Factors Influencing Benefits of Inter-Organisational Systems
(IOS) Adoption
Mahbubur Rahim
School of Business Systems
Monash University, Clayton VIC 3168
Australia
Email: Mahbubur.Rahim@infotech.monash.edu.au
Sherah Kurnia
Department of Information Systems
The University of Melbourne
111 Barry St, Carlton, VIC 3010, Australia
Email: sherahk@unimelb.edu.au
ABSTRACT
The adoption of inter-organisational system (IOS) has become important for many organisations because
of its many benefits, which can be categorised into operational, managerial and strategic benefits. While
some organisations have gained many benefits, some have experienced very limited benefits from IOS
adoption. Existing studies have identified a number of factors affecting the achievement of IOS benefits.
This is a research-in-progress study that is aimed at assessing the relevance of factors identified from the
literature in explaining the benefits obtained by Australian organizations from IOS adoption, using four
case studies conducted with two pharmaceutical and two grocery manufacturing companies.
Keywords
Inter-organisational systems, IOS, IOS benefits, factors, case study, Australia
INTRODUCTION
Inter-organisational systems (IOS) are important information technology (IT)-enabled business
initiatives that support key boundary-spanning activities of organisations. These systems form the
foundation of business-to-business e-commerce operations due to their ability to facilitate exchange of
information between trading partners along supply chains (Senn 1996). By enabling exchange of business
information between organisations, IOS thus enhance organisational efficiency (Abcede 1996; Kaefer et
al. 2000; Meier et al. 1991), improve quality and timeliness of information (Silverman 1990), and even
enable entire supply chains to reduce wasteful inventories by reacting more effectively to customer
demand and jointly planning product introductions and promotions (Ross 1996; Soliman et al. 2004).
Additionally, IOS enable customer services people to be more responsive to customer orders rather than
requiring them to act as order takers, which in turn greatly improves relationships with business partners
(Applegate et al. 1996; May 2000). These systems also bring significant competitive advantage to
organisations by increasing their bargaining power and by raising the switching costs of trading partners
(Johnston et al. 1988). However, it is reported in the IOS literature that different organisations experience
different benefits as a result of IOS introduction. Existing literature has identified a range of organisational,
innovation related, and environmental factors that affect the attainment of benefits from the introduction of
IOS. Most of these factors were identified in the contexts of IOS adoption initiatives examined in North
American and European organisations. It is not clear whether these factors are also applicable in
understanding IOS benefits in Australian organisations.
At the moment, there is a limited understanding of how Australian organisations receive benefits from
IOS adoption and what factors affect the attainment of these benefits. With the exception of Mackay’s
work (Mackay et al. 1996) which focused on understanding the use and benefits of EDI-enabled eprocurement initiatives in the Australian automotive industry, little is reported about the benefits of IOS use
particularly in relation to the Australian pharmaceutical and grocery industry segments. Hence, it is not
known whether the factors reported in the IOS literature have an ability to explain IOS benefits
experienced by companies operating in those two industry segments which contribute significantly to the
Australian economy.
This study aims to assess the applicability of those factors identified from the literature in explaining
the IOS adoption benefits experienced by Australian organizations. We start with identifying various
factors affecting IOS benefits from the literature. Then we examine the benefits arising from the
introduction of IOS initiatives in the contexts of the Australian pharmaceutical and grocery industries by re-
analysing our previous in-depth case studies in two pharmaceutical and two grocery manufacturing
companies that have adopted IOS. This is research-in-progress paper and at this stage, we have only
identified benefits experienced by the case organizations in terms of operational, managerial and strategic
benefits.
In the next section, we present a brief literature on IOS benefits to identify various factors affecting
the attainment of IOS benefits by organisations. Then we describe the research method briefly, the case
study participants and the IOS adopted, followed by a brief discussion on the benefits achieved and
tentative conclusions about possible factors affecting the achievement of operational, managerial and
strategic benefits.
LITERATURE REVIEW
There are enormous IOS benefits which can be categorised into operational, managerial, and
strategic benefits. Operational benefits refer to the improvements made to the internal functioning of an
organisation (Banerjee et al. 1994). They typically include reduced paper work, fewer data entry errors,
reduced manpower, and reduced inventory. Managerial benefits refer to those that enable managers to
perform their functions more effectively by analysing quality information at the right time (Murphy et al.
