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Electronic Commerce Eighth Edition Chapter 12 Planning for Electronic Commerce
Learning Objectives <ul><li>In this chapter, you will learn about: </li></ul><ul><li>Planning electronic commerce initiati...
Planning Electronic Commerce Initiatives <ul><li>Information technology projects </li></ul><ul><ul><li>Keys to successful ...
Identifying Objectives <ul><li>Typical business electronic commerce objectives </li></ul><ul><ul><li>Increasing existing m...
Identifying Objectives (cont’d.) <ul><li>Resource allocations for electronic commerce initiatives  </li></ul><ul><ul><li>D...
Linking Objectives to Business Strategies <ul><li>Downstream strategies </li></ul><ul><ul><li>Tactics to improve the value...
Linking Objectives to Business Strategies (cont’d.) <ul><li>Electronic commerce activities difficult to measure </li></ul>...
Measuring Benefits <ul><li>Tangible benefits of electronic commerce initiatives </li></ul><ul><ul><li>Easy to measure </li...
Measuring Benefits (cont’d.) <ul><li>Using Web sites to build brands or enhance existing marketing programs </li></ul><ul>...
Measuring Benefits (cont’d.) <ul><li>Using Web sites to improve customer service or after-sale support </li></ul><ul><ul><...
Measuring Benefits (cont’d.) <ul><li>Measurements of other electronic commerce initiatives </li></ul><ul><ul><li>Supply ch...
Measuring Benefits (cont’d.) <ul><li>Metrics </li></ul><ul><ul><li>Measurements companies make to assess value of benefits...
Electronic Commerce, Eighth Edition
Managing Costs <ul><li>Information technology project costs are difficult to estimate </li></ul><ul><li>Web development us...
Managing Costs (cont’d.) <ul><li>Total cost of ownership (TCO) </li></ul><ul><ul><li>Includes wide variety of costs relate...
Managing Costs (cont’d.) <ul><li>Change management </li></ul><ul><ul><li>Information system projects involve change </li><...
Managing Costs (cont’d.) <ul><li>Opportunity costs </li></ul><ul><ul><li>Largest and most significant costs associated wit...
Managing Costs (cont’d.) <ul><li>Web site costs: based on International Data Corporation and Gartner, Inc. surveys </li></...
Managing Costs (cont’d.) <ul><li>Web site costs (cont’d.) </li></ul><ul><ul><li>Small company Web site costs: under $4000 ...
Electronic Commerce, Eighth Edition
Managing Costs (cont’d.) <ul><li>Web site costs (cont’d.) </li></ul><ul><ul><li>Web technology evolving at rapid pace </li...
Managing Costs (cont’d.) <ul><li>Web site costs (cont’d.) </li></ul><ul><ul><li>McKinsey & Company </li></ul></ul><ul><ul>...
Managing Costs (cont’d.) <ul><li>Web site costs (cont’d.) </li></ul><ul><ul><li>More limited magazine companion site compl...
Electronic Commerce, Eighth Edition
Managing Costs (cont’d.) <ul><li>Trends in Web site costs </li></ul><ul><ul><li>New online businesses </li></ul></ul><ul><...
Managing Costs (cont’d.) <ul><li>Funding online business startups </li></ul><ul><ul><li>Early Web businesses </li></ul></u...
Managing Costs (cont’d.) <ul><li>Funding online business startups (cont’d.) </li></ul><ul><ul><li>Venture capitalists </li...
Managing Costs (cont’d.) <ul><li>Funding online business startups (cont’d.) </li></ul><ul><ul><li>Decreasing need for vent...
Comparing Benefits to Costs <ul><li>Capital projects  ( capital investments ) </li></ul><ul><ul><li>Major investments in e...
Comparing Benefits to Costs (cont’d.) <ul><li>Key part of creating electronic commerce initiatives business plan </li></ul...
Electronic Commerce, Eighth Edition
Return on Investment (ROI) <ul><li>Techniques measuring amount of income (return) provided by specific current expenditure...
Return on Investment (ROI) (cont’d.) <ul><li>Electronic commerce initiatives seen as absolutely necessary investments </li...
Return on Investment (ROI) (cont’d.) <ul><li>Companies turning to ROI measurement tool for evaluating new electronic comme...
Return on Investment (ROI) (cont’d.) <ul><li>ROI built-in biases (cont’d.) </li></ul><ul><ul><li>Short-term benefits easie...
Strategies for Developing Electronic Commerce Web Sites <ul><li>Evolution of Web site functions </li></ul><ul><ul><li>From...
Electronic Commerce, Eighth Edition
Strategies for Developing Electronic Commerce Websites (cont’d.) <ul><li>The Internet has changed markets and marketing ch...
Internal Development vs. Outsourcing <ul><li>Internal people leading projects ensures:  </li></ul><ul><ul><li>Company’s sp...
Internal Development vs. Outsourcing (cont’d.) <ul><li>The internal team </li></ul><ul><ul><li>First step in outsourcing d...
Internal Development vs. Outsourcing (cont’d.) <ul><li>The internal team (cont’d.) </li></ul><ul><ul><li>Project lead </li...
Internal Development vs. Outsourcing (cont’d.) <ul><li>The internal team (cont’d.) </li></ul><ul><ul><li>Intellectual capi...
Internal Development vs. Outsourcing (cont’d.) <ul><li>The internal team (cont’d.) </li></ul><ul><ul><li>Holds responsibil...
Internal Development vs. Outsourcing (cont’d.) <ul><li>Early outsourcing </li></ul><ul><ul><li>Company outsources initial ...
Internal Development vs. Outsourcing (cont’d.) <ul><li>Late outsourcing </li></ul><ul><ul><li>More traditional approach </...
Internal Development vs. Outsourcing (cont’d.) <ul><li>Partial outsourcing </li></ul><ul><ul><li>Also called  component ou...
