays the number of existing direct two-person communication contacts inside the buying center, regarding the purchase weighted with the number of possible two-person communication contacts.

5) Centrality

The centrality corresponds to the position of the purchasing manager in the communication network. It can be defined as the total purchase communication of the purchasing manager weighted by the total number of individuals in the buying center.

They refer to previous psychological studies, which saw centrality correlated with

perceived leadership and influence.

Results for the dimensions in organisational purchasing processes

In a publication related to the one above, Johnston and Bonoma (1981a) presented the results of a survey which they made in 31 companies to measure the five dimensions for purchasing of capital equipment and industrial services which are mentioned above. (Table 2)

Median Range Mean

Vertical Involvement ^a 3 / 2 2-6 / 1-5 -

Lateral Involvement ^b 4 / 3 1-8 / 1-6 -

Extensivity ^c 7 / 5 3-28 / 2-15 -

Connectivity ^d - 20-75 / 14-83 44,68 / 50,39

Purchasing manager centrality ^e

- 0-100 / 0-100 56,26 / 52,42

a Number of hierarchy levels b Number of parts/divisions

c Total number of people involved in the process

d Communication dyads formed as a percent of possible dyads

e Percent of communication dyads the purchasing manager was part of. 0% = none, 100 %= all

Figures for purchase of capital equipment / industrial service Table 2:Measurments of buying centers

Source: Adapted from Johnston and Bonoma (1981a, p.258)

2.1.2.2 Dynamic three dimensional model by Ghingold and Wilson (1998)

Ghingold and Wilson (1998) criticise that most research focussing on the structure of the buying center has a static focus. They state that the composition and functioning of buying centers are fluid and for business marketers which want to understand organisational buying behaviour, it is necessary to understand the dynamism of the influence and involvement of the members of the buying center. It is inadequate just to list the departments and people which are involved, it is also important, in which stages they are involved in. In the survey they conducted among ten different companies, which had recently bought a complex computer system, the description of the buying center consists of three variables, which are three of the five variables, introduced by Johnston and Bonoma (1982b). Ghingold and Wilson (1998) investigated the extensivity, the vertical and the lateral involvement and how they change during the purchasing process.

2.1.3 A functional concept made by Johnston and Bonoma (1981a)

As a part of a greater work Johnston and Bonoma (1981a) investigated the involvement of

different organisational functions in the single purchasing process phases. They classify

seven buying phases and ten different functions, e.g. purchasing, engineering, and top

management. In 241 interviews in 31 companies they investigated for every phase, which

functions are involved. One important result is that in every phase the number of functions involved is in a range between 1.5 and 2.5 for purchasing of capital equipment and between 1.8 and 2 for industrial service purchases.

2.1.4 Influences on the structure and the members of the buying center

Johnston and Bonoma (1981b) state that the industrial buying behaviour differs not only between companies but is also different from buying decision to buying decision. It depends on many different influences. In the following section a literature review is given regarding the factors which influence the composition and structure of the buying center.

2.1.4.1 General models of influences

Wind and Thomas (1980) structure all possible influences affecting organisational buying behaviour and the composition of the buying center in two set of variables:

• The buying situation

• Personal, inter-personal, organisational, inter-organisational, and environment- related factors.

Webster and Wind (1972) developed an abstract model which explains the influences on organisational buying behaviour. According to them the organisational buying decision making process is carried out by people, who interact with other people within an organisational context. Furthermore the organisation itself is influenced by a variety of environmental forces. So all influences can be categorised as being individual, social, organisational, or environmental. Kauffman (1996) also added product characteristics and characteristics of the decision process itself and the market as additional influences. In Webster and Wind’s (1972) model the influence is only one-directed, meaning that the environment influences the organisation, which again influences the group of people. At last the individual people are influenced by the group. So the buying center is directly influenced only by the organisation which exerts influence through four subsystems:

• Task – The buying task which has to be solved while meeting the organisational objectives has four dimensions: organisational purpose (to be resold or consumed), nature of demand (demand generated inside or outside the organisation), extend of programming (routines of the purchase process), and the degree of decentralisation of buying authority

• Structure – The structure of the organisation has different aspects: communication, authority, status, rewards, and work flow.

• Technology – Problem solving technology used by the organisation including plant, equipment, and programs organising the work. It influences the buying process as well as the outcomes of the process.

