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Emerging e-commercebusiness models ananalysis of case studiesfrom West LothianScotland
Tony Kinder
Introduction
E-commerce has entered the realm ofbuzzwords associated with major industrialand business upheavals lsquolsquoBusinesses will bee-commerce or no business at allrsquorsquo said TonyBlair in a memorable speech aimed to enthuseor scare the business world to pay attentionand join the fray of e-commerce Many haveindeed joined the fray before and after Blairrsquosspeech in pursuit of the new KlondikeStories of success and failures abound in thepress and an entire body of informationexperience and knowledge has been buildingup on e-commerce in recent times This paperbuilds on this body and has three objectives(1) conduct a selected conceptual review of
e-commerce issues and models(2) propose a framework useful for
understanding and informing thestrategic development of e-commerceexperiences and
(3) apply this framework to the experiencesof three e-commerce start-ups with theaim of the processes and lessons of howthis is being made to happen
With this in mind the second section of thepaper reviews and discusses various conceptsrelated to e-commerce models It proposesfirst a definition of e-commerce identifying ascritical ingredients on the one hand theprocesses of search assessment andtransaction and on the other the factors ofinteractivity connectivity and agilityAgility in particular is seen as critical to thedynamic learning processes involved in thecurrent early phase of e-commerce evolutionThe section also discusses the businessconcepts of intermediation re-intermediation virtual supply chains andInternet communities
The third section introduces Molinarsquossociotechnical constituency approach anddiamond of alignment as a conceptualframework to make sense and informprocesses of e-commerce innovation anddevelopment
The author
Tony Kinder is a Researcher Department of Business
Studies University of Edinburgh UK
Keywords
Sociotechnics Internet Business strategy Models
Abstract
The paper surveys existing theory of e-commerce business
models and associated conceptual instruments It employs
three original case studies of SMEs using e-commerce to
demonstrate the dynamic nature of e-commerce business
models for networked SMEs The idea of evolutionary
business planning based upon Molinarsquos sociotechnical
constituency approach and the diamond of alignment is
introduced
Electronic access
The research register for this journal is available at
httpwwwemeraldinsightcomresearchregisters
The current issue and full text archive of this journal is
available at
httpwwwemeraldinsightcom1460-1060htm
This paper results from the EU funded BuKsproject which supported the adoption ofecommerce by SMEs in West Lothian I gratefullyacknowledge the support of West Lothian CouncilBusiness Centre my colleagues in the project MarkWinskell and Alfonso Molina for commentingupon earlier draft of this paper and the usefulcomments of the reviewers
130
European Journal of Innovation Management
Volume 5 Number 3 2002 pp 130plusmn151
MCB UP Limited ISSN 1460-1060
DOI 10110814601060210436718
A fourth section presents three original casestudies of successful SME e-commercebusinesses from West Lothian Scotland Thissection analyses the business models of thesecase studies showing the processes by whichthese have evolved and providing a frameworkthat captures networked e-commerce SMEsrsquobusiness models
A fifth section comes back to thelsquolsquosociotechnical constituenciesrsquorsquo approach inan effort to integrate it with the concept andingredients of business plan Thecombination it is argued lays thefoundations for a dynamic approach tobusiness models for networked SMEs usinge-commerce This approach is termedevolutionary business planning A finalsection draws conclusions for the theory ofe-commerce business models
Selected review of e-commerce businessmodels
For almost 25 years banks and credit cardproviders have used electronic datainterchange as a means to settle exchangebalances between organisations Later low-grade interactive e-commerce kiosks (traveltickets telephones) became generalised Therecent boom in e-commerce is Internetrelated and differs from earlier systems by theextent of its connectivity and richness of itsinteractivity Like all networks offeringpositive externalities the smartness andusefulness of Internet technology grows as thenetwork flourishes Table 1 summarises the
current growth rate and commercialsignificance of the Internet
Defining e-commerceWe define e-commerce as commerciallypurposive systems or processes of searchassessment and transactions including post-transaction interactions enabled andsupported by information andcommunications technologies In a variety ofshapes and ratios e-commerce featuresphysical and virtual constituents and itslifeblood are the communities of customers andsuppliers interconnected and interacting toconstitute markets and supply-demand chainswithin that network This identifiesconnectivity and interactivity as fundamentalfeatures ofe-commerce and as we shall see thispaper will also identify agility as a thirdfundamental feature for e-commerce successThese characteristics are examined in detailbelow Before however it is worth noting thate-commerce can involve interactions withinand between at least three sets of partiesprivate business (B) public administrations(PA) and consumerscitizens (C) Table IIshows a classification of these types ofinteractions Note that the sequencing withintitles is not important thus publicadministration to private business (PA2B)equally represents B2PA Already the PA title isdated since it represents publicly funded not-for-profit service traders Since 20 per cent ofnew employment in Europe is now in theimportant third (or voluntary) sector the PAcategory may require some re-designation
Table I The current growth rate and commercial significance of the Internet
Key facts Details
Globally 16325 million people use theInternet
Of this 114 are from Africa 2655 AsiaPacific 3611 Europe 078
the Middle East 942 North America and 45 million South America
In the US 32 of users have a householdincome of below Euro70000
32 of users have an income above $75000 (compared to 174
of the whole population)
Internet user penetration in Europevaries in a north-south divide
In the larger northern and more affluent countries user rates are
Germany (339) Italy (126) UK (513) France (05) The
Netherlands (426) and Belgium (229) The Scandinavian
countries and Ireland enjoy a higher diffusion rate Detailed
surveys of Internet and e-commerce are carried out regularly in
Ireland aOver-all adoption of Internet use at home is increasing by
12 per annum in Europe
Notes a A survey (httpwwwiiaienew) by the Irish Internet Association found the average age of Internet usersto be 35 75 per cent men equally married or single 60 per cent without children 39 per cent with degrees 65per cent in computerprofessionaleducation occupations 57 per cent using Explorer and 36 per cent Netscape 73per cent MS Windows 45 per cent accessing commercial information ` a few or severalrsquorsquo times a week 29 per centhaving made Internet purchases
131
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Search assessment and transaction ndashdecomposing e-commerce exchangeCommercial activities revolve aroundexchange which may be decomposed intothree elements search assessment andtransaction (SAT) This is also valid fore-commerce In Kinder (2000a) thisapproach is used to analyse Internet-basedrecruitment Search the purposiveprospecting around options meeting aneffective demand involves collecting (at acost) by current or previous study availableoptions their costs and consequences Doingthis in a virtual market-space as opposed to aphysical market-place may prove faster andless expensive for customers A secondelement of exchange is assessment making ajudgement on information and options andtheir consequences As Veblen (1953)established assessment is often sociallypatterned into bounded sociocognitive effortExchange processes are concluded by atransaction a mutual interchange of valuesresulting in a change of ownership or use andany after-care service usually this entails amonetary transfer and may be synchronouswith or before search and assessment Eachelement of the exchange process contains atleast one decision node for the purchaserThis approach is similar to the reach richnessand affiliation process developed by Evansand Wurster (1999) The SATdecomposition of exchange is from a user-perspective focusing upon the exchangerather than the person or organisationsparticipating in it A similar approach to SATis taken in the Web site assessmentsconducted at httpbusinessmediaorg
Table III summarises how the SAT elementsof an e-commerce exchange differ from off-linephysical exchanges Decomposing exchange
into elements can not only assists detailedanalysis of business processes this approachalso highlights the significance of the Internetrsquosconnectivity and interactivity for e-commercebusiness models
Figure 1 represents a simple Internet-basede-tail e-commerce business Like anybusiness its sustainability depends uponincome exceeding costs The main costsunder search are site construction upkeepand marketing for assessment andtransaction the main costs are the productservice distribution administration andsupport (such as call centre)
Some income may be made from advertising(typically very little) and commission for click-throughs however the main income is fromsales and after-sales services The sticky site iswell-designed easily navigable and directsvisitors towards making a purchase (it inspiresconfidence in security and privacy)Conversion ratios vary with product andcustomer base By way of illustration usingFigure 1 if one in ten hits register and one inten of these make a purchase then 1 in a 100hits conclude a transaction Importantdynamics in Internet-based e-commerce e-tailbusinesses are therefore attracting hits(search) keeping interest (assessment) andconcluding sales (transaction) This is ofcourse little different from many off-linebusinesses and supports the view of someauthors that e-commerce models are littledifferent from conventional business models(Treleaven 2000) On the other hand othersbelieve that all business models are nowaffected by e-commerce (DTI 2000) The twoviews may be more complementary thancontradictory as new and establishedorganisations must take account of businessdevelopments associated with e-commerce
Table II Spectrum of e-commerce business transactions
B2B B2C B2PA PA2PA PA2C C2C
Business to
business
Business to
customers
Business to public
administration
Public
administration to
public
administration
Public
administration to
customerscitizens
Direct exchange
between consumers
Growth area
currently
75 per cent of
value of Internet
e-commerce
Mainly rsquo`buyrsquorsquo
some rsquo`barterrsquorsquo
Powerful for
information and
difficult search
assessment
products
Public tendering via
e-commerce also
paying for and
accessing PA
services to business
Joined-up-
government agenda
Also important in
holistic and
integrated
ICT-innovation
planning
E-commerce
e-services and tele-
democracy
Consumer initiated
buys bids and
barters with other
consumers Often
25 per cent
commission
132
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
such as those of intermediationreintermediation virtual supply chains andInternet communities (discussed below)
Interactivity connectivity and agilityAs anticipated in the definition ofe-commerce e-commerce businesses eachhave the three dimensions shown in Table IVThe three variables (interactivity connectivityand agility) have each appeared many times ine-commerce theory Interactivity here refersto virtual and physical and the relationbetween them (the lsquolsquoclick-and-brickrsquorsquobalance) The emphasis here is uponfunctional integration ie qualitativedeployment of knowledge rather than simplythe multiplication of functions Finallyinteractivity here is purposive and not an endto itself Complex knowledge embodiedwithin hidden computers may forcommercial purpose produce as rich aninteraction as a learned e-forum discourse
Just-in-time (JIT) processes were powerfulwithin manufacturing plants however theirpotential was unleashed when inter-organisational relations were driven by JITThe same is with connectivity De-fragmentation of functions previouslyseparated by organisational boundaries is thesimplest way to re-intermediate valuestreams Note that connectivity too ispurposive Breadth of connectivity is notintrinsically of value breadth of connectivitywhich mines a profitable seam in a propitiousvalue stream is significant Connectivity isboth technical and social it entails bothcommunications linkages and knowledgenetworking via inter-organisational links
Nagel and Dove (1992) have used the termagile enterprises to mean a firm with long-term inter-organisational relationships fromwhich they learn in addition to learning fromenvironmental scanning Here the term also
Figure 1 Showing the importance of site ` stickinessrsquorsquo conversion ratios and click-throughs
Table III Showing how e-commerce exchange potentially differs from off-line exchange in search assessment and
transaction elements
Search Assessment Transaction
Wider
Deeper
More thorough
Less expensive
Less time consuming
Segmentation of markets and
focus of searches
Wider benchmarks
Less expensive
Supports cognition
Less time consuming
Degree of interactivity available
during assessment
Speedier
Less expensive
Audit trail of transaction
Use of Net community
Accuracy of digital information and
payment transmissions
Irrelevance of distance
133
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
means having the absorptive capacity andorknowledge generating ability to resourcefullyparticipate in knowledge networks Criticallythe term means the capability and desire tocontinually innovate organisational ortechnological change in order to remainaligned with unfolding businessopportunities Agility is knowledge andaction agilmente
Figure 2 represents these three variablesconstituting a framework of e-commercemodelling in a three dimensional quadrantDegrees of high and low interactivity andconnectivity correlate with degrees of agilityUnlike many models which suggest simplistictypologies and pre-determined actions toachieve each Figure 2 shows the variants ofhighlow interactivity and highlowconnectivity crossing over quadrantboundaries There are two reasons for thisFirst such is the pace of marketorganisational and technological change ine-commerce it would be wrong to suggestanything but the most dynamic model re-configuration and change are part of the lifeexperience of successful e-commercecompanies Second there is no lsquolsquostable
equilibriumrsquorsquo here Even with a particulartime-frame poor interactivity andconnectivity (for example) may be overcomewhere agility (for example) is exceptionallygood As Jim Lieshman the Manager ofLivingston Football Club is fond of sayinglsquolsquooften hard work beats talentrsquorsquo
The successful e-commerce networkedSME is then continually realigning ensembleof social and technological capabilities andcompetencies a prospect far removed fromtraditional conceptualised internal andexternal relations and structures
Business developments in e-commerceCombining the insights of mediation analysiswith patterns of marketing interaction (one tomany many to one and so on) Timmers(1998) proposes the structure of 11 generice-commerce business models shown inFigure 3 and plotted against the variable offunctional integration and degree ofinnovation Timmerrsquos work was based uponempirical data available in the early adoptionphases of e-commerce Although the issue ofdegrees of innovation seems too linealTimmersrsquo methodology remains useful and
Table IV Methodological dimensions of e-commerce
Interactivity Connectivity Agility
Definition Interdependen t mutually
agreed actions in pursuit
of a common goal plusmn the
richness and depth of
shared mutual
advantageous actions
Technological and
organisational openness
and communications plusmn the
breadth of effective
technological and social
networking
To learn from and
contribute to knowledge
networks and to speedily
implement the
organisational and
technological results
Description Effective interactivity
results in deeply integrated
business processes
featuring rich knowledge
flows
Connectivity relevant and
appropriate to fulfilment of
business strategy ie
ability to exploit targeted
value stream mediation
Flexible adaptable and
risk taking in order to
secure the advantages of
early adoption of new
technologies and ways of
working
Operational parameters Efficient and speedy
search assessment and
transaction plusmn purposive
deployment of relevant
knowledge
Enables and supports
search assessment and
transaction with social and
technological
communications and
interaction
Responsiveness to market
and technology changes in
order for product and
processes (especially SAT)
to remain aligned
Qualitative degrees Trade-off between depth
of knowledge interaction
and numbers of people
participating in the
interactions
More focused in B2B and
PA2B than B2C or PA2C plusmn
social and technology
conduits between inside
business and its
constituency
Degree to which
innovativeness is within
the timespace which
aligns and satisfies inter
and intra-organisational
players
134
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
the current paper builds upon his initialcontribution
Our argument is that models ofe-commerce are now more crystallised thanwhen Timmers proposed his multiple andintegrated functions and degree ofinnovativeness quadrant methodology Forexample it appears that use of buy bid orbarter are (mainly) tactical rather thanstrategic decisions and that B2B and PA2Care likely to yield greater value in the short-term than B2C In the following we review
some of the business developments associated
with e-commerce in particular
intermediationre-intermediation virtualsupply chains and Internet communities
IntermediationJust as it was the lsquolsquowhite spacersquorsquo gaps in the old
hierarchic diagrams that were most revealing
so it is the relationships between businesses
which disclose most about business modelsFor some time economists (Kamien and
Schwartz 1982 Fein 1998) have understood
Figure 2 Connectivity interactivity and agility in e-commerce models
Figure 3 Timmersrsquo (1998) 11 generic e-commerce business models
135
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
how particular technologies and powerrelationships give rise to particular structuresof industries Less understood has been whyand in what direction these structures alterlsquolsquoUserrsquorsquo perspectives laid the foundation foranswering these questions Work by vonHippel (1988) and Fleck (1996) closelyaligned with analyses of supplier-producerrelational partnering (Rackham et al 1996)illustrate how particular patterns ofinnovation and particular technologiesintroduce realignments which result in newindustrial structures Hammer and Champyrsquos(1993) work on business process re-engineering (BPR) called attention to thevalue-adding opportunities of de-fragmentingindustrial processes Both Kodama (1992) ingeneral terms followed by Gates (1999) morespecifically migrated the BPR approach to anunderstanding of changed relationshipsbetween proprietors of technologicalknowledge particularly as a result ofinformation and communicationstechnologies (ICTs) being deployed Thenotion of intermediation and its sub-setsdisintermediation and re-intermediation arenow frequently used concepts in analysing thechanging structures of value streams ndash anapproach highlighted by Hagel and Singer(1999) and popularised in managementmedia (for example Business Week 2000)
Figure 4 illustrates in the light dotted line atraditionally sequenced value stream in whichcomponents via sub-assemblers andmanufacturers are distributed and retailedbefore reaching the consumer Arrowed linesconnecting manufacturers and distributorsdirectly to consumers without the mediationof retailers represent disintermediation Thedarker dotted line (manufacturer to e-tailerand e-tailer to consumer) illustrate new pointsof mediation re-intermediation In Figure 4this new mediation point (shown as a greybox) is an e-commerce Web site This may bethe site of a particular e-tailer an aggregatorwho gathers and hosts B2C offers or a portalsite offering click-through to the e-tailerrsquosoffer site
Most value streams are subject to dis-(re)-intermediation via new distribution and saleschannels The difference that e-commercemakes is that without physical proximitybetween buyer and seller products can befound assessed and the transactioncompleted For this reason e-commerce mayenable the speedy and inexpensive
restructuring of mediation patterns Note inthe block-arrows at the top and bottom ofFigure 4 how value shift from beingmanufacturer-centred in physical supplytowards being consumer and their point ofsale centred with e-commerce
Virtual supply chainsThe rapid growth in e-commerce by volumeand value has been and is predicted to beB2B usage Decomposing the e-commerceexchange into search assessment andtransaction elements (categories returned tobelow) Table V gives the reasons why B2Be-commerce has grown faster than the othercategories mentioned above in Table II
From the discussion on intermediation it isclear that the value contained in supply chainsmay be redistributed as a result of usinge-commerce Further e-commerce may resultin enhanced delivery speed (US Express) andlower prices (electronic competitive biddingwhich can (BT example) reduce supply costsby 10 per cent (See The Economist 2000ap 78 which gives the example of Dellrsquoscustomised ordering and flexible scheduling)In addition e-commerce may open newmarkets for information goods and digitaldistribution channels (see Shapiro andVarian 1999)
In addition like any technologicalinnovation there are intended andunintended effects of e-commerce onknowledge flows On the positive sideknowledge flows in e-commerce driven supplychains may increase Virtual integration mayhelp overcome the well-known barriers toknowledge flows found in vertically integratedcompanies Coupled with ICTs e-commercesupports the alignment of knowledge and itsshared use by organisations Outsourcingincreases knowledge flows where the benefitsfrom imported competencies exceeds searchand monitoring costs and the spillover effectinto improved absorptive capacity derivingfrom in-house knowledge sources Coupledwith ICTs e-commerce may support thedevolution of power within organisations andknowledge transfer socialisation cumulationand generation Alternatively where the goalof managing inter-organisational dependencyis limited to cost minimisation (so-called leansupply) particular were associated with trustreducing strategies such as competitivesourcing e-commerce could help reducesupply chain knowledge flows This may be
136
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
particularly so where critical elements ofknowledge remain tacit and are not subject toeasy digital transference In summarye-commerce has the potential to increaseknowledge flows within B2B or B2PA supplychains however these flows could be reducedwhere the technology replaces relationships
B2C and PA2C supply chains gatherimportant marketing knowledge on the maineffect of e-commerce on these supply chainsSpecialist e-tailing is moving into nichesegments (art dealers collectors) in whichsearch speed and cost information retrievaland assessment and credit-based transaction
Table V Reasons why B2BPA2B may be more significant than B2CPA2C categorised by the three elements of a
completed exchange
Search Organisations generally have computers and face less entry costs to e-commerce than
individuals
Large organisations are able to dictate the use exchange techniques
Transaction speed is likely to be more important to organisations
Assessment Organisations have patterns of buyingselling behaviour These patterns engender trust over
payment delivery times and quality assurance
Order-tracking costs are reduced where real-time information is available on the Internet these
can be more significant for organisations than individuals
Particularly organisations operating in global markets
Just-in-time reduces the costs of stock holding E-commerce can increase these savings where it
enables single-sourcing to replace multiple-sourcing
Transaction Organisationsrsquo volumes are larger than those of individuals making minor percentage savings of
greater monetary significance
Significant savings may accrue to organisations avoiding tax or the disbenefits of currency
fluctuations by purchasingselling using the Internet
Transaction cost savings for organisations are greater than for individuals especially where
auctions are used
Figure 4 Mediation disintermediation and re-intermediation
137
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
completion are important Physical retailinguses a hold and sell supply chain architecturewhereas commodity product e-tailers(CDNow Amazon) held no stock preferringto lsquolsquopick-and-packrsquorsquo using intermediary ormanufacturer stocks Often early e-tailcommodity product vendors preferred thisapproach which reverses the traditional buy-sell stock holding model in favour of a sell-buy-fulfil approach in which no stock is heldThis is possible either because their product isan intangible service (travel tourismbanking) because it is digital andimmediately reproducible at little cost (musicinformation money) Stocks of goods wereheld for these early e-tailers and the costs ofstock hold borne by outsourced distributorswho welcomed a high volume of business forlow-margin products PC e-tailers (Dell) hadthe alternative approach of holding (orlocating in proximate satellite stores atsupplier expense) sufficient stock to meetcustomised orders readily whilst other stockwas pulled as a result of orders Physicallsquolsquoaggregatorsrsquorsquo of commodity products (suchas clothing and food) offer a single source of adiverse range of products necessitating theholding of stock to service their physical andvirtual sales channels and distribution to thecustomers of each Thus lsquolsquoclick-and-brickrsquorsquomodels merge physical and virtual productoffers A major issue for e-tailers isascertaining the optimum mix between thelsquolsquoclickrsquorsquo and the lsquolsquobrickrsquorsquo from the viewpoint ofminimising the costs of stock holding[1]
