JEB - Nov 9 07 - Dec O6-June 07

Journal of E-Business (ISSN 1542-0846)
A Refereed Publication of the International Academy of E-Business

(www.iaeb.org ) (www.journalofe-business.org )
Combined Issue: Volume VI, No 2 (2006) – Volume VII, No.1 (2007)
Editorial Note
Editorial Board Electronic Edition

Policy and Submission Guidelines (Select & follow links on left)
Table of Contents - CURRENT ISSUE

*Archives – Past Issue
*Index
• Author
• Key Words
* Under Development
All rights reserved. A peer-reviewed publication of the International Academy of E-Business designed to encourage
and disseminate research studies in all aspects of e-business models and strategies and practices, including e-
commerce, supply chain management, data storage and mining, management of information systems, global marketing
and communications, human resource management, financial analysis and planning, entrepreneurship, research and
development, and technology management.
TABLE OF CONTENTS
• Articles:
TAKING CUSTOMER PERCEPTIONS OF THE ETHICAL COMMITMENTS

OF E-VENDORS SERIOUSLY
Avshalom Aderet, The School of Business Administration, The College of Management, Israel
Arik Sadeh, Management of Technology Department, HIT Holon Institute of Technology, Israel
Avshalom M. Adam, The School of Business Administration, The College of Management,
Israel.
SERVICE VALUE NETWORKS: INTO REALITY

John R. Hamilton, Director of E-Business, James Cook University, Cairns, Australia,
E-MARKETS: A CONCEPTUALIZATION AND RESEARCH AGENDA

Reimer Ivang, Aalborg University, Denmark
Robert Hinson, University of Ghana Business School
Ramanathan Somasundaram, National Institute for Smart Government India
THE GOVERNANCE OF VIRTUAL CORPORATIONS

Christoph Lattemann, Soren Kupke, Stefan Stieglitz, Potsdam University, Germany
Marc Fetscherin, Rollins College, USA
AN EXPLORATORY STUDY ON ONLINE BANKING IN MALAYSIA

Thiam-Yong, Kuek, Universiti Tunku Abdul Rahman, Malaysia
Ming-Ming, Lai, Multimedia University, Malaysia
.
VIRTUAL SCM A MYTH OR AN EVIDENCE: THE EUROPEAN CASE
Teresa Borges-Tiago, University of the Azores, Portugal
João P. Couto, University of the Azores, Portugal
José C. Vieira, University of the Azores, Portugal
Flávio Tiago, University of the Azores, Portugal
The Journal of E-Business is a refereed journal. It is published online by the International Academy of E-
Business (www.iaeb.org) periodically, typically twice a year. Its contact e-mail: adm@iaeb.net. All rights
reserved.
Journal of E-Business |Combined Issue: Volume VI, No 2 (2006) – Volume VII, No.1 (2007) 2
EDITORIAL NOTE
Welcome to the Journal of E-Business (www.journalofe-business.org ), the online publication
of the International Academy of E-Business. As one of the pioneers in the field of e-business,
both the Academy and its refereed publications have been making significant contributions
toward the theory and practice of strategic management in profit and not-for-profit organizations.
(Additional details at www.iaeb.org )
This peer-reviewed Journal is published periodically, typically twice a year, to encourage and
disseminate research studies in all aspects of e-business strategies and practices, including e-
commerce, supply chain management, data storage and mining, management of information
systems, global marketing and communications, human resource management, financial analysis
and planning, entrepreneurship, research and development, and technology management.
Outstanding articles from the academic researchers, teachers, policy makers, business
entrepreneurs and managers, as well as others, are accepted for publications on the basis of the
recommendations of reviewers, who are members of the Editorial Board. Both exploratory and
conclusive research studies are welcomed and, subsequently, peer-reviewed and considered for
publication. Articles do not have to be empirical in nature. Case studies dealing with specific
business situations are acceptable.
As with most leading journals, academic activities and publications depend on volunteers for their
scholarly involvement and contributions. The Academy is extremely grateful to so many
individuals, who are experts in their respective fields and are serving on our Editorial Board. As
reviewers, editor, or in other capacities, these individuals willingly participate actively in spite of
their constant time and resource constraints.
Because of certain unavoidable circumstances, Professor Raj Garg, who served as editor of the
Journal since its inception in 2001, is no longer serving as editor. We are all grateful to Professor
Garg for his years of service, and, of course, we will all miss his experience and leadership.
As you will note in the list of our Editorial Board, Dr. Johnny Nelson, an executive at Harman
International Industries, and Dr. Joe Teng, Professor at Keiser University in Florida, have
assumed editorial roles to take the Journal further down the leadership path.
In this current combined issue of the Journal, we have included certain refereed articles which
were submitted for publication in the Journal, as well as several outstanding papers from our 7th
Annual Conference in Vancouver, Canada, in their revised, extended versions. All articles in this
issue were chosen on the basis of reviewers’ recommendations.
We feel our authors and readers deserve the publication of these exceptional studies without any
further delay while the Journal is going through the editorship transition. Those who wish to
submit their articles for publication should follow the guidelines, which are updated periodically
on our Website www.iaeb.org.
Please note that as a scholarly Journal, the publication contains a wide variety of contributing
individual’s views, opinions, thoughts, and so forth. The contributing authors or their contents do
not speak for, or represent, the official position of the Academy. All inquiries and comments
related to the articles should be addressed directly to their respective authors.
Editor-in-Chief
EDITORIAL BOARD OF REVIEWERS
Editor-in-Chief
Vinay Kothari, Regents’ Professor Emeritus, Stephen F. Austin State University, Texas
Associate Editor
Johnny T. Nelson, Harman International Industries, Inc., Texas
Assistant Editor
Joe Teng, Keiser University, Florida
Reviewers:
Tom Aabo, Aarhus School of Business, Denmark
Emmanuel A. Abegunrin, Cappella University, USA
Stewart Adam, Deakin University, Australia
Raj Aggarwal, Kent State University, Ohio, USA
Vidyadhar Reddy Aileni, Osmania University, India
Sonke Albers, Christian-Albrechts-University of Kiel, Germany
Charlotte Allen, Stephen F. Austin State University, Texas, USA
Vincent Amanor-Boadu, Agrifood
Lyn S. Amine,Saint Louis University, Missouri, USA
Africa Arino, University of Navarra, Barcelona, Spain
Martin Atkins, University of Aberdeen, UK

Fred K. Augustine, Jr., Stetson University, Florida, USA
Achraf Ayadi, Institut National des Telecommunications, France
Helen Barry, Waterford Institute of Technology, Ireland
Constance Bates, Florida International University, Florida, USA
Kip Becker, Boston University, Massachusetts, USA
Ravi Behara, Florida Atlantic University, Florida, USA
Christian Bender, Westfaelische Wilhelms-Universitaet Muenster, Germany
Christine Bernadas, Central Washington University, Washington, USA
Amit Bhardwaj, Meerut Institute of Engineering and Technology, India
Somnath Bhattacharya, Florida Atlantic University, Florida, USA
Fahim A. Bhuiyan, Strayer University, Maryland, USA
Carole Bonanni, Simon Fraser University, Canada

Joseph Bonnici, Bryan College, Rhode Island, USA
Thomas A. Buckles, University of San Diego, California, USA
Soku Byoun, University of Southern Indiana, Indiana, USA
Carlos Pampulim Caldeira, University of Evora, Portugal
Bob Camp, Indiana University of Pennsylvania, USA
Amparo Cervera , Universidad de Valencia, Spain
Kenny K. Chan, California State University, Chico, USA
Patrick Y. K. Chau, University of Hong Kong, Hong Kong
C. S. Agnes Cheng, University of Houston, Texas, USA
Julia M. Christofor, University of Kiel-Multimedia Campus Kiel, Germany
Dong-Sung Cho, Seoul National University, Korea
Pravat K. Choudhury, Howard University, Washington, DC, USA
C. Chinnapaka, Bang College of Business, KIMEP, Kazakhstan
Wayne Coleman, Texas A & M University, Kingsville, USA
Rajul Datt, Meerut Institute of Engineering & Technology, UP, India
Aurobi Das, Faculty of Management/E-Business, IIIT, Kolkata, India
Irene J. Dickey, University of Dayton, Ohio, USA
David Douglas, University of Arkansas, USA
Rex Dumdum, Marywood U and State U of NY at Binghamton, USA
Teck-Yong Eng, Aston University, U.K., USA
Andre' M. Everett, University of Otago, New Zealand
Karen Fernandez, University of Waikato, New Zealand
Marc Fetscherin, Rollins College, Florida, USA

Marcia Flicker, Fordham University, New York, USA
Susan Fuller, John Cabot University, Internship Program, Italy
James W. Gabberty, Pace University, New York, USA
M.A.Moneim Gadalla, Cairo University, Egypt
Esmeralda Garbi, Florida Atlantic University, Florida, USA
Raj Garg, Indian University of Pennsylvania, Pennsylvania, USA
Nabarun Ghose, Tiffin University, Ohio, USA
J. Greg Gimba, ANETCGROUP, Inc., Daytona Beach, Florida, USA
O P Gupta, Punjab Agri University, India
Peter H. Hackbert, California State Univ., Monterey Bay, USA
John Hadjimarcou, University of Texas, El Paso, Texas, USA

Abdul Hafeez-Baig, University of Southern Queensland, Australia
John Hamilton, James Cook University, Australia
Lois Hammond, Consultant & Entrepreneur, Florida, USA
Andreas Hammer, International University in Germany, Germany
Judy Harris, Towson University, Matyland, USA
Fokhray Hossain, , DIIT, Daffodil International University, Bangladesh
Patrick Ibbotson, University of Ulster at Coleraine, Ireland
Jennifer Isern, CGAP. Washington, DC, USA
Gopal Iyer, Florida Atlantic University, Boca Raton, Florida, USA

Jan-Erik Jaensson, Umea University, Sweden
Subhash C. Jain, University of Connecticut, USA
M. P. Jaiswal, Management Development Institute, Gurgaon, India
Paramjit S. Kahai, University of Akron, Ohio, USA
Faruk Karaman, Okan University, Istanbul,Turkey
Erdener Kaynak, Pennsylvania State Univ., Harrisburg, USA
Alan S. Khade, California State University, Stanislaus, USA
Mostafa Khattab, Colorado State University, Colorado, USA
Gurprit S. Kindra, University of Ottawa, Canada

Mary Beth Klinger, College of Southern Maryland, USA
David Kohler, San Francisco State University, California, USA
Andreas Kuckertz, University of Duisburg-Essen, Campus Essen, Germany
Jenny Ungbha Korn, Northwestern University, Illinois, USA
Connie Kothari, IAEB Administrator & Coordinator, USA
Vinay Kothari, Stephen F. Austin State University, Texas, USA
Bernd Kreuels, University of Dortmund, Germany
Peter Kreuz, Future Trend Institute, Austria
Christoph Lattemann, International Graduate School of Digital Media and
Management, Multimedia Campus, Kiel, Germany
Thomas C. Lawton, Imperial College, Management School, London, UK
C. Christopher Lee, Central Washington University, USA
Michel Leseure, Al Alkhawayn University, Morocco
Thomas K. P. Leung, Hong Kong Polytechnic University, HK
Daniel K.T. Li, Lingnan University, Hong Kong
Eldon Y. Li, California Polytechnic State University, USA
Xianghui Liu, Huaqiao University, PR China
Sandy Lueder, Sacred Heart University, Connecticut, USA
Brian Lofman, Rollins College, Florida, USA
Mani Madal, NITIE, Mumbai, India
Glenn Maples, University of Louisiana at Lafayette, USA

Mehdi Majidi, George Washington University, D.C., USA
Lynn Martin, University of Central England, U.K
Clarence C.McMaster II, LaGuardia Community College, Long Island, USA
Mohan K. Menon, University of South Alabama, Alabama, USA
Mirza B. Murtaza, Middle Tennessee State University, Tennessee, USA
Kofee N'Da, Clarkson University, New York, USA
Mohammed Nadeem, National University, San Jose, California, USA
Johnny T. Nelson, Harmon International, Texas, USA
Francine Newth, Providence College, Rhode Island, USA
Japhet H. Nkonge, North Carolina Agricultural & Technical State Univ, USA
Emmanuel Nnadozie, Truman State University, Missouri, USA
Jose Noguera, Florida International University, Florida, USA
Alphonso O. Ogbuehi, St. Joseph's University, Philadelphia, USA
Miguel R. Olivas-Luhan, Univ. of Pittsburgh, ITESM-Monterrey, Mexico

Paul Ostasiewski, Wheeing Jesuit University, West Virginia, USA
Ben Oumlil, University of Dayton, Ohio, USA
Shanthakumar Palaniswami, Central Michigan University, USA
Pranav Parekh, cyber Think, Inc., New Jersey, USA
JungKun Park, Purdue University, Indiana, USA
Namgyoo Park, University of Miami, Florida, USA
Raymond Pettit, ERP Associates, Metro, New Jersey, USA
Lucia Piscitello, Politecnico di Milano, Milan, Italy
Raj Kumar Prasad, Editor, E-Commerce Magazine, India
Pradeep Racherla, Temple University, USA
Dharam S. Rana, Jackson State University, Mississippi, USA
Sunita S. Rana, Jackson State University, Mississippi, USA
William Rapp, New Jersey Institute of Technology, Newark, USA
C. P. Rao, University of Kuwait, Kuwait

Marc Resnick, Florida International University, Florida, USA
Jay Rhee, San Jose State University, California, USA
Anthony Ross, Michigan State University, USA
Jennifer Rowley, University of Wales, Bangor, UK
Alexander Runge, KPMG Consulting AG, Switzerland
Narendra Rustagi, Howard University, Washington, DC, USA
Boong-Yeol Ryoo, Florida International University, Florida USA
K.B. Saji, Indian Institute of Management, Lucknow, India
Jose L. Salmeron, Pablo de Olavide University, Spain
Val Samonis, The Center for European Integration Studies (ZEI), Bonn,
Germany
Ron M. Sardessai, University of Houston, Victoria, Texas, USA
Milind Sathye, University of Southern Queensland, Australia
William D. Schulte, George Washington University, D.C., USA

Ravi C. Seethamraju, University of Sydney, Australia
Robert H. Seidman, Southern New Hampshire Univ., USA
Willem Selen, Macquarie University, Australia
Janjaap (Jake) Semeijn, Universiteit Maastricht, the Netherlands
Christopher Seow, University of East London, UK
Jayesh Shah, Emerson & Cuming, National Starch & Chemical., New Hampshire
Junaid M. Shaikh, Curtin University of Technology, Australia; Sarawak Off
Shore, Malaysia
Preeti Sharma, Rensselaer at Hartford, Connecticut, USA
Seema Sharma, Open University Business School, U.K.
G. H. Shergill, Massey University, Albany Campus, New Zealand
Eric Shiu, University of Birmingham, UK
Nitish Singh, California State University, Chico, California, USA
Andrew Slade, University of Sunderland, UK
Nancy Spears, University of North Texas, Denton, Texas, USA
V. Srikanth, Institute of Public Enterprise, Osmania University Campus, India
Chetan Srivastava, University of Hyderabad, India
A. V. Subbarao, University of Ottawa, Canada
Bala Subramanian, Morgan State University, Baltimore, Maryland, USA

Suresh Subramoniam, Prince Sultan University, Riyadh, Saudi Arabia
Ted Surynt, Stetson University, Florida, USA
Zakir H. Syeed, SYMBIONS Software Pvt Ltd, Bangalore, India
Mohammad Talha, Multimedia University, Malaysia
Florence Tang, Curtin University of Technology, Hong Kong,
Joe Teng, Keiser University, Ft. Lauderdale, Florida, USA
Heiko Thimm, Fachhochschule Kiel –Univ. of Applied Sciences, Germany
Hans Mathias Thjomoe, Norwegian School of Management, Oslo, Norway

John Van Beveren, University of Ballarat, Australia
Johannes von Mikulicz-Radecki, Mannheim University, Germany
Clyde A. Warden, National Changhua University of Education, Taiwan
Jiang Wen, University of Electro-Communications, Tokyo
Frank Wolf, Nova University, Florida, USA
David Wright, Kwantlen University College, Canada
Cliff Wymbs, Baruch, City University of New York, USA
Ulku Yuksel, Michigan State University, Michigan, USA
John Hongxin Zhao, Saint Louis University, Missouri, USA
Notes:
1. Listed above are the individuals, who have been selected by the IAEB Executive
Committee to serve as occasional reviewers for the Academy’s conferences, refereed
journals, and other publications. The IAEB is grateful to these scholars for their kind
support and cooperation in the review process. Without their voluntary contribution and
hard-work, the Academy could not continue to disseminate knowledge and enhance
business education and productivity.
2. Any individual, who is interested in serving as a reviewer on the Editorial Board of

Reviewers, should submit brief vitae to adm@iaeb.net. Please include your complete
name, professional title, current organizational affiliation, e-mail and physical addresses,
country of current residence, and a summary of individual professional and academic
accomplishments.
PUBLICATION POLICIES AND SUBMISSION GUIDELINES
A brief summary of the International Academy of E-Business (referred to as
Academy, henceforth) Publication Policies and manuscript/article Submission Guidelines is
outlined below. Authors and co-authors, who intend to submit their individual manuscript for
publication consideration, should fully read and understand them.
I. PUBLICATION POLICIES
• The International Academy of E-Business (the Academy) reserves the right to
change its policies and guidelines at any time without prior notice.
• The International Academy of E-Business reserves the right to publish or not to
publish any manuscript (accepted or under consideration) for any reason without
explanation of reasons for decision.
• Submission of manuscripts for possible publication implies that the authors have
read and concur with Academy’s policies and guidelines.
• Submission of manuscript does not necessarily constitute receipt or acceptance
for publication by the Academy. Authors are responsible to ensure receipt by
the Academy.
• All manuscripts submitted for publication go through a review process, which
typically takes several weeks during the regular academic year -- longer during
summer months and holidays.
• COPYRIGHT: Submitted manuscripts should be original, and they must not
violate or infringe upon any intellectual property rights of any individual or
organization. If a manuscript is accepted for publication or published, the
copyright ownership is presumed to have been transferred by the author(s) to the
International Academy of E-Business, irrespective of whether the transfer was
carried out formally or not.
• The International Academy of E-Business retains all copyrights over all of its
published content and materials, unless some other arrangements have been
specifically agreed upon in writing by the Academy’s Administrator or its
Executive Director. Typically, the author(s) of the accepted manuscript for
publication would receive additional copyright information and a copyright
transfer form for each author’s signature. Failure of the author(s) to return the
copyright form in a timely fashion will result in publication delays.
• The International Academy of E-Business respects the intellectual property rights
and ownerships of individuals and/or organizations, in addition to all other rights.
Furthermore, the Academy does not encourage, nor approve, anyone to infringe
on the rights of others. If there are right violations from manuscript publication,
each author of the violating manuscript bears the total liability—solely and/or
collectively. Each author of the accepted manuscript for publication agrees to
hold the International Academy of E-Business harmless, in case of right
violations, and each author furthermore guarantees to protect and defend the
innocence and the lack of any responsibility of the Academy, its officers and/or
its representatives.
• Inadvertently errors, omissions, and/or other mistakes may occur when
manuscripts are published. Even though the International Academy of E-
Business regrets such occurrences, it assumes no legal or financial
responsibilities. All manuscripts are accepted and published, subject to errors. To
minimize such errors, manuscripts should be prepared for consistency, style, and
easy uploading.
II. SUBMISSION: GUIDELINES

1. Verify Changes before you submit your manuscript, please visit www.iaeb.org to
check for changes to Submission Guidelines and for Current Address.
2. All manuscripts should be submitted to following Current Address:
a. International Academy of E-Business Administrative Offices, Box
631064, Nacogdoches, TX 75963-1064 USA.
b. No electronic submissions are accepted unless it is arranged specifically
in advance to minimize cyber virus and other risks
3. Manuscript Copies Required (very important)
a. Three (3) hard copies and one soft (electronic) copy of your manuscript.
Your electronic version should be on a diskette or CD, in MS Word in
XP or 2000 plus versions.
4. Formatting and Font
a. Title: Times New Roman 14 point, bold, capital letters, centered;
b. Headings: Times New Roman 12 point, bold, left margin
c. Subheadings: Times New Roman 12 point, left margin, underlined
d. Body Text: Times New Roman 11 point
5. Organization (in order listed below)
a. Cover Page (important)
i. Staple a cover page to the manuscript indicating only the article
title (used for anonymous refereeing).
b. Title Page
i. Do not staple to manuscript
ii. Title Page should include full authorship information-- name,
address, telephone, affiliation, e-mail, rank, etc.
c. Abstract Page
i. Abstract should be limited to 100-150 words.
d. Paper Manuscript
i. Preferable length should not exceed more than 15 pages (single
spaced with one inch margin on all sides), including charts,
graphs, exhibits, references, appendix, and so forth.
6. Editing and Grammar
a. Manuscript should be free of all spelling, grammar and punctuation
errors.
b. Manuscript with numerous errors or “sloppy” work and style is likely to
be rejected.
7. Inconsistencies
a. Manuscripts should be consistent in use of abbreviations, terminology,
and reference citations throughout.
b. Abbreviation used for the first time, should be write it in full within
brackets. Example, BEM (Big Emerging Markets).
8. Tables, Figures, and Drawings:
a. All tables, figures, illustrations, etc. should be embedded at the
appropriate place within the text of the article.
i. In paper version, they could be appended to end of the article..
b. Table Number and Title should be at the Top of Table, Figure, or
Drawing.
9. References
a. References, citations, and overall manuscript style should be consistent
with those used by the American Psychological Association or the
Journal of Marketing.
b. References should be placed in alphabetical order at the end of the
article. Examples:
i. Garg, Rajendar K. (1996), “The Influence of positive and
negative wording and issue involvement on responses to likert
scales in Marketing Research”, Journal of the Market Research
Society, Vol. 38, No. 3, 235-246.
ii. Kaynak, Erdner and Vinay Kothari (1984), “Export Behavior of
small and medium sized manufacturers: Some policy guidelines
for international marketers”, Management International Review,
Vol. 24, No. 2, 61-69.
10. Revisions and Alterations
a. Often, a manuscript may be accepted by the Editor contingent upon
satisfactory inclusion of changes mandated by anonymous referees and
members of the Editorial Review Board. If you are asked to revise your
manuscript, please make the necessary changes and resubmit the revised
version following the Editor’s specific instructions.
11. Review Time
a. Please allow 3 to 4 months for review process to be completed. During
this time you should avoid unnecessary inquiries about status of your
submission.
b. The Editor will contact you immediately after the review process is
completed. (Expect delays due to time and resource constraints,)
12. Inquiries and Request for Additional Information
a. Write to adm@iaeb.net for additional information or any serious
concern.
13. Certification
a. Submission of a manuscript for journal publication represents a
certification by author(s) ‘that the work contained in the
manuscript is original, and that neither the manuscript or any
version has been previously published or under consideration by
other publications, simultaneously. (Under certain circumstances
exceptions may be permitted if there is a mutual understanding in
advance, in-writing.).
Journal of E-Business
(A Publication of the International Academy of E-Business)
COPYRIGHT TRANSFER FORM

