chapter 1 : foundation of electronic-commerce

7/30/2019 Chapter 1 : Foundation of Electronic-Commerce

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Chapter 1

Foundation of

Electronic Commerce


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Learning Objectives

Define electronic commerce (EC)and describe its various categories

Distinguish between electronic

markets and interorganizationalsystems

Describe and discuss the content

and framework of EC


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Learning Objectives (cont.)

Understand the forces that drivethe widespread use of EC

Describe the benefits of EC toorganizations, consumers, andsociety

Describe the limitations of EC

Discuss some major managerialissues regarding EC


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Electronic Commerce:

Definitions and Concepts

The Internet has emerged as a major, perhapseventually the major, worldwide distributionchannel for goods, services, managerial andprofessional jobs

This is profoundly changing economics,markets and industry structure, products andservices and their flow, consumersegmentation, consumer values, consumer

behavior, jobs, and labor markets The impact may be even greater on societies

and politics, and on the way we see the worldand ourselves in it


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Definitions and Concepts (cont.)

e-business:a broader definitionof EC, which includes:

buying and selling of goods andservices

servicing customers

collaborating with business partners

conducting electronic transactionswithin an organization


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Electronic Commerce Terms

E-business

EC defined from these perspectives

Communications Business process

Service

Online Collaborations

Community


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E-commerce defined from thefollowing perspectives:

Communications: delivery of goods,

services, information, or payments overcomputer networks or any other electronicmeans

Commercial (trading): provides

capability of buying and selling products,services, and information on the Internetand via other online services


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Business process: doing businesselectronically by completing businessprocesses over electronic networks, therebysubstituting information for physical businessprocesses

Service: a tool that addresses the desire ofgovernments, firms, consumers, andmanagement to cut service costs while

improving the quality of customer service andincreasing the speed of service delivery


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Learning:an enabler of online training andeducation in schools, universities, and otherorganizations, including businesses

Collaborative:the framework for inter- andintraorganizational collaboration

Community: provides a gathering place forcommunity members to learn, transact, and

collaborate


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(cont.) Internet vs. Non-Internet EC VANs

LANs

Click and Mortar


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(cont.) Pure vs. Partial EC: based on the degree

of digitization of Product

Process

Delivery agent

Traditional commerce: all dimensions arephysical

Pure EC: all dimensions are digital Partial EC: all other possibilities include a

mix of digital and physical dimensions


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Exhibit 1.1: The Dimensions of

Electronic Commerce


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The EC Framework,

Classification, and Content Two major types of e-commerce:

business-to-consumer (B2C) : onlinetransactions are made between

businesses and individual consumers business-to-business (B2B):

businesses make online transactionswith other businesses

intrabusiness EC: EC conducted inside anorganization (e.g., business-to-employeesB2E)


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TheEC Framework,

Classification, and Content (cont.)

Computer environments

Internet: global networkedenvironment

Intranet:a corporate or governmentnetwork that uses Internet tools, suchas Web browsers, and Internet protocols

Extranet: a network that uses theInternet to link multiple intranets


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EC Framework

EC applications are supported byinfrastructure and by five supportareas:

People Public policy

Marketing and advertising

Support services

Business partnerships


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Exhibit 1.2: A Framework for

Electronic Commerce


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Interorganizational information system

(IOS) involves information flow amongtwo or more organizations

Major objective is efficient routine

transaction processing, such astransmitting orders, bills, and paymentsusing EDI or extranets

Scope: Unified system encompassing

two or several business partners

Typical IOS includes a company, itssuppliers, and and/or customers

Interorganization Information Systems


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Classification of EC by

Transactions or Interactions

business-to-consumer (B2C) : onlinetransactions are made betweenbusinesses and individual consumers

business-to-business (B2B):businesses make online transactionswith other businesses

e-tailing:online retailing, usuallyB2C


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Transactions or Interactions (cont.)

business-to-business-to-consumer(B2B2C):e-commerce model in which abusiness provides some product or service

to a client business that maintains its owncustomers

consumer-to-business (C2B):

e-commerce model in which individualsuse the Internet to sell products orservices to organizations or individualsseek sellers to bid on products or services

they need


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Transactions or Interactions (cont.) consumer-to-consumer (C2C):

e-commerce model in which consumerssell directly to other consumers

peer-to-peer (P2P):technology thatenables networked peer computers toshare data and processing with each otherdirectly; can be used in C2C, B2B, andB2C e-commerce


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mobile commerce ((m-commerce):

e-commerce transactions and

activities conducted in a wirelessenvironment

location-based commerce (l-

commerce):m-commercetransactions targeted to individualsin specific locations, at specifictimes


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Transactions or Interactions (cont.) intrabusiness EC:e-commerce category

that includes all internal organizationalactivities that involve the exchange of

goods, services, or information amongvarious units and individuals in anorganization

business-to-employees (B2E):e-

commerce model in which an organizationdelivers services, information, or productsto its individual employees


