THE SITUATED ORGANIZATION AND ELECTRONIC MARKET ADOPTION LI YAO A THESIS SUBMITTED FOR THE DEGREE OF MASTER OF SCIENCE (MANAGEMENT) DEPARTMENT OF DECISION SCIENCE NATIONAL UNIVERSITY OF SINGAPORE Acknowledgements First of all, I would like to sincerely express my gratitude to my supervisor, Professor Hsiao Rueylin, for his stimulating suggestions and encouragement Without his guidance and support, the completion of this thesis would not have been possible Thanks are also due to the examiners, whose suggestions and comments have helped to further improve the quality of this thesis My appreciation also goes to the friends who acquainted me with ChinaMarket, MobileCom, PCCom, PharmCom and EngCom, as well as those who helped me with the fieldwork, and who have in one way or other helped me in my pursuit of my Masters’ degree and the work on my thesis, particularly the faculty members, staff and students at NUS business school Last but not least, I express my sincere gratitude to my beloved parents and boy friend for their unfailing support and understanding i Table of Contents ACKNOWLEDGEMENTS I TABLE OF CONTENTS II SUMMARY IV LIST OF TABLES VI LIST OF FIGURES VII CHAPTER 1．INTRODUCTION .1 CHAPTER 2．LITERATURE REVIEW 2.1 PREVIOUS LITERATURE ON THE FAILURE OF E-MARKET ADOPTION 1 The “Conditions Thesis” 2 The “Structure Thesis” .7 2.2 THE CONTEXTUAL ANALYSIS IN TECHNOLOGY ADOPTION .11 2 Research on the Contextual Analysis 11 2 Using the Contextual Analysis in Technology Adoption 12 2 The Contextual Analysis and E-market Adoption .13 CHAPTER 3．METHODOLOGY 19 3.1 CASE BACKGROUND 19 3.2 DATA COLLECTION AND ANALYSIS 23 CHAPTER 4．FINDINGS 29 4.1 THE E-MARKET OF CHINAMARKET 32 4.1.1 Organizing Principles: Free Market Transactions 32 4.1.2 Core Practices in the E-Market 33 4.2 CASE 1: ENGCOM .36 4.2.1 Situated Contexts 36 4.2.1.1 The Industrial Context 36 4.2.1.2 The Supply Chain Context 38 4.2.2 4.3 The Contextual Re-situated Analysis 41 CASE 2: MOBILECOM 47 4.3.1 Situated Contexts 48 ii 4.3.1.1 The Industrial Context 48 4.3.1.2 The Supply Chain Context 51 4.3.2 4.4 The Contextual Re-Situated Analysis 56 CASE 3: PCCOM .59 4.4.1 Situated Contexts 60 4.4.1.1 The Industrial Context 60 4.4.1.2 The Supply Chain Context 62 4.4.2 The Contextual Re-situated Analysis 66 CASE 4: PHARMCOM 70 4.5.1 Situated Contexts 71 4.5.1.1 The Industrial Context 71 4.5.1.2 The Supply Chain Context 73 4.5.2 The Contextual Re-situated Analysis 76 CHAPTER 5．IMPLICATIONS .80 5.1 IMPLICATIONS 80 5.1.1 Theoretical Implications 80 5.1.2 Practical Implications .82 5.1 LIMITATIONS AND FUTURE DIRECTIONS 87 CHAPTER 6．CONCLUSION 90 BIBLIOGRAPHY 92 iii Summary The challenges for organizations intending to adopt the Business-to-Business (B2B) electronic market are varied In the face of these difficulties, this thesis suggests an alternative approach for examining e-market adoption by focusing on the features of the organization rather than the features of e-market technology This thesis indicates that one core institutional feature for an organization is that the organization is always situated in its context On this basis, this thesis points out that e-market adoption is often accompanied by a series of changes in an organization, and with these changes, it may not be necessarily able to re-situate into its original context If the organization encounters contextual re-situated difficulties, it will not only fail to benefit from e-market adoption, but its normal operation may also be disrupted by the adoption of the e-market Hence, an organization which expects that it will suffer contextual re-situated difficulties due to e-market adoption is unlikely to adopt the e-market unless it figures out a method to resolve these difficulties In order to understand the importance of contextual re-situation in e-market adoption, this thesis has analyzed the contextual re-situated issues in four case companies, including one successful adopter, and other three companies that rejected the e-market Through discussing the (possible) changes resulting from e-market adoption, and the impact of these changes on contextual re-situation, this thesis concludes that one reason for companies opting not to adopt the e-market is the irreconcilable conflicts between the changed organization and its original supply chain and industrial contexts This thesis contributes to current e-market adoption literature by highlighting the necessity for organizations to achieve contextual re-situation with the iv influence of e-market adoption From a practical viewpoint, the thesis also addresses how companies may take advantage of the e-market within their difficult industrial and supply chain contexts v List of Tables Table The Comparison of the “Conditions Thesis”, the “Structure Thesis” and the Contextual Analysis 15 Table Data Collection .26 Table Sets of key points summarized from multiple data sources for the PCCom case 28 Table The Re-situated Analysis for Four Case Companies 30 Table The Information Flow and Buyer-Supplier Relationship in An E-Catalogue, An E-Procurement and An E-Auction 35 Table The Duration of the Price Negotiation for Various PC Components66 Table The Suggested Solutions for Common Challenges .85 vi List of Figures Figure The Conceptual Frameworks of the “Structural Thesis” and the Contextual Analysis Used in This Study 16 Figure The Components and Operating Principle for Telecom Infrastructures .53 Figure The Supply Chain Structure of PCCom 64 vii Chapter 1．