Adoption of E-Commerce in the Construction Industry Essay

The internet has been growing in recent years at an alarming rate. It has revolutionised how businesses communicate and interact and opened new opportunities which ten years ago were almost inconceivable. With the help of the internet, technologies such as e-commerce make it possible to conduct international business transactions almost instantaneously and for a fraction of the cost of using traditional methods. Many businesses have recognised the possibilities the internet has to offer and the benefits available to the construction industry are just as worthy of consideration.

E-commerce makes it possible to buy and sell equipment and materials as well as bid on-line for jobs. In terms of collaboration, it has drastically changed the way industry professionals communicate. Online project collaboration allows contractors to save hundreds of thousands of pounds by slashing the wait time for responses to Requests for Information (RFI). This translates into huge time savings and shorter completion times.

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However the adoption of e-commerce by SMEs in the construction industry in the UK is still in its infancy, with the majority of uptake being by larger companies. The research carried out in this study is based on the premise that, in order for construction companies to adopt e-commerce tools there is a need to undertake an analysis of their business processes and working methods to ensure successfully implementing, and benefiting from these tools. E-commerce Definition Electronic commerce or e-commerce has been defined in several ways.

The Organisation for Economic Cooperation and Development (OECD) defines e-commerce as ‘the electronic exchange of information that support and govern commercial activities including organisational management, commercial management, commercial negotiations and contracts, legal and regulatory frameworks, financial settlement arrangements and taxation’ (OECD, 1999). Some others define e-commerce as a the process of buying and selling goods and services online (Unisys, 2004; and Laudon and Laudon,2002). However, this definition of e-commerce can be limited as, e-commerce is not just bout buying and selling online, but also includes all forms of business activities that are conducted over the Internet (e. g. the business-to-business flow of information between companies or within a company, communication between businesses, online advertising, etc) (Learnthat, 2004). The definition of e-commerce is not static (Kosiur, 1997) and depends on the adopted perspective. According to Kalakota and Whinston (1997), from a communications perspective, e-commerce is the delivery of information, products/services, or payments via telephone lines, computer networks, or any other electronic means.

From a business process perspective, e-commerce is the application of technology toward the automation of business transactions and workflows. From a service perspective, e-commerce is a tool that addresses the desire of firms, consumers and management to cut service costs while improving the quality of goods and increasing the speed of service delivery. From an online perspective, e-commerce provides the capability of buying and selling products and information on the Internet and other online services. For the purpose of this study, the broader definition of e-commerce will be adopted. An overview of UK Construction SMEs

According to UK Small Business Service 2001 statistics (SBS, 2002a), there were more than 3. 7 million active business SMEs in the UK. They contributed 55. 4% (12. 5 million) of employment and 51. 4% (1. 1 trillion) annual turnover of the entire UK industries . In the construction sector, SMEs represented 18. 5% of the entire SMEs enterprises, which contributed 11% (1. 4 million) employment and 9. 4% (0. 1 trillion) annual turnover of the entire UK). Unlike other industries (e. g. finance and manufacturing) the construction industry is largely made up of SMEs. Construction SMEs are indeed a ‘big’ business industry.

It is estimated that construction SMEs contributed 84. 5% of the employment and 56% annual turnover of the entire UK construction industry (SBS, 2002a). It is therefore easy to see why Egan report (1998) states that this industry is too important to stagnate and must keep up to date with technological advances. The incentive for change in the construction industry It has been well documented that there is growing need for the construction industry to adopt innovative ideas and methodologies; this has been expressed in the Egan report which is one of the major drivers for innovation in the construction industry.

The Egan report states that the construction industry is an important pillar of domestic economy in UK, contributing to about 10% of the total revenue. This report further states that the construction sector is simply too important to be allowed to stagnate. In order to prevent this from happening, new technologies such as e-commerce need to be implemented into the industry’s day to day working methods. Due to the information-intensive nature of the construction industry (Gajendran, et al. , 2004; Thomas et al. , Tam, 1999) it can clearly be seen why this industry in particular would benefit from implementing technologies such as e-commerce.

A considerable degree of information flows between the various participants including client, architect, structural designer, quantity surveyor, services engineer, fabricator, subcontractors, contractor and material suppliers. A construction project is a team effort, which involves several inter-organisational activities, dialogues and data flows, making it a highly complex process (Egan, 1998; Ciftcioglu, 2003). If we look back a decade ago, the flow of information in the construction industry was still paper-based and hence slow.