• People – All actors of the system have an influence on the other members of the buying center.

Finally the organisation itself is also influenced by many factors of its environment, which can be classified as being economical, technological, physical, political, legal, and cultural forces.

Robinson et al. (1967) developed the BUYGRID conceptual framework to explain

organisational buying behaviour. It consists of three buyclasses and eight buyphases. While

the buyphases are a description of the process, the buyclasses classify the novelty of the buying task as a central influence on the process and the buying center what concerns the requirement of information and consideration of alternative solutions. They distinguish between a new buy situation, a modified rebuy situation, and a straight rebuy situation. The new buy situation occurs when the product or service to be purchased has not been purchased by the organisation before. Because of the lack of experience and routines the organisation needs information and has to consider alternatives. Although the expenditures of time can be high, a good solution can be very important because it can set the pattern for routine purchases in future. The straight rebuy situation describes a routine purchase solution of recurring organisational requirements. The buyer has experience with the purchase, less information is needed and only one or few suppliers are considered. The modified rebuy situation is a mix of the new buy and the straight rebuy situation, the requirements are either recurring but the purchaser looks for alternatives or requires additional information or the requirements are new but the organisation has much experience with similar situations. The need for information is smaller and less suppliers are considered.

The influence of the buying situation can be summarised that besides a higher engagement of the persons, there are general more people involved (higher extensivity) in a new buy or a modified rebuy situation. This people come from different departments and levels of hierarchy (higher lateral and vertical involvement).

2.1.4.2 Single aspects influencing the structure of the buying center

The models of Robinson et al. (1967) and Webster and Wind (1972) try to develop a general comprehension of the influences on the buying center, while others investigate the influences of single aspects on the buying center.

Johnston and Bonoma (1981b) examined the communication network in 31 companies from different industries, that recent had made purchases of capital equipment and industrial service. With regression analysis they tried to see which factors affected the buying center dimensions vertical involvement, lateral involvement, extensivity, connectedness, and the centrality of the purchasing manager. The examined variables are classified in organisational structural variables and purchase situation attributes.

• Extensivity: The extensivity of the buying center was very strong influenced by the importance and the complexity of the purchase, meaning that, the more complex and important a purchase was perceived, the greater was the extensivity. Furthermore the extensivity for the purchase of service was smaller than for capital equipment.

Another factor which increased the number of people involved in the buying process was the organisational formalisation of buying processes by rules, policies, and procedures.

• Lateral involvement: The lateral involvement was also increased by the formalisation of the buying process. From the purchase situation attributes importance and novelty had an increasing effect on the lateral involvement.

• Vertical involvement: From the organisational variables the complexity had a

positive effect on the vertical involvement, but the greater effects had the purchase

related attributes. For important and complex purchase situations the vertical

involvement of the buying center was increased and it is generally higher for

purchasing of capital equipment than for service purchases.

• Connectedness: While there were no significant influence of the purchase situation related aspects, the organisational formalisation had a decreasing effect on the connectedness, while the centralisation increased the connectedness.

• Centrality: The centrality of the purchasing manager was not significantly affected by any of the examined variables but one outcome was that the centrality varied very strong between the different situations in the study.

A general outcome of the study by Johnston and Bonoma (1981b) is that the purchase situation related influences are stronger than the influences by the organisational structure.

Ghingold and Wilson (1998) conducted a survey which was discussed in section 2.1.2.2 to investigate the influence of the different purchasing process stages on three dimensions of the buying center (extensivity, lateral involvement, vertical involvement). In all examined companies a general pattern exists, that early in the purchasing process all measurements of the variables are high, decline in the next steps and reach in the last stages again a high results, the extensivity, and the lateral involvement reach even the highest level of the whole process at the end.

McCabe (1987) investigated the influence of uncertainty and complexity. He made a sample of 34 companies and found a strong relation between perceived task uncertainty and product complexity and the constriction of authority, meaning that top managers have the tendency to centralise decision authority at higher organisational authority levels for complex decisions in an uncertain environment.

