The effect of business-to-business electronic commerce on operating performance of manufacturing companies

The extant literature is mixed on the effects of Business-to-Business Electronic Commerce (B2B-EC) technologies on performance. Although thirty-one percent of all B2B-EC implementations lead to improved performance, 23% result in no improvement and an additional 46% show disappointing results. Virtually all studies fail to identify the factors most important for success and whether the benefits are achieved directly or through some other mediating factor. In addition, most of these studies examine business performance rather than operating performance. This study seeks to examine the effect of B2B-EC on operating performance in US manufacturing companies by focusing on the procurement business processes.; Two-hundred and eleven (211) manufacturing companies were administered a web-based survey instrument. Using 64 items and 20 variables the instrument measured four factors: B2B-EC Reach and Richness, Procurement Business Processes, and Operating Performance. The rater and inter-rater reliabilities were assessed through the Intra-class Correlation Coefficient (ICC). Construct validity of the factors was estimated using Confirmatory Factor Analysis (CFA). The relationships between the factors were examined using Structural Equation Modeling (SEM).; The results of the ICC analyses indicate that the multiple raters were answering reliably. The results of the CFA provided evidence for the existence of the four above-mentioned first-orders factors, and one higher-order factor (B2B-EC). The results of the SEM analysis shows that the effect of B2B-EC on operating performance is fully mediated by changes in procurement business processes. These findings are consistent regardless of plant size, firm size, use duration, manufacturing environment, market position, and industry. The results of this study strongly suggest that manufacturers who implement B2B-EC should also make necessary investments to change relevant business processes to fully realize the potential improvements in operating performance.; This is the first study to find a fully-mediated effect of B2B-EC on operating performance and to show that the factors Reach and Richness can be represented by means of a higher-order factor. The results of this research may serve to explain the Productivity Paradox---the issue of mixed benefits from information technology implementations.