adoption correlates and share effects of electronic data exchange

8/12/2019 Adoption Correlates and Share Effects of Electronic Data Exchange

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Ramon O'Callaghan, Patrick J. Kaufmann, & Benn R

the indirect costs associated with data errors (see also

Dearing 199()). In industries where the products are

physical goods, shorter lead times enable buyers to

purchase more frequently and in smaller lot sizes, thus

reducing inentory costs (!anright 19"").

#he relatie adantage of $DI oer traditional e%&

change processes not only inoles transaction cost

reduction for the channel members, but also allowsgreater sericing of the channels customers in the

output mar'et. #he quic' response to customers needs

proided by $DI creates a competitie adantage for

the downstream channel member (ohr 199()). In

highly competitie output mar'ets, the potential for

that competitie adantage has a significant impact on

the li'elihood of adoption of new technology (*atig&

non and +obertson 19"9 +obertson and *atignon

19"-).

$DI is not ust a new technology for channel

members. It is a fundamental change in the way they

do business with each other. /chrol, +ene, and 0tem

(19") hae argued that the internal structures created

to facilitate e%change processes reflect the demands

of the channels enironment. 2hen competition is

intense in the output mar'et, channels tend to for&

malize information processing (Dwyer and 2elsh 19"3)

and increase efforts to improe logistics and other sys&

tems directly related to cost control (Dwyer and 4h

I9"5). 6or e%amaple, !rosby and 0tephens (19"5)

study of the highly competitie insurance industry de&

monstratated the importance of channel efficiency in

the deliery of the core product. #he formalization of

communication and ordering through $DI therefore

proides a possible response to competition in the out&put mar'et. If the leel of competition in an industry

is nontriial and constant,,ariance in firm&leel adop&

tion of $DI should reflect differences in the perceied

efficiency and serice&producing characteristics of the

system. #herefore,7f8 #he greater the perceied relatie efficiency adan&

tage of $DI oer the transaction of business without

an electronic lin'age, the more li'ely the adoption of

$DI by the target flrm.

7z8 #he greater the perceied relatie customer serice

adantage of $DI oer 2e transaction of business

without an electronic lin'age, 2e more li'ely 2e

adoption of $DI by the target firm.

Compatibilfty

#he more an innoation is perceied as consistent with

present systems, alues, practices, procedures, and

norms of the potential adopter, the more li'ely it is

to be adopted (+ogers 19", p. ). In the case of

$DI, compatibility is normally determined by the sys&

tems user interface (i.e., communications software),

the leel of new hardware inestment, and the other

system characteristics, such as message formats, that

dictate the ease with which the $DI interface can be

integrated with the bac'office computer systems in the

organization (e .g. , whether modifications to present

systems are necessary). #he perceied compatibility

of $DI in the target organization therefore relates to

two distinct factors, physical system compatibility and

organizational (i.e . , personnel) compatibility (c&

*uinness and :ittle 19"1).0ystem incompatibility is often a maor impedi&

ment to the institution of a lin'age across trading part&

ners. ;artners need to anticipate issues on the com&

patibility of hardware and software (connectiity),

message and timing protocols, ongoing support and

maintenance costs, and operations and management

processes for coping with e%ception situations. In ad&

dition, the upfront inestments required to establish

the connection in preparation of systems and the mod&

ification of present computer systems to support the

information interchange add significantly to the costs

of implementing an $DI lin'age.

4rganizational incompatibility requires significant

attention in defining the nature and form of the in&

formation interchange. /ll too often the initiating source

firm assumes that the target firm is at the same leel

of sophistication with the technology. 6urther, the in&

ternal culture and management practices may be ery

different, resulting in communication problems.


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Correlates and

i of Electronic D

hange Systems`keting Channels

ms employing in&

most important

els of distribution

!ly that such sys&

itie landscape of

,sensus that com&

,ms will hae sig&

between channel

,h and >onsyns'i

nsyns'i and 2ar&

d ?ates 19"5).

ry of interorgani&

terchange ($DI)

9). $DI@ is used

Ainformation tech&

or the purpose ofr serice through

y 19"). #hough

ms, here the $DI

an initiating (or

, Universit of !avarra,

"late Professor, #e$art%

stration eorgia tate

()uate chool of Busi%

g for the research *as

(usiness chool.

0ourcc@) firm (6razier 19"

members (or @target@ firms)

nity to establish an electroni

fmn, they are faced with

whether to adopt an innoati

familiar technology (6arley e

#he adoption of an $DI

nificantly different from the

internal technology. $DI prc

change relationship between t

hae implications for both t

polity of the channel (0tem

tablishment of a sophisticatq

tween firms reflects a signif

relationship. Discrete transact

creation of a long&term, corr

(Dwyer, 0churr, and 4h 191

lin'age requires attention m

effects of the technology, bu

hae on the business relatiol

(oncz'a and !arter 19"9).

