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Electronic commerce adoption: An

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 Information & Management 42 (2004) 197216

Electronic commerce adoption: an empirical study of

small and medium US businesses
Elizabeth E. Grandona,*, J. Michael Pearsonb
a
Department of Accounting and Computer Information Systems, School of Business, Emporia State University, Emporia, KS 66801, USA
b
Department of Management, College of Business and Administration, Southern Illinois University, Carbondale, IL 62901, USA
Accepted 22 December 2003

Available online 9 April 2004

Abstract

By combining two independent research streams, we examined the determinant factors of strategic value and adoption of
electronic commerce as perceived by top managers in small and medium sized enterprises (SME) in the midwest region of the US.
We proposed a research model that suggested three factors that have been found to be influential in previous research in the
perception of strategic value of other information technologies: operational support, managerial productivity, and strategic
decision aids. Inspired by the technology acceptance model and other relevant research in the area, we also identified four factors
that influence electronic commerce adoption: organizational readiness, external pressure, perceived ease of use, and perceived
usefulness. We hypothesized a causal link between the perceived strategic value of electronic commerce and electronic commerce
adoption. To validate the research model, we collected data from top managers/owners of SME by using an Internet survey.
# 2004 Elsevier B.V. All rights reserved.

Keywords: e-Commerce adoption; Strategic value of e-commerce; SMEs

1. Introduction access narrow markets segments that are widely dis-

Electronic commerce (e-commerce) has been
defined in several ways depending on the context
and research objective of the author. For this study,
we have taken two definitions of e-commerce [44,58]
and adapted them in a B2C context: the process of
buying and selling products or services using electro-
nic data transmission via the Internet and the www.
E-commerce provides many benefits to both sellers
and buyers; e.g. Napier et al. [43] pointed out that
by implementing and using e-commerce sellers can
*
Corresponding author. Tel.: 1-620-341-5685;
fax: 1-620-341-6346.
E-mail address: grandone@emporia.edu (E.E. Grandon).
tributed while buyers can benefit by accessing global
markets with larger product availability from a variety
of sellers at reduced costs. Improvement in product
quality and the creation of new methods of selling
existing products are also benefits [13].
The benefits of e-commerce are not only for large
firms; small and medium sized enterprises (SMEs) can
also benefit from e-commerce [52]. In addition, it can
level the playing field with big business, provide
location and time independence, and ease communi-
cation [16,29,38,50]. However, in spite of the many
potential advantages of e-commerce, its adoption by
SMEs remains limited. For example, a survey con-
ducted by Verizon [20] found that 36% of small
businesses established web sites primarily to advertise

