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Technovation 28 (2008) 135–145


www.elsevier.com/locate/technovation

Determinants of e-business diffusion: A test of the technology


diffusion perspective
Hsiu-Fen Lina,, Szu-Mei Linb
a
Department of Shipping and Transportation Management, National Taiwan Ocean University, No. 2, Beining Road, Keelung 202-24, Taiwan, ROC
b
Taipei County Leh-Lih Elementary School, Taiwan

Abstract

Based on the technology diffusion theory and the technology–organization–environment (TOE) framework, this study develops a
research model to study the determinants of e-business diffusion. The research model examines the influence of technological context (IS
infrastructure and IS expertise), organizational context (organizational compatibility and expected benefits of e-business) and
environmental context (competitive pressure and trading partner readiness) on e-business diffusion. E-business diffusion is characterized
by two dimensions: internal integration and external diffusion. Data gathered from 163 IS executives in large Taiwanese firms were
employed to test the relationships between the research model constructs using a structural equation modeling (SEM) approach. Among
the TOE factors, the results reveal that IS infrastructure, IS expertise, expected benefits of e-business, and competitive pressure are
important factors shaping e-business diffusion. Implications for practice and research are discussed.
r 2007 Elsevier Ltd. All rights reserved.

Keywords: Technology diffusion; Technology–organization–environment framework; E-business; Structural equation modeling

1. Introduction ing sales, customer services, procurement, information


sharing and coordination with trading partners) (Straub
Electronic business (e-business), or the use of Internet- and Waston, 2001; Zhu and Kraemer, 2002).
based technologies to conduct business, is recognized as an E-business is different from previous traditional techno-
important area for information technology (IT) innovation logical innovation, such as management IS and electronic
and investment (Sauer, 2000). Firms are increasingly data interchange (EDI), which were used to improve the
attempting to incorporate e-business into their existing efficiency of IS functions and supports batch exchange of
information systems (IS) applications and business pro- structured procurement documents (Moore and Benbasat,
cesses, and build Internet-based technologies for transact- 1991; Iacovou et al., 1995). In contrast, e-business
ing business with trading partners (Kowtha and Choon, represents a new way to integrate Internet-based technol-
2001; Moodley, 2003; Yang et al., 2005; Teo et al., 2006). ogies with core business potentially affecting the whole
Developing e-business capability is an important under- business (Zhu, 2004). Hence, successful e-business diffusion
taking because it is not only rapidly chaining the way that is considered as one of the most significant IT innovation in
companies buy, sell, and deal with customers, but also contemporary organizations. On the other hand, drawing
becoming a more integral part of its business strategies upon the technology diffusion perspective and the context
(Abu-Musa, 2004). E-business diffusion becomes a sig- of Web technologies, most studies focused on Web
nificant research topic because it enables the firm to execute technologies have differentiated internal integration and
electronic transactions along value chain activities (includ- external diffusion, concentrating on the permeation of the
diffusion process in extended firm value chain (Rogers,
Corresponding author. Tel.: +886 2 24622192 x3409; 1995; Gonsalves et al., 1999; Ranganathan et al., 2004; Zhu
fax: +886 2 24631903. and Kraemer, 2005). Since this study is primarily
E-mail address: hflin@mail.ntou.edu.tw (H.-F. Lin). concerned with e-business diffusion, it is an Internet-based

0166-4972/$ - see front matter r 2007 Elsevier Ltd. All rights reserved.
doi:10.1016/j.technovation.2007.10.003
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136 H.-F. Lin, S.-M. Lin / Technovation 28 (2008) 135–145

