CONCEPTUAL MODEL AND RESEARCH PROPOSITIONS

4. CONCEPTUAL MODEL AND RESEARCH PROPOSITIONS

Our conceptual model is constructed by combining some organizational and technological factors from the TOE framework and some elements from the technology acceptance model (TAM). The conceptual model is also supplemented by the literature on the evolution of the role of the procurement function in business firms, the history of information technology application in buyer–supplier relationships. Our arguments concerns the way the following factors affect the extent of e-procurement adoption:(1) administrative perception of procurement function, (2) perceived costs of e-procurement, (3) the size of the supply base, (4) the technology literacy of the managers in the purchasing organisation, (5) size of the purchasing firm, and (6) perceived usefulness.

Technological factors -Perceived benefits -Perceived compatibility -Technology costs

Organisational factors -Size and Scope -Slack resource -Centralization -Formalization -Managerial structure -Knowledge and Expertise Environmental factors -Industry type

-Competitive pressure -Customer pressure -Supplier pressure -Government policies -Market uncertainty

E-procurement adoption

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Figure 3: Conceptual Model

P2 P1

P3

P5 P6 P4

4.1 The Administrative Focus of the procurement function

Based on our literature review, it is noted that for over half a century there has been a shift in perception of the procurement function from clerical to a strategic function, and information technology is seen as a key catalyst to this regard. The introduction of e-commerce via internet made companies to notice the strategic potentials of the procurement function (Teo, Lin and Lai, 2009). Thus, companies started to take advantage of the emergence of internet in the late 1990s, and used various internet technologies to facilitate procurement activities (Marston and Baisch, 2001).

Nevertheless, the strategic role of the procurement function is not universally recognized.

Significant number of firms have continued to treat it as an administrative function, and some scholars (e.g. Kaufman and Carter, 2004) regard procurement as supporting function with a tactical role in business firms. Tassabehji and Moorehouse (2008) found that business firms consider the strategic importance of the procurement function to be rather modest. This administrative orientation has some consequences on e-procurement adoption. The extent of adoption of e-procurement is likely to be lower for firms with an administrative focus of procurement function than for firms with more strategic orientation. Accordingly, we pose the following research proposition:

Proposition 1: Stronger administrative focus on the procurement function is negatively related to the extent of e-procurement adoption

Administrative focus of procurement function

Perceived Usefulness of e-procurement

Size of the supply base

Extent of E-procurement adoption

Technology literacy of procurement managers

Size of the purchasing firm

Perceived costs of e-procurement

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4.2 The Perceived Costs of e-procurement and Firm Size

E-procurement technologies involve the use of internet and related technologies to enhance the efficiency of procurement activities (Teo et al., 2009). The unique features of internet and related web based technologies have the potential to support procurement activities and improve the procurement process. Some of these technologies include e-mails, discussion forums, video conferencing, extranet (Garrido-Samaniego et al., 2010), internet search engines, electronic-catalogues, customized e-procurement software, electronic auctions, and electronic market places (Teo et al., 2009)

Accordingly, some scholars (e.g. Marston and Baisch, 2001) noted that the use of e-procurement to perform basic activities such as purchase orders and invoicing, as well as payments processing could reduce transactional costs from around 1 dollar to 10 cents.

Nonetheless, setting up e-procurement systems would require substantial capital expenditures (Gunasekaran et al., 2009) in addition to operating and training costs (Teo et al., 2009).

These costs may affect the extent of e-procurement adoption, and this effect is likely to be contingent on the size of the purchasing firm.

Small firms are characterised by the condition that Welsh and White (1981) termed as a resource poverty, which spans from financial to human resources, and the majority of small firms have limited budgets and shortage of skilled labours (Deros et al., 2006). Due to such resource poverty, small firms are more likely to consider the consequences of the costs of implementing e-procurement to attenuate their adoption of e-procurement more than what is the case for large firms. We therefore propose the following proposition:

Proposition 2: The effect of the perceived costs of procurement technology on the extent e-procurement adoption is more negatively shaped for small firms than for large firms.

4.3 The Size of the supply base

The size of the supply base refers to the number of suppliers serving the purchasing firm. We will argue that firms with a large supply base are more motivated to adopt e-procurement technologies than firms with a rather small supply base, and transaction cost theory provide a strong theoretical foundation for this reasoning. The unit of analysis in transaction costs analysis is the interface between the purchasing firm and its suppliers (Choi and Krause, 2006). As the number of supplier increases, the frequency of exchange will also increase and hence the administrative unit costs associated to specific governance structures (Williamson, 1985; Cai, Yang and Hu, 2010). Examples of such administrative costs include data entry, invoice processing, correcting of errors in paperwork, order expediting and the handling of quality problems (Kothari, Hu and Roehl, 2005).