0378-7206/$ see front matter # 2004 Elsevier B.V. All rights reserved.
doi:10.1016/j.im.2003.12.010
198 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216
and promote their business, compared to 9% who
established one to sell or market online. Similarly,
in a survey of 444 SMEs during 2002, Pratt [47] found
that many SMEs were reluctant to conduct transac-
tions on line; more than 80% were only using the
Internet to communicate (via e-mail) and gather busi-
ness information. Does this mean that top managers/
owners of SMEs do not realize the strategic value
e-commerce to their business or does this mean that
they encounter significant barriers to implementing it?
Here, we focused our attention on this under-
studied segment of business organizations [19]
where research findings on large businesses cannot
be generalized; e.g. Welsh and White [66] identified
important differences in the financial management
of small and large businesses while Ballantine et al.
[5] identified unique characteristics of SMEs as lack
of business and IT strategy, limited access to capital
resources, greater emphasis on using IT and IS to
automate rather than informate, influence of major
customers, and limited information skills. Similar
assertions and findings are given in other papers
[14,18,32,40,46,51].
2. Literature review
This study represents a fusion of two independent
research streams: the strategic value of certain infor-
mation technologies to top managers and factors that
influence the adoption of IT. The former has been
studied by Subramanian and Nosek [60] and others
(e.g. [6,11]) while the latter has been investigated by
Davis [21] and others (e.g. [1,30,35,65]) primarily
through the technology acceptance model (TAM).
2.1. Perceived strategic value of IT
Many studies have focused on the relationship
between IT investment and firms performance in large
corporations. For example, Hitt and Brynjolfsson [27]
investigated how IT affects productivity, profitability,
and consumer surplus. They found that IT increases
productivity and consumer surplus but not necessarily
business profits. Barua et al. concluded that the pro-
ductivity gains from IT investments have generally
been neutral or negative, while Tallon et al. [62]
measured IT payoffs through perceptual measures
and argued that executives rely on their perceptions
in determining whether a particular IT investment
creates value for the firm.
The majority of the research has proposed a direct
causal link between IT investment and firm perfor-
mance. However, Li and Ye [37] empirically tested the
moderating effects of environmental dynamism, firm
strategy, and CIO/CEO relationship on the effect of IT
investment on firm performance and found that IT
investment appears to have a stronger positive impact
on financial performance when there are greater envir-
onmental changes, the strategy of the company is more
proactive, and closer CIO/CEO ties. In a similar line of
inquiry, Lee [36] created a multi-level value model
that connects the use of IT to a firms profit; she
pointed out that the effect of incorporating IT should
not be considered alone and argued that there are other
variables that can influence the relationship. Her IT
business value model incorporated other variables,
such as origination cost, cycle time, loan officer
retention, control over external partners, and market-
ing effort and she found that IT can reduce cycle time
and cost, and change the way business is run. She
concluded that one has to know what other variables
to manage and how to manage them in order to make
IT investments profitable.
Few studies have focused on the perceptions of top
management regarding the strategic value of e-com-
merce. Amit and Zott [4] is one of the few that has
tried to deal with this and even though they focused
on e-business, their results can be generalized to
e-commerce [28]. They examined how 59 American
and European publicly traded e-business firms create
value. Approximately, 80% were SMEs (with less
than 500 employees). They developed a value-drivers
model which included four factors found to be sources
of value creation: transaction efficiency, complemen-
tarities, lock-in, and novelty. Some of these factors are
also found in Saloner and Spences [56] work.
Through an empirical study of 73 firms (some of
them SMEs), Subramanian and Nosek identified three
factors that were found to create strategic value in IS:
operational support, managerial productivity, and stra-
tegic decision aid. In each of these factors they utilized
different items that were found to have high conver-
gent validity and reliability. Their factors seem to be
applicable to e-commerce. Due to a lack of research
in identifying factors that create strategic value of
 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216
e-commerce, their model was used as the basis for the
strategic value portion of this study.
2.2. Information technology adoption
Davis proposed TAM, a model that has been tested
in many studies (e.g. [26,59,61]). Lederer et al. sum-
marized sixteen articles that tested the model for
different technologies (e.g. ATM, e-mail, Netscape,
Access, Internet, Word, and Excel). In their model,
they considered beliefs about ease of use and per-
ceived usefulness as the major factors influencing
attitudes toward use, which, in turn, affected intentions
to use.
Many other studies have attempted to describe the
factors influencing IT adoption in SMEs. For example,
Iacovou et al. studied factors influencing the adoption
of electronic data interchange (EDI) by seven SMEs in
different industries; they included perceived benefits,
organizational readiness, and external pressure. To
measure perceived benefits they used awareness of
both direct and indirect benefits. Variables measuring
organizational readiness were the financial and tech-
nological resources. In order to measure external
pressure, they considered competitive pressure and
its imposition by partners. The results suggested that
a major reason that small firms become EDI-capable is
due to external pressure (trading partners). In a similar
study, Chwelos et al. [17] considered the same factors
influencing the adoption of EDI in 286 SMEs. They
considered the trading partner as influencing external
pressure and readiness while external pressure was
considered to be influenced by the dependency on
trading partner and enacted trading partner power. As
in the case of Iacovou et al., external pressure was the
most important factor contributing to intent to adopt
EDI. Kuan and Chau [34] determined the factors
influencing the adoption of EDI in small businesses
using a technology, organization, and environment
framework. The technology factor incorporated per-
ceived direct and indirect benefits of EDI. The orga-
nization factor consisted of perceived financial cost
and perceived technical competence. The environ-
ment factor was similar to external pressure in
Iacovou et al.s study but included a new variable:
perceived government pressure. There, perceived
indirect benefits were not found to be a significant
factor.
199
Igbaria et al. determined the factors affecting
personal computer acceptance in small businesses.
Among the factors that directly influence personal
computer acceptance were perceived ease of use and
perceived usefulness. The intra-organizational (inter-
nal computing support and training, and management
support) and extra-organizational (external computing
support and training) variables were hypothesized to
influence adoption through perceived usefulness and
ease of use. Inconsistent with research in large firms,
relatively little support was found for the influence of
internal support and training on perceived ease of use
and usefulness. However, perceived ease of use turned
out to be an important factor in explaining perceived
usefulness and system usage. It was also found that
perceived usefulness is a strong antecedent of system
usage.
In order to develop an integrated model of IS
adoption in SMEs, Thong [63] specified four contex-
tual variables as primary determinants of IS adoption.
He highlighted the fact that the technological innova-
tion literature has identified many variables as possible
determinants of organizational adoption but this
suggest that more research is needed to identify
the critical ones and provided four groups of vari-
ables: CEO, IS, organizational characteristics, and
environmental characteristics.
Based on the literature, Premkumar and Roberts
[49] identified the use of various communication
technologies and the factors that influence their adop-
tion in small businesses located in rural US commu-
nities. The technologies studied included EDI, online
data access, e-mail, and the Internet. The factors
studied as potential discriminators between adopters
and non-adopters of communication technologies
were grouped into three broad categories: innovation,
organizational, and environment characteristics.
Within the innovation factor, they included relative
advantage, cost, complexity, and compatibility. Orga-
nizational characteristics included top management
support, and IT expertise. Finally, within the environ-
mental characteristics variable, competitive pressure,
external support, and vertical linkages were consid-
ered. The results suggested that relative advantage, top
management support, and competitive pressure were
factors influencing the three communication technol-
ogies. Compatibility, complexity, external pressure,
and organizational size were found to be significant
200 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216
discriminators between adopters and non-adopters of
online data access technology. Cost was found to be an
important discriminant factor only for the adoption
of the Internet. IT expertise was not found to be an
important factor that discriminates between adopters
and non-adopters. Finally, vertical linkage was found
to be an important discriminant factor for online data
access and the Internet adoption.
The adoption of the Internet was also studied by
Mehrtens et al. [41]. In order to develop a model of
Internet adoption, they conducted a case study on
seven SMEs. First, they considered four SMEs that
had adopted the Internet. Based on Iacovou et al.s
work and the results of the preliminary analysis, they
devised their model using perceived benefits, organi-
zational readiness, and external pressure as determi-
nant factors. Then, to provide theoretical replication
they considered three non-IT SMEs, of which two had
adopted the Internet and one had not. All the factors
were found to affect Internet adoption by the small
firms. Chang and Cheung [12] also determined factors
that influence Internet/www adoption with similar
results.
In a more recent study and following a similar line
of inquiry, Riemenschneider et al. [55] studied the
factors that influence web site adoption by SMEs.
They proposed a combined model using the theory
of planned behavior (TPB) [3] and TAM. They tested
individual models, partially integrated models, and
fully integrated models by using structural equation
modeling. They found that the combined model pro-
vided a better fit.
The emerging field of e-commerce has not been
ignored in the analysis of adoption. Mirchandani and
Motwani [42] investigated the factors that differentiate
adopters from non-adopters of e-commerce in small
businesses. The relevant factors included enthusiasm
of top management, compatibility of e-commerce with
the work of the company, relative advantage perceived
from e-commerce, and knowledge of the companys
employees about computers. The degree of depen-
dence of the company on information, managerial
time required to plan and implement the e-commerce
application, the nature of the companys competition,
as well as the financial cost of implementing and
operating the e-commerce application were not
influencing factors. Similarly, Riemenschneider and
McKinney [54] analyzed the beliefs of small business
executives on the adoption of e-commerce. They
found that all the component items of the normative
and control beliefs differentiated between adopters
and non-adopters. In the behavioral beliefs (attitude)
group, however, only some items (e-commerce
enhances the distribution of information, improves
information accessibility, communication, and the
speed with which things get done) were found
to differentiate adopters from non-adopters. Table 1
summarizes the factors involved in the process of
technology adoption.
2.3. Causal link
Support for the causal link between perceptions
of strategic value and adoption comes from different
studies that associate individual perceptions and beha-
vior. The theory of planned behavior (TPB) is a well
established intention model that has been proven
successful in predicting and explaining behavior
across a wide variety of domains, including the use
of information technology [2]. In general terms, the
TPB establishes that perceptions influence intentions
which in turn influence the actual behavior of the
individual. By considering the intention to adopt
e-commerce as the target behavior, the use of intention
models theoretically justifies the causal link between
perceptions and adoption of e-commerce.
This causal link has been studied and the results
indicate that managers perception and attitudes
toward other types of IT are strongly associated with
its use; e.g. hypotheses developed by Jarvenpaa and
Ives [31] suggested a CEOs involvement in IT and
active personal participation in IT management were
associated with a firm being progressive in its use of
IT. They defined involvement as CEOs perceptions
and attitudes concerning IT and participation as
the CEOs activities or substantive personal inter-
ventions in the management of IT. They conducted a
survey study involving 83 firms from four different
industries and found strong support for the relation-
ship between involvement (favorable perceptions of
IT) and progressive use of the IT. However, the link
between CEOs participation in IT management and
progressive use of the IT was found to be moderate.
Similar research was performed by Sanders and
Courtney [57], Reich and Benbasat [53], and Bush
et al. [8].
Table 1
Summary of factors of IT adoption in SMEs

