TRANSFORMATION OF TRADITIONAL BUSINESS TO

ELECTRONIC BUSINESS

A transformation cum maturity model and transformation matrix

Asif Ali Munshi, Fareed Hussain

Faculty of Management, University of Tehran, North Kargar Ave,Tehran, Iran

Keywords: Electronic business, electronic commerce, business strategy, IT strategy, business infrastructure, IT

infrastructure, internet.

Abstract: Electronic business provides many benefits to organizations that embrace on it. It is true that ebusiness

improve business processes, integrate business processes and its corresponding value chain, give speed to

internal and external organizational activities etc, but it poses the greatest challenge to today’s organizations

to transform their traditional businesses into electronic business. To assist organizations, in making

successful transformation to ebusiness, in this paper, we first distinguish between electronic commerce and

electronic business on the basis of three parameters of scope, support and technology. After that ebusiness

transformation cum maturity model is proposed, whose five levels acts as a benchmark to assess an

organization at different maturity levels. Emphasis is not given on discussing maturity levels, but on the

transformation stages that acts between any two levels of maturity. For this purpose, transformation matrix

is proposed, which will guide organizations to take critical organizational and information technology ( IT )

domains into consideration during each transformation stage.

1 INTRODUCTION

As we enter into the 21

century, the importance of

Information Technology ( IT ) is felt more and more.

One of its promising technology is computer

networks and internet. From the first day of its

commercialization, internet has changed our lives in

many ways, for example the invention of e-mail

removes the concept of distance from

communication, the concept of electronic

marketplaces has removed the concepts of physical

location for businesses, any kind of information is

just a click away etc.

The impact of all of these technologies is felt

more as we make progress in our daily lives, but the

biggest impact of internet technologies is felt on

business scenario. Businesses always try to leverage

new technologies in order to remain competitive in

the marketplace. Internet has been used by the

business entities more than any other entities in the

form of e-commerce and e-business.

e-commerce is the buying and selling, and

marketing and servicing of products, services, and

information over a variety of computer networks

(James,2001), while as e-business is the use of

internet and other networks and information

technologies to support e-commerce, enterprise

communications and collaboration, and web enabled

business processes both within an internetworked

enterprise, and with its customers and business

partners (James,2001). Although the definitions

Scope Support Technology

e-commerce Narrow Partial Less

e-business Broad Wide High

Figure 1: Shows the difference between e-commerce and e-business

Ali Munshi A. and Hussain F. (2005).

TRANSFORMATION OF TRADITIONAL BUSINESS TO ELECTRONIC BUSINESS - A transformation cum maturity model and transformation matrix.

In Proceedings of the Second International Conference on e-Business and Telecommunication Networks, pages 33-40

DOI: 10.5220/0001409900330040

 SciTePress

distinguish between the terms but many of us still use

the two terms interchangeably, therefore more robust

way is needed to clearly distinguish between the two

terms.

2 DISTINCTION OF E-

COMMERCE AND E-BUSINESS

In this section we will try to make an explicit

difference between e-commerce and e-business on

the basis of there parameters of scope, support and

technology ( systems ) as shown in figure 1. As far as

e-commerce is concerned its scope is narrow,

facilitates different types of transactions, whereas the

scope of e-business is broad, not only encompasses

the e-commerce transactions but facilitates the

effective communication and collaboration within the

enterprise and with external environment ( suppliers,

partners, customers ). Another difference between

ecommerce and ebusiness can be drawn on the basis

of support, ecommerce supports only part of an

enterprise, it can bring web initiative benefits to sales

and marketing departments but ebusiness supports the

whole enterprise, in its broadest sense ebusiness gives

rise to an enterprise which works only on electronic

platform. All of its departments are interconnected,

databases are consolidated, and more transparency

exists between ebusiness enterprise and its suppliers

and partners. Another parameter that can be used to

distinguish between ecommerce and ebusiness is

technology. Ecommerce may need less technology

dose, systems are needed only to handle online

ordering, customer service queries etc via the website

of an enterprise. But ebusiness certainly requires high

technology dose. To reep the benefits of a true

ebusiness in addition to systems needed for

ecommerce, an enterprise may also need to install an

ERP system for internal consolidation and SCM and

CRM systems to provide for the integration with the

external environment.

