2.6 B2B e-Marketplace Success and Failure
2.6.2 Critical Success Factors
The concept of success factors was developed in the early 1960s by Daniels (1961). According to Daniels (1961, p. 116), “in most industries there are usually three to six factors that determine success; these key jobs must be done exceedingly well for a company to be successful.” Rockart (1979, p. 85), refined and popularized the concept of identifying critical success factors and defined it as events and conditions “in a few key areas which absolutely must go right in order for the business to succeed.” In the context of e-business, critical success factors are defined as “the things a firm must do well to flourish” (Weill & Vitale, 2001, p. 108), or as “contributing conditions, done exceedingly well, for electronic market processes to function with more than average success” (Fairchild, Ribbers,
& Nooteboom, 2004, p. 64). In order to identify critical success factors for B2B e-marketplaces in the literature, we use the term as it is defined by Fairchild et al.
(2004, p. 64), since this definition covers factors with “economic impacts towards continuance of electronic markets,” but are not “critical” as in the definition by Rockart (1979).
Although critical success factors with respect to e-marketplaces have been conceptually discussed, not least by several consultancy firms, there is a lack of empirical studies within that area (Fairchild et al., 2004). However, Fairchild et al. identify 17 success factors for electronic markets and divide these into context-related and process-context-related success factors (Figure 2.9). These success factors were tested with four different case studies. The case analysis shows that four of the proposed success factors, i.e., Frequency of Purchase, Value of Product, Market Variability, and Government Regulations, are not supported as success factors.
Figure 2.9 Success Factors of Electronic Markets, Segmented into Context, Process, and Outcome Source: Fairchild et al. (2004)
In their analysis of three e-hubs in a supply chain context, Kathawala et al. (2002) cite attracting and retaining critical mass of transactions, appropriate technology that allows integration with the hub’s participants, and the governance of the e-hub management as critical success factors.
Instead of discussing specific critical success factors, Bruun et al. (2002) identify five elements that constitute the foundation (or strategic position) for e-marketplace success. By testing their theoretical framework during the rollout of one B2B e-marketplace, Bruun et al. (2002) found focus, governance, functionality, technology, and partnership was essential for e-marketplace success. Various issues must be considered with respect to each of these elements (Table 2.24), which must also be carefully designed and continuously modified in order to accomplish success.
Table 2.24 Elements of the Setup of an e-Marketplace – Foundation for Success Element Issues to consider
- Identifying which specific buyer and seller segments to target Focus - What type of products are available on the e-marketplace
- Key players in a given industry - Geographic coverage
- Horizontal vs. vertical e-marketplace
Governance - Degree of neutrality (i.e., neutral or biased toward buyers or suppliers) - Commerce (i.e., trading mechanisms)
Functionality - Content (i.e., commerce content and other value-added content) - Collaboration (i.e., between buyers and sellers, and with third parties) - Coordination of Commerce, Content, and Collaboration
- Type of technological platform
Technology - Platform’s ability to support development of advanced market-making tools, integrated procurement tools, advanced collaboration tools.
- Possibility of frictionless integration with the ERP* systems of participating buyers and sellers.
- Scalability - Flexibility - Security
- Core competence
Partnership - Acquisition of complementary skills
* Enterprise Resource Planning
Source: Extracted from Bruun, Jensen and Skovgaard (2002)
With respect to focus, e-marketplace operators should, for example, consider what buyer and seller segments to target, and what products to offer. A lack of clear focus could lead to a situation in which the e-marketplace tries to sell everything to everybody, but ends up selling nothing to anybody. The governance element involves deciding whether the e-marketplace should be neutral or biased toward either buyers or sellers, i.e., by what group it should be operated or controlled (ibid.). Functionality in the context of B2B e-marketplaces is described with respect to three core elements: Commerce, Content, and Collaboration (or Connection) (Kearney, 2000; Bruun et al., 2002). In addition, choosing a scalable, flexible, and secure technological platform that supports the development of various tools and enables integration, is crucial for the success of an marketplace. Concerning partnerships, Bruun et al (2002) emphasize that e-marketplaces, like other types of firms, should concentrate on their core competencies and outsource other, non-core, tasks to partners with complement-ary skills, in order to become successful.
An overview of literature on e-marketplaces, including the empirical studies presented above, indicates that e-marketplaces are successful for a number of reasons. A clear majority of authors discussing the success of e-marketplaces stress the importance of achieving a critical mass of participants, and thereby creating liquidity, to become successful (e.g., Andrew et al., 2000; Bruun et al., 2002; Dou & Chou, 2002; Fairchild et al., 2004; Kaplan & Sawhney, 2000;
Kathawala et al., 2002; Kearney, 2000; Laudon & Traver, 2002; Lucking-Reiley
& Spulber, 2001; Raisch, 2001; Ramsdell, 2000; Rayport & Jaworski, 2002;
Skinner, 2000; Tumolo, 2001; Turban et al., 2002; Weill & Vitale, 2001; Wise &
Morrison, 2000). Creating liquidity is not only a critical success factor; as pointed out in the previous section; it also constitutes a major challenge that e-marketplace operators have to deal with.
Another factor that is heavily emphasized as important for e-marketplace success is domain expertise (Andrew et al., 2000; Dou & Chou, 2002; Kearney, 2000;
Raisch, 2001; Skinner, 2000; Turban et al., 2002). This involves significant knowledge about industry structure, business processes, industry players, and government and policies.
The ability to capture value and configure an appropriate revenue model is also considered crucial for e-marketplace success (e.g., Bruun et al., 2002; Chung et al., 2001; Raisch, 2001; Sculley & Woods, 2001; Tumolo, 2001; Turban et al., 2002). To be able to capture value, Bruun et al. (2002) state that e-marketplaces must, firstly, offer a compelling value proposition and, secondly, configure an appropriate revenue model.