Introduction When marketing the electronic market (e-market) to organizations, providers find that they are often confronted with differing attitudes of organizations towards the e-market These differences can be viewed from two opposing viewpoints First, organizations assess e-market products differently from providers Providers intend to emphasize a product’s technological features, such as advanced functions and the high integration capability of e-market systems However, organizations are more concerned about whether an e-market product could add value to their business Second, the emphasis of providers on e-market usage is again different from that of organizations Providers designing a product aim to meet the general needs for most organizations However, the prime concern of most organizations is whether the technology product suits their own business requirements Such conflicts of interest between providers and recipient organizations lead to various problems in e-market adoption, and these problems in turn motivate researchers to ponder the possible causes of such problems from different perspectives, be they those of providers, organizations or both Most previous literature has analyzed problems in e-market adoption mainly from the provider’s perspective The researchers argue that adoption difficulties are due to the lack of favorable conditions or of all the successful factors needed to adopt the e-market (Chwelos et al., 2001; Farhoomand et al., 2000; Kumar & Crook, 1999; Markus & Soh, 2002) More recent studies have started taking into account the viewpoints of providers as well as those of organizations They suggest a better understanding of adoption problems can be achieved by analyzing fundamental misalignments between an e-market product and the recipient organization (Clemons & Row, 1993; Kambil & van Heck, 1998; Levecq and Weber, 2002) The fundamental misalignment is defined as “differences between the structures embedded in the organization (as reflected by its procedures, rules and norms) and those embedded in the package ” (p376, Soh & Sia, 2004) This stream of research has drawn attention to the viewpoints of organizations and provided a deeper insight into e-market adoption However, I believe that these efforts are still inadequate as few of them have explored the problems in e-market adoption from the viewpoint of recipient organizations To that end, this study attempts to address this deficiency in order to gain a better understanding of the problems of e-market adoption The theoretical perspectives that I found most helpful in examining difficulties in e-market adoption from the recipient organization’s perspective are in the field of organizational change In particular, the contextual perspective of organizational change (Pettigrew, 1990) has provided a method for conceptualizing the relationship between organizations, organizational changes and e-market adoption According to the contextual perspective, an organization is formed and changed in a specific context The adoption of technologies, like the e-market, would be treated as a trigger of change for this organization (Avgerou, 2001; Avgerou et al., 2004; Walsham & Waema, 1994; Walsham & Sahay, 1999).Once it has adopted the e-market, the organization may face some new changes that make it hard for it to fit into its original context, and these potential new changes may in turn lead to difficulty for this organization in adopting the e-market In the light of this contextual perspective, research questions addressed in this research are: What is the original context of an organization? In such a specific context, Package in this context refers to technology products, which include hardware, software and data structure, and so on substantially used by the organization, the structural alignment between the e-market and the organization must be achieved Like the studies in the “Structure Thesis”, this thesis also goes beyond the “Conditions Thesis”, because it does not treat e-market technology as a black box, and is aware of the importance of the institutional structures embedded in the e-market However, this thesis goes beyond the “Structure Thesis” in that it is aware of the importance of the structural alignments between not only the e-market and the recipient organization, but also between the organization and its contexts before and after its adoption of the e-market This study indicates that the organization has to be situated in its contexts at all times As a result, an organization, which wants to gain the real benefits of using the e-market, must be able to re-situate into its original context when its practices change because of e-market adoption In other words, if an organization is able to effectively assess whether e-market adoption is likely to disrupt the organization when it is situated into its pre-adoption contexts, it will facilitate the making of a wise decision on e-market adoption by the organization and at the same, greatly enhance the possibility for adopters to gain the projected benefits from the e-market Another theoretical contribution made by this thesis is with regard to the contextual analysis Previous studies which have adopted