Internal Development vs. Outsourcing (cont’d.) <ul><li>Partial outsourcing (cont’d.) </li></ul><ul><ul><li>Example: Web ho...
Selecting a Hosting Service <ul><li>Internal team responsible for selecting ISP </li></ul><ul><li>Smaller electronic comme...
Selecting a Hosting Service (cont’d.) <ul><li>Important factors when selecting hosting service </li></ul><ul><ul><li>Funct...
New Methods for Implementing Partial Outsourcing <ul><li>New ways of implementing partial outsourcing strategy evolved spe...
New Methods for Implementing Partial Outsourcing (cont’d.) <ul><li>Incubators (cont’d.) </li></ul><ul><ul><li>Incubator se...
New Methods for Implementing Partial Outsourcing (cont’d.) <ul><li>Incubators (cont’d.) </li></ul><ul><ul><li>Company crea...
New Methods for Implementing Partial Outsourcing (cont’d.) <ul><li>Fast venturing </li></ul><ul><ul><li>Existing company w...
New Methods for Implementing Partial Outsourcing (cont’d.) <ul><li>Fast venturing (cont’d.) </li></ul><ul><ul><li>Venture ...
Electronic Commerce, Eighth Edition
Managing Electronic Commerce Implementations <ul><li>Best way to manage complex electronic commerce implementation </li></...
Project Management <ul><li>Collection of formal techniques for planning and controlling activities undertaken to achieve s...
Project Management (cont’d.) <ul><li>Project management software </li></ul><ul><ul><li>Specific application software </li>...
Electronic Commerce, Eighth Edition
Project Management (cont’d.) <ul><li>Software management tasks </li></ul><ul><ul><li>People and tasks of the internal team...
Project Portfolio Management <ul><li>Teams rely on project management software to help achieve project goals </li></ul><ul...
Staffing for Electronic Commerce <ul><li>Business manager </li></ul><ul><ul><li>Member of internal team setting project ob...
Staffing for Electronic Commerce (cont’d.) <ul><li>Applications specialists </li></ul><ul><ul><li>Maintain accounting, hum...
Staffing for Electronic Commerce (cont’d.) <ul><li>Customer service  personnel </li></ul><ul><ul><li>Design and implement ...
Staffing for Electronic Commerce (cont’d.) <ul><li>Database administration  function </li></ul><ul><ul><li>Support activit...
Postimplementation Audits <ul><li>Formal review of project </li></ul><ul><ul><li>After up and running </li></ul></ul><ul><...
Postimplementation Audits (cont’d.) <ul><li>Feedback on strategies </li></ul><ul><ul><li>Used more today </li></ul></ul><u...
Summary <ul><li>Key elements included in e-commerce business plans </li></ul><ul><li>Setting objectives in measurable term...
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Transcript of "9781423903055 ppt ch12"

  1. 1. Electronic Commerce Eighth Edition Chapter 12 Planning for Electronic Commerce
  2. 2. Learning Objectives <ul><li>In this chapter, you will learn about: </li></ul><ul><li>Planning electronic commerce initiatives </li></ul><ul><li>Strategies for developing electronic commerce Web sites </li></ul><ul><li>Managing electronic commerce implementations </li></ul>Electronic Commerce, Eighth Edition Electronic Commerce, Eighth Edition
  3. 3. Planning Electronic Commerce Initiatives <ul><li>Information technology projects </li></ul><ul><ul><li>Keys to successful implementation </li></ul></ul><ul><ul><ul><li>Planning and execution </li></ul></ul></ul><ul><li>Electronic commerce initiative business plan </li></ul><ul><ul><li>Included activities </li></ul></ul><ul><ul><ul><li>Identifying initiative’s specific objectives </li></ul></ul></ul><ul><ul><ul><li>Linking objectives to business strategies </li></ul></ul></ul><ul><li>Setting electronic commerce initiative objectives </li></ul><ul><ul><li>Consider strategic role of project, intended scope, resources available </li></ul></ul>Electronic Commerce, Eighth Edition
  4. 4. Identifying Objectives <ul><li>Typical business electronic commerce objectives </li></ul><ul><ul><li>Increasing existing market’s sales </li></ul></ul><ul><ul><li>Opening new markets </li></ul></ul><ul><ul><li>Serving existing customers better </li></ul></ul><ul><ul><li>Identifying new vendors </li></ul></ul><ul><ul><li>Coordinating more efficiently with existing vendors </li></ul></ul><ul><ul><li>Recruiting employees more effectively </li></ul></ul><ul><li>Objectives vary with organization size </li></ul>Electronic Commerce, Eighth Edition
  5. 5. Identifying Objectives (cont’d.) <ul><li>Resource allocations for electronic commerce initiatives </li></ul><ul><ul><li>Decisions should consider: </li></ul></ul><ul><ul><ul><li>Expected benefits and costs of meeting objectives </li></ul></ul></ul><ul><ul><ul><li>Risks inherent in electronic commerce initiative </li></ul></ul></ul><ul><ul><ul><li>Comparison of inherent risks to risks of inaction </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  6. 6. Linking Objectives to Business Strategies <ul><li>Downstream strategies </li></ul><ul><ul><li>Tactics to improve the value businesses provide to customers </li></ul></ul><ul><li>Upstream strategies </li></ul><ul><ul><li>Focus on reducing costs or generating value </li></ul></ul><ul><ul><ul><li>Working with suppliers or inbound shipping and freight service providers </li></ul></ul></ul><ul><li>Web use for businesses </li></ul><ul><ul><li>Attractive sales channel for many firms </li></ul></ul><ul><ul><li>Complement business strategies, improve competitive positions </li></ul></ul>Electronic Commerce, Eighth Edition
