OPERATIONAL AND BEHAVIOURAL DIMENSIONS OF
E-SUPPLY CHAINS AMONG MALAYSIAN’S SMES
Kay Hooi Keoy, Mohamed Zairi
Centre forEnteprenruship and Entepreneurial Management
Bradford University of Bradford School of Management, BD9 4JL U.K.
Khalid Hafeez
2
The York Management School, Sally Baldwin Buildings, Block A, University of York
Heslington, York, YO10 5DD, U.K.
Keywords: e-Supply chain, systems engineering, e-Business adoption, network organisation, structural equation
modelling, SMEs.
Abstract: This paper reviews the available literature to identify theoretical and empirical gaps regarding e-Supply
chain adoption among small and medium sized enterprises (SMEs). We argue that a generic e-Supply chain
framework should employ appropriate operational and behavioural perspectives. We propose that e-Supply
chain operation can succeed only when integrated with an efficient supply chain network and a strategic
plan committed to e-Business. Survey data from 208 Malaysian SMEs are collected and Structural Equation
Modelling (SEM) is employed to apply the proposed framework. More specifically, a set of three empirical
models are examined to evaluate the validity and impact of supply chain strategy, e-Business adoption, and
the interaction of these constructs on business performance. Our review suggests that much of the existing
e-Supply chain adoption and implementation literature is not firmly grounded in theory. We have suggested
that the systems engineering tradition of focusing on the interactions of technology, organizational structure,
and personnel provides a useful framework for understanding the business performance of e-Business. The
technology-organisational and people (TOP) dimensions are based on sound systems engineering principles
that are widely recognised and accepted for improving manufacturing organisation. We suggest that these
principles are equally valid for the e-Business oriented and virtual organisations. These expectations are
supported by our empirical results. We find that measures based on the TOP conceptual scheme provide
reliable and valid scales that are equally applicable to both e-Business and non-e-Business firms.
1 INTRODUCTION
Recent years have witnessed the worldwide adoption
of e-Business for achieving cost savings, improving
customer service, and promoting innovation, and
taking advantage of new business opportunities
(Wagner et al., 2003). Despite the burst of the dot-
com bubble, companies are continuing to adopt e-
Business operations. Martinsons and Martinsons
(2002) suggest that the fear of lagging behind in
adopting the Internet technology has rushed many
firms to blindly engage in e-Business initiatives. As
a consequence, many have done so without deriving
much benefit. Despite huge investments in e-
Business initiatives, academics and practitioners are
questioning the value proposition of e-Business
investments (Zhu et al., 2003).
Studies indicate that technology diffusion among
knowledge intensive SMEs have been difficult (see
for example, McCole and Ramsey; 2005; Ramsey et
al., 2005). Chapman et al. (2000) argue that SMEs
are lagging behind their larger counterparts in the
use of the Internet. Other studies have found that
SMEs are only half as likely to be using e-mail; for
micro companies the figure is even smaller
(Chapman et al., 2000). Poon and Swatman (1997)
suggest that cost is the largest barrier for SMEs
restricting the adoption of new technology. A recent
report by Spectrum (2001) also supports the view
that SMEs need to catch up with their larger
362
Hooi Keoy K., Zairi M. and Hafeez K. (2008).
OPERATIONAL AND BEHAVIOURAL DIMENSIONS OF E-SUPPLY CHAINS AMONG MALAYSIAN’S SMES.
In Proceedings of the International Conference on e-Business, pages 362-369
DOI: 10.5220/0001906703620369
Copyright
c
SciTePress
counterparts in adopting ICTs in the automotive
components sector. The main issues identified
include the excessive cost of e-technology and skill
deficiencies in e-Business implementation.
This paper provides a critical review of the
available e-Business literature to identify theoretical
and empirical gaps. Based on our literature review,
we identify operational and behavioural
perspectives that form the basis of a theoretical
framework for understanding e-Supply chain
adoption and success. We show that these
perspectives relate to the well established “systems
engineering” principles of technology, organisation,
and people.
