Anne Engström
How Companies Use the Internet when Buying IT Consultancy Services
2001:038
EXAMENSARBETE
Ekonomprogrammet C-nivå
Institutionen för Industriell ekonomi och samhällsvetenskap Avdelningen för Industriell marknadsföring
BACHELOR'S THESIS
How Companies Use the Internet when Buying
IT Consultancy Services
Case studies on two Swedish companies
Anne Engström
Department of Business Administration and Social Sciences Division of Industrial Marketing
Acknowledgement
Conducting this Bachelor’s thesis was an exiting experience, which required a lot of hard work. This would not have been possible to accomplish without the wonderful support that I have received. First of all, I would like to thank my supervisor, Åsa Wallström, who has given me admirably professional guidance and marvelous support in my work. I would also like to thank Mr. Rolf Engström at Ferruform AB and Mr. Mats Eriksson at Ericsson Erisoft AB who both set aside their valuable time for an interview and helpfully provided me with valuable information about the companies.
Luleå, February 28, 2001
Anne Engström
Abstract
Today, companies focus on their core competencies to a greater extent. Instead of producing services within the companies, more and more services are purchased externally. Parallel to the rapid growth of the service industry, technological development has provided new marketing tools such as the Internet that could be used for different purposes when buying services. One kind of services that companies increasingly buy is IT consultancy services. As the buying of IT consultancy services increases there is also a growing need to understand the industrial buying behavior of these services. It is particularly important for IT consultancy companies to understand the decision making process of organizational buyers in order to develop effective marketing programs. Considering this, the research problem was formulated to describe how companies buy IT consultancy services and how they use Internet when buying these services. To answer the research problem we conducted a qualitative study on two cases. The data was collected by personal interviews at Ferruform AB and Ericsson Erisoft AB. The study is based on established theories, which were tested by conducting two interviews. The study shows that companies use Internet, when buying IT consultancy services, for information search, information gathering, correspondence, and service delivery. However, one finding indicates that there are differences in Internet usage, depending on the buying companies' experience with IT consultancy services and buying these services. Another finding is that the buying process that is described in the theory not is fully applicable on the buying of IT consultancy services, when the buying company has great experience within the area.
Therefore, this thesis presents a new model of the buying process when buying IT
consultancy services.
1. INTRODUCTION ... 1
1.1 Background ... 2
1.1.1 Definition and Classification of Services ... 2
1.1.2 Industrial Buying Behavior of Services ... 4
1.1.3 The Internet... 5
1.1.4 IT Consultancy Services - The Focus of this Study... 6
1.2 Problem Area ... 7
2. THEORY ... 9
2.1 The Buying Process... 9
2.1.1 Initial, Purchasing, and Consumption Stage of the Buying Process ... 15
2.2 The Buying Center... 21
2.3 Internet Usage ... 23
2.4 Factors Influencing the Internet Usage ... 26
3. PROBLEM DISCUSSION ... 28
3.1 Research Problem and Research Question ... 30
3.1.1 Delimitation... 31
3.2 Frame of Reference... 31
4. RESEARCH METHODOLOGY ... 34
4.1 Research Approach ... 34
4.2 Research Strategy ... 34
4.2.1 Selection of Case Study Companies ... 36
4.3 Literature Search... 37
4.4 Data Collection Method ... 37
4.4.1 Secondary Data ... 37
4.4.2 Primary Data... 37
4.5 Method of Analysis ... 39
4.6 Validity and Reliability ... 40
5. EMPIRICAL FINDINGS ... 42
5.1 Ferruform AB ... 42
5.1.1 The Buying Process ... 43
5.1.2 The Buying Center ... 45
5.1.3 Internet Usage when Buying IT Consultancy Services... 46
5.1.4 Factors Influencing the Internet Usage... 48
5.2 Ericsson Erisoft AB ... 49
5.2.1 The Buying Process ... 50
5.2.2 The Buying Center ... 53
5.2.3 Internet Usage when Buying IT Consultancy Services... 53
5.2.4 Factors Influencing the Internet Usage... 54
6. ANALYSIS ... 55
6.1 Within-Case Analysis of Ferruform AB ... 55
6.1.1 The Buying Process ... 55
6.1.2 The Buying Center ... 58
6.1.3 Internet Usage in the Buying Process... 59
6.1.4 Factors Influencing the Internet Usage... 60
6.2 Within-Case Analysis of Ericsson Erisoft AB ... 61
6.2.1 The Buying Process ... 61
6.2.2 The Buying Center ... 64
6.2.3 Internet Usage when Buying IT Consultancy Services... 65
6.2.4 Factors Influencing the Internet Usage... 66
6.3 Cross-Case Analysis... 66
6.3.1 The Buying Process ... 67
6.3.2 The Buying Center ... 69
6.3.3 Internet Usage when Buying IT Consultancy Services... 70
6.3.4 Factors Influencing the Internet Usage ... 73
7. DISCUSSION AND CONCLUSIONS ... 74
7.1 Research Problem and Research Questions... 74
7.1.1 How Can the Buying Process when Companies Buy IT Consultancy Services be Described?... 74
7.1.2 How Can the Buying Center when Companies Buy IT Consultancy Services be Described? ... 76
7.1.3 How Can the Usage of the Internet in the Buying Process when Companies Buy IT Consultancy Services be Described?………77
7.1.4 How Can the Buying Center Members' Usage of the Internet when Companies Buy IT Consultancy Services be Described? ... 78
7.1.5 What are the Most Important Factors Affecting the Usage of the Internet when Companies Buy IT Consultancy Services? ... 79
7.2 Contribution to Theory ... 79
7.3 Future Research... 80
References... 81
Appendices
Appendix 1: Interview Guide (Swedish) Appendix 2: Interview Guide (English)
Appendix 3: Organizational Chart - Ferruform AB
Appendix 4: Organizational Chart - Ericsson Erisoft AB
List of Figures
Page Chapter Two
Figure 2.1: Dispersion Circle in the Purchasing Process... 12 Figure 2.2: The Organizational Buying Process for Professional Services... 13 Figure 2.3: Factors Influencing the Buyer's Evaluation of the Consultants ... 18 Figure 2.4: Cost Components as a Function of the Nature of the Product
and Type of Media... 25 Chapter Three
Figure 3.1: Theoretical Framework for this Thesis ... 33
Chapter Four
Figure 4.1: Relevant Situations for Different Research Strategies... 35
Chapter Seven
Figure 7.1: The Industrial Buying Process for IT Consultancy Services when
Buying Company has Less Experience ... 75 Figure 7.2: The Industrial Buying Process for IT Consultancy Services when
Buying Company has Great Experience ... 76
List of Tables
Chapter Two
