Evaluating Prospective e‐Providers: An Empirical Study

• Date: 01 November 2007
• Author: Ajay Das,Lee Buddress
• DOI: http://doi.org/10.1111/j.1745-493X.2007.00039.x
• Published date: 01 November 2007

Evaluating Prospective e-Providers:

An Empirical Study

AUTHORS

Ajay Das

is a professor of operations management in the Zicklin School of

Business at Baruch College in New York, New York.

Lee Buddress

is Robert G. Gleason Professor of Supply and Logistics at Portland

State University in Portland, Oregon.

It has been problematic to evaluate prospective

providers prior to actual adoption and use of their

technologies and services. This research uses the

resource-based viewof the firm to identify, prioritize

and relate e-provider evaluation criteria and evalua-

tion process factors to user satis-

faction levels, using cluster

analysis and ANOVA on data

gathered from 103 companies. The results

suggest that firms prioritize intangible evaluation

criteria over tangible criteria. Project performance is

associated with e-provider performance on intangi-

ble evaluation criteria, as well as cross-functional

participation in the evaluation process.

INTRODUCTION

While academia has conventionally treated supply

chain management and information technology (IT) as

two distinct streams of research, practitioners have long

realized the importance of IT in coordinating and inte-

grating intra- andinterorganizational business operations

(Shah, Goldstein and Ward 2002). Investments in IT for

effective e-business

1

are growing at a rapid pace. For

instance, TowerGroup estimates that IT spending for

supply chain management will rise from $30.9 billion in

2004 to $49.3 billion by 2008 (Garcia 2004). Firms are

seeking more sophisticated capabilities and fastertime to

market, and e-providers

2

are beginning to respond. The

market for e-purchasing software, also called spend man-

agement or supplier relationship management solutions,

is growing at a compound annual growthrate (CAGR) of

10 percent (Bartels 2007). Recognizing these trends, cur-

rent work in supply chain coordination places emphasis

on information flows in addition to material flows

(Frolichand Westbrook 2001). ITenables information and

activity coordination, leading to tangiblebenefits in areas

as diverse as supply chain forecasting, production sche-

duling, new product development, procurement, order-

ing, customer relationship management and inventory

location and tracking information (Shah et al. 2002).

E-providersof IT_SCM systems promise these deliverables,

and more (Kotzab,Skjoldager and Vinum 2003).However,

it has been problematic to evaluate these publicized

product benefits before actual adoption and use of the

technologies.Reports of losses of revenue and profitshave

been attributed to ill-designed or under-performing

e-business systems, and post hoc complaints from users

highlight the need for effective a priori evaluation of

offered products. ‘‘Many of those purchases proved to be

big disappointments . . . [and] often provide little return

on investment’’(Lavelle, 2002). There is,therefore, a need

to a priori identify provider evaluation criteria and

SUMMARY

1

The term e-business is used as a broad description of supply chain

management, logistics, ERP,CRM, B2B and B2C electronically

transacted commerce(excluding design/payroll/e-mail/HRMsoft-

ware or hardware systems).

2

The term ‘‘e-provider’’represents providers of e-business software.

The Journal of Supply Chain Management | Fall 2007 31

The Journal of Supply Chain

Management: A Global

Review of Purchasing

and Supply Copyright

&November 2007, by

the Institute for Supply

Management, Inc.

TM

evaluation process factors that can predict post-hoc

performance. This study seeks to address this need.

Customer goals and desired capabilities in e-business

can vary widely, ranging from simple order and invoice

processing to complex goals such as the exchange of

technical road maps with core suppliers, design colla-

boration, graphical interchange, contract bidding and

design of supply chain/delivery management processes

(Bernstein 2001). E-business, as defined in this paper,

adapts two perspectives from Kalakota and Whinston’s

(1997) definition: an online perspective, which describes

e-business as the capability to transact B2B exchanges,

and a business process perspective, which presents

e-business as the application of technology for business

process and workflow automation. Within both of these

perspectives, objective measurements of prospective

e-provider valuehave not seen much use. The reason may

lie in the paucity of established objective a priori evalua-

tion criteria.Validated routines arelacking for formalizing

the strategic and tacit gains expected from e-business

investments, including implicit support of business

objectives, response to competitor moves and other

issues. Usersseek suppliers, systems and processesthat are

stable, secure, available, flexible and scalable, and are

based on open standards to enable evolution. Many of

these criteria are difficult to quantify, and yet find exten-

sive use in IT package selection and adoption.

