Journal of Small Business and Enterprise Development

An exploration of the inside-out model: e-commerce integration in UK SMEs

Elizabeth Daniel
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 Introduction
An exploration of the Since commercial use of the Internet
inside-out model: commenced in earnest around 1994 (Poon
e-commerce and Jevons, 1997; Peterson et al., 1997), there

integration in UK SMEs has been widespread media coverage of the

use of e-commerce. Managers are told that
Elizabeth Daniel use of e-commerce is already leading to the
reshaping of customer and supplier
The author relationships, the streamlining of business
Elizabeth Daniel is a Senior Research Fellow at the processes and, in some cases, even the
Information Systems Research Centre, Cranfield School of restructuring of whole industries. Despite a
Management, Cranfield, UK. cooling in the sentiment towards e-commerce
post April 2000, the value of e-commerce
Keywords transactions is expected to continue growing.
Electronic commerce, Small- to medium-sized enterprises, It is forecast that the total value of business to
Systems engineering, United Kingdom business e-commerce around the world will
exceed $2,400 billion by 2004, compared to a
Abstract
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value of $474 billion in 2001 (eMarketer Inc.,

Organisational integration is being heralded as a critical 2002).
``dynamic capability'' and is seen as an important strategic An important issue that is often cited by
issue for firms in the future. This study seeks to explore this
firms developing e-commerce services is the
issue in the specific context of e-commerce and information
integration of such services with their
system integration, by considering the model proposed by
existing information systems, often termed
Poon and Swatman, in the case of small- and medium-sized
legacy systems (Dalton, 1999; Keeling et al.,
enterprises (SMEs) in the UK. Poon and Swatman propose
2000; Melymuka, 2000; Haapaniemi et al.,
that the model of business transformation enabled by
traditional IT turns ``inside out'' when applied to the
2000; Von Hoffman, 2001). Such
e-commerce domain. Their model suggests a hierarchy of integration is often desired to provide
levels of e-commerce integration. At the lowest level firms beneficial outcomes such as integration
develop inter-organisational systems. At the next level they across different distribution channels, a
undertake limited integration with existing internal systems, unified view of the customer or end-to-end
and only at the highest level do they achieve full internal processing of transactions. In a recent
integration. The study, which was carried out by a mailed extension of the traditional resource based
questionnaire, found that the proposed model is indeed view (RBV) of the firm (Wernerfelt, 1984;
valid. Three distinct groups of firms are identified that Barney, 1991), the ability to achieve such
correspond to the hierarchical levels proposed in the model. organisational integration is being heralded
The benefits realised by the firms were found to increase as a ``dynamic capability'' and is seen as an
with increasing integration, but the level of process change important element of sustained value
required was found to be independent of the level of creation by firms in the future (Teece et al.,
integration. Contextual variables, such as industry sector 1997; Eisenhardt and Martin, 2000; Amit
and organisational size, are explored for firms at the three and Zott, 2001).
different levels of integration. Developments of the Poon This paper seeks to explore this issue of
and Swatman model are suggested.
e-commerce integration with existing
Electronic access information systems by seeking to explore a
model proposed by Poon and Swatman
The Emerald Research Register for this journal is
(1999). This model suggests that, in the
available at
e-commerce domain, there is a hierarchy of
http://www.emeraldinsight.com/researchregister
levels of integration that is distinct from that
The current issue and full text archive of this journal is witnessed in the development of traditional
available at information systems. At the first level, firms
http://www.emeraldinsight.com/1462-6004.htm develop inter-organisational e-commerce
services with no integration with their
Journal of Small Business and Enterprise Development
existing systems. At the next level, firms
Volume 10 . Number 3 . 2003 . pp. 233-249
# MCB UP Limited . ISSN 1462-6004 undertake limited integration with their
DOI 10.1108/14626000310489691 existing information systems, and at the
233
 Exploration of the inside-out model: e-commerce integration in SMEs Journal of Small Business and Enterprise Development
Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

highest level firms undertake full Previous literature on IS and

integration. This model turns the e-commerce adoption by SMEs
well-accepted model of business
transformation enabled by traditional IT Managers in SMEs have been characterised
proposed by Venkatraman (1994) as having reservations about the adoption and
``inside-out''. use of information systems, arising from their
Poon and Swatman proposed their limited human and financial resources, low IS
model in the particular context of small knowledge and skills, and their lack of
businesses (defined as 20 employees or less). managerial time (Malone, 1985; Cragg and
The current study broadens this initial King, 1993; Cragg and Zinatelli, 1995;
context and seeks to explore the model in the Chang and Powell, 1998; Thong, 2001).
case of small and medium sized enterprises However, these reservations have not always
(SMEs) (defined as 250 employees or less) obviated the benefits and successes such firms
based in the UK. Such businesses are a vital could achieve from IS (see for example
part of all developed economies (Storey, Naylor and Williams, 1994; Caldeira and
1994). In the UK, SMEs are responsible for Ward, 2001). Traditionally, IS use in such
56.3 per cent of employment and 51.8 per firms tended to be confined to tools to
cent of turnover (DTI, 1999). SMEs are automate standard administrative functions,
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increasingly making use of e-commerce. such as accounting, budgeting, inventory

