Advances in Business-Related Scientific Research Journal (ABSRJ) 
Volume 2 (2011), Number 1 
 
 
 
MEASUREMENT MODEL FOR ASSESSING THE DIFFUSION OF E-
BUSINESS AT VOJVODINA 
Sedlak Otilija 
Faculty of Economics Subotica  
 
 
Serbia 
otilijas@ef.uns.ac.rs
 
Ćirić Zoran* 
Faculty of Economics Subotica 
Serbia 
czoran@ef.uns.ac.rs
 
Tibor Kis* 
Faculty of Economics Subotica 
Serbia 
tkis@ef.uns.ac.rs
Abstract  
The conceptual model shows how the use of e-business impacts firm performance. Drawing 
on the value hierarchy we posit that e-business leverage the unique characteristics of the 
Internet to improve business performance. We investigate e-business functionalities that 
make use of these unique characteristics and consequently enable e-business value creation.  
E-business is also influenced by organizational factors because these variables may constrain 
or facilitate the implementation and usage of e-business. Based on prior innovation studies, 
size scope, and financial commitment are identified as three critical organizational factors 
that would influence the extent of e-business use in an organization: (1) Firm size, (2) 
International scope, (3) Financial resources. 
Grounded in the innovation diffusion literature and the resource-based theory, this study will 
theoretically develop and empirically evaluate an integrative research model incorporating 
technological, organizational, and environmental factors, for assessing e-business use and 
value at the firm level. 
 