the contextual analysis on technology adoption often focused on the organizational changes within an organization’s context over time (Avgerou, 2001; Orlikowski, 1996) This thesis extends beyond previous literature on contextual analysis, because it examines the changes in practices occurring in an organization within its context, such as in the EngCom case In addition, it also investigates the possible changes within an organization caused by e-market adoption; and analyzes the re-situation of the 81 organization resulting from such changes; into its original context, such as in the MobileCom, PCCom and PharmCom cases Thus, this thesis extends the scope of application of the contextual analysis on technology adoption, including the pre-adoption stage, as well as the adoption and post-adoption stages Another contribution of this thesis on the contextual analysis is that it examines the organizational context at the industrial and supply chain levels, rather than at the organizational and national levels Such a multi-level analysis is adopted, because the supply chain and industrial contexts are more directly related to the core practices conducted in the e-market In e-market adoption, the national context is at too high a macro-level to reflect the detailed distinctions of purchasing practices for the recipient organizations On the other hand, since the e-market definitely involves buyers and suppliers, analysis at the organizational level is unable to provide an overview of the practices Thus, analyzing contexts in the industrial and supply chain contexts is a positive approach for applying the contextual analysis It offers the possibility for researchers to examine contexts at other than traditional levels 5.1.2 Practical Implications This thesis employs a case-based research method, and analyzes the (possible) influences of e-market adoption on four case companies Although the findings of this thesis are not generally applicable to every company, even to those within the same industrial context as the four case companies, the contextual analysis on e-market adoption still provides practitioners with some useful insights The practical implications for e-market providers, like ChinaMarket, are mainly those concerning their promotion strategies First, understanding the core principles in a company’s supply chain can help e-market providers discover the incentives for adopting the e-market In Chapter 4, it was indicated that different companies may 82 have different core principles in their supply chain For instance, the core principle in PCCom’s supply chain is to minimize costs By contrast, the first priority of the supply chain for EngCom’s business units in the cost plus market is quality, and these business units adopt the “the higher the better” rule in their purchasing processes Thus, if the e-market providers are able to understand the core principle acknowledged in the supply chain of each targeted company, it facilitates the discovery of the incentives for these companies to adopt the e-market To this end, the e-market providers could adjust their promotion strategies accordingly, and their market efficiency would in turn be improved For instance, e-market providers could promote the e-market as a tool for the improvement of a company’s transparency, if the core principle for this company is to be transparent to the public, as in the case of banks Second, a better understanding of the core principles in a company’s supply chain could help e-market providers to offer companies high-quality consultancy services for e-market implementation When e-market providers help companies to adopt the e-market, they and the recipient companies often work together and develop some new methods to take advantage of the e-market in different industrial and supply chain contexts Thus, these e-market providers could make use of these successful experiences to aid other adopters who share similar contexts For instance, the implementation consultants of e-market providers could recommend companies with conditions which are similar to EngCom’s business units in the cost plus market to use the e-market for their indirect purchasing Third, the distinct supply chain needs of companies could also enable e-market providers to attract more adopters by enhancing their customization services Occasionally, although changes caused by adopting the e-market as a whole may 83 disturb the original context for a company, some technological functions of the e-market can still add value to it If e-market providers are able to separate their technological functions into small models, and then integrate them according to each company’s needs, the e-market providers could meet the varied needs of more companies This thesis also offers some useful insights for companies which have planned or are planning to adopt the e-market The thesis postulates a fact that the company is always situated in its context, and that e-market adoption often leads to changes in its organization However, it is not necessary for companies to re-situate into their original context after the changes are made with the influence of e-market adoption This thesis, thus, reiterates that whether the companies can re-situate into their contexts with the changes caused by e-market adoption is a significant determinant for the results