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

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

 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:

of 588.80, df = 393 with 72 parameters; χ

/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 (

, exogenous) of

e-Business constructs and the dependent factor of

business performance (

, endogenous).

Interestingly, the results suggested that e-Business

adoption (H2;

= 0.53; c.r. = 4.97) was the

strongest stronger predictor of business performance

followed by the supply chain strategy construct (H1;

= 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

= 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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