E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216

Source Influencing factors IT studied No. SMEsa Industries

Iacovou et al. [29] External pressure, perceived benefits, organizational EDI adoption practices 7 SMEs (n < 200) 7 different industries
readiness
Chwelos et al. [17] Readiness, external pressure, perceived benefits EDI adoption 268 SMEs (n/a) Manufacturing, services,
government, etc.
Kuan and Chau [34] Technology organization environment EDI adoption 575 SMEs (n < 100) Not specified
Igbaria et al. [30] Intra-organizational factors, extra-organizational Personal computer 203 SMEs (n < 100) Manufacturing and engineering
factors, perceived ease of use perceived usefulness
Thong [63] CEO characteristics, IS characteristics, organizational IS adoption 166 SMEs (n < 100) Not specified
characteristics, environmental characteristics
Premkumar and Relative advantage, top management support, Online data access, e-mail, 78 SMEs (n < 90) Manufacturing, retail sales and
Roberts [49] organizational size, external competitive pressure and the Internet wholesale trade, service, finance,
insurance, others
Mehrtens et al. [41] Perceived benefits, organizational readiness, Internet adoption 7 SMEs (n < 200) IT industry, clothing manufacturer,
external pressure entertainment, transport
Mirchandani and Enthusiasm of top management, compatibility, E-commerce adoption 62 SMEs (n < 200) Not specified
Motwani [42] relative advantage knowledge of the companys
employees about computers
Riemenschneider and Attitude, subjective norm, perceived behavioral control E-commerce adoption 184 SMEs (n < 500) Defense, agriculture, oil and
McKinney [54] gas, manufacturing
Riemenschneider Attitude, subjective norm, perceived behavioral Web site adoption 156 SMEs (n < 500) Service/sales, government, retail,
et al. [55] control, perceived usefulness, perceived ease of use (web presence) banking, medical, manufacturing
a
n represents the maximum number of employees considered in the criteria to define a SME.

201
202 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216
Organizational
Support
Managerial Percep. of
Productivity Strat. Value
Strategic
Dec. Aids
Fig. 1. The proposed research model.
3. Research model
Based on the literature review, we proposed a
research model (Fig. 1).
3.1. Perception of strategic value of e-commerce
We considered three major variables as sources of
strategic value of e-commerce: operational support,
managerial productivity, and strategic decision aids.
Since the instrument utilized by Subramanian and
Nosek was found to have high reliability (Cronbach
alpha 0:82) with convergent and discriminant valid-
ity, we used their items to measure the strategic value
construct. Operational support measures how e-com-
merce can reduce costs, improve customer services
and distribution channels, provide effective support
role to operations, support linkages with suppliers, and
increase ability to compete. Managerial productivity
suggests how e-commerce can enhance access to
information, provides a means to use generic methods
in decision-making, improves communication in the
organization, and improves productivity of managers.
Finally, strategic decision aids defines how e-com-
merce can support strategic decisions of managers,
support cooperative partnerships in the industry, and
provide information for strategic decisions.
3.2. Factors influencing adoption of e-commerce
We identified the factors found significant in prior
research and grouped them based on similarity and
Organizational
Readiness
External
Pressure
Adoption
Perceived
Ease of Use
Perceived
Usefulness
face validity into four different variables: organiza-
tional readiness, external pressure, perceived ease of
use, and perceived usefulness (see Table 2).
Organizational readiness was assessed by including
two items about the financial and technological
resources that the company may have available as
well as factors dealing with the compatibility and
consistency of e-commerce with firms culture, values,
and preferred work practices (existing technology
infrastructure; and top managements enthusiasm to
adopt e-commerce). Such items were found relevant in
other research [7,15,48,64].
External pressure was assessed by incorporating
five items: competition, social factors, dependency on
other firms already using e-commerce, the industry,
and the government.
We considered a subset of Davis instrument to mea-
sure perceived ease of use as modified to make them
relevant to e-commerce. We utilized the six items for per-
ceived usefulness of Davis as modified to fit our research.
3.3. Research questions
The questions we explored were used to validate the
proposed two-step model and understand the relation-
ship between these two steps.
1. What are the determinant factors of the perceived
strategic value of e-commerce in SME?
2. How do the perceptions of strategic value, as viewed
by top managers/owners of SMEs, influence their
decision to adopt e-commerce?
 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216 203