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Key Words: e-economy, firm performance, structural equation modeling, e-business value, 
resource-based theory  
Topic Groups: Organizational information and communication systems, Business strategy, 
Industry, are or region specific studies  
INTRODUCTION  
Skepticism about the value of e-business and information technology (IT) has been renewed 
recently, in part due to the gap between substantial firm spending on IT-particularly on 
Internet-related technologies-and the widespread perception about the lack of value of value 
from e-business.  
Today more than ever, IS research face strong pressure to answer the question of whether 
and how e-business investments create business value. Although innovation diffusion 
represents a complex process, much of the existing research has focused on the adoption 
decision and on measures such as "intent to adopt" and "adopting versus nonadoption" 
(Fichman 2000). We need to view e-business diffusion as a multistage process that starts at 
adoption and extends to usage and value creation. 
There is a lack of empirical evidence to gauge e-business usage and its impact on firm 
performance, partly because of the difficulty of developing measures and collecting data. A 
related issue is the lack of theory to guide empirical research. Although showing recent signs 
of advancement, the linkage between theory and measures is still weak in the e-business 
literature. Clearly, there is a need for a theoretically rigorous and empirically relevant 
framework for examining the use and value of e-business in organizations. 
Prior research argued that theories developed in the context of mature markets and 
industrialized economics need to be reexamined in the context of developing countries, 
because these countries may have very different economic and regulatory environments 
challenges the presumption of conceptual equivalence across cultural and economic barriers 
in management science research. We believe it is important to investigate whether 
innovation theories can be generalized and empirical findings are applicable in different 
economic contexts. To achieve this, we study e-business experience of organizations in 
developed and developing countries that might represent different stages of e-business 
transformation, for results in Vojvodina. 
The gaps in the literature limit our understanding of the process of e-business innovation 
and consequently of e-business value. Key research questions that motivated our work are: 
(1) What framework can be used as a theoretical basis for studying e-business use and 
value? (2) Within this theoretical framework, what factors can be identified as key 
antecedents of e-business use and value? (3) How would these factors vary across different 
economic environments like Vojvodina? 
To better understand these issues, we developed a conceptual model for e-business use 
based on the technology-organization-environment (TOE) framework (Tornatzky and 
Fleischer 1990). We also analyzed e-business value creation, from a resource-based 
perspective, that stems from the unique characteristics of the Internet.  
THEORETICAL FOUNDATIONS OF E-BUSINESS 
Unlike the typical focus on adoption (or intent to adopt) as found in the literature, we focus 
on postadoption stages, that is, actual use of e-business and value creation from e-business; 
both are important stages in the process of conducting business over the Internet. These 
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issues are analyzed on the basis of two theoretical foundations: (1) the TOE framework and 
(2) the resource-based theory of the firm. 
Different Kind of Framework for E-Business Use  
A theoretical model for e-business use needs to take into account factors that affect the 
propensity to use e-business, which is rooted in the specific technological, organizational, 
and environmental circumstances of an organization. The TOE framework identifies three 
aspects of a firm, s context that influence the process by which it adopts, implements, and 
uses technological innovations: (a) Technological context describes both the existing 
technologies in use and new technologies relevant to the firm. (b) Organizational context 
refers to descriptive measures about the organization such as scope, size, and the amount of 
slack resources available internally. (c) Environmental context is the arena in which a firm 
conduct its business-its industry, competitors, and dealings with government. 
There are three types of innovations: Type I innovations are technical innovations restricted 
to the IS functional tasks (such as relational databases, CASE); Type II innovations apply IS 
to support administrative tasks of the business (such as financial, accounting, and payroll 
systems); and Type III innovations integrate IS with the core business where the whole 
business is potentially affected and the innovation may have strategic relevance to the firm. 
We consider e-business a Type III innovation, in the sense that e-business is often 
embedded in a firm’s core business processes (e.g., making use of the open standard of the 
Internet protocol to streamline information sharing among various functional departments); 
e-business can extend basic business products and services (e.g., leveraging Internet-
enabled two-way connectivity to offer real-time customer service); and e-business can 
streamline the integration with suppliers and customers. 
E-business is a new Type III innovation and warrants investigation along with these 
innovations. In particular, the migration toward the Internet and the transformation of 
traditional processes require firms and their subunits to orchestrate the coevolutionary 
changes to their technologies in use, business processes, and value chain structures to 
successfully assimilate the Internet technologies into their e-business initiatives. 
The TOE framework is appropriate for studying e-business usage. Based on the TOE 
framework, the use of e-business in organizations will be influenced by three types of 
antecedents: technological factors, organizational factors, and environmental factors.  
The Internet is characterized by open standard (versus proprietary standard), public network 
(versus private network), and broad connectivity (back end and front end). These 
characteristics may have very different impacts on customer reach and richness of 
information. The global reach of the Internet enables cost-efficient means of reaching out to 
new markets, attracting new customers, and delivering products and services, as well as 
improving coordination with suppliers and business partners.  
E-Business Value and the Resource-Based Theory 
The resource based view (RBV) provides a theoretical basis for linking e-business use and 
value. Rooted in the strategic management literature, the RBV of the firm posits that firms 
create value by combining heterogeneous resources that are economically valuable, difficult 
to imitate, or imperfectly mobile across firms.  
The value hierarchy depicts the unique characteristics of the Internet and how these 
characteristics enable value creation via e-business. In contrast to e-business, less 
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connectivity, and a private network configuration – creates business value mainly through 
improving transactional efficiencies and reducing costs in procurement (Figure 1).  
We examined the unique characteristics of the Internet and linked them in three ways 
through which e-business may create value-transactional efficiencies, market expansion, and 
information sharing. Combining them with the RBV, we developed an e-business value 
hierarchy, as shown in Figure 1. 
Open-standard information exchange can results in a more synchronized information flow 
will make materials move efficiently along the supply chain, thereby reducing the bullwhip 
effect.  
Figure 1: E-Business Value Hierarchy: From Internet Characteristics to Value Creation 
 
 
 