Accordingly, e-procurement provides an opportunity to reduce administrative costs and time spent in the management of the supply base. By automating laborious routines of the purchasing function, more time is released to strategic purchasing activities (Kothari, Hu and Roehl, 2005). Hence, firms with a large supply base are expected to be highly motivated to use e-procurement solutions than the firms with a small supply base. Accordingly, we suggest the following proposition.

Proposition 3: The size of the supply base is positively associated to the extent of e- procurement adoption

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4.4 The Size of the Supply Base and Perceived Usefulness

The attraction of business firms to e-procurement adoption is shaped by the perceived usefulness of this technology, and it is well documented that the perceived usefulness enforces new technology adoption (Aboelmaged, 2010; Duan et al., 2012; Huntgeburth et al., 2012).

At an individual level, perceived usefulness is seen as the extent to which a person believe that using a particular system will enhance his or her job performance (Lee and Park, 2008).

At the organisation level and in business-to-business relationships, the perceived usefulness depends on both costs and the benefits of adopting new technology. Thus, the technology is perceived to be useful if its benefits outweigh the sacrificed costs (Obal, 2013). This trade-off between the benefits and costs is reflected in a perceived value, and can directly influences the adoption rate of e-procurement (Kim, Chan and Gupta, 2007).

Hence, a firm with a large supply base should perceive e-procurement technologies as more beneficial due to the prospect of reduced administrative costs and reduced time associated to a broad set of purchasing administration activities as the supply base increases. Accordingly, the perceived effect of the usefulness of e-procurement on the extent of e-procurement adoption is expected to increase as the size of the supply base increases, and we propose:

Proposition 4: The effect of the perceived usefulness of procurement on the extent of e-procurement adoption is significantly enforced by the size of the supply base.

4.5 Technology Literacy and Perceived Usefulness

Technology literacy concerns the ability of users to understand and use technologies (Bertot, Jaeger and Grimes, 2010). The degree of technology literacy and the previous experience in using technologies constitute important variables in explaining technology adoption (Corrocher, 2006). The most recent research have called for greater attention to this variable, and in particular for studies geared on understanding technology adoption (Magsamen-Conrad et al., 2015).

The perceived benefits of e-procurement depend strongly on the users’ level of technology literacy, and this study focuses on the technology literacy of procurement managers. Some research contributions have shown that technological literacy on the management side is very critical in increasing operational efficiency of business firms (Wilbon, 2002). It is worth noting that the adoption of e-procurement or any other kind of information technology has to be done through a top down approach (Teo et al., 2009), and the managers with high technological literacy can easily realise the effect of e-procurement adoption on organisational performance, and provide necessary support needed for e-procurement implementation. Thus, technology literacy might interact with perceived usefulness to increase the extent of e-procurement. Therefore, we suggest the following proposition.

Proposition 5: The effect of the perceived usefulness of procurement on the extent of e-procurement adoption is significantly enforced by the level of e-procurement manager's technology literacy.

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4.6 Technology Literacy and the Size of the Supply Base

We expect the technology literacy of procurement managers and the size of the supply base to have an interaction effect on the extent of e-procurement adoption. Based on knowledge from organization behaviour literature, top manager make most of the strategic decisions in the organisations and they rarely make decisions in isolation. Instead, decision makers more often receive inputs from advisors, and the characteristics of the advisor provide important influence on the extent of advising activities (Tost, Gino and Larrik), and decision makers will assign more weight on the advices when the advisors possess solid experiences and knowledge (Feng and MacGeorge, 2006).

Solid technological knowledge among procurement managers should enforce the importance of their advices to the top management regarding e-procurement adoption. Thus, better technology literacy should enforce the ability of procurement managers to influence the adoption of e-procurement. The size of the supply base concerns the motivation for adopting e-procurement technologies in order to reduce administrative transaction costs. Accordingly, the effect of technology literacy on the extent of e-procurement adoption should be enforced as the size of the supply bases increases, and we propose:

Proposition 6: The effect of the procurement manager’s technology literacy on the extent of procurement adoption is significantly enforced by the size of the supply base.