Disintermediation And Reintermediation By E Business Management Essay

“Disintermediation involves the removal of intermediaries such as distributors or brokers that formerly linked a company to its customers and reintermediation involves the creation of new intermediaries between customers and suppliers providing services such as supplier search and product evaluation” [Chaffey, Dave 2009]

The purpose of this study is to investigate disintermediation and reintermediation by E-business. The internet causes a global affect on all types of organizations, many organizations use intermediaries for distribution of their products or services. These intermediaries can be eliminated at any point because of the internet; this is due to the capability of offering the services on the internet directly to consumers, which in return can save costs for many suppliers. This process of elimination is referred to as disintermediation. Travel agencies are an intermediary in the travel distribution channel and can be eliminated by customers booking tickets online and getting holiday information through the supplier on the internet rather than going through them.

New intermediaries can also be introduced into a suppliers distributional channel by the internet, this is due to the intermediary which already exists forming a new intermediary which then gets the product or service to the end user. This process is referred to as reintermediation. Travel agencies can introduce new intermediaries such as an online method for the agency which provides the customer with offerings via the internet.

The main focus area of the report is based on the impact of this topic upon the travel industry. The importance of disintermediation and reintermediation by E-business in the travel industry is discussed in the report, which has allowed an insight to the impact of this topic on business organisation such as travel agencies. There are a number of critical issues and challenges related to this topic which have been identified with reference to past research which has been carried out. There is also a great deal of empirical research that is relevant to the topic of disintermediation and reintermediation. Both reintermediation and disintermediation are a result of the vast development within ecommerce.

Importance of Disintermediation and Reintermediation by E-Business

“The emergence of new technologies within e-commerce has made it possible for different ways of interaction between players in a market” (Whinston, Stahl and Choi, 1997). The internet is having an impact on organizations in a number of industries, in a positive way as well as a negative way. The travel industry is an industry highly affected by e-business, especially disintermediation and reintermediation. Traditional travel distribution channels such as travel agencies have been replaced by a “new generation of virtual travel ventures”, which are based on a pioneering business model (yeung & law,2004).

Two main types of events can occur by e-business which is disintermediation and reintermediation. Both events are important considerations for organizations as they can both change the nature of the transaction process. Disintermediation and reintermediation are important issues in supply chain management within the industry as they both affect the intermediaries in the supply chain. Disintermediation eliminates intermediaries of a supply chain and reintermediation adds new elements to the supply chain. Both events are also an important consideration for organizations in the travel industry such as travel agencies and tour operators.

According to Clemons et al. (2000), outlines a number of reasons for the keen interest in the disintermediation process:

Control- Travel agencies take an independent approach to serve the interest of customers. Their main objective can be seen as meeting customer requirements and the interest of the agency rather than the interest and primary concern of the organisation whose products they are distributing.

Power- Travel agencies are an information control point in the distribution channel therefore has increasing power within the market and also influencing customer perceptions.

Cost- Travel agencies are no longer representations of low cost distribution within the airline sector.

Impact of Disintermediation and Reintermediation by E- business on business organisations

Key trends in the travel industry have changed over the past years; this radical transformation has changed the nature and the value of information within the industry, which has had an impact on the role of travel agencies within the industry.

Disintermediation and reintermediation have a significant impact on business organizations such as travel agencies, which exist primarily as intermediaries between suppliers of travel services. The role of travel agencies is to provide customers with not physical products but with information. Due to the huge widespread of the internet, many airlines and other travel companies have started to sell directly to passengers. As a result of this, airlines no longer need to pay commission to travel agencies for tickets which have been booked through them. This has disintermediated several travel agencies and they have now resorted to charging fees for their services and broadening the scope of services. It is important for travel agencies to understand these implications and adapt their business processes in order to meet customer requirements. Airlines provide customers with the service of booking and planning their travel through their websites, however, they are not as informative and global as intermediaries. Therefore they do not offer consumers the convenience for a complete travel package that can be booked online. A vast amount of business to business data exchange via the internet is being implemented in the travel industry as a reintermediation service which allows value added networks to provide an effective n efficient service to the end user. (Palmer, Adrian and McCole, Patrick 1999).