Internet communitiesCommunities in everyday parlance arebonded groups sharing a common goal (lsquolsquohowwe see ourselvesrsquorsquo) and a common perspectiveof non-members (lsquolsquohow we would like othersto see usrsquorsquo) These common goals often begetsolidarity going far beyond instrumentalassociation Armstrong and Hagel (1996)argue that communities can empowerconsumers vis-a-vis sellers by generatingcriticism whilst at the same time onlinecommunities are an opportunity to exploitbrand loyalty[2] Communities includeinformal communities that may give rise toproduct recommendations sites offeringsome added value to visitors who click-through to sales sites or e-tailerrsquos sites whichover time have generated trust from acommunity of users Building an onlinecommunity of shoppers may be easier when
as the physical products hold symbolicsignificance (see Bocock 1993) wherecustomers are captive (bank) where anattractive and information-rich site engenderslsquolsquostickinessrsquorsquo[3] or where the site facilitatessearch and assessment of complex or over-loaded information (tourism travel)
Authors such as Alstyne (1997) expressconcern that physical communities (includingtrading communities) may be broken down asa result of atomised living in cyberspaceRayport and Sviokla (1995) interpret thesame trends as positive for e-commercearguing that new trading communitiesdevelop characterised by virtual value chainsWork by Klein (1996) on the Electronic MallBodensee in Germany was an earlydemonstration of a B2B trading communityArmstrong and Hagelrsquos (1996) view is thatInternet-based communities are a newbusiness model They argue that communitiesof interest fantasy relationship andtransactions ndash this is the Net-networking viewdiscussed in the introduction to the currentpaper So-called aggregators attractconsumers to a site on the basis of low-costgoods hoping for site-stickiness ndash theconsumers will buy other goods offeringhigher margins having bulk purchased fromsuppliers (see wwwinternetinvestorUKcomMarch 2000) Two British examples ofaggregators are BigSave and letsbuyitcomOther examples include Yahoo migratingfrom a search engine to a portal and AOLfrom an Internet service provider to a portallsquolsquoTippingrsquorsquo effects (consequential sales arisingfrom lsquolsquocomfortrsquorsquo generated by the host site) arereinforced by technological lock-in (to forexample Apple brand products) by the cost ofswitching Aggregator sites may offer best-bargain search facilities such as AndersenConsultingrsquos bargain finder for CDs
It is likely that new e-commerce accessplatforms (WAP and i-TV) will result ine-commerce models in which in someinstances content rather than access are paidfor The nature of the content is yet to evolveas is the source (supplier or consumer) ofpayment It is likely that a mixture of modelswill evolve This leads to the presentation of aframework able to make sense and informprocesses of e-commerce innovation anddevelopment This is the framework oflsquolsquosociotechnical constituenciesrsquorsquo and thereason is that in our view the pursuit of any
138
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
139
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
140
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
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expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
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Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
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Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
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Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Emerging e-commerce business models
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Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
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Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
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Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
A fourth section presents three original casestudies of successful SME e-commercebusinesses from West Lothian Scotland Thissection analyses the business models of thesecase studies showing the processes by whichthese have evolved and providing a frameworkthat captures networked e-commerce SMEsrsquobusiness models
A fifth section comes back to thelsquolsquosociotechnical constituenciesrsquorsquo approach inan effort to integrate it with the concept andingredients of business plan Thecombination it is argued lays thefoundations for a dynamic approach tobusiness models for networked SMEs usinge-commerce This approach is termedevolutionary business planning A finalsection draws conclusions for the theory ofe-commerce business models
Selected review of e-commerce businessmodels
For almost 25 years banks and credit cardproviders have used electronic datainterchange as a means to settle exchangebalances between organisations Later low-grade interactive e-commerce kiosks (traveltickets telephones) became generalised Therecent boom in e-commerce is Internetrelated and differs from earlier systems by theextent of its connectivity and richness of itsinteractivity Like all networks offeringpositive externalities the smartness andusefulness of Internet technology grows as thenetwork flourishes Table 1 summarises the
current growth rate and commercialsignificance of the Internet
Defining e-commerceWe define e-commerce as commerciallypurposive systems or processes of searchassessment and transactions including post-transaction interactions enabled andsupported by information andcommunications technologies In a variety ofshapes and ratios e-commerce featuresphysical and virtual constituents and itslifeblood are the communities of customers andsuppliers interconnected and interacting toconstitute markets and supply-demand chainswithin that network This identifiesconnectivity and interactivity as fundamentalfeatures ofe-commerce and as we shall see thispaper will also identify agility as a thirdfundamental feature for e-commerce successThese characteristics are examined in detailbelow Before however it is worth noting thate-commerce can involve interactions withinand between at least three sets of partiesprivate business (B) public administrations(PA) and consumerscitizens (C) Table IIshows a classification of these types ofinteractions Note that the sequencing withintitles is not important thus publicadministration to private business (PA2B)equally represents B2PA Already the PA title isdated since it represents publicly funded not-for-profit service traders Since 20 per cent ofnew employment in Europe is now in theimportant third (or voluntary) sector the PAcategory may require some re-designation
Table I The current growth rate and commercial significance of the Internet
Key facts Details
Globally 16325 million people use theInternet
Of this 114 are from Africa 2655 AsiaPacific 3611 Europe 078
the Middle East 942 North America and 45 million South America
In the US 32 of users have a householdincome of below Euro70000
32 of users have an income above $75000 (compared to 174
of the whole population)
Internet user penetration in Europevaries in a north-south divide
In the larger northern and more affluent countries user rates are
Germany (339) Italy (126) UK (513) France (05) The
Netherlands (426) and Belgium (229) The Scandinavian
countries and Ireland enjoy a higher diffusion rate Detailed
surveys of Internet and e-commerce are carried out regularly in
Ireland aOver-all adoption of Internet use at home is increasing by
12 per annum in Europe
Notes a A survey (httpwwwiiaienew) by the Irish Internet Association found the average age of Internet usersto be 35 75 per cent men equally married or single 60 per cent without children 39 per cent with degrees 65per cent in computerprofessionaleducation occupations 57 per cent using Explorer and 36 per cent Netscape 73per cent MS Windows 45 per cent accessing commercial information ` a few or severalrsquorsquo times a week 29 per centhaving made Internet purchases
131
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Search assessment and transaction ndashdecomposing e-commerce exchangeCommercial activities revolve aroundexchange which may be decomposed intothree elements search assessment andtransaction (SAT) This is also valid fore-commerce In Kinder (2000a) thisapproach is used to analyse Internet-basedrecruitment Search the purposiveprospecting around options meeting aneffective demand involves collecting (at acost) by current or previous study availableoptions their costs and consequences Doingthis in a virtual market-space as opposed to aphysical market-place may prove faster andless expensive for customers A secondelement of exchange is assessment making ajudgement on information and options andtheir consequences As Veblen (1953)established assessment is often sociallypatterned into bounded sociocognitive effortExchange processes are concluded by atransaction a mutual interchange of valuesresulting in a change of ownership or use andany after-care service usually this entails amonetary transfer and may be synchronouswith or before search and assessment Eachelement of the exchange process contains atleast one decision node for the purchaserThis approach is similar to the reach richnessand affiliation process developed by Evansand Wurster (1999) The SATdecomposition of exchange is from a user-perspective focusing upon the exchangerather than the person or organisationsparticipating in it A similar approach to SATis taken in the Web site assessmentsconducted at httpbusinessmediaorg
Table III summarises how the SAT elementsof an e-commerce exchange differ from off-linephysical exchanges Decomposing exchange
into elements can not only assists detailedanalysis of business processes this approachalso highlights the significance of the Internetrsquosconnectivity and interactivity for e-commercebusiness models
Figure 1 represents a simple Internet-basede-tail e-commerce business Like anybusiness its sustainability depends uponincome exceeding costs The main costsunder search are site construction upkeepand marketing for assessment andtransaction the main costs are the productservice distribution administration andsupport (such as call centre)
Some income may be made from advertising(typically very little) and commission for click-throughs however the main income is fromsales and after-sales services The sticky site iswell-designed easily navigable and directsvisitors towards making a purchase (it inspiresconfidence in security and privacy)Conversion ratios vary with product andcustomer base By way of illustration usingFigure 1 if one in ten hits register and one inten of these make a purchase then 1 in a 100hits conclude a transaction Importantdynamics in Internet-based e-commerce e-tailbusinesses are therefore attracting hits(search) keeping interest (assessment) andconcluding sales (transaction) This is ofcourse little different from many off-linebusinesses and supports the view of someauthors that e-commerce models are littledifferent from conventional business models(Treleaven 2000) On the other hand othersbelieve that all business models are nowaffected by e-commerce (DTI 2000) The twoviews may be more complementary thancontradictory as new and establishedorganisations must take account of businessdevelopments associated with e-commerce
Table II Spectrum of e-commerce business transactions
B2B B2C B2PA PA2PA PA2C C2C
Business to
business
Business to
customers
Business to public
administration
Public
administration to
public
administration
Public
administration to
customerscitizens
Direct exchange
between consumers
Growth area
currently
75 per cent of
value of Internet
e-commerce
Mainly rsquo`buyrsquorsquo
some rsquo`barterrsquorsquo
Powerful for
information and
difficult search
assessment
products
Public tendering via
e-commerce also
paying for and
accessing PA
services to business
Joined-up-
government agenda
Also important in
holistic and
integrated
ICT-innovation
planning
E-commerce
e-services and tele-
democracy
Consumer initiated
buys bids and
barters with other
consumers Often
25 per cent
commission
132
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
such as those of intermediationreintermediation virtual supply chains andInternet communities (discussed below)
Interactivity connectivity and agilityAs anticipated in the definition ofe-commerce e-commerce businesses eachhave the three dimensions shown in Table IVThe three variables (interactivity connectivityand agility) have each appeared many times ine-commerce theory Interactivity here refersto virtual and physical and the relationbetween them (the lsquolsquoclick-and-brickrsquorsquobalance) The emphasis here is uponfunctional integration ie qualitativedeployment of knowledge rather than simplythe multiplication of functions Finallyinteractivity here is purposive and not an endto itself Complex knowledge embodiedwithin hidden computers may forcommercial purpose produce as rich aninteraction as a learned e-forum discourse
Just-in-time (JIT) processes were powerfulwithin manufacturing plants however theirpotential was unleashed when inter-organisational relations were driven by JITThe same is with connectivity De-fragmentation of functions previouslyseparated by organisational boundaries is thesimplest way to re-intermediate valuestreams Note that connectivity too ispurposive Breadth of connectivity is notintrinsically of value breadth of connectivitywhich mines a profitable seam in a propitiousvalue stream is significant Connectivity isboth technical and social it entails bothcommunications linkages and knowledgenetworking via inter-organisational links
Nagel and Dove (1992) have used the termagile enterprises to mean a firm with long-term inter-organisational relationships fromwhich they learn in addition to learning fromenvironmental scanning Here the term also
Figure 1 Showing the importance of site ` stickinessrsquorsquo conversion ratios and click-throughs
Table III Showing how e-commerce exchange potentially differs from off-line exchange in search assessment and
transaction elements
Search Assessment Transaction
Wider
Deeper
More thorough
Less expensive
Less time consuming
Segmentation of markets and
focus of searches
Wider benchmarks
Less expensive
Supports cognition
Less time consuming
Degree of interactivity available
during assessment
Speedier
Less expensive
Audit trail of transaction
Use of Net community
Accuracy of digital information and
payment transmissions
Irrelevance of distance
133
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
means having the absorptive capacity andorknowledge generating ability to resourcefullyparticipate in knowledge networks Criticallythe term means the capability and desire tocontinually innovate organisational ortechnological change in order to remainaligned with unfolding businessopportunities Agility is knowledge andaction agilmente
Figure 2 represents these three variablesconstituting a framework of e-commercemodelling in a three dimensional quadrantDegrees of high and low interactivity andconnectivity correlate with degrees of agilityUnlike many models which suggest simplistictypologies and pre-determined actions toachieve each Figure 2 shows the variants ofhighlow interactivity and highlowconnectivity crossing over quadrantboundaries There are two reasons for thisFirst such is the pace of marketorganisational and technological change ine-commerce it would be wrong to suggestanything but the most dynamic model re-configuration and change are part of the lifeexperience of successful e-commercecompanies Second there is no lsquolsquostable
equilibriumrsquorsquo here Even with a particulartime-frame poor interactivity andconnectivity (for example) may be overcomewhere agility (for example) is exceptionallygood As Jim Lieshman the Manager ofLivingston Football Club is fond of sayinglsquolsquooften hard work beats talentrsquorsquo
The successful e-commerce networkedSME is then continually realigning ensembleof social and technological capabilities andcompetencies a prospect far removed fromtraditional conceptualised internal andexternal relations and structures
Business developments in e-commerceCombining the insights of mediation analysiswith patterns of marketing interaction (one tomany many to one and so on) Timmers(1998) proposes the structure of 11 generice-commerce business models shown inFigure 3 and plotted against the variable offunctional integration and degree ofinnovation Timmerrsquos work was based uponempirical data available in the early adoptionphases of e-commerce Although the issue ofdegrees of innovation seems too linealTimmersrsquo methodology remains useful and
Table IV Methodological dimensions of e-commerce
Interactivity Connectivity Agility
Definition Interdependen t mutually
agreed actions in pursuit
of a common goal plusmn the
richness and depth of
shared mutual
advantageous actions
Technological and
organisational openness
and communications plusmn the
breadth of effective
technological and social
networking
To learn from and
contribute to knowledge
networks and to speedily
implement the
organisational and
technological results
Description Effective interactivity
results in deeply integrated
business processes
featuring rich knowledge
flows
Connectivity relevant and
appropriate to fulfilment of
business strategy ie
ability to exploit targeted
value stream mediation
Flexible adaptable and
risk taking in order to
secure the advantages of
early adoption of new
technologies and ways of
working
Operational parameters Efficient and speedy
search assessment and
transaction plusmn purposive
deployment of relevant
knowledge
Enables and supports
search assessment and
transaction with social and
technological
communications and
interaction
Responsiveness to market
and technology changes in
order for product and
processes (especially SAT)
to remain aligned
Qualitative degrees Trade-off between depth
of knowledge interaction
and numbers of people
participating in the
interactions
More focused in B2B and
PA2B than B2C or PA2C plusmn
social and technology
conduits between inside
business and its
constituency
Degree to which
innovativeness is within
the timespace which
aligns and satisfies inter
and intra-organisational
players
134
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
the current paper builds upon his initialcontribution
Our argument is that models ofe-commerce are now more crystallised thanwhen Timmers proposed his multiple andintegrated functions and degree ofinnovativeness quadrant methodology Forexample it appears that use of buy bid orbarter are (mainly) tactical rather thanstrategic decisions and that B2B and PA2Care likely to yield greater value in the short-term than B2C In the following we review
some of the business developments associated
with e-commerce in particular
intermediationre-intermediation virtualsupply chains and Internet communities
IntermediationJust as it was the lsquolsquowhite spacersquorsquo gaps in the old
hierarchic diagrams that were most revealing
so it is the relationships between businesses
which disclose most about business modelsFor some time economists (Kamien and
Schwartz 1982 Fein 1998) have understood
Figure 2 Connectivity interactivity and agility in e-commerce models
Figure 3 Timmersrsquo (1998) 11 generic e-commerce business models
135
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
how particular technologies and powerrelationships give rise to particular structuresof industries Less understood has been whyand in what direction these structures alterlsquolsquoUserrsquorsquo perspectives laid the foundation foranswering these questions Work by vonHippel (1988) and Fleck (1996) closelyaligned with analyses of supplier-producerrelational partnering (Rackham et al 1996)illustrate how particular patterns ofinnovation and particular technologiesintroduce realignments which result in newindustrial structures Hammer and Champyrsquos(1993) work on business process re-engineering (BPR) called attention to thevalue-adding opportunities of de-fragmentingindustrial processes Both Kodama (1992) ingeneral terms followed by Gates (1999) morespecifically migrated the BPR approach to anunderstanding of changed relationshipsbetween proprietors of technologicalknowledge particularly as a result ofinformation and communicationstechnologies (ICTs) being deployed Thenotion of intermediation and its sub-setsdisintermediation and re-intermediation arenow frequently used concepts in analysing thechanging structures of value streams ndash anapproach highlighted by Hagel and Singer(1999) and popularised in managementmedia (for example Business Week 2000)
Figure 4 illustrates in the light dotted line atraditionally sequenced value stream in whichcomponents via sub-assemblers andmanufacturers are distributed and retailedbefore reaching the consumer Arrowed linesconnecting manufacturers and distributorsdirectly to consumers without the mediationof retailers represent disintermediation Thedarker dotted line (manufacturer to e-tailerand e-tailer to consumer) illustrate new pointsof mediation re-intermediation In Figure 4this new mediation point (shown as a greybox) is an e-commerce Web site This may bethe site of a particular e-tailer an aggregatorwho gathers and hosts B2C offers or a portalsite offering click-through to the e-tailerrsquosoffer site
Most value streams are subject to dis-(re)-intermediation via new distribution and saleschannels The difference that e-commercemakes is that without physical proximitybetween buyer and seller products can befound assessed and the transactioncompleted For this reason e-commerce mayenable the speedy and inexpensive
restructuring of mediation patterns Note inthe block-arrows at the top and bottom ofFigure 4 how value shift from beingmanufacturer-centred in physical supplytowards being consumer and their point ofsale centred with e-commerce
Virtual supply chainsThe rapid growth in e-commerce by volumeand value has been and is predicted to beB2B usage Decomposing the e-commerceexchange into search assessment andtransaction elements (categories returned tobelow) Table V gives the reasons why B2Be-commerce has grown faster than the othercategories mentioned above in Table II
From the discussion on intermediation it isclear that the value contained in supply chainsmay be redistributed as a result of usinge-commerce Further e-commerce may resultin enhanced delivery speed (US Express) andlower prices (electronic competitive biddingwhich can (BT example) reduce supply costsby 10 per cent (See The Economist 2000ap 78 which gives the example of Dellrsquoscustomised ordering and flexible scheduling)In addition e-commerce may open newmarkets for information goods and digitaldistribution channels (see Shapiro andVarian 1999)
In addition like any technologicalinnovation there are intended andunintended effects of e-commerce onknowledge flows On the positive sideknowledge flows in e-commerce driven supplychains may increase Virtual integration mayhelp overcome the well-known barriers toknowledge flows found in vertically integratedcompanies Coupled with ICTs e-commercesupports the alignment of knowledge and itsshared use by organisations Outsourcingincreases knowledge flows where the benefitsfrom imported competencies exceeds searchand monitoring costs and the spillover effectinto improved absorptive capacity derivingfrom in-house knowledge sources Coupledwith ICTs e-commerce may support thedevolution of power within organisations andknowledge transfer socialisation cumulationand generation Alternatively where the goalof managing inter-organisational dependencyis limited to cost minimisation (so-called leansupply) particular were associated with trustreducing strategies such as competitivesourcing e-commerce could help reducesupply chain knowledge flows This may be
136
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
particularly so where critical elements ofknowledge remain tacit and are not subject toeasy digital transference In summarye-commerce has the potential to increaseknowledge flows within B2B or B2PA supplychains however these flows could be reducedwhere the technology replaces relationships
B2C and PA2C supply chains gatherimportant marketing knowledge on the maineffect of e-commerce on these supply chainsSpecialist e-tailing is moving into nichesegments (art dealers collectors) in whichsearch speed and cost information retrievaland assessment and credit-based transaction
Table V Reasons why B2BPA2B may be more significant than B2CPA2C categorised by the three elements of a
completed exchange
Search Organisations generally have computers and face less entry costs to e-commerce than
individuals
Large organisations are able to dictate the use exchange techniques
Transaction speed is likely to be more important to organisations
Assessment Organisations have patterns of buyingselling behaviour These patterns engender trust over
payment delivery times and quality assurance
Order-tracking costs are reduced where real-time information is available on the Internet these