of e-market adoption On this basis, this thesis suggests that companies should carefully consider these contextual re-situated issues when they plan to adopt the e-market This is because if the companies cannot re-situate into their original contexts after adopting the e-market, they will suffer a series of severe problems, or even fail to survive in their current contexts For instance, if PharmCom insisted on using the e-market in its direct purchasing, the e-auction could lower the purchasing price, but this might at the same time result in severe quality problems for its medicines, or, it would greatly increase its pre-qualification costs Both of these two situations would erode PharmCom’s benefits rather than add value to it If contextual re-situated assessments indicate that the company is able to re-situate into its context after adopting the e-market, it will be considered that there would be no core obstacle for companies to both adopt the e-market and benefit from it However, even in such cases, some difficulties still remain for resolution The 84 common challenges for adopters include specification difficulty, quality concern, internal resistance and suppliers’ fears The suggested solutions for these challenges are to be found in Table Table The Suggested Solutions for Common Challenges The Common Challenges Specification difficulty Companies often find that it is difficult to clearly specify their demands in the e-market, such as the demand for accommodation Quality concern Business functions that produce demand are often concerned that companies might purchase cheap products in the e-market at the expense of product quality Internal resistance The buyers fear that the e-market could replace their positions, and would weaken their purchasing power Supplier’s fears Suppliers often view the e-market as a tool for lowering price The incumbent suppliers’ fear being unable to take advantage of their past relationships with companies in the e-market Suggested Solutions Sufficient internal and external communications The purchasing department could include other related business functions to discuss the demand as part of preparations for the specifications Companies could first post a general demand for interested suppliers Then, according to the suppliers’ detailed response to the general demand, companies could further specify their demand Site visit after bidding If suppliers have not been working with the company before, the company could visit these suppliers, starting from the supplier with the lowest costs This series of site visits could effectively help the company evaluate the suppliers’ capabilities and from there, pick a more realistic company with a higher capability and a lower price Top management support Strong support from the top management team on the adoption of the e-market, and the presence of the Chief Procurement Office are very helpful in overcoming the internal resistance Moreover, the company could also formulate some policy to motivate and award buyers using the e-market Education and Lot strategy Companies could educate their suppliers to treat the e-market as an opportunity to enhance the competitive capability of their supply chain, rather than play with suppliers’ margins in face-to-face negotiation Companies could use the Lot Strategy suggested in the EngCom case to balance the costs savings of the e-auction and the relationship with incumbent suppliers If the company cannot re-situate into its context after adopting the e-market according to the contextual re-situated assessments, there remain three options to take advantage of the benefits of the e-market First, companies can always use the e-market in indirect purchasing For instance, in Section 4.2.2 of Chapter 4, it was indicated that the conflicting interests of the e-market and the supply chain of EngCom’s business units in the cost plus market make it difficult for these business 85 unite to use the e-market for direct purchases However, since the indirect purchases for these business units are not necessarily sensible to costs, EngCom is still able to adopt the e-market for indirect purchases in these business units Similarly, if PharmCom was required by its parent company to adopt the e-market, it is possible for it to adopt it in indirect purchases for processes, such as office supplies and the business accommodation In fact, even if it is possible to use the e-market freely for indirect purchases, this does not mean that all companies are able to benefit from using the e-market It is only if the benefits gained from e-market adoption outweigh the costs incurred, that the e-market does save costs for the company Thus, if a company wants to use the e-market for indirect purchases, it is suggested that it considers whether its indirect purchases scale is substantial enough to cover the adoption costs, or whether it is possible for low-cost purchases or when there are no costs involved This happens, for example, when the parent company pays for it Second, the company could adjust its management structure to avoid the re-situated difficulties that are the result of e-market adoption For instance, MobileCom could have been able to take advantage of the e-market by integrating its procurement functions In Section 4.3.2 of Chapter 4, it was noted that MobileCom did not