Benchmarking: An International Journal Impact of e-procurement on procurement practices and performance Gioconda Quesada Marvin E. Gonzlez James Mueller Rene Mueller Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) Article information: To cite this document: Gioconda Quesada Marvin E. Gonzlez James Mueller Rene Mueller, (2010),"Impact of e-procurement on procurement practices and performance", Benchmarking: An International Journal, Vol. 17 Iss 4 pp. 516 538 Permanent link to this document: http://dx.doi.org/10.1108/14635771011060576 Downloaded on: 23 November 2015, At: 13:30 (PT) References: this document contains references to 94 other documents. To copy this document: permissions@emeraldinsight.com The fulltext of this document has been downloaded 6576 times since 2010* Users who downloaded this article also downloaded: Rebecca Angeles, Ravi Nath, (2007),"Business-to-business e-procurement: success factors and challenges to implementation", Supply Chain Management: An International Journal, Vol. 12 Iss 2 pp. 104-115 http:// dx.doi.org/10.1108/13598540710737299 Alan Smart, (2010),"Exploring the business case for e-procurement", International Journal of Physical Distribution & Logistics Management, Vol. 40 Iss 3 pp. 181-201 http:// dx.doi.org/10.1108/09600031011035083 Hsin Hsin Chang, Yao-Chuan Tsai, Che-Hao Hsu, (2013),"E-procurement and supply chain performance", Supply Chain Management: An International Journal, Vol. 18 Iss 1 pp. 34-51 http:// dx.doi.org/10.1108/13598541311293168 Access to this document was granted through an Emerald subscription provided by emerald-srm:187202 For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) *Related content and download information correct at time of download. The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-5771.htm BIJ 17,4 Impact of e-procurement on procurement practices and performance 516 Gioconda Quesada, Marvin E. Gonzalez, James Mueller and Rene Mueller Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) Department of Marketing and Supply Chain Management, School of Business, College of Charleston, Charleston, South Carolina, USA Abstract Purpose - The purpose of this paper is to investigate the impact of electronic procurement technologies on procurement practices (PPR) and procurement performance (PP). Design/methodology/approach - This paper posits a model of the relationships between e-procurement technology (EPT) usage, PPR, and PP. This model was tested and validated using a sample of 368 procurement specialists in the USA. Findings - The ndings suggest that EPT usage positively affects managers' perceptions of both PPR and PP. Research limitations/implications - The ndings of this paper primarily pertain to the operational level of the organization. Future research could also attempt to isolate the impact of individual EPTs on rm performance. Practical implications - The contribution for practitioners is to provide guidelines for the use of EPTs, and to report its impact on PP. The measurement instruments developed in this paper can be used to evaluate and benchmark current PPR. Originality/value - This paper contributes to the literature by providing an empirical test of the impact of EPTs on perceptions of PPR and performance. Keywords Procurement, Sourcing, Electronic commerce, Information systems, Supply chain management, United States of America Paper type Research paper Benchmarking: An International Journal Vol. 17 No. 4, 2010 pp. 516-538 q Emerald Group Publishing Limited 1463-5771 DOI 10.1108/14635771011060576 Introduction Supply chain management (SCM) involves all the approaches used to efciently integrate the supply-side participants of a rm's value chain (Porter, 1980) so that products/services are delivered to the customer in the right quantities, to the right location, at the right time, and at optimal cost. The application of information systems (IS) technology to facilitate this integration process is a phenomenon that continues to receive managerial attention and, consequently, academic interest. Research on the application of IS technology to support SCM is abundant, results clearly show that the use of new SCM technologies increase the efciency of the supply chain as well as improve overall rm performance (Lindskog and Wennberg, 2002). While electronic data interchange (EDI), inter-organizational systems, e-commerce, e-sourcing, e-procurement, and e-auctions are all applications of IS that support SCM (Kameshwaran et al., 2007; Lee and Whang, 2000; Presutti, 2003; Puschmann and Alt, 2005; Dedrick et al., 2008). According to Novack and Simco (1991), e-procurement studies are particular important due to the fact that procurement is one of the most critical functions of the supply chain. In terms of e-commerce, e-procurement is usually the Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) starting point for many companies' overall e-commerce strategy (Chang et al., 2004). One study shows organizations spending at least one-third of their overall budget on procurement products and services (Killen and Kamauff, 1995). More recent research (Moozakis, 2001) nds that investments in procurement technologies account for the greatest percentage (53 percent) of business investment in enterprise applications software, followed by customer relationship management (41 percent), SCM (31 percent), and electronic resource planning (8 percent). Although overall adoption rates of e-procurement technology (EPT) are still a relative unknown (Pearcy et al., 2008), most researchers agree that the full impact of e-procurement has not yet been realized and that the adoption and integration of EPTs into the business mainstream is occurring at a much slower pace than expected (Davila et al., 2003). Indeed, studies have shown that while over 70 percent of American buyers use internet technologies at work (Caridi et al., 2004), the percentage of business procurement conducted electronically is relatively low - ranging from 10 percent (Qualyle, 2005) to 20 percent (Kulp et al., 2006). This disconnect is evident in a recent study by Gunasekaran and Ngai (2008). In this study, 80 percent of industry respondents agreed that the use of the internet was important in procurement; however, only 20 percent had actually adopted EPTs. According to Talluri et al. (2006), managers recognize benets of e-procurement such as: better coordination with suppliers, quicker transaction times, higher exibility, better supplier integration, and lower costs (Fang et al., 2007). If managers and workers understand the benets of EPTs, why are they not used? Gilbert (2000) has partially answered this question by arguing that companies jump onto the e-procurement bandwagon without fully understanding the inter-organizational collaboration and network effects underlying these technology models, the investment required to move the right information from suppliers to employees, and the complexities of integrating these technologies with existing enterprise resource planning systems. Recognizing the managerial challenges, operational risks, and difculty measuring incremental increases to prot inherent in implementing new (and relatively expensive) supply chain technologies, this research seeks to explore the effect of EPT usage on procurement practices (PPR) and PP). Through a large-scale empirical study investigating how emerging EPTs affect the procurement function, a theoretical model is developed and resulting hypotheses are empirically tested. First, a literature review is presented. Literature review and hypotheses development Leenders et al. (2002) briey summarize the history of procurement since the late 1800s. Initially, procurement (purchasing) was considered a clerical function. By the 1970s, purchasing/procurement began to receive academic attention as its importance as an administrative function became recognized (Ammer, 1974). It was Porter's (1980) seminal work, however, that prompted rms to think of procurement as a strategic function rather than simply and