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  1. 1. Chapter 3 Using Information Technology to Engage in Electronic Commerce MANAGEMENT INFORMATION SYSTEMS 8/E Raymond McLeod, Jr. and George Schell Copyright 2001, Prentice-Hall, Inc. 3-
  2. 2. Electronic Commerce <ul><li>Electronic commerce is the use of computers to facilitate the firm’s operations </li></ul><ul><ul><li>internal (finance, marketing, manufacturing, ...) </li></ul></ul><ul><ul><li>external (customers, suppliers, government, ...) </li></ul></ul>3-
  3. 3. Environmental Responsibilities of Functional Areas Customers Suppliers Stockholders Labor Unions Government Financial Community Global Community Competitors Finance Resources Services Manufacturing Marketing Human Information X X X X X X X X X X X X X X X 3-
  4. 4. Electronic Commerce Benefits <ul><li>Improved service, especially to customers </li></ul><ul><li>Improved relationships to suppliers and the financial community </li></ul><ul><li>Increased return on stockholder and owner investments </li></ul>3-
  5. 5. Electronic Commerce Constraints <ul><li>High costs </li></ul><ul><li>Security concerns </li></ul><ul><li>Immature or unavailable software </li></ul>3-
  6. 6. New Electronic Commerce Era <ul><li>Instead of specialized software, firms are designing systems to use Internet Browsers </li></ul><ul><li>Making a common interface for customers and electronic commerce partners </li></ul>3-
  7. 7. Selection of Electronic Commerce Strategy, Methodology, and Technology Business Intelligence Competitive Advantage Strategic Business Plan Enabling strategy Interorganiza- tional Electronic data interchange Enabling methodology System life cycle Business process redesign Enabling technology Direct connectivity Value-added networks The Internet 3-
  8. 8. Business Intelligence (BI) <ul><li>Evolved from simply gathering data about competitors to data gathering about all environmental elements </li></ul>3-
  9. 9. Data Collect data 2 Evaluate data Analyze data 4 Store intelligence Intelligence 5 Disseminate intelligence Intelligence The Five Basic Intelligence Tasks Data 3 1 3-
  10. 10. External Databases <ul><li>Important commercial databases that provide information on virtually any subject </li></ul><ul><ul><li>LEXIS-NEXIS, DIALOG, DOWJONES.COM </li></ul></ul><ul><ul><li>Over 1,000 data service sites listed by YAHOO.COM </li></ul></ul><ul><li>Less expensive to use database services than to perform research </li></ul>3-
  11. 11. Search Engines <ul><li>Special computer programs that ask users for a word or group of words to be found at Internet sites </li></ul><ul><li>Yahoo, Excite, AltaVista, HotBot, Lycos, and Webcrawler are examples </li></ul><ul><li>Government databases </li></ul>3-
  12. 12. Extranets <ul><li>Allow sharing of sensitive computer-based information using Internet technology </li></ul><ul><li>Limited to trusted suppliers and large customers </li></ul><ul><li>Security and privacy issues </li></ul><ul><ul><li>Firewalls </li></ul></ul>3-
  13. 13. Interorganizational System (IOS) <ul><li>These link two or more firms so that they function as a single system to accomplish a common goal </li></ul><ul><li>Generate internal efficiency in addition to interorganizational efficiency </li></ul><ul><li>Provides customers with unique product features, reduced search-related costs, and raises the customer’s switching costs </li></ul>3-
  14. 14. Electronic Data Interchange (EDI) <ul><li>Consists of direct computer-to-computer transmissions among multiple firms of data in a machine-readable, structured format </li></ul><ul><li>Typical linkages </li></ul><ul><ul><li>Supply side </li></ul></ul><ul><ul><li>Customer side </li></ul></ul><ul><ul><li>Transaction set </li></ul></ul><ul><li>Vendor stock replenishment (VSR) </li></ul><ul><li>Electronic Funds Transfer (EFT) </li></ul>3-
  15. 15. Electronic Data Interchange (EDI) Adheres to Standard Formats Suppliers The Firm Request for a price quote Price quote Purchase order Acknowledge P.O. receipt Invoice ANSI ASC X12 - North America EDIFACT - International 3-