TABLE 2.1: Stages in the Relationship Between a Buyer and a Seller ... 11 TABLE 2.2: Average Influence Score for Each Factor... 16 TABLE 2.3: Information Sources Used in the Selection of Logistics-
Consulting Firms (Mean Importance Ratings) ... 17 TABLE 2.4: Importance Rankings of Choice Criteria Used in Final
Selection of Management Consultant ... 19 TABLE 2.5: Indicators of Performance Quality ... 21 TABLE 2.6: Comparison of Internet Usage by Business Groups ... 25
Chapter Six
TABLE 6.1: Buying Center Roles at Ferruform AB... 59 TABLE 6.2: Summary of Ferruform AB's Internet Environment and Usage
when Buying IT Consultancy Services ... 60 TABLE 6.3: Pros and Cons in Internet Usage Perceived by Ferruform AB... 60 TABLE 6.4: Buying Center Roles at Ericsson Erisoft AB... 65 TABLE 6.5: Summary of Ericsson Erisoft AB's Internet Environment and
Usage when Buying IT Consultancy Services... 66 TABLE 6.6: Pros and Cons in Internet Usage Perceived by Ericsson Erisoft AB.... 66 TABLE 6.7: Comparison Between Buying Center Composition at Erisoft AB
and Ferruform AB... 70 TABLE 6.8: Comparison Between Buying Center Roles at Erisoft AB and
Ferruform AB ... 70 TABLE 6.9: Comparison of Internet Usage when Buying IT Consultancy
Services ... 72 TABLE 6.10: Comparison of Perceived Pros and Cons with Internet Usage,
when Buying IT Consultancy Services ... 73 Chapter Seven
TABLE 7.1: Internet Usage in Different Stages of the Industrial Buying
Process ... 78
TABLE 7.2: Internet Usage by Buying Center Members ... 79
1 INTRODUCTION
Today it is often claimed that we are facing a new epoch (Axelsson, 1998). The industrial society has become a service society and is far on its way transforming into an information and knowledge society. The development of technology has, among other things, enabled us to manage huge amounts of information. There is a great interest in how knowledge is developed and in striving for skillfulness in exploiting and earning money on knowledge.
Services are produced and consumed, partly as a result of mentioned development, to an extent never experienced before. This is true for both Sweden and most of the other countries that have experienced similar development. (Axelsson, 1998)
Consuming (and producing) services are so taken for granted that no one really thinks about it (Axelsson, 1998). Services are everywhere we turn, whether it is visiting a doctor, a restaurant, or a school and the services permeate every aspect of our lives. We enter our life via one service encounter, the maternity hospital, and experience a multitude of other service encounters throughout our lives. We do not even realize our dependency upon the services until they start to fail. (Hoffman & Bateson, 1997)
Besides this diffusion of services into people's lives, the entire service sector has been heavily growing in the industrialized part of the world during the last decades. However, not all kinds of services have expanded, but, according to Arnerup-Cooper and Edvardsson (1998), it is above all within business services, especially consultancy services, where the largest increase is to be found. One factor that has affected the growth within the service sector is the trend of companies focusing their core competencies. Instead of producing services within the companies, more and more services are purchased
1externally (Arnerup-Cooper &
Edvardsson, 1998). The purchasing of services is therefore regarded as essential for businesses (Palmer 1998). One kind of services that companies increasingly buy externally is services within the area of Information Technology (IT) (Larson, 1998).
According to Hoffman and Bateson (1997) the growth in the service-sector, its economic impact and deregulation have, together with a revolutionary change of perspective in how service firms should organize their companies, led to substantial changes in the business environment. All those changes have increased the demand for service marketing knowledge (ibid). Stock and Zinszer (1987) refer to the companies' increasing purchase of services and claim that there is a growing need to understand the industrial buying behavior of different kinds of services. Moreover, Dawes, Dowling and Patterson (1993) argue that it is crucial for professional service companies to understand the decision making process of organizational buyers in order to develop effective marketing programs.
As well as increase of the industrial purchase of services, also the Internet
2has grown rapidly.
The Internet has doubled in size every year since the mid-1990s (Haynes, Becherer & Helms, 1998). The Internet is claimed to fundamentally change peoples’ business and life and to continuously revolutionize marketing and the way we communicate (Silverstein, 2000). In a similar way Hendrix (1999) is concluding that the Internet challenges the traditional marketing practices. The Web sites have received an increased role in the buying process
1Some authors use the term buy while others use the term purchase or procure. In this thesis these terms will be used
as synonymous and when we refer to authors, their terminology will be used.
2A computer network of networks (Silverstein, 2000).
(Callahan, 1999). Turban, Lee, King and Chung (2000) claim that a new process of buying and selling products, services, and information over computer networks - the electronic commerce - has been evolved. Several researchers (Hoffman & Novak, 1996; Brännback, 1997; Hendrix, 1999) even claim that the Internet, in connection with electronic commerce, is creating a new paradigm for doing business.
According to Murphy (2000), the use of the Internet for obtaining information is increasing.
Likewise, the Internet is more and more used in companies' buying process when suppliers are to be evaluated and selected (Haynes, Becherer & Helms, 1998).
Next section gives a background concerning the development of the service sector and its importance. Furthermore, we present a brief overview of services and industrial buying behavior of services, followed by brief information about the Internet and IT consultancy services. The chapter ends with a definition of the problem area.
1.1 Background
According to Arnerup-Cooper and Edvardsson (1998), the industrialized countries have faced large structural changes throughout the last decades with a service sector heavily growing and, at the same time, a manufacturing sector decreasing in importance. Already in the year of 1900 both Great Britain and United States had more jobs in the service sector than in the manufacturing sector (Hoffman & Bateson, 1997). From 1970 to 1993, the U.S. labor force employed in the service sector rose from 66 percent, of the total employment, to 78 percent.