  7. 7. Linking Objectives to Business Strategies (cont’d.) <ul><li>Electronic commerce activities difficult to measure </li></ul><ul><li>First-wave e-commerce activities </li></ul><ul><ul><li>Existed without setting specific, measurable goals </li></ul></ul><ul><ul><li>Did not face much competition </li></ul></ul><ul><ul><li>Successes and failures measured in broad strokes </li></ul></ul><ul><li>Second-wave e-commerce activities </li></ul><ul><ul><li>Businesses take closer look at benefits and costs </li></ul></ul><ul><ul><li>Good implementation plan </li></ul></ul><ul><ul><ul><li>Set specific objectives for benefits achieved and costs incurred </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  8. 8. Measuring Benefits <ul><li>Tangible benefits of electronic commerce initiatives </li></ul><ul><ul><li>Easy to measure </li></ul></ul><ul><ul><li>Example: increased sales or reduced costs </li></ul></ul><ul><li>Intangible benefits of electronic commerce initiatives </li></ul><ul><ul><li>More difficult to measure </li></ul></ul><ul><ul><li>Example: increased customer satisfaction </li></ul></ul><ul><li>Identifying objectives </li></ul><ul><ul><li>Set measurable objectives even if for intangible benefits </li></ul></ul>Electronic Commerce, Eighth Edition
  9. 9. Measuring Benefits (cont’d.) <ul><li>Using Web sites to build brands or enhance existing marketing programs </li></ul><ul><ul><li>Set goals in terms of increased brand awareness </li></ul></ul><ul><ul><ul><li>Measured by market research surveys, opinion polls </li></ul></ul></ul><ul><ul><li>Companies selling goods or services online </li></ul></ul><ul><ul><ul><li>Measure sales volume in units or dollars </li></ul></ul></ul><ul><ul><li>Complicated to measure brand awareness or sales </li></ul></ul><ul><ul><ul><li>Increase may be due to other things company is doing at same time or general improvement in the economy </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  10. 10. Measuring Benefits (cont’d.) <ul><li>Using Web sites to improve customer service or after-sale support </li></ul><ul><ul><li>Set goals of increased customer satisfaction, reduced costs of providing customer service or support </li></ul></ul><ul><ul><li>Example: Philips Lighting </li></ul></ul><ul><ul><ul><li>Provided Web ordering system for smaller customers </li></ul></ul></ul><ul><ul><ul><li>Primary goal: reduce cost of processing smaller orders </li></ul></ul></ul><ul><ul><ul><li>Built pilot Web site and had smaller customers try it </li></ul></ul></ul><ul><ul><ul><li>Results: customer service phone calls from test group dropped by 80 percent </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  11. 11. Measuring Benefits (cont’d.) <ul><li>Measurements of other electronic commerce initiatives </li></ul><ul><ul><li>Supply chain managers </li></ul></ul><ul><ul><ul><li>Measure supply cost reductions, quality improvements, faster deliveries of ordered goods </li></ul></ul></ul><ul><ul><li>Auction sites </li></ul></ul><ul><ul><ul><li>Set goals for number of auctions, number of bidders and sellers, dollar volume of items sold, number of items sold, number of registered participants </li></ul></ul></ul><ul><ul><li>Virtual communities and Web portals </li></ul></ul><ul><ul><ul><li>Measure number of visitors </li></ul></ul></ul><ul><ul><ul><li>Measure quality of visitors’ experiences </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  12. 12. Measuring Benefits (cont’d.) <ul><li>Metrics </li></ul><ul><ul><li>Measurements companies make to assess value of benefits </li></ul></ul><ul><ul><ul><li>Use online surveys </li></ul></ul></ul><ul><ul><ul><li>Use estimates: length of time each visitor remains on site, how often visitors return </li></ul></ul></ul><ul><li>Benefit unit of measure </li></ul><ul><ul><li>Convert raw activity measurements to dollars </li></ul></ul><ul><ul><ul><li>Can compare benefits to costs </li></ul></ul></ul><ul><ul><ul><li>Can compare net benefit of a particular initiative to net benefits provided by other projects </li></ul></ul></ul><ul><ul><li>Difficult to measure value in dollars </li></ul></ul>Electronic Commerce, Eighth Edition
  13. 13. Electronic Commerce, Eighth Edition
  14. 14. Managing Costs <ul><li>Information technology project costs are difficult to estimate </li></ul><ul><li>Web development uses rapidly changing hardware and software technologies </li></ul><ul><ul><li>Most changes in hardware costs are downward </li></ul></ul><ul><ul><li>Increasing software sophistication </li></ul></ul><ul><ul><ul><li>Provides ever-increasing demand for more newer, cheaper hardware </li></ul></ul></ul><ul><ul><ul><li>Yields net increase in overall hardware costs </li></ul></ul></ul><ul><li>Web technology can quickly destroy manager’s best-laid plans </li></ul>Electronic Commerce, Eighth Edition
  15. 15. Managing Costs (cont’d.) <ul><li>Total cost of ownership (TCO) </li></ul><ul><ul><li>Includes wide variety of costs related to activity </li></ul></ul><ul><li>Electronic commerce implementation TCO includes: </li></ul><ul><ul><li>Costs of hardware, software, design work, outsourcing, salaries and benefits for employees involved in project, maintaining site once operational </li></ul></ul><ul><li>Good TCO number </li></ul><ul><ul><li>Includes assumptions about how often site would need to be redesigned in the future </li></ul></ul>Electronic Commerce, Eighth Edition
  16. 16. Managing Costs (cont’d.) <ul><li>Change management </li></ul><ul><ul><li>Information system projects involve change </li></ul></ul><ul><ul><li>Employee concerns </li></ul></ul><ul><ul><ul><li>Ability to cope with changes, ability to continue to do good work, job security </li></ul></ul></ul><ul><ul><li>Concerns lead to increased stress </li></ul></ul><ul><ul><li>Change management: process of helping employees cope with changes </li></ul></ul><ul><ul><ul><li>Includes tactics designed to help employees feel involved with change </li></ul></ul></ul><ul><ul><ul><li>Helps employees overcome feelings of powerlessness </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  17. 17. Managing Costs (cont’d.) <ul><li>Opportunity costs </li></ul><ul><ul><li>Largest and most significant costs associated with electronic commerce initiative </li></ul></ul><ul><ul><ul><li>Cost of not undertaking an initiative </li></ul></ul></ul><ul><ul><li>Foregone benefits that company could have obtained from electronic commerce initiative not pursued </li></ul></ul><ul><ul><li>Lost benefits from action not taken </li></ul></ul>Electronic Commerce, Eighth Edition