IS used by a firm to integrate internal business activities, production systems. IS researchers have proposed the
processes, and IS and conducting business transactions e-business as an organization-wide ‘‘technological innova-
with trading partners. Hence, to conform to the practice in tion’’ (Kendall et al., 2001; Jackson and Harris, 2003; Lin
academic research, this study uses the terms ‘‘internal and Lee, 2005), which offers firms opportunities to
integration’’ and ‘‘external diffusion’’ to represent the establish interactive relationships with business partners
e-business diffusion. (such as suppliers, logistics providers, wholesalers, dis-
Early research on e-business emphasized how companies tributors, service providers, and end customers), improve
derived competitive advantage, and primarily focused on operating efficiency and extend their reach, all at a very low
case studies of a small sample of organizations (Martin- cost (Ash and Burn, 2003). E-business thus significantly
sons, 2002; Ihlstrom and Nilsson, 2003). Some IS studies impacts business process change, diffusion innovation, and
have examined the influences on Internet-based IS accep- even business transformation.
tance, adoption and use primarily based on research on Prior technology diffusion research suggests that IT
technology acceptance model (Carayannis and Turner, diffusion can define as an organizational effort to diffuse
2006; Cheng et al., 2006) and innovation adoption theory an appropriate IT within an organizational community
(Kendall et al., 2001; Oh et al., 2003; Russell and Hoag, (Kwon and Zmud, 1987). Furthermore, in interorganiza-
2004). These studies indicated that perceived innovation tional settings, several studies argued that IT diffusion have
characteristics (perceived usefulness, ease of use, and differentiated internal integration and external diffusion,
compatibility) may influence decisions regarding Internet- which encompasses a range of internal organizational
based IS acceptance, adoption and use. There have been activities as well as interorganizational processes that
some empirical studies (Zhu et al., 2003; Xu et al., 2004; stretch beyond firm boundaries (Cooper and Zmud, 1990;
Zhu and Kraemer, 2005; Bayo-Moriones and Lera-Lopez, Fichman and Kemerer, 1997; Ramamurthy et al., 1999;
2007) that have examined the factors influencing e-business Ranganathan et al., 2004). Since e-business refers to the use
adoption and value creation, primarily based on the of Internet-based applications for computing and commu-
technology–organization–environment (TOE) framework. nications to manage intra- and interorganizational business
They have primarily assessed technology adoption and processes, it was necessary to view e-business diffusion
performance, yet have not examined technology diffusion from both internal and external perspectives. Therefore,
processes. To the best of our knowledge, very limited based on the above theoretical considerations and litera-
empirical research has been performed to evaluate the ture review, this study specifies internal integration and
technological, organizational, and environmental contexts external diffusion as two dimensions of e-business diffu-
that influence the use of e-business within and outside the sion. The discussion in this study operationally defines
firm. This study fills this gap; the objectives of this study internal integration as the extent to which e-business is
are as follows: integrated with key internal organizational activities and IS
applications. Meanwhile, external diffusion refers to the
(1) To identify a comprehensive set of determinants of e- extent to which the firm integrates its trading partners and
business diffusion based on the TOE framework. transactions with them through e-business systems.
(2) To examine the influence of technological, organiza-
tional, and environmental contexts on e-business 2.2. The contexts of e-business diffusion
diffusion in terms of both internal integration and
external diffusion. A theoretical model for e-business diffusion needs to
(3) To provide valuable guidelines to policy-makers and consider factors that influence the propensity to adopt,
practitioners in implementing e-business and accelerat- implement, and diffuse the technological innovation, which
ing e-business development. is rooted in the specific technological, organizational, and
environmental contexts of the firm. The TOE framework
serves as an important theoretical perspective for studying
contextual factors (Tornatzky and Fleischer, 1990). The
2. Theoretical background TOE framework identifies three aspects that may influence
organizational usage of technological innovation: (1)
The two main areas of research that serve as theoretical technological context includes both internal and external
foundations for this study are technology diffusion technologies used by the firm; (2) organizational context
perspective and the contexts of e-business diffusion. Key refers to descriptive characteristics of the organization,
research on these areas is briefly reviewed below. including firm size and scope, complexity of firm manage-
rial structure, and quality and degree of its human
2.1. Technology diffusion perspective resources; and (3) environmental context refers to the firm
industry and its dealings with trading partners, competitors
According to the innovation diffusion literature (Rogers, and government (Tornatzky and Fleischer, 1990).
1995), the diffusion of technological innovation generally The TOE framework has consistent empirical support in
refers to the spread of use of new methods, processes, or the IS domain. For example, empirical studies using the
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TOE framework have examined and consistently found posits internal integration and external diffusion of
support for determinants of EDI adoption, including e-business as dependent variables. The research model also
external pressure, organizational readiness (defined as both incorporates technological, organizational, and environ-
technology and financial resources), and perceived benefits mental contexts as important determinants of e-business
(Iacovou et al., 1995; Chau and Tam, 1997; Kuan and diffusion.
Chau, 2001). Zhu et al. (2003) applied the TOE framework After reviewing the TOE framework and considering the
in the financial industry to explain determinants of unique features of e-business, this study proposes those
e-business intent to adopt, finding support for the factors that expected to influence e-business diffusion.
importance of technology readiness, financial resources, First, the e-business refers to conducting value chain
and firm size, as well as the regulatory environment. A activities by using the Internet platform in conjunction
more recent survey by Zhu and Kraemer (2005) developed with existing IT infrastructure (Zhu et al., 2006). More-
a perception-based TOE framework incorporating five over, as reviewed in Zhu et al. (2003) and Lin and Lee
factors (technology competence, firm size, financial com- (2005) technology competence (IT infrastructure, technical
mitment, competitive pressure, and regulatory support) as expertise, and knowledge level) is an important dimension
important antecedents of e-business use and organizational for successful e-business adoption. Thus, this study
outcomes. Drawing upon these empirical evidences com- incorporates IS infrastructure and IS expertise within the
bined with the literature review and theoretical perspectives technological context. Second, after even configuration of
discussed above, this study hypothesized that the TOE the e-business system to meet the firm needs and
framework is appropriate for studying e-business diffusion, preferences, a lack of fit between the e-business and
because e-business is made possible by technological company’s business processes can hamper successful
development of the Internet, driven by organiza- implementation (Straub and Waston, 2001). Furthermore,
tional readiness, and influenced by environmental factors, the firm is more likely to adopt a technological innovation
especially the situations of suppliers, customers, and if it brings greater organizational benefits rather than
competitors (Zhu and Kraemer, 2002). maintaining the status (Moore and Benbasat, 1991).
Therefore, this study includes organizational compatibility
3. Research model and expected benefits within the organizational context.
Third, because the environment presents both opportu-
Grounded in a two-dimensional construct of e-business nities and constraints for technological innovation,
diffusion and technology diffusion contexts discussed e-business is influenced by environmental factors related
above, this study develops the research model as shown to competition and interorganizational relationships (Zhu
in Fig. 1. Drawing upon the earlier discussion, this study et al., 2004; Lin et al., 2005). Additionally, e-business