Great Britain's labor force experienced a similar increase in the service sector at a rate of 50 percent, of the total employment, to 73 percent (ibid). The evolution of employment within the service sector followed the same pattern in Sweden where the employment in the service sector increased from about 38 percent, of the total employment, in the year of 1950 to 70 percent in 1995. The employment in the manufacturing sector decreased meanwhile from about 42 percent of the total employment in the year 1950 to 26 percent in 1995 (Arnerup- Cooper & Edvardsson, 1998). However, even if the manufacturing sector has become less important it does not mean that it is an unimportant sector, instead Arnerup-Cooper and Edvardsson (1998) emphasize that there is a strong interdependency between those two sectors, since most manufacturing companies also provide services. Hoffman and Bateson (1997) mean that there is a direct connection between new jobs and the increase in service employment, and they state that 80 percent of all new jobs between 1980 and 1990 were developed in service industries. According to Axelsson (1998), about 75-80 percent of all people employed is within the service sector. Also, Palmer (1998) agrees on that the service sector has become a dominant force in many national economies. Between 1980 and 1992 the EU countries created almost 1.3 million new jobs per year in the service sector (ibid). In Sweden, as in most OECD-countries, is nine out of ten new job opportunities created within the service sector.
1.1.1 Definition and Classification of Services
But what is a service? Hoffman and Bateson (1997) claim that it is not always possible to
make a clear distinction between goods and services. There are difficulties even with trying to
provide an example of a pure good or a pure service because in reality many services contain
some goods elements and vice versa (ibid). However, several researchers have presented different definitions of services (Axelsson, 1998) and we present three different examples:
Grönroos (1990, p 27) defines a service as:
"an activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interaction between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems."
According to Hoffman and Bateson (1997, p 5) services can be defined as:
"deeds, efforts, or performances".
Another, more amusing, definition describe a service as:
"something which can be bought and sold but which you cannot drop on your foot"
(Gummesson, 1987, p 22; referring to an unidentified source).
Axelsson (1998) states that offers usually called services mostly fulfill the requirements of Grönroos' (1979) definition. Since it is difficult to define services several researchers instead focus on what differs services from goods. Services have four key characteristics, which distinguishes them from goods; intangibility, inseparability, heterogeneity, and perishability.
Intangibility means that services cannot be seen, felt, tasted, or touched in the same manner as goods can be sensed. Inseparability refers to the interconnection between service providers and their customers due to the fact that services are produced and consumed at the same time.
Heterogeneity refers to lack of consistency - services performance varies from one service transaction to the next. Finally, perishability means that services cannot be saved or stored.
These characteristics influence the way services are marketed and will therefore present marketing challenges. (Hoffman & Bateson, 1997)
The service sector consists of a wide range of diverse services. One example is the utterly personal and contact-intense service that the hairdresser provides, which is really very unlike the technology-intense service that a telephone operator has to offer. (Grönroos, 1990) According to Lovelock (1992), this makes it difficult to come up with general managerial implications. Several researchers (Shostack, 1977; Grönroos, 1979; Lovelock 1983) suggest different ways to classify services. Both Lovelock (1983) and Hoffman and Bateson (1997) suggest that classification of services could be used as a method of analyzing commonalities across different industries. Furthermore it is possible to gain strategic marketing insights through a classification of services (Lovelock, 1983).
Arnerup-Cooper and Edvardsson (1998), discuss services to be either complex, such as
services provided by lawyer offices, or less complex, such as visits at public baths. Further-
more, some services can be standardized, as for example telecommunication services, or more
customized, as services intended for disabled people (ibid). Grönroos (1979) claims that
services can be classified either by the kind of market where they are sold, or by the type of
service provided. With respect to the kind of market, services can be classified into producer
services, which are offered to industry or other organizations, or consumer services, which
instead are offered to individual consumers. Regarding type of service, a classification into
professional services or other services is suggested. (Ibid) Gummesson (1978) characterizes
professional services as being provided by qualified personnel, they are mainly advisory and/or problem solving, and are also characterized by an assignment from the buyer to the seller. In this study we focus on professional services
3offered on the industrial market.
1.1.2 Industrial Buying Behavior of Services
Several authors (Iacobucci, 1998; Mitchell, 1998) agree on services being important, but different than goods. As stated before, previous research has verified some distinctive differences between services and goods. One of those differences is that services are perceived to be relatively intangible in comparison with goods. (Iacobucci, 1998) Furthermore, the impacts of the characteristics, that distinguish services from goods, have become major issues in several areas of services (Sheht, 1996). Several authors (Dawes, Dowling & Patterson, 1991; Zeithaml & Bitner, 1996, and Palmer, 1998) agree on that the services being intangible is what basically differ them from goods and also present several marketing challenges. Palmer (1998) discusses some implications of service intangibility and claims that, since a pure service is abstract it is difficult for buyers to examine the service before the purchase - there is simply no physical evidence to examine. This makes it hard for buyers to evaluate competing services, why they perceive high levels of risk when choosing between competing services. (Ibid) Moreover, the lack of physical evidence will lead to buyers evaluating the service provision more subjectively (Iacobucci, 1998). Also, the heterogeneity, that is the variation of services performance from one service transaction to the next, results in high level of perceived risk for buyers (Palmer, 1998). Not only is it hard to evaluate services in advance, the fact that services are perishable also implies that the buyers cannot return a service, to be resold to someone else, even if they are ever so unsatisfied with it (Zeithaml & Bitner, 1996).
Mitchell (1994) claims that there are substantially differences between consumer and companies buying behavior. The purchase of professional services can involve significant investments of time, money and personnel without any guarantee of a successful outcome.
This conveys purchasers to perceive higher risks involved in purchasing professional services than it is in purchasing goods. (Ibid) Mitchell (1998) states that the research done concerning how professional services are assessed, selected, and used, by businesses is limited. This is surprising due to the essential nature of this type of services, according to Mitchell (1998).