2 E-SUPPLY CHAIN:
LITERATURE REVIEW
Operations management academics have always
highlighted the strategic importance of operations,
and its role in corporate success. The consideration
of operation strategy is relatively as important in e-
Business operations as in operating in traditional
environments. However, evidence from the literature
suggests that many companies have adopted e-
Business without thinking through their strategic,
operational and behavioural impacts (Marshall and
Mackay, 2002; Gunasekaran et al., 2002; Dutta and
Biren, 2001), which subsequently led to e-Business
failure. This section considers the impact the
Internet has on operational, and behavioural
management perspectives and whether new strategic
thinking is required in response to the powerful
external forces that are re-shaping industry. This
section also aims to sustain the significance of these
perspectives by providing supporting evidence from
the existing e-Business literature.
2.1 Operational Perspective
e-Business is important for the supply chain
literature because of the increasing need to integrate
activities and information flows and to optimise the
processes not only at the single company level, but
also at the level of inter-company processes
(Landford, 2004; Lattimore, 2001; Stevens, 1989).
The importance and role of web-based technologies
to support company operations (e-Supply chain) is
widely acknowledged by both practitioners and
academics (Sanders and Premus, 2005; Porter, 2001;
Skjoett-Larsen, 2000).
There has been extensive research investigating
the impact of organisational factors on innovation
and technology adoption (Fjermestad, 2003;
Grandon and Pearson, 2004). The factors
influencing Internet technology adoption within
supply chain strategy can be classified in several
ways such as internal and external environments,
firm and individual conditions, and domestic and
international involvement (Moini and Tesar, 2005;
Lewis and Cockrill, 2002). The perceptions of
management toward IT adoption are examined in
many studies (Taylor and Murphy, 2004). .
2.2 Behavioral Perspective
Technological sophistication of an organisation is
considered an important factor for businesses’ e-
Business adoption and implementation. There has
been extensive research outlining important
determinants of organisational factors on e-Business
adoption (Tornatzky and Fleischer, 1990). The
majority of organisational factors addressed involve
such organisational characteristics as size, industry
type and business scope (Zhu et al., 2004, 2006).
However, there is a lack of study addressing the
relationship between information orientation /
asymmetry and technological innovation /
integration on e-Business adoption (Hsieh et al.,
2006).
From the behavioural perspective, Damodaran
and Olpher (2000) have identified knowledge
transfer, knowledge integration, and practical
application of knowledge as the main elements for
developing “external” capabilities. According to a
study conducted by Caloghirou et al. (2004), the
readiness, and openness towards knowledge sharing
among business partnerships are important factors in
improving business performance and encouraging
the adoption of e-Business. Establishing knowledge
management mechanisms and advantage knowledge
assets is essential for successful technological and
organisational innovation (Bong et al., 2004).
2.3 Performance Measurement
Marshall et al. (1999) define performance
measurement as “… the development of indicators
and collection of data to describe, report on and
analyse performance”. Neely et al. (1995) see
performance measurement as “the process of
quantifying the efficiency and effectiveness of
action”. Sanders and Premus (2005) argue that
performance measurement is a complex issue that
incorporates economics, management, and
OPERATIONAL AND BEHAVIOURAL DIMENSIONS OF E-SUPPLY CHAINS AMONG MALAYSIAN’S SMES
363
accounting disciplines. Zhu et al. (2004) have
stressed that an appropriate measurement system is
essential to support a wide range of performance
measures. Using Kaplan and Norton’s (2004)
balance score card concepts, we have identified
tangible and intangible performance measures to
evaluate performance improvements (Hafeez et al.
2007). Based on the relevant literature (Eikebrokk
and Olsen, 2005) we identify three domains of
measures to examine the perceived benefits of e-
Business adoption: Financial, Operational efficiency
and Coordination. Within each domain, it is useful
to categorise specific indicators under “operational”,
and “behavioural” perspectives.
2.4 System Engineering Concept
Systems engineering may be defined as the science
of analysing the behaviour of a system (or
organisation) by studying the technology, policies
and management procedures (or organizational
structure) and the behaviour and attitudes of the
people who make up of the organisation (Forrester,
1961; Parnaby, 1981; Towill, 1993). Many past and
current management initiatives such as Total Quality
Management (TQM) (Hafeez et al. 2006, supply
chain management (Hafeez, et al. 1996), business
process re-engineering (BPR) (Hammer and
Champy, 1994) are based on systems engineering
principles. Systems engineering distinguishes
technology (T) and/or organisation (O) and/or
people (P) dimensions (or TOP dimensions in short).