administrative one (his ve forces model includes supplier and buyer power as two critical forces for competitiveness). Since the 1980s, procurement has evolved from being viewed as merely a process for buying goods and services for a rm, to being more comprehensively dened as all the activities necessary to acquire goods and services needed to achieve user requirements (Tassabehji and Moorhouse, 2008). Impact of e-procurement 517 BIJ 17,4 Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) 518 The strategic importance of procurement has been reiterated frequently, and is still one of the critical themes found in the literature (Drake and Lee, 2009; Ordanini and Rubera, 2008; Rajagopal and Bernard, 1993; Ellram and Carr, 1994; Rink and Fox, 1999; Kocabasoglu, 2002). Soares-Agular and Palma-Dos-Reis (2008) and Drake and Lee (2009) argue the importance of giving procurement a strategic role in the organization and agree that achieving world-class status in procurement requires leadership and alignment of purchasing strategy with business strategy. While relatively fewer studies have analyzed procurement and its impact on different functional, rm or supply chain performance objectives (Croom and Johnson, 2003; Gebauer et al., 1998; Frohlich and Westbrook, 2002), components of the basic e-procurement model can be gleaned from contributions in the literature at both the strategic and operational levels. The benchmarking process can provide a critical link in understanding the relationship between the components of this model, as shown in Figure 1, and explained in the next sections. EPT usage EPT usage has been dened as the extended usage of electronic network technologies and practices that facilitate electronic communication, information exchange and transaction support through either public or private networks (Min and Galle, 1999). In this context, it becomes critical to understand the effects of changing information technologies on EPT usage, business performance, and the achievement of business goals. Previous literature has used the term e-procurement to describe the use of the internet on procurement tasks (Davila et al., 2003; Presutti, 2003). The mistaken emphasis on the internet only could lead academicians and practitioners to understand too narrowly the capabilities, benets and limitations of e-procurement; however, this is not internet procurement, but electronic procurement (Neef, 2001). Clearly, the internet provides a low-cost solution for those rms wanting to start e-procurement but not having the resources necessary for adopting more expensive information technologies such as EDI. Despite the emphasis on the internet, EPT is not synonymous with internet-procurement. Indeed, Ordanini and Rubera (2008) found that the internet is useful primarily when used as a complementary tool used in conjunction with other EPTs. Other researchers have cleared this misunderstanding by naming web-based B2B procurement as specic procurement activities done through the internet (Candrasekar and Shaw, 2002; Lindskog and Wennberg, 2002). E-procurement technology usage (EPT) H2 Figure 1. Research framework Procurement practices (PPR) H3 H1 Procurement performance (PP) Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) Procurement practices Despite signicant academic interest in the subject, it does not appear to be a universally accepted delineation of the PPR construct. Based on a review of the literature (Cammish and Keough, 1991; Keough, 1993; Ellram and Siferd, 1993; Laios and Xideas, 1994; Baldwin and Orr, 1997; Cavinato, 1991; Novack and Simco, 1991; Rajagopal and Bernard, 1993; Herberling, 1993; Sutton, 1989; Archer and Yuan, 2000; Leenders et al., 2002; Lincoln University, 2001; Gebauer and Segev, 2001; Kong and Li, 2001; Rink and Fox, 1999; Segev, 2001; Berger and Gattorna, 2001; Subramaniam and Shaw, 2002; Neef, 2001; Alt and Fleisch, 2000; Presutti, 2003; Tracey, 2004; Gonzalez and Medrano, 2002), PPR can be divided into information gathering, supplier contact, contracting, requisitioning, and intelligence/analysis as described below: (1) Information gathering. Webster and Wind (1996) specify the buying tasks as: . identication of need; . establishment of specications; . identication of alternatives; . evaluation of alternatives; and . selection of suppliers. (2) (3) (4) (5) All of these steps are done in the procurement stage of information gathering. As stated by Segev et al. (1998), in information gathering, prospective buyers identify their needs and evaluate potential sources to fulll them. This process is accomplished by gathering information about market conditions, products and sellers. Novack and Simco (1991) explain the information gathering process as conducting market analysis, depending upon if it is a competitive market (many suppliers), an oligopolistic market (a few large suppliers) or a monopolistic market (one supplier). Supplier contact. The buyers' request for quotes, request for proposals (RFP), request for information and bids are all contained in supplier contact. Rink and Fox (1999) include supplier contact as part of the procurement activities in any stage of a product-life cycle, from requesting for quotes, to requesting for volume discounts and bids. Segev et al. (1998) report that the RFP ranked third in frequency-of-use as a negotiation technique, after face-to-face contact and bids. Contracting. Negotiation is the interaction of partners to determine price, availability and delivery times of goods and services (Segev et al., 1998). Contracting is simply the result of successful negotiations. The contracting process varies depending on whether the transaction is a new buy, a modied rebuy, or straight rebuy (Anderson et al., 1987). Requisitioning. In requisitioning, the terms of the contracts are carried out and goods and services are transferred in exchange for money or other forms of compensation. Requisitioning is also referred to as settlement (Segev et al., 1998), or delivery of products and performance of service (Novack and Simco, 1991) and culminates with the generation of performance data used as inputs in the following stage, intelligence, and analysis. Intelligence and analysis. Berger and Gattorna (2001) dene intelligence and analysis as the identication, collection and use of internal and external data to Impact of e-procurement 519 BIJ 17,4 Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) 520 enable procurement to make smart sourcing decisions. Narasimhan and Carter (1998) specied purchasing practices as: . supplier certication; . supplier development; . supplier qualication; . just-in-time procurement; and . supply base rationalization. All these activities require intelligence and analysis as part of the PPR to make better decisions about suppliers. Novack and Simco (1991) argue to include intelligence and analysis as a post-purchase/make performance evaluation for control purposes; however, Gonzalez et al. (2004) argue that intelligence is more than just a control of performance; high-quality information is a key tool for developing effective strategies. Recent literature in SCM shows empirical and theoretical evidence that improvement in PPR; positively affect the procurement function performance. Vaidyanathan and Devaraj (2008) show empirical evidence that support the relationships between PPR and e-procurement satisfaction performance. Vaidyanathan et al. (2008) provided results based on Australian companies showing that higher frequency of PPR positively impacts the effect of e-procurement on procurement performance (PP). Tatsiopoulos (2004) indicate that about 60 percent of global purchasing expenditures are spent on high-volume, low-money maintenance, repair, and operating (MRO) purchases (MRO supplies); which typically account for 20 percent of an organization's purchases but 80 percent of its orders. Therefore, by improving the PPR of MRO ordering, a dramatic decrease in transaction costs is expected. Tavi (2008) emphasizes that organizations cannot