Industrial buyers have always been interested in the important question whether to produce services internal or to buy services from external suppliers. The issue of buying or producing is, since a couple of years, discussed in terms of out- or insourcing (Axelsson, 1998).
Organizations outsourcing of internal services are increasing and suppliers are more involved in providing value-added services to their customers. This implies a greater need to understand and research industrial service procurement. (Sheht, 1996)
Why should companies and organizations buy services instead of produce them internally?
Axelsson (1998) suggests that services can be bought in order to:
- complete the company/organizations' own resources in order to achieve a certain quantitative capacity.
- relieve the company/organization from less important, non-core capability tasks.
3According to Gummesson (1978), there is no clear distinction between professional services and consultancy services.
- acquire a function that has a higher quality than could be performed by the own company/organization.
- enable the creativity of the company/organization, for instance services pointing at a certain work procedure.
Many companies have even an established policy of purchasing competence when they need it, instead of having the competence available internally. This increases the flexibility of the company. (Edvardsson, 1990) But, even though the professional services are important to organizations, there is relatively little known about how those services are purchased (Dawes, Dowling & Patterson, 1991).
As stated before, there is a large increase in companies buying consultancy services (Arnerup- Cooper & Edvardsson, 1998). Consultants have become more and more important for the development of companies and there are several different kinds of consultancy services that companies can buy (Edvardsson, 1990).
Why should companies and organizations use consultants?
Edvardsson (1990) states that the technological developments increase the need of specialized knowledge in several fields, particularly in the area of information technology, which thereby presents one reason for using consultants. Moreover, Wilson (referred to in Mitchell, 1994) proposes the following reasons for using consultants:
- the need for special skills required for at specific reason or intermittently, - the nature of the problem - one-off sporadic occurrence,
- legal requirements e.g. auditing,
- the need for total objectivity and freedom from internal pressures, - lack of special resources such as laboratories or EDP equipment, - cross-industry fertilization,
- anonymity or confidentiality (e.g., new product development, executive search, com- pany acquisition).
1.1.3 The Internet
Parallel to the general growth of the service industry the technological development has provided useful marketing tools such as the Internet (Strauss & Frost, 1999). The Internet is more and more used for obtaining information (Murphy, 2000). Also, the usage of the Internet for evaluation and selection of suppliers is increasing (Haynes, Becherer & Helms, 1998).
Even if the first implementation of the Internet occurred already in 1969, the real explosion in public interest began 25 years later, in 1994, when essential breakthroughs such as the World Wide Web
4, Web browsers
5and Web servers
6made it much easier for individuals to use the Internet (Hanson, 2000). According to Nua Internet Surveys (2000) estimations reveals that the Internet had about 377 million users worldwide, and 4,5 million users in Sweden in September 2000. Also the number of organizations connected to the Internet is increasing. A recent study of companies with more than 50 employees in United Kingdom shows that 88
4The area of the Internet that contains the HyperText Markup Language (HTML), so that browsers can view words
on Web pages (Silverstein, 2000).
5The software necessary for viewing of HTML documents or Web pages (Silverstein, 2000).
6A system allowing continuos access to the Internet or an internal network (Strauss & Frost, 1999).
percent of those companies are connected to the Internet, which is a rise compared to last year figure of 82 percent (Murphy, 2000). Hanson (2000) compares this tremendous growth of the Internet during the last five years with a fire where the easy-to-use version of the Internet caused this rapidly spread fire and there are few signs of the fire burning out.
Silverstein (2000) explains the Internet to be the world's largest computer network of networks, which allows computers to connect with one another. Turban, Lee, King and Chung (2000) argue that this networked computing is emerging as the standard computing environment in business, home and government. Even if some people still use their computer without connection to a network, the vast majority of people use computers connected to the Internet, or its parallel within organizations, the Intranet
7. Different companies' Intranets can also be linked together over the Internet in another computer network, the Extranet
8. (Turban, Lee, King & Chung, 2000). According to Strauss and Frost (1999) the Internet could be explained from a number of different viewpoints as being: a technology, a social space and, a marketing tool. However, Silverstein (2000) argues that the Internet is a unique medium that allows information to be accessed without geographic location setting the bounds. As communication tool, the Internet (and its graphical component the World Wide Web) has the capability of delivering messages as well as two-way-interactions (ibid). But, compared to other media the Internet is unique because the customer generally has to find the marketer rather than vice versa (Watson, Berthon, Pitt & Zinkhan, 2000).
1.1.4 IT Consultancy Services - The Focus of this Study
As stated previous, consultancy services in the area of information technology are increasing (Larson, 1998). The area of information technology requires specialized knowledge that many companies lack and therefore seek to acquire externally (Iacobucci, 1998). We will therefore focus on how companies buy these services. IT services can be classified as professional services/consultancy services.
We have not found any definition, in theory, of IT services. In order to create such a definition for this thesis we have studied several large Swedish IT consultancy companies' Web-sites
9(Frontec, 2000; Framfab, 2000; Enea, 2000; KL Data, 2000 & Icon Medialab, 2000). Based on the information from these Web-sites we found that the concept of IT services is complex and that these companies offer a broad range of services, which differ in their characteristics.
That is because these IT consultancy companies have different competencies and focus.
However, all of the IT consultancy companies in question offer advanced technical solutions and technical support, different types of systems and business development, and different forms of education within the area of IT. A further illustration of what IT services may involve is presented by KL Data (2000):
- pilot studies, reports and analyzes, - IT strategies,
- data communication and network design,
7Computer network, similar to the Internet, but used internally by an organization ((Strauss & Frost, 1999).
8External Intranets (Hanson, 2000) designed primarily for a firm's internal use, but that allows select outsiders, such
as customers, partners, and suppliers, in (Silverstein, 2000).
9The virtual location for an organization's presence on the Worldwide Web, which usually contains several Web pages (Strauss & Frost, 1999).
- integration of systems and networks, - IT security,
- preparation of specifications and documentation, - investigations and evaluations,
- technical support in IT projects, - adaptations of applications, - project management, - system support, - operational support.
1.2 Problem Area
Today more companies concentrate on their core competencies and will therefore to a greater extent buy different services externally when needed (Arnerup-Cooper & Edvardsson, 1998).