Dawes, Lee, and Dowling (1998) made an investigation in 41 organisations which had made a complex purchase within a new buy situation. They wanted to see, which variables have an effect on the influence of the single buying center member on the purchase decision. They found that both, organisational and individual characteristics explain the influence of the members. Their findings support that technical gatekeepers can influence the selection of a supplier through controlling the flow of information. Another individual characteristic of buying center members which affected their influence was stakeholding. The amount of influence which was exerted by buying center members was affected by the consequences the outcome of the purchase had for them personally, meaning that perceived personal consequences increase the motivation of people to increase their influence. But also organisational variables affected the influences of the buying center members.

Organisational decentralisation and formalisation both were positive correlated with higher influence of the single buying center members.

An empirical investigation about the influences on the role of the gatekeeper was made by

Lau, Razzaque and Ong (2003) by collecting data from 131 purchasing managers. With

correlation analysis they found influences of the organisational formalisation and the

environmental uncertainty on the information control function of the gatekeeping role. When

through formalisation the purchasing department has the authority and responsibility to

manage the relationships to external suppliers, they will receive and control more external

information. Environmental uncertainty triggers the need for information supporting the

decision process. In this situation the contacts to outside parties and knowledge of the

gatekeeper become more important and so the influence of the gatekeeper will rise in this

situation.

2.2 The organisational buying process

As stated above the focus of this study is on the people involved in the buying processes, the buying center and not on the buying processes itself, but for a deeper understanding of the group structure and dynamics, a short description of organisational purchasing processes is necessary. Many different theories and definitions of buying processes exist (overview see Kauffman, 1996, p.97 and Backhaus, 1999, p.62). Here only a short summary of the process description made by Robinson et al. (1967) will be provided, according to its generality and the big influence it had on the buying behaviour research.

The model consists of eight different fundamental activities or buyphases and is the second part of their buygrid framework (see 2.1.4.1). It is only a generalisation and differs from buying situation to buying situation, Robinson et al. mention especially the influence of the buyclass (new buy, modified rebuy, and straight rebuy situation).

• Phase 1: Anticipation or recognition of a Problem (need)

• Phase 2: Determination of characteristics and quantity of needed items

• Phase 3: Description of characteristics and quantity of needed item

• Phase 4: Search for and qualification of potential sources

• Phase 5: Acquisition and analysis of proposals

• Phase 6: Evaluation of proposals and selection of supplier(s)

• Phase 7: Selection of an order routine

• Phase 8: Performance feedback and evaluation

Robinson et al. (1967) state that these eight different phases are dynamic and changing and furthermore there are relations between the phases and the instead of occurring sequential they can be parallel.

2.3 Electronic business

2.3.1 Development and key concepts of e-business 2.3.1.1 The development of e-business

In the last years much literature was published about the importance and the explosive growth the Internet and electronic marketing. But while today the public perception sees a downturn of electronic commerce, the electronic procurement is still rapidly expanding (Wyld 2002) and Steward Alsop even declared (referred to in Wyld 2002):

The “e” in e-business will soon be irrelevant....e-business is not so much e-anything as it is figuring out how to use technology to move stuff around efficiently. In the next wave, in other words, business will make “e” such a core part of their business that the difference between “e” and everything else will be nonexistent. Or they won’t be business any more.

In Europe the value of the online purchases within the business to business sector is expected to reach 334,1 milliard ¹ dollar in the year 2003 (e-Marketer, 2001) and the German car manufacturer Volkswagen already buys 80 % of its purchasing volume through their own Internet marketplace (Schuetze, 2003).

1

In this work the English milliard is used, which is equivalent to 1000 million

While much research is published about single aspects of e-commerce there are also concepts with a broader approach, which try to formulate general concepts for the terms and technology. Through the fast development in this research area there is often a lack of clarity regarding the terms describing the technology driven impacts on business (Osmonbekov 2002). In the following section texts from different authors are cited but the use of terms is not unique and sometimes contradictory from author to author.

2.3.1.2 Definition of key terms

Kotler (2000) developed different definitions of terms for technology-based business.

• E-business is the general use of electronic systems to support the business of a company. Through the development of the Internet the range of e-business applications has increased very fast. One example are special Internet-sites for major suppliers to facilitate the communication exchange.

• E-commerce is going further than e-business. It contains not only the providing of information, the company also offers the opportunity to buy their products or services online.

• E-purchasing on the other hand is the company’s use of electronic ways of purchasing. They buy goods, services or information from different online suppliers.

• E-marketing is similar to e-commerce but contains not only the selling through electronic channels, but also active promotion, information, and communication over the Internet.