adopt the e-market to purchase the main equipment, because the changes caused by the e-market might disturb the knowledge transfer channels of MobileCom’s supply chain and prevent MobileCom from re-situating in its knowledge-sensitive supply chain context If MobileCom could find an approach to separate its knowledge transferring process from price negotiation, MobileCom would benefit from the e-market In doing so, the headquarters of MobileCom could gather all purchasing information from its provincial subsidiaries, and thus single out the main equipment which is most used by its subsidiaries Following that, the 86 headquarters could conduct an e-auction for each category of main equipment among all its suppliers According to the biding results, headquarters could form a framework agreement with all its current suppliers for a specific period, within which its subsidiaries would have the freedom to select suppliers independently, but had to buy the main equipment at the prices agreed to in the framework agreements In this way, not only could the price be lowered by the intensive competition in an e-auction, but the knowledge could also be transferred smoothly However, adjusting management structure is not a practice often used by companies because of some undesirable side effects which may require considerable attention from the company’s management team Thus, unless the company is at the same time incorporating some major changes in its management structure, it is not wise to choose this approach merely for e-market adoption The third option for companies to take advantage of the e-market is to develop a customized system using the e-market as a reference For instance, International Business Machines Corporation (IBM), a huge business group in the information technology industry, developed its own supply chain systems, known as the “on demand” system, to take advantage of the technological functions of the e-market This “on demand” system benefited IBM, because it not only effectively integrated its purchasing functions with its manufacturing systems, but also combined its tied supplier management strategy into its purchasing processes With references to this thesis, PCCom could have also adopted this method to reconcile conflicts between the coordination features of its supply chain and the e-market, and in turn take advantage of the e-auction function to lower its objective costs as well 5.1 Limitations and Future Directions As an ethnographic research, this thesis unavoidably has its limitations First, the 87 analysis of the four case companies might be construed as being too difficult to be generalized However, while it must be admitted that each of these four cases is unique, and thus, it is difficult to single out a set of companies which have similar features to make use of the findings of this thesis On the other hand, like other ethnographic studies, the focus of this thesis does not lie in highlighting the successful experience of one case company or of the failure of the other three Instead, this thesis aims to find a new approach to analyze e-market adoption Briefly, the main generalization of this thesis is not with regard to the institutional features of the companies, but rather proposes a new perspective for investigating e-market adoption Second, owing to length constraints, this thesis is unable to discuss all factors that account for the non-acceptance of ChinaMarket in three case companies, that is, MobileCom, PCCom and PharmCom Moreover, the central claim of this thesis is also weakened if too many factors are analyzed Thus, in order to highlight the prominent role of context in e-market adoption, this thesis has to focus on the elaboration of the contexts of the case companies and to analyze the impact of contextual re-situated issues, although it must be admitted that the failure of ChinaMaket is due to various other reasons Such limitations are inevitable when complex issues are analyzed In the light of these limitations, this thesis also offers some directions for future research First, to overcome the first limitation, future studies could adopt the empirical method to study the appropriate industrial or supply chain contexts for e-market adoption; and the solution strategies to resolve the re-situated difficulties resulting from e-market adoption Second, this thesis has emphasized that an organization is situated in its context, and has also analyzed the impact of contextual re-situation for companies in adopting the e-market On this basis, future studies could 88 use different approaches to conduct the contextual analysis on e-market adoption For instance, researchers could examine the interplay between a company and its context during the process of e-market adoption, to reveal the importance of context from another perspective Moreover, researchers could also focus on discovering the adoption strategies to resolve the contextual re-situated difficulties in e-market adoption 89 Chapter 6．