  16. 16. Selected EDI Transaction Sets and Sample Invoice Data 104 Air Shipment Information 130 Student Educational Record (Transcript) 152 Statistical Government Information 300 (Booking Request) (Ocean) 311 Canadian Customs Information 810 Invoice Name Address Information Marking, Packaging, Loading Industry Code Quantity Currency Tax Information Pricing Information Item Physical Details Terms of Sale / Deferred Terms of Sale Carrier Detail Product / Item Description Invoice Shipment Summary Transaction Totals 3-
  17. 17. Mapping Software Translates Data to and from Standard Formats Sending firm’s computer Application software Mapping software Standard EDI format Receiving firm’s computer Application software Mapping software 3-
  18. 18. Degree of EDI Implementation <ul><li>Level-one users </li></ul><ul><ul><li>One or two transmission sets sent to limited trading partners </li></ul></ul><ul><li>Level-two users </li></ul><ul><ul><li>Many transaction sets transmitted to large number of trading partners </li></ul></ul><ul><li>Level-three users </li></ul><ul><ul><li>Many transaction sets transmitted to large number of trading partners and firm’s computer applications are tailored to EDI approach </li></ul></ul>3-
  19. 19. Adoption Influences <ul><li>Competitive pressure, this is reactive </li></ul><ul><li>Exercised power, this is proactive </li></ul><ul><li>Internal need, this is proactive </li></ul><ul><li>Top management support, this is both proactive and reactive </li></ul>3-
  20. 20. Internal and Environmental Influences on EDI Adoption Environmental Influences Pressure Exercised Power Internal Influences Internal Need Top Management Support Competitors Trading Partners EDI 3-
  21. 21. EDI Benefits <ul><li>Direct </li></ul><ul><ul><li>Reduced errors </li></ul></ul><ul><ul><li>Reduced costs </li></ul></ul><ul><ul><li>Increased operational efficiency </li></ul></ul><ul><li>Indirect </li></ul><ul><ul><li>Increased ability to compete </li></ul></ul><ul><ul><li>Improved relationships with trading partners </li></ul></ul><ul><ul><li>Improved customer service </li></ul></ul>3-
  22. 22. EDI Direct and Indirect Benefits Indirect Benefits Direct Benefits Reduced Errors Increased Operational Efficiency Reduced Costs Competitors Trade Partners Competitors Increased Ability to Compete Improved Service Improved Relationships 3-
  23. 23. A Challenge to EDI <ul><li>Extensible markup language (XML) </li></ul><ul><ul><li>Extension of HTML </li></ul></ul><ul><ul><li>Provides file formatting structure and means for describing data </li></ul></ul><ul><ul><li>Allows Web pages to perform many EDI functions </li></ul></ul>3-
  24. 24. Electronic Commerce Technology <ul><li>Direct Connectivity </li></ul><ul><ul><li>Uses dial-up or private lines to connect </li></ul></ul><ul><li>Value-Added Networks (VANs) </li></ul><ul><ul><li>Circuit provided by vendor </li></ul></ul><ul><ul><li>Vendor provides additional services </li></ul></ul><ul><li>The Internet </li></ul><ul><ul><li>Global communications network </li></ul></ul>3-
  25. 25. Internet Evolution <ul><li>Derived from the Advanced Research Projects Agency network (ARPANET) </li></ul><ul><li>Designed to let computer-to-computer communications continue even during military attacks </li></ul><ul><li>ARPANET joined with Computer Science Network (CSNET) and National Science Foundation Network (NSFNET) to form today’s Internet </li></ul>3-
  26. 26. Internet Evolution [cont.) <ul><li>During the 1970’s various other networks were connected </li></ul><ul><li>This led to the 1980’s Internet concept which means each network can seamlessly interconnect with other networks </li></ul><ul><li>Businesses began using the new Internet with workstations and local area networks </li></ul><ul><li>The Internet has become a network of networks </li></ul>3-