ignore the abundant benets that world-class PPR offer in an increasingly global economy (increased control, cost savings, efciencies and good corporate citizenship, among others). Based on the literature, the authors claim: H1. The higher the use of PPR in a rm, the higher the PP. Carr et al. (2000) found that higher rm performance is associated with functional-level purchasing expertise, purchasing risk-taking, and strategic purchasing activities. Likewise, Bayraktar et al. (2009) report a positive correlation between the adoption of IS technology and the level of SCM practices and rm performance by using a sample of metal fabrication industry in Turkey. The transformational effect of e-procurement has been empirically validated by Croom and Brandon-Jones (2007); however, it is within the narrowly constrained domain of nine UK public sector organizations. Finally, while Garrido et al. (2008) investigated the impact of internet intensity-of-use in PPR on the organizational processes and structure, it was only done with Spanish industrial rms. Segev et al. (1997) investigated the impact of the internet on PPR; however, the ndings do not report validity and reliability of the PPR construct, only descriptive statistics related to procurement implementation via internet applications. This study seeks to overcome some of the constraints presented in previous literature by using a large and representative random sample selected from the Institute for Supply Chain Management, the world's largest SCM association. Based on previous literature, the authors suggest: H2. The higher the EPT usage of the rm, the higher the PPR. Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) Procurement performance Although the need for performance measurement in procurement has long been recognized, for a variety of reasons, many organizations fail to measure it adequately (Cammish and Keough, 1991; Brun et al., 2004). Easton et al. (2002) review the history of PP measurement in the literature through the 1980s and early 1990s and conclude that a general weakness of \"traditional\" measures is that they recognize and reward mainly short-term gains, rather than long-term ones. Laudon and Laudon (2010) argued that measuring long-term impact is notoriously difcult. Another problem with traditional metrics is that they often work to improve the PP at the expense of other departments' performance; however, the concept of improving only one unit's performance (a traditional way of measuring PP) has been heavily criticized in the literature (Bourne et al., 2002; Ghalayini and Noble, 1996, 1997) and is counter to the total quality management philosophy. Other criticisms of traditional measures of PP include: being based too much on nancial performance; one-dimensional or incomplete; contradictory to continuous improvement; inexible; no strategic focus; and even invalid (Easton et al., 2002). The literature on e-PP is divided in terms of its impact at the operational or strategic level of the organization. At the operational level, there have been several studies investigating the impact of EPTs on PPR and PP including Mishra et al. (2007), Vaidyanathan and Devaraj (2008) and Teo et al. (2009). It is argued that by utilizing new procurement technologies, rms can increase the efciency of their entire procurement process and, thereby, can achieve higher rm performance (Lindskog and Wennberg, 2002). Research by Gebauer et al. (1998) has also described PPR and how these positively impact PP in terms of cost, time, satisfaction, quality, stock, and value. Several studies are particularly useful for helping dene and understand e-PP and how it can be measured. Croom and Johnston (2003), for example, focus on e-procurement when they address the impact of e-business on internal customer service. Frohlich and Westbrook (2002) measure the impact of web-based procurement in operational performance (delivery time, transaction cost, protability, and inventory turnover) while Gebauer et al. (1998) analyze the effect of the internet on strategic procurement planning practices and how these practices inuence PP. Relatively few studies, however, have analyzed this phenomenon and its impact on different functional, rm or supply chain performance objectives. The potential benets of e-procurement have been described extensively in both practitioner and academic journals (Kocabasoglu, 2002; Lindskog and Wennberg, 2002; Gebauer et al., 1998). There is general agreement that e-PPR positively impact PP in terms of cost, time, satisfaction, quality, stock, and value; however, estimates of the impact of investments vary (Ordanini and Rubera, 2008; Gunasekaran and Ngai, 2008) and empirically derived gures are difcult to unearth. The Aberdeen Group (2006) reports e-procurement benets including: 64 percent reduction in off-contract (\"maverick\") spending, 7.3 percent reduction in prices for spend brought back onto contract, 66 percent reduction in requisition-to-order cycles and 58 percent reduction in requisition-to-order costs; accordingly, the report concludes that e-procurement \"really works\". A.T. Kearney, a global management consulting rm, similarly argues that companies can save more than 13 times their investment in EPTs and claims further that the top 500 global companies could realize $330 billion in annual savings through the use of e-procurement (Plano, 2002). Hackett Benchmarking & Research likewise argue that Impact of e-procurement 521 BIJ 17,4 that e-procurement can save a company 2 percent annually (Roth, 2001). Rai et al. (2009) provide evidence of the positive impact of e-procurement on procurement productivity. Hence, the authors suggest: H3. The higher the EPT usage of the rm, the higher the PP. Downloaded by UNIVERSITY OF LIVERPOOL At 13:30 23 November 2015 (PT) 522 Owing to the great impact of e-procurement on business performance (as reviewed previously), it is the purpose of this research to provide a broad understanding of the impact of all kinds of electronic technologies that facilitate the PPR among organizations (Berger and Gattorna, 2001). In this study, the researchers include in EPTs (public as well as private networks) that could be designed for specic rms, e.g. EDI and other interorganizational systems. Research methods A large-scale survey approach was used to test the hypotheses derived for the research model (Figure 1). The constructs for this research were developed with a strong theoretical foundation based on a review of available literature. The literature review included theoretical models as well as reliable and valid measures that have been used in past research on PPR and performance. Items were found in the literature and were augmented by open-ended interviews with procurement managers. A ve-point Likert scale where 1 - not at all, 2 - to a small extent, 3 - to a moderate extent, 4 - to a considerable extent, and 5 - to a great extent was used. A sixth classication was provided for reducing missing values, 6 - do not know. The rst step was to allow experts in the business and academic elds to review the items for clarity and content. The items were modied, deleted and added as necessary by incorporating their feedback and analysis. The researchers then used the Q-sort methodology (Stephenson, 1953) to pre-test the convergent and discriminant validity of the scales (Q-sort also ensures content validity and clarication of the items and dimensions of the different constructs). A large-scale survey was the instrument for data gathering (Appendix 1). The focus of the study is procurement specialists, since they are the most appropriate to answer questions related to PPR, PP, and EPT usage. The Institute for Supply Management (ISM) was selected as the source for the mailing list. ISM is the largest supply management association in the world with nearly 43,000 members. It is a prestigious association of professionals in the area of procurement from diverse industries around the nation. The mailing list contained 5,000 names