More British companies are making strategic adjustments to take into account the Internet revolution.

For most British companies looking at means of exploiting the Internet, "e-commerce" means one thing: selling goods and services through a web site. But a growing number acknowledge that becoming a true "e-business" requires a more profound shift that is likely to involve changes to internal structures, a broad range of back-office systems and even, ultimately, adapting business strategies.

Most companies don't see technology as something that will revolutionise their business. However, a small but growing number are starting to assess the benefits of the net beyond simply using it to drive additional revenue streams. Those that don't follow their lead will lose out.

Four stages are identified in the digital evolution of a business. The first is a brochure-based web site. Then efforts are made to make that site interactive. Next come adjustments to handle transactions. Finally, acknowledgement that web-based transactions are handled more effectively if linked to all back-office systems.

At this point, companies realise that this might require a strategic review of all their activities. But most British businesses have yet to move beyond stage two. Applying the lessons now being learned from web transactions to internal structures and procedures is a growing priority for many companies. The Internet has already had a dramatic impact on the traditional relationship between consumer and supplier: a shift of power from the supplier to the buyer; increased convenience and reduced cost.

Companies intent on becoming e-businesses must be confident their suppliers are keeping up with technological change and competition. Most are only now beginning to ask how should we change? Hardly any outside the IT business are asking how their relationship with suppliers should be changing.

One company that is starting to tackle this question is British Airways. Each year the airline spends approximately £3.5bn with its suppliers, excluding one-off capital projects. It uses an electronic data inter-change system to supply, transmit and receive purchase orders and receipts. Around 30 per cent of BA's transactions go through its EDI system. "This, however, is not true electronic purchasing," says Tim Richardson, BA's head of e-procurement. "E-purchasing is now understood to mean buying from suppliers and paying electronically via the net." The airline is assessing the potential for pure e-purchasing. It recently introduced a corporate procurement card for electronic payments and is considering the use of electronic business-to-business catalogues.

Electronic catalogues are managed by the purchasing company or by a third party such as British Telecom, which recently launched MarketSite, an "electronic marketplace" developed by BT and Commerce One, a US based e-commerce specialist. Goods are ordered through an electronic purchasing application enabling price and availability to be checked before ordering. Progress of the order can also be monitored electronically.

"It is an approach to internet technology that goes beyond the view that the web is primarily for marketing communications purposes," says David Hill, BT business services manager.

AT Kearney, a US based international consulting firm, is developing a different approach to e-purchasing: internet auctions. The company has developed auction software compatible with any laptop connected to the web. This is made available to suppliers who access a web browser to participate in an online auction for a supply contract.

Estimates suggest companies can save up to 11 per cent of indirect purchase costs by introducing systems of e-purchasing for dealing with suppliers. AT Kearney vice-president Tom Slaight claims auctions can cut costs by up to 5 per cent.

Suppliers can also benefit, he claims. "It gives them a much better shot at winning new business." Even so many view auctions as appropriate only for certain types of e-procurement. "There is a place for e-auctions, but most companies want to build a relationship with suppliers behind the products they produce," says Mr Cross.

Automated e-procurement is appropriate only for indirect goods and services, commodities rather than value-added purchases critical to resellable goods and services, he says.

The nature of competition is changing. In a digital economy, people compete to differentiate themselves and their products in a fragmented marketplace. In this sense a company will increasingly require collaborative relationships with its important suppliers.

Findlay Caldwell, managing director of RAC Membership, agrees. "Internet technology is not only about a new revenue stream, or cost saving", he says. The RAC, which set up its first web site two and a half years ago, will shortly launch for the third time.

"We now use it for many different purposes: enrolling and renewing memberships, delivering route-planners and other products. Although it remains under the auspices of marketing and membership, it has become multi-functional," he says. It has become a catalyst for the RAC's evolving approach to the future of its business.

"It has also made us more interested in developing joint ventures with other organisations to develop new products and services for our customers." Mr Caldwell says. The RAC recently announced such an alliance with rival traffic information provider Trafficmaster.

Understanding these issues does not mean you can predict the future. But future success will come from deciding what you are trying to do and how great is your commitment. Deciding to embrace these opportunities means moving them centre-stage, ensuring there is rapid decision-making and a clear path to senior management.

Technology will not hold companies back, he adds. But the internal structures of traditional organisations will.