A research framework for the electronic procurement adoption process : drawing from Australian evidence

This paper develops a research framework for addressing issues perceived as critical to understanding the e-procurement adoption process. Possible explanations relating to the adoption process by business are considered, accounting for the drivers and potential impediments. The discussion provides the basis for the development of a predictive model of the adoption process with relevance across activities, large and small firms and different products. Managerial implications are discussed. BACKGROUND AND PURPOSE The globalisation of markets is driven by forces related to the combination of an information based reduction of barriers to international trade, extending to businesses’ own domestic market, through the reduction and convergence of transaction and transport costs (Braga, 2002). The globalizing importance of information and communications technology (ICT) at the macro and micro levels has long been understood in Australia. Australian investment in ICT is the third highest in the OECD as a percentage of GDP and is recognised as one of its strengths. This investment has placed the country among the top locations in the world for the availability, quality and cost competitiveness of its ICT workforce (DFAT, 2003), consistent with a second ranking (behind the United States) in the NOIE Index for e-business readiness (NOIE, 2002). Australia's investment in ICT is also reflected in its leadership regarding the adoption of eprocurement. In 2001 Australia was one of only a few countries that enacted the extensive legal and institutional changes usually required by electronic purchasing systems (World Bank, 2001). The Australian eprocurement market was then expected to reach $100 million in 2005 (IDC, 2001). Procurement is a support activity for the purchase of inputs (raw materials, office and production supplies and information systems) for all parts of the value chain (Porter, 1980). Procurement activities aim at Guilherme D. Pires, PhD, MCom, BEc(H), is Senior Lecturer in Marketing and Management at the Newcastle Business School, University of Newcastle, Australia. His current research interests include e-commerce in business markets, with special focus on e-procurement, consumer empowerment and marketing under conditions of cultural diversity. His extensive research is published in many international scholarly journals and international conference proceedings. John Stanton, PhD, MA, BA, DipEd, is Associate Professor, Marketing and International Business at the University of Western Sydney, Australia. His current research interests include electronic and Internet marketing, the interface of economics, accounting and marketing, and marketing implications of cultural diversity in Western societies. He has consulted for a variety of private enterprises and for the Office of Multicultural Affairs, Australia. A RESEARCH FRAMEWORK FOR THE ELECTRONIC PROCUREMENT ©Journal of Global Business and Technology, Volume 1, Number 2, Fall 2005 13 anticipating requirements, sourcing and obtaining supplies, moving supplies into the organisation, and monitoring the status of supplies as a current asset (Leenders and Fearon, 2000). Improvement of procurement processes in business to business (B2B) markets can lower the costs incurred in the identification and subsequent selection of the best suppliers, increase the value of purchases in terms of their price-quality relationship, and lower transaction costs associated with greater process efficiency. These improvements can highly influence supply chain management (Hardaker and Graham, 2000; Lancioni et al. 2000). ICT permits the use of electronic technologies for procurement (e-procurement), with the latter promoted by the Australian Government as a way of achieving these improvements, arguing that the adoption of e-procurement will directly affect Australia’s competitiveness and prosperity in the 21 century (AGIMO, 2000). In spite of the claimed national and business benefits that can come from embracing e-procurement, the extent of adoption in OECD countries is below expectations and progressing slowly. There is no indication that this is any different for Australia, a member state. Notwithstanding the importance of ICT and eprocurement for business, the extent to which Australia has been able to benefit from its investment in ICT has fallen short of expectations, a situation that is reflected in the realization that Australia has not captured the major benefits of being a producer of ICT goods and services (Houghton, 2003; PMSEIC, 2000). In addition, where e-procurement is concerned, little is still known about its role in the Australian marketplace (Hawking et al. 2004), a limitation that extends to the extent and nature of adoption by business. Although Australian businesses participating in the few studies dealing with e-procurement issues indicate an awareness of the many benefits that may ensue from e-procurement adoption, this did not preclude those studies from concluding that current adoption is very limited, used more for indirect than for direct materials and more for goods than for services. In addition, penetration prospects revealed by future intentions were found to be bleak (Stein and Hawking 2004), similar to findings for Canada, the UK (CeBI, 2004) and the USA (ISM 2001, 2003). Contained within this macro view of sluggish national progress in e-procurement adoption there are major knowledge gaps as to its micro causes. Is the whole e-procurement process not favoured in usage or are there particular applications, such as the development and use of supplier on-line catalogues, that slow its widespread overall adoption? Are there significant differences in e-procurement adoption between industries? Are there significant differences in e-procurement adoption based on business size differences? Can differences in adoption be traced to the types of products businesses mainly procure? Anecdotes convey an uneven Australian e-procurement story: building industry suppliers are struggling to make e-procurement profitable; the online exchange centre is “littered with casualties”, e-procurement in the construction sector is still distant, while parts of the e-procurement system progress unevenly, poorly in the case of online catalogues, strongly in the case of document management (AustralianIT, 2005). Understanding the national picture on e-procurement therefore requires addressing the business adoption process but models are lacking. In seeking reasons why e-procurement is progressing slowly at the national level, this paper reviews the relevant literature for possible explanations relating to the adoption process by business, considering both the drivers and potential impediments. Based on this appraisal, a research framework is developed that seeks to address issues perceived as critical to understanding the e-procurement adoption process. The paper proceeds from a perspective of the benefits claimed from widespread use of e-procurement, in particular, what is known of the drivers for business adoption and its perceived impediments, as they apply to possible differences between small and large firms. The limited research identified leads to the proposal for a research framework that can provide the basis for a model of the adoption process with relevance across activities, large and small firms and different products. Systematic research of this form is required before government policies can be formulated that seek to increase the adoption rate. Policy-wise, implementing this research framework can provide answers that can help develop industry and business specific solutions for the difficulties that may hinder effective adoption and implementation. Guilherme D. Pires, and John Stanton ©Journal of Global Business and Technology, Volume 1, Number 2, Fall 2005 14 DRIVERS OF E-PROCUREMENT ADOPTION While e-procurement uses ICT, the drivers of the latter are not necessarily those of the former. Even within the introduction of new technologies, the adoption of management and production technologies differs between large and small firms (Jacob, 1998). In the adoption of soft process technology, the determinants also vary from technology to technology for firms of the same size class (Mole et al. 2004) linking to the observation that, in adopting ICT, the task for small firms is to understand the strategic and competitive implications (Raymond 1998, p.326). While ICT adoption models have been proposed, such models are not necessarily transferable to e-procurement adoption. One major problem is the conflict of the networking requirement of e-procurement with the finding of a limited integration between the Internet and internal systems in SMEs (Shiels, et al. 2003). SMEs may embrace ICT without adopting e-procurement. At the public level, e-procurement facilitates unlimited and non-restricted access to government information and increases market transparency (no barriers to entry) and economic integration based on complementarities (Carayannis and Popescu 2005). It also increases international procurement opportunities for local businesses. Recognition of the potential benefits of e-procurement for Australian business is reflected on the establishment of web sites by federal and state governments to facilitate the adoption of e-procurement (OGO, 2001; PRC, 2001; NSW, 2000). E-procurement has the potential to lower overhead costs associated with purchasing (Chircu and Kauffman, 2000), and to increase a firm’s bargaining power. This power can result in better purchasing terms and conditions, better suppliers, more reliable supply of quality goods and services, better prices and, ultimately, lower all-inclusive purchasing costs. Purchasing cost savings add to profit (Simonaska, 2001; Tulloch, 2001; Wagner, 1993). For these type of reasons, e-procurement has been seen to have the potential to play a pivotal role in a firm’s endeavours to “create a competitive cost advantage that