Kotler (2000) further classifies e-commerce and e-business in four groups, depending on the involved parties: B2C (Business to Consumer), B2B (Business to Business), C2C (Consumers to Consumers), and C2B (Customer to Business).

Osmonbekov (2002) offers a broader definition of electronic commerce, where e-commerce is ”the use of computer networks and software to enhance the communication and transaction aspects of exchanging products and services with greater efficiency and effectiveness.”

2.3.1.3 Market oriented concepts

Kollmann (2001) offers a classification of e-commerce which consists of three main groups and which is transaction oriented.

• Catalogue – Object co-ordinated

In a catalogue many products are offered and the offers of different companies can be aggregated. The buyer can compare prices and characteristics of the products. The benefit is the great transparency of the market.

• Exchange or matching principle – ROP (Request of proposal) co-ordinated

The bids and requests of the buyer and sellers are matched through an exchange system. Often the contracts are not made direct between the buyer and the seller, but with the operator of the exchange, so that the transactions are anonymous. The benefits are for the seller to sell surplus goods in an easy way and the buyer can get the products often with better conditions and lower prices.

• Auction principle – Price co-ordinated

In Opposition to the exchange principle the auction principle has an open price

mechanism. Every market participant can outbid existing offers. The characteristics

of the products must be described definitely. The auction can be organised in different models, like English or Dutch auction. The benefits are similar to benefits of the exchange principle.

The classification of electronic markets can also be made by the participants of the market.

Dignum (2002) sees four different models depending on the number of participants which are connected through the market.

• Web sites connect one supplier with one customer for direct business while IT supports many functions which normally is done by intermediaries.

• Sales portals are organised by the purchasing department of an organisation and connect many suppliers with the company as a single customer.

• Procurement portals connect many customers with one supplier. This is widely used, e.g. when a company sells its products online on their homepage.

• Exchanges handle the connection of many suppliers and many customers.

While originally many people thought that the web site model will dominate the market, it is still not common in the business-to-business sector. Also exchanges are not very much used, while there are many examples of procurement and sales portals.

A more market-related classification of different kinds of electronic procurement systems was developed by Kalakota (1999, pp.310-322). He sees procurement as a closed-loop process including the requisition, purchasing, transportation, warehousing, and in-bound receiving processes (Kalakota, 1999, p.314). Although the integration of the complete circle in one system can be an advantageous business strategy most of his e-procurement models do not enhance the complete loop process. He differentiates seven different trading models:

• EDI networks:

EDI is an abbreviation for electronic data interchanges and describes the linking of the computer networks of different companies to automate the purchase process and support the inventory replenishment process. Additional it can allow the supplier and the customer to look directly into the other parties inventory and scheduling systems to enhance the co-operative planning between buyer and seller (Schorr, 1998).

The disadvantages are that the adaptation requires large capital outlays (Kalakota, 1999), so that historically only large companies used it to link with their main suppliers. It is not good for open sourcing and inlflexible. Smaller firms which cannot afford these costs are prevented from establishing this connections and the adding of new participants is costly.

• Business-to-Employee (B2E) requisitioning applications:

This concept means the implementation of online self-service procurement systems for the employee. He can visit the Intranet (organisation internal Internet) procurement site where a customised web catalogue is offered. There he chooses the required products. The company’s buy-side software sends the request to employee’s superior for approval, routes it to the companies accounting system, turns it into purchase orders and sends them to the firm’s suppliers. Cost savings can be reached through focussing on few key suppliers which provide volume discounts.

• Corporate procurement portals:

While purchasing refers to the buying of materials and the activities associated with

the buying process, procurement is defined by Kalakota (1999) as the requisitioning,

purchasing, transportation, warehousing, and in-bound receiving process. Recent procurement strategies focus on restructuring the whole order-to-delivery process.

The benefits of electronic procurement come from an increased control over the value chain, proactive management of key data, and better purchasing decisions.

• First generation trading exchanges: community, catalogue, and storefronts:

The trading exchanges of the first generation can function as information and content hubs, like an online trade magazine. With information, like industry news and trends, product and industry participants information, the exchange tries to attract people which are responsible for purchasing industry-related goods and services. These communities can be used for offering products and services. One example is VerticalNet, which offers its customers different contents and helps its supplier participants to develop online storefronts.