Parallel to this development, the Internet is argued to change the business environment and several authors agree on that the Internet is a phenomenon here to stay (Hanson, 2000;
Silverstein, 2000). The Internet allows efficient communication (Hanson, 2000) and is a convenient source of information (Watson, Berthon, Pitt & Zinkhan, 2000). Likewise Auger and Gallaugher (1997) found in a study that the overall most important factor driving companies to use the Internet was to spread and obtain information. However, we have found very little previous research that highlights how the Internet is used in the buying of services in general and professional services in particular.
One professional service that companies can choose to buy is IT consultancy. IT services have dramatically changed during the past decades due to factors such as rapid technological development, extreme cost pressure and organizations' insufficiency of key technology skills.
These changes have put a strain on IT service providers to look for alternative ways of managing and providing IT services. This has even created a whole new industry: outsourced IT services. (Larson, 1998)
The companies increased outsourcing of services implies a greater need of understanding and researching industrial purchase of services (Sheht, 1996). Day and Barksdale (1994, p 44) state that "Selecting a professional service provider can be one of the most important decisions and potentially one of the costliest mistakes a client company can make." A poorly constructed marketing research, an inappropriate legal advice or a wrongly directed advertising can create problems or even be devastating for a company (ibid). But, knowledge about professional services is not only important for the purchasing company, Dawes, Dowling and Patterson (1991) claim that it is vital to the success of professional service providers to understand how such services are purchased. Despite that purchasing of services is regarded as essential for businesses (Palmer, 1998) little research has examined the purchase of professional services in general (Dawes, Dowling & Patterson, 1991) and we have found very little previous research in the area of industrial buying behavior of IT services in particular.
Based on the discussion above it is interesting to study how organizations buy IT consultancy services and how the Internet is used in that context. Thus the problem area for this thesis is:
to study how companies buy IT consultancy services and how
they use the Internet when buying these services.
Because Sweden is one of the foremost countries in the world concerning the development and usage of the Internet (Gemensamma Fonden, 2000) this thesis will focus on Swedish companies. This focus has also a priority due to facilitated access, since the study is conducted in Sweden. Therefore, the problem area can be further narrowed down:
to study how Swedish companies buy IT consultancy services and how
they use the Internet when buying these services.
2 THEORY
The literature review emanates from the problem area presented in chapter one. Theories about the buying process, the buying center, and Internet usage are presented. Finally, we present theories about factors influencing the Internet usage.
We have not found any previous research dealing with the industrial buying behavior of IT consultancy services
10; therefore we turn into theories concerning the industrial buying behavior of consultancy services in general.
Focusing industrial buying behavior inevitably brings us into theories of the buying process.
Moreover, we need to know what people within a company become involved in that process, which lead us into theories of the buying center. We need to deal with theories about the Internet as well. Finally, there are also factors that influence the Internet usage when buying professional services.
2.1 The Buying Process
There are several authors describing the buying process of services. A common way of describing this process is to divide it into a number of phases eventually leading to a purchase.
Stock and Zinszer (1987) present a model of the industrial buying process for consultancy services. Their model is sequential and the authors have broken down a four-stage decision process (problem recognition, search, choice, and post-choice evaluation) into an eight-stage decision process including the following stages:
(1) Identify existence of problem
(2) Determine if the problem should be handled internally or externally (3) Identify possible consultants
(4) Conduct search for information about consultants (5) Evaluate and recommend consultants
(6) Select consultants (7) Manage project
(8) Review or evaluate consultant performance
The buying process begins with an identification of problem and determination if the problem should be handled internally or externally. The authors present several reasons for identifying the need and use of consultants involving; the need for special skills or resources, the nature of the problem, legal requirements, the need for total objectivity and freedom from internal pressure, cross-industry fertilization, and anonymity or confidentiality. (Stock & Zinszer, 1987)
Then possible consultants are to be identified and the buying company needs to conduct search for information about those. In this search Stock and Zinszer (1987) propose that industrial purchasers consider personal sources of information to be more important than
10As stated previous, there is no clear distinction between professional services and consultancy services.
(Gummesson, 1978)
nonpersonal sources. Buyers rely more on personal sources of information, especially reputation and past experience, since they may feel a higher level of perceived risk associated with the service purchase. Depending on the stage of the decision-making process the importance of different sources will vary. Nonpersonal sources are usually more important early in the process while personal sources increase in importance as the process continues and have more impact in the decision to purchase the service in question. (Ibid)
The next stages in the industrial buying process for consultancy services include evaluation and recommendation of consultants and selection of consultants. Stock and Zinszer (1987) conclude that price is a less important consideration than service factors in the purchase of professional services. (Ibid)
Finally the buyer has to manage the project and review or evaluate consultant performance.
Stock and Zinszer (1987) claim that the intangible nature of services makes it difficult to
evaluate consultant performance and have resulted in a variety of approaches used in order to
practice such evaluations. However, the authors state that purchasers of professional services
place little importance on the cost when evaluating the performance of these services. (Ibid)
Another model, developed by Gummesson (referred to in Edvardsson, 1990), describes the
interaction between the buyer of the professional service and the professional service
provider. This model consists of ten phases. Similar to Stock and Zinszer (1987) also
Gummesson presents a sequential model (see table 2.1). The model includes both buyers and
sellers and describes the interaction between those parties throughout the different stages of
the buying process. According to Gummesson (1983), the last stage, the post-stage, may also
be connected to the first one, the pre-stage, since the post-stage could develop into a new pre-
stage.
TABLE 2.1: Stages in the Relationship Between a Buyer and a Seller
1) Pre-stage In this stage the buyer has not yet felt the need for external consultancy.
Either nothing happens or the professional service firm is the only active party.
2) Diagnosis The prospect may be alerted to some problem in his/her firm that needs to be resolved. He/she may be made aware of this by a consultant. A need for professional services is recognised.
3) Formulation of The recognised need must be transformed into a problem formulation which the problem and states the basic needs, objectives for a solution, time aspects, etc. The objectives professional can actively influence this formulation.
4) Identification of Several alternatives may be available to solve the problem. An outside alternatives consultant is one amongst others. Examples of alternatives are: own personnel,
research institutions or researchers and the recruitment of personnel.