  18. 18. Managing Costs (cont’d.) <ul><li>Web site costs: based on International Data Corporation and Gartner, Inc. surveys </li></ul><ul><ul><li>Estimated cost to build, implement adequate entry-level site (large company): $1 million </li></ul></ul><ul><ul><ul><li>79 percent labor, 10 percent software, 11 percent hardware </li></ul></ul></ul><ul><ul><li>Building site comparing favorably to leading sites </li></ul></ul><ul><ul><ul><li>$2 million to $5 million </li></ul></ul></ul><ul><ul><li>10 of top 100 e-commerce sites spent over $10 million </li></ul></ul>Electronic Commerce, Eighth Edition
  19. 19. Managing Costs (cont’d.) <ul><li>Web site costs (cont’d.) </li></ul><ul><ul><li>Small company Web site costs: under $4000 </li></ul></ul><ul><ul><li>TCO: site with full transaction and payment processing capabilities </li></ul></ul><ul><ul><ul><li>Difficult to keep under $8000 per year </li></ul></ul></ul><ul><ul><li>Smaller companies’ surveys indicate that costs of commerce Web sites average $110,000 </li></ul></ul><ul><ul><ul><li>Industry estimate: $100,000 </li></ul></ul></ul><ul><ul><li>Gartner estimate for basic electronic commerce operation </li></ul></ul><ul><ul><ul><li>Between $100,000 and $1 million </li></ul></ul></ul><ul><ul><ul><li>Site noticeably ahead of competitors: over $15 million </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  20. 20. Electronic Commerce, Eighth Edition
  21. 21. Managing Costs (cont’d.) <ul><li>Web site costs (cont’d.) </li></ul><ul><ul><li>Web technology evolving at rapid pace </li></ul></ul><ul><ul><ul><li>To remain competitive, businesses must take advantage of technology </li></ul></ul></ul><ul><ul><li>Annual cost to maintain and improve site once up and running </li></ul></ul><ul><ul><ul><li>Between 50 percent and 200 percent of initial cost </li></ul></ul></ul><ul><ul><li>Implementation decisions’ significant factor </li></ul></ul><ul><ul><ul><li>Ongoing maintenance costs </li></ul></ul></ul><ul><ul><ul><li>More so than initial cost of building site </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  22. 22. Managing Costs (cont’d.) <ul><li>Web site costs (cont’d.) </li></ul><ul><ul><li>McKinsey & Company </li></ul></ul><ul><ul><ul><li>Estimated start-up and ongoing costs for magazine publishers’ Web sites </li></ul></ul></ul><ul><ul><li>Two types of magazine sites </li></ul></ul><ul><ul><li>Full portal site served as a destination in itself; cost estimate </li></ul></ul><ul><ul><ul><li>$2.4 million to build </li></ul></ul></ul><ul><ul><ul><li>$4.3 million per year to maintain </li></ul></ul></ul><ul><ul><ul><li>Staff of 35 people </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  23. 23. Managing Costs (cont’d.) <ul><li>Web site costs (cont’d.) </li></ul><ul><ul><li>More limited magazine companion site complementing printed magazine cost estimate </li></ul></ul><ul><ul><ul><li>$150,000 to build </li></ul></ul></ul><ul><ul><ul><li>$270,000 per year to maintain </li></ul></ul></ul><ul><ul><ul><li>Staff of two people </li></ul></ul></ul><ul><ul><li>Both estimates </li></ul></ul><ul><ul><ul><li>Exclude site content development costs </li></ul></ul></ul><ul><ul><ul><li>Assume existing IT infrastructure for print publishing business </li></ul></ul></ul><ul><ul><ul><li>Subscriber base of 300,000 </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  24. 24. Electronic Commerce, Eighth Edition
  25. 25. Managing Costs (cont’d.) <ul><li>Trends in Web site costs </li></ul><ul><ul><li>New online businesses </li></ul></ul><ul><ul><ul><li>Trending toward lower costs of entry </li></ul></ul></ul><ul><ul><ul><li>Operations launched for dollar amounts in low end of range for each category </li></ul></ul></ul><ul><ul><li>Reasons </li></ul></ul><ul><ul><ul><li>Lower costs for broadband access, equipment </li></ul></ul></ul><ul><ul><ul><li>Decreasing cost of developing and maintaining software to run online business </li></ul></ul></ul><ul><ul><li>First successful startup (Netscape): $40 million </li></ul></ul><ul><ul><li>Newer startups (Digg, Facebook): under $500,000 </li></ul></ul>Electronic Commerce, Eighth Edition
  26. 26. Managing Costs (cont’d.) <ul><li>Funding online business startups </li></ul><ul><ul><li>Early Web businesses </li></ul></ul><ul><ul><ul><li>Started by individuals with knowledge of computers, technology, business </li></ul></ul></ul><ul><ul><li>Late 1990s Web businesses </li></ul></ul><ul><ul><ul><li>Started by investors wanting to make fast money </li></ul></ul></ul><ul><ul><li>Angel investors funded initial startup </li></ul></ul><ul><ul><ul><li>Became stockholders hoping business grows rapidly </li></ul></ul></ul><ul><ul><ul><li>Sell interest to venture capitalist </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  27. 