This research seeks to identify and prioritize e-provider

evaluation criteria from buyers’ perspectives. It further

investigates how these criteria relate to evidence of

achieved performance, using data gathered from e-busi-

ness projects in more than 100 companies. The objective

is to develop a list of critical performance-linked criteria

and associatedevaluation processes that buyerscan use to

develop a business case to acquire e-business software or

evaluate e-providers more effectively before adoption.

The resource-based theory of the firm provides a theore-

tical underpinning to this work.

The study informs the e-sourcing practice and literature

in several ways. It is evident that an identification of

critical provider evaluation criteria and process factors

would benefit all parties concerned — the organization

that develops and markets the software (by providing

customer-driven evaluation criteria for product design

and marketing), the organization that implements the

system for itself (by performing prepurchase product

analysis) and an organization trying to understand the

evaluation process and advantages of using such tech-

nology.Also, disciplinary intersections present interesting

scholarly opportunities. Applying the resource-based

perspective from strategy literature to the supply man-

agement domain provides an improved theoretical

understanding of the relationship between provider eva-

luation criteria and experienced project performance.

Finally, the study seeks knowledge in a new realm.

A review of previousresearch did not find any substantive

empirical inquiry on e-provider evaluation criteria or

process that was linked to performance outcomes.

The next section reviews the literature on supplier

evaluation and selection to develop a backdrop for this

inquiry. Subsequent resource-based perspectives of

e-provider evaluationcriteria and their relative signifi-

cance culminate in a set of research hypotheses. The

section following describes construct operationalization,

instrumentation, sampling and methodology choices.

The results of the studyare presented and discussed next.

The paper concludes with a brief recapitulation of the

research objectives and findings.

A REVIEW OF THE PROVIDER EVALUATION

LITERATURE

While the term ‘‘supply chainmanagement’’ may have

evolved comparatively recently, the core concepts —

supplier evaluation and selection — have been a focus of

writings as far back as 1832, whenCharles Babbage wrote

of the ‘‘materials man’’ and the importance of selecting

suppliers who could delivernecessary materials. By 1931,

standardization, financial stability, capacity, capability,

performance record and above all, quality, were noted as

essential supplier selection criteria (Davis 1932). More

recently, Ellram (1990) studied supplier selection in

situations where buyer–supplier relationships are charac-

terized as strategic partnerships. Her case studies identi-

fied several broad categories of supplier selection criteria

covering financial, organizational and technological

dimensions. The ‘‘Financial’’ category included supplier’s

economic performance and financial stability. The

‘‘Organizational Culture and Strategy’’ category included

issues of trust, strategic fit, management attitude and

compatibilityand organizational structure. ‘‘Technology’’

categorical issues such as capability, both present and

future and supplier’s speed in development were also

reported. A number of other studies have examined

supplier selectioncriteria in diverse settings. For example,

Lambert, Adams and Emmelhainz (1997) examined

attributes used in the evaluation of suppliers in the

healthcare industry. Key selection criteria included pro-

duct reliability, product performance, supplier technical

capability and assistanceand product availability.In their

study,the resources and capabilities of suppliers and their

products ranked ahead of price.In an international study

of the electronics industry, product quality, price and

supplier performance characteristics were all determined

to be of greater influence on supplier selection than any

keiretsu-type relationship with potential suppliers. Reci-

procity and equity relationships were set aside in favor of

supplier resources and performance. This was especially

true when purchases were of a nonstandard nature

(Hirakubo and Kublin 1998). Vonderembse and Tracey

(1999) evaluated buyingorganization performance in the

Evaluating Prospective e-Providers: An Empirical Study

32 The Journal of Supply Chain Management | Fall 2007