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Examining the Conflicted Middle and B2B E-Marketplaces

Jan. 10, 2012

When it comes to new technologies, associate professor of Information Systems Hope Koch is always looking at how new technologies can help practitioners and how to minimize the struggles that often accompany change. This is what motivated her research into corporate procurement practices, which began a decade ago when companies began exploring how technology could be used in corporate purchasing.

"From reading the trade press, executives felt that their companies should abandon their age-old procurement practices and replace them with Internet purchasing," Koch said.

Koch, along with her coauthor Ulrike Schultze from Southern Methodist University, began to explore the Internet purchasing literature and found that it was silent on the conflicts associated with implementing electronic purchasing. Their research resulted in "Stuck in the Conflicted Middle: A Role-Theoretic Perspective on B2B E-Marketplaces," which was published in the top journal in the information systems field, MIS Quarterly.

"When we began exploring the implications of Internet purchasing in business situations, it was obvious that there were advantages to maintaining face-to-face relationships," Koch said. "While a purchaser may get better prices by looking for products in an online marketplace, like the corporate equivalent eBay, they don't build the social capital that can become necessary when the purchaser needs a favor."

To understand the situation more fully, Koch spent years researching procurement practices in the trucking, packaged goods and utility industries. She interviewed buyers, sellers and creators of electronic marketplaces. One of the most interesting cases was the utility industry's efforts to adopt electronic purchasing as a strategy to prepare for energy deregulation.

"Before deregulation, the mission for the utility companies was, literally, to keep the lights on," Koch said. "Because they were regulated, they didn't worry much about price because they could pass the cost on to the customers. After deregulation, they had to start thinking about more competitive pricing to be more cost competitive."

Energy X sought to help the utilities prepare for deregulation by creating an electronic marketplace with electronic catalogs and reverse auctions. While creating a marketplace to facilitate comparison-shopping seemed like a great strategy for reducing costs, the electronic marketplace did not account for the value of past relationships.

"While management was pushing the buyers to purchase at the lowest cost on the electronic marketplace, the buyers were concerned about maintaining relationships with suppliers that could help them during an emergency," Koch said. "It was important for the purchasers to know that if there was a hurricane, the supplier could deliver things, like wooden utility poles, in a hurry."

In the beginning, Energy X faced tremendous reluctance both from the utilities and from the suppliers who did not want to be compared openly against their competitors. Some suppliers refused to join altogether. Other utilities used the resource, but then followed up with contacting former vendors (in some cases the same ones they were getting bids from through Energy X). To survive, the utility e-marketplace modified its business model to accommodate personal relationships.

"This is what we call the conflicted middle," Koch said. "Business-to-business e-marketplaces evolved from a vision of a true electronic marketplace like an Amazon or an eBay to a hybrid structure that supports both electronic purchasing and relationships."

Energy X recreated itself as a supply-chain expert. Its focus shifted to concentrating less on technology and spending about 75 percent of its efforts on taking the cost out of the supply chain.

"This is a common situation for practitioners," Koch said. "Many times new technology becomes available, but before they really jump into it, we have to look at the real business value and figure out how best to use it."

Koch's research has evolved from business-to-business electronic marketplaces, to corporate uses of social media. She is currently involved in projects that look at using social media in new hire acclimation programs and in creating corporate knowledge management repositories.

"So many businesses are adopting new technology, like having a Facebook page or using Twitter, because they think they're supposed to," Koch said. "But I want to really look at the best uses of the technology and figure out how it can be the biggest benefit to practitioners. It's almost worse if they jump in without any idea of why they're doing something."

View Koch's article in MIS Quarterly, Vol. 35, No. 1.

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