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9781423903055 ppt ch12 9781423903055 ppt ch12 Presentation Transcript

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