Research by Oftel (2002) has found that the control and word processing packages
majority of SMEs in the UK have Internet (Farhoomand and Hrycyk, 1985; Nickell and
access, with 92 per cent of medium sized Seado, 1986; Mitev and Marsh, 1998). In
firms and 62 per cent of small firms being their more recent study of small firms, Pollard
connected. However, the SME sector is and Hayne (1998) found that the approach to
traditionally characterised by high failure, IS has changed dramatically and that ``using
with failure rates being six times higher for IS for competitive advantage'' was now the
smaller than large businesses (Storey, 1994). most important IS issue amongst the firms
With the significant impact that e-commerce surveyed. As observed earlier by Lin et al.
is forecast to have on industries, it may be (1993), this increasing interest in the strategic
expected that these failure rates will increase if use of IS by SMEs is based on three factors:
SMEs do not develop effective services in the increased adoption of IS and its effective
this domain. Integration with existing use by competitors, a decrease in the cost of
systems is seen as an important aspect of IS so that it is accessible to SMEs, and the
e-commerce effectiveness (Keeling et al., ability for IS to allow SMEs to ``mask their
2000; Melymuka, 2000; Haapaniemi et al., size from external partners''.
2000; Von Hoffman, 2001). Due to the relative youth of e-commerce,
It is believed that this study represents the there are not as yet widely agreed definitions
first, large-scale exploration of the Poon and of what is meant by this term. Kalakota and
Swatman model and is a first step towards Whinston (1997) define e-commerce as ``the
its validation. It also proposes extensions to buying and selling of information, products
that model. The Poon and Swatman model, and services via computer networks'', the
and its validation and further development, computer networks primarily being the
are important for both practitioners and Internet. Others (Cabinet Office, 1999) use
those that study the adoption of the term to encompass both the buying and
e-commerce in organisations, since it selling described above and also the use of
provides an understanding of how firms can Internet technologies, such as e-mail or
integrate their information systems and intranets, to exchange information either
hence increase the effectiveness of such within the firm itself or with external
systems. stakeholders. It is this latter, wider definition
The paper commences with a discussion of of e-commerce that is used in this study.
relevant literature and the propositions that Although the majority of studies in the
guide the research are stated and discussed. e-commerce domain to date have been
The methodology adopted to undertake the undertaken on large companies or ``born to
study is described and the findings are the Web'' companies such as Amazon.com
presented and discussed. (Kotha and Dooley, 1998), there is now an
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 Exploration of the inside-out model: e-commerce integration in SMEs Journal of Small Business and Enterprise Development
Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

interesting and growing literature addressing activities, resulting in the potential for
e-commerce in the specific context of considerable cost savings. McBride (1997)
traditional small and medium sized considers use of Internet technology within a
enterprises (SMEs) (see for example Doherty firm to provide a platform for an information
et al., 2001; Elsammani et al., 2001; Keeling infrastructure. This information
et al., 2000; Jacobs and Dowsland, 2000; infrastructure includes the use of the Internet
Poon and Swatman, 1999; Webb and Sayer, to find external business information and an
1998) and even in the context of micro intranet to organise and provide access for
businesses (Clayton, 2000). These studies staff members to a firm's internal
indicate that there is a range of business information.
activities for which SMEs are making use of The Internet has also been applied to other
e-commerce. The table in the Appendix to important business activities by SMEs such as
this paper, which has been derived from identification of new suppliers (Kaplan and
existing literature, provides a summary of the Sawheny, 2000), procurement (Jacobs and
activities for which SMEs are currently using Dowsland, 2000) and the recruitment of new
e-commerce. A large number of these staff (Thomas and Ray, 2000; Taylor, 2001;
activities are directed towards customers, Doherty et al., 2001).
either current or potential. Poon and Currently, even the largest of companies are
Swatman (1999) discuss how the Web can be still in the process of developing and applying
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used to find new customers in both domestic appropriate objective measures for their
and overseas markets, while Poon and Jevons e-commerce activities (Neely and Marr,
(1997) discuss how e-commerce can be used 2000). Consistent with this, Poon and
to deliver enhanced services. The use of the Swatman (1999) and Poon (2000) found the
Internet for advertising and brand building adoption of e-commerce in small businesses
has been addressed by a number of authors. was being driven by ``perceived benefits''
Indeed this was one of the earliest uses of the rather than actual objective measures of
Internet for many smaller organisations benefits. The importance of the perception of
(Webb and Sayer, 1998). Jacobs and benefits in the uptake of new systems was
Dowsland (2000) found that, at the time of
stressed by Iacovou et al. (1995) in studies of
their study, 30 per cent of SMEs in their
the adoption of EDI.
sample were using the Internet for advertising
While it is often assumed that smaller firms
and brand building.
will always lag larger firms in their use of IS,
An important element of strategy
in the case of the Internet, Lynn et al. (1999)
formulation for companies of all sizes is the
found that smaller companies were making
reaction to competitors (Porter, 1985). Porter
more use of such technologies to contact their
(2001) has recently reconsidered his writings
customers than their larger counterparts.
on strategy in the light of the Internet and
They found that despite the limited resources
concludes that increased adoption of the
of smaller firms, the new technologies were
Internet will lead to increased competition
equally effective for small and large firms.
within markets. He suggests that e-commerce
From this the authors conclude that either the
reduces the difference amongst competitors'
large firms are not using the new technologies
offerings and migrates competition to price,
effectively, or that such technology is
rather than product features or brand
``resource insensitive''.
perceptions. Smaller businesses have, in
particular, been encouraged to adopt
e-commerce as a means of improving their
competitiveness, either with other SMEs Integration of e-commerce with
(Jacobs and Dowsland, 2000) or with larger existing IS
companies, where they have been promised
that e-commerce can ``level the playing field'' Integration of e-commerce services with
(Campbell, 2000; Lynn et al., 1999). internal information systems is an important
In addition to improving relationships with aspect of e-commerce effectiveness. For
customers and remaining competitive, example, Grimshaw et al. (2000) find that
e-commerce has promised companies the companies that have achieved such
opportunity to improve both the effectiveness integration gain greater benefits than those
and the efficiency of many of their internal that have not done so. Keeling et al. (2000)
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 Exploration of the inside-out model: e-commerce integration in SMEs Journal of Small Business and Enterprise Development
Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