(NOTE: All authors must sign this form before publication in the journal. )
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1) COPYRIGHT: In consideration for publication of our work, if accepted and published by the journal the author(s) agree to
transfer copyright of the work to the Journal of E-Business (JEB) including full and exclusive rights to publication in any media
now known or later developed, including not limited to electronic databases and microfilm, and in anthologies of any kind.
(NOTE TO U.S. GOVERNMENT EMPLOYEES: SEE YOUR EXEMPTION PARAGRAPH 5 BELOW.)
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full copyright release for the purposes listed above.
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International Academy of E-Business and its publications).;
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above representations and warranties that (s) he (they) will indemnify the publisher, Editor, or guest Editor, The International
Academy of E-Business or its affiliates, and hold them harmless.
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publisher, but patent rights are retained by the author.;
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authors understand that they are delegating the right of copyright to the non-government employee, who must sign this agreement.
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Business, and supersedes all other agreements and understandings, whether oral or written, relating to the subject matter hereof.
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TAKING CUSTOMER PERCEPTIONS OF THE ETHICAL
COMMITMENTS OF E-VENDORS SERIOUSLY
Avshalom Aderet, The College of Management, Israel adereta@netvision.net.il
Arik Sadeh, HIT Holon Institute of Technology, Israel sadeh@hit.ac.il
Avshalom M. Adam, The College of Management, Israel. avshalom@colman.ac.il
ABSTRACT
We surveyed Israeli e-consumers to investigate the extent to which: (1) E-stores display an ethical
commitment to ‘product description’, ‘privacy and security’ and ‘accountability’ (objective
measures); (2) E-consumers were convinced of the sincerity of these commitments (subjective
measures); and, using this data, sought to evaluate the degree to which (3) E-consumers trust e-
vendors. E-vendors’ scores out of 10 for the objective (and subjective) measures were: 7.30 (6.58) for
‘product description’, 6.01 (5.48) for ‘privacy and security’, and 5.22 (5.26) for ‘e-vendors’
accountability’. Thus, e-consumers mistrust e-vendors’ professed commitments to ‘product
description’ and ‘privacy and security’ whereas customers remain uncertain towards ‘e-vendors
accountability’.
INTRODUCTION
The commitment of e-business vendors to ethical conduct has been of interest to marketing
professionals. To those who browse in its terrain, the e-market poses opportunities and risks. The
ethical conduct of e-vendors is one of the factors that make business to customer (B2C) e-commerce
websites effective (Ranganathan and Ganapathy, 2002; Jamal et al., 2003; Cao et al., 2005). Yet,
reports on unethical conduct and the illegal acts of e-vendors or hackers are often aired in the news. In
some cases, the attempt to find and punish those who undertake unethical or illegal acts is a great
challenge. Often, legislation lags behind new technology and, even where laws exist, the Net lacks
effective law enforcement mechanisms. In addition, the Web identity of users can be quite elusive and
difficult to detect. Prosecutions of illegal acts in e-business are the exception. In saying this, we do not
mean to imply that non-virtual business is safer, but experience in traditional selling environments and
existing regulations and enforcement mechanisms offer some comfort of a known reality. Developing
trust in the online shopping environment has now become an issue (Grabner-Kraeuter, 2002). Since
regulation and patrols by Web police and global law are yet to be a part of the virtual experience,
smart Web-based business people have identified some of the ethical problems and endeavored to
solve them themselves.
Interest in evaluating the ethical problems of e-business arose since mistrust of the e-market
manifested itself in consumer reluctance to shop online (Malhotra et al., 2004). The issue at stake was
related neither to identification of values (such as respecting customer privacy, honesty, or reliability)
nor to figuring out the ethical norms corresponding to these values. Rather, the issue was to develop
Internet tools, including software, capable of addressing these vulnerabilities through, for example,
appropriate Web design, data encryption and through provision of services, such as eBay's reputation
system. The results were not only more-secure websites, but also websites which claim to make a
certain commitment to the customer, or which contain explicit disclaimers in the event that they do
not make such a commitment. The issue, then, is how the choices made by the vendors in terms of
their commitment to ethical conduct, as expressed in these tools, impact customer perceptions.
Businesses have had to compensate for a lack of regulation by developing a variety of tools to protect
e-consumers, with tools to ensure e-consumers’ privacy and security being a prime example that has
contributed to increased consumer trust in e-commerce (Miyazaki and Fernandez, 2001; Flavián and
Journal of E-BusinessCombined
| Issue: Volume VI, No 2 (2006) – Volume VII, No.1 (2007) 13
Guinalíu, 2006; Suh and Han, 2003). Other factors that have been found to influence the buying
patterns of e-consumers include customer service, shopping experience, and product perception
(Dillon and Reif, 2006) which, together with privacy and security, perhaps explain why e-consumers
are increasingly shopping on-line (Belanger et al., 2002; Flavián and Guinalíu, 2006).
In addition, the experience of Internet shopping is such that it reduces the would-be consumer’s
ability to assess the properties and quality of goods compared to traditional ‘hands-on’ selling
environments (Chung-Hoon and Young-Gul, 2003; Dillon and Reif, 2006). Compensating for this
deficiency and allowing some degree of product assessment has required e-vendors to develop new
ways of presenting their products and to assume responsibility for their products to an extent beyond
that required by law in analogous physical shopping environments.
E-consumer vulnerability in assessing goods at an e-store may be described in terms of their ability to
evaluate the goods at two levels: objective and subjective. At the objective level, the e-consumer
observes the “promises” the vendor displays in the e-store, the ethical protocols e.g. as they appear in
the website policy: the explicit declarative statement of the rules of conduct to which the website is
committed as expressed by the vendor etc. At the subjective level, the e-consumers’ impressions of
the website may differ from those that the e-store seeks to create through its ethical protocols.
Therefore, the e-vendor’s consideration of the vulnerability of prospective potential customers needs
to address this problem situation at the two levels, especially if there is a gap between the objective
and subjective measures.
We address this problem by tackling three research questions:

RQ1: To what extent does the e-store display information regarding its commitment to ethical conduct
(“objective measures”)?
RQ2: To what extent are the ethical commitments of the e-store perceived as such by e-consumers
(“subjective measures”)?
RQ3: To what extent does the interplay between the objective and subjective measures indicate a
commitment on the part of e-stores to ethical conduct?
The structure of the paper is as follows. In the next section, we discuss the variables of the study, the
research methodology and choice of population and sample. We then present the results, which are
later discussed in light of the problem situation and the research questions. The discussion concludes
with suggestions for further study aimed at articulating what needs to be done to better control and
decrease customer vulnerability in e-business.
METHODS AND DATA
This research was conducted in 2006 on e-stores offering goods in all areas of e-commerce:
computers and computer accessories, electronic appliances, books, furniture, gifts, jewelry, cosmetics,
flowers, and toys. Some e-stores offered services such as entertainment ticketing. The list of e-stores
was drawn from a popular Israeli site (www.zap.co.il), which compares e- stores (it had a list of 655
e-stores during the period of data collection), scores their reputations, and represents the population of
B2C websites in Israel, excluding electronic malls and auction websites. We used strata sampling
where the percent of sites from a given area of e-commerce formed our sample. Each e-store was
evaluated by three or four e-consumers using a 30-item questionnaire with the aim of obtaining 3 or 4
evaluations of each site.
In the questionnaire, we asked e-consumers to report the extent to which e-vendors displayed ethical
protocols addressing “product description”, “e-vendor accountability” and “privacy and security”
(objective measures), as well as for their impressions of the e-vendors’ sincerity with respect to those
protocols (subjective measures). Each factor was examined using several variables.
Several surveys have attempted to elucidate online shopping by investigating the factors or attributes
affecting consumer purchasing behavior in the online shopping context (Ranganathan and Ganapathy,
2002; Chung-Hoon and Young-Gul, 2003; Dillon and Reif, 2006). We group the factors covered by
these surveys into three: 1) product description; 2) e-vendor accountability; 3) privacy and security
measures including consumer risk, (Chung-Hoon and Young-Gul, 2003; Dillon and Reif, 2006). The
variables associated with the first category relate to product description and to product information,
quality and price (Chung-Hoon and Young-Gul, 2003; Dillon and Reif, 2006). The second factor, e-
vendor accountability, includes customer service and promotion as well, and was constructed from
two sources (Dillon and Reif, 2006; Chung-Hoon and Young-Gul, 2003). It relates to the extent to
which customers can count on the service provider to deliver all of what is being promised on time
(Dillon and Reif, 2006), and to promotional activity undertaken by the e-store. The variables
discussed in this category are the service provided, for example, in terms of answers to frequently
asked questions; store policy regarding credit; product return; the convenience of delivery times; and
methods of payment. Additional variables in this category are the provision of online and offline
contact information, and promotion, that is, advertising and sales events (Chung-Hoon and Young-
Gul, 2003). The final factor, security and privacy assesses the degree of customer exposure to the
risks involved in the e-shopping process and the likelihood of a product or service not meeting
consumer expectations (Dillon and Reif, 2006). The variables discussed in this factor are: the means
used to assure data security, the privacy of personal information, and the security guarantee that
pertains to each transaction (Chung-Hoon and Young-Gul, 2003). We group “privacy” and “security”
together following Flavián and Guinalíu (2006) who, having reviewed the privacy and security
literature, suggest that, although these concepts are often researched as separate variables, there is a
close relationship between them in the mind of the consumer and they should therefore be considered
as a single variable. Furthermore, in practice, e-vendors tend to handle the protection of privacy and
security together. Finally, in public policy these concepts run side by side.
We collected 685 questionnaires related to 185 websites, filled out by 228 respondents. Of the 228
respondents, 195 filled out 3 to 4 questionnaires as desired, while 24 filled out only two
questionnaires and seven respondents filled out only a single valid evaluation. Also, 37 questionnaires
were not filled out properly, so that the final data set consisted of 648 questionnaires relating to 174
websites. Of these 174 websites, 117 e-stores were evaluated by 4 respondents, 48 by 3 respondents; 6
by 5 respondents, and 3 e-stores by 2 respondents. For a few websites there were values missing. We
replaced missing data in a given variable by using the mode value of that variable, taking into
consideration the other questionnaires about that site.
The respondents were also asked to provide information about their personal background, such as age,
gender, education, profession, income and martial status and about their familiarity with Internet
usage, and on-line purchasing. The 228 respondents were graduate students enrolled in business
school, 56% were male, 51% were married, with 29% having one or more children. Almost all
respondents were aged between 20 and 40 years, and about half were aged between 20 and 30. All
respondents reported that they have experienced the Internet, with 71% having surfed the Internet for
over five years and 57% surfing for up to two hours a day. 90% of the respondents used the Internet
for e mailing and searching for information. Of the respondents, 96% surfed at home and 70% surfed
also at their place of work. 23% do not purchase goods via the Internet but 78% do so often. Socio-
economically, the respondents were quite a homogeneous group: 92% had an average or above-
average income. We consider the group of respondents representative of the e-consumer population.
The variables, their mean scores out of 10 and the standard deviations are given in Table 1. The serial
number next to each variable corresponds to the question in the questionnaire. We didn’t include the
variable in line 22 of Table 1 (i.e. The perceived quality (simplicity and clarity) of the website’s
commercial language) in the analysis of the results, since the results for this variable were
unreasonable. This variable was intended to provide a subjective reading of the topics covered
by objective variables 18-21, yet it was awarded a higher score than any of those variables
achieved. We suspect that the variable in line 22 was worded too generally and perhaps for this reason
failed to assess the subjects covered by variables 18-21.
The research methodology used multivariate analysis in which objective and subjective measures
were assessed. utilizing Analysis of Variance (ANOVA). Using the concept of repeated measures of
the general linear model, the differences among the means of the variables of interest were analyzed.
This analysis was used in answering the research questions.
RELIABILITY
The reliability of the variables in the questionnaires was assessed using alpha Cronbach. When pulling
together all 30 variables, the alpha is 0.949. For the objective measures, alpha is 0.841 for “product
description”, 0.808 for “e-vendor accountability” and 0.816 for “privacy and security”. The alpha
values for the subjective clusters “product description”, “privacy and security” and “e vendor
accountability” are 0.792, 0.890 and 0.808, respectively. The values of these coefficients support the
usage of these variables in the study.
(Continued on Next Page)
Table 1. The 30 Variables Studied, Grouped Beneath their Associated Ethical Factors
and Measurements, Together with their Means and S.D
Section A: Product Description Mean S.D.
I. Objective Measures
i. Product information
1 The extent to which there is a graphical image 8.94 1.69
2 The extent to which there is a fully detailed explanation of the product 8.07 2.30
3 The extent to which there is a fully detailed explanation of the product's price 8.92 1.74
7 The extent to which the product price information is visible on the website 8.72 1.89
ii Delivery information
4 The extent to which there is a fully detailed explanation of the delivery methods 6.48 3.46
5 The extent to which there is a fully detailed explanation of the delivery timetable 6.72 3.48
6 The extent to which there is a fully detailed explanation of payment conditions 6.80 3.30
8 The extent to which the delivery methods information is visible on the website 5.39 3.18
9 The extent to which the delivery timetable information is visible on the website 5.88 3.30
iii Website policies
10 The extent to which the website policy is accessible on the website 7.04 3.59
11 The extent to which the policy is accessible from different pages on the web 7.33 3.56
II. Subjective Measures
i. Product information
12 The perceived quality of the product description 7.19 2.40
15 The extent to which you trust the graphical image displayed 7.07 2.39
ii Delivery information
13 The perceived quality of the payment conditions 6.05 3.15
14 The extent to which you trust the delivery and timetable conditions as presented on the 6.00 2.76
website
iii Website policies
16 The extent to which the explanations in the policy are clear and comprehensible 6.57 3.01
17 Overall grade for the website's product description 6.69 2.43
Section B: E-Vendor Accountability
18 The extent to which the website owner assumes accountability for his/her products 5.41 3.42
19 The extent to which the website states its policy regarding product return 6.19 3.51
20 The extent to which the website states its policy in case of failure of delivery 3.66 3.25
21 The extent to which the website policy describes the commercial conditions 5.64 3.24
22 The perceived quality (simplicity and clarity) of the website’s commercial language 6.87 2.54
23 The perceived ease with which products can be returned and money reimbursed. 4.78 3.00
24 The perceived trust in doing trade in the website 5.75 2.64
25 Overall grade for the website's accountability 5.20 2.73
Section C: Privacy and Security
26 The extent to which the website is committed to confidentiality 5.88 3.36
27 The extent to which the website is committed to credit card security 6.14 3.28
28 The perceived impression of maintenance of confidentiality by the website 5.59 3.03
29 The perceived impression of credit card security provided by the website 5.36 3.04
30 Overall grade for website's confidentiality and security 5.62 2.92
RESULTS
In answering RQ1 we attempted to examine the extent to which e-stores display information
regarding their commitment to ethical conduct ("objective measures"). The objective measures of the
e commerce sites are presented in Table 2.
Table 2. Aggregate Objective Measures for the Three Ethical Factors

Objective Measure Mean S.D.
Product Description 7.30 1.84
E-Vendor Accountability 5.22 2.67
Privacy and Security 6.01 3.05
(F =218.60, P=0.0001)
The average score for the objective measures of the “product description” variables (variables 1-11 in
the questionnaire) is 7.30 out of an ideal maximum score of 10, while the average score for the
objective “e-vendor accountability” variables (numbers 18-21) is 5.22 and the average score for the
objective measures of “privacy and security” (variables 26-27) is 6.01. There is a significant
difference between these means (F=218.05, p=0.0001). We conclude that e-vendors take the
presentation of product description information more seriously than they take their commitment to
privacy and security or their accountability for the products sold in their websites.
The above conclusion is enhanced when we consider only the leading websites in our sample, which
we did by aggregating the data for websites that achieved a ranking higher than 8 (on the 1-10 scale):
I. Product Description – (a) Most websites provide an image of most of the products sold on
the website (90% of websites), a fully detailed description of the products (73%), and a
fully detailed explanation of product prices (87%), which is also quite visible in the
website (ranking of 8.72). (b) In most websites, the website policy is easily accessible
(60% of the websites). (c) Less than half of the websites provide fully detailed
explanations of the delivery methods, the delivery timetable and the product payment
conditions (39%, 43 % and 43% respectively).
II. E-vendor Accountability – In some e-stores the website policy clearly describes the commercial
conditions (26% of the websites), states the policy regarding product return (39%), and the e-store
owner assumes accountability for his/her products (18%). However, only 3% of the e-stores
provide a statement about the policy in case of failure of delivery.
III. Privacy and Security - In about a third of the e-stores there is some reference to the website's
commitment to confidentiality and to credit card security (33% and 35% respectively)
In a further analysis of all websites surveyed, we examined the cluster of variables for the factor
"product description". This cluster comprises variable pertaining to: (i) The products and their prices
("product information", variables 1, 2, 3, and 7 in Table 1), (ii) The delivery methods, delivery
timetable and payment conditions ("delivery information", variables 4, 5, 6, 8, and 9 in Table 1), and
(iii) Website policy accessibility ("website policies", variables 10 and 11 in Table 1). The results are
shown in Table 3.
Table 3. Objective Measures of the Three Ethical Clusters around Product Description
Objective Measure Mean S.D.

Product information 8.66 1.39
Delivery information 6.26 2.69
Website policies 7.19 3.50
(F=191.23, P=0.0001)
In the cluster of variables for the factor “product description” (Table 3), significant differences were
found: E-stores were evaluated highest on average for "product information" (8.66), followed by
"website policies" (7.19), and finally by "delivery information" (6.26). Thus, e-vendors are least likely
to present the information that reflects the greatest commitment on their part (i.e. delivery
information).
In answering RQ2, we attempted to find the extent to which the ethical commitments made by e-
stores are perceived as such by e-consumers ("subjective measures"). Subjective measures of the three
ethical parameters are presented in Table 4.
Table 4. Aggregate Subjective Measures of the Three Ethical Factors
Subjective Measure Mean S.D.

E-Vendor Accountability 5.26 2.59
(F=119.36, P=0.0001)
On average, the "product description" factor gained the highest ranking (6.58), followed by "privacy
and security" (5.48), and finally by "e-vendor accountability" (5.26). The differences between the
means are significant (F=119.36 p-value=0.0001). Consequently, e-stores make their worst
impression on e-consumers with respect to “e-vendor accountability” compared to Web site “privacy
and security” and “product description”.
As in our analysis of the objective measures, we divided the subjective measures of the "product
description" factor into three clusters, as shown in Table 5:
Table 5. Subjective Measures of the three Ethical Clusters around Product Description
Subjective Measure Mean S.D.
Product information 7.13 2.60
Delivery information 6.03 3.01
Website policies 6.57 0.00
(F=82.61, P=0.0001)
As shown in Table 5, the average subjective measure scores are 7.13 for “product information”, 6.03
for “delivery information” and 6.63 for “website policies”. The differences between the means are
significant. The results indicate that e-consumers perceive the quality of the “product information”
provided in the website to be higher than that provided with respect to “website policies”, with the
quality of “delivery information” earning the lowest ranking.
At the end of each series of questions, for each of the three factors, the respondents were also asked to
provide a score reflecting their overall grade of the website with respect to each of "product
description", "e-vendor accountability" and "privacy and security" (see variables 17, 25 and 30 in Table 1).
The means are 6.69, 5.2, 5.62, respectively. On average, these scores are lower than the scores of most of the
objective and the subjective variables in each category, which suggests that, overall, the e-consumers formed a
fairly poor impression of the web-sites’ sincerity with respect to their stated commitments to ethical behavior.
In answering RQ3, we attempted to find the extent to which the interplay between the objective and
the subjective measures indicates a commitment on the part of e-stores to ethical conduct. The
correlations between the objective and subjective measures are provided in Table 6.
Table 6: Correlations between Objective and Subjective Measures and the Overall
Grade for the Three Ethical Factors
Cluster 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
1 Objective Product Description 1.00
2 Objective Product information 0.57 1.00
3 Objective Delivery information 0.91 0.32 1.00
4 Objective Website policies 0.70 0.23 0.44 1.00
5 Objective E-Vendor Accountability 0.64 0.27 0.52 0.64 1.00
6 Objective Privacy and Security 0.47 0.33 0.39 0.36 0.52 1.00
7 Subjective Product Description 0.79 0.53 0.68 0.55 0.61 0.53 1.00
8 Subjective Product information 0.51 0.60 0.39 0.25 0.34 0.34 0.80 1.00
9 Subjective Delivery information 0.76 0.39 0.74 0.46 0.55 0.50 0.89 0.53 1.00
10 Subjective Website policies 0.65 0.30 0.48 0.72 0.66 0.44 0.75 0.40 0.58 1.00
11 Subjective E-Vendor Accountability 0.55 0.26 0.48 0.47 0.71 0.44 0.59 0.40 0.51 0.55 1.00
12 Subjective Privacy and Security 0.44 0.29 0.38 0.31 0.50 0.84 0.54 0.35 0.52 0.44 0.49 1.00
13 Overall Grade Product Description 0.71 0.45 0.60 0.56 0.64 0.50 0.84 0.63 0.73 0.73 0.58 0.52 1.00
14 Overall Grade E-Vendor Accountability 0.59 0.29 0.51 0.48 0.75 0.51 0.66 0.46 0.59 0.60 0.80 0.57 0.68 1.00
15 Overall Grade Privacy and Security 0.43 0.30 0.36 0.31 0.50 0.84 0.54 0.37 0.50 0.45 0.49 0.95 0.54 0.58 1.00
All correlations are significant at the 0.01 level
In general, the objective measures are highly correlated with the subjective measures. With respect to
the "product description" cluster of variables, the correlations between the objective and the subjective
measures are 0.60 for “product information”, 0.74 for “delivery information”, and 0.72 for “websites
policies”. The correlations between the objective and the subjective measures for “e-vendor
accountability” and for “privacy & security” are 0.72 and 0.84 respectively. Overall, these results
indicate that, as the accuracy and comprehensiveness of the information provided by e-vendors in
their websites improves, so too do e-consumers’ perceptions as to the quality of the information
provided.
With regard to the “e-vendor accountability” and “product description” variables, the degree of
correlation between the various objective measures of each variable is low (e.g. we obtain correlations
of 0.32, 0.23 and 0.27 for each of "delivery information", "website policies" and “e-vendor
accountability” when compared to "product information"; see Table 6). This may indicate that e-
vendors are perceived as being insincere in their professed commitment to ethical conduct. This is
also consistent with the correlations between “e-vendor accountability” and “privacy and security”
(0.33).
The correlations indicate that the impact of the subjective measures on the overall evaluation grades is
higher than the impact of the objective measure. This is valid for all three ethical factors. The
correlations between the overall grades for the “product description” clusters of variables and each of
the corresponding objective measures, i.e. “product information”, “delivery information” and
“website policies”, are 0.46, 0.60 and 0.56, respectively, while the correlations between that overall
grade and each of the corresponding subjective measures are 0.63, 0.73 and 0.73, respectively. The
same holds for the other two ethical categories: for “e vendor accountability”, the values are 0.75
versus 0.80, and for “privacy and security”, they are 0.84 versus 0.95. This implies that the
respondents are more affected by their own subjective measures when they evaluate the ethical
aspects of the e vendors’ sites than by the objective measures. Our final analysis compared the
rankings of the objective measures with those of the subjective measures in the various ethical
categories. The results are shown in Table 7.
Table 7: T-tests between the corresponding subjective and objective measures.
Variable t Stat P-value