Table 2
Summary of adoption factors in the current study

Factor in the current study Factors in previous studies Source

Organizational readiness Organizational readiness Iacovou et al. [29]

Readiness Chwelos et al. [17]
Organization Kuan and Chau [34]
Organizational readiness Mehrtens et al. [41]
Facilitating conditions Chang and Cheung [12]
Compatibility with company Mirchandani and Motwani [42]
Compatibility Thong [63]
Intra/extra organizational factors Igbaria et al. [30]
External pressure External pressure Iacovou et al. [29]
External pressure Chwelos et al. [17]
Environment Kuan and Chau [34]
Social factors Chang and Cheung [12]
External pressure Mehrtens et al. [41]
External competitive pressure Premkumar and Roberts [49]
Subjective norm Riemenschneider and McKinney [54]
Subjective norm Riemenschneider et al. [55]
Perceived ease of use Perceived ease of use Davis [21]
Perceived ease of use Igbaria et al. [30]
Perceived ease of use Riemenschneider et al. [55]
Perceived usefulness Perceived usefulness Davis [21]
Perceived ease of use Igbaria et al. [30]
Perceived ease of use Riemenschneider et al. [55]

3. What are the factors involved in the decision to
adopt e-commerce by top managers/owners of
SMEs?
4. Methodology
4.1. Subjects
We targeted top managers of small and medium size
business from a variety of industries in the midwest
region of the US. In our study, we considered the
number of employees as the principal criterion in
determining whether a firm qualified as an SME since
other categorizations involving revenue, total capital
and/or other types are more difficult to apply and can
result in misleading classifications. The number of
employees varies according to the agency providing
the definition. For example, the US Small Business
Administration (http://www.sba.gov) uses a cut-off of
fewer than 500 employees. Harrison et al. [25] and
Iacovou et al. utilized a cut-off of 200 employees. For
this study, we have used less than 500 employees.
4.2. Data collection
The data were gathered by means of an electronic
survey administered during Spring 2002. The process
was carried out in three steps. First, a sample of 1069
small and medium size businesses were identified
from various sources that focus on SMEs. We identi-
fied the company name, a contact person, an e-mail
address for that person, an address, and a telephone
number. The contact person was typically the owner of
the business or a top-level manager. Second, an initial
e-mailing that identified the purpose of the study, a
request to participate, and an opt-out feature was sent
to all potential respondents; 136 of these messages
were returned due to incorrect addresses or that the
organization was no longer in business. An additional
101 individuals indicated that they were unable or
were unwilling to participate.
Thirdly, approximately one week after the initial
mailing, a second electronic mailing was sent to
the remaining 832 potential respondents. This elec-
tronic message directed them to the web site where
the survey instrument was located. One hundred
204 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216

individuals completed the survey for a response rate Table 3

Demographics of study (n 100)
of 12%. Possible explanations for this relatively low
response rate could include the lack of relevance of the Gender
topic to the respondent, delivery method of the instru- Male 64%
ment (electronic), and the time of the year at which the Female 36%
survey request took place. Education
High school 12%
2-year college 17%
4.3. Instrument development
4-year college 35%
Master degree 21%
Three top managers participated in a pilot of the Other 11%
survey instrument. One of the authors observed the Internet service provider in place
subjects as they completed the survey. Feedback Yes 94%
from them resulted in minor changes to the survey No 6%
instructions and questions. Respondents were required Electronic commerce already in place
to complete the survey that had the following major Yes 64%
sections (see Appendix A for the complete instru- No 36%
ment). Age
1830 10%
 Seven demographic questions (respondents gender, 3140 25%
age, education, years of work in present position, 4150 36%
and years of work in present firm). >50 26%
 Two general questions about the firm (number of Industry
employees and industry. Education 8%
 Four questions about the technology in the organi- Finance 2%
zation (number of PCs, presence of Internet server Wholesale 2%
Retail 12%
provider, presence of web site, and utilization of
Healthcare 2%
e-commerce). Construction 5%
 Fifteen questions asking the extent to which Insurance 1%
e-commerce is perceived as contributing to strategic Other 48%
value. Organization has web site
 Twenty-three questions to measure the factors Yes 85%
involved in e-commerce adoption. No 15%

A seven-point Likert scale (from strongly disagree

to strongly agree) was utilized to measure the ques-
tions about perceived strategic value and adoption of
e-commerce.
5. Results
5.1. Demographics and descriptive statistics
The 100 surveys were returned over a 4-week
period. Results indicated that the top managers were
well educated, with over 56% holding a 4-year college
degree or a masters degree. The majority were male
(64%) and 36% were between 41 and 50 years of age.
Table 3 shows other demographics.
5.2. Statistical analysis
In order to test the model, a statistical analysis was
conducted in two stages. The first step employed
confirmatory factor analysis to measure whether the
number of factors and loadings of items involved in
the two main constructs (perceived strategic value and
adoption) conform to the proposed model. With this
analysis, we found answers to research questions 1
and 3.
Since we were also interested in exploring how the
perceptions of strategic value influence the decision to
adopt e-commerce (research question 2), canonical
analysis was utilized in the second step. This technique
 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216 205