also cite the importance of integration with services, such as e-mail communication with
such ``legacy systems'' and state that the customers or suppliers or the development of
technical and organisational difficulties information-based Web sites. At the next level
inherent in such integration will slow down firms undertake a limited degree of
the exploitation of e-commerce. integration with their existing internal
The well accepted model of Venkatraman systems, and only at the highest level is full
(1994) suggests that there are five distinct integration with internal systems achieved.
levels of business transformation enabled by This suggests that the model of Venkatraman
traditional IT systems, as shown in Figure 1. (1994) turns ``inside-out'' when applied to the
The five levels of transformation are each e-commerce domain. That is, rather than
based on an increasing level of integration commencing with internal integration, initial
between information systems, at first purely e-commerce developments tend to be inter-
within the organisation (evolutionary levels) organisational in nature. Internal linkages are
and then with systems outside the organisation only addressed at higher levels. Poon and
(revolutionary levels). Venkatraman's thesis is Swatman do not state that the levels in their
that the benefits that an organisation can model are sequential steps through which
realise from its IT investments will increase firms are expected to pass. However, they
with these increasing levels of integration, but suggest that firms are likely to pursue further
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that in order to realise such benefits, integration when they perceive benefits
correspondingly greater changes within the arising from their extant use e-commerce,
organisation will also be required. He states implying a staged approach. Indeed, a staged
most strongly that the five levels ``are not approach to integration is consistent with the
conceptualised as stages of evolution because observations of authors such as Frank (1988),
effective strategies do not (and should not) Dosi (1988) and Reid and Smith (2000), who
follow one prescribed model''. He does, regard small firms as organisations which gain
however, view the levels as a hierarchy. experience and knowledge in a sequence of
In their exploratory study of e-commerce steps or stages. Achievement of the first stage
issues in small businesses, Poon and Swatman of a project or development allows the
(1999) propose the model of integration organisation to gain experience, which it can
shown in Figure 2. They suggest the following then use to its benefit to move on to the next
hierarchy. At the lowest level, firms develop stage of development, at which point it will
inter-organisational e-commerce or Internet gain further experience.

Figure 1 Venkatraman (1994) model for traditional IS adoption

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Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

Figure 2 Poon and Swatman (1999) suggested model for e-commerce adoption
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In the exploratory study undertaken by Poon Research propositions

and Swatman, very low levels of integration
with firms' existing systems were found. This study seeks to explore the suggested
Common reasons for the lack of integration model of Poon and Swatman (1999) by
included: low volumes of structured messages considering the specific context of small- and
arriving from the e-commerce services, lack of medium-sized enterprises in the UK. The
in-house IT development skills, few empirical component of this study, which is
affordable turn-key solutions and lack of inductive in nature, is structured around four
external pressure to encourage or assist with deductively derived research propositions.
integration. Poon and Swatman (1999) suggest that, in
The lack of integration with internal the e-commerce domain, there are three levels
systems has been cited as a reason that one of of integration. At the lowest level, firms
the newest e-commerce models, develop systems that extend beyond the
e-marketplaces, have failed to meet the boundaries of their own organisation. At the
forecasts made for them (Miller, 2001). In intermediate level, firms undertake a limited
1999 it was forecast that between 7,500 and degree of integration with their existing
10,000 such marketplaces would be created, internal systems, and only at the highest level
but by 2001 the number of active do they undertake complete integration. This
marketplaces was estimated to be only around leads to a first research proposition:
700 (Ohlson, 2001). It has been found that P1. The development of e-commerce
there is little integration between the services demonstrates three distinct
e-marketplace and the order taking, inventory
levels: inter-organisational exploitation,
management and shipping systems of the
limited integration with internal
sellers and the procurement systems of the
systems and full integration with
buyers (Miller, 2001). Without this
internal systems.
integration between e-commerce services and
internal information systems the efficiencies This current study does not seek to establish if
inherent in such marketplaces will not be the levels are sequential steps or stages
realised (Kaplan and Sawheny, 2000). It through which a firm progresses. Rather, an
would therefore appear that unless firms find approach consistent with that of
successful approaches to integration with Venkatraman (1994) is adopted in that the
their internal information systems the full levels are viewed simply as a hierarchy.
extent of the innovations and benefits possible Drawing from the original Venkatraman
from e-commerce will not be realised. model, it is further suggested by Poon and
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Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

Swatman that firms will realise greater Respondents were asked if, according to the
benefits as they achieve greater integration definition given, they were currently using
with their existing internal systems, but this e-commerce or not. Those that indicated they
will require greater changes to organisational were not using e-commerce were asked to
processes. This leads to a second and third state why. These statements have been
proposition: analysed elsewhere (Daniel and Myers, 2000)
P2. The benefits realised will increase with and further responses from these respondents
increasing integration. are not included in the study reported in this
P3. The degree of organisational process paper. All of the remaining respondents were
adjustment will increase with asked to indicate which of a list of 16
increasing integration. suggested e-commerce services they had
developed or had under development. The
It has been argued (Pettigrew, 1985) that the
list of 16 services was drawn from the existing
strategy pursued by a firm must be considered
literature on e-commerce use by SMEs as
within the context in which the firm operates.
shown in the Appendix.
For example, managers within different
Respondents were then asked to indicate
industry sectors are faced with different
the level of integration between five key
environmental contexts and are therefore
internal information systems (Ward and
likely to adopt different responses to these
Griffiths, 1996) and their e-commerce
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contexts (Bailey and Johnson, 1996).