Technological context
H1
IS infrastructure

H2
IS expertise

E-business diffusion
Organizational context
Ha Internal
Organizational H3 integration
compatibility
H7
Expected benefits H4
of e-business Hb
External diffusion

Environmental context
Competitive H5
pressure

Trading partner H6
readiness

Fig. 1. The research model.


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enables the firm to compete in broader market segments H2a, H2b. IS expertise positively affects the e-business
and trade with wider partner base (Porter, 2001), compe- diffusion (in terms of internal integration and external
titive pressure and trading partner readiness would be diffusion).
significant facilitators to e-business diffusion. Thus, com-
petitive pressure and trading partner readiness are critical 3.2. Organizational context
factors that should be examined within the environmental
context. The examination of organizational contexts in this study
In summary, this study adopted the TOE framework and includes organizational compatibility, which refers to the
adapted it to the e-business domain, thus providing a degree to which a technological innovation is perceived as
conceptual guideline for explaining important determi- being consistent with existing operating practices, beliefs
nants of e-business diffusion. The research model (see and values, past experiences, and needs (Rogers, 1995).
Fig. 1) in which the two dimensions of e-business diffusion Greater compatibility between organizational policy and
is a function of technological (IS infrastructure and IS technological innovation is positive because it permits
expertise), organizational (organizational compatibility innovation to be interpreted in more familiar contexts
and expected benefits of e-business), and environmental (Rogers, 1995). E-business can lead to significant changes
contexts (competitive pressure and trading partner readi- in work procedures because it replaces numerous manual
ness). Each of variables in the research model and paper-based work procedures with electronic means and
hypotheses is detailed below. may even involve the reengineering of entire value chain.
Therefore, greater fit among components of e-business, for
3.1. Technological context example between e-business functions and existing operat-
ing practices, is desirable because it increases the likelihood
Research has shown that firms with sophisticated IS of achieving successful e-business diffusion. Furthermore,
infrastructure have increased chances of successfully Kwon and Zmud (1987) concluded that incompatibility of
implementing IS (Fielder et al., 1996; Zhu and Kraemer, new technologies with existing values and work practices is
2005). In this study, IS infrastructure refers to technologies one of the greatest inhibitors in IS implementation.
that provide a foundation for Internet-related businesses. Thus, when firms perceive e-business as compatible with
In a comprehensive review of IS research (Kowtha and existing beliefs and work practices, they are more likely to
Choon, 2001), the extent of efforts to introduce an IT be positively predisposed to promoting its successful
innovation depends on complementary resources and diffusion.
existing IS infrastructure, since firms that are already H3a, H3b. Organizational compatibility positively affects
familiar with IT appear to have a positive attitude toward the e-business diffusion (in terms of internal integration
further IT diffusion. Moreover, Zhu et al. (2003) also and external diffusion).
argued that e-business be unlikely to become an integral
part of the value chain if firms lack necessary technology Perceived benefits refer to the degree to which new
infrastructure. Hence, it is hypothesized that increased IS technologies provide more benefits than old ones. Research
infrastructure will increase the likelihood of successful on IS adoption and implementation has identified the
e-business diffusion. importance of expected benefits of IS in post adoption
behaviors such as use and diffusion (Cooper and Zmud,
H1a, H1b. IS infrastructure positively affects the 1990). Correspondingly, facilitators of e-business imple-
e-business diffusion (in terms of internal integration and mentation reported obvious benefits such as increased
external diffusion). sales, greater efficiency of internal processes, increased
employee productivity, improved customer service, reduced
IS expertise is defined as the firm level of specialized IS inventory and procurement costs, and improved coordina-
expertise in e-business. Firms are more likely to adopt tion with trading partners (Zhu and Kraemer, 2005). Gibbs
complex technological innovations when IS expertise is and Kraemer (2004) reported a lack of awareness of IS
available, and IS expertise thus can increase firm propen- benefits to be one of the most significant barriers to IS
sity to implement technological innovation (Crook and implementation and expansion. Some empirical studies
Kumar, 1998; McGowan and Madey, 1998). Chau and also validated that positive perceptions of the benefits of
Tam (1997) identified lack of IS expertise as a key factor technological innovation provide an incentive for the use of
inhibiting IS evolution and implementation. Empirical new technologies (Chau and Tam, 1997; Ramamurthy et
evidence exists that firms whose employees have the al., 1999). Hence, this study hypothesizes that higher
necessary skills and technical knowledge are more likely expected benefits of e-business are likely to facilitate
to develop e-business applications (Lin and Lee, 2005). extensive use of e-business within and outside the firm.
Hence, this study hypothesizes that a higher level of IS
expertise is likely to integrate e-business with internal IS H4a, H4b. Expected benefits of e-business positively affect
