Electronic Commerce Ninth Edition

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Electronic CommerceNinth Edition

• Chapter 12Planning for Electronic Commerce

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Learning Objectives

• In this chapter, you will learn about
• Planning electronic commerce initiatives
• Strategies for developing electronic commerce Web
  sites
• Managing electronic commerce implementations

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Identifying Benefits and Estimating Costs of
Electronic Commerce Initiatives

• Information technology projects
• Keys to successful implementation
• Planning and execution
• Successful electronic commerce initiative
  business plan activities
• Identifying initiatives specific objectives
• Linking objectives to business strategies
• Setting electronic commerce initiative objectives
• Consider strategic role of project, intended
  scope, resources available

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Identifying Objectives

• Typical business electronic commerce objectives
• Increasing existing markets 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
• Compare e-commerce risk to inaction risk

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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
• Web use for businesses
• Attractive sales channel for many firms
• Complement business strategies, improve
  competitive positions

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Linking Objectives to Business Strategies
(contd.)

• Electronic commerce activities difficult to
  measure
• First-wave e-commerce activities
• Existed without setting specific, measurable
  goals
• Plenty of investors for highly speculative
  activities
• Successes and failures measured in broad strokes
• Second-wave e-commerce activities
• Businesses take closer look at benefits and costs
• Good implementation plan
• Sets specific objectives for benefits achieved
  and costs incurred

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Identifying and Measuring Benefits

• Some electronic commerce initiatives
• Obvious, tangible, easy to measure
• Example increased sales or reduced costs
• Other electronic commerce initiatives
• More difficult to measure
• Example increased customer satisfaction
• Identifying objectives
• Set measurable objectives
• Include intangible benefits

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Identifying and Measuring Benefits (contd.)

• 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 due to other things company doing
• Increase due to time or general improvement in
  the economy

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Identifying and Measuring Benefits (contd.)

• Using Web sites to improve customer service or
  after-sale support
• Set goals of increased customer satisfaction
• Reduce customer service or support costs
• 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

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Identifying and Measuring Benefits (contd.)

• 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

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Identifying and Measuring Benefits (contd.)

• Measurements of other electronic commerce
  initiatives (contd.)
• Virtual communities and Web portals
• Measure number of visitors, quality of visitors
  experiences
• 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

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FIGURE 12-1 Measuring the benefits of electronic
commerce initiatives
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Identifying and Measuring Benefits (contd.)

• 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

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Identifying and Estimating Costs

• Information technology project costs
• Difficult to estimate and control
• Web development
• Uses rapidly changing hardware and software
  technologies
• Hardware costs are downward
• Increasing software sophistications
• Provides ever-increasing demand for more newer,
  cheaper hardware
• Yields net increase in overall hardware costs

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Identifying and Estimating Costs (contd.)

• Total cost of ownership (TCO)
• Includes all costs related to activity
• Electronic commerce implementation TCO includes
• Hardware costs, software costs, outsourced design
  work, employee salaries and benefits, site
  maintenance
• Good TCO number
• Includes assumptions about how often site would
  need to be redesigned in the future

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Identifying and Estimating Costs (contd.)

• Opportunity cost
• Cost of not undertaking an initiative
• Largest and most significant costs associated
  with electronic commerce initiative
• Foregone benefits that company could have
  obtained from electronic commerce initiative not
  pursued

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Identifying and Estimating Costs (contd.)

• Web site costs
• Total dollar amounts required to create and
  operate a Web site
• Varied over the years
• Relative proportion of costs remained stable
• 10 percent computer hardware
• 10 percent software
• 80 percent labor
• Annual cost of operating an online business Web
  site
• Remained stable
• Ranges between 50 and 200 percent of site initial
  cost

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Identifying and Estimating Costs (contd.)

• Web site costs (contd.)
• Small online store
• Placed into operations for less than 5000
• Small to midsize online business operation
• With full transaction and payment processing
  capabilities
• Initial investment between 50,000 and 1
  million
• Average 80,000

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FIGURE 12-2 Estimated costs for business Web sites
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Identifying and Estimating Costs (contd.)

• Web site costs (contd.)
• Costs generally heading downward
• Due to lower costs for broadband access and
  computer hardware
• Comparison of Netscape with more recent startup
  companies
• Netscape (early 1990s) more than 40 million
• Digg (2004) less than 500,000
• Important element of annual Web site operating
  cost
• Choice of Web hosting service provider

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FIGURE 12-3 Important Web hosting service features
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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

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Funding Online Business Startups (contd.)

• 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

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Funding Online Business Startups (contd.)

• 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

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Funding Online Business Startups (contd.)