services. It was expected that integration
Different types of firms in terms of size,
would not be a binary state, but rather would
revenue and location, even within the same
represent a spectrum of states or levels and
industry, are also expected to develop distinct
hence a four-point scale was used to measure
strategies. The importance of the business
integration (1 = not integrated at all,
environment in the specific case of adoption
2 = minor integration, 3 = moderate
of e-commerce by SMEs has been recognised
integration and 4 = major integration).
in studies by Poon (2000) and Doherty et al.
Respondents could also indicate if the
(2001). It could therefore be expected that
particular system was not relevant to their
the level of integration achieved by a firm
firm. Firms indicating certain systems were
would depend on contextual variables at both
not relevant were omitted from the
an industry and organisational level. This
appropriate parts of the subsequent analysis.
leads to a fourth proposition:
Three statements relating to the perceived
P4. The level of integration demonstrated
benefits that are forecast to be realised by
by a firm will depend on contextual
small businesses from e-commerce (Hamill
variables both at an industry and an
and Gregory, 1997; Poon and Jevons, 1997;
organisational level.
Jacobs and Dowsland, 2000) and a single
statement relating to the impact on
organisational processes were included in the
Methodology survey instrument. Respondents were asked
to show their level of agreement with these
A positivistic ontological and epistemological
statements according to a four-point scale
paradigm was adopted for this study, in which
(1 = strongly disagree, 2 = disagree, 3 = agree
the intention was to explore a set of
and 4 = strongly agree). Once again,
propositions drawn from existing literature. respondents could indicate if any of the four
Appropriate research methods for such statements were not relevant to them. With
studies tend to be large sample, quantitative regard to the length of the survey instrument,
surveys (Hussey and Hussey, 1997) and such single statements (or items) were used to
an approach was adopted for this study. measure the perceived benefits and process
changes associated with e-commerce. Such
Survey instrument scales also reflect the exploratory nature of
The research was carried out by means of a this study.
mailed questionnaire which commenced with The instrument also included questions
the definition of e-commerce that we wished relating to the context of the respondent's
respondents to adopt when completing the firm, including; industry sector, number of
survey. This definition is that given earlier in employees, annual turnover, number of years
this paper. in operation, the percentage of sales made to
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 Exploration of the inside-out model: e-commerce integration in SMEs Journal of Small Business and Enterprise Development
Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

other businesses and the percentage of sales e-commerce to ``de-select'' themselves from
exported. the sample. They could do this in two ways.
The survey instrument also included a First, and it was expected that this would be
number of other sections, not relevant to the the most frequent approach, companies not
study reported in this paper. The instrument interested in this subject would not complete
was piloted with 21 SMEs. This highlighted a and return the survey. Second, if they wished
number of issues which were addressed in the to return the survey they could indicate that
final survey design. they are not considering e-commerce services
and give reasons for this.
Population definition Responses from the two samples were
The population of interest for this study is analysed separately and the results compared.
SMEs who are using or developing No significant differences were found
e-commerce services, where SMEs are between the two samples and so this paper
defined in accordance with the UK presents results based on the combination of
these two samples.
Department of Trade and Industry (DTI,
1999) as firms with 250 employees or fewer.
Response rate
No other constraints were placed on the
The total number of responses received was
population, such as industry sector or
766 (total response rate 11.8 per cent). Of
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geographic location. Indeed, it was preferred

these, 46 were rejected as representing
that that a wide spread in other variables
companies with more than 250 employees
could be achieved in order to ensure that
and a further 42 were not included since the
results obtained have the widest applicability
respondents reported that their organisations
amongst SMEs.
were not considering e-commerce. Hence 678
useable responses (effective response rate
Sample selection
10.4 per cent) were used as a basis for the
In this study, two samples of SMEs were
findings of this study.
used. First, a database of SMEs that is held
within the researcher's institution was used. Non-response bias
This contains companies that have attended The method of determining non-response
an executive education programme aimed at bias adopted in studies such as Goode and
SMEs or who have made enquiries about Stevens (2000) was adopted for this study. In
such a programme. The database held 1,500 this method the earliest responses to be
names and company addresses, all of which received are compared with the responses
were believed to have 250 or fewer employees. received later. The usable responses were split
The companies covered a wide range of into two equal sets of 339 according to the
industry sectors and were distributed dates on which they were received. No
throughout the UK. Second, 5,000 names significant differences were found between
and company addresses were bought from a the responses of these two groups. It is
commercial database company. Companies therefore concluded that the responses
were chosen from their records on the basis received are unlikely to contain a
that they had 250 employees or less. It was non-response bias.
ensured that the sample selected covered a
range of industry sectors and was distributed
throughout the UK. The mailings of Findings of study
questionnaires to the two samples were both
undertaken in March 2000 and all responses All organisations included in the following
were received by the end of April 2000. analysis had implemented at least one
It was not known from the two databases if inter-organisational e-commerce service. The
the companies selected were using or frequency of adoption amongst the
considering e-commerce. However, since respondents of four key activities from the
there is such a high degree of interest in this suggested list of 16 is shown in Table I. It can
subject, it was expected that many of the be seen that the majority of the sample had a
companies would be. It was decided to allow Web site providing information about their
companies not considering or using company (67.9 per cent) and also were using
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 Exploration of the inside-out model: e-commerce integration in SMEs Journal of Small Business and Enterprise Development
Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