E-Vendor Accountability -0.498 0.620
Product Information 23.536 0.000
Delivery Information 3.099 0.002
Website Policies 6.313 0.000
Table 7 shows that the objective scores awarded two of the three ethical factors (namely, “product
description” and “privacy and security”) are consistently, as well as significantly, higher than the
scores awarded the corresponding factors at the subjective level, whereas the scores for the objective
measures of the “e-vendor accountability” factor are inconsistent and insignificant when compared to
the subjective scores awarded the same factors. This result is consistent with the results shown earlier
that there are differences between the objective and subjective measures of the three ethical factors.
The difference between the objective and subjective scores obtained for “e-vendor accountability”
may be due to variance in the range of the variables at either level.
DISCUSSION AND CONCLUSION
This research sought to investigate the commitment of e-vendors to ethics in the e-market. Three
issues were addressed: what e-vendors say they do; how e-consumers perceive these declared
commitments ; and whether or not the results of the interplay between declarations and perceptions
lead to a relationship of trust between e-vendors and e-consumers.
We distinguished between objective measures, i.e., the e-consumers' report on the extent to which e-
vendors have ethical protocols; and subjective measures, namely, the e-consumers’ impressions of the
e-vendors’ sincerity with respect to the protocols displayed in the e-stores. These measures were
divided into three ethical factors which reflect the ethical commitment of e-stores: “product
description”, “e-vendor accountability” and “privacy and security” where each factor was examined
using several variables.
Previous research has focused on the relationship between customers’ impressions of websites, or
their expectations of e-stores, and their intent to purchase online (Dillon and Reif, 2006). By contrast,
in our present research, we took one step back, and attempted to investigate the interplay between
what the e-vendors present in the e-store, and how it is perceived by the potential customer.
Interestingly, there is a gap between these measures which indicates that e-consumers mistrust e-
vendors.
Do e-vendors take ethics seriously? The discrepancies found between the objective and the subjective
measures prompt the following set of questions:
How do e-vendors generate e-consumer trust in their websites?
Why do e-vendors not present a clear statement about their accountability for the products they sell on
their websites?
How does the lack of ethical commitment on the part of e-vendors impact the success or failure of
their websites?
Since the research participants are a homogenous and unbiased group of potential e-consumers and
because of the large size of our e-store sample, we may claim that our research indicates that
consumer mistrust could impact the rate of growth of e-commerce (Michener and Mohan, 2001). In
the eyes of e-consumers, e-vendors do not provide full and accurate information about all the
commercial practices of their websites, they do not provide adequate measures of privacy and
security, and they do not clearly present their accountability.
The distinction made between objective measures and subjective measures offers a broad perspective
in which the question of the intent to purchase in online shopping was postponed. In future research
on online shopping, we would attempt to study the impact of either level on the intent of shoppers to
purchase online.
Further research is needed in order to state whether the lack of ethical commitment on the part of e-
vendors, as found in our research, is related to the economic success of their websites. Our research
findings indicate that parameters affecting e-consumers’ purchasing behaviors need be considered by
e-vendors; taking these considerations seriously requires a store strategy and website design which
reflect these needs. Of these, ethical parameters such as vendor accountability, maintaining e-
consumer privacy and security, and providing accurate product descriptions play a role in the
considerations of e-consumers. Though ensuring e-consumer privacy and security is known to be an
important factor in purchasing behavior, this research finds that e-stores still invest less in this area
than the e-consumer desires. Yet, although there is mistrust, online shopping increases. This can
perhaps be explained by earlier research findings which indicate that, in a situation in which the
“privacy and security” factor of an e-store conflicts with the good quality and inexpensive price of the
product, the intent of e-consumers to make a purchase remains high (Adam et al, 2007).
ACKNOWLEDGEMENTS
This research was financially supported by the Research Unit of The College of Management,
Academic Studies, School of Business Administration, Rishon Le'Zion, Israel. We thank Mr. Shy
Sakrov for his kind assistance. We are grateful for the assistance of the staff of the Central Library in
The College of Management, Rishon Le'zion, Israel.
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SERVICE VALUE NETWORKS: INTO REALITY
John R. Hamilton, James Cook University, Cairns, Australia.
ABSTRACT
Smart business networks may be built on Service Value Networks (SVNs). These SVNs interact across
and throughout the business’s back-end and front-end environment. SVNs are constructed via
interconnecting and networked value chains linking suppliers, peripheral partners and external support or
legislated external sources into the networked internal business cells including executive strategy, target
marketing, innovation, operations, IT/web communications and economic value (Hamilton, 2005, 2006).
The upstream business cells and their front-end customer interactions are deigned to ultimately generate a
customer exchange. Hence the SVN extends beyond the business environment and into the realm of the
customer.
The customer exchange is driven by customer perceptions, and these in turn are driven by the local and
global external environmental – including political/legislative, economic, socio-cultural, technological,
legal and environmental drivers (Johnston et al, 2005). The business and its integrated networks is also
affected by the same local and global externals, as is the final business-customer encounter and exchange.
Understanding the SVN components presents a mechanism that may increase the likelihood of generating
a business-customer encounter and a successful exchange. This exchange may be a physical and/or
services exchange, and/or an information and/or ideas exchange. To the business this encounter is in
effect a trade, and as a result, the business targets acquiring an economic exchange that will ultimately
deliver a net positive economic outcome, and hence is the focus of this study.
This study employs SVNs – an approach conceived and developed by the author. It uses the author’s
SVN theoretical approach to develop a front-end business cells approach from which measurements of the
SVN may be developed, develops a means to capture data that enables modelling the business-customer
encounter of SVNs, and offers a procedure employable across the entire SVN – at a business or industry-
wide level. It also develops a Structured Equation Modeling (SEM) method to highlight business-
customer interaction pathways, and offers this process as a means to provide additional tools to further
pursue the targeting of enhanced business-customer encounter alignment – ultimately delivering a more
aligned full SVN system, that is capable of delivering win – win, business-customer solutions
This study unfolds the complexities of the real service industry business and its SVN type interactions at
the front-end business to customer exchange interface. This business-customer encounter interface may
be measured, and modelled, and may define, elucidate and measure the relevant business-customer
encounter pathways for the service industry investigated. Targeting the key measures connecting business
cell interactors and their pathways to customer value delivers a specifically and customer targeted SVN
that if effectively mined may deliver a truly smart business network.
Key Words: Service value networks, business customer encounter, alignment, SEM, structured equation
modelling
INTRODUCTION
Service Value Networks (SVNs), conceived and developed by the author, deliver a key pathway to
establishing, and likely retaining future strong competitive positioning within a service industry sector.
SVNs offer a future pathway for business to also develop their supply (and e-supply) chain systems. They
capture the contacting customer, and integrate the customer’s (physical and/or virtual e-customer)
demands via their communications, information technologies, or website interfaces, networking them into
their integrated back-end (or downstream), business service networks. Here, the SVNs seek solutions, and
deliver the appropriate reasoned business solutions back upstream to the customer. Thus, value enhanced
business encounter solutions may be readily delivered upstream to the targeted customer (or to the
targeted individual customer). The business to customer services transfer point occurs across the business-
customer encounter. The business-customer encounter has the capacity to deliver services related and
holistic customer solutions. SVNs are considered the pathway to enabling, establishing, and likely
retaining, future strong competitive positioning within a service industry sector. The procedure to
research and develop a SVN is described.
SVN’s
SVNs (Hamilton, 2004; 2004a; 2005) offer an integrated approach to investigate both off-line and on-line
services. These service delivery mechanisms reconcile two conflicting but concurrent requirements from
clients – to leverage economies of scale, and to deliver solutions, specific to the needs of the customer
(France et al., 2002), to be able to deliver highly-specific customized solutions (Brown & Vashistha,
2002). SVNs utilize integrated sets of bi-directional service supply chains, working in networked
harmony with customer driven demand chains to deliver customer value (Sampson, 2000). They
incorporate interlinked partnering companies that team together throughout these chains, to maximize
combined successes and profitability (Chen & Paulraj, 2004).
The SVN has two components - the physical and the virtual SVN components, and both may participate
in the business-customer encounter. These touch-points may impede the delivery of the SVN. The key
strategic business performance and value dimensions that influence the effective management of the SVN
encounter with the customer are outlined.
AUSTRALIAN PHARMACY INDUSTRY
Recent research by the Siegel (2002) at US Sloan’s School of Management indicates that all players in an
industry benefit from aggregation or sharing of information, ideas, and knowledge. They suggest a wealth
of knowledge may be garnished by combining organizational expertise. Aggregation analysis delivers
relationships with greater combined competitiveness. It was further posited that it remains prudent for
organizations, like the pharmacy industry, to consider their e-strategy, and to add aggregated information
and knowledge capabilities into their competitive frameworks (Siegel, 2002; Zain et al, 2002). This
supports emerging new business models involving multiple aggregations like e-pharmacies, and the
proposed concept of a SVN.
Emerging technologies often deliver disruptive solutions that may radically change the status of
competition (Christensen & Anthony, 2004; Evans 2002).
For example, e-pharmacies, networked medical services, direct customer targeted solutions, fully
integrated supply chains, logistics solutions, and other efficiencies constitute genuine threats to existing
pharmacy industry business structures. In particular, competitive threats from Australia’s supermarkets,
the Australian Medical Association, and the Australian Consumers’ Association are encroaching on the
pharmacy industry, with the aim of opening up this traditionally protected pharmaceutical industry
allowing free and open competition. The industry has responded to this threat creating e-pharmacies, up-
market new business models, and low price solutions.
An e-pharmacy may be defined as a virtual shop front pharmacy, often working collaboratively with a
physical pharmacy outlet to enable rapid selection and distribution of customized and generic
pharmaceuticals and associated products. In recent times, several major e-pharmacies including:
PharmacyOnline.com.au; ePharmacy.com.au; HomePharmacy.com.au; and PharmacyDirect.com.au have
emerged in Australia.
This emerging business model creates new challenges of value creation and modes of interaction for
customers. Of particular interest is the notion of the underlying SVN (2004; 2004a; 2005; 2006), and its
partners, and dimensions and issues that shape its customer interface, service offering, and enabling
service delivery system. A similar process occurs in the physical business-customer encounter. The
identification of a common business-customer interface capable of delivering both physical and virtual
solutions is a focal point of this study.
PHARMACY SVN
The SVN at an industry wide pharmacy level, operates as a collaborative network of supply chain
partners – such as pharmacists, drug companies, distributors, beauty care suppliers, health and natural
product suppliers, medical practitioners); sales channels (website e-sales, direct over the counter sales,
and referrals); operational and network administration personnel (working with, and serving the needs of
its off-line and on-line customers).
Figure 1 displays a global perspective of the industry, and the capabilities required from a SVN (Hamilton
2006). A simplified version of this structure may also apply at the individual pharmacy level. In Australia,
the global external environmental perspectives impacting on a SVN (such as a theorized pharmacy SVN)
show little change. The environmental impacts remain stable, the geopolitical area is stable, the economic
climate is stable and the technological area continues to develop incrementally.
Recently emerged E-pharmacies, along with physical pharmacies incorporating highly sophisticated
integrated technologies may be considered as operating as store level SVN’s or as industry wide SVN’s
At an industry wide level the centralised SVN data storage solution may be accessed by individual stores,
store groups, store chains, or e-pharmacies. Development of such a SVN solution in the future requires
pharmacy industry-wide information sharing. Such a solution may eventually lead to enhanced value
propositions and possibly cost savings (Hamilton 2004; 2004a; 2005; 2006).
In the tourism industry a movement towards a SVN approach at the industry wide level is in process. The
Australian Tourism Export Council is currently compiling a national database in preparation for linking
up its industry partners under a SVN-like framework (Anwar and Hamilton, 2005).
At an individual store level a lower level SVN system may be developed, albeit at a smaller and less
sophisticated level.
At the industry wide level an envisaged full pharmaceutical SVN would likely comprise a service related
strategy. The strategy and its interrelated business cells in-turn drive four business cells projected to be
involved in the service encounter - the services/products provision; customer targeting; the underlying
communications information technologies and web related infrastructures; and the economic imperative.
The business-customer encounter would cater for physical (direct in-store customer sales) and virtual
(across the web, or using technologies to purchase from a distance), accessing the intranet data storage
system, and its peripheral support systems. For example, to fill-in a customer’s prescription details, the
intranet information networks are tapped, checked, approved, supported with value adding drug taking
information such as: safe drug dosages per body weight; possible cross drug mix complications; and the
like. Cheaper generic drug options may be suggested to the customer – and in a personalized manner.
Human
Factors
Geopolitical Economic
Factors Factors
WORLD
SYSTEM
Interactions
between
factors
Technology Environmental
Factors Factors
Centralised National
Pharmacy Integrated
Pharmacy Operator ’s Data Storage Virtual E-Pharmacy
Physical Pharmacy Repository Accessible Operations
Operation by all Alliance and
Peripheral Partners
Pharmacy Business E-Pharmacy Implant Cheap
Specific E-Pharmacy Houses Uploads Off-Shelf
Activities VR Tools
Physical Pharmacy Virtual E-Pharmacy

Customers Customers
SVN’s Arena
Figure 1: The Service Value Network – Global Perspective, adapted from Anwar and Hamilton (2005).
To further enhance business-customer dialogue pathways, additional SVN sourced service-related value-
adding options may include: consumer allowable limits, claim options, delivery options, nearest doctor,
hospital, medical insurance options, tax benefits, local preferences and the like.
Such a SVN system could also allow the customer to directly assess a range of innovative or value adds
like – sourcing or requesting annual tax return data, linking to a doctor’s surgery to lodge an appointment
booking, or for information, downloading personal local hospital information, monitoring health or
making a personal pensioner claim.
In addition, business intelligence and knowledge/information from suppliers, research, and peripheral
sources may be stored on a local or centralized industry database, but be accessible to allowed individual
pharmacies.
Such data sharing and collaboration allows the business to move closer to its customers, and even allows
the customer to use a variety of pharmacy stores for desired prescriptions, medications, information, and
the like. Business stocking level data, linked to suppliers and logistics deliverers, may monitor ‘use-by-
date’ stocks, general stock control, and may add customer generated requests as optional new additions
for suppliers to consider. Hence, accurate inventory planning, without bullwhip effects is deliverable, and
both supply-related efficiencies, and net cost-of-delivery savings, are generated (Finch, 2005). The SVN
may, in the future, add interconnectivity into other medical services like: hospitals, doctors, ambulance
services, and even police to the deliverable pharmacy systems – thereby creating an efficient, better-
informed, integrated medical services information network. Under agreement, peripheral partners
including health and ambulance insurance funds, medical researchers, may share information across some
general data fields of the SVN. To build such a system requires a key starting point, and in Australia this
initiator is likely to be the Pharmacy Guild of Australia – the peak lobby and decision making body for
the industry in Australia.
This study seeks to deliver an approach whereby the pharmacy industry at a local, and industry-wide
level, may better understand the pathways to build an effective SVN. The area of focus for this study lies
in developing effective business-customer encounter, as this is a key driver of a successful SVN. This in-
turn may show ways to enhance business performance, drive cost efficiencies, and deliver enhanced
perceived customer-perceived satisfaction. If successfully investigated the business-customer encounter
may set the framework upon which a full SVN approach may be developed.
SVN ENCOUNTER FRAMEWORK
Back-end business supply chain partners, logistics support/peripheral partners and other external data
sources are interconnected across the business through integrated information technology networks. Here,
internal and external data, logistics, and the like are pooled, shared, and modelled, to deliver new,
improved, front-end customer solutions. The customer and the business network come together at the
service encounter ‘touch-point’. This is the interface where the business aims to deliver the ‘best’ possible
value chain-customer response. This service encounter ‘touch-point’ displayed in Figure 2, is the focal
point of the service network encounter framework.
This SVN encounter framework is embedded within the influences of the external environment, and the
BSC financial, customer, business and growth constraints. It provides a framework by which an overall
SVN business perspective may be generated.
The ‘external services’ component links the environmental scanning for complementary services and
added value components and is based on the customer requested solution plotted.
The ‘internal services’ component delivers the integrated demand chain/supply chain, where value chain
partners work together to deliver maximum customer value in the most efficient and effective manner.
Here, partners aim to deliver both service quality and services, as a quality, financially accountable
package.
The ‘customer targeted’ component addresses the service being offered in terms of its efficiency,
relevance, scope and performance. In short, the ‘customer targeted’ component delivers the back-end
activities or the ‘when’ (content order), and appropriately targets these features to the ‘whom’.
The ‘service concept’ component integrates both the operations concept component, and the customer
targeted component. It delivers multi-dimensional information through the business and its value adding
internal and external partners, and delivers a broader customer experience. In short, the ‘services concept
model’ delivers the ‘what’ to the service value encounter.
Figure 2: SVN Encounter Framework, adapted from Hamilton (2004)
Customer
Targeted
Component
External Physical
Services – Encounter Off-line
Links to Encounter Customer
Component
Value Ads
Business Customer Encounter

Services
Services Products
Component
On-line
Customer
On-line
Customer
Internal Virtual
Services – On line On-line
Provision
Links to Encounter
Encounter Customer
SC & DC Component
On-line
Communics Customer
Operations
IT/Web/Ops
© Hamilton 2006 Component On-line
Customer
The ‘external services’ component links the environmental scanning for complementary services and
added value components and is based on the customer requested solution plotted.
The ‘internal services’ component delivers the integrated demand chain/supply chain, where value chain
partners work together to deliver maximum customer value in the most efficient and effective manner.
Here, partners aim to deliver both service quality and services, as a quality, financially accountable
package.
The ‘customer targeted’ component addresses the service being offered in terms of its efficiency,
relevance, scope and performance. In short, the ‘customer targeted’ component delivers the back-end
activities or the ‘when’ (content order), and appropriately targets these features to the ‘whom’.
The ‘service concept’ component integrates both the operations concept component, and the customer
targeted component. It delivers multi-dimensional information through the business and its value adding
internal and external partners, and delivers a broader customer experience. In short, the ‘services concept
model’ delivers the ‘what’ to the service value encounter.
The ‘operations concept’ component houses networked information systems, and extensive data storage
and retrieval systems. In conjunction with developing web measurement metrics, computer based fuzzy
logic techniques (computer based data analysis and approximation techniques), and artificial intelligence
tools (that mine the business networks databases, and provide reasoned and added value solutions to the
customer’s business requests interrogate the databases, sort and interpret available information, and
deliver customized, or personalized solutions) that target perceived customer expectations. This ‘renewal’
and learning networked system is very different from normal website service offerings. It also
incorporates issues related to failures and recovery. The ‘operations concept’ component delivers the
‘how’ to the service value encounter.
The operational, services and customer strategies of the business are drawn together as interconnected
data sharing models, delivering unique customer services encounters – ones aiming to exceed customer
expectations, and house much of the business’s intellectual property. They remain integrally linked
downstream with their relevant back-end partners and ad hoc additional sources, seeking to deliver
dynamic service value chain network responses for their physical or virtual customers.
The operational, services and customer component areas are integrally connected across the modern
service value chain network. Data is pooled, shared, exchanged and cross-concept applied (between
customer servicing, operations and business strategies) to provide new learning and new customer
solutions. The component areas mesh together across the business-customer encounter. The customer
receives the business’s appropriate, approximated, value added set of services. This mix is intelligently
sourced and retrieved from its networked combinations of databases and possibly other external sources.
The business customer encounter – the actual customer ‘touch-point’ with the service provider, is seen as
a continuous improvement model that feeds operational, service and customer data down and throughout,
the networked system of the business service value chain network. Thus the service value encounter
framework connects the key business-customer information flows across the service value chain network.
It may be further separated into two components - the physical’ (tangible) encounter between the
customer and a business contact person or persons, and the ‘virtual’ (intangible) encounter with an IT
based website structure, which is often visually connected via its internal or external business website.
The physical and virtual SVN encounter framework as displayed in Figure 2 is proposed as a research
model (Hamilton 2004; 2005), from which service value chain network encounters may be investigated.
The close relation between the physical and virtual encounters means that this research likely has
applications to both the physical and virtual SVN encounters.
Customer knowledge and data capture remains crucial to delivering appropriate services. Frohlich and
Westbrook (2002) have researched some internal business-to-business-customer effects, and although
many have written about the business-to-consumer dyad, it has not been empirically studied (Chen &
Paulraj, 2004).
The model developed above requires one more component as defined by Kaplan and Norton, (1992). A
financial / economic measure is also required. A business – especially a pharmacy, seeks to generate
exchanges that ultimately deliver economic value, hence this business cell required inclusion.
The Service Network Encounter Model displayed in Figure 3 sets the framework for this Australian
pharmacy industry research. It houses the SVN dimensions, developed from the literature and projected
into the customer arena. The external environment impinges on both the business and the customer,
having some effect on the final encounter.
Figure 3. Service Network Encounter Model, © Hamilton (2006)
External Environment
Delivers:
- Economic Framework
- National Structural Framework
Encounter
Deliverables:
- Positioned Services (POS)
- Customer Measures (TRAK)
- Value Adds/Innovations (INNOV)
- Coms / IT / Web/ Ops (WEB)
- Economic Value (ECOSV)
- Services / Products (CUSSV)
Pharmacy Business Pharmacy Customer

Offers: Seeks:
- Strategic Model (POS) - Perceived Value (CUSVAL /
- Customer Measures (TRAK) POS)
- Value Adds/Innovations (INNOV) - Satisfaction (SAT/Overall)
- Coms / IT / Web/ Ops (WEB) - Web/Info/Learning/Value Ads
- Economic Value (ECOSV) (INFOADS / VALADS)
- Services / Products (CUSSV) - Services / Products (SVDEL)
The pharmacy business offers a positioning strategy by which it sets its business model. Embedded within
this positioning is its premise of how it targets its customers, possibly using: service, value adds,
innovative additional features, services/products, price or structures. In today’s arena many businesses
offer an on-line web based information solution to their business encounter. This additional customer
‘touch point’ may incorporate a host of customer interconnection features (Hamilton, 2005). It may even
allow on-purchases, pharmacy, supply chain and peripheral business communication channels, past year
prescription tax information and non prescription deliveries of web purchased items. Pharmacies monitor
their derived economic value carefully. This is influenced by the range they present for sale to the
customer. Pharmacy prescriptions may range from near 100% of sales (hospital pharmacy dispensaries) to
well under 50% for those specifically targeting cosmetics, baby products, sports goods, and the like as
mainstream sales and prescriptions as their minor sales focus. In Australia, pharmacies, by law, constitute
the only business sector allowed to sell prescription drugs. These specific purpose items often necessitate
the provision of concise, high quality, service specific customer guidance information. Hence the
business-customer encounter from many viewpoints is a key service deliverable. This mechanism may be
a virtual (or web based) encounter, or an in-store physical encounter. The business seeks to convert the
customer into a purchaser of one or more of its products, or to make their investigations of available items
an enjoyable experience.
The customer seeks a delivered service that meets their needs, wants and desires and at a personally
economically acceptable. This perceived value must be delivered in a timely manner, and in an acceptable
form. Customer satisfaction is another key business target. The customer in this industry is generally
satisfied with their purchases as in most cases (and particularly with prescriptions) they obtain the items
they require at a government regulated price.
The Australian pharmacy industry is competitive, with one pharmacy in existence for every 3,800
persons. Each business outlet must manage considerable overheads, large stock holdings, quality and
security issues, and the like. Traditionally, positioning strategies have utilized marketing modes like
television, radio, newspapers, magazines and mail outs to win business, or they have used remodelling or
on-line web sales avenues to improve the business situation. However, there is scant information to
indicate this approach is successful.
This research uses the Australian pharmacy industry as a services industry test bed and investigates SVN
solutions to the business-customer encounter. It uses a SVNs approach to identify key business cells and
their interactors. The six tangible business cells targeted include: the business positioning; the customer
targeted value adding and innovations; the business economic value attributed to customer sales; the
business-to-customer targeting (and innovation) orientation; the services / products offerings delivered;
and the learning, information sharing and web provisions. These business cell ‘interactors’ combine with
the external environment sources (and external value adds) to deliver customer perceived value and the
servicing of needs, wants and desires, in a timely, efficient, cost sensitive manner. The ultimate goal is to
generate high levels of overall customer perceived satisfaction.
Figure 4 houses the above business cells drawn down to SVN model consisting of five major interacting
blocks (numbered 1 to 5), each delivering different cells of information. The environment encapsulates
the external business-customer arena, and houses items such as PESTEL influences (Johnston, Scholes &
Whittington, 2005).
The business block holds the cells that operate behind the sales environment – including supply chain,
peripheral suppliers, operational and information aspects, economic contribution mechanisms, the
competitive model, the value add options, the strategic customer and tracking mechanisms the services
and products presented, and the communications channels.
The business-customer encounter engages four key cells - the services, the customer tracking/targeting
mechanisms, the information tools, and the economic exchange. Three cells – services/products accessed,
customer tracking /targeting awareness shared and information tools (informative communications)
shared, engage the business and the customer via a pathway (or pathways). Here, the business and the
customer move towards an economic exchange. In the economic exchange the business delivers its
product and service solution, and the customer receives the business offered solution. Hence this pathway
may also be active, but it may also be considered as a result of the exchange.
The customer perceived value in the exchange is a measure of the customer satisfaction generated in and
through the business-customer encounter, although outside influences may also affect these perceived
value and satisfaction measures.
Figure 4: Service Value Network Encounter Model, © Hamilton (2006)
Pharmacy Industry SVN Encounter 1

Servicing Performance, Value & Satisfaction
Strategy, Managing, Economic Performance, Competitive
Environment
Targeting Customer, Services, IT/Operations 5
Off-line
External
Customer
2 3 4a
PI
Strategic Management Financials & Off-line
Service/Prod
Business Customer Encounter

Model Value Adds Economic Value Business
Provision
Customer
Encounter
PI Customer
Targeting &
Awareness On-line
External E-
PI Encounter 4b Customers
Bus
Cells PI
Informative
Communics
Encounter On-line
E-Business
2 PI Customers
Economic
Strategic Service IT/Operations &
Exchange
Orientation/CT Offerings Communication
Encounter
Within this business environment the customer seeks efficient, simple, effective, timely interactions with
the business environment. Parasuraman et al. (1985), suggested consumers judged companies. Their
‘reliability, responsiveness, assurance tangibles and empathy’ measures help provide a service quality
customer perception. Where the business and the customer interact, these measures may be considered as
operating in a ‘service scope’ dimension, where loyalty dimensions may be included (Baker and
Cameron, 1996). In conjunction with perceived services, customer perceived value – “the consumers’
overall assessment of the utility of a product based on perceptions of what is received to what is given” is
another important customer SVN dimension to be assessed (Zeithaml, 1988). Customer perceived
satisfaction levels are often influenced by the business’s response(s), and the customer displays a dynamic
and emotional demand for a greater variety of reliable products, delivered with short lead times (Hunt,
1977; Draaijer, 1992). This dimension is also a target SVN measure of the business-customer encounter
success. Hence measuring such features, defined under this SVN model, and mapping their effects, may
deliver new insight into the complex nature of the business-customer encounter.
The business-customer encounter is projected to exhibit a combination of four pathways – a customer

targeting (awareness) pathway; a service (and/or product) encounter; an informative communications
channel set; and an economic exchange. These pathways may interact together, and may also interact with
the other internal and external business cell effectors. The customer drives the encounter by completing
an exchange with the business, for example, the customer may be pursuing the business for information,
services, products, or possibly another customer perceived reason like feeling.
PHARMACY SERVICES INTEGRATION POSSIBILITIES
Integrated services within the pharmacy industry may deliver new options for the industry. These
possibilities are displayed in Figure 5. For example, the individual pharmacy business typically offers a
low service integration model where networked solutions are not integrated. Typically a national
prescriptions register requires all pharmacies to be linked to a federal database, but automatic inventory
management (and supply chain integration), marketing, human resources and financial databases options
when in use, are rarely incorporated into the business solutions. This low level integration typifies a busy
individual store, with little or no computerized operations, and it constitutes the oldest and least value
adding model
Figure 5: Disruptive Transitions towards the Service Value Network, adapted from Hamilton
(2005)
Disruptive Transitions: SVN Business Encounter Customer