• Decrease need for venture capitalists and angel
  investors by
• Relieving pressure to grow rapidly
• Becoming more creative
• Learning from mistakes
• Trending toward more and smaller online ventures
• Online business creation costs falling

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Comparing Benefits to Costs

• Capital projects (capital investments)
• Major investments in equipment, personnel, other
  assets
• Techniques to evaluate proposed capital projects
• Range from simple calculations to complex
  computer simulation models
• Reduce to comparison of benefits and costs

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Comparing Benefits to Costs (contd.)

• Key parts of creating electronic commerce
  initiatives business plan
• Identify potential benefits
• Identify costs required to generate benefits
• Evaluate whether benefits exceed costs

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FIGURE 12-4 Cost/benefit evaluation of electronic
commerce strategy elements
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Return on Investment (ROI)

• Return on investment (ROI) techniques
• Measures amount of income (return) provided by
  specific current expenditure (investment)
• Examples
• Payback method, net present value method,
  internal rate of return
• Provides quantitative expression of comfortable
  benefit-to-cost margin
• Mathematically adjusts for future reduced value
  of benefits

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Return on Investment (ROI) (contd.)

• Electronic commerce initiatives
• Seen as absolutely necessary investments
• Not always subjected to close examination, rigid
  requirements
• Companies fear being left behind
• Perceived value in new market early positioning
  allows
• Many companies to invest large amounts of money
• With few near-term profit prospects
• Example first wave of newspaper Web sites

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Return on Investment (ROI) (contd.)

• Electronic commerce second wave of Web-related
  expenditures
• Being reviewed for ROI
• 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

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Return on Investment (ROI) (contd.)

• ROI built-in biases (contd.)
• ROI tends to emphasize short-run benefits over
  long-run benefits
• More information
• CIO Budget site
• ROI Knowledge Center Web pages

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Strategies for Developing Electronic Commerce Web
Sites
FIGURE 12-5 Evolution of Web site functions
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Strategies for Developing Electronic Commerce Web
Sites (contd.)

• Transformation occurred rapidly
• Web site development and management slower
• Today Web site seen as collections of software
  applications
• Companies using tools to manage site

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Internal Development vs. Outsourcing

• Initiatives success dependency
• How well initiative integrates into and supports
  business activities
• Internal people leading projects ensures
• Companys specific needs are addressed
• Initiative congruent with organization goals,
  culture
• Outside consultants
• Seldom able to learn enough about organizations
  culture to accomplish objectives

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Internal Development vs. Outsourcing (contd.)

• Few companies launch an electronic commerce
  project without some external help
• Key to success
• Finding balance between outside and inside
  support
• Outsourcing
• Hiring another company to provide outside support
  for all or part of project

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Internal Development vs. Outsourcing (contd.)

• 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

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Internal Development vs. Outsourcing (contd.)

• The internal team (contd.)
• Project lead
• Mistake technical wizard, not business
  knowledgeable, not well known
• Better choice person with business knowledge,
  creativity, respect of firms operating function
  managers, good sense of goals and culture
• Measuring team achievement important
• Not necessarily monetarily
• Express in terms appropriate to initiative
  objectives

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Internal Development vs. Outsourcing (contd.)

• The internal team (contd.)
• Intellectual capital
• Employees knowledge about the business and its
  processes
• Ignored in the past
• Value recognized today
• Human capital measures
• Include employee competencies
• Include value of customer loyalty and business
  partnerships

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Internal Development vs. Outsourcing (contd.)

• The internal team (contd.)
• Responsible for initiative
• From setting objectives to final implementation
• Internal team decides
• Project parts to outsource
• Outsourcer
• Consultants or partners needed

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Internal Development vs. Outsourcing (contd.)

• Early outsourcing
• Company outsources initial site design and
  development to launch project quickly
• Outsourcing team trains companys information
  systems professionals before handing site
  operation to them
• Companys own information systems people work
  closely with outsourcing team
• Develop ideas for improvements as early as
  possible in project life

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Internal Development vs. Outsourcing (contd.)

• Late outsourcing
• More traditional approach
• Companys 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
• Companys information systems professionals turn
  attention and talents to developing new
  technologies, providing further competitive
  advantage

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Internal Development vs. Outsourcing (contd.)

• 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

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Internal Development vs. Outsourcing (contd.)

• Partial outsourcing examples (contd.)
• 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

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New Methods for Implementing Partial Outsourcing

• New ways of implementing partial outsourcing
  strategy evolved specifically for Web businesses
• Incubator
• Offers 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
• Receives ownership interest in company

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New Methods for Implementing Partial Outsourcing
(contd.)

• Incubators (contd.)
• 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
• Todays focus own internally generated ideas

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New Methods for Implementing Partial Outsourcing
(contd.)

