Center for Research in Electronic Commerce (CREC)
McCombs School of Business, The University of Texas at Austin http://crec.bus.utexas.edu
E-business Value Assessment
Dr. Anitesh Barua
E-mail: barua@mail.utexas.edu Phone: 512-471-7895
Dr. Prabhudev Konana
E-mail: pkonana@mail.utexas.edu Phone: 512-471-5219
Dr. Andrew Whinston
E-mail: abw@uts.cc.utexas.edu Phone: 512-471-8879
Fang Yin
E-mail: Fyin@mail.utexas.edu Phone: 512-471-7962
Study sponsored by DELL Computer Corporation
Productivity Paradox
“We see computers everywhere except in the productivity statistics.”
-- Nobel Laureate Robert Solow
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Motivation behind the study
Internet economy is about the transformation of traditional businesses to e-business, and just not a dot com revolution. Confusion regarding the true potential of the Internet economy.
The Internet economy is big, but how good is it?
Are e-business initiatives paying off? If “yes” where and how? If “no” why not? Wide range of sizes Industry sectors: manufacturing, retailers, wholesalers and distributors. Ongoing research activity of CREC since late 1980s
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Measuring E-business Value
E-business success measured ultimately by financial performance
To see financial benefits (e.g., increase revenue per employee), choose measures of operational excellence (e.g., % of customers doing business online, % online procurement)
To achieve operational excellence, invest in e-business drivers (e.g., online IT capabilities for customers and suppliers), and ebusiness processes. Synergistic investments in e-business technology coupled with restructuring of processes that emphasize online interaction with customers and suppliers, and developing online support for customer and suppliers relationship management.
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
A Model of E-Business Value
Revenue/employee, Gross Profit Margin, Return on Assets, etc.
Financial Measures
% Online Business, % Online Procurement, % Customer Service Provided Online Order Delivery Time, etc.
Operational Excellence Measures
IT Applications
Processes
E-Business Readiness
Customers Suppliers Internal
Customers Suppliers Internal
E-Business Drivers
Customers Suppliers
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Data collection
A 74-item questionnaire developed by CREC researchers Over 4500 U.S. and European firms contacted by MarketVision Research. Approximately 1200 firms responded to the survey
Employee Distribution
Industry Respondents
9%
31%
11% 45%
59% 10%
35%
Less than 100
Between 101 and 400
More than 400
Retailers
Manufacturers
Distributors
Wholesalers
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Highlights
Firms that have observed increase in financial performance have significantly better operational excellence performance (e.g., % existing customer doing business online, % online procurement) and higher-levels of investments in e-business drivers (e.g., integration of Web and backoffice systems). Smaller firms observe much higher percentage gains in financial performance with e-business relative to larger firms.
There is significant potential to gain efficiencies with online supplier relationships.
Firms have not leveraged the power of online product customization. Firms need to invest in increasing the e-business readiness of customers and suppliers. Firms must redesign their customer and supplier processes for ebusiness transformation.
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
How can a firm achieve high levels of financial benefits in e-business? (Table 1)
Comparison of driver levels of firms reporting increase in financial performance with firms reporting no financial gains
E-business drivers Revenue per Employee * *** *** * *** *** * *** * *** *** * *** *** *** *** ** *** * *** *** *** ** *** * Gross Margin ROA ROIC
System integration Customer Orientation of IT (Informational) Supplier Orientation of IT (quality) Supplier Orientation of IT (supply-continuity) Supplier Orientation of IT (relationship) Internal Orientation of IT Supplier Processes Customer Processes Supplier E-business Readiness Customer E-business Readiness
* significant at 10%; ** significant at 5%; *** significant at < 1%
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Do operational excellence lead to improved financial performance? (Table 2 in the report)
Comparison of operational excellence measures of firms reporting increase in financial performance with firms reporting no financial gains
Increase in Revenue Operational Measures Per Employee No Yes 40.4 19.7 23.6 40.2 43.4 43.9 No 12.0 11.6 12.9 19.2 15.2 15.3 Increase in Gross Margin Yes 42.2 19.1 21.6 40.7 43.3 45.3
% online revenue % online MRO procurement % online production goods procurement % service request resolved online % new customer acquired online % existing customer doing business online
10.5 11.3 12.3 16.8 10.9 14.8
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Effect of firm size on e-business impact (Table 3 in the report)
Comparison of average and median financial gains for firms with revenue < $1 million and revenue ≥ $1 million.