The network of communication between the various project partners in a typical construction project was mainly one-to-one, where different stakeholders in a construction project would communicate with one another individually using faxes, telephone networks and electronic mail (Hibberd, 2000). Research by Anumba and Evbuomwan (1999) has shown that the conventional one-to-one and paper-based methods of communicating information were grossly inadequate particularly in collaborative and concurrent engineering settings where the project team members were geographically distributed.

It was therefore very important for construction project teams to explore alternative and more effective ways of communicating throughout the project lifecycle to increase efficiency and productivity of construction projects. This need was further emphasised by the Egan report (1998) which stated that the construction industry needed to overcome its fragmented nature to formulate efficient and effective business processes. Figure 1. 1 Complex Communication Network between Construction Project Members (Ruikar, et al. , 2003)

The construction industry can reduce the effects of fragmentation through the use of technological tools to increase efficiency and quality of construction projects (Egan, 1998). The Egan report (1998) further states that construction processes can be effectively managed with the help of IT (Information Technology) and Internet-based innovative planning and management techniques. Saving in time and money can also be made by adopting methods of exchanging information and communicating through the use of IT and internet based e-commerce tools.

Project partners are also able to collaborate more effectively using information technology tools. Finally, the Egan report states that the use of such technologies can prompt construction businesses to improve traditional business processes, innovate their products and services, and develop strategies that are flexible enough to incorporate new technologies (such as e-commerce) as and when they emerge. Identifying problems in adoption of e-commerce by construction SMEs Research studies (Ruikar et al. 2001; Paper 1, Appendix A) and recent publications (Stephenson and Turner, 2003; Laudon and Laudon, 2002) have documented the possible benefits and business opportunities for companies using e-commerce tools such as project extranets. In spite of these documented benefits the UK construction industry has been relatively slow in the uptake of these tools in their day-to-day workings (ITCBP Intelligence, 2003). A survey of the UK construction industry, undertaken by the Construction Products Association (CPA, 2000), predicted that by 2005, 50% of the industry’s business activity would be undertaken using e-commerce.

However, another survey carried out a year later by the same organisation indicated a considerable reduction in these projected figures to 22%, which is less than half of what was initially predicted, indicative of a much slower uptake than anticipated. Additionally, some other factors that have also contributed to this slow uptake are: * E-commerce technology is relatively new and there is limited availability of information or feedback on its performance on previous construction projects; * As with most technologies, it can be difficult to gauge the quantitative return on nvestment (ROI) from using new technologies such as e-commerce; and * The teething problems and changes in working culture and practices which are required, initially, with the adoption of any new technology, very often deters new users Although the uptake of e-commerce technology in the UK construction industry has been relatively slow (Construction Industry Times, 2002; Stewart and Mohamed, 2003), it is seen that the industry has recognised the enormous potential for the use of e-commerce in the construction sector.

It is now the industry view that, e-commerce is here to stay and it will not be long before it becomes an industry norm (Ruikar, et al. , 2004). How construction SMEs have adopted e-commerce A review of the current use of e-commerce within the construction sector revealed that there were several areas within the construction industry that could benefit from the uptake of e-commerce solutions. These are highlighted below * Company Promotion: The Internet can be used to promote companies by the dissemination of company information (e. g. nformation of products and services). * Product Promotion: The Internet can be used for the purpose of increasing product sales through online promotion. * E-procurement: e-Procurement is generally defined as the use of the internet for requisitioning, authorising, ordering and payment of products and services (Lootah 2006, p. 3) However, e-procurement can be more than just a system for online procurement. An e-procurement system can connect a construction enterprise and its business processes directly with suppliers while managing all interactions between them.

This includes management of correspondence, bids, questions and answers, previous pricing, and multiple e-mails sent to multiple participants. * Web Enabled Project Management:. As mentioned earlier in this study, the construction industry involves complex communications between the project team. Online collaboration allows project documents and information to exchanged easily and efficiently. In the construction industry it is essential that each team member receives the right documents at the right time such as the latest version of drawings, specifications, requirements, etc.

According to Alshawi and Ingirige (2003) web-enabled software used in project management can: * reduce the risk of errors and rework by ensuring that everyone in the project team is working with the most current drawings and other documents; * save time in the query (request for information, RFI) and approval process, by allowing the design team to mark up and comment on drawings online; * eliminate the risk of losing important files, by maintaining all current and past versions in one central location; * improve team communication by enabling team members to raise and respond to queries in a structured way; * maintain a complete log of all communications for tracking purposes (audit trail facility); * provide clients and other participants with a view of the project as it is built; as some software have incorporated virtual reality models to denote the status of a project at any point in time (a snap shot view of a project); * provide a collaborative environment whereby the diverse participants can perform online collaboration via the web.