• Incubators (contd.)
• Company created internal incubators
• Develop technologies for use in main business
  operations
• 1980s programs unsuccessful and shut down
• Matsushita Electrics U.S. Panasonic division
• Started internal incubators to help launch new
  companies to become important strategic partners
• Individual management teams retained
• More successful

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New Methods for Implementing Partial Outsourcing
(contd.)

• 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
• Equity partners sometimes offer money
• Equity partners more likely to offer experience

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New Methods for Implementing Partial Outsourcing
(contd.)

• Fast venturing (contd.)
• Operational partners firms
• Systems integrators, consultants, Web portals
• Experienced in moving projects along, scaling up
  prototypes

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FIGURE 12-6 Elements of fast venturing
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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

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Project Management

• 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 the three criteria

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Project Management (contd.)

• Project management software
• Specific application software to help project
  managers oversee projects
• Examples
• Primavera P6, Microsoft Project
• Open Workbench open-source project management
  software package offering many of the same
  features as the leading commercial products
• Helps team manage tasks assigned to consultants,
  technology partners, outsourced service providers

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Project Management (contd.)

• 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
• Teams rely on project management software
• Helps achieve project goals

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Project Management (contd.)

• 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

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Project Portfolio Management

• Project portfolio management
• Technique whereby project is monitored like an
  investment in a financial portfolio
• Allows tradeoffs between cost, schedule, and
  quality across projects as well as within
  individual projects
• Provides more flexibility in allocating resources
  to achieve the best set of benefits from all
  projects in the most timely manner
• Project management software
• Designed to handle individual projects
• Not suited for consolidating activities

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Project Portfolio Management (contd.)

• CIO assigns ranking for each project based on
• Its importance to the strategic goals of the
  business
• Its level of risk (probability of failure)
• CIO uses any methods financial managers use to
  evaluate risk of making investments in business
  assets

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Staffing for Electronic Commerce

• Chief information officer (CIO)
• Organizations top technology manager
• Responsibilities
• Overseeing all information systems and related
  technological elements required to undertake and
  operate online business activities
• Business manager
• Member of internal team setting project
  objectives
• Responsible for implementing business plan
  elements, reaching objectives set by internal team

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Staffing for Electronic Commerce (contd.)

• Project manager
• Person with specific training, skills in tracking
  costs and accomplishment of specific project
  objectives
• Project portfolio manager
• Usually promoted from the ranks of the project
  managers
• Responsible for tracking all ongoing projects and
  managing them as a portfolio
• Account manager
• Keeps track of multiple Web sites in use or keeps
  track of projects combining into larger Web site

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Staffing for Electronic Commerce (contd.)

• 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

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Staffing for Electronic Commerce (contd.)

• Content creators
• Write original content
• Content managers or content editors
• Purchase existing material and adapt it for use
  on the site
• Social networking administrator
• Responsible for managing virtual community
  elements of the Web operation

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Staffing for Electronic Commerce (contd.)

• Online marketing manager
• Specializes in specific techniques used to build
  brands and increase market share
• Uses Web site and other online tools e-mail
  marketing
• Customer service personnel
• Design and implement customer relationship
  management activities in electronic commerce
  operation

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Staffing for Electronic Commerce (contd.)

• Call center
• Company handling incoming customer telephone
  calls, e-mails for other companies
• Makes sense for smaller companies
• Systems administrator
• Responsible for systems reliable, secure
  operation

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Staffing for Electronic Commerce (contd.)

• Network operations staff functions include
• Load estimation and load monitoring
• Resolving network problems as they arise
• Designing and implementing fault-resistant
  technologies
• Managing any network operations outsourced to
  service providers or telephone companies

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Staffing for Electronic Commerce (contd.)

• Database administration function support
  activities include
• Transaction processing, order entry, inquiry
  management, shipment logistics
• Activity requirements
• Existing database into which site being
  integrated
• Separate database established for electronic
  commerce initiative

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Postimplementation Audits

• Postimplementation audit (postaudit review)
• 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

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Postimplementation Audits (contd.)

• Feedback on strategies used more today
• Obtains valuable information
• Useful in planning future projects
• Gives participants meaningful learning experience
• Comprehensive audit report
• Analyzes projects overall performance
• How well project administered
• Appropriate project organizational structure in
  place
• Specific project team(s) performance
• Should compare actual results to objectives

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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

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Summary

• Key elements of e-commerce business plans
• Setting objectives in measurable terms
• Derived from initiatives overall goals
• Include planned benefits and planned costs
• Evaluate cost-benefit
• ROI evaluation technique
• Determine outsourcing strategy, staffing
• Project management
• Postimplementation audit
• Managing change