An other model of first-generation trading exchanges is the Request for Proposal (RFP) and Request for Quote (RFQ) facilitator exchange, which works like an online marketplace. A buyer submits a RFQ with detailed requirements for a product and preapproved suppliers submit fixed-priced bits as a response. The subclasses of these markets can be industry related or product and service related.

• Second generation trading exchanges: transaction oriented trading exchanges:

The second generation trading exchanges make the step from a content oriented system to a transaction oriented hub by enabling their participants to buy and sell products and services. Two different models can be classified:

- Virtual distributors offer one-stop shopping for high fragmented markets. They aggregate multiple catalogues and information from different suppliers to one megacatalogue. The virtual distributor does not buy or sell itself, but it helps its customers to organise transportation and offers sometimes the possibility to integrate the purchasing data direct with the company’s back office systems.

- Auction hubs have their strength as a channel for “spot buying” of unique products and services with a trading system similar to stock markets. It is a market for commodities, like raw materials or energy. One example is the American company FreeMarkets, which trades industrial materials and equipment.

• Third generation trading exchanges: Collaboration Hubs:

The aim of collaboration hubs is to create one common platform, where all participants of a supply chain, share accurate information, conduct business, and collaborate on strategic and operational planning. This leads to a higher level of cooperation to match production with demand, reduces inventories and speeds up cycle times.

• Industry consortiums: Joint-Venture Procurement Hubs:

Joint-Venture Procurement Hubs are initiated either by a consortium of buyers or suppliers. One example of a buyer consortium is Covisint (car industry) and their aim is to combine buying power to achieve lower prices. The advantage the consortiums have over new founded start-up exchanges is the instant liquidity of the created market.

Schorr (1998) further sees electronic mail as an electronic purchasing tool, which is not

included in Kalakota’s (1999) classification. With e-mail data and executable computer files

can be exchanged and according to Schorr (1998) the benefits lay in lower costs, faster

massage delivery, and that the communicating parties do not have to be at the computer at

the same time, like at a phone call.

2.3.1.4 Function oriented concepts

A function based model for categorising e-commerce tools was developed by Osmonbekov (2002). He offers a broad definition of e-commerce, with the definition as “the use of computer networks and software to enhance the communication and transaction aspects of exchanging products and services with greater efficiency and effectiveness.” His typology of e-commerce tools contains two differentiations related to his term definition. Every tool can be used internally (intraorganisationally) and externally (interorganisationally). External e- commerce tools like an Internet website of a company shall support interactions between buyer and sellers. Internal tools support the interactions within an organisation. E.g. an Intranet links the company’s computers to a network, not accessible for people outside the organisation. Furthermore the tools can be classified in communication and transaction oriented. Communication aspects contain the accessing, sharing and archiving of procurement information and data, while transaction aspects consist of buying selling activities directly supporting single purchases. To gain a competitive advantage the transaction oriented tools can be combined with interfaces to the computer systems of the customers for automating the order processes (Kollmann, 2001).

Some examples of important e-commerce tools are given are given in the following table:

External Internal

Communication oriented

Extranet

Extranet-based e-mail Web-based information

Intranet applications Intranet-based e-mail Planing, forecasting, replenishment (PFR) module

Transaction oriented Internet EDI Web store front

SAP B2B procurement Module

Travel management module Online transaction database Oracle’s bill presentation and Payment

Table 3: Typology of e-commerce tools

Source: Adapted from Osmonbekov (2002, p. 154)

Lichtenthal and Eliaz (2003) differ the functionality of electronic markets not only in transaction and communication, they see four levels of functionality which form a scale from basic functionality to fully integrated business to business markets. Information based systems provide only basic communicational services. They feature directories of buyers and sellers, offer discussion forums and product directories. The next step is the facilitation- based system which provides a forum for RFP and RFQs for products and services, postings and enables the participants to make collaborative planning and negotiations. While this two categories are comparable to Osmonbekov’s (2002) communication oriented tools, the next two systems seen by Lichtenthal and Eliaz (2003) fall in the transaction oriented category.

The transaction-based systems offer transaction capabilities between registered market participants and manage the payment process. The integration-based system is the last step.

It does not only offer the capability to support transactions, it links the buyer’s and sellers’

back-office computer systems with the exchange system.