applications and to be linked to a greater proportion of the e-business diffusion (in terms of internal integration
trading partners and business transactions. and external diffusion).
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3.3. Environmental context operations, and e-business systems should aid automated
business processes and streamlined information flows along
This study defines competitive pressure as pressure the value chain. Thus, this study hypothesizes that firms
resulting from a threat of losing competitive advantage, with higher degrees of internal integration of e-business are
forcing firms to adopt and diffuse e-business. Numerous more likely to establish electronic linkages with trading
studies have identified competitive pressure as an impor- partners.
tant determinant of degree of computerization (Dasgupta
et al., 1999), adoption and use of interorganizational H7. Internal integration of e-business positively affects the
systems (Grover, 1993), EDI diffusion (Ramamurthy et al., external diffusion of e-business.
1999), or e-business adoption (Zhu et al., 2003). Further-
more, e-business is a capability that provides infrastructure
for managing information and facilitates inter-firm colla- 4. Research methodology
boration to improve transactional efficiencies, expand
existing channels, and to take advantage of new opportu- 4.1. Measurement development
nities. Firms that are first-movers in deploying e-business
have tended to derive the greatest advantages. Hence, Measurement items used in this study were adapted from
e-business is expected to be implemented and operated previously validated measure or were developed on the
most successfully in highly competitive environments. basis of a literature review. IS infrastructure was measured
with items adapted from Premkumar and Ramamurthy
H5a, H5b. Competitive pressure positively affects the e- (1995). The measure focused on the telecommunications
business diffusion (in terms of internal integration and and database infrastructure. IS expertise was assessed with
external diffusion). items adapted to reflect the firm level of specialized IS
Considerable empirical support exists for the importance expertise (Thong, 1999). Three items measured the
of trading partner readiness in successfully implementing organizational compatibility of e-business with existing
Internet-based technologies, since partner relationships are operating practices, beliefs and value systems, and IS
significant determinants of interorganizational systems infrastructure (Ramamurthy et al., 1999). Expected bene-
adoption and implementation (Chau and Tam, 1997). fits were measured using four strategic benefits, each of
Iacovou et al. (1995) suggested that a powerful supplier or which was assessed in terms of to what degree it motivated
customer may pursue IS strategies to induce its trading firms to implement e-business: expanding markets for
partners to use e-business because value can be maximized existing products/services, providing more timely and
only when many trading partners are using e-business. accurate information for decision-making, providing a
Simatupang et al. (2002) also argued that greater trading better mode of transaction communication, and improving
partner expertise provides firms with an external reason for coordination with trading partners (Zhu et al., 2004).
using e-business linkages. Hence, it is hypothesized that Competitive pressure, which measures the degree of
increased trading partner readiness will lead to greater pressure exerted by competitors on the e-business imple-
internal integration and external diffusion of e-business. mentation decision, was assessed using two items based on
guidelines provided by Premkumar and Ramamurthy
H6a, H6b. Trading partner readiness positively affects the (1995). Trading partner readiness was measured using four
e-business diffusion (in terms of internal integration and items derived from Chwelos et al. (2001). The measure
external diffusion). focused on potential partner willingness and ability to use
e-business.
3.4. Integration and diffusion of e-business Two variables, internal integration and external diffu-
sion of e-business, were used to measure the e-business
Internal integration is defined as the degree of inter- diffusion. Internal integration was assessed by the level of
connectivity among organizational activities and IS appli- integration of e-business in four major IS applications,
cations. The aim of technology integration is to enhance namely accounting and financial management, material
responsiveness of IS and enable information exchange and inventory control, order processing and fulfillment,
within the firm and along the value chain, thereby and sales force automation (Ramamurthy et al., 1999).
improving transactional efficiencies and expanding the External diffusion was measured using four items asking
existing channel (Goodhue et al., 1992; Zhu and Kraemer, respondents about the extent to which e-business achieves
2002). Moreover, researchers have observed that integrated electronic integration with suppliers and customers. These
Internet-based IS help firms improve communication items were adapted from Ramamurthy and Premkumar
between employees, suppliers, and customers and form (1995) and Zhu (2004). For all the measures, a five-point
electronic linkages across organizational boundaries Likert scale was adopted with anchors ranging from
(Champy, 2002). Internal integration is critical for strongly disagree (1) to strongly agree (5). Table 1 lists
e-business, because e-business requires full integration of the final questionnaire items used to measure each
Internet-based technologies with current core business construct.
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Table 1 Table 1 (continued )