involves developing a linear combination of indepen- Table 4

Rotated component matrix
dent variables (strategic value variables) and dependent
variables (adoption variables) to maximize the correla- Component
tion between the two sets [24]. MIS research has
1 2 3
benefited from the use of this multivariate technique
(see, for example [9,33]). Campbell and Taylor [10] OS1 0.833 0.009 0.192
OS3 0.807 0.140 0.273
demonstrated that canonical analysis subsumes other
OS4 0.763 0.433 0.001
statistical procedures. OS5 0.735 0.479 0.115
Non-response is a potential source of bias in survey OS2 0.716 0.233 0.375
studies; it needed to be properly investigated [22]. The OS7 0.710 0.190 0.342
potential bias was evaluated by comparing responses MP2 0.257 0.852 0.276
MP1 0.326 0.826 0.276
between early and late respondents. Early respondents
MP4 0.229 0.823 0.380
were those who had completed the questionnaire MP3 0.189 0.798 0.446
within the initial 2-weeks, while late respondents were DA4 0.266 0.389 0.798
those who completed it after the specified period. DA3 0.329 0.362 0.734
Approximately 70% of the responses were from early DA1 0.252 0.513 0.693
respondents. Demographic data was utilized for this
purpose: number of employees, number of years in
the current position, number of years in the firm, and The rotated component matrix in Table 4 shows that
number of personal computers in the company. No all the items loaded cleanly on their intended factors.
significant differences were found between the early Six items loaded cleanly on the organizational support
and late respondent groups, suggesting no non- factor, four items on the managerial productivity
response bias. factor, and three on the decision aids factor. Conver-
gent and discriminant validity was assessed via factor
5.3. Confirmatory factor analysis analysis. Table 4 shows that all items have loading
greater than 0.50 and loaded stronger on their asso-
5.3.1. Perceived strategic value construct ciated factors than on others. Thus, convergent and
A confirmatory factor analysis was run using SPSS discriminant validity were demonstrated.
10.1. All items measuring the perception of strategic Construct reliability or internal consistency was
value of e-commerce were considered during the first assessed using Cronbachs alpha. Table 5 shows that
run and resulted in one item not loading on the the values for alpha vary from 0.88 to 0.95. The scale
intended factors. This item was dropped from subse- reliabilities are unusually good compared to the accep-
quent analysis and the construct was recalculated. The table 0.7 level for field research [45].
items in the final analysis for perceived strategic value
are shown in Appendix B. 5.3.2. Adoption construct
The factor analysis used principal components in The adoption construct initially consisted of 23
order to extract the maximum variance from the items. items. In order to test how these items loaded, another
To minimize the number of items that have high factor analysis was run. Principal component extraction
loadings on any given factor, a varimax rotation with varimax rotation and required Eigenvalues above
was utilized. Using the Kaiser Eigenvalues criterion, 1.0 were considered. As in the case of the perceived
we extracted three factors that collectively explained
79.4% of the variance in all items. Hair et al. provide Table 5
guidelines for identifying significant factor loadings Reliability analysis
based on sample size. In order to obtain a power level
Construct Cronbachs alpha
of 80% at a 0.05 significant level, with standard errors
assumed to be twice those of conventional correlation Operational support (OS) 0.91
coefficient, a factor loading of 0.50 or higher should be Managerial productivity (MP) 0.95
Decision aids (DA) 0.88
considered as a cut-off value.
206 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216
Organizational
Support
Managerial Percep. of
Productivity Strat. Value
Strategic
Dec. Aids
Fig. 2. The revised research model.
strategic value construct, the first run of the factor
analysis resulted in items that did not load as expected
on the intended factors. Two items were dropped from
the analysis and the construct was recalculated.
The results of this confirmatory factor analysis
resulted in five factors loading cleanly with a total
explained variance of 74.9%. Thus, we revised the
proposed model and considered a fifth factor, which
we named compatibility to better describe the items
used (see Fig. 2). The results are quite interesting.
Previous research has found compatibility an impor-
tant factor that influences the adoption of IT. In our
study, compatibility emerged freely as a significant
independent factor.
The items considered in the final instrument are
shown in Appendix C. The following table shows the
rotated component matrix.
Convergent and discriminant validity was achieved.
Table 6 shows that all items have loading greater than
0.50. They also loaded stronger on their associated
factors than on others. Thus, convergent and discri-
minant validity were demonstrated. Table 7 shows that
alpha values range from 0.76 to 0.95 for the perceived
usefulness of e-commerce factor. As in the case of the
strategic value construct, the reliability of the adoption
construct turned out to be very high.
5.4. Canonical analysis
Canonical analysis is a multivariate statistical
model that studies the interrelationships among sets
Organizational
Readiness
External
Pressure
Adoption Compatibility
Perceived
Ease of Use
Perceived
Usefulness
of multiple dependent variables and multiple indepen-
dent variables. By simultaneously considering both,
it is possible to control for moderator or suppressor
effects that may exists among various dependent
variables [39].
In canonical analysis there are criterion variables
(dependent variables) and predictor variables (inde-
pendent variables). The maximum number of cano-
nical correlations (functions) between these two sets
of variables is the number of variables in the smaller
set [23]. In our case, the number of variables for
the perception of strategic value construct is three
while the number of variables in the adoption con-
struct is five. Thus, the number of canonical functions
extracted from the analysis is three; i.e., the smallest
set.
In order to test the significance of the canonical
functions we followed the guidelines given by Hair
et al. They suggest three different measures to inter-
pret the canonical functions:
(a) the significance of the F-value given by Wilks
lambda, Pillais criterion, Hottelings trace, and
Roys gcr;
(b) the measures of overall model fit given by the
size of the canonical correlations; and
(c) the redundancy measure of shared variance.
Table 8 shows the corresponding multivariate test of
significance with 15 degrees of freedom while Table 9
shows the measures of overall model fit in the three
canonical functions. Note that the strength of the
 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216 207