27. Managing Costs (cont’d.) <ul><li>Funding online business startups (cont’d.) </li></ul><ul><ul><li>Venture capitalists </li></ul></ul><ul><ul><ul><li>Very wealthy individuals, investment firms </li></ul></ul></ul><ul><ul><ul><li>Look for small companies about to grow rapidly </li></ul></ul></ul><ul><ul><ul><li>Hope for rapid growth and initial public offering </li></ul></ul></ul><ul><ul><li>Initial public offering (IPO) </li></ul></ul><ul><ul><ul><li>Selling stock to public </li></ul></ul></ul><ul><ul><li>System of financing startup and initial growth of online businesses </li></ul></ul><ul><ul><ul><li>Benefits: access to large amounts of capital early </li></ul></ul></ul><ul><ul><ul><li>Costs: investors, capitalists got most profits, pressure to grow rapidly </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  28. 28. Managing Costs (cont’d.) <ul><li>Funding online business startups (cont’d.) </li></ul><ul><ul><li>Decreasing need for venture capitalists and angel investors </li></ul></ul><ul><ul><ul><li>Relieving pressure to grow rapidly </li></ul></ul></ul><ul><ul><ul><li>Online entrepreneurs more creative, learn from mistakes </li></ul></ul></ul><ul><ul><li>Trending toward more and smaller online ventures </li></ul></ul><ul><ul><ul><li>Creating online business: costs falling </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  29. 29. Comparing Benefits to Costs <ul><li>Capital projects ( capital investments ) </li></ul><ul><ul><li>Major investments in equipment, personnel, other assets </li></ul></ul><ul><ul><li>Companies have procedures to evaluate </li></ul></ul><ul><ul><ul><li>Range from simple calculations to complex computer simulation models </li></ul></ul></ul><ul><ul><ul><li>Always reduces to comparison of benefits and costs </li></ul></ul></ul><ul><ul><li>Benefits exceed costs by comfortable margin </li></ul></ul><ul><ul><ul><li>Company invests in project </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  30. 30. Comparing Benefits to Costs (cont’d.) <ul><li>Key part of creating electronic commerce initiatives business plan </li></ul><ul><ul><li>Identifying potential benefits </li></ul></ul><ul><ul><li>Identifying costs required to generate benefits </li></ul></ul><ul><ul><li>Evaluating if benefits exceed costs </li></ul></ul>Electronic Commerce, Eighth Edition
  31. 31. Electronic Commerce, Eighth Edition
  32. 32. Return on Investment (ROI) <ul><li>Techniques measuring amount of income (return) provided by specific current expenditure (investment) </li></ul><ul><ul><li>Payback method, net present value method, internal rate of return </li></ul></ul><ul><li>Provide quantitative expression of comfortable benefit-to-cost margin </li></ul><ul><li>Mathematically adjust for future reduced value of benefits </li></ul>Electronic Commerce, Eighth Edition
  33. 33. Return on Investment (ROI) (cont’d.) <ul><li>Electronic commerce initiatives seen as absolutely necessary investments </li></ul><ul><ul><li>Not subject to close examination, rigid requirements </li></ul></ul><ul><ul><li>Companies fear being left behind </li></ul></ul><ul><li>Great value in new market early positioning </li></ul><ul><ul><li>Many companies invest large amounts of money </li></ul></ul><ul><ul><ul><li>With few near-term profit prospects </li></ul></ul></ul><ul><ul><li>Example: first wave of newspaper Web sites </li></ul></ul><ul><ul><ul><li>Calculated opportunity costs not being on the Web </li></ul></ul></ul><ul><ul><ul><li>Greater than losses experienced from starting sites </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  34. 34. Return on Investment (ROI) (cont’d.) <ul><li>Companies turning to ROI measurement tool for evaluating new electronic commerce projects </li></ul><ul><ul><li>ROI used in the past </li></ul></ul><ul><li>ROI built-in biases </li></ul><ul><ul><li>ROI requires all costs, benefits be stated in dollars </li></ul></ul><ul><ul><ul><li>Gives undue weight to costs </li></ul></ul></ul><ul><ul><li>ROI focuses on predicted benefits </li></ul></ul><ul><ul><ul><li>Initiatives have returned benefits not foreseen </li></ul></ul></ul><ul><ul><ul><li>Cisco user forums assisted engineers (unexpected) </li></ul></ul></ul><ul><ul><li>ROI tends to emphasize short-run benefits over long-run benefits </li></ul></ul>Electronic Commerce, Eighth Edition
  35. 35. Return on Investment (ROI) (cont’d.) <ul><li>ROI built-in biases (cont’d.) </li></ul><ul><ul><li>Short-term benefits easier to foresee </li></ul></ul><ul><ul><ul><li>Get included in ROI calculations </li></ul></ul></ul><ul><ul><li>Long-term benefits harder to imagine and quantify </li></ul></ul><ul><ul><ul><li>Not always included in ROI calculation </li></ul></ul></ul><ul><ul><li>ROI calculations weigh short-term costs/benefits more heavily than long-term costs/benefits </li></ul></ul><ul><ul><li>More information </li></ul></ul><ul><ul><ul><li>CIO Budget, Computerworld ROI Knowledge Center Web pages </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  36. 36. Strategies for Developing Electronic Commerce Web Sites <ul><li>Evolution of Web site functions </li></ul><ul><ul><li>From static brochures (early days) </li></ul></ul><ul><ul><li>To transaction-processing tools </li></ul></ul><ul><ul><li>To today’s automated homes; all kinds of business processes </li></ul></ul><ul><li>Transformation occurred rapidly </li></ul><ul><ul><li>Change in site management did not occur quickly </li></ul></ul><ul><li>Now companies are seeing Web sites as collections of software applications </li></ul><ul><ul><li>To manage development and maintenance </li></ul></ul>Electronic Commerce, Eighth Edition
  37. 37. Electronic Commerce, Eighth Edition
  38. 38. Strategies for Developing Electronic Commerce Websites (cont’d.) <ul><li>The Internet has changed markets and marketing channels quickly </li></ul><ul><ul><li>Creating difficulties in industry value chains </li></ul></ul><ul><ul><li>No luxury of time </li></ul></ul><ul><ul><li>Must explore alternatives to traditional systems development methods to succeed </li></ul></ul>Electronic Commerce, Eighth Edition