Customer driven performance capabilities
Env Interactive SVN’s

’
DCN Business Encounter

VSE Customer
Service Demand Chain Integration
Emerging technologies are often

disruptive, and inhibit the business
SCN Business Encounter
VSE Customer moving readily from its existing
Service Supply Chain Integration model to the new model eg. Internet,
e-commerce, 3G, scram jets.
A major business re-design will likely
be required (Christensen et al, 2004,
Evans, 2002)
Business Encounter
VSE Customer
Low Service Integration

© Hamilton, 2005
Degree of networked (and linked) integrated supply-demand integration
The next level of customer interactivity captures those pharmacies with degrees of supply chain inter-
connectivity and some computerized operations.
Those working as higher level responsive, demand-driven pharmacies may utilize sophisticated, well-
integrated information systems to place in-depth requests and gain responses that may be relayed to the
customer, and updated in their customer databases. Included around this higher level sphere of interaction
is customer relationship management.
The peak model is envisaged as the industry-wide SVN, as depicted in Figure 5 above. Here, fully
integrated computerized solutions may be intelligently delivered to the customer, via the serving staff, or
the pharmacist, or via direct on-line customer engagement into the business network. The SVN enabled
business intelligence tools may deliver agile, dynamic, flexible, customerized business-customer
encounters capable of offering ‘elevated-services’ and ‘added-value’ solutions in response to customer
requests.
Figure 5 is a key figure in that it displays a commonality for different levels of business integration – in
that to enable an exchange to occur, all business and customer interaction systems funnel into a business-
customer encounter. Hence this key area is the focal area of this SVN study. This Australia-wide
pharmacy industry-wide research aims to provide a new knowledge base of relevant business-customer
encounter models that may be used enhance understanding of this key interface channel, and to show the
potential relevance of a SVN approach for the industry. Parameters relevant to the front-end business-
customer encounter interface are captured, sifted and sorted.
SVN SEM – PHARMACY RESEARCH
Considering the SVN model above (Figures 1, 2, 3, 4, 5), the business environmental considerations in
Australia were stable and consequently exerted little effect on the pharmacy industry. In addition, this
industry market space has a restricted pharmacist only legislated ownership provision, hence the industry
must only compete with itself, and not as vigorously as it would in an open market situation. The industry
also self-regulates to some degree maintaining a pharmacy to every 3000 to 4000 persons. As such, most
pharmacies successfully operate as small independents, and experience a degree of safety (protected)
within their current environment. This is reflected in survey results, where 79% of respondents were
independents or members of a small chain of fewer than ten stores outlets.
This research concentrated on the key to the remaining three dimensions of the SVN associated with the
business-customer interface – the business cells and their interactors, the business-customer encounter
and the customer perceived deliverables interactors, and on a new technique that allows tracking across
the business-customer divide.
THE SVN SEM SOLUTION
This research successfully modelled the Australian pharmacy industry as a SVN, and investigates it from
a customer and business perspective. The national pharmacy industry was surveyed. Data embedded in
the literature, was: validated, matched, normalized, split into constructs, modelled and validated. A SEM
approach was delivered significant pathways that may enhance customer perceived measures like
perceived servicing and value and customer satisfaction. Alignment of SVN business cell interactors
pathways with customer requirements (coupled with the influence of external customer servicing and
value interactors requirements), delivered a new mechanism (that may then be used within the business
environment), to influence customer perceived perspectives.
AN INDUSTRY SVN SEM SOLUTION
SEM allows for the estimation of the construct reliability and construct validity, provides new tests of fit
for systems of equations, and allows for the estimation of higher order factor analysis where no observed
indicator of these higher-order factor is available.
SEM encapsulates multiple regression goals, but in a much more powerful way. SEM accounts for the
modelling of interactions, nonlinearities, correlated independents, measurement error, correlated error
terms, multiple latent independents (each measured by multiple indicators), and one or more latent
dependents, also with multiple indicators.
A SVN SEM model for the pharmacy industry solution is portrayed in Figure 6, This SVN SEM model
has a full compliment of fifteen co-variances, and the WEB to INNOVATE path was required (not
required under regression).
Figure 6: SVN SEM Model
POSITION e1 0.01
1
1.73
SATT
POS e2 0.28
1 1 0.01
e11 0.18 SATISFY
CUSVALT 1
0.24
TRACK
CUSTVAL Res1
0.47
1
TRAKT
1
Res2
e10 0.03
INNOVATE
1.93
e3 0.1
INNOVA3 1
1
0.4
SVDEL
e9
0.76
WEB SERVDEL 1
0.49
WEBUSET Res3
1
e8 0.04
ECOSERV INFOVALS EXTVALS

1 1
1.84 1.22 1.5
ECOSV INFOVAD Res4 EXVAD Res5
1 1 1
e7 0.31 e4 0.06 e5 0.08
CUSTSERV
0.25
CUSSVT
1
e6 0.02
The resultant full SVN SEM model consists of:

1. eleven observation-based manifest variables – SATT (customer perceived satisfaction),
CUSVALT (customer perceived value), EXVAD (external value added), INNOVA3
(innovation), WEBUSET(customer communications/ IT / web-use operationals engaged),
ECOSV (customer perceived economic value), TRAKT (business-customer targeting / tracking),
POS (business strategic positioning), CUSSVT (business services / products delivered), SVDEL
(customer perceived servicing), INFOVAD (information / value additions);
2. five customer mapped (business unobserved), endogenous latent variables - SATISFY,
CUSTVAL, EXTVALS, SERVDEL, INFOVALS; and
3. 22 other unobserved variables including error terms – e1, e2, e3, e4, e5, e6, e7, e8, e9, e10,
e11, INNOVATE, WEB, ECOSERV, TRACK, POSITION, CUSTSERV, Res1, Res2, Res3,
Res4, Res5. Hence this SEM model encapsulated 38 variables.
Each observed manifest variable displays a kurtosis between zero and one, with a net multivariate kurtosis
(Mardia’s coefficient) for the eleven variables totalling 5.36 and a C.R. of 1.68. This being greater than
Mardia’s coefficient equivalent of 3.202 (Byrne, 2001), indicates a small degree of model non-normality
exists. Transformations were used to compensate for deviations from normality, and to maximise SEM
accuracy. These manifest variables were denoted with a ‘T’ at the end of their variable name. This data
set showed no significant multi-co linearity existed, and no large variance in path parameters was
displayed, indicating sound discriminate validity, and suitable constructs built from measured variables.
All SEM paths displayed uniqueness as model latent variables (factors). The eigen values also supported
the eleven factors. Hence eleven latent variables (factors) were retained in this SVN SEM model.
All covariance pathways between business cells were significant and were retained Each displayed low to
moderate influence., again indicating both little multi-co linearity, and sound discriminate validity.
Covariance pathway values associated with the WEBUSE latent construct captured the business
(pharmacist) perception that web-related activities were not yet seen as key drivers for their business. Yet,
a significant relationship between the customer and the business via IT / web communications channels
was shown. As such, the customer sees this communications avenue as a useful link, and the pharmacy
industry may further investigate this area. The business’s customer marketing and tracking pathway
TRACK engaged the EXTVALS, then INFOVALS, and then indirectly affected customer servicing and
perception, indicating a possible misalignment of focus by the business existed.
A minimal (optimal) SEM solution was achieved, and the model was over-identified as desired, The low
chi-square to degrees of freedom ratio (χ2 / df < 2), indicated a high goodness-of-fit, while the probability
level above p = 0.05 indicated an excellent final model fit.
Paths of influence for this model indicated that the latent constructs POSITION and ECOSERV did not
display direct pathways to either of the three customer perception measures, or to either of the two
external latent variables. Instead, they appeared to generate indirect influences across all business cells,
and hence appeared to contribute to the business-customer encounter pathways indirectly (via co
variances). The remaining three business cells WEB, INNOVATE, and CUSSERV showed direct
(variance) pathways between the business and the customer.
The business cell SVN approach highlights the complex ‘multi-pronged’ nature of a business-customer
exchange, and shows that a SVN approach, using defined (literature, business and theory based) business
cell interactors can locate business cell interactors that act across the business-customer encounter, and
that not all business cell interactors act across the business-customer encounter. In addition, in this service
industry, some business cell interactors exhibited only an indirect influence across the business-customer
encounter, while others presented both direct and indirect influences. Hence, this research indicates that
each of the six front-end SVN business cells directly, or indirectly, impinges on customer perspective
measures.
This research delivers a new SVN approach for investigating the modern networked business and its
business-customer interface In addition, without adequately understanding this key interface (termed the
business-customer encounter), a true SVN (and its four matrix interacting blocks) cannot be fully
engaged, and thus far may only be approximated. This SVN SEM approach unlocks the key to building a
fully operational SVN. It is an important piece of competitive business research. The SVN SEM approach
is predicted to apply to for all industries, along with greater alignment of the business to its customer-
base.
Into the future the SVN-SEM approach will be capable of remodelling into a fully operational loop
learning, smart business networks (SBN) intelligence system, that if correctly strategically positioned,
may continuously learn and deliver both enhanced perceived customer perspectives (customer values),
and significantly enhanced business economic value propositions?
CONCLUSION
A theoretical SVN approach defines key front-end business cell interactors which possibly effected, and /
or affected, influence(s) across the business-customer encounter.
The theorized SVN model, developed by the author, presents many complexities including interpreting
the relationships between the external environment drivers and the front-end business cells, along with
their respective interactors, and potential implement able solutions. In this area, the SVN business cells
are theorised to exhibit multiple pathways of direct and indirect influence, hence very complex
interpretation measurement hurdles arise. Similarly, the capture of relevant interaction measures between
the business and the customer (to generate an exchange) is highly complex.
This study helps untangle a new approach to measuring, understanding, interpreting, and possibly actually
delivering SVNs, within a real industry-wide country specific environment – using the Australian
pharmacy industry as the test bed.
The SVNs approach delivers a detailed understanding of the complexities of the back-end business, and
its funnelling upstream towards the front-end business-customer encounter (and hopefully culminating
with an exchange between the parties).
The SVN SEM approach assists in the understanding and definition of business cells close to the
business-customer interface. This funnel recognition, and channelled focal point, encapsulates a prime
reason for the business to exist – that is to generate an exchange, and hopefully to also gain a degree of
economic reward via this exchange with the customer.
The SVN model considers the service industry – via the Australian pharmacy industry, as a series of
external, business, customer driver cells. From the business perspective the SVN is a matrix of interactors
drawn from the differing business cell blocks.
This front-end SVN business cells approach is projected as applicable industry wide to: low integration
pharmacy stores; networked pharmacy stores, back-end integrated pharmacy chain stores, and e-
pharmacy stores. In addition it is also be applicable at the store level. In each case the degree of SVN
matrix differs, but this research shows a lower degree of networking exists, and hence a full SVN is not
yet delivered across the pharmacy industry or is store solutions.
As postulated by the author, SVN’s acts as a complex, network, capturing both its immediate and global
environment, and its customers, as part of its matrix business structure. Three key component blocks
constitute this front-end SVN business-customer encounter, these are (1) the environment that affects the
business and its exchange processes; (2) the business’s customers and their operations cells; (3) the
business and its operational cells; (3) the business-customer encounter / exchange pathways); and (4) the
external environmental considerations.
In the pharmacy industry, this research shows a true SVN has not yet been achieved and clear
misalignment issues (including pricing alternatives, services, value, information and information access)
remain between the pharmacy industry and its customers. In effect, if the industry (or a pharmacy),
operated as true SVN, the customer should receive the perfect ‘what, when, where, how, and why’
solution defined in the literature, and on-time, every-time, and at a customer acceptable exchange rate.
No industry to date has yet developed a true SVN as they do not operate in a fully aligned business-
customer environment.
This research method, delivers mechanisms whereby management may move the business to a new smart
business level, offering enhanced competitive positioning, targeted customer interaction solutions, and
enhanced customer perceived measures, along with enhanced customer satisfaction. This process is
efficient, understandable, calibrated, business specific, and appropriate for market leaders, innovators or
differentiators. Combined with other developments it also delivers a mechanism by which a true SVN
becomes a real deliverable possibility. and this research shows how a true SVN may be developed.
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© The author John Hamilton, (+61740421091) John.Hamilton@jcu.edu.au has IP protected this concept,
procedure and research approach.
E-MARKETS: A CONCEPTUALIZATION AND RESEARCH AGENDA
Reimer Ivang, Aalborg University, Denmark
Robert Hinson, University of Ghana Business School
Ramanathan Somasundaram, National Institute for Smart Government, India
ABSTRACT
We in this paper via a detailed literature review and by relying on our experiences attempt to
conceptualize a reference model for e-markets. Our model has five dimensions which are i) transaction
focus ii) market orientation iii) revenue sources iv) ownership bias and v) relationship orientation.
Each of the dimensions is classified further into categories. Through multiplying the second level
categories, we find 480 relationships that require studying. Strategic archetypes approach just as the
inductive and deductive approaches can use the dimensions identified in our framework. Our effort
serves two purposes. First, it helps in synthesizing our knowledge about e-market. Second, researchers
can use the model for defining research possibilities and while positioning their work. We are of the
opinion that knowledge can be accumulatively furthered when the proposed model or a revised version
of it is used for referencing. Practitioners can also use our model for evaluating an e-market.
Keywords: Electronic markets, Literature review, model, conceptualization
INTRODUCTION
The e-business and Internet use literature has been developed though a multiplicity of empirical and
conceptual contributions (see Hinson and Abor 2005, Hinson 2005Hinson and Sorensen 2006, Opoku
and Hinson 2006; Hinson 2006). The electronic markets (E-market) conceptual area is a also fairly
researched one. As early as 1987, Malone et al. theorized the impact of information technology on
governance structures. Theoretical analysis that followed by for instance Bakos (1991) and Clemons et
al. (1993) enriched our understanding of the subject. Researchers have used several theories such as
transaction cost theory (Malone et al. 1987), information economics theory (Essig and Arnold 2001),
game theory (Tomak and Xia 2002), channel evolution literature (Sarkar et al. 1998) and IOS adoption
work (Piccinelli et al. 2001) for explaining e-markets.
The ubiquitous Internet alone is inadequate for e-business to happen. There is a need for information
infrastructures that facilitate interaction between engaging parties. An e-market is an example of an
infrastructure that holds enormous promise for facilitating interaction between engaging parties.
Elemica, Dell and Amazon are examples of successful e-markets that have revolutionized their
respective areas. Nowadays, governments, citizens and businesses are able to transact with one another
either with their own types or with the other types over the Internet (Grieger 2003). Of the several
business configuration and interactions that are possible we choose to focus the conceptual discussions
in this paper on Business to Business (B2B) interactions because we of the opinion that it the type of
business interaction that holds the greatest promise for the e-markets discussions we intend to make in
this paper. Gartner consulting estimates B2B trade will hit as much as US$ 6 trillion by 2004 (Meehan
2001). In our estimation, this figure is expected to more than double by the year 2007.
Several intermediary organizations such as IBX and Gatetrade have arisen in the recent years hosting
B2B trading infrastructure for a fee. Trading through e-markets has become a norm in some industries
such as the chemical and the textile industries. We expect trading through e-market to be the norm in
several other industries in the near future. Trading via e-markets is a massive development for
businesses. The medium of transaction when shifted affects businesses for;
• the market structure is altered (Malone et al. 1987; Bakos 1991; Clemons et al. 1993; Wigand and
Benjamin 1995; Bakos 1997; Bakos 1998; Daniel and Klimis 1999)
• disintermediation and cyber mediation occurs (Sarkar et al. 1995; Bailey and Bakos 1997; Sarkar
et al. 1998; Sinnecker and Christiaanse 2001)
• the supply chain relationships requires review (Anderson and Lee 2000; Essig and Arnold 2001;
Grieger and Kotzab 2002; Skjøtt-Larsen et al. 2002)
• it requires organizational restructuring and new management practices (Archer and Gebauer 1999;
James et al. 2000; James et al. 2000a; Brooks and Dik 2001; Boer et al. 2002)
PROBLEM PRESENTATION
The e-business and Internet use literature has been developed though a multiplicity of empirical and
conceptual contributions (see Hinson and Abor 2005, Hinson 2005Hinson and Sorensen 2006, Opoku
and Hinson 2006; Hinson 2006). The electronic markets (E-market) conceptual area is a also fairly
researched one. As early as 1987, Malone et al. theorized the impact of information technology on
governance structures. Theoretical analysis that followed by for instance Bakos (1991) and Clemons et
al. (1993) enriched our understanding of the subject. Researchers have used several theories such as
transaction cost theory (Malone et al. 1987), information economics theory (Essig and Arnold 2001),
game theory (Tomak and Xia 2002), channel evolution literature (Sarkar et al. 1998) and IOS adoption
work (Piccinelli et al. 2001) for explaining e-markets. Ivang and Sorensen (2005) also note that e-
markets and especially auctions promote the competitive aspect of trading, potentially leading to more
transactional one-off deals.
Our understanding of the e-market concept has most certainly evolved since the early explanations by
Malone et al. (1987) and Bakos (1991). Bakos (1991) terms e-market as “an inter-organizational
information system that allows the participating buyers and sellers in some market to exchange
information about prices and product offerings”. While this definition is still very much valid, it does
not adequately express the complexity of the entity. Recent explanations provided by such as
Lennstrand et al. (2001) recognize e-market as a thinking party that intermediates between buyers and
sellers. The recent definitions take into account dimensions such as ownership and transaction focus.
There are several problems associated with the efforts; see for example (Choudhury et al. 1998; Segev
et al. 1999; Sawy 2001; Barratt and Rosdahl 2002; Mahadevan 2002) that have so far been made for
defining an e-market. With a few exceptions, these efforts do not define e-markets as their prime
objective. The authors simply describe the concept as it is used in the context of their paper. While
they usually cite explanations provided about e-market earlier, they identify some unique elements as
well. In some instances, they use a different term for denoting the same aspect. It is thus our
understanding of e-markets has evolved. Knowledge about e-market hence is distributed among a
number of publications. Thus, there is clearly a need for unearthing this knowledge and making it
easily available to those who embark on studying e-markets.
There have been a few efforts to objectively describe an e-market which however have their
drawbacks. Schmid and Lindemann (1998) for instance propose a reference model for explaining e-
market. The objective of their model; however, is to guide the coherent development of e-market
technical infrastructure. Several e-markets went bust not because they lacked technical infrastructure
instead because they were not breaking even due to inadequate participation. The need of the hour thus
is to conceptualize not just the technical attributes but also the attributes of the organization that is
hosting it and the nature of goods and services traded over it. Kaplan and Sawhney’s (2000)
classification of e-market is a classic effort that defines an e-market. Their model despite it’s
objectivity however is found inadequate for relevant dimensions such as the transaction focus and
ownership are not taken into account. Lennstrand et al.’s (2001) work has the explanatory power but it
lacks clarity. Their objective is not to explain the key dimensions that define an e-market instead to
study the impact of product and industry characteristics on value creation and business strategies.
Their definition is more of a research framework that has dependencies than it is a model.
We in this paper via a detailed literature review and by relying on our experiences take on the task of
developing a reference model for e-markets. Our effort serves two purposes. First, it helps in
synthesizing our knowledge about e-market. Second, researchers can use the model for defining
research possibilities and while positioning their work. Practitioners can as well use our model for
evaluating an e-market. We have so far introduced and described the objectives of the paper. In the
next section, we describe and argue for the method that we have adopted for addressing our research
objective. In the section that follows, a critical summary of reviewed literatures is presented. Then, we
describe the e-market reference model. The reference model’s implications for theory and for practice
are discussed in the next two sections. Finally, a closing remark section philosophizes about the need
for a reference model.
RESEARCH METHODOLOGY
Literature reviews are useful for synthesizing what has been done so far and for identifying what needs
to be done. Webster and Watson (2002) find two types of reviews. They are i) studying a mature area
where the objective is to analyze and synthesize accumulated body of research and ii) studying an
emerging area where the objective is to expose the study area to potential theoretical foundations. We
find e-market area as having a tradition that is long enough to have a history. At the same time, it is in
the cross roads for trading through e-market is increasingly becoming a norm. This implies that
researchers by studying the challenges faced during the emergence of e-markets can advance science.
The timing thus is ripe to synthesize a decade and a half long research tradition and to provide
guidance for the future. To achieve our objective of comprehensively describing an e-market, we
review literatures to find the various descriptions that have so far been provided.
We find literature following the method advocated by Webster and Watson (2002). We augment their
ideology with that of snow-balling technique as described by Moriarty and Bateson (1982). We
searched for the latest publications in the e-market area by searching for the term “electronic
marketplaces” in both the title and in the abstract using DADS (Digital Article Database Service), ABI
Inform and Emerald Library. We only reviewed peer reviewed journal articles. From this we selected
and read thoroughly a few recently published articles such as the work of Lennstrand et al. (2001) and
Grieger (2003). From then on we relied upon the quoted literatures for finding relevant articles. At this
point we were open to magazine articles, working papers, internet sites, consultant reports and other
types of reports. In all, we identified, read thoroughly and once revised 69 papers 1 . From this we took
notes on 24 papers as they had a claim on the description of electronic markets. These 24 papers were
chronologically revised once again for better understanding the nature of their claim. In order to
1
Please note that only the references mentioned in the paper are listed in the literature list. Please
contact the authors for the full list
synthesize a comprehensive description of e-markets, we weeded out redundancies in their claims.
Finally, we conceptualized electronic markets the best way we could think of by relying on the
literatures and as well by relying on our experiences for arriving at our comprehensive description. In
the section that follows, a critical summary of our findings is presented.
LITERATURE REVIEW
E-market has been defined and discussed since the work of Malone et al. (1987). Up until the mid
90’s, a parsimonious definition is provided for carrying out theoretical analysis (Soh and Markus
2002). Since the Internet gained ubiquity, the empirical side has advanced rapidly with a range of
business models gaining prevalence. Especially since the 2000 year, several studies have tried to
capture the contemporary state of rapid advancement.
It is Malone et al. who brought the term electronic market into attention through their seminal work in
the 1987 year. Their central claim is that IT (here primarily denoting IOS) by reducing co-ordination
costs favors market as the governance mechanism instead of hierarchy. They measure the effect of IT
on co-ordination costs via i) electronic communication effects ii) electronic brokerage effects and iii)
electronic integration effects. This view is moderated by Clemons et al. (1993) who by citing factors
that favor long term relationships such as learning curve effects and economies of scale effects claim
that the use of IT would increase outsourcing to a few suppliers. This debate termed as “electronic
market hypothesis” has elicited interest even in the recent years (see for instance the work of Daniel
and Klimis (1999).
The effect of e-market on the channel structure is a strand of research that has accumulatively
advanced. A detailed strategic analysis by Bakos (1991) lays the foundation for this strand. E-market
in this paper is regarded as an information system that intermediates between buyers and sellers. This
intermediation is hypothesized to reduce buyer search costs and thereby reduce the costs of
coordinating a transaction. From then on the effect of e-markets on intermediating organizations that
add value in creating a product or a service is looked at. Wigand and Benjamin (1995) cite reduced
transaction costs for arguing that e-market would facilitate direct interaction between producers and
consumers resulting in disintermediation. Sarkar et al. (1995) hypothesize four possible outcomes by
assuming that the cost of transactions among producers, intermediaries and consumers would
differently be affected by e-market (NII as they term it). They term one of the four possible outcomes
as cyber mediaries. Bailey and Bakos (1997) through 13 case studies find intermediaries do not
necessarily get disinter mediated instead re-intermediation occurs for instance via providing trust,
matching suppliers and customers and aggregation. Sinnecker and Christiaanse (2001) find via case
study research that a shift towards e-market decouples intermediating services. Giaglis et al. (2002)
explain that if disintermediation, re-intermediation or cyber mediation occurs is contingent upon
several factors.
The two above mentioned research strands are the prominent ones. They both are theoretically well
grounded. Apart from these, there are several papers that describe e-market. These papers mostly do
not have describing e-market as their objective. Instead, the authors explain their understanding of the
term for tackling a relevant objective such as that of discussing the uses and consequences of e-market
(Choudhury et al. 1998) and that of providing assistance in selecting an e-market (Stockdale and
Standing 2002). There however are a few exceptions such as the work of Kaplan and Sawhney (2000),
which has the objective of providing taxonomy. Mahadevan (2002) analyzes market mechanisms (e.g.
extranet, exchange and auction) in detail. In the part that follows, we explain by citing critical
contributions as to how our understanding of e-market has evolved.
Early descriptions of e-market are parsimonious in the sense that they explain the concept as an
information system that interconnects buyers and sellers for exchanging price and product information
((Malone et al. 1987; Bakos 1991). Strader and Shaw (1997) regard an e-market not only as the above
but also as one that electronically facilitates three phases of an business process; i) pre purchase
determination ii) purchase consummation and iii) post purchase interaction. Choudhury et al. (1998)
further our understanding by recognizing that there in fact is a market maker who controls access to
the information system. They as well explicitly point out that an e-market must have multiple buyers
and sellers. They moreover take the stance that just facilitating one or more phases of a transaction is
adequate for it to be called a market.
Segev et al. (1999) inductively identify five features along which e-markets are differentiated. A
market’s revenue model, which is one of the five, is newly recognized. Kaplan and Sawhney’s (2000)
taxonomy of B2B e-commerce hubs is a frequently quoted classic. They classify e-markets along four
dimensions which are i) how businesses buy (spot sourcing and systematic sourcing) ii) what
businesses buy (operating supplies and manufacturing inputs) iii) bias of the market maker (either
buyer or seller biased and neutral) and iv) source of value creation (aggregation versus matching).
Kambil et al. (1999) explain “all-in-one” markets that provide multiple trading mechanisms on a
platform as a possibility.
Lennstrand et al. (2001) comprehensively describe e-markets using a framework in where they claim
that an e-market should decide on its business strategies (trading mechanism, sources of revenue,
ownership structure, content, services and connectivity) and value creation activities (competition vs.
collaboration and disabler vs. enabler) depending on the characteristics of the market/industry (types
of products traded, industry structure and business relationships) in which it operates. They arrive at
such a classification inductively through case study research. Sawy (2001) in contrast adopt a
deductive approach for classifying e-market. He classifies e-market as under three dimensions i) reach
ii) range and iii) reciprocity. Reach here measures the number of potential partners with whom an
organization can trade. Range is denoted by the types of products traded over the medium. The
reciprocity dimension explains the nature of relationship that the market facilitates.
Dai and Kauffman (2002) deductively define three dimensions for analyzing electronic markets based
on e-market and IOS literatures. The two new dimensions of the three are management needs and
technology providers and the third being basic market functions. Under management needs, the
authors recognize e-market’s potential i) for providing business intelligence on purchasing patterns ii)
in automating business processes via workflow management systems and iii) in facilitating
collaborative activities among trading partners. The role of standards and technology related services
for interconnecting the market with a businesses’ internal financial system is discussed under the
technology provider dimension. Mahadevan (2002) classifies 13 market mechanisms as under three
which are i) collaborative ii) quasi-market and iii) market categories. Stockdale and Standing (2002)
recognize value added facilities as a dimension that differentiates e-markets.
In summary, there have been both deductive and inductive efforts for conceptualizing e-markets.
These conceptualizations in the recent years have been quite representative. However, except for the
work of Kaplan and Sawhney (2000) and Mahadevan (2002), we find neither of the efforts adequately
objective. These conceptualizations are often made with distinctive objectives such as that of
providing guidance to businesses in selecting a market or to markets for designing their offerings. We
find several instances of redundancies with respect to the terminologies used. For instance, direct vs.
indirect and horizontal vs. vertical essentially represent the same but from the perspective of trading
organization and e-market respectively. We provide a model for conceptualizing e-markets in the
following section.
A REFERENCE MODEL FOR E-MARKETS
We rely upon the review of literatures and upon our experiences for arriving at the reference model for
e-markets. The purpose of this model is to represent e-markets as vividly as possible and that alone.
Both the practitioner and the academicians can learn about the aspects that define an e-market via this
model. It is quite possible that aspects identified within the model are inter-related. We however do
not discuss the nature of these relationships in detail. Hence in that sense it is not a conceptual
framework in where propositions and predictions are made (Webster and Watson 2002). We hereby
recognize e-market as not just an information system but also as an organizational entity that acts
strategically.
From our literature review we found 24 contributions that were unique either in terms of description
details or in terms of terminologies. For instance, Choudhry et al.’s (1998) recognition of e-market as
an organization that controls access to the information system is regarded a contribution for it then
furthered our understanding of the concept by adding details. The suggestion of a different
terminology for conceptualizing the same aspect is as well regarded as a contribution. For instance,
representing the transaction process as under information, negotiation, settlement and after sales
phases (Skjøtt-Larsen et al. 2002) just as pre-purchase determination, purchase consummation and
post purchase interaction (Strader and Shaw 1997) is regarded a contribution. We however choose one
that is the most suitable of the many for describing an aspect of e-market. Aiming for a model with
clarity, we use as minimal a number of variables as possible. We combine two or more aspects of an e-
market under one dimension when it is possible to do so. We take into account the recent
developments in the e-market arena while arriving at the model. The resulting model thus has five
dimensions which are i) transaction focus ii) market orientation iii) revenue sources iv) ownership bias
and v) relationship orientation. A diagrammatic presentation of our reference model is presented in
fig. 1.0. Our understanding of each of the five dimensions is hereby presented;
Transaction Focus
The value that an e-market adds depends on the extent to which it facilitates the carrying out of a
transaction among buyers and sellers. As explained in the introduction to this section, Strader and
Shaw (1997) just as Skjøtt-Larsen et al. (2002) propose different ways of conceptualizing a
transaction. We choose the frequently quoted i) information ii) negotiation iii) settlement and iv) after
sales phases classification to represent a transaction. A market can choose to focus on either one, two
or even on all of the four phases. The Global Sources (www.globalsources.com) e-market focuses on
presenting supplier information in a consistent and searchable manner. The Scan Market
(www.scanmarket.com) e-market provides an auction infrastructure which buyers and sellers can lease
for negotiation purposes. EC-Finance (www.ec-finance.com) develops information systems using
which e-markets can electronically process letter of credits and thereby expedite carrying out
settlement activities. In the after sales phase, logistics organizations such as Transcore
(www.transcorexchange.com) have their own market in where they match logistics related
requirements among carriers, agents and consumers. Kubus’ TradeBuilder.net system (www.kubus.dk)
provides the infrastructure for facilitating the sharing of experiences about products and services
between end users in buying organizations and selling organizations. Chemconnect
(www.chemconnect.com), an e-market in the chemical sector increasingly facilitates all phases of a
transaction.
A Reference Model for Electronic Markets
Dimension Attributes
Relationship Competition Co-operation