1998). Typical managerial benefits include improved quality of information, the ability of managers to
access information quickly, and greater ability of managers to make better decisions. Strategic benefits
result from the development of corporate strategies to gain competitive advantage and to increase marketshare through strengthening close relationships with trading partners (Reekers et al. 1994). A number of
organisations adopting IOS have gained IOS benefits at the three levels, while some have only gained
limited operational benefits.
There are a number of factors affecting the attainment of IOS benefits by organisations, which can be
classified into three categories: organisational, IOS adoption process and environmental contexts. Each of
these is briefly discussed below.
Organisational Context
At the organisational level, support from the senior management is essential to ensure benefits from
IOS (Kurnia et al. 2000; Lee et al. 2000; Reich et al. 1990). This is because a good understanding of the
senior management regrading various types of benefits to be gained from IOS encourages their
commitment to IOS. Organisations in which senior management commitment for IOS are high generally
allocate sufficient amount of financial and manpower resources to support electronic relationships
(Mackay et al. 1996). High management support means that they have strong willingness to invest in IOS
integration with back-end information processing applications which is essential to receive substantial
benefits from IOS. Greater benefits from IOS can also be achieved when appropriate changes in business
processes are introduced in conjunction with IOS. However, process changes may affect job
responsibilities and even organisational structure and hence cannot be initiated without full support from
senior management. Furthermore, it is hard to gain IOS benefits when business partners are reluctant to
join the IOS network. Hence, management support is strongly needed to persuade business partners to
embrace IOS and make necessary changes in the inter-organisational work flow.
Adoption Process Context
Adoption process context refers to the manner in which an IOS application is introduced in
organisations. It includes IOS integration, IOS transaction ratio, IOS enabled process changes. These
factors play an important role in affecting the benefits to be gained from the successful adoption of IOS.
IOS integration is defined as the seamless electronic exchange of data between IOS and back-end
operational applications such as ERP systems, inventory systems, purchasing management systems
among others. A seamless IOS integration implies that human intervention is not required for entering
transaction data which in turn improves data accuracy, reduces paperwork, and enhances the quality of
decisions due to quicker availability of timely information. This line of argument is consistent with the
findings reported by Mackay and Rosier (1996) and Balsmeier (1996) who found that organisations
received considerable benefits when their EDI enabled electronic purchasing systems were integrated
with back-end key IT applications.
IOS transaction ratio refers to the percentage of transactions an organisation conducts electronically
through the IOS in place. Organisations with greater IOS transaction ratio are more likely to receive such
operational benefits as improved data accuracy, reduced paperwork, and even reduced workforce
required to support business transactions (Kurnia and Johnston 2000).
The benefits from IOS can also be affected from the inefficiency inherent in the existing interorganisational business processes. Considerable benefits could be achieved when such inefficiencies are
addressed in conjunction with IOS through process changes. For instance, with paper-based systems, the
benefits of just-in-time (JIT) strategy is usually difficult to gain because of the inefficiency involved.
However, through business process re-engineering, for example by introducing direct computer-tocomputer communications facilitated by EDI between supply chain members instead of relying on paperbased sytems, organisations are likely gain significant benefits of JIT (Arunachalam 1995). IOS often
encourages organisations to reengineer their existing business processes which, in turn, offers substantial
strategic benefits (Angeles et al. 1998). In the retail industry, the delivery process was improved due to the
introduction of quick response strategy which would not have been possible without the introduction of
IOS technology.
Environmental Context
Cooperation from business partners refers to the willingness of trading partners to make an effort
towards receiving benefits from the introduction of IOS. Cooperation from business partners is absolutely
necessary in enabling IOS to offer benefits to all members of a supply chain. IOS affects interorganisational work processes and without active support from the trading partners, it would not be
possible to bring any improvement in work processes. The changes that IOS could bring in work
processes need to be appreciated by the trading partners. The benefits of IOS would flow when business
partners are willing to establish procedures and adjustments in inter-organisational work processes
(Karonis 1997; Lee et al. 2003). IOS also may demand integration of incompatible IT infrastructure and
business processes. Hence, organisations need full cooperation from business partners. With high level of
cooperation, it is also possible to improve IOS transaction ratio. According to some authors {see for
example, Lee, 2000 #406 and Kurnia, 2000 #412}, a high level of cooperation from trading partners is
essential to receive IOS benefits because automation of inter-firm transactions removes most of the
manual control systems and paper trail that currently exist to ensure the accuracy and integrity of
transactions.
