In this paper we seek to move beyond the hyperbole in the popular press by questioning whether “e-business” truly represents a revolution in the way firms operate or whether it is a more normal evolution in the operations of certain firms. It is important to answer this question because if the change is revolutionary then many managers will be required to rethink their firm strategies and managerial responses in a profound way. On the other hand, if the change is simply evolutionary it will apply more to some firms than to others and pre-Internet strategies and managerial responses will still be appropriate in many circumstances.
In order to answer this question we examine where this revolution (or evolution) is concentrated, and why this revolution (evolution) is occurring as it is. In contrast to views in the popular press, we find that e-business is growing most rapidly in business-to-business markets and for the purchasing of routine items. Moreover, in these markets it is occurring as an evolutionary development of previous technologies (telex, fax, EDI, etc.) in established relationships between purchasers and suppliers. We then examine the claims that “e-business” is different to previous forms of business. For each of these claims we find that there are countervailing arguments and, despite the claims of technological “visionaries,” E-business has not suspended the laws of economics. Finally, we evaluate whether e-business meets the criteria of pervasiveness and process orientation that have characterized previous industrial revolutions. We conclude that it is premature to categorize e-business as revolutionary.
Overall, we argue that e-business is no silver bullet, rather it will be a useful tool for some firms and some tasks. Rather than listen to the popular press or consultants, managers should put in place sense making approaches that question its appropriateness to their firm and its circumstances.
It is almost universally accepted that we are in the grips of an e-business revolution (see, e.g., Aldrich 1999; Evans and Wurster 1999; Hagel and Armstrong 1997; Schwartz 1999). According to many, we are set to move into e-business driven ‘hyper growth’, with trade over the Internet reaching trillions of dollars. Growth that is fuelled by established firms conducting more of their business through the digital infrastructure and by the creation of new firms seeking to exploit the potential of the ‘Net’. Electronic business is the subject of increasing popular attention, as is evidenced by its play in the popular media and the fascination of Wall Street investors. Both large investment houses and individual day traders are almost fanatical in their conviction that an economic miracle is underway—having driven the valuation of ‘virtual’ (in more ways than one) firms to the level of an Internet Bubble (Perkins and Perkins, 1999).
A survey by Booz-Allen & Hamilton (1999) finds that more than 90 per cent of top managers believe the Internet will have major impact on the global marketplace by 2001. Given this response, one could assume that most managers no longer need convincing that they are in the throws of fundamental change and are busy implementing electronic business plans. This could not be further from the truth. The reality is that many firms are confused about the direction the future will take and are either taking a wait-and-see attitude or placing a series of bets in the hope that one or more will prove successful. There are a number of possible reasons for these reactions.
• Experienced managers are inherently conservative about large IT investments. Having already been through process re-engineering and enterprise resource planning with disappointing results, managers are reacting carefully to suggestions that IT be elevated to core business strategy levels.
• The pragmatic difficulty of implementing complex IT based strategies is another, altogether more difficult, task. Despite the money invested in consulting advice over the past decade, managers have struggled with the same set of implementation problems (Bensaou and Earl 1998).
• The competitive necessity for electronic business varies considerably from industry to industry. Firms are exposed to wide ranging levels of competition, from slow to fast-moving traditional rivals and Internet-based newcomers. In some industries e-business is a threat, in many it is not.
• Although this may be considered heresy, the promises of Internet driven growth may actually be more hyperbole than substance. There are serious questions regarding the pace at which the ‘networked’ economy may emerge and, indeed, the ultimate suitability of electronically based business for many firms. To successfully compete in the networked economy requires a more systematic understanding of the forces at play, as well as the fundamental characteristics of inter-networked organizations, than is evident in much of the writing on this topic.
Our paper focuses on the last of these reasons—we seek to outline the forces at play in determining the appropriateness of e-business to the firm and to sketch out the characteristics of those inter-networked organizations that are likely to be more enduring. We do this by asking three related questions.
1. Where is this revolution (or evolution) concentrated?
2. Why is this revolution (evolution) occurring as it is?
3. Are we in the throes of a revolution or are we experiencing a natural evolution? With most revolutions, participants may not know that they witnessed history until historians have told them that something trulyspectacular had occurred. Nor do those participating in the events fully understand the ramifications of what the change means to them and future generations. Also, it is a natural human tendency to feel that we are witnessing a great event when reality is more mundane. Hence, the term ‘revolution’ may be bandied about in inappropriate ways under circumstances where constructive cynicism would lead to a clearer understanding of the phenomenon being experienced.
As we will note later, a revolution can be defined around the breadth and depth of the changes it makes in the everyday lives of individuals. In this sense, what we have and are witnessing in terms of the changes wrought by transistors can be justifiably thought of as being revolutionary. However, e-business cannot claim, at this time, to have radically changed the way the majority of people shop or the way most business is conducted on a day-to-day basis (although, again, transistors can). To cover this topic in more depth, we first address the current trends and extant models of e-business. Here we identify that the potential for real transforming change lies more in upstream business-to-business activities and less in the higher profile but less pervasive downstream business-to-consumer activities. Next we undertake a basic analysis of the business rules driving the electronic economy. Here we argue that much of the conjecture surrounding this current period of technological change is speculative and that in many cases, century old economic theory is still as relevant as it ever was. As Shapiro and Varian (1998) rightly point out: “ Technology changes. Economic laws do not.”
This conclusion is followed by a discussion of whether what we are witnessing is evolutionary or revolutionary, an important distinction affecting firm strategy and decision making. If we are witnessing “natural” competition (Henderson 1989)—an evolutionary process of trial and error within existing structures—this is familiar territory for most managers. If we are witnessing “strategic” competition—revolutionizing value chains—this is uncharted territory where irreversible commitments are needed and many firms will fail. We end with speculation—since little hard information is available—on how firms might prepare themselves for the changes ahead, be they radical or incremental.