After taking into consideration the above

parameters we are able to define the ecommerce and

ebusiness in a robust way. Thus we define

ecommerce, as the internet or web enabled platform,

having narrow scope, supporting the enterprises

partially, requiring a less technology dose to facilitate

the transaction on the net.

Whereas ebusiness is the platform having broad

scope, supports the whole enterprise, and requires

high technology dose to support all the business

functionalities of an enterprise. After differentiating

between the two terms, in the next section we will

look at how enterprises use these platforms and what

problems they encounter when leveraging the web.

3 RISE AND FALL OF DOTCOMS

In 1990s, much of the hype was created for

ecommerce or dotcom sites. Almost every

organization or business was in a rush to set up its

own website. They thought this new model of doing

business was profitable without thinking about say,

how a traditional business can be transformed on this

new platform. With the old mindset they tried to copy

their old business models simply on the net. In this

blind rush organizations increased their IT spending

and uploaded the company websites in the shortest

possible time. This phenomenon gave rise to the new

generation of business, where business could be done

almost virtually e.g Amazon.com, ebay.com etc. This

way of doing business virtually was called what we

know today as ecommerce. After ecommerce,

organizations started expanding their web initiatives

to outside suppliers and partners also, thereby giving

rise to ebusiness, where all of the business was done

on the web. But by the year 2000 it became clear that

leveraging the benefits of web, simply by setting up a

site was not enough. Dotcoms started falling one after

another. Businesses were forced to file for

bankruptcy, take down their websites etc. The

situation became so critical that many industry

experts said that the ecommerce era was over. After

the downturn of ecommerce it was the turn of some

ebusinesses to post the problems for survival.

4 REASONS OF FAILURE

At the same time when newly born dotcoms had

crippling situation, Boston consulting group

mentioned that the primary cause of failure of

dotcoms was not the bad execution but bad thinking.

The majority of companies held the misguided belief

that speed and scalability should take primacy over

the principles of strategy (BCG,2002). An internet

business will work only if its business management

strategies are properly integrated into a carefully

considered plan, built on a foundation of realistic and

attainable goals and objectives (Raymond,2001).

Also IT strategy must be in place in order to execute

the business strategy, therefore business strategy and

IT strategy must be given importance while planning

for any web initiative.

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5 IMPORTANCE OF BUSINESS

STRATEGY AND IT

STRATEGY

For any business it is necessary to have a sound

business strategy, the same is true for web businesses.

The business and its management must have clear

vision and must be fully aware of its strategic

objectives and goals. They must devise strategies to

attain their strategic goals and objectives. The basic

principle of a traditional business management team

was the development of a strategic plan in order to

give the business a competitive advantage in the

marketplace. As the rules of doing business in the

digital economy may have changed but the basic

principle remains the same even for businesses

operating in today’s modern era i.e the development

of the proper strategy to give the business a

sustainable competitive advantage. It is true that

doing business electronically has had its advantages

of cost reduction, removing the barriers of “ place ”

of doing business, reducing time to market for

different products and services, but at the same time

has created some constraints in the form of increasing

customer and partner agility, threat of new entrants,

imitating the existing business models by

competitors. This makes the importance of business

strategy more important for today’s web businesses.

Another important factor that must be given

proper attention is the technology counterpart of

business strategy i.e IT strategy. Ebusiness must

make full use of different information technologies in

order to operate on and execute its business strategy.

Therefore every business, ambitious of being a full

blown ebusiness must have an IT strategy in place.

All of the decisions relating to IT are made on the

basis of IT strategy e.g project portfolio, portfolio of

different projects is made in order to prioritize the

feasible projects, IT budget allocation, IT budget

must be allocated to projects bound to give a strategic

help to the company in the form of ROI both tangibly

and intangibly. If IT strategy is in place, enterprises

don’t throw money blindly on IT but they tend to

rationalize their IT investments to those projects only

which seem to be promising and feasible according to

both the management team as well as IT management

team.