can be more significant for organisations than individuals
Particularly organisations operating in global markets
Just-in-time reduces the costs of stock holding E-commerce can increase these savings where it
enables single-sourcing to replace multiple-sourcing
Transaction Organisationsrsquo volumes are larger than those of individuals making minor percentage savings of
greater monetary significance
Significant savings may accrue to organisations avoiding tax or the disbenefits of currency
fluctuations by purchasingselling using the Internet
Transaction cost savings for organisations are greater than for individuals especially where
auctions are used
Figure 4 Mediation disintermediation and re-intermediation
137
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
completion are important Physical retailinguses a hold and sell supply chain architecturewhereas commodity product e-tailers(CDNow Amazon) held no stock preferringto lsquolsquopick-and-packrsquorsquo using intermediary ormanufacturer stocks Often early e-tailcommodity product vendors preferred thisapproach which reverses the traditional buy-sell stock holding model in favour of a sell-buy-fulfil approach in which no stock is heldThis is possible either because their product isan intangible service (travel tourismbanking) because it is digital andimmediately reproducible at little cost (musicinformation money) Stocks of goods wereheld for these early e-tailers and the costs ofstock hold borne by outsourced distributorswho welcomed a high volume of business forlow-margin products PC e-tailers (Dell) hadthe alternative approach of holding (orlocating in proximate satellite stores atsupplier expense) sufficient stock to meetcustomised orders readily whilst other stockwas pulled as a result of orders Physicallsquolsquoaggregatorsrsquorsquo of commodity products (suchas clothing and food) offer a single source of adiverse range of products necessitating theholding of stock to service their physical andvirtual sales channels and distribution to thecustomers of each Thus lsquolsquoclick-and-brickrsquorsquomodels merge physical and virtual productoffers A major issue for e-tailers isascertaining the optimum mix between thelsquolsquoclickrsquorsquo and the lsquolsquobrickrsquorsquo from the viewpoint ofminimising the costs of stock holding[1]
Internet communitiesCommunities in everyday parlance arebonded groups sharing a common goal (lsquolsquohowwe see ourselvesrsquorsquo) and a common perspectiveof non-members (lsquolsquohow we would like othersto see usrsquorsquo) These common goals often begetsolidarity going far beyond instrumentalassociation Armstrong and Hagel (1996)argue that communities can empowerconsumers vis-a-vis sellers by generatingcriticism whilst at the same time onlinecommunities are an opportunity to exploitbrand loyalty[2] Communities includeinformal communities that may give rise toproduct recommendations sites offeringsome added value to visitors who click-through to sales sites or e-tailerrsquos sites whichover time have generated trust from acommunity of users Building an onlinecommunity of shoppers may be easier when
as the physical products hold symbolicsignificance (see Bocock 1993) wherecustomers are captive (bank) where anattractive and information-rich site engenderslsquolsquostickinessrsquorsquo[3] or where the site facilitatessearch and assessment of complex or over-loaded information (tourism travel)
Authors such as Alstyne (1997) expressconcern that physical communities (includingtrading communities) may be broken down asa result of atomised living in cyberspaceRayport and Sviokla (1995) interpret thesame trends as positive for e-commercearguing that new trading communitiesdevelop characterised by virtual value chainsWork by Klein (1996) on the Electronic MallBodensee in Germany was an earlydemonstration of a B2B trading communityArmstrong and Hagelrsquos (1996) view is thatInternet-based communities are a newbusiness model They argue that communitiesof interest fantasy relationship andtransactions ndash this is the Net-networking viewdiscussed in the introduction to the currentpaper So-called aggregators attractconsumers to a site on the basis of low-costgoods hoping for site-stickiness ndash theconsumers will buy other goods offeringhigher margins having bulk purchased fromsuppliers (see wwwinternetinvestorUKcomMarch 2000) Two British examples ofaggregators are BigSave and letsbuyitcomOther examples include Yahoo migratingfrom a search engine to a portal and AOLfrom an Internet service provider to a portallsquolsquoTippingrsquorsquo effects (consequential sales arisingfrom lsquolsquocomfortrsquorsquo generated by the host site) arereinforced by technological lock-in (to forexample Apple brand products) by the cost ofswitching Aggregator sites may offer best-bargain search facilities such as AndersenConsultingrsquos bargain finder for CDs
It is likely that new e-commerce accessplatforms (WAP and i-TV) will result ine-commerce models in which in someinstances content rather than access are paidfor The nature of the content is yet to evolveas is the source (supplier or consumer) ofpayment It is likely that a mixture of modelswill evolve This leads to the presentation of aframework able to make sense and informprocesses of e-commerce innovation anddevelopment This is the framework oflsquolsquosociotechnical constituenciesrsquorsquo and thereason is that in our view the pursuit of any
138
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
139
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
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Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
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Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
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Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Search assessment and transaction ndashdecomposing e-commerce exchangeCommercial activities revolve aroundexchange which may be decomposed intothree elements search assessment andtransaction (SAT) This is also valid fore-commerce In Kinder (2000a) thisapproach is used to analyse Internet-basedrecruitment Search the purposiveprospecting around options meeting aneffective demand involves collecting (at acost) by current or previous study availableoptions their costs and consequences Doingthis in a virtual market-space as opposed to aphysical market-place may prove faster andless expensive for customers A secondelement of exchange is assessment making ajudgement on information and options andtheir consequences As Veblen (1953)established assessment is often sociallypatterned into bounded sociocognitive effortExchange processes are concluded by atransaction a mutual interchange of valuesresulting in a change of ownership or use andany after-care service usually this entails amonetary transfer and may be synchronouswith or before search and assessment Eachelement of the exchange process contains atleast one decision node for the purchaserThis approach is similar to the reach richnessand affiliation process developed by Evansand Wurster (1999) The SATdecomposition of exchange is from a user-perspective focusing upon the exchangerather than the person or organisationsparticipating in it A similar approach to SATis taken in the Web site assessmentsconducted at httpbusinessmediaorg
Table III summarises how the SAT elementsof an e-commerce exchange differ from off-linephysical exchanges Decomposing exchange
into elements can not only assists detailedanalysis of business processes this approachalso highlights the significance of the Internetrsquosconnectivity and interactivity for e-commercebusiness models
Figure 1 represents a simple Internet-basede-tail e-commerce business Like anybusiness its sustainability depends uponincome exceeding costs The main costsunder search are site construction upkeepand marketing for assessment andtransaction the main costs are the productservice distribution administration andsupport (such as call centre)
Some income may be made from advertising(typically very little) and commission for click-throughs however the main income is fromsales and after-sales services The sticky site iswell-designed easily navigable and directsvisitors towards making a purchase (it inspiresconfidence in security and privacy)Conversion ratios vary with product andcustomer base By way of illustration usingFigure 1 if one in ten hits register and one inten of these make a purchase then 1 in a 100hits conclude a transaction Importantdynamics in Internet-based e-commerce e-tailbusinesses are therefore attracting hits(search) keeping interest (assessment) andconcluding sales (transaction) This is ofcourse little different from many off-linebusinesses and supports the view of someauthors that e-commerce models are littledifferent from conventional business models(Treleaven 2000) On the other hand othersbelieve that all business models are nowaffected by e-commerce (DTI 2000) The twoviews may be more complementary thancontradictory as new and establishedorganisations must take account of businessdevelopments associated with e-commerce
Table II Spectrum of e-commerce business transactions
B2B B2C B2PA PA2PA PA2C C2C
Business to
business
Business to
customers
Business to public
administration
Public
administration to
public
administration
Public
administration to
customerscitizens
Direct exchange
between consumers
Growth area
currently
75 per cent of
value of Internet
e-commerce
Mainly rsquo`buyrsquorsquo
some rsquo`barterrsquorsquo
Powerful for
information and
difficult search
assessment
products
Public tendering via
e-commerce also
paying for and
accessing PA
services to business
Joined-up-
government agenda
Also important in
holistic and
integrated
ICT-innovation
planning
E-commerce
e-services and tele-
democracy
Consumer initiated
buys bids and
barters with other
consumers Often
25 per cent
commission
132
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
such as those of intermediationreintermediation virtual supply chains andInternet communities (discussed below)
Interactivity connectivity and agilityAs anticipated in the definition ofe-commerce e-commerce businesses eachhave the three dimensions shown in Table IVThe three variables (interactivity connectivityand agility) have each appeared many times ine-commerce theory Interactivity here refersto virtual and physical and the relationbetween them (the lsquolsquoclick-and-brickrsquorsquobalance) The emphasis here is uponfunctional integration ie qualitativedeployment of knowledge rather than simplythe multiplication of functions Finallyinteractivity here is purposive and not an endto itself Complex knowledge embodiedwithin hidden computers may forcommercial purpose produce as rich aninteraction as a learned e-forum discourse
Just-in-time (JIT) processes were powerfulwithin manufacturing plants however theirpotential was unleashed when inter-organisational relations were driven by JITThe same is with connectivity De-fragmentation of functions previouslyseparated by organisational boundaries is thesimplest way to re-intermediate valuestreams Note that connectivity too ispurposive Breadth of connectivity is notintrinsically of value breadth of connectivitywhich mines a profitable seam in a propitiousvalue stream is significant Connectivity isboth technical and social it entails bothcommunications linkages and knowledgenetworking via inter-organisational links
Nagel and Dove (1992) have used the termagile enterprises to mean a firm with long-term inter-organisational relationships fromwhich they learn in addition to learning fromenvironmental scanning Here the term also
Figure 1 Showing the importance of site ` stickinessrsquorsquo conversion ratios and click-throughs
Table III Showing how e-commerce exchange potentially differs from off-line exchange in search assessment and
transaction elements
Search Assessment Transaction
Wider
Deeper
More thorough
Less expensive
Less time consuming
Segmentation of markets and
focus of searches
Wider benchmarks
Less expensive
Supports cognition
Less time consuming
Degree of interactivity available
during assessment
Speedier
Less expensive
Audit trail of transaction
Use of Net community
Accuracy of digital information and
payment transmissions
Irrelevance of distance
133
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
means having the absorptive capacity andorknowledge generating ability to resourcefullyparticipate in knowledge networks Criticallythe term means the capability and desire tocontinually innovate organisational ortechnological change in order to remainaligned with unfolding businessopportunities Agility is knowledge andaction agilmente
Figure 2 represents these three variablesconstituting a framework of e-commercemodelling in a three dimensional quadrantDegrees of high and low interactivity andconnectivity correlate with degrees of agilityUnlike many models which suggest simplistictypologies and pre-determined actions toachieve each Figure 2 shows the variants ofhighlow interactivity and highlowconnectivity crossing over quadrantboundaries There are two reasons for thisFirst such is the pace of marketorganisational and technological change ine-commerce it would be wrong to suggestanything but the most dynamic model re-configuration and change are part of the lifeexperience of successful e-commercecompanies Second there is no lsquolsquostable
equilibriumrsquorsquo here Even with a particulartime-frame poor interactivity andconnectivity (for example) may be overcomewhere agility (for example) is exceptionallygood As Jim Lieshman the Manager ofLivingston Football Club is fond of sayinglsquolsquooften hard work beats talentrsquorsquo
The successful e-commerce networkedSME is then continually realigning ensembleof social and technological capabilities andcompetencies a prospect far removed fromtraditional conceptualised internal andexternal relations and structures
Business developments in e-commerceCombining the insights of mediation analysiswith patterns of marketing interaction (one tomany many to one and so on) Timmers(1998) proposes the structure of 11 generice-commerce business models shown inFigure 3 and plotted against the variable offunctional integration and degree ofinnovation Timmerrsquos work was based uponempirical data available in the early adoptionphases of e-commerce Although the issue ofdegrees of innovation seems too linealTimmersrsquo methodology remains useful and
Table IV Methodological dimensions of e-commerce
Interactivity Connectivity Agility
Definition Interdependen t mutually
agreed actions in pursuit
of a common goal plusmn the
richness and depth of
shared mutual
advantageous actions
Technological and
organisational openness
and communications plusmn the
breadth of effective
technological and social
networking
To learn from and
contribute to knowledge
networks and to speedily
implement the
organisational and
technological results
Description Effective interactivity
results in deeply integrated
business processes
featuring rich knowledge
flows
Connectivity relevant and
appropriate to fulfilment of
business strategy ie
ability to exploit targeted
value stream mediation
Flexible adaptable and
risk taking in order to
secure the advantages of
early adoption of new
technologies and ways of
working
Operational parameters Efficient and speedy
search assessment and
transaction plusmn purposive
deployment of relevant
knowledge
Enables and supports
search assessment and
transaction with social and
technological
communications and
interaction
Responsiveness to market
and technology changes in
order for product and
processes (especially SAT)
to remain aligned
Qualitative degrees Trade-off between depth
of knowledge interaction
and numbers of people
participating in the
interactions
More focused in B2B and
PA2B than B2C or PA2C plusmn
social and technology
conduits between inside
business and its
constituency
Degree to which
innovativeness is within
the timespace which
aligns and satisfies inter
and intra-organisational
players
134
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
the current paper builds upon his initialcontribution
Our argument is that models ofe-commerce are now more crystallised thanwhen Timmers proposed his multiple andintegrated functions and degree ofinnovativeness quadrant methodology Forexample it appears that use of buy bid orbarter are (mainly) tactical rather thanstrategic decisions and that B2B and PA2Care likely to yield greater value in the short-term than B2C In the following we review
some of the business developments associated
with e-commerce in particular
intermediationre-intermediation virtualsupply chains and Internet communities
IntermediationJust as it was the lsquolsquowhite spacersquorsquo gaps in the old
hierarchic diagrams that were most revealing
so it is the relationships between businesses
which disclose most about business modelsFor some time economists (Kamien and
Schwartz 1982 Fein 1998) have understood
Figure 2 Connectivity interactivity and agility in e-commerce models
Figure 3 Timmersrsquo (1998) 11 generic e-commerce business models
135
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
how particular technologies and powerrelationships give rise to particular structuresof industries Less understood has been whyand in what direction these structures alterlsquolsquoUserrsquorsquo perspectives laid the foundation foranswering these questions Work by vonHippel (1988) and Fleck (1996) closelyaligned with analyses of supplier-producerrelational partnering (Rackham et al 1996)illustrate how particular patterns ofinnovation and particular technologiesintroduce realignments which result in newindustrial structures Hammer and Champyrsquos(1993) work on business process re-engineering (BPR) called attention to thevalue-adding opportunities of de-fragmentingindustrial processes Both Kodama (1992) ingeneral terms followed by Gates (1999) morespecifically migrated the BPR approach to anunderstanding of changed relationshipsbetween proprietors of technologicalknowledge particularly as a result ofinformation and communicationstechnologies (ICTs) being deployed Thenotion of intermediation and its sub-setsdisintermediation and re-intermediation arenow frequently used concepts in analysing thechanging structures of value streams ndash anapproach highlighted by Hagel and Singer(1999) and popularised in managementmedia (for example Business Week 2000)
Figure 4 illustrates in the light dotted line atraditionally sequenced value stream in whichcomponents via sub-assemblers andmanufacturers are distributed and retailedbefore reaching the consumer Arrowed linesconnecting manufacturers and distributorsdirectly to consumers without the mediationof retailers represent disintermediation Thedarker dotted line (manufacturer to e-tailerand e-tailer to consumer) illustrate new pointsof mediation re-intermediation In Figure 4this new mediation point (shown as a greybox) is an e-commerce Web site This may bethe site of a particular e-tailer an aggregatorwho gathers and hosts B2C offers or a portalsite offering click-through to the e-tailerrsquosoffer site
Most value streams are subject to dis-(re)-intermediation via new distribution and saleschannels The difference that e-commercemakes is that without physical proximitybetween buyer and seller products can befound assessed and the transactioncompleted For this reason e-commerce mayenable the speedy and inexpensive
restructuring of mediation patterns Note inthe block-arrows at the top and bottom ofFigure 4 how value shift from beingmanufacturer-centred in physical supplytowards being consumer and their point ofsale centred with e-commerce
Virtual supply chainsThe rapid growth in e-commerce by volumeand value has been and is predicted to beB2B usage Decomposing the e-commerceexchange into search assessment andtransaction elements (categories returned tobelow) Table V gives the reasons why B2Be-commerce has grown faster than the othercategories mentioned above in Table II
From the discussion on intermediation it isclear that the value contained in supply chainsmay be redistributed as a result of usinge-commerce Further e-commerce may resultin enhanced delivery speed (US Express) andlower prices (electronic competitive biddingwhich can (BT example) reduce supply costsby 10 per cent (See The Economist 2000ap 78 which gives the example of Dellrsquoscustomised ordering and flexible scheduling)In addition e-commerce may open newmarkets for information goods and digitaldistribution channels (see Shapiro andVarian 1999)
In addition like any technologicalinnovation there are intended andunintended effects of e-commerce onknowledge flows On the positive sideknowledge flows in e-commerce driven supplychains may increase Virtual integration mayhelp overcome the well-known barriers toknowledge flows found in vertically integratedcompanies Coupled with ICTs e-commercesupports the alignment of knowledge and itsshared use by organisations Outsourcingincreases knowledge flows where the benefitsfrom imported competencies exceeds searchand monitoring costs and the spillover effectinto improved absorptive capacity derivingfrom in-house knowledge sources Coupledwith ICTs e-commerce may support thedevolution of power within organisations andknowledge transfer socialisation cumulationand generation Alternatively where the goalof managing inter-organisational dependencyis limited to cost minimisation (so-called leansupply) particular were associated with trustreducing strategies such as competitivesourcing e-commerce could help reducesupply chain knowledge flows This may be
136
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
particularly so where critical elements ofknowledge remain tacit and are not subject toeasy digital transference In summarye-commerce has the potential to increaseknowledge flows within B2B or B2PA supplychains however these flows could be reducedwhere the technology replaces relationships
B2C and PA2C supply chains gatherimportant marketing knowledge on the maineffect of e-commerce on these supply chainsSpecialist e-tailing is moving into nichesegments (art dealers collectors) in whichsearch speed and cost information retrievaland assessment and credit-based transaction
Table V Reasons why B2BPA2B may be more significant than B2CPA2C categorised by the three elements of a
completed exchange
Search Organisations generally have computers and face less entry costs to e-commerce than
individuals
Large organisations are able to dictate the use exchange techniques
Transaction speed is likely to be more important to organisations
Assessment Organisations have patterns of buyingselling behaviour These patterns engender trust over
payment delivery times and quality assurance
Order-tracking costs are reduced where real-time information is available on the Internet these
can be more significant for organisations than individuals
Particularly organisations operating in global markets
Just-in-time reduces the costs of stock holding E-commerce can increase these savings where it
enables single-sourcing to replace multiple-sourcing
Transaction Organisationsrsquo volumes are larger than those of individuals making minor percentage savings of
greater monetary significance
Significant savings may accrue to organisations avoiding tax or the disbenefits of currency
fluctuations by purchasingselling using the Internet
Transaction cost savings for organisations are greater than for individuals especially where
auctions are used
Figure 4 Mediation disintermediation and re-intermediation
137
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
completion are important Physical retailinguses a hold and sell supply chain architecturewhereas commodity product e-tailers(CDNow Amazon) held no stock preferringto lsquolsquopick-and-packrsquorsquo using intermediary ormanufacturer stocks Often early e-tailcommodity product vendors preferred thisapproach which reverses the traditional buy-sell stock holding model in favour of a sell-buy-fulfil approach in which no stock is heldThis is possible either because their product isan intangible service (travel tourismbanking) because it is digital andimmediately reproducible at little cost (musicinformation money) Stocks of goods wereheld for these early e-tailers and the costs ofstock hold borne by outsourced distributorswho welcomed a high volume of business forlow-margin products PC e-tailers (Dell) hadthe alternative approach of holding (orlocating in proximate satellite stores atsupplier expense) sufficient stock to meetcustomised orders readily whilst other stockwas pulled as a result of orders Physicallsquolsquoaggregatorsrsquorsquo of commodity products (suchas clothing and food) offer a single source of adiverse range of products necessitating theholding of stock to service their physical andvirtual sales channels and distribution to thecustomers of each Thus lsquolsquoclick-and-brickrsquorsquomodels merge physical and virtual productoffers A major issue for e-tailers isascertaining the optimum mix between thelsquolsquoclickrsquorsquo and the lsquolsquobrickrsquorsquo from the viewpoint ofminimising the costs of stock holding[1]
Internet communitiesCommunities in everyday parlance arebonded groups sharing a common goal (lsquolsquohowwe see ourselvesrsquorsquo) and a common perspectiveof non-members (lsquolsquohow we would like othersto see usrsquorsquo) These common goals often begetsolidarity going far beyond instrumentalassociation Armstrong and Hagel (1996)argue that communities can empowerconsumers vis-a-vis sellers by generatingcriticism whilst at the same time onlinecommunities are an opportunity to exploitbrand loyalty[2] Communities includeinformal communities that may give rise toproduct recommendations sites offeringsome added value to visitors who click-through to sales sites or e-tailerrsquos sites whichover time have generated trust from acommunity of users Building an onlinecommunity of shoppers may be easier when