Systems engineering emphasizes the inter-
connectedness of these dimensions, and suggests
that change in one is very likely to have implications
requiring changes in others.
e-Business operation might best be understood
from the perspective of supply chain management.
We would particularly draw attention towards
Stevens’ (1989) supply chain management
integration framework based on systems engineering
principles. Stevens’ (1989) model also provides a
consistent empirical support, which provides a good
base for comparisons. Stevens (1989) has
differentiated contributory factors for supply chain
integration into the ‘hard’ issues (such as
technology) and the ‘soft’ (e.g. relations, attitudes,
etc). Numerous studies suggest that many companies
have not yet fully realised the technological
integration of the available office technologies and
software tools such as Material Resource Planning
(MRP), Distribution Resource Planning (DRP), and
Enterprise Resource Planning (ERP). Stevens, as
early as 1989, advocated that in order to achieve full
integration (from a baseline to external; companies
needed to focus on people dimensions internally as
well as externally. This study argued the
applicability of Stevens’ (1989) integration
framework in today’s business environment where
companies want to move from a traditional business
to e-Business. Therefore, the identified dimensions,
namely technology, organisation, and people (TOP)
are well suited for studying the success of e-Supply
chain adoption.
Table 1: Incorporation of technology, organisation and
people dimensions within each identified factor.
Variables examined
Investments for supply chain system
Integration of operating and planning
database
Standardised and customised
information
Information sharing and distribution
Organisational structure
Standardised supply chain practices
and operations
Integration of individual operations
channel
Time based logistics solutions
“Operational Perspective”
Supply Chain Strategy
Roles and responsibilities
Developing and maintaining
relationships
Risk and rewards
Technological innovation and
integration
Information orientation and
asymmetry
Adoptability of technology
infrastructures
Organisational learning factors
Organisational support and value
Organisational knowledge
management
“Behavioural Perspective”
E-Business Adoption
Internal and external collaboration
Performance measurement
Readiness mindset of adoption
Following the critique from the literature and
gaps identified, it can be seen that the context of
operational and behavioural management are still fit
to investigate the success factor of e-Business
adoption. Through a careful content analysis,
elements have been identified which in the present
author’s view contribute to e-Business research.
They can be generally categorised under the well-
ICE-B 2008 - International Conference on e-Business
364
established operations research dimensions of
technology, organisation and people (see Table 1).
3 THEORETICAL FRAMEWORK
We have argued that a successful e-Supply chain
company needs to take into account “operational”
and “behavioural” issues. The overarching
theoretical framework is summarized in Figure 1,
and includes supply chain strategy and e-Business
adoption constructs.
Figure 1: A conceptual framework for e-Supply chain
adoption.
Figure 1 illustrates that within each of these
constructs are embedded the three systems
engineering principles: “technology”,
“organisation,” and “people” (or TOP). The
framework illustrates that these constructs are inter-
related, and therefore any change in one factor will
have ramifications for others. We hypothesize that
developments in each dimension (TOP) of each
domain (supply chain strategy and e-Business
adoption) are necessary for satisfactory business
performance (BP).
Hypothesis H1: Supply chain strategy (SCS) is a
significant determinant of business performance (BP)
Hypothesis H2 E-Business adoption (EBA) is a significant
determinant of business performance (BP)
Hypothesis H3 Business performance (BP) is directly
related to the level of mutual dependency (and alignment)
between supply chain strategies (SCS) and e-Business
adoption (EBA)
In the sections that follow, we will illustrate the
utility of our approach by applying it to
understanding variation in the business success of
Malaysian SMEs.
3.1 Sample Selection
We also describe the results obtained of an empirical
study applying these concepts to data collected from
208 Malaysian SMEs. Using confirmatory factor
analysis techniques (i.e. structural equation
modelling or SEM), we show the effects of
operational, and behavioural adjustments to e-
Business on business success. Malaysia has been
developing its information highway capacity since
late 1990s. This is realised by the investment of RM
40 Billion (approximately £ 5.9 billion) to establish
Multimedia Development Corporation (MDC). The
Multi-media Super Corridor (MSC) is one of the key
initiatives of MDC (Low et al., 2000).