Several authors (e.g., Andrew et al., 2000; Bloch & Catfolis, 2001; Bruun et al., 2002; Kathawala et al., 2002; Kearney, 2000; Tumolo, 2001; Weill & Vitale, 2001) point out appropriate technology as a critical factor for success. For instance, Bruun et al. (2002) claim that the technological platform should support the development of advanced market-making tools, integrated procurement tools, and advanced collaboration tools. In addition, Tumolo (2001) stresses the importance of seamless integration capabilities (Bruun et al., 2002; Kathawala et al., 2002; Tumolo, 2001). Building the system is not necessarily an internal task, according to Sculley and Woods (2001). Instead, they suggest that the e-marketplace should concentrate on its core competency and outsource the platform building to technology experts.
Concerningstrategic partnership, making the right partnerships is very important for achieving success (Bruun et al., 2002; Sculley & Woods, 2001; Skinner, 2000). That is because it allows the e-marketplace to build liquidity and scale up quickly toward market domination. Chung et al. (2001) emphasize that
e-marketplaces should also actively pursue partnering opportunities. Dou and Chou (2002) suggest that vertical exchanges should partner with horizontal (i.e., functional) hubs to facilitate one-stop shopping for buyers connected to the marketplace.
With respect to functionality, several authors (e.g., Bruun et al., 2002; Kearney, 2000; Turban et al., 2002) argue that blending commerce, content, and community/connection (or collaboration) is crucial for success, since the right mix of these components is a requirement to achieve critical mass. Furthermore, complementing process automation with deep content is stated to be a key to success (Dou & Shou, 2002).
Targeting the right industries is another factor suggested as critical for the success of e-marketplaces (Dou & Chou, 2002; Skinner, 2000; Turban et al., 2002). An overview of success factors discussed in the literature is presented in Table 2.25.
Table 2.25 Critical Success Factors15 Critical Success Factors Source
Critical mass/Liquidity Andrew et al., 2000; Bruun et al., 2002; Dou & Chou, 2002; Fairchild et al., 2004; Kaplan & Sawhney, 2000;
Kathawala et al., 2002; Kearney, 2000; Lucking-Reiley &
Spulber, 2001; Raisch, 2001; Ramsdell, 2000; Rayport &
Jaworski, 2002; Skinner, 2000; Tumolo, 2001; Turban et al., 2002; Weill & Vitale, 2001; Wise & Morrison, 2000 Understanding of stakeholder
motives to be able to clearly communicate the value created through e-marketplace
Andrew et al., 2000; Fairchild et al., 2004
Dominance – first mover Kaplan & Sawhney, 2000; Sculley & Woods, 2001 Right owners Ramsdell, 2000 ; Turban et al., 2002
Ability to exploit economies of scope
Turban et al., 2002; Wise & Morrison, 2000
Trust Fairchild et al., 2004
Domain expertise Dou & Chou, 2002; Kearney, 2000; Raisch, 2001;
Skinner, 2000; Turban et al., 2002 Ability to capture value
through an appropriate revenue model
Bruun et al., 2002; Chung et al., 2001; Raisch, 2001;
Sculley & Woods, 2001; Tumolo, 2001; Turban et al., 2002
Appropriate technology. Andrew et al., 2000; Bloch & Catfolis, 2001; Bruun et al., 2002; Kearney, 2000; Kathawala et al., 2002; Tumolo, 2001; Weill & Vitale, 2001
Strategic partnerships Bruun et al., 2002; Chung et al., 2001; Dou & Chou, 2002; Fairchild et al., 2004; Sculley & Woods, 2001;
Skinner, 2000 Functionality: Blend content,
community (or collaboration), and commerce.
Bruun et al., 2002; Dou & Shou, 2002; Kearney, 2000;
Turban et al., 2002 Focus: targeting the right
industries; targeting inefficient (industry) processes; focus on non-complex products with low asset specificity
Andrew et al., 2000; Bruun et al., 2002; Dou & Chou, 2002; Fairchild et al., 2004; Sculley & Woods, 2001;
Skinner, 2000; Turban et al., 2002
15 This table should be read bearing in mind that there are some overlaps between critical success factors as presented by different authors. However, our intention is to present examples of critical success factors rather than analyze them.
Table 2.25, cont.: Source Critical Success Factors
Bruun et al., 2002; Chung et al., 2001; Kathawala et al., 2002 ; Ramsdell, 2000; Raisch; Sculley & Woods, 2001;
Turban et al., 2002 Governance: Maintaining
commercial neutrality
Learning cost/Adoption Fairchild et al., 2004
Openness Raisch, 2001; Ramsdell, 2000; Turban et al., 2002 A full range of
services/Complete solutions
Ramsdell, 2000; Skinner, 2000; Turban et al., 2002 Catalogue content
management.
Dou & Chou, 2002; Skinner, 2000 Brand building and brand
strength.
Turban et al., 2002 Management of channel
conflict
Kaplan & Sawhney, 2000; Turban et al., 2002 Transparency and integrity. Sculley & Woods, 2001
Andrew et al., 2000; Raisch, 2001; Sculley & Woods, 2001
Flexibility
Ease of use Raisch, 2001
Interoperability Raisch, 2001
Standard setting Raisch, 2001; Skinner, 2000;Wise & Morrison, 2000 Customization Andrew et al., 2000; Dou & Chou, 2002; Skinner, 2000 Creation of value for both
suppliers and buyers Bloch & Catfolis, 2001 Ownership of customer
relationship and customer data Weill & Vitale, 2001