Keeping all the above discussions in mind, it is

not an easy task to transform a traditional business to

ebusiness without rigorous planning. Transformation

to ebusiness must be tackled with more sensitivity

because the fate of the whole business depends upon

this transformation. Therefore we must have a proper

model and methodology to led the transformation of

an ordinary business enterprise to an ebusiness

enterprise. Much of the literature written on web

based businesses discuss the ecommerce issues and

many researchers have proposed maturity models for

ebusiness, but there is a need to discuss the

transformation period, which exists between any two

levels of maturity. This transformation stage is more

important than maturity level because drawn from the

natural analogy of a human being, we say that a

human becomes a mature person at some stage but

we are unable to appreciate his/her transformation

period from less mature level to more mature level. In

this period a human being is able to sense his/her

environment in a novel way, becomes more mature

internally, stores the sensed environment in his mind

and due to the process of cognition draws upon the

new conclusions and becomes more mature.

The same is true for an organization, therefore to

reach a more mature level, organization must go

through a transformation period, in which it is able to

sense its environment in a new way, is consolidated

internally, learns from the experiences etc and makes

the transition from one level of maturity to another.

In order to assist an organization to make its way

to ebusiness paradigm, in this paper we not only

propose a maturity model for ebusiness but its more

important stage, the period of transformation from

one level of maturity to another level is discussed

fully but for this purpose a transformation

methodology which will guide the organization to

transform and make the transition from one level to

another level of maturity is also proposed. During the

process of transformation, the proposed

transformation matrix will guide the organization to

consider the critical organizational and IT domains

for successful transformation.

TRANSFORMATION OF TRADITIONAL BUSINESS TO ELECTRONIC BUSINESS: A transformation cum maturity

model and transformation matrix

6 INTRODUCTION TO

MATURITY MODEL

Taking the complexities of an ebusiness into

consideration, it is obvious that it is impossible for

any business to become ebusiness in days or even in

months. Any business that wants to tap the web based

opportunities to do the business must go through a

kind of an evolution. This evolution is sometimes

called the maturity. The model shows the different

levels of maturity prior to becoming an ebusiness. we

also propose such a model but we will call it a

transformation cum maturity model, because apart

from mentioning the levels of maturity our model

also address the issues of transformation form one

level to another.

As shown in maturity diagram or figure 2, there

are five levels in this model namely, Introduction,

web presence, electronic commerce, internal

integration and external integration or electronic

business. It is necessary for any business to go

through the first four levels prior to becoming a full

blown electronic business with its external integration

at the fifth level. One of the goals of writing this

paper was to distinguish clearly between ecommerce

and ebusiness and, on the maturity diagram, where

does both of them fall, that is why, 2

and 4

levels

are named as electronic commerce and electronic

business respectively.

At the introduction level which is also the zeroth

level, organization introduces itself to web

community via other companies websites. On the first

level, the web presence level, an organization

develops and uploads its own website. At second

level, the electronic commerce level, organization

starts offering the online sale of its products and

services. With the help of Internal integration the

organization is consolidated internally at the third

level. Finally at the fourth level, external integration

or ebusiness level, with the integration of an

organization with its external environment, the

organization becomes an electronic business. More

about say, what the organization do at each level is

disclosed while discussing the transformation stages

in the coming sections.

In the maturity diagram, five maturity levels give

rise to four transformation stages. First

transformation stage exists when organization is

Web

Presence

Electronic

Commerce

Internal

Integration

External

Integration

e-business

Introduction

Figure 2: e-business transformation cum maturity model

IT infrastructure

IT strategy

Business

strategy

Business

Infrastructure

T3 T4

T1 T2

Figure 3: transformation matrix

ICETE 2005 - GLOBAL COMMUNICATION INFORMATION SYSTEMS AND SERVICES

transformed form level 0 to level 1. Second stage

exists when organization transforms form level 1 to

level 2, the third one from level 2 to level 3, and the

final stage of transformation exists when the

organization transforms form level 3 to level 4. These

transformation stages are more important because all

the activities that must be done to make an

organization mature is done in the transformation

stages. This does not mean that maturity levels are

less important because on one hand the maturity

levels can be used as the benchmark for an

organization on its way to become ebusiness and on

the other hand these levels can be used to assess the

strategic objectives and goals at each level.