Such e-business value may lead to improved firm performance in sales, procurement, and 
internal operations, as shown in the top layer of the value hierarchy in Figure 1.  
THE CONCEPTUAL MODEL AND BASIC ELEMENTS FOR DIFFUSION OF E-BUSINESS 
The Conceptual Model 
Integrating the TOE framework and the resource-based theory, we developed a conceptual 
model to assess the use and value of e-business by organizations. The key elements of the 
model and postulated relationships focuses on two postadoption stages: use and value. The 
Internet is being adopted quickly by firms in both developed and developing countries, but 
there are differences in Internet adoption between these countries. The extent of technology 
diffusion depends on a variety of economic, social, and political factors, including basic 
information infrastructure; regulatory environment; and access to technical, managerial, and 
financial resources. Therefore, we expect that there will be systematic differences between 
countries and also among firms in the actual use of e-business and related value creation. 
We will use our model to examine these differences. 
The focus on postadoption is also motivated by the process-oriented view about the use and 
value creation of IT innovations. According to the process-oriented view, merely examining 
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the initial adoption or the dollars invested in IT cannot reveal the reach and richness of 
postadoption activities, because a multistage process exists before the business value of IT 
can be realized. Thus, we incorporate these two important stages in one unified model. We 
could have just used adoption and postadoption. 
E-business use is defined as the extent to which e-business is being used to conduct value 
chain activities. This is measured by the breadth of use for different value chain activities 
and the depth of use (percentage) for each activity that has been migrated to the Internet 
platform. 
E-business value refers to the impact of e-business use on firm performance, which is 
measured by three major activities along the value chain: downstream sales (i.e., increasing 
sales and improving customer services), upstream procurement (i.e., reducing inventory and 
procurement costs and improving coordination with suppliers), and internal operations (i.e., 
increasing employee productivity and making internal processes more efficient). 
The right-hand side of the conceptual model shows how the use of e-business impacts firm 
performance. Drawing on the value hierarchy in Figure 1, we posit that e-business leverage 
the unique characteristics of the Internet to improve business performance. These 
characteristics (open standard, public network, and global connectivity) are examined from a 
functional perspective. That is, we investigate e-business functionalities that make use of 
these unique characteristics and consequently enable e-business value creation. We classify 
these e-business functionalities into two types: front-end functionalities that provide product 
information to consumers on the Internet, facilitate transaction processing, and enable 
customization and personalization; and back-end integration that links Web applications with 
back-office databases and facilitates information sharing along the value chain. Together 
with usage, these two IT-enhanced capabilities will contribute to e-business value.  
The left-hand side of the conceptual model shows the antecedents of e-business use. As 
discussed earlier, the extent of e-business use by an organization would be influenced by its 
technological, organizational, and environmental contexts within the TOE framework.  
On the basis of a thorough literature review, Kwon and Zmud (1987) asserted the 
importance of technology resources (e.g., infrastructure and technical skills) for successful IS 
diffusion. This theoretical assertion was strengthened by a number of empirical studies. 
Hence, we include technology competence in our model. 
E-business is also influenced by organizational factors because these variables may constrain 
or facilitate the implementation and usage of e-business. Based on prior innovation studies, 
size scope, and financial commitment are identified as three critical organizational factors 
that would influence the extent of e-business use in an organization. 
(1) Firm size is one of the most commonly cited factors in the innovation literature. As size 
represents several important aspects of the organization, including resource availability, 
decision agility, and prior technology experience, it should be included in the model. 
(2) International scope is an antecedent new to this study, which refers to a firm’s 
geographical spread or its extent of multicountry operations in the global market. Firms with 
activities dispersed geographically may benefit more from e-business use as a means of 
coordinating their value chains. The public, open nature of the Internet makes doing so 
easier than earlier technologies such as EDI. The global reach of the Internet makes it 
potentially more beneficial as well. As a consequence, firms with greater international scope 
are likely to use e-business to a greater extent than those with less international scope. 
Given the international dimension of our research design and our geographical, multicountry 
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emphasis on globalization of e-business, it is important to include international scope in the 
model. 
(3) Financial resources have been a popular antecedent to IS diffusion. To capture financial 
resources specifically committed to e-business rather than the overall financial resources of 
the organization, we use the construct financial commitment and define it as the 
commitment of financial resources to e-business as a proportion of total firm resources. This 
is felt to be a more appropriate antecedent of e-business use because it reflects committed 
rather than merely available resources. It also reflects the strategic importance that the 
senior management puts on e-business. One would expect that greater resource 
commitments would lead to more e-business applications that are both more useable and 
used. 
As the environment presents both constraints and opportunities for technological innovation, 
e-business is influenced by environmental factors related to competition and regulation. As 
explained above, we have selected these six antecedents based on prior research and 
particular linkages to the nature of Internet-based e-business. We incorporated these six 
factors within the technological, organizational, and environmental contexts of the TOE 
framework. Further justification for each of these factors is provided below, together with 
hypothesis development. 
Basic Elements for Diffusion of E-Business 
Based on the TOE framework, we developed the following basic elements, corresponding to 
the six factors in Figure 2 within the technological, organizational, and environmental 
contexts of the TOE framework. 
Technology Context. The literature suggests that IS capabilities consist of infrastructure, 
human resources, and knowledge. Firms with a higher degree of technology competence 
tend to enjoy greater readiness to use e-business in their value chain processes. As a result, 
they would be more likely to achieve a greater extent of e-business usage. This leads to the 
following hypothesis. 
H1. Firms with greater technology competence are more likely to achieve a greater extent of 
e-business use. 
Organization Context. Firm size is commonly cited in innovation diffusion literature, yet 