Table I Frequency of key activities undertaken on-line

Percentage of respondents
On-line activity Grimshaw et al. (2000) taxonomy Yes Under development No
Web site providing company information Non-interactive 67.9 24.2 7.8
Document exchange with customers and suppliers Interactive 60.2 9.5 30.3
Taking orders on-line Transactional 27.9 20.8 51.3
Ordering and payment of inventory purchasing Transactional 11.9 8.1 80.0

electronic means to exchange documents with the F statistics resulting from these cluster
customers and suppliers (60.2 per cent). analyses indicated that the three cluster
Approximately one third of the respondents solution was indeed optimal at maximising
were currently taking orders on-line (27.9 per the between cluster variance while minimising
cent), and this capability was being developed the within cluster variance (SPSS Inc., 1999).
by a further fifth of the sample (20.8 per Table II shows the mean level of integration
cent). Only approximately one tenth of the between e-commerce services and each of the
sample (11.9 per cent) were currently five internal information systems for each
ordering and paying for inventory items cluster, according to the four-point scale
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electronically, with a similar proportion (8.1 provided. It can be seen that the three clusters
per cent) developing this capability. do indeed demonstrate different levels of
Previous studies have suggested that firms integration. Firms in cluster 1 have virtually
adopt a staged approach to e-commerce no integration between their e-commerce
(Angerhern and Barsoux, 1997; Grimshaw services and their internal systems. The
et al., 2000; Daniel et al., 2002). Grimshaw systems with greatest integration is seen is
et al. (2000), for example, indicate four stages with product databases, but even with these
of maturity that characterise the on-line systems the level of integration is very low
presence of firms, the first three of which are (score = 1.45). Cluster 1 is the largest of the
shown in Table I. A specific example of the three clusters, with 70.4 per cent (n = 328) of
final stage, which they refer to as integrated, is the valid responses being included in this
not included in Table I since this aspect forms cluster.
the basis of the rest of the study. It would Firms in cluster 2 show increased levels of
appear from the results shown in Table I that integration with internal systems compared to
the majority of the respondents are at the those in cluster 1. They indicate a moderate
earlier stages of on-line maturity according to level of integration of e-commerce with
the Grimshaw et al. (2000) taxonomy.
accounting systems (score = 3.04) and
In order to explore the first hypothesis, P1,
increased levels of integration with product
cluster analysis was undertaken on the
databases, although this is still only to a minor
responses to the questionnaire items relating
extent (score = 2.09). Firms in cluster 3
to the degree of integration with the five key
showed the highest levels of integration with
internal information systems. The K-means
internal information systems. The systems
cluster analysis procedure was adopted, since
where greatest integration is shown are
this method is appropriate for clustering when
the number of cases exceeds 200 (SPSS Inc., product databases (score = 3.46) and stock
1999). This method requires the expected availability databases (score = 3.26).
number of clusters to be input into the Interestingly, the systems where the least
analysis. In accordance with the Poon and integration is seen in cluster 3 is with
Swatman model, a three cluster solution was accounting systems, but it was these systems
chosen. The results of the cluster analysis are that showed the highest level of integration in
shown in Table II. the firms in cluster 2.
Although the intention of this study was to The findings shown in Tables I and II and
explore existing theory, and hence it is the given interpretation would suggest that
appropriate to adopt an a priori assumption of our first proposition, P1, that the
the number of clusters (Field, 2000), the development of e-commerce services
cluster analysis was repeated specifying two, demonstrates three distinct levels,
three, five and six clusters. A comparison of inter-organisational systems, limited
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Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

Table II Cluster formation according to degree of integration with key internal information systems ± three cluster solution
Three clusters identified according to degree of systems integration
1 2 3 F Sig.
Product databases 1.45 2.09 3.46 170.34 0.000
Stock availability databases 1.10 1.26 3.26 609.54 0.000
Order scheduling and handling systems 1.13 1.41 3.13 396.34 0.000
Order despatch systems 1.06 1.46 2.97 429.53 0.000
Accounting systems 1.07 3.04 2.76 582.25 0.000
Number of cases in cluster 328 70 68
Valid 466
Missing 212
Note: Scale used for cluster formation: 1 = not integrated at all, 2 = minor integration, 3 = moderate integration and 4 = major integration

integration with internal information systems scores increase from cluster 1 to cluster 3, a
and full integration, is confirmed. linear contrast was undertaken (SPSS Inc.,
In order to explore our second proposition, 1999). Table III shows that both the
P2, that the perceived benefits realised by an unweighted and weighted F statistics are
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organisation will increase with increasing significant (p < 0.05) for all three benefit
levels of integration, three broad perceived streams, indicating that there is a significant
benefit streams that are forecast to arise from linear increase in perceived benefits realised
e-commerce were proposed. These are: when the level of integration with internal
``ability to provide enhanced services to systems is increased. This finding suggests
customers'', ``realising cost savings'' and that our second proposition, P2, is confirmed.
``overall, e-commerce has proved valuable to Our third proposition, P3, sought to explore
our company''. Table III shows the mean the link between increased integration and the
scores on the four-point scale for each of the requirement for firms to adjust their internal
benefit streams for each of the three clusters. processes. Table IV shows the mean score on
For each of the three benefit streams, an the four-point scale, for each of the three
ANOVA was carried out on the mean score adoption clusters, for the respondents' level of
for each cluster in order to determine if they agreement with the single statement, ``It
are significantly different from each other. (e-commerce) will require a complete change
The F statistic for each of the benefit streams to how we currently work''. An ANOVA with
was found to be significant (p < 0.05), linear contrasts was undertaken for these
indicating that there is a significant difference three means and the F statistic was found not
between the reported means for each cluster to be significant (p < 0.05) indicating that the
for that benefit stream. In order to determine means are not significantly different. It would
if the benefits reported increase with therefore appear that the respondents at the
increasing integration, that is if the mean second and third levels of integration do not