Summary of measurement scales
Constructs/Measures Factor
Constructs/Measures Factor loading
loading
Internal integration (II) composite reliability ¼ 0.92
IS infrastructure (ISI) composite reliability ¼ 0.88 Extent of integration of e-business in y
ISI1 Our firm has a good 0.86 II1 Accounting and financial management 0.92
telecommunications infrastructure II2 Material and inventory control 0.88
ISI2 There are integrated Web applications 0.81 II3 Order processing and fulfillment 0.76
encompassing different functional II4 Sales force automation 0.89
areas
External diffusion (ED) composite reliability ¼ 0.96
ISI3 Our firm shares the databases for 0.84
Extent of use of e-business in y
various applications, rather than
ED1 Exchange operational data with 0.93
having a separate database for each
suppliers
application
ED2 Exchange of operational data with 0.95
business customers
IS expertise (ISE) composite reliability ¼ 0.83
ED3 Facilitating shipment and logistics 0.89
ISE1 IS employees are generally aware of 0.78
management with suppliers
the functions of e-business
ED4 Customer service support 0.91
ISE2 Our firm hires highly specialized or 0.85
knowledgeable personnel for e-
business
ISE3 IS employees are well trained in e- 0.72 4.2. Survey administration
business
To empirically test the research model, a sample is
Organizational compatibility (OC) composite reliability ¼ 0.86
OC1 Implementing the changes caused by 0.79 selected from China Credit Information Service Ltd. in
the adoption of e-business is 2005 that were listed in a database published by the 1000
compatible with existing operating largest firms in Taiwan. To ensure that IS executives
practices received the questionnaire and maximize the response rate,
OC2 Implementing the changes to work 0.85
four research assistants spent one month telephoning these
procedures initiated by the adoption
of e-business is compatible with the
1000 firms; they asked the target firms whether they
beliefs and values in our firm adopted e-business and asked for the name of the CIO,
OC3 The adoption of e-business is 0.81 CTO, or most senior IS executives. Firms that were not
compatibility with existing IS adopters of e-business were removed from the list. This
infrastructure process produced a sample of 732 firms in several different
industries. The final questionnaires were mailed to the 732
Expected benefits of e-business (EBE) composite reliability ¼ 0.89
EBE1 E-business is useful to expand market 0.84 IS executives in the summer of 2006. A cover letter
for existing products/services explaining the study objectives and stamped return
EBE2 E-business is useful to provide more 0.87 envelope were enclosed. Follow-up letter were sent
timely and accurate information for approximately one month after the initial mailing.
decision-making
Of the 732 distributed, 163 completed and usable
EBE3 E-business is useful to provide a better 0.74
mode of transaction communication questionnaires were returned, representing a response rate
EBE4 E-business is useful to improve 0.80 of 22.3%. All respondents were CIO, CTO, or IS
coordination with trading partners executives who had worked in the IS field for an average
of 9.7 years. The majority of respondents were from
Competitive pressure (CP) composite reliability ¼ 0.77
manufactures, representing 37.8% of the sample. The next
CP1 Our firm experienced competitive 0.77
pressure to implement e-business
highest were from banking, finance and insurance entities,
CP2 Our firm would have experienced a 0.81 representing 21.4% of the sample. The remaining cate-
competitive disadvantage if e-business gories exhibit a modest range of representation from a
had not been adopted minimum of 0.9% (foods) to a maximum of 9.2%
(wholesale). The sample was split between 0 and 1000
Trading partner readiness (TPR) composite reliability ¼ 0.90
employees (60.2%) and greater than 1000 employees
TPR1 Majority trading partners requested 0.82
implementation of e-business (39.8%).
TPR2 Majority trading partners 0.76
recommended implementation of e- 4.3. Questionnaire data analysis
business
TPR3 Trading partners are generally very 0.85
Data analysis utilized a two-stage approach as recom-
knowledgeable regarding technical
matters mended by Anderson and Gerbing (1988). The first stage
TPR4 Trading partners contain considerable 0.90 involves the analysis of the measurement model, while the
technical expertise second stage tests the structural relationships among latent
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constructs. The aim of the two-stage approach is to assess Table 3