Orientation
Revenue Transaction Membership Advertising Professional Value Added
Sources Fees Fee Service Fee Service Fee
Transaction Information Negotiation Settlement After Sales
Phases
Ownership Buyer Owned Seller Owned Neutral
Bias
Market Horizontal Vertical Globally Focused Locally Focused
Orientation
Figure 1. A reference model for electronic markets
We categorize trading mechanism under the negotiation phase of a transaction. Earlier, prominent
taxonomies such as that of Kaplan and Sawhney (2000) were made using trading mechanism as
representing an axis. In the recent years however, just as Kambil et al. (1999) have posited, e-markets
that provide several functions are becoming common place. Gatetrade (www.gatetrade.com), a Danish
market for instance provides both aggregation and matching mechanisms. However, we still regard
Mahadevan’s (2002) classification of trading/market mechanism a valid contribution. It is just that
trading mechanism is ranked as a second heading instead of the first. E-markets provide a vast range
of products and services depending on the context in which they operate. These from an overall
perspective can be categorized under any of the four phases.
Market Orientation
E-market, given its networked nature, requires participation of businesses (buyers and sellers) with
synergetic requirements. Hence, it requires making its orientation explicit. A part of this orientation is
captured by the frequently quoted classification horizontal vs. vertical (Kaplan and Sawhney 2000).
The horizontal markets focus on the trading of operating supplies across industries (e.g.
www.mro.com). In the vertical market, businesses usually belonging to a particular industry trade
manufacturing inputs (e.g. www.elemica.com). Apart from the horizontal vs. vertical distinction, the
market orientation term includes as well the geographical focus of the market. While some markets
have a global orientation such as that of Global Supplies, others have a regional focus
(www.byggehandel.dk). The term market orientation thus has two meanings. In one sense, it denotes
the audience targeted as in the marketing sense. In the other sense, it says about the nature of goods
and services traded in a market. It is the interaction of the targeted audience and the nature of trade
dimensions that determines a market’s orientation. This dimension explains a market’s positioning
efforts as in the strategy literature (Porter and Millar 1985). An e-market’s transaction focus / product
offerings are affected by its market orientation and vice versa. The reach dimension defined by the
number of parties with whom a business can potentially trade and the range dimension that defines the
types of good traded conceptualized by Sawy (2001) well expresses the market orientation dimension.
Revenue Sources
A market’s ability to attract organization’s for trading over its infrastructure is affected heavily by its
service charges. At the same time, a market is able to self sustain only if it at least earns enough to
meet its expenses. “Revenue sources” is a critical dimension for it pertains to a market’s existence.
Segev et al. (1999) recognize the revenue dimension during the early stages of describing e-markets.
Barratt and Rosendahl (2002) cite a number of sources through which an e-market can earn.
Lennstrand et al (2001) list five major sources of revenue for an e-market which are i) transaction fees
ii) membership/licensing fees iii) advertising iv) professional service fees and v) value added service
fees. E-markets rely on one or more or even all of the above revenue sources.
Ownership Bias
An e-market can be owned by a buyer, a seller or an independent party. Moreover, an e-market can
either have a single owner or consortia of owners. Our description does not focus on a single buyer
owned (e-procurement system) or a seller owned market (web shop). Owner when being a buyer or a
seller is assumed to design the market with the objective of enhancing its’ power in relation to the
other group. A buyer owned market for instance would be designed such that the price transparency is
high. A seller owned e-market in contrast would focus on the product qualities instead of the price.
The market when owned by an independent is assumed to design the market in a neutral manner in
order to entice adequate participation from both sides. The term “centricity” is often used to describe
where the power lies between buyers and sellers of an e-market (Barratt and Rosdahl 2002). Covisint
(www.covisint.com), an automobile exchange owned by the giants Ford, General Motors and Daimler
– Chrysler, is an example of a buyer owned or a buyer centric e-market. Italian Moda
(www.italianmoda.com) is owned by a consortium of Italian fashion and textile companies.
Relationship Orientation
An e-market can add value either by facilitating competition where its customers can find new trading
partners on a spot basis or by facilitating co-operation where its customers can use the infrastructure
for cementing ties. The term “market” is traditionally associated with competition, where price of a
good determines the distribution of goods and services (Samuelson and Nordhaus 1992). However,
empirical evidence shows collaborative activities on-going via e-market; incidence explained by the
“move-to-the-middle hypothesis” propounded by Clemons et al. (1993). Christiaanse and Markus
(2003) bring this development into light by discussing the case of Elemica marketplace. This
dimension is a critical one for it affects the benefits that a business gains from participating in an e-
market. This dimension can be regarded as a tactical one for a choice made here affects all of the other
dimensions.
DISCUSSION
The two central contributions of the paper are as follows; first, the notion of e-market as it has evolved
since its inception is explained in detail based on a thorough review of literatures. Secondly, through
synthesizing the reviewed literatures and by taking into account the contemporary developments, key
dimensions that define an e-market are identified and explained. The question addressed in this
section is “how can research community make use of the propounded model for furthering knowledge
about the e-market area?”
Firstly, our knowledge about e-markets would improve when each of the five dimensions and their sub
divisions are better understood. Slabeva and Schmid (2000) for instance study in detail internet
electronic product catalogs. Their work in relation to the proposed model can be termed as an effort
for understanding the catalog trading mechanism within the transaction focus dimension. In such a
sense, our model can be used as a reference model.
Secondly, the interrelationships between dimensions and among the five dimensions are to be
explained. Based on empirical evidence, we can for instance foresee competition oriented markets
focusing on the negotiation phase of a transaction. This hypothesis when tested can help us in
understanding a small part of the puzzle. It however needs to be mentioned here that the puzzle that
we are attempting to solve is a very complex one. We hereby calculate interaction possibilities that can
be studied based on our classifications. The transaction focus dimension has four phases which are i)
information ii) negotiation iii) settlement and iv) post sales. Under the negotiation phase there are
thirteen trading mechanisms that Mahadevan (2002) describes. Market orientation as well is defined
by four attributes which are i) vertical ii) horizontal iii) global focus and iv) local focus. We use
Lennstrand’s (2002) citation for listing five major sources of revenue which are i) i) transaction fees ii)
membership/licensing fees iii) advertising iv) professional service fees and v) value added service
fees. Ownership bias dimension has three attributes which are buyer, seller and independent owned e-
market. Finally, the relationship dimension has two attributes; competition and collaboration. By
multiplying 4 x 4 x 5 x 3 x 2 we get 480 relationships that require studying. If we multiple the number
with third rung headings for instance the 13 trading mechanisms, we get 6240! That’s a handful.
Thirdly, Soh and Markus (2002) recognizing the inadequacies of theory based and empirically
grounded approach recommend the use of strategic archetypes approach. In which, frequently
occurring configurations of e-markets are regarded as archetypes. The attributes that define an
archetype are then holistically studied. Our model remains valid also in the context of this approach
for the archetypes can be defined in terms of dimensions and attributes that we identify.
Finally, the research community is better off when there is a common understanding of the dimensions
that define an e-market. We are of the opinion that knowledge can be cumulatively furthered when the
proposed model or a revised version of it is used for referencing.
PRACTITIONER IMPLICATIONS
We in this section explain how practitioners can make use of our model. Firstly, our model assists
those hosting an e-market in positioning their services. The host as well can discuss their future plans
using several dimensions that we identify in the model. For example, they can discuss about enhancing
their transaction focus from just being an information provider to that of being a negotiation facilitator.
While deciding upon a particular aspect of the model, they can indeed search the academic knowledge
base for explanations. A common ontology among practitioners and the academia most certainly
helps.
Secondly, trading via a particular type of e-market for a business is a strategic decision. Such a choice
for sure affects its profitability and in some cases even its existence. Businesses can use our model for
discussing the available options or possibilities and the consequences of trading via a particular type of
e-market. Businesses using the dimensions of our model can as well analyze the likelihood of an e-
market’s success.
FINAL CONCLUSIONS
We realize that e-markets are a complex phenomenon. To us, the different types of e-markets that can
possibly exist and the very large number of interrelationships that require studying do not spring a
surprise. Academics and practitioners have had a tough time in understanding what e-markets are and
how we effectively make use of them. The challenge is further enhanced by the evolving nature of the
subject. The last point notwithstanding, we philosophize that conceptualizing the dimensions that
define e-markets defines progression. To minimize the risk of misunderstanding, we explicitly state
that the proposed model is the best that we could come up. We sincerely hope that the research
community critically analyzes our reference model and further enhances it.
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THE GOVERNANCE OF VIRTUAL CORPORATIONS
Christoph Lattemann, Sören Kupke, Stefan Stieglitz, Potsdam University, Germany
lattema|kupke|stieglit@uni-potsdam.de
Marc Fetscherin, Assistant Professor for International Business, Rollins College, USA
ABSTRACT
The concept of the virtual corporation (VC), which describes a modern form of collaboration among
organizations, was introduced in the scientific discussion in the mid 1990th. The practice shows that VCs
need new forms of governance because the traditional mechanisms of control, management, and steering are
hardly applicable. Until now there is only a few research related to the question how to govern VC. The main
problems to govern a VC are to coordinate the communication among dispersed partners and to motivate
employees to actively involve themselves into the network. Open source projects are confronted with similar
problems. As several governance mechanisms are already analyzed in this context, the authors analyze and
adopt governance concepts from open source projects to extract a governance framework for virtual
corporations. This new approach leads to innovative insights in governing virtual corporations by using
community techniques as an appropriate way for communication and collaboration purposes.
INTRODUCTION
Today corporations are confronted by a fundamental and sustainable change of their economic environment.
New opportunities and risks face corporations. The competitive situation changes from local to global
markets [1]. One result of these increasing dynamism and complexity is the vast emergence of new forms of
collaboration among business partners. They share risks, get access to new knowledge and markets and add
new competencies [2]. These developments are supported by the innovations in information and
communication technology (ICT) which enable new forms of inter- and intra-organizational partnerships.
These different trends are the economic forces of an ever increasing number of partnerships and electronic
markets. Since the 1990th a special form of partnership is becoming increasingly important in the economy
and has been discussed in the scientific literature: the virtual corporation [3].
A new topic in research is the governance of virtual corporations. It seems to be necessary to develop
specific forms of governance to manage and lead virtual corporations successfully. In this meaning
governance contains all mechanisms in steering a corporation, containing self-regulation and management-
processes [4]. The aim of this paper is to start the discussion in this new research field.
THE CONCEPT OF VIRTUAL CORPORATIONS
The first concept of a virtual corporation was outlined by Miles and Snow in 1984 [5]. They described an
electronically linked partnership as a future form of corporations, which they called ’dynamic network
organization‘. In cause of the intensive use of ICT this form of organization was named virtual corporation in
later publications. Especially Davidow and Malone explained this special form of partnership in their
seminal book ’The Virtual Corporation‘ [3]. As this form of corporation is more flexible than traditional
types of organizations [6] virtual corporations promise to be an appropriate solution for the threats of fierce
competition in a globalize and fast changing environment. A general definition of virtual corporations has
been pointed out by Byrne [7]: ’The virtual corporation is a temporary network of independent companies,
suppliers, customers, even erstwhile rivals – linked by information technology to share skills, costs and
access to one another’s markets. It will have neither central office nor organization chart. It will have no
hierarchy, no vertical integration.’
In addition to this definition, Byrne characterized five key elements of virtual corporations. First key element
is the intensive use of ICT which links the partners and replaces contracts by mechanisms of social control
and loose arrangements. The second element is opportunism in cause of taking opportunities. The temporary
character of cooperation and the absence of contracts enforce this opportunism. Third virtual corporations
feature excellence, which can be realized by the combination of the partner’s core competencies. Thus, this
’best-of-everything‘organization creates economies of scale and economies of scope [8]. The cooperation
bases upon trust, which is the fourth key element. Finally the virtual corporation is a boundless organization
due to the integration of manifold partners such as customers, suppliers, and competitors.
FOUR DIFFERENT TYPES OF VIRTUAL CORPORATIONS
However, in reality there exists not only one ideal type of a virtual corporation. Referring to Bickhoff et al.
four basic types of virtual corporations can be identified [9]. (1) The first type describes a cooperation of
partners which is governed by a central corporation. This can be described as a centralized network structure.
In fact there exists a hierarchical structure and there are no equal partners in this network, thus this type
differs from Davidow’s and Malone’s concept of a virtual corporation but in reality it exists quite often [10].
(2) The second type describes a virtual corporation that is coordinated by one single partner. This partner
offers central services to partners but it has equal rights compared with them. (3) In the third type of virtual
corporation, an independent coordinator, which is not directly integrated into the value creation process, the
so called ’broker‘, offers central services. In this concept the broker is not involved in the production
process. (4) The fourth type is determined by a common coordination of all partners. This form of virtual
corporation characterizes the idealistic type of a virtual corporation where is no central control.
The following explanation of the ’experience gap‘ (section 2.4) refers to this fourth type of virtual
organization, as the different types of organizational structures in virtual corporations basically determine the
framework for a knowledge management.
Figure 1: Types of Virtual Corporations (According to [9])
Type 1 Type 2 Type 3 Type 4
A B A
B C
B
E B E B
A
D
E D D C D C
L E
Governd Coordinated Coordinated Coordinated

by a central corporation by a partner corporation by a broker by all partner corporations
centralized Coordination decentralized
Because of working in projects, the cooperation in virtual corporations is temporary limited [11]. This
limitation is an important element of cooperation in virtual corporations. On this account Rhode and Won
[12] describe it as a fluid organization which links partners, changes their structure, add partners and remove
partners. Virtual corporations never exist for a long time. The result is a life-cycle, which can be divided in
four basic phases [13]: firstly the preparation phase, secondly the phase where the partners get linked
together, thirdly the phase of working actively on a project, and fourthly the fade of the virtual corporation.
Similar life cycles can be found in virtual communities which exist especially in open source projects [14].
There are also other effects such as network processes that affect the described lifecycle stages. Traditional
economic literature discusses network influences such as “bandwagon”, “snob”, and “veblen-effects” in
detail [15]. For extrinsically motivated co-workers, exhibiting their knowledge is a very important incentive
for joining an open-source project. “Bandwagon” dynamics describe the case of successful open-source
projects being of more benefit to co-workers who want to exhibit their skills. That is why such projects can
grow even faster [16].
BARRIERS IN GOVERNING VIRTUAL CORPORATIONS
Three barriers in governing virtual corporations can be identified. At first there are personnel-related aspects.
PERSONNEL-RELATED ASPECTS
When governing distributed structures, the management of virtual corporations is confronted with a set of
problems related to the organizations multilayered character. These problems are mainly of personnel and
organizational nature.
The organizational aspect covers the following issues:
(1) the selection of suitable partners [17];
(2) the strategic positioning and the management [18];
(3) the regulation and control [19].
The personnel-related aspects of virtual corporations depend on the social skills of the managers and their
skills to coordinate networks, based on their abilities to establish, support and - if necessary - terminate
(inter-) organizational relations. Psychological studies in the 1980s on cooperation and communication in
virtual communities depict that computer-mediated communication is typically of a rather anomic nature
[20], of a reduced tolerance [21], and is combined with the absence of transferable behaviour ([22], for a
summary see [23]). Nowadays the changed environment causes completely new ways of medium-socialized
collaboration, i.e. there is a majority of inexperienced employees within this new mediated organizational
culture. To face these changes, Arnold et al. state that the network management has to be ‘disembedded’ of
the central organizational processes to be reallocated in the network [24]. However, in order to develop an
integrative and dynamic organizational culture the personal and organizational network competencies must
demonstrate a flexible character. Ritter & Gemünden [25] argue that appropriate communication structures
and personnel management procedures are of a crucial function. There is a close linkage between personnel-
related and organizational/technical aspects: Due to ICT the problems arising from physical distances among
co-operating partners diminish.
ASPECTS CONCERNING THE INITIALIZATION OF VIRTUAL CORPORATIONS
The main obstacles in the preparation phase of a virtual corporation are to find the right partner. Another
obstacle in the initializing phase of partnerships is the merging of contradictory goals. They must be
synchronized to guarantee a successful collaboration. The preferred instrument is a centralized and network
management that is mainly independent of a single partner and act as a trusted third party. By acting as an
information broker it can easily focus on the shared interests instead of promoting a single partner only.
Otherwise, decisions which are not held by the business partners will be counter-productive and thus
endanger the success of a common project. In order to avoid such constellations, the ideas and visions of the
partner firms should be congruent with the vision and aims of the virtual corporation, respectively the
network. As a guarantee the virtual corporation needs to develop a joint history over a longer period and
incorporate all partners into that process. This development of a joint culture which links the partners can
also be found in open source communities. As a summary, it could be stated that virtual organizations have
to be governed in general.
In order to cooperate successfully in virtual corporations with their often changing partners and conditions, a
high flexibility is a prerequisite for the staff. Collaborations require decentralized competencies in decision-
making; co-workers have to over take responsibility and have to solve conflicts on their own. Project
management and controlling require additional qualifications, which are less demanded in traditional forms
of organizations. The management should act less autocratically; it has to give up responsibility to their co-
workers. Above all, managers have to be open minded for the investment into the qualification of their co-
workers. Summarizing, the cooperation in virtual corporations requires well trained staff which adopt new
communication and collaboration concepts.
In particular in this respect, there is a very close relation between virtual communities and open source
communities (OSC). As research about OPC show, intrinsic motivation and non-financial incentives play a
pivotal role in such collaborative environments.
MOTIVATION AS KEY ELEMENTS FOR COMMUNICATION AMONG EMPLOYEES OF BUSINESS PARTNERS
On of the main challenge in virtual corporations is the establishment of an appropriate and efficient
knowledge management. The knowledge management in virtual communities and virtual corporations
(which are basically virtual communities) bases on three pillars:
(1) shared culture for knowledge management
(2) common technological basis
(3) appropriate incentive structure to attract the members of the community to post the right information
to the community.
In OSC it is common to share knowledge between the participating community members. As researches
show this is not the case in many virtual corporations. The first reason for this fact is often the absence of a
corporate culture which links the co-workers of a temporary virtual corporation. The second reason is the
non-existence of innovative WEB 2.0 community technologies such as wikis or weblogs. Wikis are server
based software solutions that allow users to edit content in intranets and the internet by using any Web
browser. Hence, wikis allow the self-organization of content without any hierarchical control. A web log can
be described as a personal journal or web based diary, which is frequently updated by a user.
The motivation to perform basic open-source project tasks for programmers, managers, bug fixers, and co-
workers [26] in OSC has been very well explored by various studies (see Table. 1). An appropriate
governance structure must consider several attributes which are specific to the open-source project.
Furthermore, the current lifecycle stage is another key element which must be considered when developing
coordination tools. Because of the close relation between motivation and lifecycle stage [4], a governance
model must be characterized by a dynamic structure. However, for a structured analysis each aspect must be
evaluated separately.
Table 1: Motivational Incentives for Participating in Open-Source Projects. Source: [34]
Motive Example References
Need for Product Participating in order to create, customize, or [27]; [28]
improve, or feature
Enjoyment, Desire to Create and Participating because one enjoys it; finds [29]; [30]
Improve creating or improving software creative and
interesting
Reputation and Status within the Participating in order to build or maintain [27]; [30]
Community reputation or status within the community
Affiliation Participating in order to socialize or spend time [31]; [27]
with like-minded individuals
Identity Participating in order to reinforce or build a [31]
desirable self-image
Values, Ideology Participating to promote specific ideals, such as [27]; [30]
the free software philosophy
Training: Learning, Reputation Participating to improve one’s skills, with the [27]; [32]; [33]
Outside the Community, Career belief that such improvement will lead to a better
Concerns job or promotion
As these incentives influence the motivation of co-workers they define the culture of a virtual corporation
likewise. This process can be described as a governance circle in virtual corporations.
Motivation
Culture
(Incentives)
Community
techniques
Figure 2: Governance Circle
THE GOVERNANCE OF VIRTUAL CORPORATION
Structure Versus Technology