Table III Perceived benefits realised from increased integration

Three clusters identified according to Table II
1 n = 328 2 n = 70 3 n = 68 F Sig.
Enhanced customer services Mean 2.97 3.38 3.26 Combined 11.90 0.000
SD 0.67 0.57 0.62 Unweighted 12.14 0.001
Weighted 17.44 0.000
Cost savings Mean 2.24 2.71 2.47 Combined 9.68 0.000
SD 0.71 0.82 0.72 Unweighted 5.52 0.190
Weighted 10.14 0.002
E-commerce has proved valuable Mean 2.95 3.22 3.20 Combined 8.20 0.000
SD 0.58 0.55 0.58 Unweighted 10.10 0.002
Weighted 13.69 0.000
Note: Scale: 1 = strongly disagree; 2 = disagree; 3 = agree; 4 = strongly agree

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Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

Table IV Required organisational process adjustment

Three clusters identified according to Table II
1 n = 328 2 n = 70 3 n = 68 F Sig.
It will require a complete change to how we Mean 2.32 2.29 2.32 Combined 0.057 0.944
currently work SD 0.67 0.67 0.73 Unweighted 0.005 0.941
Weighted 0.024 0.878
Note: Scale: 1 = strongly disagree; 2 = disagree; 3 = agree; 4 = strongly agree

consider there is a greater need for process employees in the firm, could also be
adjustment than those with no integration. considered as significant (p = 0.05), indicating
Indeed, the relatively low score for this the mean value of this variable also differs
statement (2.29-2.32) indicates that, on across the three clusters. No significant
average, respondents disagreed with the variation across the three clusters was found
statement regardless of their level of in the mean number of years the firm had
integration. This finding suggests that our been in operation. A linear contrast was
third proposition, P3, is rejected. undertaken for the four variables found to
The study also sought to explore the link vary significantly across clusters. The
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between contextual variables, such as industry unweighted F statistic of the linear term was
sector and firm size and the level of found to be significant in just one case, that of
integration achieved by firms, expressed as the percentage of sales exported by the firm.
our proposition, P4. Table V shows the value This would indicate that there is a significant
of five quantitative contextual variables for linear increase in this variable associated with
each of the three clusters. As with the increasing integration of e-commerce services
previous analyses, an ANOVA was calculated with internal systems.
for each of the contextual variables in order to Chang and Powell (1998) suggest that
determine if the mean values differ smaller firms are likely to have poor IT/IS
significantly across clusters. The F statistic infrastructure and both Naylor and Williams
was found to be significant (p < 0.05) for three (1994) and Ballantine et al. (1998) state such
of the contextual variables tested, that is: firms have limited resources which restrain
annual turnover, percentage of sales to other development of such systems. It would
businesses and percentage of sales exported, therefore be expected that larger firms would
indicating that these variables do differ be able to achieve greater levels of integration
significantly across the three clusters. The F than their smaller counterparts. However, this
statistic for a third variable, number of study did not find this to be the case. Indeed,

Table V Contextual variables

Three clusters identified according to Table II
1 n = 328 2 n = 70 3 n = 68 F Sig.
Number of employees Mean 64.80 86.67 71.60 Combined 3.01 0.050
SD 60.56 67.12 59.46 Unweighted 0.80 0.372
Weighted 2.06 0.152
Annual turnover (£k) Mean 6,922.78 11,551.89 8,175.00 Combined 7.87 0.000
SD 7,684.36 9,422.30 8,114.33 Unweighted 1.59 0.209
Weighted 4.68 0.031
Number of years in operation Mean 42.80 31.73 34.44 Combined 0.21 0.810
SD 160.88 35.84 46.38 Unweighted ± ±
Weighted ± ±
Percentage of sales to other businesses Mean 70.23 86.93 72.36 Combined 3.78 0.024
SD 41.05 30.39 40.17 Unweighted 0.17 0.679
Weighted 1.19 0.276
Percentage of sales exported Mean 9.15 16.56 15.50 Combined 4.96 0.007
SD 17.81 27.83 24.12 Unweighted 5.90 0.016
Weighted 8.13 0.005

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Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

as shown in Table V, the mean values for exporting most products (15 per cent) having
employee numbers and annual turnover are the highest levels of integration. Although the
greatest for those firms in cluster 2, indicating average levels of exports among the
that larger firms in this study have to date only respondents was low (total sample mean = 11
achieved limited integration, while smaller per cent), any firm with overseas sales is
firms have achieved higher levels of required to handle activities such as stock
integration. It is likely that these larger firms requests, orders and despatch goods from
will continue with their integration, however, around the world while also accepting and
the current findings would suggest that they processing payments in foreign currencies.
may be finding it more difficult to achieve Firms with appreciable sales overseas may
greater levels of integration. This may well be also be operating distributor or agent
because of the technical challenges arising networks, which must also be informed of
from the complexity of their existing systems, product changes, prices and the discounts
which inevitably arises with increased size of offered or the commissions paid. This
operations, but it may also encompass increased complexity is likely to result in the
organisational issues arising from the need for greater integration between
requirement to change business processes and e-commerce services offered and internal
staff roles as increased integration is sought. information systems, a relationship which is
Many of the longest established firms cite the confirmed by this study.
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number, the age and lack of flexibility of their Table VI shows a cross tabulation of the
existing information systems, or legacy industry sector of respondents and their
systems, as one of the main reasons they adoption cluster. It can be seen that the
cannot offer their customers the on-line majority of firms in cluster 1 are in the
services they would wish to (Dalton, 1999; manufacturing sector (26.8 per cent) and
Keeling et al., 2000). It may therefore have hence such manufacturing firms can be
been expected that the more established assumed to have virtually no integration
companies would show the lowest levels of between their internal systems and their
integration with existing systems. However,
this study has shown that the level of Table VI Cross tabulation of industry sector and adoption clusters
integration achieved by firms is independent Three clusters identified according
of the number of years that the firm has been to Table II
in operation. 1 n = 328 2 n = 70 3 n = 68 Total
The value of business to business
Manufacturing
e-commerce is forecast to be very significant
Count 70 10 12 92
and firms are expected to reap significant
Per cent within cluster 26.8 34.5 20.0 26.3
operational cost savings if they adopt this way
of working. Indeed, some firms, such as Cisco Construction/property
and GE, are already claiming to have made Count 52 2 7 61
significant savings by trading with their Per cent within cluster 19.9 6.9 11.7 17.4
suppliers and business customers on-line Retail/hospitality
(Hartman and Sifonis, 2000). However, it is Count 42 9 14 65
expected that firms will only reap these cost Per cent within cluster 16.1 31.0 23.3 18.6
savings if they integrate their internal systems
IT/communications
with their e-commerce services. It may
Count 14 5 7 26
therefore be expected that firms that sell a
Per cent within cluster 5.4 17.2 11.7 7.4
greater proportion of their products to other
companies would pursue greater levels of Professional services
integration, however, this was not found to be Count 52 2 17 71
the case in this study. Per cent within cluster 19.9 6.9 28.3 20.3
Both Hamill and Gregory (1997) and Poon Public/health/education/charities
and Jevons (1997) recognise the unique Count 31 1 3 35
opportunity the Internet provides small Per cent within cluster 11.9 3.4 5.0 10.0
businesses to expand beyond their local
markets. A linear relationship was found Total
between the level of integration and the Count 261 29 60 350
Per cent within cluster 100.0 100.0 100.0 100.0
percentage of products exported, with those
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Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