as the physical products hold symbolicsignificance (see Bocock 1993) wherecustomers are captive (bank) where anattractive and information-rich site engenderslsquolsquostickinessrsquorsquo[3] or where the site facilitatessearch and assessment of complex or over-loaded information (tourism travel)
Authors such as Alstyne (1997) expressconcern that physical communities (includingtrading communities) may be broken down asa result of atomised living in cyberspaceRayport and Sviokla (1995) interpret thesame trends as positive for e-commercearguing that new trading communitiesdevelop characterised by virtual value chainsWork by Klein (1996) on the Electronic MallBodensee in Germany was an earlydemonstration of a B2B trading communityArmstrong and Hagelrsquos (1996) view is thatInternet-based communities are a newbusiness model They argue that communitiesof interest fantasy relationship andtransactions ndash this is the Net-networking viewdiscussed in the introduction to the currentpaper So-called aggregators attractconsumers to a site on the basis of low-costgoods hoping for site-stickiness ndash theconsumers will buy other goods offeringhigher margins having bulk purchased fromsuppliers (see wwwinternetinvestorUKcomMarch 2000) Two British examples ofaggregators are BigSave and letsbuyitcomOther examples include Yahoo migratingfrom a search engine to a portal and AOLfrom an Internet service provider to a portallsquolsquoTippingrsquorsquo effects (consequential sales arisingfrom lsquolsquocomfortrsquorsquo generated by the host site) arereinforced by technological lock-in (to forexample Apple brand products) by the cost ofswitching Aggregator sites may offer best-bargain search facilities such as AndersenConsultingrsquos bargain finder for CDs
It is likely that new e-commerce accessplatforms (WAP and i-TV) will result ine-commerce models in which in someinstances content rather than access are paidfor The nature of the content is yet to evolveas is the source (supplier or consumer) ofpayment It is likely that a mixture of modelswill evolve This leads to the presentation of aframework able to make sense and informprocesses of e-commerce innovation anddevelopment This is the framework oflsquolsquosociotechnical constituenciesrsquorsquo and thereason is that in our view the pursuit of any
138
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
139
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
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Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
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Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
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Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
such as those of intermediationreintermediation virtual supply chains andInternet communities (discussed below)
Interactivity connectivity and agilityAs anticipated in the definition ofe-commerce e-commerce businesses eachhave the three dimensions shown in Table IVThe three variables (interactivity connectivityand agility) have each appeared many times ine-commerce theory Interactivity here refersto virtual and physical and the relationbetween them (the lsquolsquoclick-and-brickrsquorsquobalance) The emphasis here is uponfunctional integration ie qualitativedeployment of knowledge rather than simplythe multiplication of functions Finallyinteractivity here is purposive and not an endto itself Complex knowledge embodiedwithin hidden computers may forcommercial purpose produce as rich aninteraction as a learned e-forum discourse
Just-in-time (JIT) processes were powerfulwithin manufacturing plants however theirpotential was unleashed when inter-organisational relations were driven by JITThe same is with connectivity De-fragmentation of functions previouslyseparated by organisational boundaries is thesimplest way to re-intermediate valuestreams Note that connectivity too ispurposive Breadth of connectivity is notintrinsically of value breadth of connectivitywhich mines a profitable seam in a propitiousvalue stream is significant Connectivity isboth technical and social it entails bothcommunications linkages and knowledgenetworking via inter-organisational links
Nagel and Dove (1992) have used the termagile enterprises to mean a firm with long-term inter-organisational relationships fromwhich they learn in addition to learning fromenvironmental scanning Here the term also
Figure 1 Showing the importance of site ` stickinessrsquorsquo conversion ratios and click-throughs
Table III Showing how e-commerce exchange potentially differs from off-line exchange in search assessment and
transaction elements
Search Assessment Transaction
Wider
Deeper
More thorough
Less expensive
Less time consuming
Segmentation of markets and
focus of searches
Wider benchmarks
Less expensive
Supports cognition
Less time consuming
Degree of interactivity available
during assessment
Speedier
Less expensive
Audit trail of transaction
Use of Net community
Accuracy of digital information and
payment transmissions
Irrelevance of distance
133
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
means having the absorptive capacity andorknowledge generating ability to resourcefullyparticipate in knowledge networks Criticallythe term means the capability and desire tocontinually innovate organisational ortechnological change in order to remainaligned with unfolding businessopportunities Agility is knowledge andaction agilmente
Figure 2 represents these three variablesconstituting a framework of e-commercemodelling in a three dimensional quadrantDegrees of high and low interactivity andconnectivity correlate with degrees of agilityUnlike many models which suggest simplistictypologies and pre-determined actions toachieve each Figure 2 shows the variants ofhighlow interactivity and highlowconnectivity crossing over quadrantboundaries There are two reasons for thisFirst such is the pace of marketorganisational and technological change ine-commerce it would be wrong to suggestanything but the most dynamic model re-configuration and change are part of the lifeexperience of successful e-commercecompanies Second there is no lsquolsquostable
equilibriumrsquorsquo here Even with a particulartime-frame poor interactivity andconnectivity (for example) may be overcomewhere agility (for example) is exceptionallygood As Jim Lieshman the Manager ofLivingston Football Club is fond of sayinglsquolsquooften hard work beats talentrsquorsquo
The successful e-commerce networkedSME is then continually realigning ensembleof social and technological capabilities andcompetencies a prospect far removed fromtraditional conceptualised internal andexternal relations and structures
Business developments in e-commerceCombining the insights of mediation analysiswith patterns of marketing interaction (one tomany many to one and so on) Timmers(1998) proposes the structure of 11 generice-commerce business models shown inFigure 3 and plotted against the variable offunctional integration and degree ofinnovation Timmerrsquos work was based uponempirical data available in the early adoptionphases of e-commerce Although the issue ofdegrees of innovation seems too linealTimmersrsquo methodology remains useful and
Table IV Methodological dimensions of e-commerce
Interactivity Connectivity Agility
Definition Interdependen t mutually
agreed actions in pursuit
of a common goal plusmn the
richness and depth of
shared mutual
advantageous actions
Technological and
organisational openness
and communications plusmn the
breadth of effective
technological and social
networking
To learn from and
contribute to knowledge
networks and to speedily
implement the
organisational and
technological results
Description Effective interactivity
results in deeply integrated
business processes
featuring rich knowledge
flows
Connectivity relevant and
appropriate to fulfilment of
business strategy ie
ability to exploit targeted
value stream mediation
Flexible adaptable and
risk taking in order to
secure the advantages of
early adoption of new
technologies and ways of
working
Operational parameters Efficient and speedy
search assessment and
transaction plusmn purposive
deployment of relevant
knowledge
Enables and supports
search assessment and
transaction with social and
technological
communications and
interaction
Responsiveness to market
and technology changes in
order for product and
processes (especially SAT)
to remain aligned
Qualitative degrees Trade-off between depth
of knowledge interaction
and numbers of people
participating in the
interactions
More focused in B2B and
PA2B than B2C or PA2C plusmn
social and technology
conduits between inside
business and its
constituency
Degree to which
innovativeness is within
the timespace which
aligns and satisfies inter
and intra-organisational
players
134
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
the current paper builds upon his initialcontribution
Our argument is that models ofe-commerce are now more crystallised thanwhen Timmers proposed his multiple andintegrated functions and degree ofinnovativeness quadrant methodology Forexample it appears that use of buy bid orbarter are (mainly) tactical rather thanstrategic decisions and that B2B and PA2Care likely to yield greater value in the short-term than B2C In the following we review
some of the business developments associated
with e-commerce in particular
intermediationre-intermediation virtualsupply chains and Internet communities
IntermediationJust as it was the lsquolsquowhite spacersquorsquo gaps in the old
hierarchic diagrams that were most revealing
so it is the relationships between businesses
which disclose most about business modelsFor some time economists (Kamien and
Schwartz 1982 Fein 1998) have understood
Figure 2 Connectivity interactivity and agility in e-commerce models
Figure 3 Timmersrsquo (1998) 11 generic e-commerce business models
135
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
how particular technologies and powerrelationships give rise to particular structuresof industries Less understood has been whyand in what direction these structures alterlsquolsquoUserrsquorsquo perspectives laid the foundation foranswering these questions Work by vonHippel (1988) and Fleck (1996) closelyaligned with analyses of supplier-producerrelational partnering (Rackham et al 1996)illustrate how particular patterns ofinnovation and particular technologiesintroduce realignments which result in newindustrial structures Hammer and Champyrsquos(1993) work on business process re-engineering (BPR) called attention to thevalue-adding opportunities of de-fragmentingindustrial processes Both Kodama (1992) ingeneral terms followed by Gates (1999) morespecifically migrated the BPR approach to anunderstanding of changed relationshipsbetween proprietors of technologicalknowledge particularly as a result ofinformation and communicationstechnologies (ICTs) being deployed Thenotion of intermediation and its sub-setsdisintermediation and re-intermediation arenow frequently used concepts in analysing thechanging structures of value streams ndash anapproach highlighted by Hagel and Singer(1999) and popularised in managementmedia (for example Business Week 2000)
Figure 4 illustrates in the light dotted line atraditionally sequenced value stream in whichcomponents via sub-assemblers andmanufacturers are distributed and retailedbefore reaching the consumer Arrowed linesconnecting manufacturers and distributorsdirectly to consumers without the mediationof retailers represent disintermediation Thedarker dotted line (manufacturer to e-tailerand e-tailer to consumer) illustrate new pointsof mediation re-intermediation In Figure 4this new mediation point (shown as a greybox) is an e-commerce Web site This may bethe site of a particular e-tailer an aggregatorwho gathers and hosts B2C offers or a portalsite offering click-through to the e-tailerrsquosoffer site
Most value streams are subject to dis-(re)-intermediation via new distribution and saleschannels The difference that e-commercemakes is that without physical proximitybetween buyer and seller products can befound assessed and the transactioncompleted For this reason e-commerce mayenable the speedy and inexpensive
restructuring of mediation patterns Note inthe block-arrows at the top and bottom ofFigure 4 how value shift from beingmanufacturer-centred in physical supplytowards being consumer and their point ofsale centred with e-commerce
Virtual supply chainsThe rapid growth in e-commerce by volumeand value has been and is predicted to beB2B usage Decomposing the e-commerceexchange into search assessment andtransaction elements (categories returned tobelow) Table V gives the reasons why B2Be-commerce has grown faster than the othercategories mentioned above in Table II
From the discussion on intermediation it isclear that the value contained in supply chainsmay be redistributed as a result of usinge-commerce Further e-commerce may resultin enhanced delivery speed (US Express) andlower prices (electronic competitive biddingwhich can (BT example) reduce supply costsby 10 per cent (See The Economist 2000ap 78 which gives the example of Dellrsquoscustomised ordering and flexible scheduling)In addition e-commerce may open newmarkets for information goods and digitaldistribution channels (see Shapiro andVarian 1999)
In addition like any technologicalinnovation there are intended andunintended effects of e-commerce onknowledge flows On the positive sideknowledge flows in e-commerce driven supplychains may increase Virtual integration mayhelp overcome the well-known barriers toknowledge flows found in vertically integratedcompanies Coupled with ICTs e-commercesupports the alignment of knowledge and itsshared use by organisations Outsourcingincreases knowledge flows where the benefitsfrom imported competencies exceeds searchand monitoring costs and the spillover effectinto improved absorptive capacity derivingfrom in-house knowledge sources Coupledwith ICTs e-commerce may support thedevolution of power within organisations andknowledge transfer socialisation cumulationand generation Alternatively where the goalof managing inter-organisational dependencyis limited to cost minimisation (so-called leansupply) particular were associated with trustreducing strategies such as competitivesourcing e-commerce could help reducesupply chain knowledge flows This may be
136
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
particularly so where critical elements ofknowledge remain tacit and are not subject toeasy digital transference In summarye-commerce has the potential to increaseknowledge flows within B2B or B2PA supplychains however these flows could be reducedwhere the technology replaces relationships
B2C and PA2C supply chains gatherimportant marketing knowledge on the maineffect of e-commerce on these supply chainsSpecialist e-tailing is moving into nichesegments (art dealers collectors) in whichsearch speed and cost information retrievaland assessment and credit-based transaction
Table V Reasons why B2BPA2B may be more significant than B2CPA2C categorised by the three elements of a
completed exchange
Search Organisations generally have computers and face less entry costs to e-commerce than
individuals
Large organisations are able to dictate the use exchange techniques
Transaction speed is likely to be more important to organisations
Assessment Organisations have patterns of buyingselling behaviour These patterns engender trust over
payment delivery times and quality assurance
Order-tracking costs are reduced where real-time information is available on the Internet these
can be more significant for organisations than individuals
Particularly organisations operating in global markets
Just-in-time reduces the costs of stock holding E-commerce can increase these savings where it
enables single-sourcing to replace multiple-sourcing
Transaction Organisationsrsquo volumes are larger than those of individuals making minor percentage savings of
greater monetary significance
Significant savings may accrue to organisations avoiding tax or the disbenefits of currency
fluctuations by purchasingselling using the Internet
Transaction cost savings for organisations are greater than for individuals especially where
auctions are used
Figure 4 Mediation disintermediation and re-intermediation
137
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
completion are important Physical retailinguses a hold and sell supply chain architecturewhereas commodity product e-tailers(CDNow Amazon) held no stock preferringto lsquolsquopick-and-packrsquorsquo using intermediary ormanufacturer stocks Often early e-tailcommodity product vendors preferred thisapproach which reverses the traditional buy-sell stock holding model in favour of a sell-buy-fulfil approach in which no stock is heldThis is possible either because their product isan intangible service (travel tourismbanking) because it is digital andimmediately reproducible at little cost (musicinformation money) Stocks of goods wereheld for these early e-tailers and the costs ofstock hold borne by outsourced distributorswho welcomed a high volume of business forlow-margin products PC e-tailers (Dell) hadthe alternative approach of holding (orlocating in proximate satellite stores atsupplier expense) sufficient stock to meetcustomised orders readily whilst other stockwas pulled as a result of orders Physicallsquolsquoaggregatorsrsquorsquo of commodity products (suchas clothing and food) offer a single source of adiverse range of products necessitating theholding of stock to service their physical andvirtual sales channels and distribution to thecustomers of each Thus lsquolsquoclick-and-brickrsquorsquomodels merge physical and virtual productoffers A major issue for e-tailers isascertaining the optimum mix between thelsquolsquoclickrsquorsquo and the lsquolsquobrickrsquorsquo from the viewpoint ofminimising the costs of stock holding[1]
Internet communitiesCommunities in everyday parlance arebonded groups sharing a common goal (lsquolsquohowwe see ourselvesrsquorsquo) and a common perspectiveof non-members (lsquolsquohow we would like othersto see usrsquorsquo) These common goals often begetsolidarity going far beyond instrumentalassociation Armstrong and Hagel (1996)argue that communities can empowerconsumers vis-a-vis sellers by generatingcriticism whilst at the same time onlinecommunities are an opportunity to exploitbrand loyalty[2] Communities includeinformal communities that may give rise toproduct recommendations sites offeringsome added value to visitors who click-through to sales sites or e-tailerrsquos sites whichover time have generated trust from acommunity of users Building an onlinecommunity of shoppers may be easier when
as the physical products hold symbolicsignificance (see Bocock 1993) wherecustomers are captive (bank) where anattractive and information-rich site engenderslsquolsquostickinessrsquorsquo[3] or where the site facilitatessearch and assessment of complex or over-loaded information (tourism travel)
Authors such as Alstyne (1997) expressconcern that physical communities (includingtrading communities) may be broken down asa result of atomised living in cyberspaceRayport and Sviokla (1995) interpret thesame trends as positive for e-commercearguing that new trading communitiesdevelop characterised by virtual value chainsWork by Klein (1996) on the Electronic MallBodensee in Germany was an earlydemonstration of a B2B trading communityArmstrong and Hagelrsquos (1996) view is thatInternet-based communities are a newbusiness model They argue that communitiesof interest fantasy relationship andtransactions ndash this is the Net-networking viewdiscussed in the introduction to the currentpaper So-called aggregators attractconsumers to a site on the basis of low-costgoods hoping for site-stickiness ndash theconsumers will buy other goods offeringhigher margins having bulk purchased fromsuppliers (see wwwinternetinvestorUKcomMarch 2000) Two British examples ofaggregators are BigSave and letsbuyitcomOther examples include Yahoo migratingfrom a search engine to a portal and AOLfrom an Internet service provider to a portallsquolsquoTippingrsquorsquo effects (consequential sales arisingfrom lsquolsquocomfortrsquorsquo generated by the host site) arereinforced by technological lock-in (to forexample Apple brand products) by the cost ofswitching Aggregator sites may offer best-bargain search facilities such as AndersenConsultingrsquos bargain finder for CDs
It is likely that new e-commerce accessplatforms (WAP and i-TV) will result ine-commerce models in which in someinstances content rather than access are paidfor The nature of the content is yet to evolveas is the source (supplier or consumer) ofpayment It is likely that a mixture of modelswill evolve This leads to the presentation of aframework able to make sense and informprocesses of e-commerce innovation anddevelopment This is the framework oflsquolsquosociotechnical constituenciesrsquorsquo and thereason is that in our view the pursuit of any
138
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
139
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
140
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
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expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
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Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
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Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
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Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
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Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
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Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
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Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
means having the absorptive capacity andorknowledge generating ability to resourcefullyparticipate in knowledge networks Criticallythe term means the capability and desire tocontinually innovate organisational ortechnological change in order to remainaligned with unfolding businessopportunities Agility is knowledge andaction agilmente
Figure 2 represents these three variablesconstituting a framework of e-commercemodelling in a three dimensional quadrantDegrees of high and low interactivity andconnectivity correlate with degrees of agilityUnlike many models which suggest simplistictypologies and pre-determined actions toachieve each Figure 2 shows the variants ofhighlow interactivity and highlowconnectivity crossing over quadrantboundaries There are two reasons for thisFirst such is the pace of marketorganisational and technological change ine-commerce it would be wrong to suggestanything but the most dynamic model re-configuration and change are part of the lifeexperience of successful e-commercecompanies Second there is no lsquolsquostable
equilibriumrsquorsquo here Even with a particulartime-frame poor interactivity andconnectivity (for example) may be overcomewhere agility (for example) is exceptionallygood As Jim Lieshman the Manager ofLivingston Football Club is fond of sayinglsquolsquooften hard work beats talentrsquorsquo
The successful e-commerce networkedSME is then continually realigning ensembleof social and technological capabilities andcompetencies a prospect far removed fromtraditional conceptualised internal andexternal relations and structures
Business developments in e-commerceCombining the insights of mediation analysiswith patterns of marketing interaction (one tomany many to one and so on) Timmers(1998) proposes the structure of 11 generice-commerce business models shown inFigure 3 and plotted against the variable offunctional integration and degree ofinnovation Timmerrsquos work was based uponempirical data available in the early adoptionphases of e-commerce Although the issue ofdegrees of innovation seems too linealTimmersrsquo methodology remains useful and
Table IV Methodological dimensions of e-commerce
Interactivity Connectivity Agility
Definition Interdependen t mutually
agreed actions in pursuit
of a common goal plusmn the
richness and depth of
shared mutual
advantageous actions
Technological and
organisational openness
and communications plusmn the
breadth of effective
technological and social
networking
To learn from and
contribute to knowledge
networks and to speedily
implement the
organisational and
technological results
Description Effective interactivity
results in deeply integrated
business processes
featuring rich knowledge
flows
Connectivity relevant and
appropriate to fulfilment of
business strategy ie
ability to exploit targeted
value stream mediation
Flexible adaptable and
risk taking in order to
secure the advantages of
early adoption of new
technologies and ways of
working
Operational parameters Efficient and speedy
search assessment and
transaction plusmn purposive
deployment of relevant
knowledge
Enables and supports
search assessment and
transaction with social and
technological
communications and
interaction
Responsiveness to market
and technology changes in
order for product and
processes (especially SAT)
to remain aligned
Qualitative degrees Trade-off between depth
of knowledge interaction
and numbers of people
participating in the
interactions
More focused in B2B and
PA2B than B2C or PA2C plusmn
social and technology
conduits between inside
business and its
constituency
Degree to which
innovativeness is within
the timespace which
aligns and satisfies inter
and intra-organisational
players
134
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