randomly selected from the ISM US membership database. Priorities were given to members in the following SIC classications: 28 \"chemicals and allied products\Journal of Retailing and Consumer Services 9 (2002) 97-105 The changing role of middlemen in the distribution of personal computers Linda J. Morris*, John S. Morris College of Business and Economics, University of Idaho, P.O. Box 443178, Moscow, Idaho 83844-3178, USA Abstract Channels of distribution evolve over time in response to changes in the business environment. The internet has emerged as a new channel system and, as E-commerce unfolds, new business models replace traditional ones. In this new channel system, the consumer has attained greater power over traditional channel intermediaries. New cybermediaries have emerged to perform some of the traditional channel functions, and are better able to provide the consumer with greater value through cost eciencies, timely information, and a broader choice of products/services oered in a worldwide marketplace. Traditional channel intermediaries must now either adjust or face elimination according to the intermediation-disintermediation-reintermediation (IDR) cycle. The purpose of this article is to review the IDR cycle in the personal computer (PC) industry and to discuss some of the new business models that have emerged. r 2002 Elsevier Science Ltd. All rights reserved. Keywords: PC industry cycle; Disintermediation; PC business models 1. Growth in E-commerce activities The growth in E-commerce activities has surpassed the expectations of many business analysts. The worldwide expansion of internet purchasing by households and businesses has exploded as innovations in computer technology have enabled more accessibility to the internet and aordability of personal computers (PCs). New cybermediaries, i.e., internet middlemen, have entered the electronic marketplace to facilitate the exchange between sellers and buyers, where buyers may be households (B2C), businesses (B2B) or even consumer to consumer (C2C). Forrester Research estimates that by the end of 2000, one-third of all businesses and one-quarter of all the US households will have some form of internet access and will use it for online commerce (Yurman, 1996). Worldwide, there are 205 countries or territories connected to the internet and more are joining the Net every day.1 In terms of internet sales, nearly three-quarters of worldwide E-commerce spending originated in the *Corresponding author. Tel.: +1-208-885-7159; fax: +1-208-8855437. E-mail address: ljmorris@uidaho.edu (L.J. Morris). 1 State of the internet: July 1999 @http://www3.mids.org/mmq/603/ mid/ed.html. US in 1999, but the US share will fall to a little more than one-half, or about $708 billion by 2003. While the US's share is expected to drop, other countries will see an increase. Online sales in Latin America are expected to reach $8 billion by 2003 which is up from $170 million in 1999 (Deloittle Consulting, 1999). According to Japan's International Trade and Industry Ministry, the Japanese consumer market will reach an estimated $24.7 billion (3 trillion yen) by 2003 which is 50 times its 1998 value of $65 billion year.2 Europe's B2C market is expected to reach $5 billion in 2002, and its B2B sales will increase to a projected $30 billion by 2001. These estimates indicate a tremendous growth compared to the 1997 B2C sales of $126 million and B2B sales of $1 billion (Bennett, 1998). The European internet marketplace reects quite a diverse usage rate. Among the most developed markets for home shopping are Sweden, Spain, Austria, Finland and the UK with between 10and 17 percent of the users purchasing online. In most other European countries, online shopping is negligible.3 2 Nearly one-third of internet users engage in E-commerce. In: CyberAtlas @http://cyberatlas.internet.org/big picture/demographics/ article/. 3 How dierent countries use the internet, 1999 @http:// www.bmrb.co.uk/newsdesk/futurek.html. 0969-6989/02/$ - see front matter r 2002 Elsevier Science Ltd. All rights reserved. PII: S 0 9 6 9 - 6 9 8 9 ( 0 1 ) 0 0 0 2 7 - 3 98 L.J. Morris, J.S. Morris / Journal of Retailing and Consumer Services 9 (2002) 97-105 2. The changing retail environment Retailing makes up a $1.9 trillion industry in North America, with catalog shopping constituting a $72 billion business. In the US alone, online retail sales totaled $2.4 billion in 1997, grew to $20 billion in 1999, and is expected to reach $108 billion by 2003 (Kleindl, 2001). An additional 62 million US households are likely to join the internet community by 2002 indicating that the internet has diused beyond early adopters to the mass market (see footnote 1). The increase in online retail sales reects a profound transformation in consumer attitudes, expectations, and behavior that will continue to emerge as the US market moves beyond the early adopters to the mass market. For example, one study found that 31 percent of the US online consumers use the internet to research goods and services before they purchase o-line. Fortyve percent of these recent internet buyers use the net for post-purchase activities (Forrester Research, 1999). Consumers tend to purchase online because speed, quality, and value are often considered more important than low price (Greenberg, 1999). Traditional retailers tend to emphasize price and/or service to attract consumers. In the new E-commerce environment, the internet has become the fourth channel system, adding to the traditional channels of face-to-face, catalog, and telephone sales (Gallaugher, 2000). In this new channel system, the power has shifted from the seller to the buyer. Consumers now have access to more information than ever before in the pre-purchase stage of the decision process. This information and wider choice of products and services have enabled them to place new demands on the traditional channel intermediaries. In many instances, consumers can go directly to producers without the need for traditional retailers, wholesalers and, in the case of intangibles, distributors. Forrester Research (1999) attributes the shift of power to the consumer to four distinct factors. Consumers nd the internet a convenient approach to gathering information for comparison shopping. The ease of use in gathering such information in the pre- and post-purchase stages makes more informed consumers for those who decide to purchase o-line. As consumers gain experience purchasing on the internet, they are more likely to engage in repeat purchase because of the ease and convenience of shopping. Lastly, as more consumers become experienced users of the internet, they are more likely to make future purchases on the Net. The growth of cybermediaries and the increasing power of the consumer means that many ''brick and mortar'' businesses must become ''click and mortar'' businesses or else face possible extinction. The expansion of E-distribution channels aects not only retailer channels selling to the ultimate consumer but also the rm's supply chain. While B2C transactions have been growing as PCs and internet access use has increased, the B2B markets have also expanded at an even greater rate than B2C markets. International Data Corporation estimates that total B2B purchases will reach $331 billion by 2002. Forrester Research's latest estimate of total internet sales is even higherF$1.3 trillion by 20034 with trade of hard goods totaling 9.4 percent of this amount (Gebauer and Scharl, 1999). Nearly all analysts predict B2B sales growth to increase by a factor of ten by the end of 20005. The Gartner Group predicts that by 2001, 70 percent of distributors who operate online will reap more than 80 percent of their sales through online marketplaces (Digital Marketplaces: Enablingthe Internet Economy, 1999). Any channel system is designed to perform transactional, facilitating, and logistical activities to move the product to the consumer. In the E-commerce environment, many of these activities are now being performed