5) Selection of The names of the professional firms and others to contact are identified.
alternatives for A professional firm which is previously known to the prospect stands a better further investigation chance than others of being included in the shortlist.
6) Investigation of the This can be done by asking for proposals, interviews, etc.
alternatives
7) Evaluation of the The different alternatives may have a series of consequences pertaining to consequences of price, time, quality, etc.
the alternatives
8) Decision The decision to select a particular professional is usually taken under conditions of perceiving uncertainty because of the difficulty of evaluating professional services.
9) Operation of the Usually, an assignment is operated, wholly or in part, by the individual who assignment sells the assignment.
10) Post-stage The client has no direct need for help although it can offer opportunities for the professional firm: to make sure the client has accepted the job, is satisfied, that no misunderstandings exist, etc. The post-stage may also be the door to future assignments and can be seen as gradually turning into a new pre-stage.
Source: Edvardsson, 1990, pp.10-11
In an article focusing on management consultancy services Edvardsson (1990) supports Gummesson's ten-phase sequential model of industrial buying process, but he argues that the decision process when purchasing management consultancy services is not always as structured, sequential, and logic as the model indicates. Instead, he suggests that the different phases may be carried out simultaneously and informally. Edvardsson (1990) describes the purchasing in three different phases: before purchasing (whether or not there is a need for consultancy), while purchasing (selection of consultant) and after purchasing (implementation and final consumption). The first part of the assignment is crucial for the consultant's continued work; both direction and extent of the assignment might change during this process.
Situations often occur during the process that might lead to purchase of extra services or
changes in the original assignment. Edvardsson illustrates this with a model (see figure 2.1)
Figure 2.1: Dispersion Circle in the Purchasing Process Source: Edvardsson, 1990, p. 16.
When a company has chosen to purchase services from an external management consultant, it has to decide whom to turn to with the inquiry. According to Edvardsson (1990) the buyer's recruitment base consists of four different levels where the first level includes the entire consultancy market, the next level consists of a delimited section of the total market, the known market (all consultants known to the buyer). The third level includes those consultants within the known market that is regarded as possible suppliers and only a selection out of these constitutes the company's regular suppliers. Finally the buyer will select one consultant for a given situation. Research has shown that most purchases are made from regular suppliers and that new suppliers are recruited only from time to time. The reason for this is that it takes time, it is costly and it is impossible for a buyer to ensure getting the best supplier. Therefore, by turning to the regular suppliers, the buyer reduces search time, costs and uncertainty.
(Edvardsson, 1990)
Day and Barksdale (1994) present a conceptual model of the organizational buying process
for professional services, which has some similarities with the models developed by Stock and
Zinszer (1987) and Gummesson (referred to in Edvardsson, 1990). As well as these models,
Day and Barksdale's model is sequential but it consists of eight stages. Although the authors
do not regard the classical model, with its six stages (problem or need recognition, search for
information, evaluation of alternatives, choice, post-purchase evaluation, outcomes), as being
inaccurate they believe it ignores substages and thereby oversimplifies complex decision-
making. They argue that the "choice"-stage itself is a process, which includes at least two
stages ("first cut" and "final selection"), and the "post-purchase evaluation"-stage involves
evaluating the quality of both the service delivery and the final outcome. Day and Barksdale
therefore present a variation of the classical, basic decision-making model in Figure 2.2 that
they believe is more appropriate for the area of professional services.
Recognition of a need or problem
Identification of the initial consideration set
Refinement of the consideration set1
Evaluation of the consideration set1
Selection of the service provider
Evaluation of the quality of service delivery
Evaluation of the quality of the outcome ("product")
Satisfaction/dissatisfaction
1These two stages may be repeated in another elimination round
Note: Feedback to previous stages can occur throughout the decision process however feedback loops have been omitted in order to simplify the flow diagram.
Figure 2.2: The Organizational Buying Process for Professional Services Source: Day and Barksdale, 1994, p. 46.
According to Day and Barksdale (1994), the buying process begins when the client recognizes a need or problem that potentially can be met by the purchase of a professional service. The client company's options are either to use in-house personnel, to buy the services from another company, or to ignore the problem. Hereafter the company has to define purchase goals, since these goals will create the foundation for the criteria used in every stage of the selection and performance evaluation process. The selection and evaluation criteria will help to insure that the purchase goals are realized. (Ibid)
The next stage is to identify the initial consideration set. In order to facilitate selection and evaluation some set of criteria will be employed in this and every subsequent stage, aiming to reduce the buyer’s risk and uncertainty. Day and Barksdale (1994) argue that researchers, clients, and professional service companies all should try to identify the specific criteria used in each stage, since the criteria will vary across the different stages. In this initial stage all the professional service providers that the client is aware of are included. (Ibid)
When the initial consideration set is identified the client continues by redefining the consideration set, which involves development of a "short list" of finalists. The reducing of the initial list is done through applying some set of criteria, which then will disqualify some of the potential companies.
(Day & Barksdale, 1994)
After redefining the consideration set, the client will continue by evaluating the consideration
set. This stage is often associated with difficulties, since professional services generally lack
attributes that a client can verify before the purchase. According to Day and Barksdale (1994),
it is therefore important to use different indicators or cues. That is information emerged from
factual information about a provider or from earlier experiences (client's own or other clients' experiences). This involves past performance often being used in order to predict future performance. The authors continue by stating that it is important to specify required and desired attributes, and to identify the particular indicators or cues used by the clients to assess a service provider. When the screening is finished and a short list is developed the clients often issue a request for proposals and presentation and/or interview in order to get important information about the different providers of professional services. Occasionally there may be an additional elimination round in which this and the following stage are repeated.