#he proliferation and im6

mar'able (/chabal and !I

19"", 53B of the Fortune 1

tune 3CC were reported to be

tronic data transmission metl

Elacfmnic BatVol. ! "#$ril %&'(.)4)*!

business communications processes including, for e%&

ample, ordering, inoicing, and proiding shipping or

bac'order notification (!anright 19""). It is impor&

tant, therefore, to understand the factors that promote

the creation and adoption of $DI systems.

#ypically, $DI systems are designed to delier

transactional efficiencies to both firms. /doption of

$DI, howeer, may impose significant one&time costson target firms as they adust their internal systems to

permit the interface with the source firm. #o the e%&

tent the adustments are specific to one particular in&

terface (i.e., are relationship specific), they impose

e%it barriers in the form of heightened switching costs.

#he effect is clearly to lin' the target furn more closely

to the source firm. #he source firm therefore endures

the $DI system deelopment and maintenance costs

not only to achiee transactional efficiencies, but also

to bring about the alteration in its relationship with

the target firm. If the source firm is a buyer, that al&

teration of the relationship may result in greater co&

ordination in the flow of inputs. If the source firm is

a supplier, the change may result in an increased share

of the target firms business.

/n increase in the source firms share of the target

firms business, howeer, presumes an increase in the

attractieness of the source firm in relation to its com&

petitors. #herefore, to the e%tent that the target firm

can easily establish $DI lin'ages with additional source

firms, that relatie competitie adantage is eopard&

ized.

+esearch on $DI has focused primarily on the so&

ciopolitical impact of the technology on the channel

relationship (>rapfel and *uinn 199C ohr 199C 0ternand >aufmann 19"3) or on its efficiency effects

(oncz'a and !arter 19"9). :ittle is 'nown about the

$DI adoption decision process itself or the ultimate

competitie effects of fostering such a lin'age with a

trading partner. 6irms deeloping $DI technology are

faced with design and mar'eting decisions, as well as

the need for eidence of competitie adantage nec&

essary to ustify their inestment. 2e draw on inno&

ation adoption theory to formulate and test predic&

tions about the conditions under which target firms are

li'ely to accept the $DI technology. 2e then e%plore

the relationship between the establishment of an $DI

lin' and the share of the (buying) target firms busi&ness gien to the (selling) source firm. 6inally, we

draw some conclusions and implications for the de&

sign and mar'eting of $DI technology and discuss the

issue of strategically sustaining the competitie ad&

antage deried from an $DI lin'age.

/doption of $loctronic Dato

Intorchango #ochnologyRogers and Shoemaker (1971) and Rogers (1983) ar-

ue that the ado tion of innovations is related to the

attributes of the innoations as perceied by potential

adopters. 4f those attributes, two of the most signif&

icant are relatie adantage and compatibility with

present systems (#ornatz'y and >lein 19"). In ad&

dition, as members of a social system adopt an in&

noation, they put additional pressure on the remain&

ing nonadopters to imitate their behaior. #his two&

step diffusion process is well 'nown in the mar'etingliterature and has been modeled e%tensiely to fore&

cast the rate at which new products or ideas will be

accepted by the mar'et (


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principals endorse the industrywide benefits of broad&

based $DI adoption. #he target firm may choose to

ignore these forces but, to the e%tent they do influence

the decision, they can be e%pected to increase the li'e&

lihood of adoption.

us8 #he greater the influence of preious adopters, the more

li'ely the adoption of $DI by the target firm.

7-8 #he greater the influence of the source firm, the moreli'ely the adoption of $DI by the target firm.

758 #he greater the influence of industry representaties,

the more li'ely the adoption of $DI by the target firm .

;4stad4ptif8fn $ffaas8 $DI and

ar'et /dantage

Though the search for internal efficiencies ma pre-

cipitate !"# development$ proprietar !"# sstems

also offer the possi%ilit of competitive advantage

(&la'er 1989) The esta%lishment of an !"# linkage

%eteen to firms signifies a commitment to the re-

lationship that removes their transactions from the open

market (*rndt 1979+ "er$ Schurr$ and ,% 1987+

acneil 198.) !"# increases the intensit and mul-

tiple/it of the relationship (Tich$ Tushman$ and

0om%run 1979) and$ like #T technolog$ re2uires a

richer$ more cooperative relationship (0ra'ier$ Spek-

man$ and ,4eal 1988) that ma lead to further 5oint

innovation (*mdt and Reve 1979) 6onse2uentl$ the

level of goal congruenc and satisfaction can %e e/-

pected to %e higher for !"#-linked e/change partners

than for channel mem%ers ith hom no !"# link has

%een esta%lished (ohnston and arence 1988+ Stemand aufmann 198+ see also Stem and :eskett 19;9)

The historic initiatives of *merican :ospital Supplies

(later


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7a8 2hen a supplier establishes an $DI lin'age with a

buyer, the supplier will increase its share of the buy&

ers business.