  27. 27. Internet Evolution (cont.) <ul><li>In 1989, Tim Berners-Lee of CERN came up with the hypertext concept </li></ul><ul><li>World-Wide Web is really the application of hypertext documents and other materials </li></ul><ul><li>Hypertext is conceptually a ‘speed dial’ feature in that a user points to and presses the hypertext link and the system automatically goes to that location </li></ul>3-
  28. 28. Key Web Terminology <ul><li>Website </li></ul><ul><li>Hypertext link </li></ul><ul><li>Web page </li></ul><ul><li>Home page </li></ul><ul><li>Universal resource locator (URL) </li></ul><ul><ul><li>Protocol </li></ul></ul><ul><ul><li>Domain name </li></ul></ul><ul><ul><li>Path </li></ul></ul><ul><li>Browser </li></ul><ul><li>FTP (File Transfer Protocol) </li></ul>3-
  29. 29. Parts of a URL hypertext transmission protocol domain name path (directory and file name on the web server ) hypertext markup language 3-
  30. 30. Internet Client/Server Information Retrieval Systems <ul><li>Gopher </li></ul><ul><li>Wide Area Information Servers (WAIS) </li></ul><ul><li>USENET </li></ul>Each of these predates the WWW and represents a major step forward in Internet Use 3-
  31. 31. Terminal Emulator PC or Macintosh Unix X11 NextStep Addressing schema, Protocols, Format negotiation FTP News Gopher WAIS HTTP Gateway is HTTP server plus other application. Database, info system, etc. Internet Client/Server Architecture 3-
  32. 32. Internet Security <ul><li>Any resources linked to data communications have risk </li></ul><ul><li>Security by physically separating the Web site from the firm’s computer resources </li></ul><ul><li>Security by using passwords that allow access to computing resources </li></ul><ul><li>‘Firewalls’ using routers, intermediary computers or application-level methods </li></ul>3-
  33. 33. An Application-Level Firewall External Services Border Router IP Choke Protocol Filter Internal/External Service Gateway Internal Router Router Isolation Mechanism Internet Connectivity Supplier’s Network Internet Internal Network Incoming packets from the Internet pass through the connectivity supplier’s network to a router and to the organization The packet goes to a router box that duplicates the function of the external router Rather than routing the packet directly to its destination, the router redirects traffic through an external services host and an IP “choke” host The external services host runs desired apps such as E-mail interface The IP choke performs actual protocol filtering Traffic is sent through a gateway to a separate router box on the internal network, configured according to internal security policy 3-
  34. 34. Intranet <ul><li>Internet technology used for internal communications and applications </li></ul><ul><li>Used for many business applications requiring communication </li></ul>3-
  35. 35. Business Applications for the Internet <ul><li>Marketing research </li></ul><ul><li>Competitive intelligence </li></ul><ul><li>Retailing applications </li></ul><ul><li>The future impact of the Internet on business is enhanced as the National Information Infrastructure programs become established </li></ul>3-
  36. 36. Successful Internet Use <ul><li>Make sure your Web site is robust </li></ul><ul><li>Make sure your browser and database structure are both flexible and intuitive </li></ul><ul><li>Update often </li></ul><ul><li>Look beyond customers </li></ul><ul><li>Target content to specific users’ needs </li></ul><ul><li>Make the interface intuitive </li></ul><ul><li>Be in the right Web location </li></ul><ul><li>Create a sense of community </li></ul><ul><li>Get help if you need it </li></ul>3-
  37. 37. Summary <ul><li>E-Commerce begins with business intelligence </li></ul><ul><li>Primary and secondary data comprise business intelligence </li></ul><ul><li>Reasons for IOS </li></ul><ul><ul><li>Comparative efficiency </li></ul></ul><ul><ul><li>Bargaining power </li></ul></ul><ul><li>Three levels of EDI </li></ul>3-
  38. 38. Summary [cont.] <ul><li>Internet </li></ul><ul><ul><li>Network of networks </li></ul></ul><ul><ul><li>Security concerns </li></ul></ul><ul><ul><li>Firewalls </li></ul></ul><ul><li>Intranets </li></ul><ul><li>National information infrastructure </li></ul>3-