Electronic Commerce COMP3210

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(No Transcript)
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Electronic Commerce COMP3210

• Dr. Paul Walcott

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Contents

• Part I
• Planning E-commerce Initiatives
• Part II
• Strategies for developing e-commerce Web sites
• Part III
• Managing Electronic Commerce Initiatives

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Planning E-commerce Initiatives

• A successful business plan should include
  activities that
• Identify objectives
• Link objectives to business strategy

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Identifying Objectives

• Objectives businesses strife to achieve using
  e-commerce include
• Increase sales in existing markets
• Launching out into new markets
• Improve service to existing customers
• Identifying new vendors
• Coordinating more efficiently with existing
  vendors
• More effective recruiting

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Types of Objectives

• Vary with the size of the organisation, for
  example
• Small companies might want to build a Web site to
  encourage customers to do business using existing
  channels.
• A site offering only product or service
  information is less costly do design and
  implement
• Larger companies that might want to build sites
  that offer transaction handling, bidding,
  communication and other capabilities have to pay
  much more

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SMART Objectives

• Objectives must be
• Specific
• Measurable
• Achievable
• Results-based
• Time-bound

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Example of Objectives
GIST To create a comprehensive tester's guide to the Icon Income system.
SCALE Percentage completed at the specified milestone
PLAN 50 (Icon 5.01), 100 (Icon 5.02).
MUST 25 (Icon 5.01), 75 (Icon 5.02).
ACTUAL 10 (Icon 5.01), 25 (Icon 5.02)
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Linking Objectives to Business Strategy

• After identifying objectives a company must
• identify business strategies that will help to
  realise these objectives
• E.g. a small companys object might be to become
  a global player within a year and as a result one
  of its activities is to build a brand

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Linking Objectives to Business Strategy (I)

• Businesses can use downstream strategies to
  improve the value that the business provides to
  customers
• Or can pursue upstream strategies that focus on
  reducing cost or generating value by working with
  suppliers or inbound shipping and freight service
  providers

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Linking Objectives to Business Strategy (II)

• E-commerce can inspire businesses to partake in
  activities such as
• Build brands
• Enhance existing marketing programs
• Sell products and services
• Sell advertising
• Develop a better understanding of the customers
  need
• Improve after sales support and service

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Linking Objectives to Business Strategy (III)

• E-commerce can inspire businesses to partake in
  activities such as
• Purchase products and services
• Manage supply chains
• Operate auctions
• Build virtual communities
• However, these can not be done in an ad hoc
  manner. It is important to measure the benefit
  and cost of each activity

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Measuring Benefit

• Some benefits are tangible and easy to measure,
  for example increase sales, decrease cost
• Others are intangible thus difficult to measure,
  for example increased customer satisfaction
• Managers need to try to set objectives that are
  measurable even for intangible benefits
• E.g. increased customer satisfaction might be
  measured by counting the number of first-time
  customers who return to the Web site and buy

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Measuring Benefit (I)
Build brand Surveys or opinion polls that measure brand awareness
Enhance existing marketing program Change in per-unit sales volume
Improve customer service Customer satisfaction surveys, quantity of customer complaints
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Measuring Benefit (II)
Reduce cost of after-sale support Quantity and type (telephone, fax, e-mail) of support activities
Imply supplier chain operation Cost, quality and on-time delivery of materials or services purchased
Hold auctions Quantity of auctions, bidders, sellers, items sold, registered participants, dollar value of items sold
Provide portals Number of visitors
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Managing Cost

• IT projects are often difficult to estimate and
  control
• E.g. web development technologies change rapidly,
  thus it is difficult for managers to estimate
  cost
• These cost include hardware and software
• Even though hardware cost tend to decrease, new
  software often demands new hardware, thus
  increase cost

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Total Cost of Ownership

• The project budget must include
• Hardware and software cost
• Costs of hiring, training and paying personnel
• Web site designers, developers, content
  providers, operators and maintainers
• Organisations tend to track cost by activity

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Total Cost of Ownership (I)

• The total cost of ownership (TCO) includes
• Cost of hardware (servers, routers, firewalls and
  load balancing devices)
• Cost of software (licenses for operating systems,
  Web server software, database software, and
  application software)
• Cost of outsourced design work
• Salaries and benefits for employees
• Cost of maintaining the site once operational
• A good TCO will include cost of future redesign