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collaborative commerce (c-commerce):

e-commerce model in which individuals orgroups communicate or collaborate online

e-learning: the online delivery ofinformation for purposes of training oreducation

exchange (electronic): a public electronicmarket with many buyers and sellers


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exchange-to-exchange (E2E): e-commerce model in which electronicexchanges formally connect to one

another the purpose of exchanginginformation

e-government: e-commerce model inwhich a government entity buys or

provides goods, services, or information tobusinesses or individual citizens


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Figure 1-1

Transactions in Electronic Markets


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A Brief History of EC

1970s: innovations like electronic fundstransfer(EFT)funds routed electronicallyfrom one organization to another (limited tolarge corporations)

electronic data interchange (EDI)electronically transfer routine documents(application enlarged pool of participatingcompanies to include manufacturers,retailers, services)

interorganizational system (IOS)travelreservation systems and stock trading


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A Brief History of EC (cont.)

1969 U.S. government experimenttheInternet came into being initially used bytechnical audience of government

agencies, academic researchers, andscientists

1990s the Internet commercialized andusers flocked to participate in the form of

dot-coms, or Internet start-ups

Innovative applications ranging fromonline direct sales to e-learning

experiences


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Most medium- and large-sized organizationshave a Web site

Most large U.S. corporations havecomprehensive portals

1999 the emphasis of EC shifted from B2C toB2B

2001 the emphasis shifted from B2B to B2E,

c-commerce, e-government, e-learning, and

m-commerce

EC will undoubtedly continue to shift andchange


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EC successes

Virtual ECcompanies

eBay

VeriSign

AOL

Checkpoint

Click-and-mortar

Cisco

General Electric IBM

Intel

Schwab

EC failures 1999, a large number of

EC-dedicated companiesbegan to fail

ECs days are notnumbered! dot-com failure rate is

declining sharply EC field is

experiencingconsolidation

most pure ECcompanies, areexpanding operationsand generatingincreasing sales(Amazon.com)


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The Interdisciplinary

Nature of EC

Major EC disciplines

Computer science

Marketing

Consumer behavior

Finance

Economics

Management information systems

El t i C i


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Marketing

Computer sciences

Consumer behaviorand psychology

Finance

Economics

Managementinformationsystems

Accounting andauditing

Management

Business law andethics

Others

Electronic Commerce is

Interdisciplinary


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The Driving Forces of

Electronic Commerce

The New World of Business

Business pressures

Organizational responses The role of Information Technology

(including electronic commerce)


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Exhibit 1.3: Major Business

Pressures and the Role of EC


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Major Business Pressures

Market andeconomic

pressures

Strong competition

Global economy

Regional tradeagreements (e.g.

NAFTA)Extremely low laborcost in somecountries

Frequent and

significant changesin markets

Increased power ofconsumers


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Major Business Pressures (cont.)

Societal andenvironmentalpressures

Changing nature ofworkforce

Governmentderegulation of bankingand other services

Shrinking governmentsubsidies

Increased importanceof ethical and legal

issues

Increased socialresponsibility oforganizations

Rapid political changes


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Major Business Pressures (cont.)

Technologicalpressures

Rapidtechnologicalobsolescence

Increase

innovations andnew technologies

Informationoverload

Rapid decline intechnology costvs. performanceratio


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Organizational Responses

Strategic systems Continuous improvement efforts

Business process reengineering

(BPR) Business Alliances

Electronic commerce



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Framework for Organizational and Societal Impacts of Information Technology

Management

and

Business Process

Organization

Structure and the

Corporate Culture

Individual

and Roles

Information

Technology

The Organizations

Strategy

External Environment,

Social, Economic,Political, etc


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Reducing cycle time and time to marketEmpowerment of employees andcollaborative work

Supply chain improvementsMass customizationChange management

IT Support and EC


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The Benefits of EC

Benefits to Organizations

Expands the marketplace to nationaland international markets

Decreases the cost of creating,processing, distributing, storing and

retrieving paper-based information


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Benefits of EC (cont.)

Benefits to Organizations (cont.) Allows reduced inventories and

overhead by facilitating pull-type

supply chain management The pull-type processing allows for

customization of products andservices which provides competitive

advantage to its implementers


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Benefits to Organizations (cont.) Reduces the time between the outlay

of capital and the receipt of productsand services

Supports business processesreengineering (BPR) efforts

Lowers telecommunications cost - theInternet is much cheaper than valueadded networks (VANs)


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Benefits to consumers Enables consumers to shop or do

other transactions 24 hours a day, all

year round from almost any location Provides consumers with more

choices

Provides consumers with lessexpensive products and services byallowing them to shop in many placesand conduct quick comparisons


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Benefits to consumers (cont.)

Allows quick delivery of products andservices (in some cases) especially with

digitized products Consumers can receive relevant and

detailed information in seconds, ratherthan in days or weeks

Makes it possible to participate invirtual auctions


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Benefits to consumers (cont.)