Conclusion In recent years, companies have started making a departure from the shadow of the network economy and entered the surging business-to-business (B2B) e-market again In so doing, most companies have not blindly followed market trends, but have carefully considered how to take advantage of the e-market to optimize their supply chains Against this background, this thesis reflects on the failure of an e-market, ChinaMarket, in the B2B e-market in China, and aims to provide some insights for e-market providers and for companies that have planned or are planning to adopt the e-market The analysis of this thesis is based on the concept of the situated organization, i.e., the organization is always situated in its context Thus, when changes happen to an organization, the organization would benefit from the changes only if it could re-situate into its original context E-market adoption, in this thesis, is viewed as a trigger of organizational change If the changes caused by the e-market not disturb the organization when it re-situates into its context, the organization would probably benefit from e-market adoption Otherwise, not only would the organization fail to gain the benefits from e-market adoption, but also face re-situated difficulties The organization facing such a situation would naturally not wish to adopt the e-market as well as its corresponding changes This thesis, therefore, suggests that in order to benefit from e-market adoption, the organization should analyze the possible changes caused by the e-market, as well as the impact of these possible changes on 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re-situated analysis of three case companies in China are conducted In Chapter 5, both the theoretical and practical implications of this research are discussed The. .. is the industrial context, which is at a higher level of the supply chain Both industrial and supply chain contexts are in the middle of the national culture and organizational contexts The purpose of analyzing these two interdependent levels of contexts in this thesis is to provide a balanced overview of the advantages and disadvantages of the national culture and organizational contexts on e -market. .. beyond the technical/rational actions of professional experts and managers, and should consider the institutional forces—both within an organization and its environment—that necessitate or legitimate such actions” The institutional forces in this statement are indeed within the context of e -market adoption 13 As in the previous two theses on e -market adoption, the contextual analysis also defines adoption. .. US The second method measures the contextual fitness at the level of organizational 17 context For instance, Barrett and Walsham (1999) examined the failure of an electronic trading system deployed across the London Insurance Market by taking into account the professional context of the insurance market In Walsham’s (2001) later paper, he points out that the changes in work practices and worker status... impact of structures embedded in systems on e -market adoption Figure 1 The Conceptual Frameworks of the “Structural Thesis” and the Contextual Analysis Used in This Study Before E -Market Adoption After The “Structure Thesis” Organization + e -Market =? Organization with e -Market Contextual Analysis Industrial Context Industrial Context Supply Chain Context Supply Chain Context Situated Organization... a company incorporated by a Chinese government agency ChinaMarket’s original idea was to build a virtual trade fair on the Internet based on the business model of the Canton Fair, which is a very popular trade fair in China The Canton Fair is held twice a year in Spring and Autumn, with each fair lasting only two weeks During this period, thousands of companies in China and from abroad pour into Canton... structures of organizations This definition of context explains the reason why organizations can be formed, and also changed in context Second, an actor’s practices play a pivotal role in the contextual analysis, as it can reflect processes of organizational changes that happen in context An artifact is viewed as the object that could trigger organizational change However, an artifact does not change an organization... organization’s “practices” in the context of this study are defined as the organization’s supply chain practices Correspondingly, an organization’s context is the industrial context in which the organization’s supply chain practices are formed and changed In Chapter 2, literature on e -market adoption and the contextual analysis is reviewed Chapter 3 describes the background information of this research,... e -market adoption 18 Chapter 3．Methodology In this chapter, the background information of the electronic market is first introduced This is followed by an elaboration on case selection, as well as on the methods used for data collection and analysis 3.1 Case Background This study attempts to address the adoption problems of an electronic market in China The provider of this electronic market is ChinaMarket, ... organizations Based on contextual analyses of these three case companies, the possible impact of e -market adoption on the organizations’ practices and on the fitness of the organizations in their... address the adoption problems of an electronic market in China The provider of this electronic market is ChinaMarket, a company incorporated by a Chinese government agency ChinaMarket’s original... overview of the advantages and disadvantages of the national culture and organizational contexts on e -market adoption 18 Chapter 3．Methodology In this chapter, the background information of the electronic