by cybermediaries in a more ecient and timely fashion. As E-commerce in the B2B market moves closer to the idea of perfect competition, it shrinks the world of business, lowers transaction costs, lowers the barriers to entry, and improves access to information. It may also signicantly lower prices through auctions while improving quality through ease of product comparisons. Kleindl (2001) lists some of the characteristics that distinguish the new E-distribution systems from the traditional channel systems: greater reliance on cybermediaries and facilitators, reduction in the number of traditional middlemen, lower inventory and shorter inventory cycles, tighter relationships between trade sellers and buyers, power shifts from producers and retailers to customers, lower prices and greater variety for consumers, greater responsiveness to the customer. * * * * * * * 2.1. Web-based business models It is evident that the internet as a fourth channel system is creating a new environment for conducting business. This system has the goal of bringing multiple buyers and multiple sellers together with an automated ow of information and transactions (Digital Marketplaces: Enabling the Internet Economy, 1999). The 4 We are not there yet @http://www.napm.org/NewsAndResources/ werenotthereyet.cfm. 5 The impact of electronic commerce on rms' business models, sectoral organisation, and market structure @ http://www.oecd.org/ subject/e commerce/summary.html. L.J. Morris, J.S. Morris / Journal of Retailing and Consumer Services 9 (2002) 97-105 99 Fig. 2. Value chain and value web brokers. (Source: Selz (1999) @ http://www.netacademy.org). Fig. 1. Business models for E-Markets. (Source: Timmers (1998)). formation of this new internet economy, or digital marketplace, has resulted in an accelerated evolution of new business models as stated by Kaplan andSawhney (1999), Shrike6, and Rappa (1999). Timmers (1998) has provided a useful framework for viewing these new business models (see Fig. 1). Timmers (1998) builds his classication of business models around three elements: (1) Porter's value chain, (2) interaction patterns which can be structured as 1-to1, 1-to-many, many-to-1 and many-to-many, and (3) value-chain reconstruction. Business models are dened as an architecture for the product, service, and information ows which includes a description of the various economic agents and their roles (Selz, 1999). Underlying each of these business models, is the basic idea of the ''value chain''. According to Michael Porter (Selz, 1999), a rm's value chain is embedded in a complex stream of activities that connects primary suppliers and principal customers to other upstream and downstream businesses. In the physical world, the value chain can be viewed as a series of linear sub-processes that link raw materials, production, distribution, marketing, and sales to the buyer in a market place environment. In the Ecommerce environment, the sub-processes operate in a market space environment through a series of networks that occur simultaneously. This virtual value chain, a term coined by Sviokla (Deloittle Consulting, 1999), is likened more to a matrix or web that is accessible at each point and freely congurable through a series of networks. These networks can be used to connect the rm's internal processes (intranet), external processes (extranets) or both. Selz (1999) states that such value webs are transitory in nature and are centered on the product or value broker, a typical intermediary function. The role of the value web broker is far more 6 New business models for the internet @ http://shrike.depaul.edu/ Bsmcmorri/classes/iss392/nal.html. extensive than simply bringing sellers and buyers together. Fig. 2 illustrates the structure of the value web, or virtual value-chain model. This virtual value chain, or value web model, evolves in its eorts to bring multiple buyers and sellers together. The rst generation commerce models were supply-side models that automated order entry and fulllment process activities to lower the cost of sales. The second generation commerce models addressed buy-side procurement automations to combine multiple supplier catalogs into a ''universal enterprise'' catalog and to deploy self-service requisitioning and order processing to the users' desktops. Both stages of this E-business addressed the B2B marketplace. The next generation of digital solutions will focus on linking multiple buyers and multiple sellers to a common trading hub without compromising individual processes and relationships among the participants (Digital Marketplaces: Enabling the Internet Economy, 1999). 3. The IDR cycle and the virtual value chain The rapid growth of the internet economy is forcing companies to adapt to the new digital market space environment, especially in those industries where a critical ineciency in distribution and sales exists (Digital Marketplaces: Enabling the Internet Economy, 1999), such as the automotive, travel and computer industries. Virtual distributors have emerged to either replace or improve some portion of the existing distribution channel, and then thrive in fragmented markets that lack dominant suppliers and buyers. There are few cases where the internet intermediaries have truly provided new products and services to the market (Chircu and Kauman, 1999). Rather, these new cybermediaries have assumed the transactional, facilitating, and logistical activities of traditional distribution 100 L.J. Morris, J.S. Morris / Journal of Retailing and Consumer Services 9 (2002) 97-105 intermediaries and placed them in a virtual value chain. In the virtual market space, the new cybermediaries have been able to lower costs, provide more choice and information, and respond to customer needs in a more timely fashion. Does this mean that traditional intermediaries are at the point of extinction? Chircu and Kauman (1999) propose that the transformation of any industry structure in the internet economy is likely to go through the intermediation-disintermediation-reintermediation (IDR) cycle. The IDR cycle will occur because new technologies are forcing change in the relationships among buyers, suppliers, and middlemen. Intermediation occurs when a rm begins as a middleman between two industry players (e.g., buyer- supplier, buyer-established intermediary or established intermediary-supplier). Disintermediation occurs when an established middleman is pushed out of the value chain. Reintermediation occurs when a once disintermediated player is able to re-establish itself as an intermediary. Contrary to Chircu and Kauman's denition, some business researchers (Palvia and Vemuri, 1999; Rayport, 1999; Viehland, 1999) view virtual retailing not as disintermediation, but as reintermediation. From this perspective, reintermediation occurs when new intermediaries use electronic networks to add value to the intermediation process. In the IDR cycle, some elimination of traditional intermediaries may occur in the short run, but the disintermediated players are more likely to ght back and reintermediate themselves. The IDR cycle can react dierently based on the structure of the marketplace. In some industries, there could be no traditional intermediaries and electronic intermediaries emerge when new technologies make possible transactions that had previously been too costly to perform. In this type of marketplace, new cybermediaries emerge and quickly gain rst-mover advantages. Chircu and Kauman (1999) use DEC (Digital Equipment Corporation, now owned by Compaq) as an example of this type of marketplace structure. DEC emerged as an electronic-commerce only (EC-only) intermediary when it deployed the Millicent micro-payments system. This new technology enabled ecient payment procedures that were not available in traditional markets due to the high costs of a system. The second type of market structure is the single traditional intermediary setting, where a dominant rm aggregates physical products and matching of customer and suppliers. Some examples of this structure are automobile dealerships, real estate agents, and traditional auction houses. Finally, there is a third marketplace structure where there are multiple traditional intermediaries available. There are many examples of this type of setting such as the selling of books, CDs, and PCs. In each of these environments, traditional middlemen and internet middlemen have adopted new business models (as shown in Fig. 1) to gain competitive advantage. 