the reliability and validity of the measures before their use Model fit indices for the structural model
in the research model. Model fit indices Results Recommended
Confirmatory factor analysis (CFA) was applied to value
assess the reliability and validity of the proposed con-
structs. Table 1 presents the results of the CFA analysis. Chi-square statistic w2/df 2.03 p3
NNFI 0.90 X0.90
For a measurement model to have sufficiently good model
CFI 0.93 X0.90
fit, the w2 value normalized by degrees of freedom (w2/df) RMSEA 0.067 p0.08
should not exceed 3 (Bagozzi and Yi, 1988), and Non-
Normed Fit Index (NNFI) and Comparative Fit Index
(CFI) should exceed 0.9. For the current CFA model, w2/df 0.80 to suggest a problem with multicollinearity among the
was 1.98 (w2 ¼ 430; df ¼ 217), NNFI was 0.91, CFI ¼ 0.94, research variables (Hair et al., 1995).
suggesting adequate model fit. Additionally, the results in The structural model reflecting the assumed linear,
Table 1 indicate that the composite reliability of all scales causal relationships among the constructs was tested with
exceeds the 0.7 thresholds for acceptable reliability, as the data collected from the validated measures. The model
suggested by Bagozzi and Yi (1988). The convergent fit indices were within accepted thresholds: w2 to degrees of
validity was established if all indicator loadings were freedom ratio of 2.03 (w2 ¼ 457; df ¼ 225), NNFI ¼ 0.90,
statistically significant and greater than 0.7. For the current CFI ¼ 0.93, and RMSEA ¼ 0.067 (see Table 3).
CFA model, all factor loadings were above the 0.7 Table 4 shows the results of hypotheses. Ten out of the
threshold (see Table 1) (Bagozzi and Yi, 1988). Finally, 13 hypotheses exhibited a p-value less than 0.05, while the
the discriminant validity of the scales was assessed using remaining three were not significant at the 0.05 level of
the guideline suggested by Fornell and Larcker (1981): the significance. Two technological variables (IS infrastructure
square root of the average variance extracted (AVE) from and IS expertise), one organizational variable (expected
the construct should be greater than the correlation in the benefits of e-business) and one environmental variable
model. Table 2 lists the correlations among the constructs, (competitive pressure) were found to positively influence
with the square root of the AVE on the diagonal. All the internal integration and external diffusion of e-business.
diagonal values exceed the inter-construct correlations; However, contrary to hypotheses H3a and H3b, organiza-
hence the test of discriminant validity was acceptable. tional compatibility showed no significant influence on
Therefore, we conclude that the scales should have internal integration and external diffusion of e-business.
sufficient construct reliability and validity. Moreover, trading partner readiness exhibited significant
In addition to validity assessment, this study examined influence on external diffusion of e-business, but not on
the extent of multicollinearity problems (see Table 2). The internal integration of e-business. Consequently, hypoth-
highest squared correlation among the research variables esis H6b was supported, while hypothesis H6a was not
was 0.58 between the aggregated measure of internal supported. Finally, hypothesis H7 was supported which
integration of e-business and external diffusion of proposed a positive association between internal integra-
e-business. None of the squared correlations was close to tion and external diffusion.
The explanatory power of the research model is also
Table 2 shown in Table 4. The R2 values showed that IS
Correlations and AVE infrastructure, IS expertise, expected benefits of e-business,
and competitive pressure account for 41% of variance of
AVE Construct
internal integration of e-business. Moreover, together with
ISI ISE OC EBE CP TRP II ED technological, organizational, and environmental context
variables and internal integration explained 57% of the
ISI 0.70 0.84 variance in external diffusion.
ISE 0.62 0.31 0.79
OC 0.67 0.47 0.50 0.82
EBE 0.66 0.46 0.22 0.41 0.81 5. Discussion and implications
CP 0.62 0.52 0.37 0.45 0.34 0.79
TRP 0.70 0.50 0.32 0.28 0.32 0.51 0.84 5.1. Summary of results
II 0.75 0.44 0.42 0.36 0.53 0.40 0.17 0.87
ED 0.85 0.36 0.39 0.22 0.55 0.32 0.24 0.76 0.92
This study examines the relationships between techno-
Note 1: Diagonal elements (in bold) are the square root of the average logical, organizational, and environmental contexts and
variance extracted (AVE). Off-diagonal elements are the correlations two measures of e-business diffusion: internal integration
among constructs. For discriminant validity, diagonal elements should be and external diffusion. The findings indicate that firms with
larger than off-diagonal elements.
sophisticated IS infrastructure and IS expertise are
Note 2: ISI ¼ IS infrastructure; ISE ¼ IS expertise; OC ¼ organizational
compatibility, EBE ¼ expected benefits of e-business, CP ¼ competitive important in explaining both aspects of e-business diffu-
pressure, TRP ¼ trading partner readiness, II ¼ internal integration, sion. The results are similar to Kowtha and Choon’s (2001)
ED ¼ external diffusion. findings that firms with more sophisticated technological
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Table 4
Results of estimation structural model

Hypothesis Path from Path to R2 Path coefficient Supported?