7 INTRODUCTION TO

TRANSFORMATION MATRIX

Four stages of transformation are mapped onto the

transformation matrix, that shows the critical

domains of organizational setting and IT, that must

be taken into consideration at each stage of

transformation. This matrix consists of two

organizational domains i.e business strategy and

business infrastructure. These two domains are

shown on the vertical side of the matrix. Apart from

business strategy and business infrastructure their IT

counterparts are shown on the horizontal side of the

matrix. These IT related domains are IT strategy and

IT infrastructure. The transformation matrix is shown

in figure 3.

During each transformation stage the organization

lies in one of the quadrants of the transformation

matrix e.g during first transformation stage from

level 0 to level 1 the organization is placed in the

lower left quadrant of the matrix. Each quadrant of

the transformation matrix is marked with the

respective number of the transformation stage of

the organization. The matrix is used to assess the

important organizational and IT domains which

must be taken into consideration during each stage

of transformation.

8 ORGANIZATIONAL

TRANSFORMATION

TOWARDS E-BUSINESS

Now we will discuss the various transformation

stages that an organization must go through to

become a full fledged electronic business.

8.1 Organization at level 0

Any business on its way to start the journey towards

ebusiness is placed on the zeroth level on the

maturity diagram. At this level organization

introduces itself to the web community via other

organization’s websites. It just introduces its products

and services to web surfers. During this stage the

emphasis is given on advertising the organization.

Organization in this stage does not maintain its own

website. The management of the company accesses

the potential of internet platform for their business.

The organization may or may not have a particular

business strategy for web in place at the zeroth level.

8.2 First transformation stage and

transition from level 0 to level 1

After introducing itself to the web community, the

organization starts its first transformation stage which

will provide a way to the organization to make a

transition from zeroth level to first level on the

maturity diagram. During the first transformation

stage the organization lies into the first quadrant of

the transformation matrix and its associated critical

organizational and IT domains are business strategy

and IT strategy. These two domains must be given

emphasis during this stage. This stage is the most

important and crucial to the future overall health and

performance of an organization, because important

decisions are made during this stage. As shown by

the first quadrant of the matrix, the vertical

organizational domain of concern is business

starategy and the horizontal IT domain of concern is

IT strategy. During the whole process of first

transformation the organization remains in between

zeroth and first level of the maturity diagram.

During the first transformation stage the top

management of an organization establish the “ vision

” for the whole organization. Vision shows the

desirable state of an organization at sometime in

future. Establishing a vision gives answer to the

questions of type, say “ where an organization will be

after 10 years from now ”. vision is often the long

term achievement, acquired by an organization and it

is formally stated in the form of an organization’s

vision document. On the basis of vision, the business

strategy of an organization is developed. Business

strategy must be developed in accordance with the

vision of the organization, if this is not done so, the

organization may not be in the desired position in

future. Business strategy gives the answer to “ what ”

type of questions such as “ what should be done in

TRANSFORMATION OF TRADITIONAL BUSINESS TO ELECTRONIC BUSINESS: A transformation cum maturity

model and transformation matrix

order to achieve a market share of 10 percent for a

particular product segment ”. It is important to devise

the business strategy in consensus with the various

departmental heads, because ebusiness is going to

change the way of doing business in all of the

departments. Therefore there arises the need of

communicating the vision and business strategy to

the organizational members in order to have a

common understanding about the overall strategy of

an organization.

Business strategy consists of three components

business scope, distinctive competencies, and

business governance. Business scope, focuses on the

type of business the organization is engaged in, the

products and services it offers, market segmentation,

competition and the values and mission of the

organization. Distinctive competencies include the

areas in the company excels i.e its distinguishing

strengths. The third component, business governance,

focuses on ownership. It specifically looks at the

establishment of business alliances and partnerships

with other firms, government regulations and their

effect, as well as outsourcing strategies (Raymond,

2001).