4. The IDR cycle in the personal computer industry The personal computer (PC) industry provides a good example of how the IDR cycle evolves. The PC market is credited as one of the rst industries to use revolutionary new ways to sell products through new process technologies. Before 1997, PCs had a market penetration rate in US households of 35 percent. When the sub-$1000 PC market emerged in 1997, the expansion of the US personal computer market quickly reached a penetration level of 43 percent. The sub-$1000 price point enabled many households to purchase a high-performance computer at a relatively low price7. This price drop was a great opportunity for many US households to purchase a second household computer. The sub-$1000 computer has now clearly moved the US market into the maturity stage of the product life cycle. Stephens et al. (2000) estimates the adoption/diusion rate for PC technologies has now pushed PCs in the maturity stage of the product life cycle. 5. Intermediation phase in the PC industry When Apple Computer was rst introduced in the 1970s, most of the sales occurred in hobby shops using the traditional channels of distribution. Targeted consumers were primarily innovators and early adopters who were technology-savvy and educated. As a new technology, PCs were relatively expensive to most consumers, so only a few could aord them and even fewer understood the technology. Gradually, more PC manufacturers/competitors entered the growth stage of the PLC and developed marketing strategies that would further diuse this product innovation. For example, IBM entered the market and focused primarily on the business market rather than household consumers. Apple focused its strategy on the primary and secondary education market to attract younger users. Other competitors focused on building aordable PCs for the household market. The growth period of the PLC created new distribution intermediaries such as computer stores, value-added retailers, computer chain stores, and other retailers. At the maturity stage, mass merchandisers and superstores sold PCs as well as customer orders from direct mail, telephone sales, and online sales. 7 Industry report: Computer industry. Reprint 560090 @ http:// www.activemedia-guide. com/print comp hardware.html. L.J. Morris, J.S. Morris / Journal of Retailing and Consumer Services 9 (2002) 97-105 With this widespread distribution and competitive pricing, consumers became more knowledgeable about the capabilities and aordability of this new technology. By the 1990s, the PC computer manufacturer shakeout period had occurred and the personal computer market was starting to enter the early phase of the maturity stage in the product life cycle. By the mid-1990s computer manufacturers were oering PCs at sub$1000 prices. The lower PC prices were the direct result of increased competition at the component level, which allowed the savings to be passed onto the consumer. The sub-$1000 PCs placed computer manufacturers under increasing pressure to maintain their gross margins (see footnote 7). Among US consumers, PCs were becoming a common household appliance with nearly 1 million of the households having at least two computers (see footnote 2). For those consumers who were buying for the second or third time, many were knowledgeable enough to buy direct and order a computer that met their exact product specications. For those consumers who desired face-to-face sales, the sub-$1000 computers were made available at Wal-Mart, ShopCo and other large mass merchandise discount retailers. The prot margins on computers had dropped so much that new forms of distribution were necessary in order to further penetrate the market and reduce logistical costs. Today, the ve largest computer manufacturers (Compaq Computer, IBM Corporation, Dell Computer, Apple Computer, and Hewlett-Packard) comprise 40 percent of the industry sales volume (see footnote 7). Dell Computer is now the number one PC manufacturer and is credited with developing the direct sales model. In the early 1980s during its start-up phase, Dell used telephone sales to implement the direct sales model. In its direct sales model, Dell Computer gained cost advantages over competitors by eliminating the retailer, and linking with key suppliers and key customers. By 1996, Dell Computers advanced to internet technologies and quickly gained rst mover advantages that have sustained its growth over the past decade. By 1998, Dell's sales to online customers reached more than $5 million a day. Business analysts project that by the end of 2000, Dell Computer will have close to 100 percent of its sales transacted online (see footnote 7). Dell realizes that it cannot rest on its past successes, but it must continue to optimize the rm's value network of suppliers and customers. At the same time the PC market was expanding to the mass market of consumers, internet technologies were also emerging. Although access to the internet lagged behind the PC market for some time and only attracted the early adopters (i.e., techno-wizards), it is now readily available to the mass market. With the rapid growth of internet service providers (ISPs) and the mass market advertising of companies like American Online (AOL), 101 the demand for upgraded PCs emerged. Just as household PCs are becoming common appliances in the US homes, internet service is becoming a standard monthly utility that is oered at commodity-based prices. This aordability of PCs and the accessibility to the internet fueled the growth of E-commerce activities in B2C, B2B and C2C markets. The 1999 online sales exceeded $52 billion and are expected to reach $410 billion by 2003 (Kleindl, 2001). 6. Disintermediation in the PC industry Throughout the evolution of the PC industry, the IDR cycle has occurred in parallel to the advancements in computer technologies and the sales growth of PCs for households and businesses. If disintermediation, as dened by Chircu and Kauman (1999), did occur in the PC industry it began with the direct sales model pioneered by Michael Dell in 1983. By the time Dell had entered the PC market, most mass-market consumers and businesses were knowledgeable about computers and were well aware of its capabilities. There was little need to sell through wholesale distributors and retailers to a market of buyers who understood the technology and the various PC congurations. With Dell Computer's direct sales model wholesalers and retailers were eliminated in an eort to reduce costs and enhance the value to customers. Dell's direct sales business model focused on the customer's desire for speed of delivery, customized products, and low prices as key competitive advantages over the traditional indirect sales channel system. Dell Computer as a manufacturing company, gained eciencies by working closely with key suppliers to eliminate having to carry any inventory. Dell required its suppliers of PC components to locate their inventory within 15 min of its factory. Dell also outsourced with third-party warehouses that specialized in running technology-driven supply chains. On the logistics side, Dell linked with UPS to store and deliver a specied monitor with the computer. Dell Computer targeted large corporate customers who ordered large quantities of PCs frequently, and the second and third time buyers of household PCs who did not need extensive sales information (Kleindl, 2001). By 1996, Dell Computers was using information technologies to squeeze time out of all sub-processes for its value chain. This networked series of intranet and extranet systems linked supplier,manufacturer and customer in such a way that a more ecient marketing system gave Dell shareholders $1.54 in prots for every new dollar of capital investment in 1997, compared to Compaq, a traditional reseller, who returned only 59 cents on every dollar invested (Kleindl, 2001). 