  39. 39. Internal Development vs. Outsourcing <ul><li>Internal people leading projects ensures: </li></ul><ul><ul><li>Company’s specific needs are addressed </li></ul></ul><ul><ul><li>Initiative congruent with organization goals, culture </li></ul></ul><ul><li>Outside consultants </li></ul><ul><ul><li>Seldom able to learn enough about organization’s culture to accomplish objectives </li></ul></ul><ul><li>Key to success </li></ul><ul><ul><li>Finding balance between outside and inside support </li></ul></ul><ul><li>Outsourcing </li></ul><ul><ul><li>Hiring another company to provide outside support for all or part of project </li></ul></ul>Electronic Commerce, Eighth Edition
  40. 40. Internal Development vs. Outsourcing (cont’d.) <ul><li>The internal team </li></ul><ul><ul><li>First step in outsourcing decision making </li></ul></ul><ul><ul><ul><li>Create internal team </li></ul></ul></ul><ul><ul><li>Team members </li></ul></ul><ul><ul><ul><li>People knowledgeable about the Internet and its technologies </li></ul></ul></ul><ul><ul><ul><li>Creative thinkers </li></ul></ul></ul><ul><ul><ul><li>Distinguished within the company </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  41. 41. Internal Development vs. Outsourcing (cont’d.) <ul><li>The internal team (cont’d.) </li></ul><ul><ul><li>Project lead </li></ul></ul><ul><ul><ul><li>Mistake: technical wizard, not business knowledgeable, not well known </li></ul></ul></ul><ul><ul><ul><li>Better choice: person with business knowledge, creativity, respect of firm’s operating function managers, good sense of goals and culture </li></ul></ul></ul><ul><ul><li>Measuring team achievement: important </li></ul></ul><ul><ul><ul><li>Not necessarily monetarily </li></ul></ul></ul><ul><ul><ul><li>Express in terms appropriate to initiative objectives </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  42. 42. Internal Development vs. Outsourcing (cont’d.) <ul><li>The internal team (cont’d.) </li></ul><ul><ul><li>Intellectual capital </li></ul></ul><ul><ul><ul><li>Employees’ knowledge about the business and its processes </li></ul></ul></ul><ul><ul><ul><li>Ignored in the past </li></ul></ul></ul><ul><ul><ul><li>Value recognized today </li></ul></ul></ul><ul><ul><li>Human capital measurement networking approach </li></ul></ul><ul><ul><ul><li>Includes employee competencies </li></ul></ul></ul><ul><ul><ul><li>Includes value of customer loyalty and business partnerships </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  43. 43. Internal Development vs. Outsourcing (cont’d.) <ul><li>The internal team (cont’d.) </li></ul><ul><ul><li>Holds responsibility for initiative from setting objectives to final implementation </li></ul></ul><ul><ul><ul><li>Internal team decides project parts to outsource, outsourcer, consultants or partners needed </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  44. 44. Internal Development vs. Outsourcing (cont’d.) <ul><li>Early outsourcing </li></ul><ul><ul><li>Company outsources initial site design and development to launch project quickly </li></ul></ul><ul><ul><li>Outsourcing team trains company’s information systems professionals before handing site operation to them </li></ul></ul><ul><li>Company’s own information systems people work closely with outsourcing team </li></ul><ul><ul><li>Develop ideas for improvements as early as possible in project life </li></ul></ul>Electronic Commerce, Eighth Edition
  45. 45. Internal Development vs. Outsourcing (cont’d.) <ul><li>Late outsourcing </li></ul><ul><ul><li>More traditional approach </li></ul></ul><ul><ul><li>Company’s information systems professionals </li></ul></ul><ul><ul><ul><li>Perform initial design and development work, implement system, and operate system until stable part of business operation </li></ul></ul></ul><ul><ul><li>Once competitive advantage gained </li></ul></ul><ul><ul><ul><li>Electronic commerce system maintenance outsourced </li></ul></ul></ul><ul><ul><ul><li>Company’s information systems professionals turn attention and talents to developing new technologies, providing further competitive advantage </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  46. 46. Internal Development vs. Outsourcing (cont’d.) <ul><li>Partial outsourcing </li></ul><ul><ul><li>Also called component outsourcing </li></ul></ul><ul><ul><li>Company identifies specific project portions </li></ul></ul><ul><ul><ul><li>Can be completely designed, developed, implemented, and operated by another firm specializing in a particular function </li></ul></ul></ul><ul><ul><li>Examples </li></ul></ul><ul><ul><ul><li>Smaller Web sites outsource e-mail handling and response functions </li></ul></ul></ul><ul><ul><ul><li>Electronic payment system </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  47. 47. Internal Development vs. Outsourcing (cont’d.) <ul><li>Partial outsourcing (cont’d.) </li></ul><ul><ul><li>Example: Web hosting activity </li></ul></ul><ul><ul><ul><li>Service providers usually willing to accommodate requests for variety of service levels </li></ul></ul></ul><ul><ul><ul><li>Service provider has continuous staffing and expertise </li></ul></ul></ul><ul><ul><ul><li>24/7 operation: running 24 hours a day, seven days a week </li></ul></ul></ul><ul><ul><ul><li>Service providers offer wide range of services </li></ul></ul></ul><ul><ul><ul><li>Some service providers specialize </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  48. 48. Selecting a Hosting Service <ul><li>Internal team responsible for selecting ISP </li></ul><ul><li>Smaller electronic commerce projects </li></ul><ul><ul><li>Consult ISP directory (The List) </li></ul></ul><ul><li>Larger electronic commerce projects </li></ul><ul><ul><li>Obtain advice of consultants, other firms rating service providers </li></ul></ul><ul><ul><ul><li>HostCompare.com, Keynote Systems </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  49. 49. Selecting a Hosting Service (cont’d.) <ul><li>Important factors when selecting hosting service </li></ul><ul><ul><li>Functionality </li></ul></ul><ul><ul><li>Reliability </li></ul></ul><ul><ul><li>Bandwidth and server scalability </li></ul></ul><ul><ul><li>Security </li></ul></ul><ul><ul><li>Backup and disaster recovery </li></ul></ul><ul><ul><li>Cost </li></ul></ul><ul><li>Vendor’s security policies, practices: very important </li></ul><ul><ul><li>Business information placed in hands of service provider </li></ul></ul>Electronic Commerce, Eighth Edition