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Change Management

• Every project involves change
• Change management is the process of helping
  employees cope with change
• Change management techniques include
• Communicating the need for change
• Inclusion in the change decision process
• Inclusion in the planning for the change

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Change Management (I)

• If change is not properly managed, employees feel
• Uncomfortable
• Inadequate
• Stressed which leads to reduced work performance
• Unable to do the job properly
• Powerless

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Opportunity Cost

• Opportunity cost is the benefit that will be lost
  if a company chooses not to initiate an
  e-commerce initiative
• This is of great concern to management and
  accountants

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Web Site Costs

• The cost required for a large company to build an
  entry-level e-commerce site is 1 million
• 79 is labour cost
• 10 software cost
• 11 hardware cost
• Source International Data Corporation and
  Gartner Inc.

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Web Site Costs (I)

• The cost required for a large company to build a
  site that is comparable to leading sites is 2 -
  5 million
• To build a Web site that is noticeably better
  than competitors will cost a minimum of 15
  million
• 10 of the top 100 e-commerce sites spent over 10
  million for Web site development and
  implementation
• Source International Data Corporation and
  Gartner Inc

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Web Site Costs (II)

• A small company can put a Web site online for
  5000
• For a business with full transaction and payment
  processing capabilities, it is difficult to keep
  it under 10,000 per year
• Construction of new Web sites for small
  businesses actually averages 140,000
• Minimum amount to open a complete e-commerce Web
  site is 150,000

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Web Site Costs (III)

• Web site costs include
• Start-up cost
• Ongoing costs (between 50 - 200 of initial
  cost)

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Web Site Costs (IV)

• The cost for a full portal magazine site
• To build 2.4 million
• 4.3 million per year to maintain with a staff of
  35 people
• The cost for a more limited site
• To build 150,000
• 270,000 per year to maintain with a staff of 2
  people

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Web Site Costs Example

• Kmart (http//www.kmart.com/)
• gt140 million to create online retail website
• Much of the sites cost is hidden from the user
• Cost of customising middleware that connects the
  Web site to Kmarts vast inventory and logistics
  databases

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Web Site Costs A Final Word

• The high cost of creating e-commerce Web sites
  can serve as a discouragement to small businesses
• Smaller organisations can control costs by
• Using a combination of third party hosting
  services and packaged e-commerce software
• Sign up for mall-style service providers
• This provides low initial cost and controls
  annual TCO, however cost of related activities
  can not be ignored, e.g. creating and maintaining
  a product catalog

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Comparing Benefits to Costs
Determine value of benefits
Identify benefits
Compare value of benefits to value of cost
Determine value of costs
Identify costs
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Return On Investment (ROI)

• Return on Investment techniques measure the
  amount of income (return) that will be provided
  by a specific expenditure
• ROI requires that all costs are stated in a
  dollar amount
• ROI focuses on benefits that can be predicted
• Many benefits are often hidden
• ROI tends to emphasize short-term benefits over
  long term benefits

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ROI Hidden Benefits Example

• CISCO systems created an on-line customer forum
  to discuss product issues
• The intended benefits were to
• Reduce customer service costs
• Increase customer satisfaction regarding the
  availability of product information
• Additional (hidden) benefit
• Cisco engineers were able to get feedback on new
  products

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ROI Problems

• If managers rely only on ROI incorrect decision
  may be made
• Due to biases towards short term cost and
  benefits rather than long term

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Strategies For Developing E-commerce Web Sites

• 1994-1996 Static Brochures
• Contact information
• Logos and or other branding
• Some product information
• Financial statements

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Strategies For Developing E-commerce Web Sites (I)

• 1996 1999 Transaction Processing
• Static brochures plus
• Complete product catalog
• Shopping cart
• Secure payment processing
• Other information queries
• Shipment tracking

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Strategies For Developing E-commerce Web Sites
(II)

• 1992 Present Full Range of Automated Business
  Processes
• Transaction processing, plus
• Personalisation
• Interactive capabilities
• Frequently updated content
• Customer relationship
• Management tools

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Internal Development v. Outsourcing

• Definition
• Outsourcing is the hiring of outside support to
  do all or part of a project
• E-commerce site development problems can not be
  avoided by outsourcing
• Success depends on how well the e-commerce
  initiative is integrated into and supports
  business activities

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Internal Development v. Outsourcing