Table 6
Rotated component matrix

Component

1 2 3 4 5

PU4 0.862 0.214 0.189 0.211 0.003

PU3 0.845 0.258 0.208 0.196 0.132
PU5 0.804 0.322 0.260 0.218 0.006
PU2 0.801 0.233 0.217 0.140 0.127
PU6 0.770 0.398 0.198 0.159 0.001
PU1 0.660 0.418 0.144 0.239 0.004
EU4 0.279 0.880 0.000 0.154 0.005
EU5 0.241 0.853 0.003 0.121 0.009
EU3 0.311 0.839 0.122 0.101 0.133
EU1 0.178 0.825 0.213 0.008 0.161
EU2 0.420 0.750 0.104 0.105 0.008
EP4 0.205 0.000 0.742 0.114 0.177
EP5 0.004 0.004 0.655 0.001 0.283
EP3 0.162 0.182 0.646 0.004 0.005
EP2 0.358 0.006 0.596 0.280 0.119
EP1 0.218 0.344 0.593 0.205 0.009
C2 0.210 0.001 0.212 0.880 0.114
C1 0.186 0.197 0.143 0.778 0.124
C3 0.281 0.211 0.003 0.765 0.111
OR1 0.113 0.007 0.117 0.104 0.893
OR2 0.007 0.305 0.003 0.223 0.812

relationship between the canonical covariates is given are statistically significant at the 0.01 level, from
by the canonical correlation. the overall model fit (Table 9) it can be concluded
Even though the multivariate test of significance that only the first canonical function is significant
shows that the canonical functions, taken collectively, (P < 0:01). This conclusion is consistent with the
canonical R2 values showed in Table 9. For these data,
Table 7
in the first canonical function the independent variables
Reliability analysis explain approximately 42% of the variance in the
dependent variables; the second canonical function
Construct Cronbachs alpha
explains approximately 7%, and the third one explains
Organizational readiness (OR) 0.81 only 1.5%. This is not unusual since typically the first
Compatibility (CC) 0.88 canonical function is far more important than the
External pressure (EP) 0.76
others.
Ease of use (EU) 0.95
Perceived usefulness (PU) 0.95 Even though the first canonical function was
deemed to be significant, it has been recommended
that redundancy analysis be utilized to determine
Table 8
Multivariate test of significance Table 9
Measures of overall model fit
Test name Value Approx. Hypoth. Error Sig. of
F DF DF F Canonical Canonical Canonical F-statistic Probability
function correlation R2
Pillais 0.501 3.529 15 264.00 0.00
Hotellings 0.801 4.523 15 254.00 0.00 1 0.644 0.415 4.028 0.000
Wilks 0.535 4.028 15 237.81 0.00 2 0.266 0.071 0.986 0.448
Roys 0.415 3 0.122 0.015 0.446 0.720
208 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216

Table 10
Canonical redundancy analysis

Canonical Variable Share variance Canonical R2 Redundancy Proportion of total

function index redundancy (%)

1 Dependent 0.381 0.415 0.158 34.7

Independent 0.658 0.415 0.273 60.0
2 Dependent 0.129 0.071 0.009 2.0
Independent 0.101 0.071 0.007 1.5
3 Dependent 0.247 0.015 0.004 0.9
Independent 0.242 0.015 0.004 0.9

which functions to use in the interpretation. Redun-
dancy is the ability of a set of independent variables, to
explain the variation in the dependent variables taken
one at a time. Table 10 summarizes the redundancy
analysis for the dependent and independent variables
for the three canonical functions. The results indicate
that the first canonical function accounts for the high-
est proportion of total redundancy (94.7% including
both dependent and independent variables), the second
one accounts for 3.5%, and the third one accounts only
for 1.8%. In addition, the redundancy indexes are
higher for the first canonical function than for the
second. Therefore, only the first canonical function is
considered for interpretation.
In order to interpret the selected canonical function,
three methods were employed: canonical weights,
canonical loadings, and canonical cross-loadings.
Table 11 shows the summary of these methods for
the first canonical function considering both indepen-
dent and dependent variables.
The interpretation of canonical weights is subject
to some criticism. For example, Hair et al. stated, a
small weight may mean either that its corresponding
variable is irrelevant in determining the relationship
or that it has been partialed out of the relationship
because of a high degree of multicollinearity. Cano-
nical weights are also considered to have low stability
from one sample to another. As in the case of weights,
canonical loadings are subject to considerable varia-
bility from one sample to another. For that reason, and
in order to increase the external validity of the find-
ings, the canonical cross-loadings method has been
chosen.
These correlate each of the original observed depen-
dent variables directly with the independent canonical
variate, and vice versa. Table 11 shows that almost all
of the canonical cross-loadings are significant for both
dependent and independent variables (cut-off >0.3)
with the exception of organizational readiness (OR).
The rank order of importance (determined by the
absolute value of the canonical cross-loadings) for
the perceived strategic value of e-commerce were
organizational support (OS), managerial productivity
(MP), and decision aids (DA). Similarly, the rank of
importance for the adoption construct contributing to
the first canonical function were perceived usefulness

Table 11
Standardized canonical coefficients and canonical loadings for strategic value and adoption

Construct Variable Canonical weights Canonical loading Canonical cross-loading

Perceived strategic OS 0.854 0.982 0.633

Value MP 0.267 0.744 0.479
DA 0.056 0.674 0.434
Adoption OR 0.179 0.120 0.077
CC 0.206 0.563 0.363
EP 0.070 0.482 0.310
EU 0.132 0.630 0.406
PU 0.881 0.972 0.626
 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216 209