the current paper builds upon his initialcontribution
Our argument is that models ofe-commerce are now more crystallised thanwhen Timmers proposed his multiple andintegrated functions and degree ofinnovativeness quadrant methodology Forexample it appears that use of buy bid orbarter are (mainly) tactical rather thanstrategic decisions and that B2B and PA2Care likely to yield greater value in the short-term than B2C In the following we review
some of the business developments associated
with e-commerce in particular
intermediationre-intermediation virtualsupply chains and Internet communities
IntermediationJust as it was the lsquolsquowhite spacersquorsquo gaps in the old
hierarchic diagrams that were most revealing
so it is the relationships between businesses
which disclose most about business modelsFor some time economists (Kamien and
Schwartz 1982 Fein 1998) have understood
Figure 2 Connectivity interactivity and agility in e-commerce models
Figure 3 Timmersrsquo (1998) 11 generic e-commerce business models
135
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
how particular technologies and powerrelationships give rise to particular structuresof industries Less understood has been whyand in what direction these structures alterlsquolsquoUserrsquorsquo perspectives laid the foundation foranswering these questions Work by vonHippel (1988) and Fleck (1996) closelyaligned with analyses of supplier-producerrelational partnering (Rackham et al 1996)illustrate how particular patterns ofinnovation and particular technologiesintroduce realignments which result in newindustrial structures Hammer and Champyrsquos(1993) work on business process re-engineering (BPR) called attention to thevalue-adding opportunities of de-fragmentingindustrial processes Both Kodama (1992) ingeneral terms followed by Gates (1999) morespecifically migrated the BPR approach to anunderstanding of changed relationshipsbetween proprietors of technologicalknowledge particularly as a result ofinformation and communicationstechnologies (ICTs) being deployed Thenotion of intermediation and its sub-setsdisintermediation and re-intermediation arenow frequently used concepts in analysing thechanging structures of value streams ndash anapproach highlighted by Hagel and Singer(1999) and popularised in managementmedia (for example Business Week 2000)
Figure 4 illustrates in the light dotted line atraditionally sequenced value stream in whichcomponents via sub-assemblers andmanufacturers are distributed and retailedbefore reaching the consumer Arrowed linesconnecting manufacturers and distributorsdirectly to consumers without the mediationof retailers represent disintermediation Thedarker dotted line (manufacturer to e-tailerand e-tailer to consumer) illustrate new pointsof mediation re-intermediation In Figure 4this new mediation point (shown as a greybox) is an e-commerce Web site This may bethe site of a particular e-tailer an aggregatorwho gathers and hosts B2C offers or a portalsite offering click-through to the e-tailerrsquosoffer site
Most value streams are subject to dis-(re)-intermediation via new distribution and saleschannels The difference that e-commercemakes is that without physical proximitybetween buyer and seller products can befound assessed and the transactioncompleted For this reason e-commerce mayenable the speedy and inexpensive
restructuring of mediation patterns Note inthe block-arrows at the top and bottom ofFigure 4 how value shift from beingmanufacturer-centred in physical supplytowards being consumer and their point ofsale centred with e-commerce
Virtual supply chainsThe rapid growth in e-commerce by volumeand value has been and is predicted to beB2B usage Decomposing the e-commerceexchange into search assessment andtransaction elements (categories returned tobelow) Table V gives the reasons why B2Be-commerce has grown faster than the othercategories mentioned above in Table II
From the discussion on intermediation it isclear that the value contained in supply chainsmay be redistributed as a result of usinge-commerce Further e-commerce may resultin enhanced delivery speed (US Express) andlower prices (electronic competitive biddingwhich can (BT example) reduce supply costsby 10 per cent (See The Economist 2000ap 78 which gives the example of Dellrsquoscustomised ordering and flexible scheduling)In addition e-commerce may open newmarkets for information goods and digitaldistribution channels (see Shapiro andVarian 1999)
In addition like any technologicalinnovation there are intended andunintended effects of e-commerce onknowledge flows On the positive sideknowledge flows in e-commerce driven supplychains may increase Virtual integration mayhelp overcome the well-known barriers toknowledge flows found in vertically integratedcompanies Coupled with ICTs e-commercesupports the alignment of knowledge and itsshared use by organisations Outsourcingincreases knowledge flows where the benefitsfrom imported competencies exceeds searchand monitoring costs and the spillover effectinto improved absorptive capacity derivingfrom in-house knowledge sources Coupledwith ICTs e-commerce may support thedevolution of power within organisations andknowledge transfer socialisation cumulationand generation Alternatively where the goalof managing inter-organisational dependencyis limited to cost minimisation (so-called leansupply) particular were associated with trustreducing strategies such as competitivesourcing e-commerce could help reducesupply chain knowledge flows This may be
136
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
particularly so where critical elements ofknowledge remain tacit and are not subject toeasy digital transference In summarye-commerce has the potential to increaseknowledge flows within B2B or B2PA supplychains however these flows could be reducedwhere the technology replaces relationships
B2C and PA2C supply chains gatherimportant marketing knowledge on the maineffect of e-commerce on these supply chainsSpecialist e-tailing is moving into nichesegments (art dealers collectors) in whichsearch speed and cost information retrievaland assessment and credit-based transaction
Table V Reasons why B2BPA2B may be more significant than B2CPA2C categorised by the three elements of a
completed exchange
Search Organisations generally have computers and face less entry costs to e-commerce than
individuals
Large organisations are able to dictate the use exchange techniques
Transaction speed is likely to be more important to organisations
Assessment Organisations have patterns of buyingselling behaviour These patterns engender trust over
payment delivery times and quality assurance
Order-tracking costs are reduced where real-time information is available on the Internet these
can be more significant for organisations than individuals
Particularly organisations operating in global markets
Just-in-time reduces the costs of stock holding E-commerce can increase these savings where it
enables single-sourcing to replace multiple-sourcing
Transaction Organisationsrsquo volumes are larger than those of individuals making minor percentage savings of
greater monetary significance
Significant savings may accrue to organisations avoiding tax or the disbenefits of currency
fluctuations by purchasingselling using the Internet
Transaction cost savings for organisations are greater than for individuals especially where
auctions are used
Figure 4 Mediation disintermediation and re-intermediation
137
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
completion are important Physical retailinguses a hold and sell supply chain architecturewhereas commodity product e-tailers(CDNow Amazon) held no stock preferringto lsquolsquopick-and-packrsquorsquo using intermediary ormanufacturer stocks Often early e-tailcommodity product vendors preferred thisapproach which reverses the traditional buy-sell stock holding model in favour of a sell-buy-fulfil approach in which no stock is heldThis is possible either because their product isan intangible service (travel tourismbanking) because it is digital andimmediately reproducible at little cost (musicinformation money) Stocks of goods wereheld for these early e-tailers and the costs ofstock hold borne by outsourced distributorswho welcomed a high volume of business forlow-margin products PC e-tailers (Dell) hadthe alternative approach of holding (orlocating in proximate satellite stores atsupplier expense) sufficient stock to meetcustomised orders readily whilst other stockwas pulled as a result of orders Physicallsquolsquoaggregatorsrsquorsquo of commodity products (suchas clothing and food) offer a single source of adiverse range of products necessitating theholding of stock to service their physical andvirtual sales channels and distribution to thecustomers of each Thus lsquolsquoclick-and-brickrsquorsquomodels merge physical and virtual productoffers A major issue for e-tailers isascertaining the optimum mix between thelsquolsquoclickrsquorsquo and the lsquolsquobrickrsquorsquo from the viewpoint ofminimising the costs of stock holding[1]
Internet communitiesCommunities in everyday parlance arebonded groups sharing a common goal (lsquolsquohowwe see ourselvesrsquorsquo) and a common perspectiveof non-members (lsquolsquohow we would like othersto see usrsquorsquo) These common goals often begetsolidarity going far beyond instrumentalassociation Armstrong and Hagel (1996)argue that communities can empowerconsumers vis-a-vis sellers by generatingcriticism whilst at the same time onlinecommunities are an opportunity to exploitbrand loyalty[2] Communities includeinformal communities that may give rise toproduct recommendations sites offeringsome added value to visitors who click-through to sales sites or e-tailerrsquos sites whichover time have generated trust from acommunity of users Building an onlinecommunity of shoppers may be easier when
as the physical products hold symbolicsignificance (see Bocock 1993) wherecustomers are captive (bank) where anattractive and information-rich site engenderslsquolsquostickinessrsquorsquo[3] or where the site facilitatessearch and assessment of complex or over-loaded information (tourism travel)
Authors such as Alstyne (1997) expressconcern that physical communities (includingtrading communities) may be broken down asa result of atomised living in cyberspaceRayport and Sviokla (1995) interpret thesame trends as positive for e-commercearguing that new trading communitiesdevelop characterised by virtual value chainsWork by Klein (1996) on the Electronic MallBodensee in Germany was an earlydemonstration of a B2B trading communityArmstrong and Hagelrsquos (1996) view is thatInternet-based communities are a newbusiness model They argue that communitiesof interest fantasy relationship andtransactions ndash this is the Net-networking viewdiscussed in the introduction to the currentpaper So-called aggregators attractconsumers to a site on the basis of low-costgoods hoping for site-stickiness ndash theconsumers will buy other goods offeringhigher margins having bulk purchased fromsuppliers (see wwwinternetinvestorUKcomMarch 2000) Two British examples ofaggregators are BigSave and letsbuyitcomOther examples include Yahoo migratingfrom a search engine to a portal and AOLfrom an Internet service provider to a portallsquolsquoTippingrsquorsquo effects (consequential sales arisingfrom lsquolsquocomfortrsquorsquo generated by the host site) arereinforced by technological lock-in (to forexample Apple brand products) by the cost ofswitching Aggregator sites may offer best-bargain search facilities such as AndersenConsultingrsquos bargain finder for CDs
It is likely that new e-commerce accessplatforms (WAP and i-TV) will result ine-commerce models in which in someinstances content rather than access are paidfor The nature of the content is yet to evolveas is the source (supplier or consumer) ofpayment It is likely that a mixture of modelswill evolve This leads to the presentation of aframework able to make sense and informprocesses of e-commerce innovation anddevelopment This is the framework oflsquolsquosociotechnical constituenciesrsquorsquo and thereason is that in our view the pursuit of any
138
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
139
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
140
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
141
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
142
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
143
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
144
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
145
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
the current paper builds upon his initialcontribution
Our argument is that models ofe-commerce are now more crystallised thanwhen Timmers proposed his multiple andintegrated functions and degree ofinnovativeness quadrant methodology Forexample it appears that use of buy bid orbarter are (mainly) tactical rather thanstrategic decisions and that B2B and PA2Care likely to yield greater value in the short-term than B2C In the following we review
some of the business developments associated
with e-commerce in particular
intermediationre-intermediation virtualsupply chains and Internet communities
IntermediationJust as it was the lsquolsquowhite spacersquorsquo gaps in the old
hierarchic diagrams that were most revealing
so it is the relationships between businesses
which disclose most about business modelsFor some time economists (Kamien and
Schwartz 1982 Fein 1998) have understood
Figure 2 Connectivity interactivity and agility in e-commerce models
Figure 3 Timmersrsquo (1998) 11 generic e-commerce business models
135
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
how particular technologies and powerrelationships give rise to particular structuresof industries Less understood has been whyand in what direction these structures alterlsquolsquoUserrsquorsquo perspectives laid the foundation foranswering these questions Work by vonHippel (1988) and Fleck (1996) closelyaligned with analyses of supplier-producerrelational partnering (Rackham et al 1996)illustrate how particular patterns ofinnovation and particular technologiesintroduce realignments which result in newindustrial structures Hammer and Champyrsquos(1993) work on business process re-engineering (BPR) called attention to thevalue-adding opportunities of de-fragmentingindustrial processes Both Kodama (1992) ingeneral terms followed by Gates (1999) morespecifically migrated the BPR approach to anunderstanding of changed relationshipsbetween proprietors of technologicalknowledge particularly as a result ofinformation and communicationstechnologies (ICTs) being deployed Thenotion of intermediation and its sub-setsdisintermediation and re-intermediation arenow frequently used concepts in analysing thechanging structures of value streams ndash anapproach highlighted by Hagel and Singer(1999) and popularised in managementmedia (for example Business Week 2000)
Figure 4 illustrates in the light dotted line atraditionally sequenced value stream in whichcomponents via sub-assemblers andmanufacturers are distributed and retailedbefore reaching the consumer Arrowed linesconnecting manufacturers and distributorsdirectly to consumers without the mediationof retailers represent disintermediation Thedarker dotted line (manufacturer to e-tailerand e-tailer to consumer) illustrate new pointsof mediation re-intermediation In Figure 4this new mediation point (shown as a greybox) is an e-commerce Web site This may bethe site of a particular e-tailer an aggregatorwho gathers and hosts B2C offers or a portalsite offering click-through to the e-tailerrsquosoffer site
Most value streams are subject to dis-(re)-intermediation via new distribution and saleschannels The difference that e-commercemakes is that without physical proximitybetween buyer and seller products can befound assessed and the transactioncompleted For this reason e-commerce mayenable the speedy and inexpensive
restructuring of mediation patterns Note inthe block-arrows at the top and bottom ofFigure 4 how value shift from beingmanufacturer-centred in physical supplytowards being consumer and their point ofsale centred with e-commerce
Virtual supply chainsThe rapid growth in e-commerce by volumeand value has been and is predicted to beB2B usage Decomposing the e-commerceexchange into search assessment andtransaction elements (categories returned tobelow) Table V gives the reasons why B2Be-commerce has grown faster than the othercategories mentioned above in Table II
From the discussion on intermediation it isclear that the value contained in supply chainsmay be redistributed as a result of usinge-commerce Further e-commerce may resultin enhanced delivery speed (US Express) andlower prices (electronic competitive biddingwhich can (BT example) reduce supply costsby 10 per cent (See The Economist 2000ap 78 which gives the example of Dellrsquoscustomised ordering and flexible scheduling)In addition e-commerce may open newmarkets for information goods and digitaldistribution channels (see Shapiro andVarian 1999)
In addition like any technologicalinnovation there are intended andunintended effects of e-commerce onknowledge flows On the positive sideknowledge flows in e-commerce driven supplychains may increase Virtual integration mayhelp overcome the well-known barriers toknowledge flows found in vertically integratedcompanies Coupled with ICTs e-commercesupports the alignment of knowledge and itsshared use by organisations Outsourcingincreases knowledge flows where the benefitsfrom imported competencies exceeds searchand monitoring costs and the spillover effectinto improved absorptive capacity derivingfrom in-house knowledge sources Coupledwith ICTs e-commerce may support thedevolution of power within organisations andknowledge transfer socialisation cumulationand generation Alternatively where the goalof managing inter-organisational dependencyis limited to cost minimisation (so-called leansupply) particular were associated with trustreducing strategies such as competitivesourcing e-commerce could help reducesupply chain knowledge flows This may be
136
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
particularly so where critical elements ofknowledge remain tacit and are not subject toeasy digital transference In summarye-commerce has the potential to increaseknowledge flows within B2B or B2PA supplychains however these flows could be reducedwhere the technology replaces relationships
B2C and PA2C supply chains gatherimportant marketing knowledge on the maineffect of e-commerce on these supply chainsSpecialist e-tailing is moving into nichesegments (art dealers collectors) in whichsearch speed and cost information retrievaland assessment and credit-based transaction
Table V Reasons why B2BPA2B may be more significant than B2CPA2C categorised by the three elements of a
completed exchange
Search Organisations generally have computers and face less entry costs to e-commerce than
individuals
Large organisations are able to dictate the use exchange techniques
Transaction speed is likely to be more important to organisations
Assessment Organisations have patterns of buyingselling behaviour These patterns engender trust over
payment delivery times and quality assurance
Order-tracking costs are reduced where real-time information is available on the Internet these
can be more significant for organisations than individuals
Particularly organisations operating in global markets
Just-in-time reduces the costs of stock holding E-commerce can increase these savings where it
enables single-sourcing to replace multiple-sourcing
Transaction Organisationsrsquo volumes are larger than those of individuals making minor percentage savings of
greater monetary significance
Significant savings may accrue to organisations avoiding tax or the disbenefits of currency
fluctuations by purchasingselling using the Internet
Transaction cost savings for organisations are greater than for individuals especially where
auctions are used
Figure 4 Mediation disintermediation and re-intermediation
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
completion are important Physical retailinguses a hold and sell supply chain architecturewhereas commodity product e-tailers(CDNow Amazon) held no stock preferringto lsquolsquopick-and-packrsquorsquo using intermediary ormanufacturer stocks Often early e-tailcommodity product vendors preferred thisapproach which reverses the traditional buy-sell stock holding model in favour of a sell-buy-fulfil approach in which no stock is heldThis is possible either because their product isan intangible service (travel tourismbanking) because it is digital andimmediately reproducible at little cost (musicinformation money) Stocks of goods wereheld for these early e-tailers and the costs ofstock hold borne by outsourced distributorswho welcomed a high volume of business forlow-margin products PC e-tailers (Dell) hadthe alternative approach of holding (orlocating in proximate satellite stores atsupplier expense) sufficient stock to meetcustomised orders readily whilst other stockwas pulled as a result of orders Physicallsquolsquoaggregatorsrsquorsquo of commodity products (suchas clothing and food) offer a single source of adiverse range of products necessitating theholding of stock to service their physical andvirtual sales channels and distribution to thecustomers of each Thus lsquolsquoclick-and-brickrsquorsquomodels merge physical and virtual productoffers A major issue for e-tailers isascertaining the optimum mix between thelsquolsquoclickrsquorsquo and the lsquolsquobrickrsquorsquo from the viewpoint ofminimising the costs of stock holding[1]
Internet communitiesCommunities in everyday parlance arebonded groups sharing a common goal (lsquolsquohowwe see ourselvesrsquorsquo) and a common perspectiveof non-members (lsquolsquohow we would like othersto see usrsquorsquo) These common goals often begetsolidarity going far beyond instrumentalassociation Armstrong and Hagel (1996)argue that communities can empowerconsumers vis-a-vis sellers by generatingcriticism whilst at the same time onlinecommunities are an opportunity to exploitbrand loyalty[2] Communities includeinformal communities that may give rise toproduct recommendations sites offeringsome added value to visitors who click-through to sales sites or e-tailerrsquos sites whichover time have generated trust from acommunity of users Building an onlinecommunity of shoppers may be easier when
as the physical products hold symbolicsignificance (see Bocock 1993) wherecustomers are captive (bank) where anattractive and information-rich site engenderslsquolsquostickinessrsquorsquo[3] or where the site facilitatessearch and assessment of complex or over-loaded information (tourism travel)
Authors such as Alstyne (1997) expressconcern that physical communities (includingtrading communities) may be broken down asa result of atomised living in cyberspaceRayport and Sviokla (1995) interpret thesame trends as positive for e-commercearguing that new trading communitiesdevelop characterised by virtual value chainsWork by Klein (1996) on the Electronic MallBodensee in Germany was an earlydemonstration of a B2B trading communityArmstrong and Hagelrsquos (1996) view is thatInternet-based communities are a newbusiness model They argue that communitiesof interest fantasy relationship andtransactions ndash this is the Net-networking viewdiscussed in the introduction to the currentpaper So-called aggregators attractconsumers to a site on the basis of low-costgoods hoping for site-stickiness ndash theconsumers will buy other goods offeringhigher margins having bulk purchased fromsuppliers (see wwwinternetinvestorUKcomMarch 2000) Two British examples ofaggregators are BigSave and letsbuyitcomOther examples include Yahoo migratingfrom a search engine to a portal and AOLfrom an Internet service provider to a portallsquolsquoTippingrsquorsquo effects (consequential sales arisingfrom lsquolsquocomfortrsquorsquo generated by the host site) arereinforced by technological lock-in (to forexample Apple brand products) by the cost ofswitching Aggregator sites may offer best-bargain search facilities such as AndersenConsultingrsquos bargain finder for CDs
It is likely that new e-commerce accessplatforms (WAP and i-TV) will result ine-commerce models in which in someinstances content rather than access are paidfor The nature of the content is yet to evolveas is the source (supplier or consumer) ofpayment It is likely that a mixture of modelswill evolve This leads to the presentation of aframework able to make sense and informprocesses of e-commerce innovation anddevelopment This is the framework oflsquolsquosociotechnical constituenciesrsquorsquo and thereason is that in our view the pursuit of any
138
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
140
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
141
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
142
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
143
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
144
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
how particular technologies and powerrelationships give rise to particular structuresof industries Less understood has been whyand in what direction these structures alterlsquolsquoUserrsquorsquo perspectives laid the foundation foranswering these questions Work by vonHippel (1988) and Fleck (1996) closelyaligned with analyses of supplier-producerrelational partnering (Rackham et al 1996)illustrate how particular patterns ofinnovation and particular technologiesintroduce realignments which result in newindustrial structures Hammer and Champyrsquos(1993) work on business process re-engineering (BPR) called attention to thevalue-adding opportunities of de-fragmentingindustrial processes Both Kodama (1992) ingeneral terms followed by Gates (1999) morespecifically migrated the BPR approach to anunderstanding of changed relationshipsbetween proprietors of technologicalknowledge particularly as a result ofinformation and communicationstechnologies (ICTs) being deployed Thenotion of intermediation and its sub-setsdisintermediation and re-intermediation arenow frequently used concepts in analysing thechanging structures of value streams ndash anapproach highlighted by Hagel and Singer(1999) and popularised in managementmedia (for example Business Week 2000)