different opinions exist as to the role that firm size plays in the process of innovation 
diffusion, due to the tension between resource availability and organizational inertia. On one 
hand, large firms generally possess slack resources that can facilitate implementation and 
usage. On the other hand, firm size is often associated with inertia; that is, large firms tend 
to be less agile and flexible than small firms. The possible structural inertia associated with 
large firms may slow down organizational usage and may therefore retard e-business value 
creation. Because our model has controlled for technological and financial resources that 
large firms may possess, the notion of structural inertia leads us to expect that large firm 
size may deter e-business usage and value creation. This leads to the following hypothesis. 
H2. Controlling for resource availability effects, larger firms tend to achieve a lesser extent 
of e-business use. 
Firms conducting business in multiple markets have to manage demand uncertainty in all 
segments simultaneously, which requires a high degree of integration, flexibility and 
responsiveness in their information systems, as well as the broader information 
infrastructure linking the firm with its customers, trading partners, and distributors. As 
documented in the literature and consistent with our value hierarchy in Figure 1, e-business 
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may help to create these capabilities within the firm and with its trading partners as a result 
of common standards, lower cost, and greater ease of implementation of Internet-based 
applications. In sum, retail companies that expand globally would have a greater incentive to 
use e-business to leverage their existing IT capabilities for a competitive advantage. This 
leads to the following hypothesis. 
H3. Firms with greater international scope are more likely to achieve a greater extent of e-
business use. 
Financial resources constitute another important factor recognized in the innovation 
literature. In this study, we tailor this factor to financial resources specially committed to e-
business. Implementing e-business requires investment in hardware, software, system 
integration, and employee training. Sufficient financial resources dedicated to e-business 
helps companies to obtain these necessary resources and develop them into superior e-
business functionalities. Thus, firms with greater financial commitment are more likely to 
achieve successful e-business implementation and thus tend to achieve a greater extent of 
usage. Hence, we have the following hypothesis.  
H4. Firms with greater financial commitment are more likely to achieve a greater extent of 
e-business use. 
Environment Context. Competitive pressure refers to the degree of pressure that the 
company feels from competitors within the industry. The use of e-business may induce 
changes of industry structure through disintermediation and reintermediation, offer new 
means of competing and altering competition rules through lock-in, electronic integration, 
and brick-and-click synergy. Thus, competitive pressure plays a significant role in pushing 
firms toward using e-business. 
H5. Firms facing higher competitive pressure are more likely to achieve a greater extent of 
e-business use. 
Regulatory support is another critical environmental factor that tends to affect innovation 
diffusion. This concept is similar to government policy theorized to affect IT diffusion in 
Umanath and Campbell (1994) and empirically tested in Dasgupta et al. (1999). The latter 
found that companies operating in an environment where government policies are restrictive 
have low IT adoption.  
H6. Firms facing higher regulatory support are more likely to achieve a greater extent of e-
business use. 
Linkage from E-Business Use to E-Business Value. We draw on the RBV to explain the 
connection between usage and value. RBV suggests that the greater the extent of IT use, 
the greater the likelihood that organizations will create IT capabilities that are rare, 
inimitable, valuable, and sustainable, thereby contributing to value creation (along with 
organizational compliments). Through deeper usage in organizations, IT creates asset 
specificity, which provides a competitive advantage. A classic model for general IS success 
developed by DeLone and McLean (1992) suggested that there tends to be a strong link 
between system use and system impact.  
H7. Firms with greater e-business use are more likely to generate higher e-business value. 
E-Business Value. The ultimate goal of using e-business is to improve the business 
performance of the organization. As shown in the value hierarchy of Figure 1, e-business 
helps companies develop appropriate functionalities to leverage the Internet’s characteristics. 
E-business functionalities are categorized into two groups: front-end functionality and back-
end integration. Back-end integration helps firms achieve technology integration and enables 
information sharing within the firm and along the value chain. Thus, one would expect that 
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superior front-end functionality and back-end integration help firms improve business 
performance. This leads to the following hypothesis. 
H8. Greater e-business capabilities, including both front-end functionality and back-end 
integration, are positively associated with higher e-business value. 
Although both have the potential to create e-business value, front-end functionality and 
back-end integration may vary in importance, as suggested by the resource-based theory. 
Front-end functionality is public and open on the Internet, and thus could be easily observed 
and imitated by competitors. As a result, front-end functionality could become commodity-
like as more competitors adopt e-business. In comparison, the process of back-end 
integration is far more difficult to imitate, because its success requires quality 
complementary resources. In addition, the integration process is often tailored to a firm’s 
strategic context and woven into the organization’s fabric, which is not transparent to 
competitors. Therefore, we propose the following hypothesis.  
H9. Back-end integration will have a stronger impact on e-business value than front-end 
functionality. 
International Effects: Differences between Developed and Developing Countries. Given that 
the Internet is an open platform with global connectivity, we believe it is important to 
incorporate an international dimension in this study.  
H10. The strength of the antecedents of e-business use and value will differ for developed 
and developing countries. 
MEASUREMENT MODEL 
The development of the measurement model included successive stages of theoretical 
modeling, statistical testing, and refinement (Straub 1989). Measurement items were 
developed on the basis of a comprehensive review of the literature as well as expert opinion. 
We then tested multi-indicator constructs using confirmatory factor analysis (CFA)1. Based on 
the assessment of CFA, the measurement model was further refined and then fitted again.  
Several constructs deserve further explanation. First, technology competence is instrumented 
not only by physical technologies, but also by IT human resources that possess the 
knowledge and skills to implement e-business. Such a design is consistent with the 
theoretical rationale discussed. Our study used the major items in the first three dimensions 
to instrument front-end functionality, and the fourth dimension corresponded to our back-
end integration.  
 