We have selected six industrial sectors that had
previously been identified as the leading sectors in
e-Business adoption (UNCTAD, 2001; Daniel et al.,
2002; Daniel, 2003). These include
“Manufacturing”, “Services”, “Information
Technology”, “Finance, Insurance, and Real Estate”,
“Wholesale and Retail Trade”, and “Others”
(agriculture, communication, utility services). Equal
sample sizes (fifty) of firms were selected for each
sector. There are unequal numbers of SMEs in these
six sectors in Malaysia. Stratified sampling with
probabilities not proportional to stratum size
(Dawson, 1998) was used to enable comparisons
between sectors. While such an approach could
restrict the generalisation of the results, it allows for
a focus on the issues in industries where e-Business
is rapidly becoming institutionalised. Three hundred
questionnaires were emailed across these six
industries. Overall, 208 respondents returned the
questionnaire for a response rate of 69.3%. Sample
sizes and response rates are reported in Table 2
Table 2: Survey sample characteristics (n= 208).
Sample industries Respondents
Manufacturing 30
Services 28
IT 43
Finance, Insurance and Real Estate 35
Wholesale and Retails Trade 32
Others 40
Total Respondent 208
Response Rate (%) 69.3%
OPERATIONAL AND BEHAVIOURAL DIMENSIONS OF E-SUPPLY CHAINS AMONG MALAYSIAN’S SMES
365
3.2 Structural Equation Models
We have employed Structural Equation Modelling
(SEM) to test the applicability of our conceptual
framework. SEM is a multivariate statistical
technique that allows for the simultaneous analysis
of the first-order and second-order measurement
factors. In our analysis, the first-order factors
consist of multi-item measures technological,
organizational, and personnel/attitudinal dimensions
of each of the basic constructs of supply chain
strategy, and e-Business adoption. Supply chain
strategy, and e-Business adoption constructs are
second-order factors composed of the first-order
ones. The dependent measure of business
performance is also conceptualized as a “factor of
factors” including financial, efficiency, and
coordination factors, each of which is composed of
multiple items.
The final model provides excellent fit to the data:
2
χ
of 588.80, df = 393 with 72 parameters; χ
2
/df =
1.50; CFI = 0.96; GFI = 0.85; RMSEA = 0.04; TLI
= 0.95). This model fit indices fall in an acceptable
range (> 0.90) and the RMSEA was less than 0.05.
This structural model was nested within the first
order model; in that it had been generated by
imposing restrictions on, the parameters of the first
order model (Figure 2).
Table 3 and Table 4 indicate the hypotheses
results for the Malaysian sample. The path
coefficients of interest in this model were generated
between the independent factors (
ξ
, exogenous) of
e-Business constructs and the dependent factor of
business performance (
η
, endogenous).
Interestingly, the results suggested that e-Business
adoption (H2;
γ
= 0.53; c.r. = 4.97) was the
strongest stronger predictor of business performance
followed by the supply chain strategy construct (H1;
γ
= 0.26; c.r. = 2.70). The correlational paths are
also of key interest when running this model. Results
suggested between correlation between supply chain
strategy and e-Business adoption had strong phi
value of
φ
= 0.70 at significant value of t >1.96.
The strong correlation was between supply chain
strategy and e-Business adoption which confirmed
that companies in Malaysia regardless of which
sectors they belongs to still treated both of these
factors as a important driver for improvement of
business performance by treating equally important
and they complement each other when a strategy had
been formulated.
Table 3: Regression weights for hypotheses H1 to H6 for
the Malaysian sample (n = 208).
Table 4: Second factor loadings for sub-hypotheses for the
Malaysian sample (n = 208).
Figure 2: Standardised estimates for main and sub-
hypotheses for Malaysian (n = 208) sample.
4 DISCUSSION
The theoretical model confirms that successful e-
Supply chain requires supply chain strategy, and e-
ICE-B 2008 - International Conference on e-Business
366
Business adoption, which have mutual dependency
regardless of geographic and economic differences.
For the Malaysian sample (in the context of a
developing country), the formation of e-Business
adoption is dependent on the implementation of
supply chain strategy. This is a critical factor for the
Malaysian e-Business development as most of the
businesses operate in a larger geographical area.