Figure 4 illustrates in the light dotted line atraditionally sequenced value stream in whichcomponents via sub-assemblers andmanufacturers are distributed and retailedbefore reaching the consumer Arrowed linesconnecting manufacturers and distributorsdirectly to consumers without the mediationof retailers represent disintermediation Thedarker dotted line (manufacturer to e-tailerand e-tailer to consumer) illustrate new pointsof mediation re-intermediation In Figure 4this new mediation point (shown as a greybox) is an e-commerce Web site This may bethe site of a particular e-tailer an aggregatorwho gathers and hosts B2C offers or a portalsite offering click-through to the e-tailerrsquosoffer site
Most value streams are subject to dis-(re)-intermediation via new distribution and saleschannels The difference that e-commercemakes is that without physical proximitybetween buyer and seller products can befound assessed and the transactioncompleted For this reason e-commerce mayenable the speedy and inexpensive
restructuring of mediation patterns Note inthe block-arrows at the top and bottom ofFigure 4 how value shift from beingmanufacturer-centred in physical supplytowards being consumer and their point ofsale centred with e-commerce
Virtual supply chainsThe rapid growth in e-commerce by volumeand value has been and is predicted to beB2B usage Decomposing the e-commerceexchange into search assessment andtransaction elements (categories returned tobelow) Table V gives the reasons why B2Be-commerce has grown faster than the othercategories mentioned above in Table II
From the discussion on intermediation it isclear that the value contained in supply chainsmay be redistributed as a result of usinge-commerce Further e-commerce may resultin enhanced delivery speed (US Express) andlower prices (electronic competitive biddingwhich can (BT example) reduce supply costsby 10 per cent (See The Economist 2000ap 78 which gives the example of Dellrsquoscustomised ordering and flexible scheduling)In addition e-commerce may open newmarkets for information goods and digitaldistribution channels (see Shapiro andVarian 1999)
In addition like any technologicalinnovation there are intended andunintended effects of e-commerce onknowledge flows On the positive sideknowledge flows in e-commerce driven supplychains may increase Virtual integration mayhelp overcome the well-known barriers toknowledge flows found in vertically integratedcompanies Coupled with ICTs e-commercesupports the alignment of knowledge and itsshared use by organisations Outsourcingincreases knowledge flows where the benefitsfrom imported competencies exceeds searchand monitoring costs and the spillover effectinto improved absorptive capacity derivingfrom in-house knowledge sources Coupledwith ICTs e-commerce may support thedevolution of power within organisations andknowledge transfer socialisation cumulationand generation Alternatively where the goalof managing inter-organisational dependencyis limited to cost minimisation (so-called leansupply) particular were associated with trustreducing strategies such as competitivesourcing e-commerce could help reducesupply chain knowledge flows This may be
136
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
particularly so where critical elements ofknowledge remain tacit and are not subject toeasy digital transference In summarye-commerce has the potential to increaseknowledge flows within B2B or B2PA supplychains however these flows could be reducedwhere the technology replaces relationships
B2C and PA2C supply chains gatherimportant marketing knowledge on the maineffect of e-commerce on these supply chainsSpecialist e-tailing is moving into nichesegments (art dealers collectors) in whichsearch speed and cost information retrievaland assessment and credit-based transaction
Table V Reasons why B2BPA2B may be more significant than B2CPA2C categorised by the three elements of a
completed exchange
Search Organisations generally have computers and face less entry costs to e-commerce than
individuals
Large organisations are able to dictate the use exchange techniques
Transaction speed is likely to be more important to organisations
Assessment Organisations have patterns of buyingselling behaviour These patterns engender trust over
payment delivery times and quality assurance
Order-tracking costs are reduced where real-time information is available on the Internet these
can be more significant for organisations than individuals
Particularly organisations operating in global markets
Just-in-time reduces the costs of stock holding E-commerce can increase these savings where it
enables single-sourcing to replace multiple-sourcing
Transaction Organisationsrsquo volumes are larger than those of individuals making minor percentage savings of
greater monetary significance
Significant savings may accrue to organisations avoiding tax or the disbenefits of currency
fluctuations by purchasingselling using the Internet
Transaction cost savings for organisations are greater than for individuals especially where
auctions are used
Figure 4 Mediation disintermediation and re-intermediation
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Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
completion are important Physical retailinguses a hold and sell supply chain architecturewhereas commodity product e-tailers(CDNow Amazon) held no stock preferringto lsquolsquopick-and-packrsquorsquo using intermediary ormanufacturer stocks Often early e-tailcommodity product vendors preferred thisapproach which reverses the traditional buy-sell stock holding model in favour of a sell-buy-fulfil approach in which no stock is heldThis is possible either because their product isan intangible service (travel tourismbanking) because it is digital andimmediately reproducible at little cost (musicinformation money) Stocks of goods wereheld for these early e-tailers and the costs ofstock hold borne by outsourced distributorswho welcomed a high volume of business forlow-margin products PC e-tailers (Dell) hadthe alternative approach of holding (orlocating in proximate satellite stores atsupplier expense) sufficient stock to meetcustomised orders readily whilst other stockwas pulled as a result of orders Physicallsquolsquoaggregatorsrsquorsquo of commodity products (suchas clothing and food) offer a single source of adiverse range of products necessitating theholding of stock to service their physical andvirtual sales channels and distribution to thecustomers of each Thus lsquolsquoclick-and-brickrsquorsquomodels merge physical and virtual productoffers A major issue for e-tailers isascertaining the optimum mix between thelsquolsquoclickrsquorsquo and the lsquolsquobrickrsquorsquo from the viewpoint ofminimising the costs of stock holding[1]
Internet communitiesCommunities in everyday parlance arebonded groups sharing a common goal (lsquolsquohowwe see ourselvesrsquorsquo) and a common perspectiveof non-members (lsquolsquohow we would like othersto see usrsquorsquo) These common goals often begetsolidarity going far beyond instrumentalassociation Armstrong and Hagel (1996)argue that communities can empowerconsumers vis-a-vis sellers by generatingcriticism whilst at the same time onlinecommunities are an opportunity to exploitbrand loyalty[2] Communities includeinformal communities that may give rise toproduct recommendations sites offeringsome added value to visitors who click-through to sales sites or e-tailerrsquos sites whichover time have generated trust from acommunity of users Building an onlinecommunity of shoppers may be easier when
as the physical products hold symbolicsignificance (see Bocock 1993) wherecustomers are captive (bank) where anattractive and information-rich site engenderslsquolsquostickinessrsquorsquo[3] or where the site facilitatessearch and assessment of complex or over-loaded information (tourism travel)
Authors such as Alstyne (1997) expressconcern that physical communities (includingtrading communities) may be broken down asa result of atomised living in cyberspaceRayport and Sviokla (1995) interpret thesame trends as positive for e-commercearguing that new trading communitiesdevelop characterised by virtual value chainsWork by Klein (1996) on the Electronic MallBodensee in Germany was an earlydemonstration of a B2B trading communityArmstrong and Hagelrsquos (1996) view is thatInternet-based communities are a newbusiness model They argue that communitiesof interest fantasy relationship andtransactions ndash this is the Net-networking viewdiscussed in the introduction to the currentpaper So-called aggregators attractconsumers to a site on the basis of low-costgoods hoping for site-stickiness ndash theconsumers will buy other goods offeringhigher margins having bulk purchased fromsuppliers (see wwwinternetinvestorUKcomMarch 2000) Two British examples ofaggregators are BigSave and letsbuyitcomOther examples include Yahoo migratingfrom a search engine to a portal and AOLfrom an Internet service provider to a portallsquolsquoTippingrsquorsquo effects (consequential sales arisingfrom lsquolsquocomfortrsquorsquo generated by the host site) arereinforced by technological lock-in (to forexample Apple brand products) by the cost ofswitching Aggregator sites may offer best-bargain search facilities such as AndersenConsultingrsquos bargain finder for CDs
It is likely that new e-commerce accessplatforms (WAP and i-TV) will result ine-commerce models in which in someinstances content rather than access are paidfor The nature of the content is yet to evolveas is the source (supplier or consumer) ofpayment It is likely that a mixture of modelswill evolve This leads to the presentation of aframework able to make sense and informprocesses of e-commerce innovation anddevelopment This is the framework oflsquolsquosociotechnical constituenciesrsquorsquo and thereason is that in our view the pursuit of any
138
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
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constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
142
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
143
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
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Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
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Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
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Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
particularly so where critical elements ofknowledge remain tacit and are not subject toeasy digital transference In summarye-commerce has the potential to increaseknowledge flows within B2B or B2PA supplychains however these flows could be reducedwhere the technology replaces relationships
B2C and PA2C supply chains gatherimportant marketing knowledge on the maineffect of e-commerce on these supply chainsSpecialist e-tailing is moving into nichesegments (art dealers collectors) in whichsearch speed and cost information retrievaland assessment and credit-based transaction
Table V Reasons why B2BPA2B may be more significant than B2CPA2C categorised by the three elements of a
completed exchange
Search Organisations generally have computers and face less entry costs to e-commerce than
individuals
Large organisations are able to dictate the use exchange techniques
Transaction speed is likely to be more important to organisations
Assessment Organisations have patterns of buyingselling behaviour These patterns engender trust over
payment delivery times and quality assurance
Order-tracking costs are reduced where real-time information is available on the Internet these
can be more significant for organisations than individuals
Particularly organisations operating in global markets
Just-in-time reduces the costs of stock holding E-commerce can increase these savings where it
enables single-sourcing to replace multiple-sourcing
Transaction Organisationsrsquo volumes are larger than those of individuals making minor percentage savings of
greater monetary significance
Significant savings may accrue to organisations avoiding tax or the disbenefits of currency
fluctuations by purchasingselling using the Internet
Transaction cost savings for organisations are greater than for individuals especially where
auctions are used
Figure 4 Mediation disintermediation and re-intermediation
137
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
completion are important Physical retailinguses a hold and sell supply chain architecturewhereas commodity product e-tailers(CDNow Amazon) held no stock preferringto lsquolsquopick-and-packrsquorsquo using intermediary ormanufacturer stocks Often early e-tailcommodity product vendors preferred thisapproach which reverses the traditional buy-sell stock holding model in favour of a sell-buy-fulfil approach in which no stock is heldThis is possible either because their product isan intangible service (travel tourismbanking) because it is digital andimmediately reproducible at little cost (musicinformation money) Stocks of goods wereheld for these early e-tailers and the costs ofstock hold borne by outsourced distributorswho welcomed a high volume of business forlow-margin products PC e-tailers (Dell) hadthe alternative approach of holding (orlocating in proximate satellite stores atsupplier expense) sufficient stock to meetcustomised orders readily whilst other stockwas pulled as a result of orders Physicallsquolsquoaggregatorsrsquorsquo of commodity products (suchas clothing and food) offer a single source of adiverse range of products necessitating theholding of stock to service their physical andvirtual sales channels and distribution to thecustomers of each Thus lsquolsquoclick-and-brickrsquorsquomodels merge physical and virtual productoffers A major issue for e-tailers isascertaining the optimum mix between thelsquolsquoclickrsquorsquo and the lsquolsquobrickrsquorsquo from the viewpoint ofminimising the costs of stock holding[1]
Internet communitiesCommunities in everyday parlance arebonded groups sharing a common goal (lsquolsquohowwe see ourselvesrsquorsquo) and a common perspectiveof non-members (lsquolsquohow we would like othersto see usrsquorsquo) These common goals often begetsolidarity going far beyond instrumentalassociation Armstrong and Hagel (1996)argue that communities can empowerconsumers vis-a-vis sellers by generatingcriticism whilst at the same time onlinecommunities are an opportunity to exploitbrand loyalty[2] Communities includeinformal communities that may give rise toproduct recommendations sites offeringsome added value to visitors who click-through to sales sites or e-tailerrsquos sites whichover time have generated trust from acommunity of users Building an onlinecommunity of shoppers may be easier when
as the physical products hold symbolicsignificance (see Bocock 1993) wherecustomers are captive (bank) where anattractive and information-rich site engenderslsquolsquostickinessrsquorsquo[3] or where the site facilitatessearch and assessment of complex or over-loaded information (tourism travel)
Authors such as Alstyne (1997) expressconcern that physical communities (includingtrading communities) may be broken down asa result of atomised living in cyberspaceRayport and Sviokla (1995) interpret thesame trends as positive for e-commercearguing that new trading communitiesdevelop characterised by virtual value chainsWork by Klein (1996) on the Electronic MallBodensee in Germany was an earlydemonstration of a B2B trading communityArmstrong and Hagelrsquos (1996) view is thatInternet-based communities are a newbusiness model They argue that communitiesof interest fantasy relationship andtransactions ndash this is the Net-networking viewdiscussed in the introduction to the currentpaper So-called aggregators attractconsumers to a site on the basis of low-costgoods hoping for site-stickiness ndash theconsumers will buy other goods offeringhigher margins having bulk purchased fromsuppliers (see wwwinternetinvestorUKcomMarch 2000) Two British examples ofaggregators are BigSave and letsbuyitcomOther examples include Yahoo migratingfrom a search engine to a portal and AOLfrom an Internet service provider to a portallsquolsquoTippingrsquorsquo effects (consequential sales arisingfrom lsquolsquocomfortrsquorsquo generated by the host site) arereinforced by technological lock-in (to forexample Apple brand products) by the cost ofswitching Aggregator sites may offer best-bargain search facilities such as AndersenConsultingrsquos bargain finder for CDs
It is likely that new e-commerce accessplatforms (WAP and i-TV) will result ine-commerce models in which in someinstances content rather than access are paidfor The nature of the content is yet to evolveas is the source (supplier or consumer) ofpayment It is likely that a mixture of modelswill evolve This leads to the presentation of aframework able to make sense and informprocesses of e-commerce innovation anddevelopment This is the framework oflsquolsquosociotechnical constituenciesrsquorsquo and thereason is that in our view the pursuit of any
138
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
139
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
140
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
141
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
142
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
143
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Tony Kinder
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Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
144
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
145
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
completion are important Physical retailinguses a hold and sell supply chain architecturewhereas commodity product e-tailers(CDNow Amazon) held no stock preferringto lsquolsquopick-and-packrsquorsquo using intermediary ormanufacturer stocks Often early e-tailcommodity product vendors preferred thisapproach which reverses the traditional buy-sell stock holding model in favour of a sell-buy-fulfil approach in which no stock is heldThis is possible either because their product isan intangible service (travel tourismbanking) because it is digital andimmediately reproducible at little cost (musicinformation money) Stocks of goods wereheld for these early e-tailers and the costs ofstock hold borne by outsourced distributorswho welcomed a high volume of business forlow-margin products PC e-tailers (Dell) hadthe alternative approach of holding (orlocating in proximate satellite stores atsupplier expense) sufficient stock to meetcustomised orders readily whilst other stockwas pulled as a result of orders Physicallsquolsquoaggregatorsrsquorsquo of commodity products (suchas clothing and food) offer a single source of adiverse range of products necessitating theholding of stock to service their physical andvirtual sales channels and distribution to thecustomers of each Thus lsquolsquoclick-and-brickrsquorsquomodels merge physical and virtual productoffers A major issue for e-tailers isascertaining the optimum mix between thelsquolsquoclickrsquorsquo and the lsquolsquobrickrsquorsquo from the viewpoint ofminimising the costs of stock holding[1]
Internet communitiesCommunities in everyday parlance arebonded groups sharing a common goal (lsquolsquohowwe see ourselvesrsquorsquo) and a common perspectiveof non-members (lsquolsquohow we would like othersto see usrsquorsquo) These common goals often begetsolidarity going far beyond instrumentalassociation Armstrong and Hagel (1996)argue that communities can empowerconsumers vis-a-vis sellers by generatingcriticism whilst at the same time onlinecommunities are an opportunity to exploitbrand loyalty[2] Communities includeinformal communities that may give rise toproduct recommendations sites offeringsome added value to visitors who click-through to sales sites or e-tailerrsquos sites whichover time have generated trust from acommunity of users Building an onlinecommunity of shoppers may be easier when
as the physical products hold symbolicsignificance (see Bocock 1993) wherecustomers are captive (bank) where anattractive and information-rich site engenderslsquolsquostickinessrsquorsquo[3] or where the site facilitatessearch and assessment of complex or over-loaded information (tourism travel)
Authors such as Alstyne (1997) expressconcern that physical communities (includingtrading communities) may be broken down asa result of atomised living in cyberspaceRayport and Sviokla (1995) interpret thesame trends as positive for e-commercearguing that new trading communitiesdevelop characterised by virtual value chainsWork by Klein (1996) on the Electronic MallBodensee in Germany was an earlydemonstration of a B2B trading communityArmstrong and Hagelrsquos (1996) view is thatInternet-based communities are a newbusiness model They argue that communitiesof interest fantasy relationship andtransactions ndash this is the Net-networking viewdiscussed in the introduction to the currentpaper So-called aggregators attractconsumers to a site on the basis of low-costgoods hoping for site-stickiness ndash theconsumers will buy other goods offeringhigher margins having bulk purchased fromsuppliers (see wwwinternetinvestorUKcomMarch 2000) Two British examples ofaggregators are BigSave and letsbuyitcomOther examples include Yahoo migratingfrom a search engine to a portal and AOLfrom an Internet service provider to a portallsquolsquoTippingrsquorsquo effects (consequential sales arisingfrom lsquolsquocomfortrsquorsquo generated by the host site) arereinforced by technological lock-in (to forexample Apple brand products) by the cost ofswitching Aggregator sites may offer best-bargain search facilities such as AndersenConsultingrsquos bargain finder for CDs
It is likely that new e-commerce accessplatforms (WAP and i-TV) will result ine-commerce models in which in someinstances content rather than access are paidfor The nature of the content is yet to evolveas is the source (supplier or consumer) ofpayment It is likely that a mixture of modelswill evolve This leads to the presentation of aframework able to make sense and informprocesses of e-commerce innovation anddevelopment This is the framework oflsquolsquosociotechnical constituenciesrsquorsquo and thereason is that in our view the pursuit of any
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Emerging e-commerce business models
Tony Kinder
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Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
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Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
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Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
142
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
143
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
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Tony Kinder
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Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
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Emerging e-commerce business models
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Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
kind of e-commerce business model alwaysinvolves a process of constituency building
Sociotechnical constituencies
The sociotechnical constituency approachdeveloped by Professor Molina at TechMaPPcaptures the multi-layered dynamic shifts ofalignment as new technologies emerge intosocial use The diamond of alignmentcaptures the various interrelated dimensionsof the process of sociotechnical alignmentessential to technologyservice development(see Figure 5)
Sociotechnical alignment is the answer tothe question how are sociotechnicalconstituencies built up It is what socialconstituents try to do (however consciouslysuccessfully partially or imperfectly) whenthey are promoting the development of aspecific technology either intra-organisationally inter-organisationally oreven as an industrial standard It may be seenas the process of creation adoptionaccommodation (adaptation) and close orloose interaction (interrelation) of technicaland social factors and actors which underliesthe emergence and development of anidentifiable constituency As such alignmentshould neither be seen as a mere jigsaw-likeaccommodation of static available pieces nor
as complete and permanent once achievedsee Molina (1997) It accommodates the richpicture of competing influences and trendsacross institutional settings and governancesystems An important characteristic of theframework of sociotechnical alignment is itssocial groundedness making it anappropriate tool for analysing innovationimplementation and diffusion The diamondof alignment is able to capture constituencybuilding process ex-post as is shown inanalyses of completed processes It is alsoable to facilitate real-time evaluation toinform on-going constituency buildingprocesses (see Molina 1999ab) Aparticular strength of this approach is its usein uncertain processes of technologydevelopment such as emerging products andservices (see for example Kinder et al 1999and Kinder 2000b)