102 L.J. Morris, J.S. Morris / Journal of Retailing and Consumer Services 9 (2002) 97-105 7. Reintermediation in the PC industry Reintermediation of traditional retailers and wholesalers requires the use of internet technologies and a better understanding of what customers consider important when purchasing a product or service. The name of the game is to create better value for the buyer while reducing the costs of the sub-processes in manufacture and distribution of the product. Some strategic options that traditional channel intermediaries must evaluate in their reintermediation eorts are to (Kleindl, 2001): * * * * * * * follow an online strategy by moving from a brick and mortar to becoming a click and mortar business, develop a digital communications strategy to deliver digital information on oered products and services, accept online payments, reduce inventory costs, and improve timely response to buyers, develop a service strategy where customers can conduct pre- and post-purchase activities online to enable the rm to reduce cost of service, improve quality of service and increase the speed of service delivery, automate business sub-processes to improve supply chain activities, build a system that provides for a market-of-one strategy, i.e., mass customization of products and services, create an auction strategy to become price competitive and where customers can bid for products/ services based on the value to the consumer, attract web trac through a pricing strategy to sell at either low prices or provide some products and services free. Whereas traditional channel intermediaries were used in the introduction and growth stages of the PLC to reach household customers, today many of the channel functions in retail are being networked in a value web framework as illustrated in Fig. 2 of Selz's (1999) model. New cybermediaries have emerged to perform transactional, logistical and functional activities. For wellestablished PC manufacturers, such as Compaq, Hewlett-Packard, and Apple, who originally began with traditional channels to reach the end consumer, the transition has not been easy. There have been countless articles about the complications Compaq has faced in its online sales eorts. Most of the diculties Compaq has experienced are the result of trying to keep its traditional distribution channel members happy while addressing the need to sell PCs over the internet. One analyst stated that the problems with Compaq's virtual inventory and cutthroat pricing among its online resellers were driving traditional reseller intermediaries to a mutiny (Hines, 1999). Due to the strong relationships with traditional resellers, Compaq and other companies must be more cautious than Dell in their transition to new web-based business models. For many smaller PC manufacturers, such as Micron Electronics Inc. (MEI), who began with the direct sales model, the transition has made it easier to reach niche markets not being served by the industry leaders. Even large PC manufacturers, like Gateway 2000, have been successful in direct sales and indirect sales channels. Gateway 2000 developed its online and o-line reseller channels in parallel to each other and has emerged as the number two direct sales leader in the PC industry. It can be argued that while Dell's direct sales model may have eliminated channel intermediaries in the initial model before the advent of internet technologies, the model actually created opportunities for reintermediation after the internet was introduced. In the virtual value chain, new processes of distributing PCs to reach the second and third time purchasers emerged. These are as follows:8 * * In the build your own system (BYOS) resellers buy computer components and build their own PCs. These systems are usually the brand name of the reseller or no brand name at all. The objective of BYOS is to reduce the cost and increase prot margin on the computer sale, build a computer that meets the customer's specic requirements, and gain account control. The build to order (BTO) process is an o-shoot of the channel assembler and is often referred to as the distributor's ''integration center''. BTOs are programs oered to resellers by distributors where the distributor, rather than the reseller, builds computers to meet specic requirements of the reseller's client. These PCs are generally built with branded components (e.g., Kingston memory, Intel chips, and Western Digital hard drives). The objective of the BTO is to o-load resellers from having to build their own systems and to build an additional revenue stream within distribution. In the E-commerce environment, resellers are able to direct source (i.e., buy) products from the distributors' websites and order products directly over the internet. Among the PC distributors, there are 32 rms that vie for PC hardware and revenues that totaled approximately $85 billion in 1999. Of the 32 distributors, nine accounted for nearly 94 percent of the market share. Of the top nine, three distributors, Ingram-Micro (IM), TechData (TECD), and CHS Electronics (HS), account for 61 percent of the market for hardware technologies (Stephens et al., 2000). These intermediaries provide their services and sales support to PC manufacturers via the internet as well as the marketplace environment. 8 Channel information services, glossary of channel terms @ http:// www.cis.channelweb.com/head glossary.asp. L.J. Morris, J.S. Morris / Journal of Retailing and Consumer Services 9 (2002) 97-105 The E-retail environment is a business model that emulates the physical retail setting and is directed to the B2C market. An example of this reseller intermediary in the PC industry is Buy. com. There are many E-retailers that serve as a virtual shopping mall for B2C customers. Brand conscious consumers will prefer branded PC systems from IBM, Compaq, Hewlett-Packard, Dell, Gateway who are referred to as ''tier one'' manufacturers in the PC industry. Tier two manufacturers have a lesser brand name recognition and include such manufacturers as AST, Acer, Hitachi, and Fujitsu. Another reseller opportunity is the ''white box'' market in the PC industry. The ''white box'' market represents nearly 40 percent of all PC systems sold. These are computers that are built either as a part of BYOS or BTOs, and have no identiable name (see footnote 8). In the PC industry there are multiple distribution channels, and many of the intermediaries in these systems have turned to the internet in order to be competitive. These channel intermediaries perform many of the ''behind the scenes'' distribution and logistics functions that were originally performed by traditional wholesalers and retailers. The following are some of the many channel intermediaries that operate either virtually, physically, or both in the PC market (see footnote 8): * * * Distributors represent any organization that buys and resells products, but in the computer industry this generally refers to a ''stocking distributor'' or ''two-tier distributor''. The distributors stock products from vendors (the rst tier) for resale to the reseller channel. Many distributors oer one-stop shopping with a wide variety of products for most of their customers. For example, Ingram Micro is the world's largest wholesale distributor of microcomputer products oering more than 200,000 products to more than 140,000 resellers around the globe (Stephens et al., 2000). Ingram Micro specializes in distribution and logistical support for OEMs such as Dell Computer, Apple, Compaq, IBM and NEC. Ingram Micro distributes its products through a worldwide network of warehouses. Corporate resellers are those rms that provide technology products