As a consequence, virtual corporations have to develop strategies to manage this governance circle
successfully. Starting from an organizational view, one option is to integrate a centrally acting broker in the
structure of the virtual corporation, which goes along with a switch in the organizational structure of the
virtual corporation from a complete decentralized structure (see type 4 in fig. 1) to the ‘broker model’ (see
type 3 in fig 1). A neutral broker institution may support the partners in respect to coordination, technical
support (provision of a single ICT platform), and other supporting functions without establishing any
hierarchy.
As Abecker et al. state [37], it seems to be appropriate from a technological perspective to set up a dispersed
but technologically integrated knowledge management system (ubiquitous criterion) with open interfaces to
allow rapid growth and high adaptability (growing criterion) and standards to ease the connection of
dispersed partners (seeding criterion). Such a knowledge management infrastructure is necessary to keep
actual and useful (activity criterion) explicit and implicit knowledge in the network (collections criterion).
Such ICT infrastructures are usually applied in OSC. Such an infrastructure take three issues into account:
Firstly the partners are interconnected as flexible as possible, to enable a fast and easy entry or exit of
partners. Secondly, such an infrastructure reduces knowledge and experience barriers as well as costs.
Thirdly the ICT-infrastructure supports main functions of a virtual corporation [35]. One of the main
functions of such an ICT-system for virtual corporations is the storage of project data from current and
further projects [36]. If one partner retires after a project, at least the explicit knowledge is saved in a central
database and can used by the other partners in further projects.
Bringing the organizational and the technological view together, both, the knowledge management and
coordination efficiency may be enhanced. The brokers’ tasks may be enriched by qualifying the incoming
data from the partners, performing reports and separating important from irrelevant information. These two
approaches constitute the basis to an efficient distribution of information sharing among the network
partners.
However, the organization of a virtual corporation should not stop at this point. The network must include
mechanisms, or systems, respectively, which promote self-learning and self-organizing.
Governance Concepts for Knowledge Sharing

The problem of encouraging or attracting employees in virtual corporations to get actively involved in group
processes or value-creation processes is well-known from other forms of collaboration (e.g. Customer
Integration [26], OSC [4]). Active coordination must be dedicated to new mechanisms that increase the
motivation of the co-worker as depicted in the following section.
Governance through Manipulation of Intrinsic Motivation

Factors that manipulate intrinsic motivation are difficult to identify because it has been unclear until now
how intrinsic motivation evolves [38]. However, recent research based on the open-source community
underscores basic conditions influencing intrinsic motivation. Benkler identifies two threads of intrinsic
motivation: The failure of integration, in which individuals see their capabilities as being wasted, and a
unilateral appropriation, in which the individual contributor “tries to make the common project reflect his or
her values too much, thereby alienating other participants from the product of their joint effort.” [39].
Furthermore, various studies point out that co-workers’ motivation increases if they are allowed to select
activities and tasks on their own (e.g., [38]; [40]). This suggests that co-production thrives when projects
have at least the following two characteristics [39]:
• Modularity of projects: Projects must be divisible into components or modules to enable independent
production.
• Granularity of modules: Granularity refers to the sizes of the project’s modules.
Governance through Direct Manipulation of Extrinsic Motivation

As depicted in Table 1, the co-worker’s extrinsic motivation is based on ideologies (e.g., [27]; [30]), the need
for a product or a product specification [28], fun [30], reputation [33], the need for social integration [27],
and other training and career concerns [33]. These motives can be governed actively in open-source projects
and professional environments by offering adequate incentives or by using sanctions which are not
necessarily based on financial issues. For example, a project can satisfy a co-worker’s motivation of career
concerns by offering training courses or by certifying the co-worker’s participation, which may be useful for
the co-worker’s future career. Need for personal success may be satisfied by arranging competitions among
co-workers. Social acknowledgment and integration are affected directly by the project developing concepts
such as “Co-Worker of the Month,” or by designating “Very Important Co-Workers (VIC)” [26].
However, if there is no consultation with the concerned co-worker or group when a project manager selects
incentives and sanctions, governance may provide the wrong external incentives. This may lead to
unintended results such as the displacement of internal motivation. Incentives yield different reactions from
co-workers based on the co-worker’s own motivational background and actual stage of the collaboration.
Thus, general rules for managers in arranging ‘direct co-worker governance’ cannot be derived.
Governance by Self-Regulation by the Projects

However, mechanisms may be implemented which are based on self-regulation that utilizes community
processes. Such mechanisms are particularly effective sources for disciplining and influencing individual co-
workers who are motivated by the need for social integration or reputation and who identify with their
reference group (e.g., [40]; [41]).
Analyses of interaction patterns in online communities provide useful insights. Electronic media are
intensively used for interaction, communication, and transaction in online communities. They may lead to
these three electronically supported and basically self-regulated processes: competition among members,
enforcement of the possibility of social exclusion from the community, and the arrangement of peer-review
procedures.
Example 1: Competition among Project Members

Recommender systems [42],which are well-known from e-commerce platforms such as eBay or Amazon are
ICT-supported methods of controlling communities. Such mechanisms are also applicable ´for the
governance in virtual. For example Amazon offers their customers web-supported “topic lists” to classify
other customers as “friends and favorites.” Implicitly, this method uses social exclusion and competition
mechanisms. Employees could use these functions to ‘flame’ colleagues. ‘Flaming’ is frequently applied
method in the open-source community in which volunteers are publicly denounced on electronic blackboards
[43]. All these instruments seems to be feasible for the governance in virtual corporations, too.
Example 2: Peer Review Procedures

Another appropriate method for social in-, or exclusion is the implementation of peer-review processes (e.g.
for project work products, project document) [39]. The quality of a peer-review process based substantially
on activeness and seniority of volunteering partners. The introduction of ethical rules about the behaviour in
the (online) community may extend this concept, e.g., if misconduct and violation of ethics rules lead to
exclusions.
Peer-review procedures can be easily utilized. There are several different forms of peer review procedures,
such as the hierarchically managed review procedure. This kind of review is implemented in all large open-
source projects such as Linux or Apache. Such a procedure may be applied in virtual corporations with make
use of a broker. Another form of peer review is the peer production of relevance and accreditation [39].
Users comment on initial submissions that cover a variety of technology-related topics. A very appropriate
review procedure for virtual corporate networks is the ‘Social Organization’, which is implemented in a
highly sophisticated way e.g. by Wikipedia’s objectivity norms, which are special methods of social control
[44].
Thus, to implement community-based co-worker governance, an virtual corporation must initialize strong
social structures first. Peer-review procedures, a competitive environment, and an application procedure are
mechanisms which may manipulate the extrinsic motivation of employees in a positive way.
SYNOPSIS AND OUTLOOK
In this contribution the authors described analytically the problems of governing VCs. Due to the specific
characteristics of VCs (project orientated, timely limited etc.) and their employees (flexible, open minded,
etc.) coordination is more difficult than in traditional corporations. OSPs have similar elements, structures
and problems in respect to governance issues like VCs. Thus, already analyzed governance mechanisms in
OSP can help to define a framework for the governance of VCs. Starting with these insights, further work
needs to concentrate on empirical analysis of the problems in VCs and secondly strategies for a specific ICT
in virtual organization have to be worked out.
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AN EXPLORATORY STUDY ON ONLINE BANKING IN MALAYSIA
Thiam-Yong,Kuek, UniversitiTunkuAbdulRahman,Malaysia., E-mail: kuekty@mail.utar.edu.my
Ming-Ming, Lai, Multimedia University, Malaysia. E-mail: mmlai@mmu.edu.my
ABSTRACT
This paper examines how Malaysian public respondents manage their online banking, their attitudes
towards online banking and the factors influencing their decisions on online banking. We conducted
random sampling of 300 respondents from different socio-economic backgrounds using personally
administered questionnaires. In general, findings of the study suggest that majority of respondents
demonstrated positive feedback towards online banking while several significant mean differences
were found among the respondents in terms of demographic variables and various aspects of online
banking. In conclusion, the overall performance and development of online banking are satisfactory.
With the continuous push given by the government, there is a strong likelihood that it will improve
further in the near future.
INTRODUCTION
Online financial services are an ongoing success story. According to Armitt (2005), almost half
(48%) of all British Internet users researched or purchased financial products such as insurance and
loans, or used online banking facilities at the end of 2004 – up 31% from 2003 based on the NOP
World's Internet User Profile Survey (IUPS). Furthermore, the NOP World Financial research shows
that online financial services year-on-year growth is estimated to be at 130%. Much of this growth is
attributed to the improved efficiency of the process of completing the goal of the visit to the site
(Barber, 2005). There is the continuing upward trend of consumers rating the experience they have
on financial services sites as extremely satisfactory.
Online banking or Internet banking is probably one of the fastest growing services in the online
financial services. Its popularity continues to soar, according to a survey by the Pew Internet &
American Life Project. For example, more than 50 million U.S. adults now bank online, a jump of
47% from the past 2002-2004. The survey also revealed that men are slightly more likely than
women to have tried online banking – 49% to 39%. Also, the more educated consumers are, and the
more money they make, the more likely they are to use online banking (Sullivan, 2005).
According to Bankrate.com (2003), the challenge for the banking industry has been to design this new
service channel in such a way that its customers will readily learn to use and trust it. Most of the large
banks now offer fully secure, fully functional online banking while smaller banks offer limited
functionality. Customers of smaller banks would be able to view their account balance but would be
unable to conduct transactions online. However, more banks are expected to develop their online
services further as more customers are flocking to the websites. Fully functional online banking is to
become as common as automated teller
ONLINE BANKING SCENARIO IN MALAYSIA
Online banking has been growing and evolving at a steady rate in Malaysia. Besides offering banking
products and services, it also offers other non-banking products and services such as unit trust, thus
making it an integrated financial portal. Figure 1 provides an example of such online banking.
There are some issues that the Malaysian authorities should be concerned with when dealing with
such online financial services. The biggest issue with online banking is perhaps the security
problems. Stories about hackers obtaining someone else’s credit card information by breaching the
institution’s security system are too familiar to the customer. Although financial institutions tend to
assure their customers that their money is safe based on hard facts, the question on how it will affect
the public remains unanswered. We often read press releases about how financial institutions are
constantly upgrading their operational and information securities. Such assurances may or may not be
able to persuade Malaysians to use these online services. Thus, the attitudes and opinions of the
Malaysian society towards online banking remains non-committal and ambiguous.
LITERATURE REVIEW
Direction of Online Banking
A Delphi study was conducted by Bradley and Stewart (2003) to investigate the future of Internet
banking. The results of the study showed that Internet banking was universally seen as important
within the future of retail banking and it is an additional channel rather than a replacement to the
current channels such as the ATM (Automated Teller Machine). This was concurred by Vijayan and
Shanmugam (2003) when they concluded that in the future, Internet would become a major
component of bank delivery channels, after conducting a study evaluating the service quality of
Internet banking in Malaysia. However, the impact of Internet banking was only significant in private
sector banks based on the Internet banking landscape in India (Singh and Malhotra, 2004). Similar
results were found in Taiwan where private banks were more competitive than government-owned
banks and old banks were more experienced than new banks and therefore more able to survive in the
competitive market of Internet banking (Wu, Cheng and Lin, 2004).
Acceptance of Online Banking
Perceived ease of use was found to be the dominant factor, follow by perceived credibility and lastly
perceived usefulness that determined the acceptance of Internet banking in Taiwan (Wang, Wang, Lin
and Tang, 2003). A similar study was conducted in Finland, where three additional factors were
added into it; perceived enjoyment, information on online banking and security and privacy
(Pikkarainen, Pikkarainen, Karjaluoto and Pahnila, 2004). In that study, perceived usefulness and
information on online banking were found to be the most influential factors.
OBJECTIVES OF THIS STUDY
The advent of the Internet and increased importance in information technology (IT) have prompted
financial institutions in Malaysia to allocate higher spending for information and communication
technology (ICT), such as in online banking. The study aims to examine the extent of the
development of online banking in Malaysia. The specific research objectives are outlined as follows:
1. To examine the frequency and use of online banking in Malaysia

2. To identify the attitudes of respondents towards online banking in Malaysia.
3. To explore the factors which influence the respondent’s decision in online banking in Malaysia.
DATA AND METHOD
Data Collection
For the purpose of this research, data collection is obtained from its primary source, where the
researcher gathers information from individual respondents by administering a questionnaire. The
researcher is prompted to conduct a data collection exercise due to the lack of information from
existing sources. Data was collected from a random sample of 300 respondents from different socio-
economic backgrounds in Klang Valley. This survey uses personally administered questionnaires,
designed as to collect data regarding public opinion on online banking. Establishing rapport with
respondents during the survey and providing immediate clarification resulted in a higher rate of
response. The questionnaires were collected as soon as they were completed.
Questionnaire Design
The questionnaire design was adapted from the work of Tan (2004), Pikkarainen, Pikkarainen,
Karjaluoto and Pahnila (2004), Stephanus (2006), Crystalie (2006) and Chok (2006). The survey
instrument is divided into four sections.
The first section was a series of questions on a five-point Likert-type scale comprising how to manage
various aspects of online banking. Respondents indicated whether each response was Never (1),
Rarely (2), Neutral (3), Sometimes (4) or Often (5) on the frequency engaged in managing online
banking. The following section was a series of questions on a five-point Likert-type scale concerning
attitudes towards various aspects of online banking. Respondents indicated whether each response
was Strongly Disagree (1), Disagree (2), Neutral (3), Agree (4) or Strongly Disagree (5) on their
attitudes towards online banking. The final section was a series of questions on a five-point Likert-
type scale involving factors influencing their decisions on various aspects of online banking.
Respondents indicated whether each response was Not an Influence (1), Slight Influence (2), Neutral
(3), Moderate Influence (4) or Great Influence (5) on the factors influencing their decisions on online
banking. Finally, the last section is the demographic particulars of the respondent.
Pre-Test and Pilot Study
A pre-test was conducted at Multimedia University, Cyberjaya Campus. The results from this study
were used to revise the questions and layout of the questionnaire for the pilot study. This was to
ensure that respondents would be comfortable and would understand the questions. A pilot study was
then conducted around the Klang Valley and respondents from the pre-testing were not allowed to
participate in it. A reliability test and a validity test were then conducted on the data. Questions that
did not contribute positively to both of the tests were removed. This was to ensure the reliability and
validity of the questionnaire in the actual study. Respondents that had participated in both of these
exercises were excluded from the actual questionnaire study.
(Continued On Next Page)
Figure 1 Online banking demonstrations
Source: AmBank Group. (2001). AMBG Internet Banking – Demo Site. Retrieved June 24, 2006,
from http://www.ambg.com.my/demosite/index.html.
ANALYSES AND DISCUSSIONS
Validity and Reliability Test
The average score of factor loadings and the results of the Cronbach’s alphas on pilot questionnaire
administration and actual questionnaire administration in examining the frequency and usage of
online banking, identifying the attitudes of respondents towards online banking and exploring the
factors influencing online banking decision are reported in Table 1. Since all the alphas and loadings
are more than 0.6 for all the items on the actual questionnaire, the researcher can use these items as a
scale measure because of its validity and reliability (Tan, 2004).
Personal Data Classification
Table 2 shows the gender, race, marital status, age, education level, income and job status from the
research sample in Klang Valley, Malaysia while Table 3 provides a summary of the respondents’
responses in the questionnaire.
48.3% of respondents indicated that they ‘sometimes heard’ about online banking while 41% of
respondents indicated that they ‘often heard’ about online banking. This shows that there was great
awareness of online banking among the respondents. It appears that most of the respondents were
curious and wanted to know more about online banking. Specifically, 54% of respondents sometimes
searched for information regarding online banking. Results revealed that 63% of the respondents
sometimes used online banking to manage their banking transaction and 56.3% of the respondents
sometimes recommended online banking to others. This proves that online banking is becoming
popular among the respondents in the survey. This finding is consistent with Bradley and Stewart
(2003) where Internet banking was universally seen as important within the future of retail banking.
Table 1 Validity and Reliability Output for Pilot and Actual Questionnaire Administration
Items Factor Cronbach’s
Analysis Alpha
Pilot Actual Pilot Actual
Managing Online Banking 0.753 0.821
1. Have you ever heard about online banking? 0.656 0.706
2. Do you search for information regarding online
banking? 0.745 0.773
3. How often do you use online banking to
manage your banking transaction? 0.831 0.888
4. Have you recommended online banking to
others at the moment? 0.827 0.852
Average Score 0.765 0.805
Attitude Towards Online Banking 0.850 0.897
5. I feel that online banking is useful for
managing financial matters. 0.816 0.883
6. I perceive that online banking is an easy way to
conduct banking. 0.804 0.864
7. I believe incentive from online banking
providers is necessary. 0.554 0.853
8. In my opinion, online banking is enjoyable. 0.894 0.814
9. I am confident over the security that is
provided in online banking. 0.709 0.689
10. I am willing to replace face to face interactions
with online banking. 0.628 0.791
11. I feel accurate transaction process is important. 0.698 0.671
Factors Influencing Online Banking 0.938 0.956
12. Tight online security. 0.853 0.923
13. Website user-friendliness. 0.913 0.874
14. High emphasis on user privacy. 0.907 0.903
15. Available 24 hours and 7days per week. 0.839 0.923
16. Credible reputation of the financial institution. 0.885 0.917
17. Fast connection speed. 0.869 0.899
66.7% of the respondents agreed that online banking is an enjoyable experience while 63.3% of them
agreed with the statement that they were confident about the security that is provided in online
banking. It appears that majority of the respondents believe that online banking is capable of handling
their finance safely. 71% of the respondents agreed that online banking is an easy way to conduct
banking. In addition, 72% of the respondents agreed that online banking is useful for managing their
financial matters. These two findings indicate that financial institutions have been doing a fine job in
ensuring that their customers are satisfied with the level of their online banking services. This finding
is inconsistent with Wang, Wang, Ling and Tang (2003) where perceived ease of use was the
dominant factor rather than perceived usefulness. This study established that the opposite is true.
Besides, it found that 64.3% of the respondents agreed, while 22.7% of them strongly agreed, that an
accurate transaction process is important in online banking. Thus, online banking providers should
ensure a 100% error free online banking transaction in their effort to encourage more people to use
online banking. It seems that most of the respondents were more comfortable interacting with
computers rather than meeting bank personnel when conducting banking transactions. Specifically,
55.7% of the respondents agreed and 23% of the respondents strongly agreed that they are willing to
replace face-to-face interactions with online banking. Results also suggested that only 0.7% of the
respondents strongly disagree and 1% of them disagree that incentives from online banking providers
is necessary. Hence, it shows that financial institutions still need to provide the necessary motivation
to lure prospective customers to their online customer base although earlier results indicate that
majority of the respondents have a positive outlook towards online banking.
89% of the respondents and 88.3% of the respondents believed that tight online security and emphasis
on user privacy respectively had ‘moderate to great influence’ in online banking. Taken together, the
results suggest that confidentiality takes a central role in the respondent’s decision. The presence of a
reliable website with fast connection speed remains an important aspect in the operation of online
banking as well as an important factor that can determine its adoption rate. 89.6% of the respondents
believed that website user-friendliness played an
Table 2 Demographics Characteristics of the 2006 Survey Participants
Variables/Characteristics Respondents % Respondents (n)
Gender
Female 48 (144)
Male 52 (156)
Age
Under 20 6 (18)
20 - 30 62.7 (188)
31 - 40 16.7 (50)
41 - 50 11 (33)
51 - 60 3 (9)
Over 60 0.7 (2)
Race
Malay 23 (69)
Chinese 52 (156)
Indian 21 (63)
Other 4 (12)
Highest Education Level
Standard Six/UPSR 2.7 (8)
N-Level/PMR/O-Level/SPM 11.3 (34)
A-Level/STPM 7.3 (22)
Diploma/Higher Diploma 30 (90)
Bachelor’s Degree 38.7 (116)
Masters Degree 4 (12)
Professional Qualification 5.3 (16)
DBA/PHD 0.7 (2)
Marital Status
Married 26 (78)
Single 74 (222)
Income
Under RM2,000 29 (87)
RM2,000 – RM4,000 25.3 (76)
RM4,001 – RM6,000 9.7 (29)
RM6,001 – RM8,000 5.7 (17)
RM8,001 – RM10,000 2 (6)
Over RM10,000 2.3 (7)
Not Applicable 26 (78)
Job Status
Employed
Top Management 1.7 (5)
Middle Management 18 (54)
Low Management 24.3 (73)
Non-Executive 15 (45)
Total Score 59 (177)
Self-Employed 12.7 (38)
Unemployed
Student 18 (54)
Housewife 3.3 (10)
Retiree 3 (9)
Job Seeker 4 (12)
Total Score 28.3 (85)
Note: n = 300 and no missing value
Table 3 Summary of Respondents’ Response
Based on yearly basis
Items Never Rarely Neutral Sometimes Often
(%) (%) (%) (%) (%)
Managing Online Banking
1. Have you ever heard about
online banking? 2.7 5.3 2.7 48.3 41
2. Do you search for
information regarding online
banking? 9.3 27.3 6 54 3.3
3. How often do you use online
banking to manage your
banking transaction? 10.3 16.3
4. Have you recommended 5 63 5.3
online banking to others at
the moment? 12.7 17.7 8 56.3 5.3
Items Strongly Strongly

Disagree Disagree Neutral Agree Agree
(%) (%) (%) (%) (%)
Attitude Towards Online Banking
5. I feel that online banking is
useful for managing
financial matters. 1 1.7 9.7 72 15.7
6. I perceive that online
banking is an easy way to
conduct banking. 0.7 1.7 11.7 71 15
7. I believe incentive from
online banking providers is
necessary. 0.7 1 13.3 70.7 14.3
8. In my opinion, online
banking is enjoyable. 1.3 2.3 21 66.7 8.7
9. I am confident over the
security that is provided in
online banking. 2.3 5.7 20.3 63.3 8.3
10. I am willing to replace face
to face interactions with
online banking. 2 4.7 14.7 55.7 23
11. I feel accurate transaction
process is important. 1.7 1.3 10 64.3 22.7
Items Not an Slight Moderate Great

Influence Influence Neutral Influence Influence
(%) (%) (%) (%) (%)
Factors Influencing Online Banking
12. Tight online security. 0.3 2.3 8.3 54.3 34.7
13. Website user-friendliness. 0.7 3.3 9.7 58.3 28.0
14. High emphasis on user
privacy. 0.3 2.3 9.0 51.0 37.3
15. Available 24 hours and 7
days per week. 1.3 3.0 8.0 50.3 37.3
16. Credible reputation of the
financial institution. 1.0 3.0 8.3 48.7 39.0
17. Fast connection speed. 1.3 2.3 9.3 53.7 33.3
important part in their decision making. 90.6% felt that availability 24 hours and 7 days a week was
critical, while 89.3% though that fast connection speed was important to them. This finding is
consistent with Wu, Cheng and Lin (2004) where ease of use is one of the important factors to be
considered in designing Websites for Internet banking. Results also suggested that only 1% of the
respondents did not believe that credible reputation of the financial institution will have any influence
in online banking. Hence, it shows that the reputation of the financial institutions is a plus factor in
persuading prospective customers to use their online banking service.
GENDER AND ONLINE BANKING
A t-test was conducted between gender and online banking with equal variances assumed. However,
no significant mean difference is found in this analysis for all the three sections as shown in Table 4.
Table 4 Gender and Various Aspects of Online Banking using t-test