One explanation of greater relevance of supply
chain strategy in the Malaysian sample could be that
some of the Malaysian sample surveyed function as
a role of contractors to core nations, and may be
more focused on primary products. Their success
depends on being able to assemble resources and to
deliver products on time. The success for the
companies operating in core nations may depend
more critically on finding new markets for the
products. Such an explanation may be viewed as
speculation, but the key results are broadly
consistent with this sort of a “world systems” view.
Results also suggest that the operational differences
in managing a global trade and distribution chain are
more prominent than any cultural differences in
explaining the (limited) differences in the surveyed
samples.
The results suggested that companies must pay
attention to their technological, organisational, and
human capabilities for improving e-Business
performance. These capabilities are critical when
firms are planning or at the very initial stage of e-
Business adoption, where most processes are at low
integration levels and are full of manual work (Hsin
and Shaw, 2005). Companies that intend to venture
into e-Business need to acknowledge and identify
barriers caused by “organisation” dimensions by
offering training and knowledge for system
integration, standards development, and process
automation as well as to overcome possible IT
resistance.
Where some previous studies have identified
supply chain strategy as key dimensions
(Wickramatillake et al., 2007; Koh et al., 2006), our
model extends this by measuring the impact of
technological, organisational and people related
issues with e-Business adoption in order to become a
successful e-Business firm. Both e-Businesses and
conventional businesses use information technology.
Our results suggest, however, that technology plays
a much more critical role in the business
performance of enterprises that have fully adopted
the e-Supply chain model. In non-adopting
businesses, the use of technology is positively
related to business performance, but only modestly
so; and, technology use is not integrated with supply
chain strategy. In e-Businesses, the use of
technology is a stronger determinant of business
performance than supply chain strategy.
Furthermore, in e-Supply chain, technology use is
strongly articulated with business and supply chain
strategies.
Adopting enterprises are not without business
performance problems. Our results suggest that for
e-Business organisations to be successful, supply
chain management need to be given a higher level of
strategic importance (Koh et al., 2007). We would
argue that successful business collaboration is the
result of human interactions, which can be supported
by IT, but not to be replaced by IT. This is
particularly important in the e-Business context
where the traditional business model is usually
developed on the backbone of technological
infrastructure, and "people" related issues can be
easily buried under the overwhelming emphasis on
technological details. Technology is not the most
critical factor in improving supply chains. To
improve in this area, SMEs must consider relevant
attitudinal issues as identified by Steven (1989) to
allow for e-technology to be accepted and diffused
in the e-Supply chain.
5 CONCLUSIONS
Our literature review suggests that the existing e-
Supply chain and implementation studies lack
theoretical underpinning. This situation is more
acute for SMEs as the limited numbers of e-Supply
chain models found in the literature are not tested
empirically. Systems engineering principles, which
focus on the interaction of technology, organisation,
and people (TOP), provide a useful conceptual
scheme for understanding the business performance
of both e-Supply chain firms and others.
We have introduced a structural equation
modelling approach, and used it to examine the
sources of good business performance for companies
adopting e-Supply chain. The multi-item constructs
of e-Business adoption and supply chain strategy
relate differently to business performance. The
measures developed here, and the empirical results
can be used as a benchmarking tool for the SMEs
who wish to embark on e-Supply chain adoption
journey. The study also provides some useful
directions for new economy cyber-entrepreneurs,
guiding them to give due consideration towards
appropriate operational and behavioural factors
when considering e-Supply chain adoption.
OPERATIONAL AND BEHAVIOURAL DIMENSIONS OF E-SUPPLY CHAINS AMONG MALAYSIAN’S SMES
367
It would be an added value to expand findings
obtained from the quantitative study by conducting
qualitative investigations in a case study format. As
stated by Patton (1987), “case studies are useful
where one needs to understand some particular
problems in great depth and identify rich
information that can be learned from few exemplars
of the phenomenon in question”. The future research
could be conducted as a complementary study, to
further assess and test the applicably of the e-Supply
chain factors of e-Business adoption and to identify
and investigate any potential benefits, obstacles or
emerging themes associate with it. Several
organisations (minimum three organisations from
each industry) that expressed their interests and met
the criteria from both samples could be contacted for
face-to-face interview. It is hoped that this
combination of quantitative and qualitative study
will further support and verify the applicability and
robustness of the proposed conceptual model.
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