Research carried out by a Delphi Panel 1997-1998 discusses how panel predict that disintermediation and reintermediation will be widely incorporated into the travel industry and a reduction in the number of travel agencies which operate in the sector will occur in five-ten years in the future. They also outlined key strategic threats and opportunities for channel participants which can be encountered. (D.J. McCubbrey and R.G. Taylor). A follow up to the earlier Delphi study shows the actual vs predicted results; the panel estimated that the total number of travel agency entities would drop from some 22,806 in the US in 1997 to 17,030 in 2002. The panel also estimated that by 2002, traditional travel agencies would account for 58.9% of the total market share. However, in 2002 only 47% of air travels in North America was booked through a traditional travel agency (Holly & Michaels 2003), this indicated that the panel underestimated the impact of online direct markets and cybermediaries.

A national mail survey was also conducted to investigate the plausibility of the disintermediation hypothesis in travel by drawing on consumer intention data. The data revealed that consumers plan to abandon traditional travel agencies as they would like to take a more direct approach- disintermediation. And the other half of the consumers who participated in the survey indicated that they use the internet as a communicational channel to traditional travel agencies- reintermediation (Anckar, Bill 2003).

Critical issues or challenges related to Disintermediation and Reintermediation by E-business

There are many issues and challenges involved in the disintermediation and reintermediation process. Alot of studies have been carried out on the topic of travel agencies involved in this process, many conclude that the agencies are a target point for elimination in there industry due to the emerging possibilities that are offered by the internet. (Anckar, Bill 2003)

A key issue travel agencies are faced with is the offering of their services being offered to customers via the internet. The customers are at a more beneficial position if they are to go directly through to the supplier, which in this case are the travel websites such as Expedia, Travelocity and Preview Travel. These organisations allow the customer to get holiday information and book tickets online at an affordable price and eliminate the process of meeting with a travel agency face to face.

Another key issue that disintermediation and reintermediation raises is that the need of the intermediary is no longer required by suppliers who use them as channel to sell their products. Suppliers are able to sell directly to their customers and this can lower their costs and allow them to offer a wider variety of offerings on the internet. the elimination of the middleman in the distribution channel will not only lower transactional cost but will also allow the sharing of market information. Loborec and Vesna 2008, conclude that computer systems which allow the integration of travel businesses with suppliers, distributors, and retailers is the “crucial first step towards developing a successful e-commerce business model”.

When deciding to add new elements to the distribution channel, there are several critical factors which need to be considered which may affect the outcome, such as: Strategic uncertainty, short term expectation and long term result, conversation process and individual resistance.

Conclusion

Overall, traditional travel agencies need to sustain their position in the market by reintermedating and refocusing their business strategies in the emerging market place. The research carried out offers a new perspective and insight in to widespread of e-commerce. Future research should be carried out on a management strategic perspective of how companies can adapt to e-commerce, providing strategic options available to the firms. The effects of disintermediation and reintermediation are being felt in several other industries, such as music, financial services and real estate. The music industry is also highly affected by the development of information technologies, for example retail music stores such as HMV’s are finding revenue streams for music cds being low. The main reason for this is that consumer can get them cheaper online, such as iTunes and Netflix. Firms in these types of traditional channels would have been well served if they noticed trends in other industries. Failure to anticipate the impact that e-business can have on traditional models should not be lost by managers and IT practitioners in any industry. Therefore this relies on research to be carried out which can show technology trends in all types on industries, so firms can develop innovative ideas to expand their products and provide customers with satisfaction.

In summary, disintermediation and reintermediation can be seen as a positive impact as well as a negative impact depending on the type of industry the intermediaries are operating in. the travel distribution chain has traditionally been heavily dependent on middleman, the travel industry has been hypothesized to be among the first sectors to experience disintermediation on a large scale as a result of e-commerce. Internet travel services such as e-mail booking services are promoters of reintermediation and online self booking systems are promoters of disintermediation.