Items Mean
R1 R2 t p
1. Have you ever heard about online banking? 4.23 4.17 0.585 0.559
banking? 3.03 3.26 -1.739 0.083
3. How often do you use online banking to manage
your banking transaction? 3.28 3.44 -1.202 0.230
4. Have you recommended online banking to others
at the moment? 3.18 3.29 -0.834 0.405
Average Score 3.43 3.54 -0.798 0.319
5. I feel that online banking is useful for managing
financial matters. 3.97 4.02 -0.634 0.527
conduct banking. 3.98 3.98 -0.022 0.982
7. I believe incentive from online banking providers
is necessary. 3.95 3.99 -0.504 0.615
8. In my opinion, online banking is enjoyable. 3.78 3.79 -0.128 0.898
9. I am confident over the security that is provided
in online banking. 3.70 3.69 0.099 0.922
with online banking. 3.93 3.93 0.011 0.991
11. I feel accurate transaction process is important. 3.99 4.10 -1.304 0.193
Average Score 3.90 3.93 -0.355 0.733
12. Tight online security. 4.21 4.21 0.039 0.969
13. Website user-friendliness. 4.10 4.10 0.012 0.990
14. High emphasis on user privacy. 4.24 4.22 0.214 0.831
15. Available 24 hours and 7 days per week. 4.21 4.18 0.307 0.759
16. Credible reputation of the financial institution. 4.21 4.22 -0.173 0.863
17. Fast connection speed. 4.14 4.17 -0.305 0.760
Average Score 4.19 4.18 0.016 0.862
Note: R1 refers to the sample respondents who are female, R2 refers to the sample
respondents who
are male. *p < 0.05
MARITAL STATUS AND ONLINE BANKING
A t-test was conducted between marital status and online banking with equal variances assumed.
Table 5 shows the results of the test. It revealed that respondents who were single were more likely to
hear about online banking and tended to demonstrate more positive attitudes. They were more likely
to perceive that online banking was an easy way to conduct banking. They felt that an accurate
transaction process was important and were more willing to replace face-to-face interactions with
online banking as opposed to respondents who were married. In addition to that, respondents who
were single were more likely to take all the factors discussed in the questionnaire into serious
considerations before conducting online banking.
JOB STATUS AND ONLINE BANKING
This analysis examines whether a significant difference exists in job status and various aspects of
online banking using F-test. Results are reported in Table 6. A significant mean difference is found
among the respondents’ job status for all four items under managing online banking, where employed
respondents tend to demonstrate more active participation than the rest. A similar result is found
under ‘Attitude Towards Online Banking’ with the exception of the ‘I feel accurate transaction
process is important’ statement.
Table 5 Marital Status and Various Aspects of Online Banking using t-test
Items Mean
R1 R2 T p
1. Have you ever heard about online banking? 3.96 4.28 -2.638 0.009*
banking? 3.06 3.18 -0.742 0.459
3. How often do you use online banking to
manage your banking transaction? 3.27 3.40 -0.880 0.379
4. Have you recommended online banking to
others at the moment? 3.05 3.31 -1.638 0.102
Average Score 3.34 3.54 -1.475 0.237
5. I feel that online banking is useful for
managing financial matters. 3.88 4.04 -1.800 0.073
conduct banking. 3.86 4.02 -1.989 0.048*
7. I believe incentive from online banking
providers is necessary. 3.95 3.98 -0.355 0.723
8. In my opinion, online banking is enjoyable. 3.73 3.81 -0.889 0.375
9. I am confident over the security that is
provided in online banking. 3.60 3.73 -1.215 0.225
with online banking. 3.74 4.00 -2.238 0.026*
11. I feel accurate transaction process is important. 3.86 4.12 -2.725 0.007*
Average Score 3.80 3.96 -1.602 0.211
12. Tight online security. 4.00 4.28 -3.004 0.003*
13. Website user-friendliness. 3.83 4.19 -3.679 0.000*
14. High emphasis on user privacy. 4.03 4.30 -2.850 0.005*
15. Available 24 hours and 7 days per week. 3.92 4.29 -3.483 0.001*
16. Credible reputation of the financial institution. 4.01 4.29 -2.645 0.009*
17. Fast connection speed. 3.94 4.23 -2.873 0.004*
Average Score 3.96 4.26 -3.089 0.004*
Note: R1 refers to the sample respondents who are married, R2 refers to the sample
respondents who are single. *p < 0.05
RACE AND ONLINE BANKING
Using the F-test, it is found that the Chinese were more dominant in terms of perceiving that online
banking is an easy way to conduct banking as opposed to the other races. Beside that, they were also
more dominant in all the factors influencing online banking with the exception of ‘Website user
friendliness’. In that factor, the Indians were found to be more dominant as shown in Table 7.
AGE AND ONLINE BANKING
Table 8 shows the result of a F-test between age of the respondents and various aspects of online
banking. Respondents who were ‘20-30’ tended to hear about online banking more often, respondents
who were ‘51-60’ tended to use online banking more actively in their banking transactions and
respondents who were ‘31-40’ were more likely to recommend online banking to others than the rest
of the age groups. In terms of attitudes towards online banking and factors influencing online
banking, respondents who were ‘20-30’ were the more dominant group except for items 7, 8, 9 and
10. No significance mean difference is found among the age groups.
MONTHLY INCOME AND ONLINE BANKING
Respondents who earned ‘RM6,001 – RM8,000’ tended to be more active in managing their online
banking as compared to the other income groups. On the other hand, respondents who earned
‘RM4,001 – RM6,000’ were more dominant in their attitude towards online banking, with the
exception of the point that ‘I feel accurate transaction process is important’. They were also more
dominant under ‘Factors Influencing Online Banking’ with the exception of the points; i.e. ‘High
emphasis on user privacy’ and ‘Available 24 hours and 7 days per week’. Table 9 shows the result
this F-test.
Table 6 Job Status and Various Aspects of Online Banking using F-test
Items Mean
R1 R2 R3 F p
1. Have you ever heard about online banking? 4.37 4.11 3.88 8.524 0.000*
2. Do you search for information regarding online 3.28 3.03 2.92 3.222 0.041*
banking?
3. How often do you use online banking to manage your 3.58 3.24 2.98 8.890 0.000*
banking transaction?
4. Have you recommended online banking to others at 3.50 3.05 2.79 11.561 0.000*
the moment? 3.68 3.36 3.14 8.049 0.010*
Average Score
financial matters. 4.10 4.03 3.76 8.366 0.000*
conduct banking. 4.07 3.95 3.81 4.961 0.008*
7. I believe incentive from online banking providers is 4.06 3.89 3.81 5.246 0.006*
necessary. 3.91 3.63 3.61 6.877 0.001*
8. In my opinion, online banking is enjoyable.
9. I am confident over the security that is provided in 3.83 3.53 3.49 6.345 0.002*
online banking.
10. I am willing to replace face to face interactions with 4.03 3.79 3.78 3.194 0.042*
online banking. 4.11 3.89 4.00 1.623 0.199
11. I feel accurate transaction process is important. 4.02 3.82 3.75 5.230 0.037*
Average Score
12. Tight online security. 4.27 4.18 4.08 2.034 0.133
13. Website user-friendliness. 4.14 4.11 4.00 1.021 0.361
14. High emphasis on user privacy. 4.26 4.16 4.19 0.464 0.629
15. Available 24 hours and 7 days per week. 4.23 4.21 4.12 0.520 0.595
16. Credible reputation of the financial institution. 4.25 4.32 4.09 1.493 0.226
17. Fast connection speed. 4.22 4.21 3.99 2.644 0.073
Average Score 4.23 4.20 4.08 1.363 0.336
Note: R1 refers to the sample respondents who are employed, R2 refers to the sample respondents
who are self employed, R3 refers to the sample respondents who are unemployed. *p < 0.05
HIGHEST EDUCATION LEVEL AND ONLINE BANKING
This analysis examines whether significant differences exist in the correlation between the education
level and various aspects of online banking using F-test. Table 10 shows the results of the test.
Under the section ‘Managing Online Banking’, it is found that respondents that have ‘DBA/PHD’
tended to hear about online banking more often while respondents that have ‘Professional
Qualification’ tended to search for information regarding online banking, used online banking for
their banking transactions and recommended online banking to others more often than the rest of the
groups. On the other hand, under ‘Attitude Towards Online Banking’, respondents that have
‘Diploma/Higher Diploma’. ‘Bachelor’s Degree’ and ‘Master’s Degree’ were more dominant in item
5. Respondents that have ‘Diploma/Higher Diploma’, ‘Bachelor’s Degree’ and ‘Master’s Degree’,
were also more dominant in item 6, item 11 and item 7 respectively. ‘DBA/PHD’ holders were more
dominant in item 8 and item 9 while respondents that have ‘N-Level/PMR/O-Level/SPM’ were more
dominant in item 10. Finally, under ‘Factors Influencing Online Banking’, respondents that have
‘Bachelor’s Degree’ and ‘Master’s Degree’ tend to take ‘Tight online security’ into more serious
consideration as compared the other groups. ‘Bachelor’s Degree’ holders will take the following
factors under serious consideration: ‘High emphasis on user privacy’, ‘Available 24 hours and 7 days
per week’, ‘Credible reputation of the financial institution’ and ‘Fast connection speed’. ‘Master’s
Degree’ holders considered ‘Website user-friendliness’ an important factor.
Table 7 Race and Various Aspects of Online Banking using F-test
Items Mean
R1 R2 R3 R4 F p
1. Have you ever heard about online banking? 4.06 4.33 4.08 3.92 2.285 0.079
2. Do you search for information regarding online 3.09 3.15 3.21 3.08 0.134 0.940
banking?
3. How often do you use online banking to manage 3.23 3.38 3.48 3.33 0.533 0.660
your banking transaction?
4. Have you recommended online banking to others 3.25 3.20 3.33 3.25 0.192 0.902
at the moment? 3.41 3.52 3.53 3.40 0.786 0.645
Average Score
financial matters. 3.88 4.08 3.95 3.83 1.900 0.130
conduct banking. 3.83 4.08 3.94 3.83 2.999 0.031*
7. I believe incentive from online banking providers
is necessary. 3.91 4.02 3.94 3.83 0.791 0.500
8. In my opinion, online banking is enjoyable. 3.70 3.81 3.83 3.92 0.664 0.575
9. I am confident over the security that is provided
in online banking. 3.62 3.67 3.84 4.75 0.981 0.402
with online banking. 3.97 3.90 4.02 3.58 0.958 0.413
11. I feel accurate transaction process is important. 3.97 4.10 4.03 4.00 0.510 0.676
Average Score 3.84 3.95 3.94 3.96 1.258 0.390
12. Tight online security. 4.04 4.34 4.05 4.25 4.173 0.006*
13. Website user-friendliness. 4.01 4.21 4.91 4.08 2.927 0.034*
14. High emphasis on user privacy. 4.10 4.36 4.05 4.17 3.747 0.011*
15. Available 24 hours and 7 days per week. 4.07 4.31 4.02 4.25 2.734 0.044*
16. Credible reputation of the financial institution. 4.03 4.38 4.02 4.25 4.912 0.002*
17. Fast connection speed. 4.06 4.26 4.00 4.17 2.052 0.107
Average Score 4.05 4.31 4.18 4.20 3.424 0.034*
Note: R1 refers to the sample respondents who are Malay, R2 refers to the sample respondents who
are Chinese, R3 refers to the sample respondents who are Indian, R4 refers to the sample respondents
who are Other. *p < 0.05
CONCLUSIONS
The financial services industry has been undergoing some rigorous changes in the past few years,
especially in the ICT field. For example, financial institutions have been actively upgrading
themselves in this field by offering online banking as a means of competitive edge. Such a move is
essential due to the globalisation effect. For example, foreign financial institutions have the ability to
capture the Malaysian market today without being physically present in Malaysia due to the advent of
e-commerce through the Internet. Hence, the industry itself has become more competitive and there
are no signs of it slowing down at the moment. The penetration rate of online banking in Malaysia
had been very encouraging, judging by the number of respondents that have heard of and have been
using online banking services, as well as their positive attitudes as indicated in this study. However, a
significant mean difference was found among some groups of respondents and it suggests that they
tend to react differently from the rest of the groups based on demographic characteristics (e.g. age,
race, marital status, job status, monthly income and highest education level). This indicates that these
groups have their own opinions towards various aspects of online banking and hence, financial
institutions need to approach them with various strategies. Factors affecting online banking services
that have been discussed earlier in this study should be given due consideration by financial
institutions. This is because most of these factors have significant influence on the prospective online
customers’ decision in using online banking. It also contributes to their effectiveness retaining their
existing online customers. These factors if considered or implemented by financial institutions will
ultimately give prospective online customers solid reasons to carry out online banking transactions
with the said financial institutions.
LIMITATIONS
The limitation of the study is that it was not able to include the whole population in Malaysia due to
cost constraints as well as time factors. Hence, future research is suggested to expand this research to
other states and cities.
Table 8 Age and Various Aspects of Online Banking using F-test
Items Mean
R1 R2 R3 R4 R5 R6 F p
online banking? 4.00 4.35 4.08 4.00 3.11 3.00 5.078 0.000*
2. Do you search for information
regarding online banking? 3.06 3.14 3.34 3.21 3.56 1.50 1.667 0.142
banking to manage your banking 2.56 3.48 3.52 3.27 3.56 1.50 4.703 0.000*
transaction?
4. Have you recommended online 2.39 3.35 3.50 3.09 2.11 1.50 5.669 0.000*
banking to others at the moment? 3.00 3.58 3.61 3.39 3.09 1.88 4.279 0.036*
Average Score
useful for managing financial 4.00 4.05 4.00 3.97 3.00 3.50 5.237 0.000*
matters.
6. I perceive that online banking is 4.00 4.03 4.00 3.91 3.11 3.50 4.255 0.001*
an easy way to conduct banking.
7. I believe incentive from online 3.89 4.01 3.96 3.97 3.44 3.50 1.807 0.111
banking providers is necessary.
8. In my opinion, online banking is 3.83 3.79 3.82 3.82 3.44 3.50 0.573 0.721
enjoyable.
9. I am confident over the security 3.67 3.68 3.78 3.76 3.44 3.50 0.370 0.869
that is provided in online
banking. 4.00 3.96 4.02 3.73 3.44 3.50 1.231 0.294
10. I am willing to replace face to
face interactions with online 4.06 4.15 3.90 3.85 3.56 3.50 2.849 0.016*
banking. 3.92 3.95 3.93 3.86 3.35 3.50 2.332 0.287
process is important.
Average Score
12. Tight online security. 4.22 4.32 4.14 3.97 3.22 3.50 5.998 0.000*
13. Website user-friendliness. 4.06 4.21 4.02 3.85 3.22 3.50 4.715 0.000*
14. High emphasis on user privacy. 4.28 4.34he 4.16 4.00 3.22 3.50 5.753 0.000*
15. Available 24 hours and 7 days 4.17 4.32 4.18 3.79 3.22 3.50 5.966 0.000*
per week.
16. Credible reputation of the 4.11 4.33 4.20 3.97 3.22 3.50 4.855 0.000*
financial institution. 3.94 4.29 4.14 3.82 3.22 3.50 5.771 0.000*
17. Fast connection speed. 4.13 4.30 4.14 3.90 3.22 3.50 5.510 0.000*
Average Score
Note: R1 refers to the sample respondents who are “Under 20”, R2 refers to the sample respondents
who are “20 – 30”, R3 refers to the sample respondents who are “31 – 40”, R4 refers to the sample
respondents who are “41 – 50”, R5 refers to the sample respondents who are “51 – 60”, R6 refers to
the sample respondents who are “Over 60”. *p < 0.05
FUTURE RESEARCH
For future research, it would be of interest to include a follow-up study which can be conducted to
assess the frequency with which respondents engage in managing online banking, their attitudes
towards online banking and factors that affect their decision in online banking.
In addition, it would also be interesting to examine the possible changes in online banking, over the
time in terms of its nature, frequency and other factors including attitudes toward it. This is because
this study is only based on the current assessment of the market situation and there is the need for an
extended research to forecast future trends and circumstances.
Table 9 Monthly Income and Various Aspects of Online Banking using F-test
Items Mean
R1 R2 R3 R4 R5 R6 R7 F p
online banking? 4.34 4.29 4.38 4.53 3.17 3.71 3.83 5.054 0.000*
information regarding online 3.22 3.05 3.45 3.94 3.67 3.29 2.90 2.762 0.013*
banking?
banking to manage your 3.46 3.49 3.83 3.88 2.33 3.43 2.94 4.636 0.000*
banking transaction?
4. Have you recommended 3.36 3.33 3.59 3.88 2.00 3.43 2.83 4.382 0.000*
online banking to others at 3.60 3.54 3.81 4.06 2.79 3.47 3.13 4.209 0.003*
the moment?
Average Score
useful for managing 4.13 4.03 4.31 4.06 3.67 4.00 3.72 4.875 0.000*
financial matters.
6. I perceive that online 4.08 4.01 4.21 4.00 3.67 4.00 3.77 2.858 0.010*
conduct banking. 4.07 3.95 4.31 4.00 3.67 4.00 3.77 3.714 0.001*
online banking providers is 3.93 3.67 4.07 4.00 3.67 4.00 3.59 3.497 0.002*
necessary.
8. In my opinion, online 3.92 3.53 4.03 3.76 3.67 4.00 3.45 4.310 0.000*
banking is enjoyable.
9. I am confident over the 4.07 3.84 4.41 3.71 3.67 4.00 3.74 3.062 0.006*
online banking. 4.16 4.09 4.17 3.71 3.67 4.00 3.95 1.709 0.119
10. I am willing to replace face 4.05 3.87 4.22 3.89 3.67 4.00 3.71 3.432 0.020*
online banking.
process is important.
Average Score
12. Tight online security. 4.34 4.25 4.45 4.00 3.67 4.14 4.01 3.023 0.007*
13. Website user-friendliness. 4.22 4.07 4.41 3.94 3.67 4.14 3.94 2.384 0.029*
14. High emphasis on user 4.32 4.20 4.48 4.12 3.67 4.14 4.13 1.779 0.103
privacy.
15. Available 24 hours and 7 4.31 4.16 4.48 4.00 3.67 4.14 4.08 1.825 0.094
days per week.
16. Credible reputation of the 4.32 4.26 4.52 4.00 3.67 4.14 4.04 2.381 0.029*
financial institution. 4.28 4.25 4.48 3.82 3.67 4.14 3.91 3.705 0.001*
17. Fast connection speed. 4.30 4.20 4.47 3.98 3.67 4.14 4.02 2.516 0.044*
Average Score
Note: R1 refers to the sample respondents who earn “Under RM2,000”, R2 refers to the sample
respondents who earn “RM2,000 – RM4,000”, R3 refers to the sample respondents who earn
“RM4,001 – RM6,000”, R4 refers to the sample respondents who earn “RM6,001 – RM8,000”, R5
refers to the sample respondents who earn “RM8,001 – RM10,000”, R6 refers to the sample
respondents who earn “Over RM10,000”, R7 refers to the sample respondents who are “Not
Applicable”. *p < 0.05
Table 10 Highest Education Level and Various Aspects of Online Banking using F-test
Items Mean
R1 R2 R3 R4 R5 R6 R7 R8 F p
online banking? 3.25 3.91 3.50 4.27 4.44 4.00 4.19 4.50 5.249 0.000*
information regarding online
banking? 2.63 2.47 3.09 3.08 3.34 3.50 3.63 3.00 3.227 0.003*
banking to manage your
banking transaction? 2.13 2.71 2.91 3.44 3.63 3.58 3.69 2.00 5.688 0.000*
4. Have you recommended
online banking to others at
the moment? 2.00 2.85 2.64 3.26 3.47 3.42 3.63 3.00 3.744 0.001*
Average Score 2.50 2.99 3.04 3.51 3.72 3.63 3.79 3.13 4.477 0.001*
useful for managing
financial matters. 3.63 3.82 3.50 4.08 4.08 4.08 4.06 4.00 3.385 0.002*
6. I perceive that online
conduct banking. 3.50 3.68 3.59 4.09 4.08 4.00 4.06 4.00 4.118 0.000*
online banking providers is
necessary. 3.50 3.85 3.50 4.03 4.07 4.08 3.94 4.00 3.516 0.001*
8. In my opinion, online
banking is enjoyable. 3.50 3.35 3.36 3.84 3.94 3.92 3.94 4.00 4.888 0.000*
9. I am confident over the
online banking. 3.63 3.38 3.32 3.69 3.83 3.92 3.81 4.00 2.209 0.034*
10. I am willing to replace face
online banking. 3.50 4.03 3.32 3.99 4.01 3.92 3.88 4.00 2.209 0.034*
process is important. 3.50 3.91 3.50 4.17 4.19 4.08 3.69 4.00 4.475 0.000*
Average Score 3.54 3.72 3.44 3.98 4.03 4.00 3.91 4.00 3.543 0.010*
12. Tight online security. 3.50 4.00 3.86 4.32 4.32 4.17 4.06 4.00 3.271 0.002*
13. Website user-friendliness. 3.13 3.97 3.68 4.19 4.22 4.17 4.00 4.00 3.939 0.000*
14. High emphasis on user
privacy. 3.63 4.00 3.95 4.36 4.32 4.17 4.06 4.00 2.574 0.014*
15. Available 24 hours and 7
days per week. 3.38 3.94 3.77 4.37 4.31 4.00 4.06 4.00 3.818 0.001*
16. Credible reputation of the
financial institution. 3.63 3.91 3.86 4.40 4.30 4.17 4.06 4.00 3.066 0.004*
17. Fast connection speed. 3.25 3.94 3.73 4.31 4.25 4.17 4.06 4.00 3.831 0.001*
Average Score 3.42 3.96 3.81 4.33 4.29 4.14 4.05 4.00 3.147 0.004*
Note: R1 refers to the sample respondents who have “Standard Six/UPSR”, R2 refers to the sample
respondents who have “N-Level/PMR/O-Level/SPM”, R3 refers to the sample respondents who have
“A-Level/STPM”, R4 refers to the sample respondents who have “Diploma/Higher Diploma”, R5
refers to the sample respondents who have “Bachelor’s Degree”, R6 refers to the sample respondents
who have “Master’s Degree”, R7 refers to the sample respondents who have “Professional
Qualification”, R8 refers to the sample respondents who have “DBA/PHD”. *p < 0.05
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VIRTUAL SCM A MYTH OR AN EVIDENCE: THE EUROPEAN CASE
Teresa Borges-Tiago, University of the Azores, Portugal, mariaborges@notes.uac.pt
João P. Couto, University of the Azores, Portugal, jpedro@notes.uac.pt
José C. Vieira, University of the Azores, Portugal, josevieira@notes.uac.pt
Flávio Tiago, University of the Azores, Portugal, flaviotiago@notes.uac.pt
ABSTRACT
As suggested by several authors, firms are increasingly adopting Supply Chain Management (SCM)
in response to the globalization and higher competitiveness. With the development of the digital
economy, internet-based activities are getting more and more popular, as is the case of the virtual
supply chain management (VSCM). Nonetheless, there are still few conceptual bases available,
necessary to assessing virtual supply chain management’s contribution to e-business performance.
The current study contributes to this stream of research by using a firm focused tactics perspective to
measure VSCM results. Thus, this paper establishes a conceptual model, considering the results of
VSCM adoption on e-business performance, which was tested in European companies. For that
purpose, we used a structural equation modelling (SEM) analysis. The findings suggest that the
tactical elements have a positive impact on the maximization of VSCM competencies and that VSCM
has also a positive impact on e-business performance.
Keywords: Virtual Supply Chain Management, E-business Performance, European Companies