RESEARCH METHOD
In this study, an exploratory case study approach was adopted as the research method for two
reasons: first, the research is in a preliminary stage and second, the context of IOS adoption is important
as IOS benefits are likely to be influenced by context. We included four cases from our previous case
studies assessing IOS adoption in Australian pharmaceutical and grocery industries to find out whether
IOS benefits are affected by the variations in organisational and industry contexts. In each case study,
several interviews were conducted and data analysis involved analysis of information from interview
transcripts, emails, internal company documents, other archival sources and website analysis.
DESCRIPTION OF CASES
Brief profiles of the four participating case companies are summarised in Table 1. Case A is a
pharmaceutical manufacturing company which was founded in early 1960’s. Its products provide blood,
renal and intravenous therapies which the Australian medical researchers currently use to make new
breakthroughs in patient treatment. As the bulk of these products are high volume fluid in nature, the
company always supplies them direct to hospitals and medical clinics. Information technology is widely
used within the pharmaceutical company. It spends about A$3.5 million annually on IT operations. Its key
IT systems include pharmacy production system and electronic catalogue system both of which run on an
IBM AS/400 platform. In late 1999, the company had introduced JdEdward’s World ERP system which
also runs on IBM AS/400 platform. The company however has some applications that operate in PCbased NT environment.
Case B is another pharmaceutical manufacturing company that specialises in the development and
manufacturing of biologically based health care products which are sold through several wholesalers. The
company also develops new products and has invested heavily in medical research. This company was
established in early 1900s and has experienced considerable growth in terms of manpower and sales.
The company currently has 600 employees and their sales revenue was over A$170 million dollars in
2000. The company has been using information technology for many years. The IOS in question is an EDI
system which they have operated for the past 5 years.
Case C is a food and grocery manufacturing company which is one of the leading food and grocery
manufacturers in Australia. The company operates in approximately 80 countries, employing
approximately 300,000 employees, with an average turnover of AU$60 billion. The company
manufactures several major product categories, with its businesses broken into strategic business units,
based on product category orientations, such as: beverages, ice cream, canned fish, value-added
carbohydrate, dried and wet cooking sauce, and margarine. It is now experimenting with various IOS such
as Category Management and Continuous Replenishment Program (particularly cross-docking) as part of
implementing Efficient Consumer Response (ECR) initiatives with major Australian retailers. Both
business initiatives rely on EDI for data sharing. For brevity, only the case of CM is included in this paper.
Case D is another large food and grocery manufacturers in Australia, with average annual sales of
AU$55 billion. It competes in 50 different categories, with over 300 brands, and operates in more than 70
countries. This company employs 110,000 employees worldwide and sells products in more than 140
countries. Its parent company is based in the United States. The company has been in the Australian
grocery business for around 20 years. It is involved in a Vendor-Managed Inventory (VMI) project with one
of the major Australian retailers, which relies heavily on data sharing via EDI.
Case
Site
A
Nature of
Business
Pharmaceutical manufacturing
Annual Sales
A$250 millions
Total
Staff
Over 600
B
Pharmaceutical manufacturing
A$170 millions
600
C
Food and grocery manufacturing
AU$60 billion
300,000
D
Food and grocery manufacturing
AU$55 billion.
110,000
Table 1: Major features of the participating case companies
DESCRIPTION OF IOS USED IN CASE COMPANIES
In the pharmaceutical company (i.e. case A), a web-based EDI system was introduced in late 2000
which runs in the NT environment. EDI messages are received in the NT system from customers through
an exchange gateway which is maintained by a third party network service provider. Two types of EDI
messages are exchanged via EDI: the company receives purchase orders in EDI format and sends back
purchase order acknowledgements to its customers which are basically large hospitals. Purchase orders
once received are then sent to the back-end ERP system via an electronic interface built by the company.