• Using internal people to lead e-commerce
  initiatives helps to ensure that the companies
  specific needs are addressed and that the plan
  fits the culture
• Outside consultants are seldom able to learn
  enough about the culture (in the contract period)
  in order to accomplish all the objectives

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Internal Development v. Outsourcing Example

• Few companies are large enough or have sufficient
  expertise to launch an e-commerce project without
  external help
• E.g. Wal-mart (with annual sales of 150 billion)
  in 2000 hired another company for outside support

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Internal Teams

• In determining which parts of an e-project to
  outsource first create an internal team
• Include people
• With technical know-how about the Internet
• Creative thinkers
• Already successful employees

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Internal Teams (II)

• Do not select a technical wizard as project
  leader if he/she
• does not have the necessary business skills
• Is not well-known and respected by the operating
  function managers
• Is not creative

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Internal Teams (III)

• Set aside between 5-10 of a projects budget for
  
• quantifying the projects value and measuring the
  achievement (e.g using metrics)
• More and more companies are realising the
  importance of their staffs knowledge about the
  business and its processes
• These resources do not appear in companies
  financial statements

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Internal Teams (IV)

• The internal team decides
• Which part of the project to outsource
• Who the parts will be outsourced to
• Which partners the company needs to hire for the
  project

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Types of Outsourcing

• There are three types of outsourcing
• Early outsourcing
• E-commerce initiatives lend themselves more to
  early outsourcing
• Late Outsourcing
• Partial outsourcing

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Early Outsourcing

• The initial site design and development is
  outsourced in order to launch it quickly
• An e-commerce site can rapidly become a source of
  competitive advantage for a company
• Outsourcing team trains company information
  system professionals in the technology and hands
  over the operation of the site
• It is best for the companys own information
  systems people to work closely with the
  outsourcing team and develop ideas for
  improvements as early as possible

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Late Outsourcing

• This is the more traditional way
• The companys information system professionals do
  the initial design and development work,
  implement the system and operate it until it
  becomes a stable part of the business
• After the competitive advantage is gained, the
  system is outsourced, allowing the team to pursue
  new technology projects

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Partial Outsourcing

• The company identifies specific portions of the
  project that can be completely designed,
  developed, implemented and operated by another
  firm that specialises in a particular function
• In both early and late outsourcing a single group
  is responsible for the entire design, development
  and operation of a project

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Partial Outsourcing (I)

• E-commerce initiatives can benefit from partial
  outsourcing
• Partial outsourcing is also called component
  outsourcing

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Partial Outsourcing Example

• Many smaller Web sites outsource their email
  handling and response functions
• Electronic payment systems
• A company may use an external vendor to take care
  of payment processing
• When the customer is ready to pay, he/she is
  taken to another site and then returned to the
  original site
• The most common part of an e-commerce project
  that is outsourced is the web-hosting activity

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Selecting a Web Hosting Service

• The internal team should be responsible for
  selecting the ISP to host the site
• For smaller e-commerce projects teams can consult
  an ISP dictionary (for ISPs, web hosting services
  or ASPs (application service provider))
• Larger companies should use consultants or other
  firms that rate service providers

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Selecting a Web Hosting Service (I)

• The most important factors to use when evaluating
  a hosting service are
• Functionality
• Reliability
• Bandwidth and server scalability
• Security
• Backup and disaster recovery
• Cost

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New Methods for implementing Partial Outsourcing

• In the past five years new ways of implementing
  partial outsourcing have been creating
• Incubators
• Fast venturing

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Incubators

• A company that offers start-up companies a
  physical location with offices, accounts and
  legal assistance, computers, and Internet
  connections at a very low monthly cost
• Some also offer seed money, management advice an
  marketing assistance
• In exchange the company gives 10-50 ownership of
  the company to the Incubator

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Incubators (I)

• When the company grows and can obtain venture
  capital financing or can publicly offer stock,
  the Incubator sells all or part of its interest
  and re-invests in a new incubator candidate
• Example
• Idealab (www.idealab.com/) was one of the first
  Internet incubators and helped www.carsdirect.com/
  home

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Internal Incubators

• Internal incubators are incubators that are set
  up by a company (using internal staff),
• e.g. Kodak internal venturing program of the
  1980s
• Most of these were unsuccessful because employees
  found it difficult to maintain an entrepreneurial
  spirit when what ever they developed would be
  taken away and controlled by the parent company