Average Increase for firms with revenue < $1 Million Mean Median Average increase for firms with revenue >= $10 Million Mean Median
Financial Measure
Increase in revenue per employee Increase in gross margin Increase in return on asset Increase in return on invested capital
46.9% 39.6% 47.6% 50.2%
40% 25% 40% 50%
13.2% 11.8% 10.3% 20.9%
5% 8% 5% 10%
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Customer orientation of IT – Informational (Table 5 in the report)
Comparison of informational capabilities of firms reporting increase in financial performance with firms reporting no financial gains
% Agree (somewhat to strongly agree) “No” to increase in Revenue per Employee “Yes” to Increase in Revenue per Employee 81% 64% 58% 33%
Customer Orientation Question (Informational)
All product-related information is available online (e.g., price, product description, catalog, etc.). Customers can customize their orders online without phone/face-to-face interactions. A comprehensive FAQ section is available online. Customers can interact using online forums and/or communities (e.g., chat rooms, bulletin boards) Customers see personalized content (e.g., products, prices, order history, order status, etc.) when they log onto the web site
56% 33% 45% 23%
27%
40%
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Customer orientation of IT – Transactional capabilities (Table 6 in the report)
Comparison of customer transactional capabilities of firms reporting increase in financial performance with firms reporting no financial gains
Availability of Transactional Feature Customer Orientation Question (Transactional) “No” to Increase in Revenue per Employee No Yes 54% 30% 36% 30% 46% “Yes" to Increase in Revenue per Employee No 18% 43% 32% 47% 26% Yes 82% 57% 68% 53% 74%
Customers can submit orders online Customers can modify orders online Customers can pay online Customers are notified of their order status automatically Customers access a secure website for ordering and other interactions
46% 70% 64% 70% 54%
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Supplier orientation of IT – Transactional capabilities (Table 8 in the report)
Comparison of supplier oriented transactional capabilities of firms reporting increase in financial performance with firms reporting no financial gains
Availability of Transactional Feature Supplier Orientation of IT Applications (Transactional) “No” to Increase in Revenue Per Employee No Yes 36% 26% 30% No 63% 71% 72% “Yes” to Increase in Revenue per Employee Yes 37% 29% 28%
Systems allow automated invoice transmission and processing Systems track status of orders online Payments are electronically sent to suppliers.
64% 74% 70%
Note: The results are similar for supplier orientation informational capabilities (Table 7 in the report)
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
E-business processes – Suppliers (Table 12 in the report)
Majority of the firms have not leveraged the Internet and other IT for supplier relationship management
% Agree (somewhat to strongly agree)
Supplier Processes Related Measures
“No” to increase in Revenue per Employee
“Yes” to Increase in Revenue per Employee 28%
Method of sharing product roadmap and demand forecast with suppliers is well defined. Information exchange policies with suppliers (e.g., frequency, precision, real-time or delayed, format, and channel) are well defined. Supplier selection criteria are well documented. Supplier quality monitoring process is well defined.
26%
29%
38%
43% 37%
52% 45%
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Internal Orientation of IT (Table 13 in the report)
Majority of the firms have not leveraged the Internet and other IT for internal operations
% Agree (somewhat to strongly agree) Internal Orientation of IT Applications “No” to increase in Revenue per Employee “Yes” to Increase in Revenue per Employee 52% 41% 33%
Employees can retrieve required information through corporate intranet. Employees manage administrative processes online. Best practices/project management information is available through the corporate intranet.
51% 38% 28%
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
E-business readiness – Customers (Table 14 in the report)
Customers of firms with observed increase in financial measures are generally more ready for e-business
% Agree (somewhat to strongly agree)
Perceived Readiness of Customers
“No” to increase in Revenue per Employee
“Yes” to Increase in Revenue per Employee 78% 69% Overall
Customers feel comfortable regarding security and privacy in electronic commerce Customers consider it important to engage in electronic commerce 49% 76% 67% 52%
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
E-business readiness – Suppliers (Table 14 in the report)
Suppliers of firms are generally NOT ready for e-business
% Agree (somewhat to strongly agree) Perceived Readiness of Customers “No” to increase in Revenue per Employee “Yes” to Increase in Revenue per Employee 59% 55% 65% 56% 66% 56% 49% 62% 53% 65% Overall
Suppliers have Internet-based systems to engage in electronic commerce. Suppliers feel comfortable (regarding security, privacy etc.) engaging in e-business Suppliers are willing to share information electronically with us. Suppliers consider it important to engage in ebusiness. Suppliers consider it important to improve coordination and collaboration.
47% 41% 53% 47% 65%
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
Levels of Online Procurement (Table 15 in the report)
Average level of online procurement of all firms
% Online Procurement
0% 1% to 20% 21% to 50% > 50%
% of firms procuring MRO items online % of firms procuring production goods online
34% 42%
41% 31%
16% 20%
9% 14%
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin
More information
Academic details of this study will be presented at Multichannel Conference on Productivity and the Internet Economy, Austin, November 2-3, 2000. Details available at http://www.internetproductivity.org/ Copies of other productivity-related papers available at http://crec.bus.utexas.edu
Value and Productivity in the Internet Economy (in IEEE Computer, May 2000) by Anitesh Barua, Andrew B. Whinston, and Fang Yin. (http://crec.bus.utexas.edu/works/articles/IEEE_Computer.pdf)
Not all Dot Coms are Created Equal: An Exploratory Investigation of the Productivity of Internet Based Companies by Anitesh Barua, Andrew B. Whinston, and Fang Yin. (http://crec.bus.utexas.edu/works/articles/digital.pdf)
ⒸCopyright Barua, Konana, Whinston and Yin 2000, CREC The University of Texas at Austin