1 For the purpose of testing the robustness of our measurement model, we also ran eyploratory factor analysis on all indicators. 
Principal component analysis with equamax rotation yielded a consistent grouping with CFA. 
 
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Table 1: Measurement Model: Factor Loadings, Reliability, and Convergent Validity 
Measurement Model: Factor Loadings, Reliability, and Convergent Validity 
Constructs (reliability) Indicators Loadings Convergent 
validity (t-start) 
Technology competence (0.81) 
 
 
International scope (0.81) 
 
 
Financial commitment to 
e-business (0.83) 
Competitive pressure (0.86) 
 
Regulatory support (0,80) 
 
 
 
Back-end integration (0.86) 
 
E-business use (0.78) 
 
 
 
 
Front-end functionality (0.80) 
 
 
 
 
Impact on sales (0.88) 
 
 
Impact on internal operations 
(0.90) 
 
Impact on procurement (0.87) 
TC1 
TC2 
TC3 
FS1 
FS2 
FS3 
FR1 
FR2 
CP1 
CP2 
RE1 
RE2 
RE3 
RE4 
BI1 
BI2 
EU1 
EU2 
EU3 
EU4 
EU5 
FF1 
FF2 
FF3 
FF4 
FF5 
IS1 
IS2 
IS3 
II01 
II02 
IP1 
IP2 
IP3 
0.79*** 
0.79*** 
0.71*** 
0.64*** 
0.86*** 
0.78*** 
0.86*** 
0.82*** 
0.87*** 
0.87*** 
0.68*** 
0.69*** 
0.71*** 
0.74*** 
0.87*** 
0.86*** 
0.64*** 
0.50*** 
0.46*** 
0.83*** 
0.75*** 
0.63*** 
0.65*** 
0.67*** 
0.72*** 
0.68*** 
0.86*** 
0.84*** 
0.81*** 
0.89*** 
0.91*** 
0.85*** 
0.85*** 
0.79*** 
46.76 
37.10 
24.90 
36.65 
160.80 
52.66 
29.07 
15.84 
74.04 
73.89 
21.30 
24.87 
22.91 
30.76 
80.53 
79.54 
18.44 
6.67 
4.85 
35.95 
13.55 
15.92 
25.76 
26.00 
24.31 
20.46 
76.46 
51.62 
41.92 
81.85 
123.42 
50.11 
74.50 
37.90 
* p < 0.10; ** p < 0.05; *** p < 0.01. Insignificant factors are dropped (FS4 and 
FS5). 
 