Another pharmaceutical manufacturing company (i.e. case B) has been using a PC-based
standalone EDI system since late 1990s. The system is used to receive purchase orders directly from a
large pharmaceutical wholesaling company and send back confirmation. Once the purchase orders are
received via EDI, they are then typed in manually and are fed into the company’s internal information
system. The EDI messages are sent through a network services provider enabling the company to
download purchase orders from its mail boxes. The EDI messages are prepared based on the EDIFACT
standard. Currently, the company receives about five purchase orders a day, but they involve a huge
volume of sales. The company did not integrate EDI with their back-end information systems due to the
limited number of EDI transactions and high cost of integration.
The first food and grocery manufacturing company (case C) has been practising the CM program
with two major retailers since 1996. In support of CM and other business initiatives proposed by ECR, the
company has also established an EDI connection with the two retailers using a third party network since
mid 1990s to improve data sharing. The EDI message standard used is EDIFACT. EDI is used to receive
purchase orders from the major retailers and to send purchase order acknowledgement and advanced
shipping notice. With one of the retailers, the EDI system is also used for receiving the point-of-sales
(POS) data for all product categories supplied by company C on a weekly basis. This allows the
manufacturer to optimise its product range and evaluate promotions and new product introduction
efficiently.
The second grocery manufacturing company (case D) has been using been practising the VendorManaged Inventory (VMI) program to improve inventory management for both the manufacturer and the
retailers. However, at the time the case study was conducted, the company still had limited EDI
transactions. The company receives information from the retailers’ distribution centres about product
withdrawal and their stock-on-hand via EDI. Based on this information, company D then sends
recommended purchase orders to the retailers and communicate these orders via fax. Company D was
not able to send advanced shipping notices to retailers at the time the case study was conducted. A
summary of the IOS employed by the case study participants are presented in Table 2.
Case
Site
IOS
Description
Source of IOS
Development
Years
of
Use
2
Linked to
Back-end
System
Linked to the
back-end NT
system
A
A web-based EDI
system
Developed inhouse
B
A PC-based EDI
Acquired from
a vendor
5
Developed inhouse (IT
infrastructure)
and jointly with
trading partner
Developed inhouse and
jointly with
trading partner
+ 11
Not
connected to
the back-end
BPCS ERP
system
Linked to the
back-end
system
C
Category
Management
D
Vendor-Managed
Inventory
+6
Limited
integration
with the
backend
system
Transactions
Frequency
Receives
twelve
purchase
orders a day
Receives two
purchase
orders a day
No. of
Partners
Connected
Thirty hospitals
One
wholesaler
Medium
Two retailers
Low
Two retailers
Table 2: A summary of the essential characteristics of IOS used within the case organisations
PRELIMINARY ANALYSIS AND CONCLUSIONS
Case Companies
IOS
Benefits
A
B
C
D
Reduced paperwork
Y
N
Y
N
Greater accuracy
Y
N
Y
N
Reduced inventory
N
N
Y
Y
Manpower savings
Y
N
N
N
Quick access to partner’s IS
N
N
N
N
Improved decision making
N
N
Y
N
Competitive advantage
N
N
N
N
Greater sales
N
N
N
N
Improved relationship
Y
Y
Y
Y
Operational benefits
Managerial Benefits
Strategic Benefits
Table 3: Summary of the IOS benefits experienced by case companies
The preliminary data analyses demonstrate variations of the benefits experienced by the four
organisations under study. Companies in Cases A and C have experienced significant operational
benefits and only Case C has gained some managerial benefits related to the availability of information
needed for decision making. In terms of the strategic benefits, all cases have only experienced some
improvement in relationships with trading partners due to the IOS adoption. The benefits experienced by
the case study participants are summarised in Table 3.
As the next step in the data analysis, we will assess the presence and absence of factors identified
from the literature that are believed to affect the achievement of IOS benefits. We then try to find
relationships between these factors and the different types of benefits (operational, managerial and
strategic) experienced by the case study participants.
As tentative conclusions, it appears that operational benefits arising from IOS adoption are directly
influenced by IOS integration with back-end systems and IOS transactions ratio. In addition, managerial
benefits seem to be influenced by strong cooperation from the business partners. Finally, strategic
benefits appear to be more likely to be achieved when appropriate changes in relevant business
processes are introduced in conjunction with IOS adoption. All three types of benefits require strong
support from the senior management because they must allocate necessary resources to facilitate
integration, process changes, and must take initiative to secure cooperation from the trading partners with
which to establish electronic relationships. This tentative conclusion can only be confirmed once the data
analysis has been completed.
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