0he Stdy

Samph-ng Method and Measurement Pretests

The likelihood ratio$ Ba test of

goodness of fit$ has a chi s2uare of # 187 (p C ..1 )$indicating that the overall multivariate function per-forms ell in discriminating %eteen adopters andnonadopters oreover$ e/amination of the individual

coefficients indicates that e/pected efficienc gains$e/pected service gains$ and e/pected sstem incom-

pati%ilit are all strong predictors of the results of the

adoption decision and are in the direction hpothe-

si'ed in :t $ :D $ and :3 4o support is found for :>through :7 $ hoever

6hi s2uare is again significant (p C .)$ andthe e/pected service gains coefficient (p ? .D) issupportive of :# *lso$ the e/pected efficienc gains

coefficient (p ? .8) is still marginall supportive of:D Sstem incompati%ilit$ hoever$ is no longer asignificant predictor of the intent to adopt The influ-ence varia%les again are not significant

The results of this stud indicate that the perceived

relative advantage of !"# over present sstems is an

important element in the decision to adopt an !"#

linkage ith a source firm Support for the hpothe-

si'ed relationship %eteen e/pectations of sstem in-

*radietom

8actor ?a.@? aAah#wl 1 walgo

@nalsis 8actor 4."standard 8actor 8actor 6 8actor 9stem 8actor * 8actor B 1actor 5

mo)e8 9ervice rg. Cost n)ust Carriers @gents . E-ciency

11 . .=>= %.9=9= %.>(==( %.>(=6 %.96( .>5=6 .55 %.55 %.(1actor ( 56>6 1actor 5 .6(1actor = .==5=(( 1actor .>6>(>59 .> @>==

0$ecte) efficienc gain .6955 .9>5> @( .5

0$ecte) service gain 6 .(>95> .59(9 .> .stem incom$ati2ilit ( %.66 .665

@gents influence > %.5(6> . .(< .6(5onsyns'i and 2arbelow

19""). #hat approach significantly increases the costs

of the target firms initial adoption, and also ma'es

the adoption of additional interfaces ery costly.

/t the other end of the spectrum are insurance

companies such as aryland !asualty that ta'e pride

in facilitating the implementation of $DI by adapting

themseles to whateer equipment the agents hae,

and using the public alue&added networ' of the in&

dustry (i.e. , IH/F0 see >onsyns'i and 2arbelow19"5). #ypically, the solution is a stand&alone ;! that

decouples the internal agency system from the $DI

and its outside communications. #he result is a fle%&

ible (and modular) approach at the e%pense of full data

integration with the agencys internal computer pro&

cesses and databases. #his approach significantly re&

duces the costs of the initial adoption, but leaes the

source flrm subect to easy adoption of additional lin's

by the target firm.

In summary, the challenge for $DI source firms

is to design a system that (1) facilitates the initial

adoption, () ensures the desired postadoption busi&ness effects, and () ensures the long&term retention

of those desirable effects by discouraging additional

lin'ages. #he first two appear most responsie to at&

tributes that delier significant operational efficiency

and serice improements to the target firm een if

those attributes ultimately impose substantial organi&

zational adaptation costs. In fact, once incurred, these

initially underalued, relationship&specific inest&

ments in organizational adaptation may act to insulate

the initial $DI lin' from competition from other lin'&

ages. $DI source firms appear to hae an opportunity

to ta'e adantage of the optimism of the target firms

in designing systems that may promote a long&term

strategic adantage.

Mareting !onference" ;. 2hite and *. 6is', eds.


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!R 4n#yme !R 4!:! I:: 0ubsyste

!N 4ther (please specify)&&

!N I am interested in sending my order by mail.

!R ;lease send me your current catalog and user

instructions for the system(s) I chec'ed aboe.

!orey, $. +aymond (19"3), he +ole of Information and

!ommunications #echnology in Industrial Distribution,@ in

Mareting in an Electronic Age" +. aufmann (19"3), @$lectronic U

Interchange in 0elected !onsumer *oods Industries8 /n

@

tron0c Age" +.


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adoption correlates and share effects of electronic data exchange

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