e-commerce services. Interestingly, the The variation in proportion of each of the

majority of firms in cluster 2 are also industry sectors across these clusters and the
manufacturing firms (34.5 per cent), thus significant differences found for four of the
indicating that a proportion of firms in this five contextual variables would indicate that
sector have been able to move to the next the degree of integration currently reached by
stage of integration on the Poon and Swatman a firm depends on contextual variables at both
model and develop integrated services. The an industry and organisational level. Our
findings shown in Table II indicate that such fourth proposition, P4, is therefore
firms are likely to have integrated their confirmed.
product databases and to a greater extent
their accountancy systems. It would therefore
appear that they are pursuing the on-line sale Conclusions
of their products, by offering customers up-
to-date and full product information and Organisational integration is being viewed as
integrating invoicing with their existing a critical ``dynamic capability'' and is seen as
accountancy systems. Via this integration an important element of sustained value
these firms are likely to be enhancing creation by firms in the future (Teece et al.,
customer service and also realising cost 1997; Eisenhardt and Martin, 2000; Amit
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savings from increased efficiency, as reported and Zott, 2001). Integration between
by cluster 2 firms in Table III. The information systems is a key enabler of such
manufacturing firms that have pursued organisational integration. This study sought
integration can act as exemplars to the to explore the issue of integration in the
manufacturing firms currently in cluster 1, by specific context of e-commerce and
demonstrating which internal systems can be traditional or legacy information system
integrated and what benefits can be realised integration by exploring the model proposed
from this integration. by Poon and Swatman (1999). In this it is
The majority of firms in cluster 3 are
proposed that the model of business
professional service firms, which includes
transformation enabled by traditional IT
firms such as publishers, consultants, lawyers
turns ``inside out'' when applied to the
and those offering financial services. Such
e-commerce domain. They suggest that there
firms have reported the greatest integration
are three hierarchical levels of development in
with the five internal systems proposed. It
this new domain:
may be expected that systems such as product
(1) inter-organisational systems;
databases and stock availability may be less
(2) limited integration with internal systems;
relevant to such firms. However, respondents
and
were able to indicate if any of the systems
(3) full integration.
were not relevant to their firm and, if so, they
were then removed from the appropriate part The study found that, in the particular case of
of the analysis throughout this study. The SMEs in the UK, the proposed model of
professional service firms in cluster 3 Poon and Swatman is indeed valid. Firms
therefore indicated that the internal appear to form three distinct groups which
information systems considered were relevant can be identified with the three hierarchical
to them and that they were highly integrated levels proposed.
with their e-commerce services. An example The perceived benefits realised by firms
of an integrated product database in the were found to increase with increasing levels
professional services sector is the provision of of integration, as predicted by the Poon and
on-line product information by financial Swatman model. Indeed, it may be expected
advisors. Such on-line services may include that integration will allow firms to offer their
the range of products offered, the relevant customers more complete and up to date
terms and conditions and the interest rates. information on their products and services
Since this information is subject to frequent and even allow customers to track products as
change, such firms can ensure that they offer they are being manufactured, despatched and
their clients the most up-to-date and hence shipped (Ng, 2000). Such services are likely
most professional service if this service is to enhance customer service. Increased
integrated with existing internal systems. integration will also remove the requirement
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Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

to process paper orders, invoices, payments the findings of this study cannot simply be
and other documents, reducing the time extended to larger firms. Studies should
taken for such processing and the errors that therefore be undertaken to explore the
are inherent in such paper-based systems. It is applicability of the Poon and Swatman model
only with such integration that firms are likely in the context of large companies. Such firms
to realise the cost savings from increased are likely to have a significant number of
efficiency that have been forecast from existing systems and are likely to reap
e-commerce. significant benefits if they can integrate their
The study did not find that increased e-commerce services with these existing or
integration required greater organisational legacy systems. From the empirical findings of
process adjustment, as suggested by the Poon their study, Poon and Swatman also suggest
and Swatman model. Undoubtedly, increased that improved integration within larger firms
integration will require a degree of process
may also aid in the increased integration
change, but respondents did not view this as
within small firms, as witnessed in the
significant. It would therefore appear that the
adoption of EDI.
term ``organisational process adjustment''
This current study does not seek to
does not fully capture the actions or
establish if the levels are sequential steps or
experience that differentiates the three levels
stages through which a firm progresses. A
of integration. Indeed, in his model,
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subsequent study, based on a longitudinal