Table 12 considered in the perception of strategic value con-

Sensitivity analysis of the canonical correlation results
struct (organizational support, managerial producti-
Complete Results after deletion vity, and decision aids) were found to be significant
variate in explaining the perceptions of strategic value of
OS MP DA
e-commerce. The scale reliability was found to be
R 0.644 0.505 0.637 0.644 comparable.
R2 0.415 0.255 0.406 0.415
Most of the factors proposed as determinants of
Independent variate (canonical cross-loadings) e-commerce adoption: perceived usefulness, perceived
OS 0.633 Omitted 0.634 0.633 ease of use, compatibility, and external pressure were
MP 0.479 0.500 Omitted 0.478
DA 0.434 0.427 0.435 Omitted
found to be statistically significant as determinants of
Shared variance 0.658 0.849 0.729 0.759 e-commerce adoption. These results corroborate the
Redundancy 0.273 0.216 0.296 0.315 TAM model in the sense that perceived usefulness
Dependent variate (canonical cross-loadings) and perceived ease of use turned out to be the most
OR 0.077 0.073 0.093 0.082 influential factors of e-commerce adoption as per-
CC 0.363 0.264 0.371 0.366 ceived by top managers of SMEs. The results also
EP 0.310 0.325 0.285 0.309 confirm the studies of Igbaria et al. regarding the
EU 0.406 0.266 0.418 0.409
factors that influence personal computer adoption
PU 0.626 0.494 0.613 0.626
Shared variance 0.381 0.389 0.384 0.383 and Riemenschneider et al. concerning the factors
Redundancy 0.158 0.099 0.156 0.159 that influence web site adoption, both in the context
of SMEs.
Compatibility between e-commerce and firms cul-
(PU), ease of use (EU), compatibility (CC), and exter- ture, values, and preferred work practices was also
nal pressure (EP). Organizational readiness (OR) found to be an influential factor in our study. Results
seemed to be a non-important factor in the adoption confirmed the earlier studies in which compatibility
construct. was considered an important factor in determining
adoption. In our study, compatibility emerged freely as
5.5. Sensitivity analysis an independent factor that highly influenced e-com-
merce adoption.
To validate the results, sensitivity analysis of the Regarding external pressure, our study validated
independent variable set was performed. Table 12 previous research but contrary to what was expected,
shows the results of the analysis after removing inde- organizational readiness, which includes the financial
pendent variables (one at a time). In this analysis and technological resources to adopt e-commerce, was
canonical cross-loading were examined for stability. not found to be a significant factor in the decision.
It can be seen from the table that the canonical cross- Finally, from the canonical analysis it can be con-
loadings are fairly stable when the independent vari- cluded that managers who have positive attitude
ables are deleted one at a time. The canonical correla- toward the adoption of e-commerce also perceived
tions (R) as well as the canonical roots (R2) remain e-commerce as adding strategic value to the firm.
fairly stable. Similarly, the shared variance and redun- Thus, interventions toward changing managers per-
dancy indexes were found to be stable when removing ceptions about the strategic value of e-commerce can
some of the independent variables. Thus, the sensi- be devised in order to increase the adoption/utilization
tivity analysis as a whole supported the validity of the of e-commerce by SMEs.
canonical function.
6.1. Limitations

6. Discussion Generalizations from this research should be made

with caution. The main limitation corresponds to the
The confirmatory factor analysis corroborated number of employees considered in each company.
Subramanian and Noseks results: all the variables Our sample is mainly of companies whose number of
210 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216

employees varies between 10 and 200. Only five firms
had more than 200. Thus the sample may be biased
toward smaller firms.
7. Conclusions
Throughout this study we attempted to build a
model that explains how perceived strategic value
of e-commerce influences managers attitudes toward
e-commerce adoption. By studying two different
streams of research, we have proposed and validated
a predictive model that suggest three factors as deter-
minants of the perceived strategic value of e-com-
merce and five determinant factors for e-commerce
adoption in SMEs.
The canonical results reveal a significant rela-
tionship between the perceived strategic value of
e-commerce variables and the factors that influence
e-commerce adoption in SMEs. This means that those
top managers who perceived e-commerce as adding
strategic value to the firm have a positive attitude
toward its adoption. From the canonical analysis, we
conclude that the three factors proposed as determi-
nants of perceived strategic value of e-commerce have
significant impact on managers attitudes toward e-
commerce adoption with organizational support and
managerial productivity as the most influential. Over-
all, we expect that the results will help managers
understanding of the relationship between the percep-
tions of strategic value of e-commerce and its future
adoption.

Appendix A. The survey

Ecommerce, is defined here as the process of buying and selling products or services using electronic data
transmission via the Internet and the www. Examples that do not fit this definition include electronic publishing to
promote marketing, advertising, and customer support. The mere use of electronic mail or the use of a web site for
electronic publishing purposes does not constitute ecommerce according to the definition above.
Section 1: General information
Gender Male Female
Age
Education High school 2-year college 4-year college
Master/MBA Doctorate Other
Years in present position
Years with present firm
Total number of employees
Industry in which your firm operates Manufacturing Education Government
Finance Wholesale Retail
Healthcare Construction Transportation
Insurance Other
Number of PCs in the firm
Does your firm have an Internet service provider? Yes No
Does your firm have a web site? Yes No
URL
Does your firm utilize electronic commerce? Yes No
 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216 211

Section 2: The following questions ask you about your perceptions of strategic value of electronic commerce.
Please indicate your agreement with the next set of statements using the following rating scale.

1 2 3 4 5 6 7
Strongly Disagree Somewhat Neutral Somewhat Agree Strongly
disagree disagree agree agree

In order to provide strategic value to Disagree Agree

our organization, electronic commerce
should help
1 Reduce costs of business operations 1 2 3 4 5 6 7
2 Improve customer services 1 2 3 4 5 6 7
3 Improve distribution channels 1 2 3 4 5 6 7
4 Reap operational benefits 1 2 3 4 5 6 7
5 Provide effective support role to operations 1 2 3 4 5 6 7
6 Support linkages with suppliers 1 2 3 4 5 6 7
7 Increase ability to compete 1 2 3 4 5 6 7
In order to provide strategic value to our Disagree Agree
organization, electronic commerce
should help
8 Provide managers better access to 1 2 3 4 5 6 7
information
9 Provide managers access to methods and 1 2 3 4 5 6 7
models in making functional area decisions
10 Improve communication in the organization 1 2 3 4 5 6 7
11 improve productivity of managers 1 2 3 4 5 6 7
In order to provide strategic value to our Disagree Agree
organization, electronic commerce
should help
12 Support strategic decisions of managers 1 2 3 4 5 6 7
13 Help make decisions for managers 1 2 3 4 5 6 7
14 Support cooperative partnerships in 1 2 3 4 5 6 7
the industry
15 Provide information for strategic decision 1 2 3 4 5 6 7