and services to Fortune 1000class businesses. These organizations are usually national and have existing long-term relationships with their end user customers. Examples of such companies include Vanstar, Entex, CompuCom and Inacom. Aggregators are large reseller organizations oering franchises to smaller resellers, and distribute ''rsttier'' products to these organizations by ''aggregating'' their many small orders. As aggregators become more distributor-like, the leading distributors compete for aggregation business with dedicated divi- * * * * 103 sions. Some examples of aggregators are MicroAge, Computerland, Ingram Micro, and Inacom. Master reseller is a term that applies to the largest, most inuential national distributors such as Ingram Micro, Merisel, Tech Data, and MicroAge. The master reseller oers one-stop shopping of all products and technology products and sells to a broad range of resellers. Value-added reseller (VAR) is a term applied to resellers who provide value-added services with the sale of computer related products. Value-added services include custom software applications, support services, training, installation, and consulting. A ''vertical VAR'' is a reseller who sells to or consults with customers in specic market segments such as medical, education, government, nancial, etc. A ''horizontal VAR'' sells to or consults no specic market segment but may have a target customer size or product specialty. A ''total solution VAR'' sells turnkey or custom solutions, which include hardware, software, and services. An example of a VAR in the PC industry is SAP. Value-added dealers (VAD) are resellers who sell brand name computer related products and provide value-added services with those sales. An example of a VAD is an authorized computer retailer such as CompUSA and other large computer stores. Channel assemblers are authorized distributors who assemble the PC on behalf of the PC manufacturer. For example, PC manufacturers ship the components of their computer systems to authorized distributors to reduce the cost of building PCs. This allows namebrand companies (such as HP, IBM, Compaq) to compete on price with direct PC manufacturers (Dell, Micron Electronics) and to improve inventory turns, so that PC shortages and overstocks are reduced or eliminated. 8. Conclusion The PC industry provides an excellent example of the IDR cycle in E-commerce. There are a few points, however, that need some clarication. First, the Dell direct sales model began with the telephone, not the internet. The direct sales model highlighted ineciencies in a system that led to the identication of value gaps, and poor performance. The advent of internet technologies served to enhance Dell's direct sales model through networks of suppliers and intermediaries that provided greater value to consumers in the form of lower prices, speed of delivery, and customized products. Manufacturers and service companies realize now that the direct sales model can provide them with better account control with their existing retailers and can bring better eciencies in cycle time and less inventory. 104 L.J. Morris, J.S. Morris / Journal of Retailing and Consumer Services 9 (2002) 97-105 These savings can be passed on to the end user in the form of better prices and a wider assortment of products. The Dell Direct Sales Model created a new way of thinking about PC distribution, and in this new model emerged new forms of intermediaries that have made the virtual market space a reality. Timmer's (1998) categorization of new business models illustrates the many types of cybermediaries that have evolved to improve the sub-processes of the value chain. The roles of middlemen are changing to accommodate new business models in which manufacturers want proximity to buyers, and customers want internet-based access to products and middlemen. There are many potential markets to reach, and most companies are unlikely to use just one of these new business models. Most rms today use multiple distribution channels to reach dierent segments of the marketplace. Thus, the internet has really been an enabler for carrying out these new business models and has allowed for reintermediation rather than disintermediation. The only threat of online sales appears to be to those retailers and distributors who do not provide value to the consumer and for products that are easily described and have low asset specicity (Gallaugher, 2000). While some disintermediation is likely to occur, it will happen in ways dierent than most people think. For every small, regionally focused retailer that may be out of business, another channel companyFa web consulting shop, an internet service provider, or an online sellerFwill take its place. As a product is diused among consumers and the industry matures in the new internet economy, the IDR cycle is likely to occur. The rate of the IDR cycle is very dependent on the number of players in the marketFno traditional intermediary, single intermediary or multiple intermediariesFthat perform channel functions. The PC industry has had many channel players since the early 1970s. The retail intermediaries followed the traditional ''wheel of retailing'' cycle as PCs diused in the marketplace. However, it took the introduction of the direct sales model to break the mold of traditional retail intermediaries. It is important to recognize that it was not internet technologies that spurred these changes, but rather the ineciencies inherent in the value chain. It was later that network technologies perfected the direct sales models and opened up opportunities for new, more ecient cybermediaries. Chircu and Kauman (1999) dene reintermediation as when the eliminated ''brick and mortar'' companies re-establish as ''click and mortar'' businesses. In other words, the eliminated intermediaries re-emerge in a dierent form in the market space environment. Some business researchers, however, will argue that reintermediation also includes newly established cybermediaries (e.g., dot.com companies). These new cybermediaries perform specialized channel functions in a more timely, ecient, and low-cost manner than do traditional intermediaries. These new cybermediaries enter the IDR cycle at the reintermediation stage, not the intermediation stage. Reintermediation occurs as the industry matures and the rm's competitive environment becomes more intense. The new internet economy does bring new challenges to traditional channel members in the PC industry as well as to channel members in the automotive, nancial, retail, travel, and insurance industries. The middlemen most likely to be hurt are those that do not provide value in the exchange process, but are merely gobetweens, information brokers, or order takers. Traditional channels will have to change; they will not go away, but they will have to add value by mutating their businesses to survive. Today companies are nding a wealth of available information technology resources that enable them to build more ecient value-chain subprocesses. The challenge for rms today is to understand the competitive changes that are occurring in the internet economy, to anticipate various new business models that are being developed, and to adopt the right technology to support the rapidly changing landscape. Perhaps most important is that rms must understand how buyers and sellers will come together in new ways via digital marketplaces and exchanges. References Bennett, M., 1998. The worldwide sell, CIOFSection 1, July 15, pp. 60-63. Chircu, A.M., Kauman, R.J., 1999. Strategies for internet middlemen in the intermediation/disintermediation/reintermediation cycle. Electronic Commerce 9 (1/2), 109-117. Deloittle Consulting, 1999. Online sales boom in Latin America, @ http://www.euromktg.com/eng/ed/gre/230499.html. Digital marketplaces: enabling the internet economy, 1999. @ http:// www.netmarketmakers.com. Forrester Research, 1999. The retail power shift @http://www.forrester.com/ER/Research/Report/0,1338,3861, FF. html#section6009. G