To empirically assess the constructs theorized above, we conducted CFA using structural 
equation modeling. We assessed construct reliability, convergent validity, discriminant 
validity, and validity of the second-order construct. The measurement properties are 
reported in Table 1. 
(1) Construct Reliability: Construct reliability measures the degree to which items are free 
from random error and therefore yield consistent results. In our measurement model (Table 
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1), all constructs have a composite reliability over the cutoff of 0.70, as suggested by Straub 
(1989). 
(2) Convergent Validity and Discriminant Validity: Convergent validity assesses the 
consistency across multiple operation. As shown in Table 1, all estimated standard loading 
are significant (p<0.01), suggesting good convergent validity. To assess the discriminant 
validity-the extent to which different constructs diverge from one another-we used Fornell 
and Larcker’s (1981) criteria: average variance extracted for each construct should be 
greater than the squared correlation between constructs.  
Table 2:  Measurement Model: Second-Order Construct 
Table 2  Measurement Model: Second-Order Construct 
Second-order 
construct 
First-order 
construct 
 
Loading 
 
t-stat 
Composite 
reliability 
E-business 
value 
Impact on sales 
Impact on internal 
operation 
Impact on 
procurement 
0.865*** 
0.805*** 
 
0.844*** 
77.68 
44.08 
 
55.52 
0.88 
* p < 0.10; ** p < 0.05; *** p < 0.01 
 
(3) Validity of the Second-Order Construct: Table 2 shows the estimation of the second-
order construct, e-business value. The paths from the second-order construct to the three 
first-order factors are significant and of high magnitude, greater than the suggested cutoff of 
0.7. Our model has a very high T ratio of 0.99, implying that the relationship among first-
order constructs is sufficiently captured by the second-order construct. Therefore, on both 
theoretical and empirical grounds, the conceptualization of e-business value as a higher-
order, multidimensional construct seems justified. In summary, our measurement model 
satisfies various reliability and validity criteria. Thus, constructs developed by this 
measurement model could be used to test the conceptual model and the associated 
hypotheses proposed earlier. Empirical tests are on the Integrated Model of E-Business Use 
and Value (Figure 2). 
 
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Figure 2. An Integrated Model of E-Business Use and Value 
 
 
 