The technical connection of an organisation with online exchanges can be done in three different ways (Lichtenthal and Eliaz, 2003). The web-browser interface at their normal computer systems is the easiest version. The seller or buyer just has to sign up and can participate. The installation of middleware from software suppliers can enhance the integration of the markets with the company’s back-office systems. The most effort it takes to develop and install own software and run the exchange online on their own. The success heavily depends on the special situation of the market.

2.3.2 Benefits and differences in buying processes through e-business

Kotler (2000) sums up the benefits of electronic purchasing as it gives the companies the possibility to accelerate the processes, reduce costs, make more customised and personalised offers and reach customers at a wider range of space and time. While most of the companies see benefits in using e-business Min and Galle (1999) found that bigger companies are more likely to use e-commerce tools. Through their size big companies are better positioned to gain cost-savings through the use of e-business which outweigh the investments which have to be made for the introduction.

Focussing on communication aspects Boyle and Alwitt (1999) see a big challenge in the overall communication through the Internet. The total communication is increased and is more efficient and effective. Kalakota (1999) sees many benefits on transaction oriented aspects, like

1. Reducing order-processing costs and cycle times

2. Providing enterprise-wide access to corporate procurement capabilities 3. Empowering desktop requisitioning through employee self service

4. Achieving procurement software integration with a company’s back-office systems 5. Elevating the procurement function to a position of strategic importance within

organisation

Electronic purchasing offers new possibilities for a very close collaboration between customer and supplier to improve the supply chain and automate the purchasing process.

Today’s business trends like Just-in-Time (JIT) delivery and Manufacturing Resource Planning (MRP II) which base on a close co-ordination between customer and supplier would not be possible without modern electronic communication and purchasing tools (Schorr, 1998). E.g. the manufacturing processes of the car industry rely today very much on the EDI connections with its many suppliers. Osmonbekov (2002) mentions that not only the external links of a company benefit, also the internal processes become faster and more effective, when all organisational members have access to relevant purchase data from every linked terminal.

2.3.3 Changes and influences of e-business on the buying center

As stated in 2.1.4.1 Webster and Wind (1972) see an influence of the extend of

programming and routinization of the buying process. Through e-business tools the

purchasing process is changed in important aspects. While many articles focus on the direct

outcomes and benefits of electronic commerce, few is written about how it influences the

structure and processes of organisational buying (Osmonbekov, 2002). The use of e-

commerce tools is more than just implementing new IT components, to make it a success

also the organisational structure of purchasing must be changed (Dignum, 2002). The

implementation depends on the products which are purchased, the company, and the market structure.

Kalakota (1999) stresses the growing importance of purchasing and the change from a tactical focus to more strategic sourcing. The hierarchical involvement of the buying center tends to flatten through the automation of the processes. Landeka (2002) and Dignum (2002) state that the employees get more competencies and can order products and services of low value within a certain budget on their own through e-commerce tools without needing a special permission. This can actually be seen as a split of the roles of the buyer and the decider. The strategic aspects of the buyer role are still kept by the purchasing agent, who chooses the suppliers and negotiates the general conditions, while the tactical part (the single purchase) is taken by the initiator or the user. Also the general part of the decider role is still taken by higher levels of hierarchy by setting the budget and decide about the competencies, but the single purchasing decision is taken by the initiator or the user. Landeka (2002) calls this “direct purchasing” or “desktop purchasing”. So the automation through e-commerce tools concerns the daily operational tasks (Dignum, 2002).

Osmonbekov (2002) explores the influences of electronic commerce on four of the five buying center dimensions made by Bonoma (1982) size, vertical and hierarchical involvement, and connectedness. He suggests an overall streamline of the buying center through e-commerce, resulting in a smaller size of the buying center and a smaller vertical and lateral involvement. Through more communication and more transparency declines the complexity and formalisation which in turn reduces the buying center. The e-commerce tools give the organisational member the possibility to archive technical details, regulatory requirements, and purchase data by himself without consulting specialists or technical personnel. This declines the number of departments participating in the purchase process.

For the hierarchical involvement Osmonbekov (2002) refers to Kalakota’s (1999) opinion that the structure of the buying center tends to flatten through electronic commerce tools.

For the participation Osmonbekov (2002) sees an increase for two reasons. The first is that after the buying center size decreased, the influence of the remaining participants in the process must increase automatically. Furthermore the members of the buying center will increase their participation because through e-commerce there is much more information which can be evaluated and exchanged.