  50. 50. New Methods for Implementing Partial Outsourcing <ul><li>New ways of implementing partial outsourcing strategy evolved specifically for Web businesses </li></ul><ul><li>Incubators </li></ul><ul><ul><li>Offer start-up companies physical location with offices, accounting and legal assistance, computers, Internet connections </li></ul></ul><ul><ul><ul><li>Very low monthly cost </li></ul></ul></ul><ul><ul><li>May offer seed money, management advice, marketing assistance </li></ul></ul><ul><ul><li>Receive ownership interest in company </li></ul></ul>Electronic Commerce, Eighth Edition
  51. 51. New Methods for Implementing Partial Outsourcing (cont’d.) <ul><li>Incubators (cont’d.) </li></ul><ul><ul><li>Incubator sells all or part of its interest </li></ul></ul><ul><ul><ul><li>Company grows to obtain venture capital financing, launch stock public offering </li></ul></ul></ul><ul><ul><li>First Internet incubators: Idealab </li></ul></ul><ul><ul><ul><li>Helped CarsDirect.com, Overture, Tickets.com </li></ul></ul></ul><ul><ul><ul><li>Today’s focus: own internally generated ideas </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  52. 52. New Methods for Implementing Partial Outsourcing (cont’d.) <ul><li>Incubators (cont’d.) </li></ul><ul><ul><li>Company created internal incubators </li></ul></ul><ul><ul><ul><li>Develop technologies for use in main business operations </li></ul></ul></ul><ul><ul><ul><li>1980s programs: unsuccessful and shut down </li></ul></ul></ul><ul><ul><li>Matsushita Electric’s U.S. Panasonic division </li></ul></ul><ul><ul><ul><li>Started internal incubators to help launch new companies to become important strategic partners </li></ul></ul></ul><ul><ul><ul><li>Prospects appear much brighter </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  53. 53. New Methods for Implementing Partial Outsourcing (cont’d.) <ul><li>Fast venturing </li></ul><ul><ul><li>Existing company wants to launch electronic commerce initiative </li></ul></ul><ul><ul><ul><li>Joins external equity partners and operational partners offering experience, skills needed </li></ul></ul></ul><ul><ul><li>Equity partners: usually banks, venture capitalists </li></ul></ul><ul><ul><ul><li>Sometimes offer money </li></ul></ul></ul><ul><ul><ul><li>More likely to offer experience </li></ul></ul></ul><ul><ul><li>Operational partners: firms </li></ul></ul><ul><ul><ul><li>Systems integrators, consultants, Web portals </li></ul></ul></ul><ul><ul><ul><li>Experienced in moving projects along, scaling up prototypes </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  54. 54. New Methods for Implementing Partial Outsourcing (cont’d.) <ul><li>Fast venturing (cont’d.) </li></ul><ul><ul><li>Venture sponsor </li></ul></ul><ul><ul><ul><li>Existing company wanting to launch electronic commerce initiative </li></ul></ul></ul><ul><ul><ul><li>No experience in starting new businesses </li></ul></ul></ul><ul><ul><li>Equity partners </li></ul></ul><ul><ul><ul><li>Provided start-up money to new ventures in the past </li></ul></ul></ul><ul><ul><ul><li>Developed knowledge about operating new ventures </li></ul></ul></ul><ul><ul><ul><li>Provided venture sponsor advice </li></ul></ul></ul><ul><ul><li>Operational partners </li></ul></ul><ul><ul><ul><li>People and companies that previously built Web business sites </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  55. 55. Electronic Commerce, Eighth Edition
  56. 56. Managing Electronic Commerce Implementations <ul><li>Best way to manage complex electronic commerce implementation </li></ul><ul><ul><li>Use formal management techniques </li></ul></ul><ul><ul><ul><li>Project management </li></ul></ul></ul><ul><ul><ul><li>Project portfolio management </li></ul></ul></ul><ul><ul><ul><li>Specific staffing </li></ul></ul></ul><ul><ul><ul><li>Postimplementation audits </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  57. 57. Project Management <ul><li>Collection of formal techniques for planning and controlling activities undertaken to achieve specific goal </li></ul><ul><li>Developed by U.S. military, defense contractors </li></ul><ul><li>Project plan criteria </li></ul><ul><ul><li>Cost, schedule, performance </li></ul></ul><ul><ul><li>Helps management make trade-off decisions involving three criteria </li></ul></ul>Electronic Commerce, Eighth Edition
  58. 58. Project Management (cont’d.) <ul><li>Project management software </li></ul><ul><ul><li>Specific application software </li></ul></ul><ul><ul><li>Helps manage projects </li></ul></ul><ul><ul><li>Example: Microsoft Project , Primavera P6 </li></ul></ul><ul><ul><ul><li>Provide built-in tools for managing resources, schedules </li></ul></ul></ul><ul><ul><li>Generate charts and tables showing: </li></ul></ul><ul><ul><ul><li>Critical parts of project for timely completion </li></ul></ul></ul><ul><ul><ul><li>Parts that can be rescheduled, delayed without changing the project completion date </li></ul></ul></ul><ul><ul><ul><li>Where additional resources might be most effective in speeding up project </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  59. 59. Electronic Commerce, Eighth Edition