Company wide business strategy is reciprocated

on the technological side by its IT counterpart i.e IT

strategy. IT strategy is devised out of the business

strategy of the organization. Importance must be

given to IT strategy because it is the IT strategy

which tell us how to implement the business strategy

in its real context.

IT strategy consists of technology scope,

systematic competencies, and IT governance.

Technology scope, like business scope, focuses on

the key technologies and applications the business

should and / or must employ. Systematic

competencies include information about the

company’s customers and clients, accessibility,

reliability, and other vital characteristics and

strengths of information technology. The third

component, information technology governance,

addresses many of the same issues as business

governance. Specifically, it focuses on the decision to

make-or-buy, the prioritization of applications, and

the possibility of technological alliances and

partnerships including outsourcing (Raymond,2001).

As, organization wants to make a web presence

of its own at level 1. Therefore a website must be

installed and maintained by the company. The model

of the website is developed, implemented and

uploaded, and the company makes its first transition

from zeroth to fist level successfully.

At its first level a company has acquired a web

presence of its own and starts giving out the

information about its products and services. The

focus at this level is on information dissemination

rather than information collection. E-mail contacts

are maintained with the customers. it is after the

successful transition to this level that, the

organization starts thinking about the next stage of

transformation.

8.3 Second transformation stage and

transition from level 1 to level 2

The next phase of transformation will take the

company to second level on the maturity diagram.

Our transformation matrix say that the organizational

and IT domains of concern during this transformation

stage are business strategy and IT infrastructure.

IT infrastructure consists of information

technology architecture, processes and skills.

Information technology architecture includes the

hardware, software, data, applications, and

communications platforms that the organization uses

to achieve its information technology and business

strategies. The processes focus on the development of

specific information technology practices and how

they can be improved. They include application

development, systems management, and maintenance

functions. The final component, information

technology skills, addresses the experience,

competence, and values of technology employees. It

includes the information technology culture and its

associated norms, employee salaries, and hiring and

training practices(Raymond,2001).

At the second level of maturity, the company

wants to be engaged in electronic commerce.

Therefore there is the need of many IT systems to

facilitate this type of commerce. The company must

be able to offer transactions online, communicate

with its customers, provide for purchase of goods and

services online. Thus the two domains of

transformation matrix must work closely in order to

make the transformation successful. Organizational

domain ( business strategy )mentions the

requirements for IT infrastructure, it sets out the

assessment / performance metrics to evaluate the

performance, budget is allocated for different

ecommerce initiative. On the technology side IT

infrastructure is layed out ( either developed or

acquired ). Electronic commerce projects are

implemented that facilitate the transactions on the

website, databases are built to collect information,

ICETE 2005 - GLOBAL COMMUNICATION INFORMATION SYSTEMS AND SERVICES

steps are taken to offer customer service through the

website.

At level 2, actual transactions are facilitated on

the company website, databases collect the required

information, customer service is maintained through

the website also. In other words the company enters

into the real ecommerce paradigm. Ecommerce also

includes ordering, payment and customer service on

the worldwide web.

8.4 Third transformation stage and

transition from level 2 to level 3

In order to move on its path to ebusiness, the

organization must transform itself further and make

smooth transition to level 3 of maturity diagram,

where business infrastructure of the organization is

revised or reengineered. During this transformation

stage the organization lies into the third quadrant of

the transformation matrix. Here the organization and

IT domains of concern are IT strategy and business

infrastructure. During this transformation business

infrastructure is reengineered on the basis of IT

strategy of an enterprise. In other words

organization’s business infrastructure must be

properly aligned with its IT strategy.

Business infrastructure or organizational

infrastructure is comprised of three components

namely, administrative structure, processes and skills.

Administrative structure consists of the authority

structure, responsibilities, and roles within the

organization. Business processes are those activities

that drive the business. They determine the extent to

which work flows can be integrated with respect to

information technology. Business skills, the third

component, focus on the human resources of the firm.

(Raymond, 2001).

At this stage the business processes are based on

the old philosophy. On one hand the business

processes are changed or improved in order to

accommodate the IT flavor in them, and on the other

hand policies are drawn, to integrate each and every

functional department to each other. In this way

information flows across the organization freely and

high levels of efficiency is acquired across the

organization.