H1a IS infrastructure Internal integration 0.41 0.22** Yes


H2a IS expertise 0.25** Yes
H3a Organizational compatibility 0.04 No
H4a Expected benefits of e-business 0.37*** Yes
H5a Competitive pressure 0.16* Yes
H6a Trading partner readiness 0.01 No
H1b IS infrastructure External diffusion 0.57 0.26** Yes
H2b IS expertise 0.31** Yes
H3b Organizational compatibility 0.08 No
H4b Expected benefits of e-business 0.28** Yes
H5b Competitive pressure 0.21** Yes
H6b Trading partner readiness 0.16* Yes
H7 Internal integration 0.27** Yes

*po0.05, **po0.01, ***po0.001.

resources (hardware, software, expertise) may be more able Taiwanese firms, which tend to use persuasive or coercive
to implement IS effectively. Accordingly, firms with power to influence trading partner adoption of e-business.
sophisticated IS infrastructure and IS expertise are more Thus, trading partners have less influence on their internal
likely to increase e-business diffusion. This implies that IS applications and business processes.
technology competence helps to leverage existing IS Finally, this study found significant positive associations
applications and data resources across key processes along between both internal integration and external diffusion of
the value chain. e-business. The results are consistent with those of
Unexpectedly, organizational compatibility did not Ranganathan et al. (2004), who observed that the internal
significantly impact the e-business diffusion. This result assimilation of web technologies creates capabilities that
may occur because organizational compatibility may enhance a firm’s ability to diffuse web-based systems in the
influence initial e-business adoption, but not extent of extended enterprise. Thus, firms with greater internal
implementation. That is, e-business adopting firms may integration of e-business are in a better position to facilitate
have already made requisite organizational changes, easier diffusion of e-business systems.
reducing the influence of organizational compatibility in
distinguishing different levels of e-business diffusion. This 5.2. Implications for practitioners
result may also occur because the sample firms were
current e-business adopters, and thus there is likely to be This study has the following implications for practi-
less variance in the organizational environments in which tioners initiating or currently conducting e-business im-
their e-business diffusion is embedded. Moreover, the plementation exercises. First, technology resources are key
results further indicate that the expected benefits of variables indicating that the greater sophistication of IS
e-business positively influence two major aspects of structure and expertise leads to greater degree of success in
e-business diffusion–integration of e-business with internal implementing e-business. Top management and IS execu-
IS applications and external diffusion of e-business with tives wishing to deploy e-business need to assess their
trading partners. As Chwelos et al. (2001) noted, expected technological investments, as suggested by empirical
benefits can provide motivation for IS implementation and research findings. This implies that firms must pay
expansion because employee appreciation of the relative considerable attention to the capability to integrate
advantages of the new system influences the extent of IS e-business with IS applications, and keep in mind that
implementation. technology competence constitutes both physical infra-
This study shows that the emergence of competitive structure and intangible knowledge, such as Internet skills
pressure obviously is a key determinant of integration and and e-business know-how. As e-business diffuses and
diffusion of e-business. This implies that when firms face becomes necessary, IS sophistication and technical knowl-
strong competition, they tend to implement more aggres- edge for e-business becomes even more significant,
sively. Moreover, this study found that higher levels of consistent with recent e-business case studies (Auramo
trading partner readiness were found to have a positive et al., 2005). Firms with sophisticated IS resources can
influence on the external diffusion of e-business. However, more easily integrate and utilize e-business. Second,
this study did not support the hypothesis that trading because benefit potential was important for both internal
partner readiness had positively effects on the internal integration and external diffusion of e-business, top
integration of e-business. One possible explanation is that management and IS executives should be proactive in
this study was based on samples obtained in large their efforts to identify opportunities from emerging
ARTICLE IN PRESS
H.-F. Lin, S.-M. Lin / Technovation 28 (2008) 135–145 143