The diamond of alignment shown has twolayers each showing six segments (in analysesof more general constituencies further layersmay be incorporated) At the centre of thediamond lsquolsquoE-commerce sociotechnicalconstituencyrsquorsquo signifies the technologyconstituency to which the diamond refersThe inner layer in Figure 5 refers to the intra-institutional aspects of alignment within thee-commerce company The outer layer refersto the inter-organisational level beyond thecompany including the interaction with other
Figure 5 Molinarsquos diamond of alignment
139
Emerging e-commerce business models
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constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
140
Emerging e-commerce business models
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However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
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Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
142
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
143
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
144
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Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
145
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Tony Kinder
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Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
constituencies and the impact of the moregeneral social and technological trends anddevelopments The areas (I) and (II)represent the sociotechnical nature and stateof development of the overall productserviceconstituency (intra- and inter-organisationally) at the centre of analyticalattention In turn the surrounding foursegments (1-1i) (2-2i) (3-3i) and (4-4i)represent aspects of critical influence to thesuccess or failure of technological processesA description of the content of each of thedimensions in the diamond is
(I) Constituentsrsquo perceptions goals actionsand resources This dimension relates tothe present state of the constituencyrsquosresources the type of organisationpeople material and financial resourcesknowledge expertise experience andreputation and other elements such ascurrent perceptions goals visions andstrategies In short what the constituencyis at this point in time including itscumulated heritage(II) Nature and maturity of the technologyThis dimension highlights the importanceof alignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of an integrated ICTinfrastructure must make sense and assisttheir performance The innovation mustalso make sense to their customersmeaning that the environment forinnovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (1-1i) ndash Governance Thisdimension highlights the importance ofalignment of the innovated technologywith the governance and strategicdirections of the organisational industrialand market environments of theconstituency For each of the constituentsthe innovation of e-commerce must makesense and assist performance Theinnovation must also make sense tocustomers meaning that the environmentfor innovation is promissory and viable tomerit allocation of resources and marketdemandAlignment (2-2i) ndash Target constituentsrsquoperceptions and pursuits This dimensionrelates to the people organisations and
technologies the constituency is seekingto enrol behind its vision This includesalignment of perceptions and goalsbetween the constituent organisationsand potential or target constituents intheir organisational industrial andmarket environment including suppliersand significant players in the relevantvalue streams and networksAlignment (3-3i) - Nature of target problemThis dimension highlights the importanceof alignment between the capabilities ofthe e-commerce constituency and thetechnical servicesproduct it offers (ietarget functionality quality and cost)This includes alignment between theproduct and widely recognised technicaland market trends and standards in thetarget industrial area (see alignment 4) Inshort to avoid lsquolsquofailurersquorsquo the constituencymust create the technical capacity todeliver appealing services within availableresources value-for-money parametersAlignment (4-4i) - Interacting technologiesconstituencies The e-commerceconstituency may have lsquolsquoheritagersquorsquo systemsand processes as may its targetconstituents and customers Thee-commerce technology will come into aworld already populated with ways ofdoing things This dimension relates tothe type of interaction and relationsbridging the past heritage to the future Italso includes alignment betweenorganisational structures informationsystems and functional processes In thecase of the information societyconstituency alignment with widely-recognised technical and market trendsand standards in the target industrial areawill be important (see alignment 2) Inparticular the successful e-commerce willhave to re-negotiate existing rules andgovernance arrangements carving out aplace for itself within value streams
All these dimensions influence each otherand put simply the diamond acts as theoverall setting and guide to alignmentsbetween people-people people-technologytechnology-technology and technology-people In this view a successful constituencybuilding process is a virtuous cycle in whichall these four types of alignment effectivelyreinforce and strengthen each other
140
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
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expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
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Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
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Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
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Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
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Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
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Emerging e-commerce business models
Tony Kinder
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Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
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Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
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Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
However misalignments can reverse thisprocess creating a vicious cycle exacerbatinginternal and external conflicts andcontradictions Indeed care must be takenthat alignment in certain directions shouldnot involve potential mis-alignments inothers This could be the case of promisingunrealistic targets with a view to obtainingfunding for instance
Case studies
These case studies[4] arise from the EU-funded BuKs project (Building a Knowledge-Sharing e-Business Cluster) within WestLothian jointly initiated by TechMaPP andthe West Lothian Council
EQL case studyConstituentsrsquo perceptions goals actions andresourcesIn 1993 EQL spun-out from the Institute ofChartered Accountants of Scotland fromwhom it licensed computer-basedaccountancy education packages laterdeveloping its own mathematics financialmanagement and taxation and company-systems specific courses EQLrsquos vision is oneof lsquolsquousing technology to deliver training andlearningrsquorsquo targeting burgeoning studentnumbers in British and worldwideuniversities After three years the companyhad repaid an equity investment and becameowner-managed It is now part of BPPHoldings with a pound1 million turnover fromonline sales
Nature and maturity of the technologyIn 1993 selling 55-inch discs or 35-inchfloppies via university or large firm local areanetworks (LANs) was an innovative activityAt a time when the computer industryleadership was passing from hardware tosoftware EQL was restricted to a LANs In19661997 CD-ROMs become the favouredformat for open and distance learningmaterials Its immense storage supportedmultimedia pedagogic presentationssophisticated didactic testing and theinclusion of a wide range of referencematerials and tools Updating to CD-ROMSwas costly and in 1998 EQL began offeringlive courses via browsers to large companiesIt is now an e-commerce company and
regards Internet technology as mature andproven
GovernanceThe world into which EQL was born in 1993was on the crest of a wave of change Thecompany has realigned its networkingarrangements and the rules by which itoperates to take account of the emergence ofe-commerce and the Internet
In 1998 EQL strategically aligned itselfwith BPP Holdings (the largest Europeanpublisher of professional educationalmaterials) in order to meet customer needsfor both online and off-line hard-copymaterials and to access BPP wider marketMarket growth makes course accreditationeasier EQL employs an expert on developingcomputer-based assessment which featurequalitative questions and skills in addition tomultiple choice and quantitative testsIncreasingly lsquolsquoworld-classrsquorsquo educationalinstitutions are validators and accreditors ofexternally designed and provided designedcourses ndash the education value stream is re-intermediating
EQL aims to dis-intermediate trainingmanagers by offering courses directly tostudents via the Internet in partnership withthe Chartered Institute for ManagementAccountants (CIMA) the products will beknown as lsquolsquoCIMAinterctiversquorsquo and lowersEQLrsquos customer-find and assessment costs
Materials will be available for purchasefrom both EQLrsquos and CIMArsquos Web sitesusing credit card payment Courses will alsobe available worldwide through participating(licensed) colleges where course materials willbe downloaded or available on CD-ROMsEQLrsquos Web site also offers exam tipstutorials tools click-through to the BPPbookstore and possibly interaction with onlinetutors EQL sees this virtual campuseventually offering e-commerce and businessdegrees
Target constituentsrsquo perceptions and pursuitsEQL started with orders from some largeaccountancy firms and the new universitiestargeting more of the same with a wider rangeof products including specialist training
Unlike most educational publishers EQLdevelop material retaining IPR Company-specific course materials contain knowledgecaptured from client companies and validatedby their training managers EQLrsquoscontribution to these value streams is
141
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
142
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
143
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
144
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
145
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
expertise in drafting and delivery Aprofessional body or university accredits EQLmaterials with an accountancy firm validatingcomplex tax regulation materials
EQL benchmarks against its own qualitystandards rather than EU standards Allmaterials are in English ndash the language oftarget constituents in the USA AustralasiaSouth Africa and the Far East tigereconomies Currently 90 per cent of EQLbusiness is in Britain half corporate The lackof adequate intranets in British schools putsconstraints on EQLrsquos under-16 educationoffers although their packages can cost onlyhalf the traditional cost
Nature of target problemIn 1993 EQLrsquos perceived problem was lowintranet take-up by firms and universitiesWith their shift into e-commerce thecompany define their target problem in termsof service to customers not in terms oftechnology stating
Where wersquore almost unique in some respects isthat wersquore not really a technology companyEQL are educational publishers We delivereducationally sound material and thetechnologyrsquos just a vehicle for that
EQL possesses both graphic interface andeducational content expertise that it uses tomodularise to made downloading easier ForEQL the ability of materials to run on clientsystems being accessed by large numbers ofstudents is a design qualifier Only wherepedagogically justified are audio-visualmaterials included In short EQL hassuccessfully aligned its offering with thetechnology used by its customers It has notmade the mistake of becoming too far aheador behind its customersrsquo technologicalrequirements
Interacting technologiesconstituenciesEQL states that none of the barriers toe-commerce (security authorisation theft ofIPR online payment difficulties includinglack of trust) have affected its businessHowever its customer base has beenintermediate training package purchasers it isnow targeting and final users Productmarketing has been targeted towardsdecision-takers in large firms and universitiesand EQL has not spent heavily on generalmarketing Consequently customer lsquolsquosearchfindrsquorsquo and lsquolsquoassessmentrsquorsquo costs have not curbedEQLrsquos use of e-commerce The lsquolsquobrandrecognitionrsquorsquo of CIMA and other well-
established accreditation bodies help thiscreating a validation and certification networkfor products which otherwise could beinexpensively reproduced
EQL product market was delimited by thelow diffusion of its delivery channel ndash thepersonal or networked computer Thischanged rapidly after 1993 posing majorstrategic issues for continued alignment withthe delivery channels for its products EQLsuccessfully migrated from disc to CD-ROMand now Internet technologies incorporatingimproved design and assessment technologyinto its product range The companyrsquosstrength is in the content and accreditation ofits offering and its use of mature and proventechnologies EQL have extended their focusfrom business to public administration(B2PA) into business to business (B2B) andlatterly business to consumer (B2C)Importantly EQL includes within its B2Bplans the provision of training for SMEs inthe use of e-commerce
SummaryIn seven years EQL has
increased the interactivity of its products(customised flexible student-centred)improved connectivity now to includeB2B B2PA and B2Cwidened it product rangecreated alignments with accreditorsvalidators and educational institutionswhich it employs as online communitiesavoided high transaction-cost physicalinteractivity with customers (absence ofcall-centre development of qualitativeassessment)borne sunk costs of content developmentand successful dis(re)-intermediatededucation value streams
emfinance case studyConstituentsrsquo perceptions goals actions andresourcesThe companyrsquos visionary founders havestrategic distribution marketing andtechnological skills and the shared dream ofmerging mortgage supply with Internettechnology Launched in 1999 emfinancersquosLivingston office has 35 staff and has securedcalls on pound1bn of mortgage funds Thecompany partnered with eXchange Holdings(eH an e-commerce financial servicescompany) when venture capitalists failed toprovide equity
142
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
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Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
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Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Emerging e-commerce business models
Tony Kinder
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Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
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Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
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Emerging e-commerce business models
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Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
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Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Nature and maturity of the technologyThe company uses proven Web technologyemphasising system security and userconfidence with a Web site configurable asthe business grows or the legal regime alters(legally binding digital signatures and i-TV)Spending pound2m on pre-launch IT emfinance(with BT and Verisign) developed the first128-bit Windows NT encryption and finds noproblems interfacing with customer andpartner systems However it finds variation inthe use of IT by partners Some are digitalothers still require hard-copy Older financialinstitutions retain closed systems offeringlimited access whilst newer players often haveopen Web based systems For legal reasonsemfinance can complete all processes ofmortgage application digitally but stillrequires a paper-based signature forcompletion
GovernanceAs a dedicated online start-up emfinance hasa small core staff and leverages the physicalbrand and networking resources of its lender-partners (upstream) parent group andindependent financial advisors (IFAs)(downstream) Its partnership with eH givesemfinance access to the wide customerconstituency however additional intra-organisational alliances are important inincreasing the size of the online value stream
The company sees itself as subvertingestablished institutions and governanceregimes in mortgage supply In developingplans for overseas expansion emfinance isfaced by the need to conform to national andregional regulations and established practicesHence its Web site is modular to allowreconfiguration
Nature of target problemThe mortgage industry is fiercely competitiveemfinance is competing for site visitors and itsre-intermediation brokerage role againstbranded names Its strategy is two-fold toalign itself as a supplier of business to existingmortgage providers and offering mortgagesdirectly in niche markets
In creating an entirely online businessemfinance faces the reluctance of customersto complete major personal financialtransaction online this they believe willevolve as e-commerce grows In additionconverting visitors to customers without(expensive) physical interaction remains apriority
The company has three sets of targetcustomers (private borrowers especially re-mortgagers) and IFAs for whom it aims toadd new value via re-intermediation(1) To established lenders it offers a low cost
distribution (international) channelparticularly appealing to small regionally-confined lenders or new and bespokeproducts but a potential threat to largephysically-based lenders
(2) IFAs currently registered with eXchangeHoldings are now linked to emfinancersquossite this simplifies their productsselection and application processes IFAactivity patterns are monitored andtraining offer where necessary attemptingto convert a physical community into anonline community
(3) To private borrowers emfinance offers arange of concessions flexibilities anddiscounts coupled with simplifiedproduct assessment Above all emfinanceoffers speed and convenience inassessment and transaction (20 minuteturnaround online tracking and 24 hourscompletion)
Typical e-commerce issues affecting thecompany include low site stickiness beingperceived as ahead of the market lower thandesired conversion ratios and pressure to offeroff-line support Innovations addressing theseissues include decomposing the eight pageapplication form an online interactive flow-chart and the use of focus groups
Target constituentsrsquo perceptions and pursuitsRe-intermediation is viewed differently byemfinancersquos target constituents the lsquolsquobricksrsquorsquoare retaliating against the lsquolsquoclicksrsquorsquo The UKrsquosmajor established lenders have launchedonline mortgage catalogues and applicationfacilities As emfinance seeks to re-intermediate mortgage supply establishedlenders are hoping Internet technology willdis-intermediate it ndash bypass brokers andphysical branches and sell online directly toprivate borrowers Whilst emfinance aims totarget constituents across Europe onlinemortgage business (for example Europeloanfrom Belgium) are targeting British markets
For purely online businesses establishingcustomer trust is a particularly difficult hurdlefor high-value transactions such as mortgagesMany Web users continue to requireadditional off-line support before a majoronline purchase The company recognise this
143
Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
144
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Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
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Emerging e-commerce business models
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Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
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Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
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European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
but consider that as brokers they are able toleverage the brand-name and physical assetsof their lenders such as the Woolwich Thisachieves a successful lsquolsquoclicks and mortarrsquorsquobalance ndash whilst retaining the cost savings andcompetitive advantage of being itself purelyonline
Interacting technologiesconstituenciesThere are few issues of technology alignmentbut where these exist (such as networkintegration with lenders) they are morematters of institutionsrsquo divergent policies andtraditions rather than lsquohardrsquo technologicalmisalignment
There are a number of constituencies atdifferent levels within which emfinace isseeking to align itself These are the parentgroup (by providing a distinctive industry-leading service) the mixed onlineoff-linemortgage supply chain (by offering high-valueproducts and intermediary services)Additionally the broader e-commerceconstituency within which the companyshares a broad interest in convertingestablished supply chains into better valueonline supply chains A major strategicquestion is whether other constituencieswhich are currently collaborative will becomecompetitive and whether other high-value andmortgage related services (such as planningconveyancing) migrate to e-commerce tostrengthen customer trust
SummaryIn one year emfinance has
launched a new interactive product andpositioned its sitersquos connectivitycreated a B2B and B2C online networkand begun to enrich an online communityof IFAscreated an opportunity to dis(re)-intermediate the mortgage supply valuestreamplans to offer other financial services onits site and to expand into Europeestablished strategic partnerships witheH lenders and IFAs
Real Time Engineering (RTE)Constituentsrsquo perceptions goals actions andresourcesRTE is a rapidly growing software and ITsystems privately owned company founded in1988 and currently turning over pound12 millionfrom four sites employing 180 staffOriginally focused on the oil and gas industry
the company has recently re-organised intospecialist divisions one of which is anembryonic financial services unit named FirstOctober The company is experimenting inlsquolsquooff-the-wallrsquorsquo areas ndash defined as thosewithout any immediate application orbusiness benefit One of these is thedevelopment of e-commerce products andservices for SMEs in which it aims to employits cumulated consultancy and technologicalinnovation expertise and forms the subject ofthis case study
RTE aims to translate its database expertisefrom blue-chip customers (in which RTErsquosopportunities to offer e-commerce servicesare limited) to SMEs via a standard platformCurrently is unclear whether a generic SMEe-commerce product will be successful amore customised approach is not thoughtviable RTE considers that too many SMEsare badly advised to adopt e-commercesolutions with the associated necessarybusiness process re-engineering Further itbelieves it can act as educator and mentor tonascent SMEs transferring its cumulatede-commerce expertise
Nature and maturity of the technologyRTE views the Internet as a simpletechnology subject to front-end designimprovements However in developing ageneric product for SME e-commerce it aimsto migrate into a SME product its IT systemsexpertise garnered from large companiesThis will involve the transfer and codificationof knowledge and its translation into thedifferent context of e-commerce SMEs Sinceonly high-growth SMEs are likely to offerrepeat business RTE will refocus itstechnology strategies from large-scale systemsintegration (often of standardised products)to small-scale provision of customisedsolutions It believes that four databases(human resources product handlingfinancials and sales) form core tools for anye-commerce business RTE hopes to create astandard product which provide SMEs with aWeb front-end an online trading system andthe four core databases
GovernanceRTE recognises that its relationships withe-commerce SMEs are likely to require long-term investment in a knowledge andincubation network ndash the building of ane-commerce constituency RTE is presentlyengaged with several West Lothian small
144
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
145
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
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Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
firms from a wide range of backgroundsThese discussions are a two-way educationprocess in which RTE educates small firmsabout the potential of e-commercetechnology whilst itself learning aboutthe issues and scenarios confrontingSMEs
RTErsquos ideas include extending the workwith the pilot groups into collective discussiongroups ndash perhaps in association with a thirdparty ndash so as to develop a betterunderstanding of common fundamentalsThe company will offer pilot firms free remotehosting of their databases avoiding the needto install hardware
With a limited RampD budget it may be thatRTErsquos core business requires its completeproduct development attention in futurea scenario which would support FirstOctoberrsquos spin-out RTErsquos core business islsquolsquocustomer-drivenrsquorsquo care is needed not to fallinto the more lsquolsquotechnology-drivenrsquorsquogovernances sometimes typical ofe-commerce