Venkatraman (1994) uses the term ``business
design, could be undertaken to explore this
transformation'' and refers to changes being
further.
required in a number of organisational
The observation that accounting systems
conditions, including strategies, structures
showed the highest level of integration in
and culture in addition to processes. Doherty cluster 2, but the lowest level in cluster 3,
et al. (2001) found that there are a number of might imply that there are two distinct
factors that determine the adoption of sub-levels within the hierarchy suggested by
e-commerce by SMEs, which include: Poon and Swatman. The four-cluster solution
management's disposition towards to the cluster analysis reported in Table II,
technology, customer's willingness to although set aside because the values of the F
purchase on-line, the capabilities of the statistics were less than that of the three-
company and the action of competitors. It cluster solution, suggested that there are two
may therefore be that it is a combination of distinct clusters at the second level of
such factors that firms must address if they integration; one of these clusters had
wish to pursue a path of increased integration. significant levels of integration with their
Such a set of factors may be considered as a product databases (3.24) with little
measure of the degree of alignment of the integration with accountancy systems (1.23).
e-commerce strategy with the business The other cluster showed the opposite
strategy (Henderson and Venkatraman, pattern, that is, significant levels of
1999) and this term is included in our integration with accounting systems (3.08)
suggested development of the Poon and and little integration with product databases
Swatman model, discussed below. (1.86). This leads to a specific proposed
The level of integration reached by a firm extension of the Poon and Swatman model, as
was found to depend on contextual variables shown in Figure 3.
at both and industry and organisational level. It cannot be determined from the current
study why firms may choose to adopt one of
the proposed sub-levels compared to the
Limitations to current study and further other. It may be determined by the status of
studies their current systems. If, for example, a
company's current product database is not up
The study was carried out on a sample of to date or robust, it may choose to pursue
small and medium-sized businesses in the integration with its financial systems that are
UK. Smaller firms are often characterised by kept more up to date. However, other factors
their staged approach to new business may also determine the integration
developments (Frank, 1988; Bell, 1995; undertaken, for example: what it is the
Gankema et al., 2000), which may imply that company wishes to achieve from its
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Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

Figure 3 Proposed development of the Poon and Swatman (1999) model

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e-commerce developments, the range and Bailey, A. and Johnson, G. (1996), Patterns of Strategy
complexity of the products offered by the Development, Working Paper Series, SWP1/96,
Cranfield School of Management, Cranfield.
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provide both practitioners and those that Moulton, M., Hand, S. and Adams, C. (Eds),
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Cabinet Office (1999), [email protected], The
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Elizabeth Daniel Volume 10 . Number 3 . 2003 . 233-249

Appendix

Table AI Summary of current uses of e-commerce

Variable name in Existing literature
Focus of activity E-commerce services current study (all studies are SME based unless marked*)
Customers Advertising ADVERT Hamill and Gregory (1997), Webb and Sayer (1998),
(existing and potential) Poon and Swatman (1999), Levy and Powell (1999),
Jacobs and Dowsland (2000), Beynon-Davies and Owens
(2001), Elasammani et al. (2001)
Providing information on company COINFO Poon and Jevons (1997), Auger and Gallaugher (1997),
O'Keefe et al. (1998), Levy and Powell (1999),
Elasammani and Scown (2001), Doherty et al. (2001)
Providing information on goods and GOODSINFO Poon and Jevons (1997), Auger and Gallaugher (1997),
services O'Keefe et al. (1998), Levy and Powell (1999),
Elasammani and Scown (2001), Doherty et al. (2001)
Communicating with customers or CUSTCOMM Auger and Gallaugher (1997), Sillince et al. (1998),
suppliers Levy and Powell (1999), Poon and Swatman (1999),
Doherty et al. (2001)
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Document exchange with customers DOCEXCH Sillince et al. (1998), O'Keefe et al. (1998),
or suppliers Beynon-Davies and Owens (2001)
Taking orders ORDERS Auger and Gallaugher (1997), Doherty et al. (2001)
Receiving payment PAYMENT Auger and Gallaugher (1997), Doherty et al. (2001)
Delivery of digital goods or services DELIVERY Peterson et al. (1997), Poon and Swatman (1999)
After sales service or contact AFTERSALES Auger and Gallaugher (1997)
Suppliers Identifying new inventory suppliers INVSUPPLIERS Poon and Jevons (1997), Jacobs and Dowsland (2000),
Beynon-Davies and Owens (2001)
Ordering and payment of inventory ORDERINVENT Poon and Jevons (1997), Jacobs and Dowsland (2000),
purchasing Beynon-Davies and Owens (2001)
Non-inventory purchasing NONINVENT Kaplan and Sawheny (2000)*, Nairn (2000)*,
Benyon-Davies and Owens (2001)
Other stakeholders Recruitment RECRUITMENT Thomas and Ray (2000)*, Taylor (2001)*,
Doherty et al. (2001)
Communications with shareholders SHARECOMM Doherty et al. (2001)
and investors
Internal operations Communication between employees INTCOMM Dutta and Evrard (1999), Sillince et al. (1998)
Information search (external to INFOSEARCH Hamill and Gregory (1997), Dutta and Evrard (1999),
company) Poon and Swatman (1999), Jacobs and Dowsland (2000),
Beynon-Davies and Owens (2001)

249
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