During this stage of transformation, traditional

business infrastructure is revised, management

commits itself to led the internal organizational

change, new business infrastructure is assessed for

viability, change management policies are stated on

the organizational front.

One of the strategic business values of IT is its

role in making major improvements in organization’s

business processes. Investments in information

technology can help make a firm’s operational

processes substantially more efficient, and its

managerial processes much more effective.

Reengineering and making other improvements to its

business process could enable an organization to cut

costs, improve quality and customer service and

develop innovative products and services for new

markets. So business process reengineering ( BPR )

combines a strategy of promoting business innovation

with a strategy of making major improvements to

business processes, so that the organization can

become much stronger and more successful

competitor in the marketplace(Turban,1999).

Another strategic value that IT gives to

organizations is its capability to integrate various

functional departments. This is facilitated with the

help of an enterprise resource planning ( ERP )

software. ERP consolidates all the different databases

of various functional departments and makes one

organizational database. All of the departments are

connected to the organizational database, thereby

providing the necessary transparency between the

departments. In this way, departments work more

collaboratively and exchange of information between

departments is greatly enhanced.

At this stage the organization is internally strong

and works efficiently, because work is done in a new

way and organization is almost integrated internally.

Now the only remaining goal to become ebusiness is

organization’s integration with its external

environment i.e suppliers, partners, and customers.

8.5 Fourth transformation stage and

transition from level 3 to level 4

This transformation stage is the fourth and final stage

for an organization in its way to become ebusiness.

At this stage according to our transformation matrix,

the domains of concern are the IT infrastructure and

and business infrastructure. This means that internal

IT infrastructure in combination with business

infrastructure is used to facilitate for the external

integration of the organization.

This is done in a way that organizational

database is connected via the extranets to the

databases of different suppliers and partners. In this

TRANSFORMATION OF TRADITIONAL BUSINESS TO ELECTRONIC BUSINESS: A transformation cum maturity

model and transformation matrix

way the IT infrastructure arises between the

organization and its external environment.

At this stage on organizational side, possibility

of integration with outside suppliers, partners, and

customers is assessed, policies for integration is

mentioned, further change management policies are

devised, managers manage the organization

electronically. On the operational side, all business

activities are done electronically, organizational

database is integrated with the databases of suppliers,

partners and customers, more robust IT systems are

introduced to enable full blown electronic business,

organization becomes more transparent.

In this stage systems such as supply chain

management ( SCM ) may be installed on the back of

ERP to facilitate the electronic procurement etc and

also electronic customer relationship management (

eCRM ) may be employed to manage the

relationships with customers electronically. Therefore

after a long journey from zeroth level to fourth level

on the maturity diagram, we can say that the

organization is qualified as being called an electronic

business enterprise.

9 CONCLUSION

Many conclusions can be drawn from this paper, but

the most prominent of them all, is that we must not

not see the ebusiness as just the technology, but we

must give emphasis on its foundations i.e its

underlying strategy. Strategy is one of the most

important weapon through which all of the business

wars can be won. Therefore it is important for any

organization to have a proper strategy in place for

any IT initiative and especially for ebusiness

initiative, because it is considered to be the next

frontier of business.

Also an organization cannot make an overnight

transition from traditional business to ebusiness, that

is why we must have a proper path to follow to

facilitate this type of transition. The proposed

transformation cum maturity model can act as the

benchmark for this transition. Moreover the

transformation matrix will give the required direction

at every stage of transformation.

REFERENCES

James, A.O, (2001), “Introduction to information systems:

Essentials for the internetworked e-business

enterprises ”, Mc Graw Hill International Edition,

Tenth Editon.

Boston Consulting Group Report (2002).

Raymond, p., ( 2001 ), “ Strategic information technology:

opportunities for competitive advantage ”, Idea group

publishing, first edition.

Turban, M., McLean, E., Wetherbe, J., ( 1999 ), “

Information technology for management: making

connections for strategic advantage ”, John Willey &

Sons, 2nd edition.

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