Our model has a very high T ratio of 0.99, implying that the relationship among first-order 
constructs is sufficiently captured by the second-order construct. Therefore, on both 
theoretical and empirical grounds, the conceptualization of e-business value as a higher-
order, multidimensional construct seems justified. In summary, our measurement model 
satisfies various reliability and validity criteria. Thus, constructs developed by this 
measurement model could be used to test the conceptual model and the associated 
hypotheses proposed earlier.  
ANALYSIS AND INTERPRETATIONS 
1. We tested the conceptual model in Figure 2 by structural equation modeling using both 
the full sample and the sample split between developed and developing countries. Although 
theory and prior research led us to expect differences, we did not know a priori that there 
would be differences between the full and split samples; therefore, we needed to do the 
analysis for both. It also enabled us to relate our finding to the broader IT literature. 
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The strong statistical power enhanced our confidence in the result of hypotheses rtesting, 
which is based on the examination of the standardized paths shown in Figure 2. For e-
business use, five of six TOE factors-technology competence, size, financial commitment, 
competitive pressure, and regulatory support- have significant paths leading to the 
dependent construct. Size has a negative path, while the other factors have positive paths. 
The path associated with international scope is positive but statistically insignificant 
(p>0.10).  
E-business value is also shown to have significantly positive associations with front-end 
functionality and back-end integration. Hence, Hypothesis 8 is supported. To test hypothesis 
9, we compared the standardized path from front-end functionality to e-business value with 
standardized path from back-end integration to e-business value. Back-end integration is 
found to have much higher magnitude than front-end functionality (0.239*** versus 
0.141***). Thus, Hypothesis 9 is supported. 
Within the TOE framework, technology competence, financial commitment, competitive 
pressure, and regulatory support are found to have significant influence on the extent of e-
business use. Among these, technology competence appears to be strongest factor. 
As indicated by their significant and positive paths in Figure 2, firms with higher levels of 
technology competence tend to achieve greater extent of e-business use, as do firms facing 
competitive pressure and regulatory support. Among all the TOE factors, technology 
competence is the most significant factor, as indicated by its path loadings and significance 
levels (p < 0.01), followed by regulatory support. Within the organizational context, our 
study reveals a negative effect of firm size on e-business use. While it has been commonly 
believed that large firms have more slack resources for committing required investments, our 
results show that large firms are also burdened by structural inertia, possibly due to 
fragmented legacy systems and entrenched organizational structures. Our model has 
controlled for technological and financial resources, and thus the net effect of firm size in our 
model might be dominated by structure inertia. These results suggest that the proposed 
research model in Figure 2 is a useful theoretical framework for explaining factors that affect 
the use of e-business by companies. 
2. The linkage from e-business use to e-business value is found t be significant, suggesting 
that use would be a "missing link" if not included.  
As theorized earlier, firms with higher e-business use-tend to achieve greater value from e-
business use tend to achieve greater value from e-business. Our results from both the full 
sample and the split sample consistently show a significant and positive linkage from e-
business use to e-business value. This means that higher degrees of e-business use are 
associated with improved business performance. This also confirms the earlier postulation 
that actual use may be the "missing link" to IT payoff. This significant linkage also supports 
our research design, in which use and value are evaluated together in one model. 
3. Both front-end functionality and back-end integration contribute to value creation of e-
business. 
Using a large dataset, our analysis has identified two ways in which e-business creates 
value-front-end functionality and back-end integration. This finding is supported by the 
significant and positive linkages from front-end functionality and back-end integration to e-
business value. Front-end functionalities help firms provide timely information to customers, 
facilitate personalization and account management, expand existing channels, and improve 
transactional efficiencies; back-end integration enables technology integration within the 
organization and facilitates information sharing with suppliers and business partners. As a 
result, these two types of e-business capabilities help firms improve performance by 
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affecting intermediate achievements such as customer intimacy in the front end and 
operational excellence in the back end; both are critical for firms to achieve performance 
improvement. 
4. Back-end integration is found to have a much stronger impact on firm performance than 
front-end functionality, highlighting its importance to e-business value, which seems 
consistent with the resource-based theory. 
While e-business value can be created from the front end and the back end, our study has 
further evaluated their relative importance, theoretically motivated by the RBV. Back-end 
integration would have a greater contribution to firm performance than front-end 
functionality, because back-end integration is firm specific, difficult to imitate, and less 
mobile across firms. More importantly, back-end integration helps e-businesses develop the 
capability to link fragmented resources together, hence increasing integration and 
complementarities among disparate systems, which is strengthened by the Internet-enabled 
connectivity and open-standard network integration. In the full sample (see Figure 2), both 
paths associated with back-end integration and front-end functionality are significantly 
positive, but the one with back-end integration is much stronger. The difference is more 
pronounced in the developed-country subsample. The underlying rationale would be the 
following: Firms in developed countries have been using e-business longer, thus front-end 
functionalities have become more and more common; e-businesses are more differentiated 
by back-end integration because it is often tailored to a firm’s strategic context and is woven 
into the organization’s fabric, which is not transparent to competitors. The resource-based 
theory suggests this as an important source of e-business value. 
5. The importance of two factors-competitive pressure and regulatory support-differs across 
developed versus developing countries. This finding confirms that economic environment 
shape e-business use. 
This result might be explained as follows. First, competitive pressure is statistically significant 
for developed but not for developing part of the country. Such a difference could be 
explained by the distinct market environments of developed and developing part of the 
country. Prior research has shown that information asymmetry exists in less-developed 
markets, and market imperfections and inefficiencies may weaken the pressure from 
competitors. In developed area of the country, however, markets have evolved into mature 
stages over time, characterized by more transparent information flow and more stable legal 
frameworks and government policies. Therefore, firms in developed countries can obtain 
more information about competitors, e-business development, which may force them to 
adopt e-business to avoid competitive decline. Second, although the path loadings of 
regulatory support appear to be significant in both subsamples, more sophisticated analysis 
(group analysis) reveals that it is relatively more important in developing countries. This 
finding is related to the above discussion, that markets in most developing part of country 
are characterized by information asymmetry and immature institutional structure. As a result, 
government regulation (e.g., legal protection of online transactions), or the lack thereof, 
tends to be a greater force in developing countries. In light of these varying behaviors across 
the two subsamples, we have learned the significant role that economic environments play in 
shaping the extent of e-business use. This finding further confirms the usefulness of the 
proposed conceptual model for studying e-business, as economic environment is an 
important factor within the TOE framework. 
These results have several important implications for management. First, they offer a useful 
framework for managers to assess the technological conditions under which e-business is 
launched to better pursue business value. It is important to build up technology competence 
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Advances in Business-Related Scientific Research Journal (ABSRJ) 
Volume 2 (2011), Number 1 
 