(Day &
Barksdale, 1994)
The fifth stage, the selection of professional service provider, should, at least theoretically, result from an assessment of how well each service provider rates on each of the determinant attributes. This is because all potential suppliers, remaining after the final round, already have been considered to meet minimum requirements. Specific criteria and their relative importance are likely to vary across individuals in the decision-making unit and across substages. These variations make it difficult to identify relevant criteria. Nevertheless, the authors claim that it is important to make the selection criteria and their relative importance explicit. (Day & Barksdale, 1994)
When selection is done, the next stage is to evaluate the quality of service delivery, which initially relates to the service delivery process and focuses on relationship between client and provider. Due to a service delivery's length in time the evaluation criteria and the expectations can change over time, which makes the process more complex. There are certain objective measurements, for instance meeting deadlines, which can be used during the evaluation stage, but more often the measurements used are largely subjective. (Day & Barksdale, 1994)
After evaluating the quality of the service delivery the client will evaluate the quality of the outcome, in a more holistic way, which will lead to an overall feeling of satisfaction or dissatisfaction. The evaluation of the final outcome is often difficult, since many types of professional services lack attributes that can be measured. Should, for example, a service provided by an attorney where the client loses a lawsuit be considered as an outcome of low quality? Some attributes are simply impossible to evaluate even after the delivery, according to Day and Barksdale (1994).
Grönroos (1979) also discusses the buying behavior. He presents the industrial buying behavior as the process of the client need and this process consists of fewer stages than the processes presented by both Gummesson (referred to in Edvardsson, 1990), Day and Barksdale (1994), and Stock and Zinszer (1987). Another difference between the process discussed by Grönroos (1979) and the other processes is that Grönroos exclude an explicit post-purchase evaluation stage instead he includes the evaluation in the consumption process.
Furthermore, Grönroos discusses marketing of producer services other than professional services, but he claims applicability also in the marketing of professional services.
According to Grönroos (1979), the progress of client needs could be summarized in three main stages, namely:
(1) Initial stage
(2) Purchasing process
(3) Consumption process
During the initial stage the potential client develops a general interest in a service company and its services. After information gathering about different suppliers and their services the potential client will decide whether to purchase the service or not. When purchase is decided the client enters the next stage, the purchasing process, where the client decides to purchase a specific service from a particular service provider. (Ibid) During the final stage, the consumption process, the service will to a great extent be produced, delivered and consumed simultaneously. Clients will also, during the consumption, regard whether the service really satisfies the perceived needs and their experiences will influence future use of the service.
(Grönroos, 1979)
2.1.1 Initial, Purchasing, and Consumption Stage of the Buying Process
The previous presented models that describe the buying process have different number of stages. However, most buying processes can be divided into the three main sections (initial stage, purchasing, consumption) suggested by Grönroos (1979). Therefore we will, with this three-stage model as starting-point, further investigate each one of these three stages.
Initial Stage
In the initial stage the potential buyer recognizes a need of professional services and uses different sources in order to attain pre-purchase information about service providers and the services they offer. Mitchell (1994) argues that the search for professional service providers is far more restricted than it is for industrial goods. The range of information sources, especially the non-personal, is more limited when searching professional service providers, since few professional services companies advertise widely in the media. This makes personal sources such as for instance word-of-mouth very important. However, also personal sources have their limit because professional services are infrequently purchased and therefore there are fewer people with experience in this kind of services. Furthermore, the professional companies rarely have any sales people employed from whom information can be obtained. (Mitchell, 1994)
In a study focusing information search when purchasing management consultancy services
Dawes, Dowling and Patterson (1991) found that the majority of companies used between
four and six different information sources. This use of multiple information sources stresses
the complexity of the buying process for business professional services. The authors' findings
concerning information sources influencing the final selection of management consultant are
shown in table 2.2.
TABLE 2.2: Average Influence Score for Each Factor
Influence on Final Selection
Factor Name Rank Averagea Stage in Buying
Score Process
Internal Network 1 3.75 Final Selection
Consultant's Statement of Capabilities 2 2.53 Final Evaluation/
Shortlisting
Personal Advertising 3 1.19 Early Evaluation
External Referral Network 4 1.13 Early Evaluation
Impersonal Advertising 5 0.29 Awareness/Interest
a Scale endpoints were labelled 1 = low influence and 7 = high influence. A zero score was inputted if a source was not used.
Source: Modified from Dawes, Dowling and Patterson, 1991, p. 192.
Table 2.2 shows that the most influential information source on the final choice of a consultant is internal network factors. This factor is represented by both informal and personal sources of information, namely colleague discussions within the buying company and past dealings with consultancy company. Dawes, Dowling and Patterson (1991) state that personal sources play a key role in reducing perceived risk in the buyer's selection decision. They also present an alternative explanation to the importance and use of personal sources. The authors propose that companies searching for a provider of consultancy services are more or less forced to use personal sources due to the fact that very few providers of such services use advertising or other nonpersonal sources in order to promote their services. The second most influential set of information sources was the consultant's statement of capabilities involving the consultant's written proposal, formal presentation and supplied references. These sources have most impact in the process of shortlisting and finally selecting consultant. Impersonal advertising was found being least influential, which partly could be explained by the lack of promotion activities such as advertising or business press articles. However, the impersonal sources are suggested to be useful in creating awareness. The authors also found that the influence of different information sources does not vary according to the type of consultancy assignment. (Dawes, Dowling & Patterson, 1991)
Dawes, Dowling and Patterson (1993) conducted a study of the pre-purchase information search. The authors distinguish information sources into four different categories: personal commercial (salespeople), personal noncommercial (referrals), nonpersonal commercial (advertising) and nonpersonal noncommercial (business press). Dawes, Dowling and Patterson suggest that the total search effort and the direction of search will be affected by the purchase situation, buying center structure and individual characteristics. The total search effort is defined as "the total amount of time spent obtaining and evaluating all sources of information related to the commissioning of a management consultant" (Dawes, Dowling &
Patterson, 1993, p.36.). Buyers can obtain information about services both from personal
sources, such as colleagues or industry experts, or from nonpersonal sources such as mass
media or product brochures. The study shows that on average, personal sources of information
were used twice as much as nonpersonal sources. Previous research concerning the purchase
of industrial goods has shown that commercial sources have relatively low credibility, but
Dawes, Dowling and Patterson (1993) found instead that five of the top seven sources used
were commercial in the process of purchasing management consultancy services. These
findings may be explained mainly by the intangible nature of services, which makes it hard for buyers to investigate or test the service prior to purchase and the buyers therefore have to rely more on various commercial sources of information. Another reason could be that the buyers are more willing to rely on the management consultants' statements, since the professionals, in general, are well qualified and operate in high standards and ethics. (Ibid) The purchase situation has a substantial impact on all types of search efforts. When the consultant selection decision is perceived as complex and important the buyers tend to use personal sources. This does not totally exclude the usage of nonpersonal sources in complex purchases. Nonpersonal sources were found to be used when the buyers consider new consultants or recognize a need of further information. However, the users of management consultants prefer, in general, personal sources to nonpersonal sources. They also spend more effort in gathering and evaluating information from these sources. (Dawes, Dowling &
Patterson, 1993)
Also Stock and Zinszer (1987) found that industrial purchasers consider personal sources of information to be more important than nonpersonal sources. Similar to Dawes, Dowling and Patterson's (1991) findings, Stock and Zinszer (1987) conclude that nonpersonal information sources have more impact in generating awareness of the service while personal information sources have more impact in the decision to acquire the service. Stock and Zinszer's (1987) studied the information search process within the area of purchasing logistic consultancy services. The mean importance ratings of thirteen different information sources are presented in table 2.3.