Acknowledgements: This paper is based on data provided by the European Commission and the e-
Business W@tch and funding for this work is granted by FCT – CEEApla, Research Centre for
Applied Economics.
INTRODUCTION
In the electronic commerce age, major challenges facing corporate management, to maintain
competitive advantage through several of its processes (Porter, 2001), include: improvements in
production flows, establishment of strong relations with all stakeholders and acquisition and
application of knowledge, among others.
In the last decades, organizations have begun to realize the importance of closely managing activities
of the supply chain in order to create additional value, which can be grounds for significant
competitive advantages. Although marketing researchers and information system investigators have
studied supply chain management to some extent; there are still few conceptual bases available,
necessary to assessing supply chain management’s (SCM) contribution to business success. When
analyzed, the on-line performance of the companies and the implications of virtual SCM application,
these assessment weakness assume a major role.
This paper examines an exploratory survey conducted among a sample of e-business European
companies. Using a structural equation analysis, this study explores the relationship between e-
business success and SCM initiatives, measured by the internal resources of a company and internal
competencies in SCM, and intrinsic success measures, including: sales volume, number of customers,
sales area and customer service quality.
This paper is organized as follows: Section 2 presents the definition and benefits associated with
SCM, including virtual supply chain management. An evaluation framework is developed in Sections
3 and 4. In the last section, we conclude our study, reiterate major points and suggest avenues for
further investigation.
LITERATURE REVIEW
Traditional supply chain management (SCM) has been widely studied by academics (Oliver &
Webber, 1992; Jones & Riley, 1985; Houlihan, 1985; Snowdon, 1988). Since the nineties, driven by
academic research and organizational practices developed around the concept of e-business, SCM has
gained a new dimension and importance. Much research has emerged from the logistics/ distribution
and marketing fields as a result, complemented by studies carried out in the information technology
field (Nagurney et al., 2002).
In 1982 Oliver and Webber, after studying North American, European and Japanese firms, concluded
that traditional management of distribution channels did not originated the firms’ expected results.
According to these authors, a new form of management needed to be adopted in order to create new
value and achieve competitive advantages: supply chain management. The relevance of this matter
continues in present literature (Rayport & Sviokla, 1995; Donthu & Garcia, 1999; Gallaugher, 1999;
Choudhury et al., 1998; Park & Suresh, 2005).
In light of mounting research, SCM has now acquired the status of a generic management concept that
comprised the systemic implementation of processes allowing the development of competitive
advantages and profitability of firms through an integrated management of distribution channels
(Svensson, 2003).
According to Porter (1985, 2001) SCM is a model that describes sequentially the activities that add
value to an organization, establishing the connection between the demand dimension (raw materials,
entry logistics and production process) and the supply dimension (output logistics, marketing and
sales), including support activities (infrastructures, human resources and R&D, among others).
Lummus et al (2001) suggested that SCM includes all the logistics processes, delivers management,
production processes and information flows necessary to the management of all the activities in the
value chain. To Mentzer et al. (2001), despite the popularity of the term Supply Chain Management,
both in academia and practice, there remains considerable confusion regarding its meaning, as Table 1
demonstrates.
Table 1 – Some definitions of supply chain management
Author/Year Definition
Jones and Riley Supply chain management deals with the total flow of materials from suppliers
(1985) through end users.
Stevens (1989) The objective of managing the supply chain is to synchronize the requirements
of the customer with the flow of materials from suppliers in order to affect a
balance between what are often seen as conflicting goals of high customer
service, low inventory management, and low unit cost.
Christopher (1998) A supply chain is the network of firms that are involved, through upstream and
downstream linkages, in the different processes and activities that produce
value in the form of products and services delivered to the ultimate consumer
La Londe and A supply chain is a set of firms that pass materials forward.
Masters (1994)
Cooper et al. SCM is an integrative philosophy to manage the total flow of a distribution
(1997) channel from supplier to the ultimate user
Monczka, Trent, SCM is a concept, “whose primary objective is to integrate and manage the
and Handfield sourcing, flow, and control of materials using a total systems perspective
(1998) across multiple functions and multiple tiers of suppliers.
Lambert, Stock Supply chain is the alignment of firms that brings products or services to
and Ellram (1998) market.
Mentzer et al. A supply chain consists in a set of three or more entities (organizations or
(2001) individuals) directly involved in the upstream and downstream flows of
products, services, finances, and/or information from a basis to a final
customer.
Nagurney et al. A supply chain is a chain of relationships which synthesizes and integrates the
(2002) movement of goods between all the intervenient.
Mohammed et al. The series of value-adding activities connecting a company’s supply side (raw
(2003) materials, inbound logistics and production processes) with its demand side
(outbound logistics, marketing and sales).
Gunasekaran and The supply chain consists of the logistical and informational elements
Ngai (2004) extending from the demands of marketplace at one end to the specific
product/service deliver to consumer at the other.
SCM, as a series of value-added activities, connecting a company’s supply side (raw materials,
inbound logistics and production processes) with its demand side (outbound logistics, marketing and
sales).
Chandra and Kumar (2000) stated that a considerable number of firms that adopt SCM have as a
primary motivation the balance between demand flows and company results. The efforts developed in
this arena seek the reinforcement of the firm’s flexibility and the improvement of the partnerships and
communication inside and outside the firm, resulting in global enhancement of the supply chain.
According to these authors, outsourcing secondary functions should also be considered.
According to the recent research of Wu and Chen (2006), successful supply chain management
requires choosing a type of relationship suitable to product and market conditions as well as the
adoption of management practices to it.
Rapid growth of the Internet as a means for business seems fundamental to reshaping business
structure, allowing firms to embrace unprecedented opportunities. Rayport and Sviokla (1995)
suggested that with the advent of the Internet, firms began to do business in two different worlds:
physical (marketplace) and virtual (market space).
As a result of the adoption of new information and communication technologies and the Internet,
some management tools can be augmented, with the consequence of increased controls over
production operations and implementation of just-in-time and quick response systems (Gattorna &
Walters, 1996). In this context, the concept of SCM can be modified into the virtual supply chain
management (Apostolou et al., 1999; Gan et al., 2000). While the original value chain model treats
information as a supporting element, in a digital era, information itself can be a critical source of
value.
The introduction of Internet-based practices has created new opportunities for both suppliers and
consumers: (i) firms began to have an open access to larger numbers of suppliers and consumers; and
(ii) physical boundaries to consumers were removed (Nagurney et al., 2002; Gabbott & Colgate,
1999).
With Internet use, firms can adopt two different postures toward developing business, in order to grow
revenues, reach new customers and enhance business opportunities. The first approach is related to
the establishment of a more open structure that allows the expansion of partners and their connection
through electronic means. The second is associated with needs of integration and alignment of the
technological components with firm strategy and human resources (Hoffman & Novak, 1996).
One of the attractive features of Internet business is its market space characteristics- high efficiency
levels, reduced operating costs (Butler et al., 1997; Rice & Bair, 1984), and augmented value for
customers (Watson et al., 2000). The possibility of cost reduction in several points of the supply chain
relates to two components of the marketing mix: price and distribution.
The process of cost reduction can be mapped via flow diagram and then re-engineered to increase
value or reduce costs through technology increment. Several have authors suggested modifications in
supply chain management derived by the adoption of on-line activities, as presented in Figure 1
(Rayport & Sviokla, 1995; Donthu & Garcia, 1999; Gallaugher, 1999; Choudhury et al., 1998; Park &
Suresh, 2005).
Figure 1 – Physical Value Chain versus Virtual Value Chain

Physical
Value
Internal Production External Marketing After-sales Chain
logistic process logistic And sales services
Gathering
Organizing
Information
Value Matrix
Selecting
Synthesizing
Distributing
Virtual Vale
New markets New markets New markets Chain
Font: Adapted from Rayport and Sviokla (1995)
There are three main stages of value-adding informational processes: (1) visibility (improve the ability
to track physical operations more effectively); (2) mirroring capability (substitute virtual activities for
physical ones and parallel value chain in market spaces); and (3) create new customer relationships
(use information matrix to deliver value to customers in new ways).
Physical and virtual markets have different intrinsic value systems that must be understood in order to
leverage the benefits of the virtual value chain. However, both chains must be managed
simultaneously, in order to be effective and productive (Rayport & Sviokla, 1995). By exploiting the
five generic value-adding steps of the information world in each activity of the value chain, firms are
able to better access new markets and establish new relationships with customers. In this process, a
new value matrix is created.
Considering the Rayport and Sviokla (1995) model of the virtual supply chain, there are several
changes related to inbound logistics cost structure that need to be considered (Mohammed et al.,
2003): order process management (back office space and contact are minimized); physical spaces
(reduction in front-offices and better stock management); and just-in-time practices. At the outbound
logistics, cost reduction occurs specially at two distinctive levels: distribution (through the use of
cyber intermediation and distribution of digital assets, among others) and communication.
According to Rayport and Sviokla (1995), in market space several business axioms that have been
used by managers over the decades no longer apply to e-business.
Based on current thinking, the differences between physical value chain and virtual value chain could
be summarized as follows (Table 2):
Table 2 – Differences between physical and virtual value chain

Physical Marketplace Virtual Market space
• linear activities • nonlinear matrix
• info as supporting element • info as dominant element
• focus on existing line business • focus on new business
However, according to the works of Hartcher (2000) and Poon and Swatman (1999), changes and
differences in the value chain (either virtual or otherwise) cannot be generalized. The dimension and
type of industry can affect the evolution path of a firm’s value chain.
Consequently, the value chain and the virtual value chain can assume different forms. From research
developed in this area, several typologies can be found, based on the: level of functional integration
and innovation (Timmers, 1998); integration of value and economic control (Rappa, 2001; Tapscott et
al., 2000); and the type of relationship established (Amit & Zott, 2001).
Turner (2000) suggests the classification of virtual supply chain management according to the
traditional concept of supply chain management. In this perspective, all the activities of e-business
affect differently both the supply and demand side of the value chain. Despite the methodology used
to classify different SCM models, academia and managers seem to agree that on-line systems can be
used to augment the performance of SCM (Watson et al, 2000; Turner, 2000). In this context, web
pages can be considered collaborative tools between stakeholders (Hamel & Sampler, 1998).
According to Sum et al. (2001), logistics is a critical element of SCM that influences business
performance.
EVALUATION FRAMEWORK AND HYPOTHESES

From the literature review emerges that research developed on supply chain management field focuses
mostly on SCM in a physical context, its influence on general business performance and in specific
industries. Although academic researchers and practitioners alike praised virtual supply chain
adoption (Cooper et al., 1997; Menzer et al., 2001), there remains a lack of empirical evidence as to
its effects on e-business success. Accordingly, our aim is to establish a measurement framework that
helps to fill the current gap in research and provides a better understanding of the critical elements of
the virtual supply chain, based on a sample of European companies.
Traditional financial and accounting methods of evaluation are not suitable in the case of e-business,
since there are some intangible, indirect and even strategic benefits that need to be considered
(Grembergen & Amelinckx, 2002), having as referential the ones pointed by Gunasekaran and Ngai
(2004): minimizing duplication of efforts and process; achieving higher levels of uniformity of
process and, increasing quality.
Since virtual supply chain management is an integrate information technology application, existing
literature in this field may shed some light on measurement of the success of these initiatives.
The first dimension that needs to be defined is e-business performance. Suitable performance
measurement is an issue that has been widely debated in current marketing literature. According to
Bhargava et al. (1994), financial success is only one aspect of a firm's performance that can be
considered an indicator of its economic value (Hax & Wilde, 2001). With the establishment of online
business, new models and measures of performance are needed (Amit & Zott, 2000; Hoque, 2000;
Craig & Jutla, 2001). Yoon et al. (1995) presented a framework for economic value based on five
paths: business profitability, improved decision performance, level of system usage, perceived
benefits and user satisfaction.
In terms of e-business success measurement, we distinguish between economic and market-based
performance (Kholi & Jaworski, 1991; Bharadwaj, Varadarajan & Fahy, 1993; Reinartz et al., 2003).
Therefore, the concept of corporate success of e-business in this research is limited to three
dimensions (Amit & Zott, 2001): hard factors, soft factors and innovation. The first is an indicator of
economic performance, namely number of customers. The second dimension refers to a company’s
improvement in customer relationships, measured in our model by the quality of customer service.
The last dimension reflects the company’s achievements in terms of its competitive position, given by
the sub dimension sales area.
The research model, as shown in Figure 2, illustrates whether or not higher levels of virtual supply
chain management adoption are associated with e-business success.
Figure 2 – Framework of Analysis
Quality of
Customer
Service Communication
H2 and Integration
Sales Area H1 Virtual Supply

e-Business Chain
Success Management
Planning and
Number of H3 Control
Customers
The framework identifies metrics that can be used to evaluate the impact of the virtual supply chain
management on business performance. The proposed research model tests three hypotheses: the first
one related to the impact of the virtual supply chain management in firms’ performance and the others
regarding the impact of two dimensions in virtual SCM.
The digital economy made it possible to develop and implement a range of different supply chain
designs, based on several factors, such as: new competitive advantages driven by information
technologies; new organizational forms; heterogeneous information systems integration into virtual
information systems; closer strategic planning and control; and wider information sharing process,
among others. In this context, a critical requirement is information sharing and its addition is the base
of virtual supply chain management.
In analyzing the literature, we find three distinctive perspectives of SCM results: (i) firm focused
tactics; (ii) competitive strategy; and (iii) operational effectiveness. As our aim is to consider virtual
supply chain management effects on e-business performance, we will consider tactical elements.
Thus, virtual supply chain management performance will be indirectly measured in this model
through two dimensions: communication and integration of partners and planning and control
systems. According to the literature, these components profoundly affect the way companies behave
in terms of SCM.
Having as reference the achievements of Tan (2002), which noted that all of the significant supply
chain management practices have a positive impact on a firm’s performance, hypothesis one is written
as:
H1: The greater the virtual supply chain management competencies and implementation, the
higher a company’s e-business performance on markets.
Terzi and Cavalieri (2004) argue that companies have been advocating further optimization of their
organizational process in order to face the competition of their industries. According to these authors,
this optimization encompasses new forms of collaboration and partnership with their direct
counterparts. The interactive nature of the Internet allows establishment of this closer relationship,
especially by improving the communication among users (Hoffman &Novak, 1996; Peterson,
Balasubramanian & Bronnerberg, 1997; Watson et al., 2000) and enlarges access to new suppliers and
customers (Nagurney et al., 2002). The use of technologies of information and communication further
allows firms to improve and reinforce their integration processes (Sheombar, 1992; Walton &
Marucheck, 1997; Jayaram et al., 2000; Narasimhan & Carter, 1998). According to several authors
(Stevens, 1989; Lee et al., 1997; Metters, 1997; Narasimhan & Jayaram, 1998; Lummus et al., 1998;
Anderson & Katz, 1998; Hines et al., 1999; Johnson, 1999), higher levels of integration with suppliers
and customers in the supply chain can generate greater potential benefits. Reinforcing this point,
Frohlich and Westbrook (2001) pointed to the positive effect of integration in firms’ improved
performance. These authors suggested that a broad and reasonable integration could improve
company performance in terms of productivity and non-productivity indicators.
As Eloranta and Hameri (1991) noted, inbound and outbound logistics tend to be separated in
research, so in our study we consider them together. Based on the notion presented by the literature
review that both communication and integration processes can improve firm performance, the second
hypothesis is postulated as:
H2: The better communication and integration processes of a firm, the improved performance level
of its virtual supply chain management.
Rayport and Sviokla (1995) noted that a firm’s “manager knows that staying competitive today
depends on achieving higher levels of performance for customers while incurring lower costs in R &
D and production…On the VVC, companies may find dramatic low-cost approaches to delivering
extraordinarily high-value results to customers.” So, the dimension of planning and control in virtual
supply chain management must be considered. While the Internet is simplifying the nature of
communication with and integration of consumers and suppliers, it is also challenging suppliers to
find new methods of cost reduction, combined with just-in-time practices (Chopra & Meindl, 2001).
In fact, growing evidence suggests that strategic planning and control of logistic operations is critical
to a successful virtual SCM. As pointed out by Bowersox and Daugherty (1995), Lewis and
Talalayevsky (1997) and Van Hoek et al. (1998), the use of technologies of information and
communication can improve traditional planning and control systems. This leads to the following
hypothesis:
H3: The better the planning and control systems, the greater the performance level of virtual
supply chain management.
METHODOLOGY AND RESULTS

Data from the e-Business W@tch annual survey was used to test our three hypotheses. For this
research, coordinators in 25 European countries (Cyprus, Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovakia, Slovenia, Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, UK and Norway) administered the
survey on a country-by-country basis. A random sampling of companies by industry was drawn from
each country, fulfilling a quota with respect to size class.
As this study examines primarily the adaptation status of virtual supply chain management by
companies, it is important to mention that only 360 of the 9,264 total responses were included in this
analysis. The excluded cases referred to companies that did not apply virtual supply chain
management, or to cases that had relatively incomplete reported performance data.
Distribution of firm size, measured by the number of employees, shows that most cases are small and
medium size (around 60% of the firms). The distribution of responding sample is approximately
similar to the original sample. However, due to fact that the firms were select based on virtual supply
chain management activities, the subset presents some peculiarities in terms of activity sectors. The
two most heavily represented sectors in the sample are food, beverages and tobacco and transport
equipment, with 11.4% and 9.7% respectively, closely followed by all the others, with the exception
of insurance and pension funding services, which represents only about 2.2% of the sample. More
information about the sample used in this paper is presented in the appendix.
The casual structure proposed in the theoretical framework was examined using a structural equation
model. After global model fit had been assessed, numerical results were evaluated in order to test their
support of the research hypotheses. The numerical results for our model can be obtained directly from
the path coefficients of the structural model presented in Figure 3. We refer to standardized
coefficients, which account for scale effects and serve as indicators of the relative importance of the
variables.
Figure 3 – Structural equation model and estimation results
Internal
Communication
,69 #
Communication
Quality of and
Customer Integration
Service
External
,63 # ,81
*** Communication
,94 *** ***
e-Business ,34
Sales Area Virtual
performance SCM
,96 *** # ASP
*** ,65
Number of ,96
Customers ,99 # Planning
And
Control
*** ERP
,44
Measure Value Suggested Key for significance measures:

RMSEA 0.042 < 0.05
*: α >0.10
NFI 0.947 >0.9 **: α >0.05
IFI 0.979 >0.9 ***: α >0.01
CFI 0.978 >0.9 #: for model
identifiably, this path coefficient was
Chi-square 17,93
set to 1 in the unstandardized case.
Several goodness-of-fit tests were conducted to assess whether the empirical model could explain the
observed data. The measures for global model fit included in Figure 3 suggest that our model fits the
underlying data quite well. The three hypotheses’ paths were all statistically significant.
Our findings generally support the conceptual framework previously presented, even though some of
the relationships found were weaker than expected. With regard to Hypothesis 1, results show that
virtual supply chain management implementation contributed 34% to the e-business performance
construct. This finding empirically supports the concept that e-business performance can be improved
by investment in virtual supply chain management systems.
Similarly, communication and integration in SCM context and planning and control of inbound and
outbound activities contributes 63% and 96% to virtual supply chain management competencies
construct. The results demonstrate a higher relative importance to planning and control than would be
expected from literature review, because most of the research in this field emphasizes communication
and integration elements. With respect to H2 and H3, the results achieved in the model support these
hypotheses.
In e-business construct, the variables used: number of customers, sales area and quality of customer
service, contribute respectively with 99%, 96% and 94%. This significant relationship provides
empirical support to theoretical views that state e-business performance is best measured using
economic and market-based criteria.
All the previous statements lead to the hypotheses testing results presented in the following table
(Table 3).
Table 3 – Results of hypothesis test

Hypotheses Content Significanc
e
The greater the virtual supply chain management competencies and
H1 implementation, the higher a company’s e-business performance on Yes
markets.
The better communication and integration processes of a firm, the
H2 Yes
improved performance level of its virtual supply chain management.
The better the planning and control systems, the greater the
H3 Yes
performance level of virtual supply chain management.
DISCUSSION AND CONCLUSIONS
As literature review demonstrated, there has been little study that examines virtual supply chain
management contributions to e-business performance. However, those works developed to study
virtual SCM and e-business performance were largely confined to specific industries. With this study,
we attempt to fill existing research gaps, presenting results from an empirical investigation based on a
cross industry survey (360 respondents), which covers 25 European countries.
The goal of the current study was twofold: (1) to determine whether the implementation of tactical
dimensions (communication & integration and planning & control) is positively linked to virtual
supply chain management competencies and (2) to identify the nature of the relationship between
virtual supply chain management and e-business performance. For this purpose, three propositions
were developed with the aim of gaining a better perspective of European empirical evidence on the
interface of virtual SCM and business performance.
The results of this effort have generated some interesting findings. First, the data supports our
conceptualization for the virtual SCM construct. Within it, both tactical elements have a positive
impact on the maximization of virtual supply chain management implementation.
Second, these findings allow us to conclude that implementation of a virtual supply chain
management system has a positive impact on e-business performance. According to these results, the
concept of virtual SCM as an integrated e-business tool that allows a more profitable relation with
customers and suppliers is reinforced as is the need for a daily based planning and control
emphasized.
This study and its findings will be useful for firms intending to emulate the application of virtual
supply chain management, giving insights to managers about the influence of different components of
virtual SCM in e-business performance.
This study produces useful preliminary insights, leaving a considerable number of issues for future
research, including the possibility of extending the investigation in order to consider the impact of the
virtual supply chain management in terms of competitive strategy and operational effectiveness.
Similarly, this study could be expanded to compare firm performance in e-business versus non-virtual
business activities.
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APPENDIX
Table 4 - Distribution of the sample by country

Country Frequency Percent Country Frequency Percent
Austria 13 3,61 Italy 53 14,72
Belgium 19 5,28 Luxemburg 1 0,28
Denmark 15 4,17 Netherlands 33 9,17
Finland 20 5,56 Portugal 15 4,17
France 28 7,78 Spain 34 9,44
Germany 45 12,50 Sweden 9 2,50
Greece 6 1,67 UK 60 16,67
Ireland 9 2,50 Total 360 100,00
Table 5 - Distribution of the sample by sector

Sector Frequency Percent
Food, beverages and tobacco 41 11,39
Publishing, printing, reproduction of recorded media 26 7,22
Manufacture of chemicals/ch. products/rubber/plastic prod. 28 7,78
Metal products 15 4,17
Manufacture of machinery and equipment 29 8,06
Electrical machinery and electronics 29 8,06
Transport equipment 35 9,72
Retail 31 8,61
Tourism 22 6,11
Monetary and financial intermediation 15 4,17
Insurance and pension funding services 8 2,22
Real estate activities 21 5,83
Business Services 17 4,72
Telecommunications and computer-related services 30 8,33
Health and social work 13 3,61
Total 360 100
Table 6 - Distribution of the sample by size

Number of employess Frequency Percent
1-49 91 25,28
50-249 125 34,72
250 or more 79 21,94
not available from database 65 18,06
Total 360 100,00

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Journal of E-Business (ISSN 1542-0846)

A Refereed Publication of the International Academy of E-Business

Editorial Board Electronic Edition

Table of Contents - CURRENT ISSUE

TAKING CUSTOMER PERCEPTIONS OF THE ETHICAL COMMITMENTS

SERVICE VALUE NETWORKS: INTO REALITY

E-MARKETS: A CONCEPTUALIZATION AND RESEARCH AGENDA

THE GOVERNANCE OF VIRTUAL CORPORATIONS

AN EXPLORATORY STUDY ON ONLINE BANKING IN MALAYSIA

Martin Atkins, University of Aberdeen, UK

Carole Bonanni, Simon Fraser University, Canada

Marc Fetscherin, Rollins College, Florida, USA

John Hadjimarcou, University of Texas, El Paso, Texas, USA

Gopal Iyer, Florida Atlantic University, Boca Raton, Florida, USA

Gurprit S. Kindra, University of Ottawa, Canada

Glenn Maples, University of Louisiana at Lafayette, USA

Miguel R. Olivas-Luhan, Univ. of Pittsburgh, ITESM-Monterrey, Mexico

C. P. Rao, University of Kuwait, Kuwait

William D. Schulte, George Washington University, D.C., USA

Bala Subramanian, Morgan State University, Baltimore, Maryland, USA

Hans Mathias Thjomoe, Norwegian School of Management, Oslo, Norway

2. Any individual, who is interested in serving as a reviewer on the Editorial Board of

II. SUBMISSION: GUIDELINES

COPYRIGHT TRANSFER FORM

Name of the Author(s): _________________________________________________________________

Title of the manuscript: _________________________________________________________________

We address this problem by tackling three research questions:

METHODS AND DATA

(Continued on Next Page)

Table 2. Aggregate Objective Measures for the Three Ethical Factors

Objective Measure Mean S.D.

Table 4. Aggregate Subjective Measures of the Three Ethical Factors

Subjective Measure Mean S.D.

Table 7: T-tests between the corresponding subjective and objective measures.

Variable t Stat P-value

DISCUSSION AND CONCLUSION

Grabner-Kraeuter S. 2002. The Role of Consumers' Trust in Online-Shopping. In Journal of

AUSTRALIAN PHARMACY INDUSTRY

Physical Pharmacy Virtual E-Pharmacy

SVN ENCOUNTER FRAMEWORK

(Continued on Next Page)

Business Customer Encounter

Pharmacy Business Pharmacy Customer

Pharmacy Industry SVN Encounter 1

Business Customer Encounter

The business-customer encounter is projected to exhibit a combination of four pathways – a customer

PHARMACY SERVICES INTEGRATION POSSIBILITIES

Disruptive Transitions: SVN Business Encounter Customer

Env Interactive SVN’s

DCN Business Encounter

Service Demand Chain Integration

Emerging technologies are often

Low Service Integration

Degree of networked (and linked) integrated supply-demand integration

SVN SEM – PHARMACY RESEARCH

THE SVN SEM SOLUTION

AN INDUSTRY SVN SEM SOLUTION

Figure 6: SVN SEM Model

ECOSERV INFOVALS EXTVALS

The resultant full SVN SEM model consists of:

Hamilton J. 2006. Business-customer alignment in the Australian pharmaceutical industry, International

Keywords: Electronic markets, Literature review, model, conceptualization