Section 3: The following questions ask you about your perceptions of adopting electronic commerce. Please
indicate your agreement with the next set of statements using the same rating scale above.
Disagree Agree
1 Our organization has the financial resources 1 2 3 4 5 6 7
to adopt electronic commerce
2 Our organization has the technological 1 2 3 4 5 6 7
resources to adopt electronic commerce
Our organization perceives that electronic
commerce is consistent with. . .
212 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216

Section 3: (Continued )
Disagree Agree
3 culture 1 2 3 4 5 6 7
4 values 1 2 3 4 5 6 7
5 preferred work practices 1 2 3 4 5 6 7
6 Electronic commerce would be consistent with 1 2 3 4 5 6 7
our existing technology infrastructure
7 Top management is enthusiastic about the 1 2 3 4 5 6 7
adoption of electronic commerce
8 Competition is a factor in our decision to adopt 1 2 3 4 5 6 7
electronic commerce
9 Social factors are important in our decision to 1 2 3 4 5 6 7
adopt electronic commerce
10 We depend on other firms that are already 1 2 3 4 5 6 7
using electronic commerce
11 Our industry is pressuring us to adopt 1 2 3 4 5 6 7
electronic commerce
12 Our organization is pressured by the 1 2 3 4 5 6 7
government to adopt electronic commerce
13 Learning to operate electronic commerce 1 2 3 4 5 6 7
would be easy for me
14 I would find electronic commerce to be 1 2 3 4 5 6 7
flexible to interact with
15 My interaction with electronic commerce 1 2 3 4 5 6 7
would be clear and understandable
16 It would be easy for me to become skillful at 1 2 3 4 5 6 7
using electronic commerce
17 I would find electronic commerce easy to use 1 2 3 4 5 6 7
18 Using electronic commerce would enable 1 2 3 4 5 6 7
my company to accomplish specific tasks
more quickly
19 Using electronic commerce would improve 1 2 3 4 5 6 7
my job performance
20 Using electronic commerce in my job 1 2 3 4 5 6 7
would increase my productivity
21 Using electronic commerce would enhance 1 2 3 4 5 6 7
my effectiveness on the job
22 Using electronic commerce would make 1 2 3 4 5 6 7
it easier to do my job
23 I would find electronic commerce useful 1 2 3 4 5 6 7
in my job
24 I would like to receive the aggregated results Yes No
of this survey
25 I am interested in participating further in Yes No
this study
 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216 213

Thank you for completing this survey. We recognize that your time is limited and we value your participation.
Please complete the following section if you answered YES to either question 24 or 25 and you would prefer to be
contacted at a different address than that shown on the cover sheet or if the person who completed this survey is not
the same as the person to whom it was originally sent.
Name:
Telephone:
Fax:
E-mail:
Address:

Appendix B. Final items in the perceived strategic value construct

Perceived strategic value

Organizational support
Managerial productivity
Decision aids
OS1 Reduce costs of business operations
OS2 Improve customer service
OS3 Improve distribution channels
OS4 Reap operational benefits
OS5 Provide effective support role to operations
OS7 Increase ability to compete
MP1 Provide managers better access to information
MP2 Provide managers access to methods and models in making
functional area decisions
MP3 Improve communication in the organization
MP4 Improve productivity of managers
DA1 Support strategic decisions for managers
DA3 Support cooperative partnerships in the industry
DA4 Provide information for strategic decision

Appendix C. Final items in the adoption construct

Adoption
Organizational readiness OR1 Financial resources to adopt e-commerce
OR2 Technological resources to adopt e-commerce
Compatibility C1 With culture
C2 With values
C3 With preferred work practices
External pressure EP1 Competition is a factor in our decision to adopt e-commerce
EP2 Social factors are important in our decision to adopt e-commerce
EP3 We depend on other firms that are already using e-commerce
EP4 Our industry is pressuring us to adopt e-commerce
EP5 Our organization is pressured by the government to adopt e-commerce
214 E.E. Grandon, J.M. Pearson / Information & Management 42 (2004) 197216

Appendix C. (Continued )

Ease of use EU1 Learning to operate e-commerce would be ease for me

Perceived usefulness
EU2 I would find e-commerce to be flexible to interact with
EU3 My interaction with e-commerce would be clear and understandable
EU4 It would be ease for me to become skillful at using e-commerce
EU5 I would find e-commerce easy to use
PU1 Using e-commerce would enable my company to accomplish specific
task more quickly
PU2 Using e-commerce would improve my job performance
PU3 Using e-commerce in my job would increase my productivity
PU4 Using e-commerce would enhance my effectiveness on the job
PU5 Using e-commerce would make it easier to do my job
PU6 I would find e-commerce useful in my job

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Elizabeth E. Grandon is an assistant
professor at the school of Business
Administration at the Emporia State
University. She is currently a doctoral
candidate at Southern Illinois University
where she received her MBA in Manage-
ment Information Systems. Her research
interests include database management,
technology acceptance, e-commerce and
information technology adoption in small
businesses. Her research has been published in Communications of
AIS, Journal of Computer Information Systems, Journal of Global
Information Technology Management, and various national and
international conference proceedings.
J. Michael Pearson is an associate
professor of Information Systems at
Southern Illinois University at Carbon-
dale (SIUC). He obtained his DBA in
Information Systems from Mississippi
State University. Before coming to SIUC,
Dr. Pearson served as department chair
(Business Computer Information Sys-
tems) at St. Cloud State University. Dr.
Pearson has presented several papers at
regional, national and international conferences. He has published
articles in Communications of the ACM, Information & Manage-
ment, Journal of Strategic Information Systems, Journal of
Information Systems, Journal of Computer Information Systems,
Decision Support Systems, Review of Business, Journal of Internet
Commerce, Information Resources Management Journal and
Public Administration Quarterly. His research interests are in the
areas of organizational planning, technology adoption, e-com-
merce, management of quality, and IT project management.