Subramaniam (2002) sees benefits for companies when they centralise the purchase processes, because the purchasing department can negotiate lower prices for aggregated volume and saves transaction costs. On the same time the users are given enough flexibility through the introduction of electronic purchase tools to serve their needs.

Mannerstråle and Pons (1999) investigated the impacts of Internet marketing on

organisational buying behaviour and found changes of the gatekeeper and the role of the

influencer. Through Internet marketing the importance of the gatekeeper role decreased or

disappeared because information about products and services are now available for every

member of the buying center. On the other side more influences appear because for other

people it is easier to intervene in the purchasing process.

3 Frame of reference

In this chapter the frame of reference for this study will be developed. It contains previous research which is done within the problem area. Related to the research questions selected theoretical concepts which were presented in the second chapter will be the base for this study.

3.1 The frame of reference and the development of the research questions of this study

Research question 1:

Before a further investigation about the electronic business tools is done, there should be a basic knowledge about the use and classifications of the different e-business tools. So the first research question can be stated as:

How can the use of electronic business tools be described for different product categories?

In the part 2.3 different concepts regarding electronic business were provided. Today the use of terms like electronic purchasing, electronic business, or electronic commerce changes from author to author. In this study mainly two terms will be used, electronic business and electronic purchasing. The underlying definitions in the following parts are taken from Kotler (2000), who sees the term e-business or electronic business as the broad term which includes generally all use of electronic systems to support the business of a company, while the term e-purchasing or electronic purchasing is narrower and covers the use of electronic systems for conducting purchases from suppliers which offer their products, services, or information through online systems.

The general classification of the different e-business tools for this study is taken from Osmonbekov (2002). His classification is done for e-commerce tools, but his definition of e- commerce is different from Kotler’s (2000) definition of e-commerce. Osmonbekov (2002) classifies e-commerce tools as communication and transaction oriented, while Kotler’s (2000) definition of e-commerce tools is narrower, because for him an e-commerce tool must not offer only information but also the possibility to buy services or products.

Although there is no complete conformity between Kotler’s definition of e-business and Osmonbekov’s (2002) definition of e-commerce, the similarities are big enough to use Osmonbekov’s (2002) classification of e-commerce as a categorisation for the tools which fall under Kotler’s (2000) term of e-business. Osmonbekov (2002) sees two differentiations regarding e-commerce tools. The first differentiation classifies the tools as being either transaction or communication oriented. Further the tools can be classified depending on their use as being external or internal.

The communication oriented tools which are investigated in this study are the Internet and e- mail, both used internal and external. For the further classification of transaction oriented e- business tools the classification for e-procurement models of Kalakota (1999) is used. His classification contains seven different models:

• EDI networks

• Business-to-Employee (B2E) requisitioning applications

• Corporate procurement portals

• First generation trading exchanges: community, catalogue, and storefronts

• Second generation trading exchanges: transaction oriented trading exchanges

• Third generation trading exchanges: Collaboration Hubs

• Industry consortiums: Joint-Venture Procurement Hubs

Research question 2:

Regarding the group of people involved in organisational purchasing processes, there are two important research streams, which were introduced in part 2.1. The first research stream uses role theory. The concept behind this is, that the purchase decision is an outcome of a group decision process. The group behaviour can be investigated when the different tasks in the purchasing process are assigned to certain roles. Every role in role theory has certain expectations, behaviour, and relationships. Every role is occupied by organisational members. Important research regarding this matter was published by Robinson et al. (1967), Webster and Wind (1972), and Bonoma (1982). Due to that research stream the second research question can be formulated as:

How can the influence of electronic business on the different roles in the purchasing process be described?

In part 2.1.1 of this study three different role concepts for the buying center were introduced.

For the following chapters the role concept developed by Bonoma (1982) will be used. With this concept it is possible to cover all functions which people have in an organisational purchasing process. Bonoma (1982) differentiates six roles:

• Initiator

• Decider

• Influencer

• Purchaser

• Gatekeeper

• Users

The aim of the investigation regarding the second research question is to explore, in which way every role is influenced in its behaviour, its occupation through people inside or outside the organisation and its involvement in the purchasing process.