Internet-based technologies. Moreover, a main implication in the IT productivity literature (Ranganathan et al., 2004).
of this finding is that increasing user awareness of the Future studies can test whether these variables also affect the
benefits of e-business would positively affect the efficient e-business diffusion. Finally, the longitudinal study of
usage and diffusion of e-business. Hence, top management Bergeron and Raymond (1997) showed that the EDI
and IS executives should remind e-business venders to implementation process (such as the planning of EDI
make more efforts to assist users in becoming aware of the adoption, testing and evaluation of initial transactions) does
benefits of e-business through training programs. Finally, not exert a long-term influence on EDI advantage, but is
the emergence of competitive pressure as a key variable positively associated with EDI advantage in the short term.
emphasizes the need to electronically integrate business It would be interesting to examine how the impact of various
operations, both internally and with trading partners. As contextual factors on the diffusion of e-business changes over
competition increases, firms may feel the need to adopt e- time. Future studies can gather longitudinal data to examine
business more extensively to achieve competitive advan- the causality and interrelationships between variables that
tage. Accordingly top management and IS executives are important to diffuse e-business innovation.
should create an e-business environment conducive to
improving responsiveness market changes and enhancing 6. Conclusions
customer services. By promoting e-business usage in a
wider scope of value chain activities, firms can obtain rich As contemporary organizations increasingly attempt to
information about markets and strengthen online integra- improve their performance in value chain activities by
tion with trading partners. using the Internet-based technologies, it becomes a
significant undertaking for firms to diffuse e-business
5.3. Limitations and future research innovation to share information, facilitate transactions,
improve customer service and strengthen coordination with
The study suffers some important limitations. First, owing trading partners. Hence, it is important to understand
to budgetary constraints, this study uses a single respondent the determinants of e-business diffusion. Using e-business
from each target firm. Although IS executives are expected to as an example of more general technological innovations,
be knowledgeable with expertise in e-business diffusion, a this study develops a research model to examine the
lack of further respondents from the same firm exist and do influence of six contextual factors on two dimensions of
not allow evaluating the e-business perceptions of the entire e-business diffusion (in terms of internal integration
group. Future research should attempt to collect responses and external diffusion). The results and findings not only
from several knowledgeable responses from the same help top management and IS executives to facilitate
organization to capture the notion of collectively held e-business deployment, but also provide theoretical foun-
e-business diffusion. Second, since the sample population dations for future research. The major contributions of this
for this research was restricted to firms using e-business, the study are:
results can only be generalized for firms that have
implemented e-business. Further research can be performed (1) Through instrument development and hypotheses
on non-adopters to determine the differences in technologi- testing, the results showed that technological resources
cal, organizational, and environmental factors between (e.g., physical IS infrastructure and intangible
adopters and non-adopters. Third, compatibility was found e-business know-how), expected benefits of e-business,
to be insignificant in influencing e-business diffusion. Perhaps and competitive pressure were three key determinants
this study did not draw a clear distinction between ‘‘technical of both dimensions of e-business diffusion–internal
compatibility’’ and ‘‘organizational compatibility’’ (Rama- integration and external diffusion. Trading partner
murthy and Premkumar, 1995). Technical compatibility readiness was other key determinants of the extent of
corresponds to the extent of fit of the new technology with external diffusion of e-business. These results reinforce
existing data and telecommunications infrastructure, while some of the past findings of technology diffusion, IS
organizational compatibility refers to the extent of fit of the implementation, and partner relationship literatures.
new technology with firm’s organizational structure or Therefore, to ensure effective e-business diffusion, top
strategy. Some research suggested that compatibility may management and IS executives need to ensure not only
be related to the implementation success of Internet-based IS that appropriate technology is considered and adopted,
(Lee and Kim, 2007). Future research should attempt to but also that the firm continuously adapt itself to the
operationalize both forms of compatibility more comprehen- internal learning requirements and new environmental
sively in order to investigate their possibly different effects on changes.
e-business diffusion. Fourth, besides the factors proposed (2) Focusing on internal integration and external diffusion
here, numerous other technological, organizational, and of e-business, this study is more different than the
environmental factors also affect IT implementation and the literature that examined IT diffusion with an adoption
associated benefits. IT activity intensity, top management versus non-adoption focus (Fichman, 2000). This study
attitude, organizational structure, and interorganizational emphasizes that it is imperative for firms to pay as
dependence have all been identified as potential moderators much attention to the integration of e-business in
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144 H.-F. Lin, S.-M. Lin / Technovation 28 (2008) 135–145

internal organizational activities and IS applications as Fichman, R.G., Kemerer, C.F., 1997. The assimilation of software process
to the interorganizational diffusion of Internet with innovations: an organizational learning perspective. Management
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Acknowledgment Gonsalves, G.C., Lederer, A.L., Mahaney, R.C., Newkirk, H.E., 1999.
A customer resource life cycle interpretation of the impact of the
World Wide Web on competitiveness: expectations and achievements.
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Council of the Republic of China, Taiwan for financially Goodhue, D.L., Wybo, M.D., Kirsch, L.J., 1992. The impact of data
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