  60. 60. Project Management (cont’d.) <ul><li>Software management tasks </li></ul><ul><ul><li>People and tasks of the internal team </li></ul></ul><ul><ul><li>Tasks assigned to consultants, technology partners, outsourced service providers </li></ul></ul><ul><li>Examining costs and completion times </li></ul><ul><ul><li>Learn about project progression </li></ul></ul><ul><ul><li>Revise future estimated costs, completion times </li></ul></ul><ul><li>Risks of information systems’ development projects </li></ul><ul><ul><li>Running out of control, ultimately failing </li></ul></ul><ul><ul><li>Causes: rapidly changing technologies, long development times, changing customer expectations </li></ul></ul>Electronic Commerce, Eighth Edition
  61. 61. Project Portfolio Management <ul><li>Teams rely on project management software to help achieve project goals </li></ul><ul><li>Electronic commerce uses rapidly changing technologies </li></ul><ul><ul><li>Relatively short development times </li></ul></ul><ul><ul><ul><li>Technology, user expectations have less time to change </li></ul></ul></ul><ul><ul><ul><li>Initiatives more successful (in general) </li></ul></ul></ul><ul><li>More information </li></ul><ul><ul><li>Project Management Institute </li></ul></ul>Electronic Commerce, Eighth Edition
  62. 62. Staffing for Electronic Commerce <ul><li>Business manager </li></ul><ul><ul><li>Member of internal team setting project objectives </li></ul></ul><ul><ul><li>Responsible for implementing business plan elements, reaching objectives set by internal team </li></ul></ul><ul><li>Project manager </li></ul><ul><ul><li>Person with specific training, skills in tracking costs and accomplishment of specific project objectives </li></ul></ul><ul><li>Account manager </li></ul><ul><ul><li>Keeps track of multiple Web sites in use or keeps track of projects combining into larger Web site </li></ul></ul>Electronic Commerce, Eighth Edition
  63. 63. Staffing for Electronic Commerce (cont’d.) <ul><li>Applications specialists </li></ul><ul><ul><li>Maintain accounting, human resources, logistics software </li></ul></ul><ul><li>Web programmers </li></ul><ul><ul><li>Design and write underlying code for dynamic database-driven Web pages </li></ul></ul><ul><li>Web graphics designer </li></ul><ul><ul><li>Trained in art, layout, composition </li></ul></ul><ul><ul><li>Understands how Web pages are constructed </li></ul></ul>Electronic Commerce, Eighth Edition
  64. 64. Staffing for Electronic Commerce (cont’d.) <ul><li>Customer service personnel </li></ul><ul><ul><li>Design and implement customer relationship management activities in electronic commerce operation </li></ul></ul><ul><li>Call center </li></ul><ul><ul><li>Company handling incoming customer telephone calls, e-mails for other companies </li></ul></ul><ul><ul><li>Makes sense for smaller companies </li></ul></ul><ul><li>Systems administrator </li></ul><ul><ul><li>Responsible for system’s reliable, secure operation </li></ul></ul>Electronic Commerce, Eighth Edition
  65. 65. Staffing for Electronic Commerce (cont’d.) <ul><li>Database administration function </li></ul><ul><ul><li>Support activities </li></ul></ul><ul><ul><ul><li>Transaction processing, order entry, inquiry management, shipment logistics </li></ul></ul></ul><ul><ul><li>Activities require: </li></ul></ul><ul><ul><ul><li>An existing database into which site being integrated </li></ul></ul></ul><ul><ul><ul><li>Separate database established for electronic commerce initiative </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  66. 66. Postimplementation Audits <ul><li>Formal review of project </li></ul><ul><ul><li>After up and running </li></ul></ul><ul><li>Examine project items established in planning stage </li></ul><ul><ul><li>Compare to what actually happened </li></ul></ul><ul><ul><ul><li>Objectives, performance specifications, cost estimates, scheduled delivery dates </li></ul></ul></ul><ul><li>Blame identification approach </li></ul><ul><ul><li>Used more in the past </li></ul></ul><ul><ul><li>Focused on identifying individuals to blame for cost overruns, missed delivery dates </li></ul></ul>Electronic Commerce, Eighth Edition
  67. 67. Postimplementation Audits (cont’d.) <ul><li>Feedback on strategies </li></ul><ul><ul><li>Used more today </li></ul></ul><ul><ul><li>Obtains valuable information </li></ul></ul><ul><ul><ul><li>Useful in planning future projects </li></ul></ul></ul><ul><ul><ul><li>Gives participants meaningful learning experience </li></ul></ul></ul><ul><li>Comprehensive audit report </li></ul><ul><ul><li>Analyzes project’s overall performance </li></ul></ul><ul><ul><ul><li>How well project administered </li></ul></ul></ul><ul><ul><ul><li>Appropriate project organizational structure in place </li></ul></ul></ul><ul><ul><ul><li>Specific project team(s) performance </li></ul></ul></ul><ul><ul><li>Should compare actual results to objectives </li></ul></ul>Electronic Commerce, Eighth Edition
  68. 68. Summary <ul><li>Key elements included in e-commerce business plans </li></ul><ul><li>Setting objectives in measurable terms </li></ul><ul><ul><li>Derived from initiative’s overall goals </li></ul></ul><ul><ul><li>Include planned benefits and planned costs </li></ul></ul><ul><li>ROI evaluation technique </li></ul><ul><ul><li>Past, present, and future uses </li></ul></ul><ul><li>Outsourcing the electronic commerce project </li></ul><ul><li>Project management overview and importance </li></ul><ul><li>Postimplementation audit value </li></ul>Electronic Commerce, Eighth Edition
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