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Internal Incubators (I)

• A new internal incubator model has emerged were
  the resulting technology is left under the
  control of the team, who forms a company
• The parent company and the new company that
  become strategic partners
• This new internal incubator model promises to be
  more successful that the traditional model

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Fast Venturing

• An existing company that wants to launch an
  e-commerce initiative joins with external equity
  and operational partners that can offer the
  experience and skills that can scale up the
  project rapidly
• Equity partners are usually banks or venture
  capitalist that can offer money or expertise
• Operational partners are firms, such as system
  integrators, consultants and Web portals who have
  the experience in moving projects along and
  scaling up prototypes

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Fast Venturing (I)
Venture sponsor Develop ideas. Staffs internal team. Create prototype. Provide all or most of the start-up funds. Equity partners Review and refine ideas. Provide advice. Evaluate prototype. Provide contacts (including operational partners). Operational partners Turn ideas into a business plan. Provide financial, technical and operations expertise. Provide industry best practice knowledge. Scale up prototype to an operating model.
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Managing Electronic Commerce Initiatives

• To manage complex e-commerce implementations
  formal management techniques should be used
• Project management
• Project portfolio management
• Specific staffing
• Post-implementation audits

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Project Management

• A collection of formal techniques for planning
  and controlling the activities undertaken to
  achieve a specific goal
• The project plan includes cost, schedule and
  performance
• Applications such as Microsoft Project and
  Primavera Project Planner help with project
  planning
• These type of projects (e-commerce projects) have
  a reputation for failing

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Project Portfolio Management

• A technique used to manage multiple projects
• Each project is monitored as if it is an
  investment in a financial portfolio
• Each project is assigned a rank based on its
  importance to the strategic goals of the business
  and level of risk
• E-commerce projects are viewed as investments in
  assets

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Staffing for E-Commerce

• The internal team must determine the staffing
  needs for the e-commerce initiatives
• The general areas of staffing required are
• Business, project and account managers
• Application specialists
• Web programmers and graphic designers
• Content creators, managers or editors
• Customer service
• System, and database administration
• Network operations

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Business Manager

• Should be a member of the internal team
• Sets objectives for the project
• Responsible for implementing the elements of the
  business plan and reaching the objectives set
• Develops proposal for plan revisions and funding
• Should have the required domain knowledge (e.g.
  retail knowledge if a retail Web site is being
  built)

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Project Manager

• Specific training or skills in tracking costs and
  accomplishing project goals
• Certification might be useful (e.g. Project
  Management Institute) or MBA
• Skills in the use of project management software

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Account Manager

• Keeps track of multiple Web sites in use by a
  project
• Or keeps track of projects that will combine to
  make a larger Web site
• The account manager supervises the location of
  specific Web pages and related software
  installations as they are moved from test, to
  demonstration, to production
• In smaller companies they handle the project and
  account management functions

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Application Specialist

• Maintain accounting, human resources, and
  logistics software
• Must maintain e-commerce software, e.g. catalogs,
  payment processing

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Other Roles

• Web programmers
• Design and write code for Web site
• Web graphics designers
• A person trained in art, layout, composition and
  understands how Web pages are constructed
• Content creators
• Write original content
• Content managers/editors
• Purchase existing material and adapt it

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Other Roles (I)

• Customer service personnel
• Help design and implement customer relationship
  management activities, e.g. issue passwords,
  design customer interface features, handle
  customer e-mail and telephone requests for
  service and conduct telemarketing for the site
• Some companies hire a call centre to handle phone
  calls and e-mail

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Other Roles (I)

• Systems administrator
• Responsible for system reliability and security
• Network operation staff
• Load estimation and monitoring, resolving network
  problems and managing network operations
• Database administration
• Support activities such as transaction
  processing, order entry, inquiry management or
  shipment logistics

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Post-Implementation Audits

• A formal review of a project after it is up and
  running
• Managers compare the the objectives, performance
  specifications, cost estimates, and scheduled
  delivery dates plans with the actuals

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Post-Implementation Audits

• The purpose is not to lay blame but to
• Provide project and business managers to raise
  questions about the objectives and use the
  feedback in other projects
• The audit should result in a comprehensive report
  that analyses the project performance, the
  administration, organisational structure and the
  performance of the project team
• Some audits contain a confidential section which
  evaluates the performance of individual team
  members to help when choosing teams in future