Allows consumers to interact with otherconsumers n electronic communitiesand exchange ideas as well as compareexperiences

Facilitates competition, which results in

substantial discounts


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Benefits to society

Enables more individuals to work athome, and to do less traveling for

shopping, resulting in less traffic on theroads, and lower air pollution

Allows some merchandise to be sold atlower prices benefiting less affluent

people


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Benefits to society (cont.)

Enables people in Third World countriesand rural areas to enjoy products and

services which otherwise are notavailable to them

Facilitates delivery of public services ata reduced cost, increases effectiveness,and/or improves quality


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The Limitations of EC

Technical limitations of electroniccommerce

Lack of sufficient systems security,

reliability, standards, and communicationprotocols

Insufficient telecommunication

bandwidth The software development tools are still

evolving and changing rapidly


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The Limitations of EC (cont.)

Technical Limitations of EC(cont.)

Difficulties in integrating the Internet

and electronic commerce software withsome existing applications anddatabases

The need for special Web servers andother infrastructures, in addition to thenetwork servers (additional cost)


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The Limitations of EC (cont.)

Technical Limitations of EC(cont.)

Possible problems of interoperability,

meaning that some EC software doesnot fit with some hardware, or isincompatible with some operatingsystems or other components


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Non-Technical Limitations

Cost and justification The cost of developing an EC in house can

be very high, and mistakes due to lack ofexperience may result in delays.

There are many opportunities foroutsourcing, but where and how to do it isnot a simple issue

In order to justify the system, one needsto deal with some intangible benefits whichare difficult to quantify.


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Security and Privacy These issues are especially important in

the B2C area, but security concerns arenot so serious from a technical

standpoint Privacy measures are constantly

improving too

The EC industry has a very long anddifficult task of convincing customersthat online transactions and privacy are,in fact, very secure

Non-Technical Limitations (cont.)


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Lack of trust and user resistance

Customers do not trust:

Unknown faceless sellers

Paperless transactions Electronic money

Switching from a physical to a virtualstore may be difficult


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Other limiting factors are: Lack of touch and feel online

Many unresolved legal issues

Rapidly evolving and changing EC

Lack of support services

Insufficiently large enough number ofsellers and buyers

Breakdown of human relationships

Expensive and/or inconvenient accessibilityto the Internet


Impact on EC: Everything will be Changed


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Impact on EC: Everything will be ChangedThe Analysis-of-Impacts Framework

I t T di P


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Impacts on Trading Processes

and Intermediaries (cont.)

Winners in EC

Internet access

providers Diversified portal

service providers

EC software

companies Proprietary

network owners

Others

Losers in EC

Wholesalers

(particularlysmall ones)

Brokers

Salespeople

Nondifferentiatedmanufacturers

I t B i P


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Impact on Business Processes

and Organizations

Improving direct marketing

Product promotion

New sales channels

Direct savings

Reduced cycle time

Customer service Brand or corporate image



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and Organizations (cont.)

Other marketing-related impacts

Customization

Advertising

Ordering systems

Markets

Transforming organizations

Technology and organization learning

Changing nature of work



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and Organizations (cont.)

Redefining organizations New product capabilities

New business models

Impacts on manufacturing Build-to-order

Impact on finance and accounting

Human resource management,training, and education


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Putting It All Together

Major concern of todays companieshow to transform themselves to takepart in digital economy

Example:Toys, Inc. Uses intranet for internal communications,

collaboration, dissemination of information

Networked to e-marketspaces and large

corporations

Corporate portal for communication andcollaboration with business partners


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Figure 1-2

Putting It AllTogether

Prentice Hall, 2002 61


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Is it real?

How to evaluate the magnitude of thebusiness pressures.

What should be my companys strategytowards EC?

Why is the B2B area so attractive?

What is the best way to learn about EC?

What ethical issues exist?

How can failures be avoided?

Managerial Issues



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Pure vs. Partial ECdepends upon thedegree of digitization(the transformation

from physical todigital) of:

1. theproduct(service)sold;

2. theprocess; and for

3. the delivery agent(ordigital intermediary)

Brick-and-Mortarorganizations areold-economyorganizations

(corporations) thatperform most of theirbusiness off-line,selling physical

products by means ofphysical agents



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Virtual (pure-play)organizationsconduct their businessactivities solely online

Click-and-mortarorganizationsconduct some ECactivities, but do their

primary business inthe physical world

Electronic market(e-marketplace)online marketplacewhere buyers and

sellers meet toexchange goods,services, money, orinformation



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Definitions and Concepts (cont.) Interorganizational

informationsystems (IOSs)allow routine

transactionprocessing andinformation flowbetween two or moreorganizations

Intraorganizational informationsystems enable

EC activities to goon within individualorganizations

chapter 1 : foundation of electronic-commerce

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