 
includes tangible technologies, intangible managerial skills, and human resources. Further, IT 
managers have struggled for ways to create value from Internet technologies. Our study 
sheds light on ways to realize value from e-business-greater breadth and depth of use, 
customer-facing Web functionalities on the front end, and tight integration on the back end. 
In particular, our empirical results highlight the importance of back-end integration among 
various back-office databases and enterprise systems, and information sharing with business 
partners. Our analysis has identified this as a major source of e-business value. It will 
become even more important as e-business develops into deeper stages, as suggested by 
the results that the significant of back-end integration is more pronounced in developed 
countries that seem to be at deeper stages of e-business development. These findings could 
serve as useful guidelines foe firms to develop their e-business capabilities. This is especially 
important in the retail industry, where firms have been building various legacy systems and 
using multiple IT platform over the years.  
Furthermore, managers need to assess the appropriateness of e-business to certain 
organizational characteristics (e.g., size scope), as suggested by our empirical findings. This 
implies that potential value of e-business investment could be affected by structural 
differences. Effective e-business programs rely on necessary organizational reconfiguration 
and business processes reengineering. As Internet technologies diffuse and become 
necessities, these organizational capabilities and structural differences will be even more 
critical. In particular, managers in retail firms with a wider scope should pursue e-business 
usage more proactively, given the greater potential to achieve benefits from e-business. This 
implication should be of special interest for retailers seeking global expansion into different 
regions and market segments. Such expansion means that retailers would face greater 
coordination tasks and could leverage e-business initiatives to facilitate coordination and 
achieve resource integration. 
Finally, our study also offers implications for policy makers. Regulatory support has emerged 
as an important factor for e-business use and value. This is even more important for 
developing countries. During our study, companies frequently cited significant obstacles to 
doing e-business, including inadequate legal protection for online transactions, unclear 
business laws, and security and privacy concerns. While this was important for all countries, 
it was a much more significant factor for developing countries. It also pointed to the need for 
establishing a broad legal and institutional framework that supports e-business. 
Governments, therefore, could accelerate the diffusion of e-business by establishing 
supportive business laws to make the Internet a trustworthy business platform (e.g., dealing 
with transaction fraud, promoting credit card use). This is particularly important at early 
stages of e-business development in an economy. Technological innovations are considered 
the primary driver of improvements in industrial productivity. Yet if promising innovations 
cannot be widely deployed, then the benefits resulting from their invention will be curtailed. 
CONCLUSIONS 
Grounded in the innovation diffusion literature and the resource-based theory, this study has 
theoretically developed and empirically evaluated an integrative research model 
incorporating technological, organizational, and environmental factors, for assessing e-
business use and value at the firm level. While these issues were typically studied separately 
in the literature, our results suggest that usage and value are closely link, indicating that this 
unified perspective helps us gain a more holistic picture of the postadoption diffusion and 
consequence of e-business. To realize e-business value, firms need to facilitate the usage of 
e-business in various value chain activities.  
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For e-business use, our study has examined six factors, within the TOE framework, as 
drivers of e-business use. Some of these factors play different roles across different 
economic environments. This finding shows that, while e-business is a global phenomenon, 
its use is moderated by local environments. For e-business value, our study has 
demonstrated that the extent of e-business use and e-business capabilities, both front-end 
functionalities and back-end integration, contribute to value creation of e-business, but back-
end integration has a much stronger impact. 
In summary, this study has developed an integrative theoretical framework for assessing e-
business use and value, beyond initial adoption.  
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