TABLE 2.3: Information Sources Used in the Selection of Logistics-Consulting Firms (Mean Importance Ratings)
Information Source Meana
1. Reputation of the Consulting Firm in a Specific Functional Area 4.40
2. General Reputation of the Consulting Firm 4.36
3. General Reputation of the Consultant 4.35
4. Past Experience with Consultant of Firm 4.20
5. Reputation of Consulting Firm in Your Industry 3.88 6. Recommended by business Associates Outside Your Company 3.73
7. Personal Contact by Consultant 3.25
8. Recommended by Others in Your Company 3.24
9. Professional Associations 2.37
10. Presenter of Speeches, Seminars, and Workshops 2.35
11. Author of Professional Publications 1.87
12. Trade Directories 1.40
13. Direct Mail 1.29
aRatings were based on a six-point scale ranging form a value of 0 for Not Important or Relevant to a value of 5 for Highly Important
Source: Modified from Stock & Zinszer, 1987, p. 8.
The first eight information sources are personal sources while number nine to thirteen are
nonpersonal sources of information. As indicated by table 2.3 reputation is the most important
personal source of information. This is explained by the desire of users of professional
services to reduce risks. They will therefore select suppliers that have a good reputation and a
high credibility. Stock and Zinszer (1987) also found, similar to Dawes, Dowling and
Patterson (1991) that decision-making units generally rely on more than one single
information source. Furthermore, it has been shown that the higher cost of the purchase, the
more important are personal sources for information regarded. Nonpersonal sources are suggested to be useful for generating a number of options for the decision-maker, but once the consultancy companies have been identified, personal information sources become more important. (Stock & Zinszer, 1987)
Purchasing
At the end of the initial stage the buyer of professional services has selected a set of potential service providers to evaluate and chose among. In order to become more successful in marketing their services, consultancy companies need to understand the criteria used for clients' evaluation of services and thereby gain knowledge about how their clients finally select consultant (Dawes, Dowling & Patterson, 1992 a). Axelsson (1998) argue that it has always been an important issue for buying organizations to evaluate suppliers and their offer.
However, the aspects of what is important to conceive vary due to the situation and thereby will also the factors influencing the evaluation vary considerably (ibid). Edvardsson (1990) claim that, since services are intangible there are, in most cases, not much concrete within the service itself on which the buyer can judge prior to purchase. Instead the buyer is left to evaluate what is concrete, which could be for instance the consultant and the consultancy company. The service will therefore be judged based on factors such as the consultant's knowledge, network of contacts, appearance, behavior, office, equipment and methods used.
References from previous clients are also important clues. (Ibid) In previous research Edvardsson (1990) has summarized the grounds on which a decision may be based when selecting a consultant. These grounds are presented in figure 2.3.
Image of consultant
• individual consultants relevant knowledge relevant experience
• consulting company organisation reputation future Consultant's ability to solve
problems and suitability in other respects
• problem/situation at hand Buyer's network
• pedagogical competence • internal network
• values • external network
• co-operative ability
• trust signals
Buyer interaction
• "cognitive trial run"
• "practical trial run"
Figure 2.3: Factors Influencing the Buyer's Evaluation of the Consultants Source: Edvardsson, 1990, p. 9.
According to Edvardsson (1990), what the buyer of consultancy services really wants is to make sure that the consultant is able to solve problems, but also is suitable in other respects.
This may refer to the problem at hand, the consultant's pedagogical competence, reputation,
ability to co-operate, values, respect and, personal chemistry (ibid). There are various ways to
deal with the evaluation of different consultants and Edvardsson (1990) suggests that there are
three central components involved in the buyer's evaluation process:
(1) the image of the consultant (subjective picture of consultants or consultancy company) (2) the buyer's network (both within and outside the organization)
(3) the buyer's interaction (cognitive trial by questions or practical by purchasing few hours of trial consultation)
Dawes, Dowling and Patterson (1992a) investigated 253 organizations focusing on their choice criteria used in the final selection of management consultancy services. The authors developed a list of 17 relevant choice criteria, which the respondents were asked to rate the importance of, in their final selection of consultant. Table 2.4 presents average score and importance rank for each choice criterion.
TABLE 2.4: Importance Rankings of Choice Criteria Used in Final Selection of Management Consultant
Overall Overall
Choice Criteria Average Score Importance Rank Reputation of consultant in specific
functional areas 5.7 1
General reputation 5.5 2
Client knows specific consultant(s) 5.2 3 Client has experience with
consulting firm 5.0 4
Experience in client's industry 5.0 4
Prior use of consultant 4.8 6
Written consulting proposal 4.7 7
Consultant will assist with
implementation 4.6 8
Total costs for consultants 4.5 9
Formal presentation 4.2 10
Satisfied clients' recommendation 3.8 11
Offers full range of services 3.6 12
Academic qualifications of
consultants 3.5 13
Size of firm 2.9 14
Location of firm 2.5 15
Other consultants' recommendations 2.3 16
Age of firm 2.2 17
1 = Not important; 7 = highly important
Source: Modified from Dawes, Dowling and Patterson, 1992a, p. 190