Target constituentsrsquo perceptions and pursuitsIn educating pilot firms about Internet-basedtechnologies RTE emphasises businessprocesses ahead of technology The object isto identify and distil underlying genericsWorking with a small group of companiesenables RTE to engage in lsquolsquoprototypingrsquorsquo ndashunderstanding the e-commerce requirementsof its clients arising from the nature of theirbusiness learning what is generic Thecompany then designs or sources appropriatematerial ultimately developing an off-the-shelf product for all SMEs
At First October RTE offers freee-commerce development services Most ofthe SMEs had Web sites from which littlevalue flowed RTE has upgraded these sitesinstalling online trading facilities and helpingintegration with back-office processesdemonstrating the simplicity of Internettechnology
RTE is critical of the lack of educationoffered by many IT-solution sellers whichfail to help SMEs integrate e-commerce withbusiness processes RTE believes it ispossible to differentiate the underlyinggeneric fundamentals of e-commerce fromsuperficial techniques that vary by sector andfirm It argues that many IT-solutions sellersoffer only context-dependent techniques thatmay be inappropriate for any given business
In its core business divisions RTE investsheavily in understanding its customersrsquoindividual circumstances in order to identifyappropriate techniques However they arguethis is not possible with diverse andnumerous SMEs RTErsquos approach is toprovide SMEs with the fundamentals of e-commerce whilst the SMEs must learn thetechniques itself
RTErsquos view is that if e-commerce is tobecome an integrated aspect of an SMErsquosprocesses and systems then the SMEmust learn to maintain and improve itsWeb site and not out-source thesefundamentals
Nature of target problemRTE believes that only when SMEs areeducated to distinguish between techniquesand fundamentals and to maintain andintegrate e-commerce technology with theirbusiness processes will e-commerce besuccessfully adopted by SMEs
SMEs can be poorly informed andunwillingunable to devote significantresources to projects with uncertainreturns RTE has therefore prioritiseduser education of its pilot group and isworking with IT consultants and publicsector bodies in an effort to improve levelsof understanding in the local SMEcommunity
Interacting technologiesconstituenciesSince RTE recommends the use of standardhardware and software there are few cases ofincompatibility with heritage technologieswithin the SMEs Absence of effectivee-commerce amongst SMEs is not the resultof technical difficulties The essentialproblem RTE argues is at the applicationlevel identifying the underlying generics ofSME e-commerce and embedding these intoa standard set of business process databasesThe company recognises that some SMEsmay in future diverge into non-standardecommerce technology
SummaryRTErsquos pilot invests time and resources inSMEs aiming to learn sufficient to develop ageneric e-commerce product targeted atSMEs This product will provide SMEs withthe fundamentals of e-commerceconnectivity To exploit this RTE believesSMEs also require support to integrate andre-engineer business processes
145
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Analysis
This section uses the conceptual instrumentspresented in the second section to analysethese case studies at two levels First dynamicprocesses of alignment and realignment as acharacteristic of e-commerce business modelsare examined Second these processes are re-examined as holistic and strategic which weterm evolutionary business planning
Dynamic alignmentsThe case studies show the successful growthof e-commerce at the level of the firm to beone of continually re-aligning in response tochanging social and technologicalopportunities These re-alignments arefeature both intra and inter-organisationalchange and adjusted alignments betweensegments of the diamond of alignment Eachre-alignment poses strategic issues in relationto connectivity interactivity and agility
Constituentsrsquo perceptions goals actions andresourcesIn all three cases the constituency formed bythe innovating company had fourcharacteristics Core product-relatedcompetences were proven (education contentand distance learning mortgage lending andfund raising and systems integration anddatabases) Each viewed e-commerce as anew delivery channel offering the possibilityof dis-intermediating existing product valuestreams populated by profitable companiesAll three ventures were commercial each hadthe purpose of profitable trading acted andbuilt the constituency in pursuit of this goalThis goal was lsquolsquoprivilegedrsquorsquo above other goals(such as research or innovation) Finallynone of these examples has burst into short-term profitability As investments their priceearnings and growth ratios are likely tobecome positive only in the three to five yearperiod typical of small business start-ups
Nature and maturity of the technologyOnly emfinance spent substantially prior totrading (though arguable EQL inherited sunkcosts that had been written down and FirstOctober enjoyed hidden subsidy from RTE)In each case study the entrepreneursemphasised the technological maturity ofInternet-based e-commerce lsquolsquothe technologyis just a vehiclersquorsquo say EQL Notable is thesimplicity of e-commerce relative to manyother technologies being innovated (only 6
per cent of Scottish businesses trade over theInternet) The scalability of e-commercetechnology is profound (emfinancersquosmodularisation EQLrsquos multi-purpose siteRTErsquos system integration)
These three companies view Internet-basede-commerce technology as technicallymature In each case the immaturity risk andinnovativeness lies in migrating a provenproduct to the uncertain governances andvalue stream structures found in theimmature world of e-commerce markets andrelationships
GovernanceRe-aligning governances is the majorchallenge facing each of these threecompanies However the nature of thechallenge varies RTErsquos strategy is to re-intermediate the IT value chain by dis-intermediating purely IT consultants andhardware sellers substituting an e-commercehardware-software package which meets theintegrated needs of SMEs In the pilotingstage RTE has formed a community of SMEsand a wider constituency of public agenciesand consultants who share its vision Thislatter constituency will be necessary if it is togeneralise its product (which combineshardware with software and businessreprocessing advice) Replicating the softersides of its constituency will be a majorchallenge to RTE at rollout stage as will entryinto this niche by major software or hardwarepurveyors In its pilot stage RTE hassuccessfully aligned these governances EQLrsquosaim of direct sales to students requiresmaintenance of its validator and assessorcommunities synchronously with adis-intermediation of some institutionsproviding education courses To date EQLhas successfully made these inter-institutionalalignments within its constituency Theslowness (inability) of educational institutionsto enter the online market has given EQLfirst-move advantage Continued alignmentwith validators and assessors appearspromissory provided accreditation andcontent standards are maintained Thecommunity of IFAs appears ready to adoptemfinancersquos services and support analignment which may prove crucial astraditional mortgage lenders launch their owne-commerce offers and compete withemfinance Brand names entering this marketmay challenge emfinancersquos position though
146
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
its re-mortgage business and niche regionaloperations are likely to be a different matterThe emfinance case shows thatdisintermediated value streams are subject tothreat of re-intermediation in lucrative easilyentered markets
RTE has a B2B strategy (SME customersin its pilot stage) emfinance is B2C (with abrokerage B2B role on behalf of existinglenders) and EQL is migrating from B2B(institutions) to B2C (worldwide students)From a cost viewpoint these differences arereflected in their e-commerce SATconfigurations RTE is lsquolsquohands-onrsquorsquo investingheavily in inter-organisational liaison Itsconversion rates are extremely high asexpected of a low-volume high-marginproduct Value for RTE is extracted towardsthe end of assessment and in the transactphase of e-commerce EQL is migrating froma directed lsquolsquosearchrsquorsquo (by institutions) towardsan open market search in B2C Marketing thesite and site stickiness (conversion ratios) areimportant Thus funnelling hits throughassessment towards transaction is critical andis reflected in an offering attractive in formupon entry and content in later phases Theproduct offering of emfinance is a complexvariety of products to a wide range of targetcustomers
The case studies illustrate that for SMEsthe challenging alignments in e-commerceinclude a focused view of relevantconnectivity an approach to interactivitywhich involves carefully re-brigadingresources to align with key constituents andfinally the strategic agility to implementintra-organisational change and strategyalterations
Target constituentsrsquo perceptions and pursuitsRTE is investing resources in a pilot actionAs such it has found little difficulty inenrolling SMEs public agencies andconsultants behind their vision Should thecompany decide to spinout First October asan independent product maintaining thesealignments will be crucial RTErsquos ventureseeks alignment with a new type of content-driven value stream (which merges softwarehardware and consultancy) SEMA and IBMhave also adopted such a lsquolsquosolutions-basedrsquorsquoapproach However RTE targets solely aSME constituency These are costly valuestreams which may at first sight appearunattractive compared to lsquolsquovirtualrsquorsquo low-cost
hardware-software perceived alternatives(Dell)
EQLrsquos constituency contains educationinstitutions (mass distribution of coursemodules) with whom it is going to competefor some market segments using a virtualvalue chain Its advantage in an increasinglycrowded market is its ability to providecontent online qualitative assessment andalignment with validators publisher andassessors in short the quality of its offeringIt will be important to any avoid tensionbetween quality assurance (eg validators)and student throughput Since open anddistance learning is a growth market EQLseems well positioned with its existing inter-organisational alignments Future lsquolsquofinal-userrsquorsquo sales may require significant investmentin site search and assessment
The mortgage value stream like many B2Cstreams migrating into ecommerce remains influx It would appear that virtual valuestreams for the ultimate virtual product ndashmoney ndash are promissory As an early entrantemfinance is cumulating expertise in aligningIFAs and customers an expertise which islikely to be tested when traditional lendersenter the market and previous collaboratorsbecome competitors
Nature of target problemRTE defines its problem in creating a newproduct not in terms of technology but rathercapturing knowledge from its SME pilotwhich can be incorporated into a systemintegrative database and e-commerce toolwith associated service support In the rapidlychanging environment of IT services toSMEs time-to-market for RTE may be at apremium and it may decide to launch aproduct and then upgrade it In such ascenario building the constituency of supportorganisations will be challenging It may bethat it targets SMEs in particular sectors orwith (for example) export potential wheree-commerce take-up is especially auspiciousEQLrsquos target problem too is not technologyinnovation (except qualitative assessment)Indeed it recognises the need not to getahead of its market EQL has a proven agilityand ability to enrich the appropriateinteractivity of its offering Growth in thedistance learning market appears to be animportant sensitivity for the companyHowever growth markets attract attentionand EQLrsquos positioning (connectivity) to
147
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
paying customers may be their dominanttarget problem Only emfinance of thesecompanies invested heavily ( 28 million)prior to launch This level of expenditurecoupled with the threat of competition maketheir lsquolsquodash-for-cashrsquorsquo (positive cash-flowfollowed by profitability) particularly urgentMortgages are a complex and costly productNevertheless similar products (carsinsurance jobs) are now widely securedonline
All three companies face pressure forpositive cash-flow In this they are nodifferent from most start-ups Where they aredifferent is that each face potentially seriouscompetition and may have to realignthemselves as collaborators becomecompetitors
Interacting technologiesconstituenciesMortgages educational courses and businessIT systems are varied e-commerce productswhich these case studies show to be united inthe maturity of the delivery technology Thecomplex alignments shown by these casestudies are of governance and constituentsrather than technologies Interestingly EQLrsquosprogression from discs via Intranets to CD-roms and then the Internet underscores thegeneral flexibility of Internet-basede-commerce technology The different mixesof B2B and B2C markets of these threecompanies also illustrates how searchassessment and transaction moments ine-commerce exchange are configurable to suitdifferent business needs
Holistic alignmentEach technological innovation diffusion ortransfer involves processes of continualsociotechnical realignment The pace of socialand technical change and premium upontime-to-market in e-commerce are such thatrealignments as the case studies illustrate arelikely to be strategic in addition to beingtactical Businesses in less dynamic sectorsoften evolve incrementally in a series oftactical realignment punctuated by periodicstrategic modifications In such a scenariotime-scales may allow incrementalrealignment between segments of thediamond of alignment Dynamic changeoffers no such luxury In the case studiesentrepreneurs are shown to be makingfrequent strategy changes This scenario callsfor a new dynamic and holistic approach to
business planning This we outline below andterm evolutionary business planning
Each new technological regime gives rise tonew funding arrangements ndash railways withjoint stock companies Fordist manufacturingwith institutional investors etc ICTinnovating SMEs currently seek risk capitalfrom venture funds angels and corporateventurers Start-up or development capitaland often in-house investment normallyrequires a business plan Unfortunately theprocess of drawing up and seeking risk capitalby presenting the business plan to potentialinvestors can constrain SME e-commerceinnovation Let us decompose the phrase thebusiness plan The suggests a static recipebusiness indicates aversion to alternative riskor deviation and plan implies actions basedupon unachievable foresight Our alternativeapproach for SMEs innovating e-commerceprefers to conceptualise evolutionary businessplanning This is a truly a dynamic instrumentin the process of constituency building fromconcept stage through to IPO and beyond Infast-moving industrial sectors it recognises theneed for strategic continual renewal ofstrategic outlook (not simply tactical changes)which inter-relates dimensions within SMEsmaintaining alignment with unfoldingopportunities and technological changes It isa process of constituency building
In this respect every business plan is both areflection of the trends achievements andpotentials of the constituency building at agiven point in time and a projection andmapping of the alignments required for itslong-term future This may imply a more-of-the-same approach or a substantial shift in thebusiness strategies to be pursued The criticalmethodological point is that by shifting fromlsquolsquoplanrsquorsquo to lsquolsquoplanningrsquorsquo the preparation ofbusiness plans is positioned within theunderstanding and conceptual tools of thelsquolsquosociotechnical constituenciesrsquorsquo frameworkparticularly the diamond of alignmentIndeed it is this positioning that enables aswell as demands the shift in the first place
From the viewpoint of constituencybuilding however the generation of abusiness plan for each new productservicerequires a strategic outlook to at least sixcrucial areas of operation These arepresented in Figure 6 and are financemarketing technology organisation andhuman resources and production
148
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Each of these areas of strategy inter-link witheach other and misalignments between themcould prove disastrous for the success of theventure In fact each of these strategies evolveduring the process of constituency buildingmaking sustainability the result not only of afinancial strategy but of the effectiveness andalignment between all of the strategic areasindicated Indeed without effectivetechnology human resource organisationalmarketing and production strategies thefinancial strategy is worthless
Figure 7 integrates the business planstrategies more fully within the framework of
constituency building In particular itillustrates that at all times the definition andrealisation of strategies demand multi-directional alignments involving people andtechnology In addition the main centre-arrow of lsquolsquoconstituency-building processrsquorsquo nowmakes explicit that this process is made up ofcombinations of the several fundamentalmoment (not sequential stages) of lsquolsquocreationproduction diffusion implementationrsquorsquoThese moments are essential to allconstituency-building processes and thismeans that the different strategies will relateto all of them with greater or less emphasis
Figure 6 Crucial areas of strategy in STCrsquos business plan
Figure 7 An overview of aspects of diamond of alignment
149
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
depending on the approach taken for each ofthe strategies For instance a marketingstrategy may concentrate primarily on thelsquolsquomarket diffusionrsquorsquo moment of theconstituencyrsquos productservice thetechnology strategy may concentrate on thenature of the productservice as well as on itsproduction process and so on
Overall it must never be forgotten that thepurpose of the inter-linked strategies is toensure the sustainability of the operation andultimately the growth and consolidation ofthe constituency
The essential process in productserviceconstituency building is that of multi-directional and multi-layer alignments asencapsulated in the diamond of alignmentSuccessful business planning (as encapsulatedin the evolving business plan and itsinterrelated strategies) must therefore relateclearly to the various dimensions of thediamond[5]
There is no one-best-way approach tobusiness planning Effective solutionsparticularly in the dynamic e-commerceenvironment require and evolutionary andholistic approach to business planning
Concluding remarks
In analysing the evolution of threee-commerce businesses in West Lothian thispaper has outlined in a systematic wayrelevant conceptual instruments Couplingthese to the sociotechnical constituencyapproach illustrates the possibility of businessmodelling in the evolutionary and holisticmanner Whilst the emergence ofe-commerce remains fluid (particularly ingovernance arrangements and therelationships between virtual and physicalbusinesses) we believe that discerniblepatterns now allow analyses to shift from casestudies towards taxonomising and theorisinge-commerce However extensive research isrequired into social flows especially powerrelations in the e-commerce sector
Notes
1 Less than 5 per cent of retail sales derive frome-tailing (The Economist 30 January 1999 p 23)
2 See Wheelerrsquos (2000) article on ` Reputationmanagementrsquorsquo in which he demonstrates theeffectiveness of cyber-criticism and the growth of
consultancies specialising in rebuttal and protectiontechniques
3 Cyber-shopper s a University of Minnesota surveysuggests leave Web sites that fail to capture theirinterest within eight seconds rsquo`Stickiness rsquorsquo is the abilityof sites to retain interest directing visitors through thelayers necessary towards concluding a transaction
4 These case studies were conducted by MarkWinskell Alfonso Molina and Tony Kinder duringMarch 2000 as part of a deliverable for the EUfunded BuKs project The complete case studies canbe found at wwwtechmapporg
5 A constant mistake made at all stages inconstituency growth is to isolate one strategic areasuch as total quality management or processre-engineering believing that a single area of aconstituencyrsquos operation can be radically alteredwithout affecting other areas of its operation
References
Alstyne MV (1997) ` The state of network organisationrsquorsquoJournal of Organisational Computing Vol 7 No 3pp 45-9
Armstrong A and Hagel J (1996) ` The real value ofonline communitiesrsquorsquo Harvard Business ReviewMay-June pp 134-41
Bocock R (1993) Consumption Routledge LondonBusiness Week (2000) 20 MarchDTI (2000) ` UK online for businessrsquorsquo available at
wwwukonlineforbusinessgovukgovernmentbenchinternationalint00coverpdf
(The) Economist (2000) 1 April p 78Evans P and Wurster TS (1999) Blows to Bits Harvard
Business School Press Boston MAFein AJ (1998) ` Understanding evolutionary processes in
non-manufacturing industries empirical insights fromthe shakeout in pharmaceutical wholesalingrsquorsquo Journalof Evolutionary Economics Vol 8 pp 231-70
Fleck J (1996) ` Informal information flow and the natureof expertise in financial servicesrsquorsquo InternationalJournal of Technology Management Vol 11 No 12 pp 104-28
Gates B (1999) Business The Speed of ThoughtPenguin London
Hagel J and Singer M (1999) Net Worth HarvardBusiness School Press Boston MA
Hammer M and Champy J (1993) Re-engineering theCorporation Nicholas Brealey London
Kamien MI and Schwartz NL (1982) Market Structureand Innovation CUP Cambridge
Kinder T (2000a) ` Issues of theory and practice forecommerce diffusion and analysis evolving of labourmarkets plusmn Internet-based recruitment in WestLothianrsquorsquo Technovation Vol 20 No 9 pp 461-75
Kinder T (2000b) ` A sociotechnical approach to theinnovation of a network technology in the publicsector plusmn the introduction of smart homes in WestLothianrsquorsquo European Journal of InnovationManagement Vol 3 No 2 pp 72-90
Kinder T Klaes M and Molina AH (1999)` Sociotechnical alignment in the build-up of atelemedicine constituency in Scotlandrsquorsquo Science andPublic Policy Vol 26 No 6 pp 415-35
150
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151
Klein S (1996) ` Electronic commerce in the centre ofEurope plusmn concepts and experience for supply chainmanagement and customer relations in SwitzerlandGermany and Austriarsquorsquo paper presented at the 6thWorld Congress of Electronic Commerce Users
Kodama F (1992) ` Technology fusion and the new RampDrsquorsquoHarvard Business Review JulyAugust pp 70-8
Molina AH (1997) ` Insights into the nature oftechnology diffusion and implementation theperspective of sociotechnical alignmentrsquorsquoTechnovation Vol 17 Nos 1112 pp 601-26
Molina AH (1999a) ` The role of the technical ininnovation and technology development theperspective of sociotechnical constituenciesrsquorsquo Technovation Vol 19 pp 1-29
Molina AH (1999b) ` Transforming visionary productsinto realities constituency-building andobservacting in the case of NewsPadrsquorsquo FuturesVol 31 pp 291-32
Nagel R and Dove R (1992) 21st CenturyManufacturing Strategy plusmn An Industry Led ViewIacocca Institute Lehigh University
Rackham N Friedman L and Ruff R (1996) GettingPartnering Right McGraw-Hill London
Rayport JF and Sviokla JJ (1995) ` Exploiting thevirtual value chainrsquorsquo Harvard Business ReviewNovember-December
Shapiro C and Varian HR (1999) Information Rules plusmn AStrategic Guide to the Network Economy HarvardBusiness School Press Boston MA
Timmers P (1998) ` Business models for electronicmarketsrsquorsquo Electronic Markets Vol 8 No 2 pp 3-8
Treleaven P (2000) ` E-business strt-uprsquorsquo The SundayTimes Kogan Page London
Veblen T (1953) The Theory of the Leisure Class AnEconomic Study of Institutions Mentor Books NewYork NY
von Hippel E (1988) The Sources of Innovation OUPOxford
Wheeler O (2000) ` Reputation managementrsquorsquo Revolution 1 June pp 32-8
Further reading
Cooper R (1995) When Lean Enterprises Collide HarvardBusiness School Press Boston MA
Cyert RM and March JG (1963) A Behavioural Theoryof the Firm Englewood Cliffs NJ
de Bary WT and Haboush JK (Eds) (1985) The Rise ofNew-Confucianism in Korea MacmillanNew York NY
(The) Economist (2000) ` E-commerce Surveyrsquorsquo26 February p 15
Gattiker UE (1990) Technology Management inOrganisations Sage Publications London
Itami H (1987) Mobilising Invisible Assets HarvardUniversity Press Boston MA
Kinder T and Molina AH (2000) ` A sociotechnicalmodel of learning organisations plusmn new ways of
working and emerging organisational formsrsquorsquoTechMaPP Working Paper Department of BusinessStudies University of Edinburgh
Kollman T (1998) ` Marketing for electonic market
places plusmn the relevance of two critical points ofsuccessrsquorsquo Electronics Markets Vol 8 No 3pp 36-9
Lamming R (1993) Beyond Partnership plusmn Strategies forInnovation and Lean Supply Prentice Hall London
Leadbeater C (1999) Living on Thin Air Penguin
LondonRemington WS Pedigo R and Fox TL (1988)
` Building the virtual organisation with electroniccommunicationrsquorsquo Electronic Markets Vol 8 No 3
pp 43-5Schwartz EI (1997) Webonomics Penguin LondonSmith M and Brynjolfsson E (1999) ` Understanding
digital markets review and assessmentrsquorsquo availableat httpecommercemitedu papersude
Spar D and Bussgang JJ (1996) ` The netrsquorsquo HarvardBusiness Review May-June pp 125-33
Williams S (1999) Small Business Guide PenguinLondon
151
Emerging e-commerce business models
Tony Kinder
European Journal of Innovation Management
Volume 5 Number 3 2002 130plusmn151