Research question 3:

Another important research stream which investigates the group involved in organisational purchasing processes is the concept of quantitative measurements. An important work regarding this matter was published in 1982 by Johnston and Bonoma. They introduce measurements which investigate the total number and the type of people which are involved in purchasing processes and how the involvement looks like. Following also this research stream the third research question can be formulated as:

How does the involvement of people in the purchasing process change through the introduction of electronic business tools?

The aim of the third research question is to see how the structure of the buying center has

changed through the introduction of electronic business tools. To cover the structure of the

group of the people which are involved in the purchasing process the three dimensional concept developed by Ghingold and Wilson (1998) is used. In distinction to the five dimensional concept by Johnston and Bonoma (1981b) it focuses on the number and the kind of persons which are involved, but not on the kind of connections between the members. The three dimensions of Ghingold and Wilson (1998) are:

• Vertical involvement (number of hierarchical levels)

• Lateral involvement (number of different functional areas and divisions)

• Extensivity (total number of people involved in the purchasing process)

In distinction to the original model of Ghingold and Wilson (1998), in this study there will be no certain differentiation of the dimensions between the different process phases.

Research question two and three are both investigating the group of people involved in organisational purchasing processes but are accomplished from different angles with different methods.

3.2 Emerged frame of reference

With this figure a brief overview about the frame of reference of this study is provided.

RQ 1: Use of electronic business tools (external and internal) Transaction oriented tools Communication oriented tools

E-mail EDI networks

Internet B2E requisitioning applications

Corporate procurement portals

Communities, catalogue and storefronts Transaction oriented exchanges Collaboration hubs

Joint-venture procurement hubs

RQ 2: Buying center roles Initiator

Decider Influencers Purchaser Gatekeeper Users

RQ3: Buying Center Dimensions Vertical involvement

Lateral involvement Extensivity

Influence

Figure 1: Emerged frame of reference of this study

4 Methodology 4.1 Research strategy

The strategic decisions in research have according to Denscombe (1998) the main aim to set the researcher in the position to get the best possible outcomes from the research. He differentiates five strategies: surveys, case studies, experiments, action research and ethnography.

The aim of this work is to acquire knowledge and a deeper understanding of the changes in the organisational purchasing through the use of electronic business tools. According to Denscombe (1998) and Gummesson (2000) the case study has become increasingly important in social science research like economics and political science as a research strategy which focuses in opposition to large-scale research strategies on one or few instances to gain insights which have wider implications or which would not occur otherwise. The view of the case study is more holistic rather than concentrated on isolated factors and investigates the things in their natural setting instead of generating an artificial situation for research purpose. The aim of this study is to investigate the changes for the people involved in industrial purchasing processes due to the introduction of electronic business tools. Therefor it is important to get a detailed in-depth view of the purchasing processes before and after the introduction of the e-business tools. Furthermore it is important to know which people are involved in the processes, how the e-business tools are designed and which products are bought with them. The complexity of these points and the fact, that an investigation regarding these issues relies on internal organisational information lead to the choice of a case study where the conclusions are drawn from a limited number of cases.

Gummesson (2000) sees two types of case studies, the first type, which is also chosen in this work derives general conclusions from a limited number of cases while the other draws specific conclusions regarding the special case. For deriving general conclusions it is important how similar the specific case is to others. Because of the broad research purpose and the lack of literature available regarding similar issues, typical cases were chosen. A further advantage is that a case study is a very flexible strategy which allows to combine different sources, types of data and research methods. The disadvantages of the case study derive from the question of credibility of the generalisations which are made from one case.

4.2 Case selection

After the research problem and the research strategy are developed, the researcher has to choose one or few suitable samples when he is doing a case study, depending on the data collection method which is selected. While for quantitative research it is important, according to Potter (1996) to choose a method for sample selection where every element of a population has the same chance of being selected, for a qualitative approach the aim of case selection must be that from the sample certain patterns can emerge, which can be generalised to a larger aggregate of the population. Two main issues emerge in this choice:

relevance and access (Denscombe, 1998 and Potter, 1996). A case can be suitable for the

purpose of research for four different reasons (Denscombe, 1998). The most common

justification for a case selection is, because the case is typical in certain aspects. When the

case is similar in the most certain aspects to the other cases which might have been chosen,

the findings of the selected case can be generalised for the other cases. For highlighting of a