Explaining the Key Elements of Information Systems-Based Supply-Chain Strategy that are Necessary for Business-to-Business Electronic Marketplace Survival

Abstract

Business-to-business electronic marketplaces (EMs) were hyped as the future of efficient supply chains and as essential to the growth of e-commerce, but in spite of this promise, many EMs failed in the first few years after 2000. Although numerous studies have involved EMs, little research has focused on the degree to which an EM’s automated supply-chain strategy contributed to its survival or failure. Accordingly, this study examines 400 EMs through an extensive survey of the strategic supply-chain capabilities in conjunction with McKinsey & Company and CAPS Research. These results are interpreted using existing strategy literature. The following factors were found to be positively related to EM survival: capturing detailed spend data, providing sourcing and process change recommendations, allowing international contracts, offering the ability to track supplier product availability, and having more than 100 employees. In contrast, the following factors led to EM failure: providing warranties, employing low to medium transaction functionality, integrating with a buyer’s accounting system, allowing buyers to “punch through” to supplier Web sites, permitting the online creation of requisition and purchase orders, transacting a daily volume less than $1,000, and having 25–75 employees. These results highlight the need for EMs to create network effects of economies of scale and scope for buyers, focus on core competencies, and create buyer lock-in through high switching costs. Existing EMs should focus their strategy on developing the factors found to lead to EM survival and eliminating the factors leading to failure.

Keywords: electronic markets, business-to-business marketplaces, supply-chain strategy, strategy