The Effects of the Internet on Network Structures and Business Performance

Abstract

In electronic markets, the Internet creates new network structures that enable firms to integrate cross‐functional activities at relatively low cost and eliminate non‐value‐adding activities. However, there is little empirical evidence on how structural characteristics of network organization and the Internet affect service responsiveness and firm performance. Thus, this study integrates and examines the Internet as a mediator of processing complex networks of interactions to extend current understanding of network structures in electronic markets. The impact of network organizations and the Internet on service responsiveness and firm performance is tested using a sample of 336 firms in the computer and electronic manufacturing industry. The results suggest that network structures mediated by the Internet have enhanced firm performance and service responsiveness. Network structures are further enhanced through four Internet drivers of open systems, virtual channels, multi‐user engagement and extended customizability. This alters the ways firms coordinate their activities through responsive processes and complements existing structures with relevant Internet capabilities.

Keywords:

• organizational structure
• Internet drivers
• responsiveness
• performance