Introduction to ECommerce

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Introduction to E-Commerce

• Dr. Panagiotis Kanellis
• Arthur Andersen, Business Consulting
• Email panagiotis.kanellis_at_gr.arthurandersen.com
• Evangelia Kopanaki
• National and Kapodistrian University of Athens,
  Dept of Informatics
• Email evik_at_di.uoa.gr

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• In the latest of a string of bad news for ONLINE
  RETAILERS, Amazon.com reported its biggest-ever
  net loss, of 323m, in the fourth quarter of
  1999 for the year as a whole, its net loss was
  720m
• -The Economist, February 4 2000

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What is E-Commerce?

• The Electronic Support of one or more phases of
  a commercial transaction
• OR electronic buying selling
• Electronic Commerce is a way to improve the
  exchange of goods, services, information, and
  knowledge between organizations through the use
  of networked enabled technologies.
• Source Electronic Commerce A Firmwide
  Perspective
• San Jose, July 98

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• Business-to-Consumer
• E-Commerce A Critical Analysis

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Business-to-Customer E-Commerce

• Involves
• Electronic Retailing
• Home Banking
• On-line Banking
• On-line advertising and marketing
• Stock Brokerage
• On-line publishing (electronic books
  and newspapers)
• Virtual Universities
• Video-on-demand

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Retailing over the Web Promises

• Attractive new medium
• Low cost compared to physical shops
• Savings can be passed on to consumers as
  discounts
• Convenient for customers and vendors
• User friendly
• Global Market just a click away

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Buying a shirt
Source Wigand, R.T. and Benjamin, R.I. (1999)
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Success Stories

• Amazon.com online book sales
• virtual shelves hold 2.5m books
• Airline tickets (EasyJet)
• disintermediation of travel agents
• Music CDs (CDNow)
• IT products (Dell and Compaq)
• Supermarkets (Tesco and Walmart)

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The Transaction Cycle

• Information
• company and product
• marketing, public relations, advertising
• detailed catalogue with prices
• Order and Payment
• Delivery
• After sales service

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Electronic Catalogues

• A Seller wants
• fast updates
• marketing capabilities
• to attract new customers
• to capture customer information
• integration with internal systems
• payment, distribution

• A Buyer wants
• search capabilities
• shopping basket
• order payment
• personalization
• special offers
• relevant information on
• product features
• availability, delivery time

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Strange Behaviour

• Considerable investment in web sites
• Soaring stock prices for Internet firms
• BUT
• Little evidence of profitability
• 75 of E-Commerce initiatives fail
• Little sign of global e-commerce or e-cash
• Failure of electronic malls

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Cant judge a book by its cover

• Infinite no. of web sites
• overload
• many poorly designed and structured
• poor quality/out of date information
• good sites are costly to develop and maintain
• Infinite no. of users
• but how many are frequent and expert buyers
• affluent American male surfers are not buyers

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Searching

• Sellers use customer preferences for targeted
  marketing
• Customers broadcast desired product requirements
  allowing different vendors to offer bids
• Problems of getting customers to the site
• Limitation of Web search engines
• Privacy Issues
• Difficulty in locating and comparing stores
• Assumes Web expertise
• Issues of trust

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Promotion and Advertising

• Revenue opportunity from advertising
• Facilitates joint promotions
• But
• Web discounts and special offers (fairly
  uncommon)
• Has yet to mature
• New medium constrained by size of screen
• Need careful design

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Products Information

• Offers detailed up-to-date information
• on a wide range of products
• fast updates
• personalization
• But
• Poor product coverage
• Customer cannot interact with product
• Little product Information
• Needs search engine/careful structuring

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Online Ordering Remains Rare

• Fast, global, 24-hour service
• Potential to provide help with product selection
  and ordering, service information, auctions,
  shopping basket
• But
• No help with product selection
• Long load times
• Remains rare in practice
• inappropriate for some industries
• problems with international trading
• lacks personal touch

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Online Settlement

• Advantages of immediate payment and
• availability of terms and conditions
• widespread availability of credit cards
• possibility of online distribution
• But
• Suffers from
• security worries
• inappropriate payment systems
• Like ordering, still uncommon

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After Sales Service

• Opportunity to capture customer information and
  provide value-added services
• Opportunity for push marketing for new
  products and upgrades
• FAQs and feedback forms common
• But
• User profiling and user groups rare
• Need to address privacy issues

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Ease of Use

• An attractive site is likely to gain customers
• a poorly designed site will damage a firms
  reputation and sales
• Need for multiple languages
• Navigation problems, navigation guidance
• Need for Information
• Problems of screen limitations, excessive
  graphics, inconsistent design
• Trade off simplicity vs. functionality

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Need to Understand Shopping

• As a leisure activity
• As a social/family activity
• Provides exercise and sensory stimulation
• Provides status and authority
• personal service and haggling
• Provides opportunity to examine goods
• Part of identity construction

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Shopping in Greece

• Greece is suburban people live near shops
• Shopping areas and centres are safe
• Local phone calls are not free
• Perceptions of conventional mail order
• if goods are not in the shops, they are faulty

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Retailing Reconsidered

• Instead of a huge open global retail market, the
  Web is more likely to emphasise
• Information provision
• Niche markets
• Private Networks (intranets/extranets)
• wholesale collaboration
• New (information-based) products

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Business-to-Business E-Commerce and the Wired
Organization
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Issues to Address

• What are the IOS? Where did they come from?
• What are the underlying technological
  requirements?
• Internet-EDI Vs VAN-EDI
• Organisational, Interorganisational, Managerial
  issues

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Interorganisational Information Systems (IOS)

• Information systems that cross organisational
  boundaries
• A computer-based Information System that
  facilitates the exchange of information
  electronically using telecommunications between
  different organisations computer systems.
• They include all aspects of using networked
  computers for business purposes including office
  automation, electronic mail, corporate intranets,
  extranets, Web and EDI systems for document
  exchange and purchasing

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Changing Business Environment

• Complex turbulent business environment
• Increased Competition, Change and Uncertainty
• Organisational Responses
• cost reduction
• core competency/outsourcing
• improved logistics
• improved quality customer service
• improved flexibility and speed of response

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Changing Technological Environment

• Improved standardized ICT
• Cheaper, deregulated telecommunications
• (Internet, ISDN, Cable TV, wireless)
• Growth in organisational IS
• experience and maturity
• Changing role of IS
• more strategic and infrastructural
• IS for coordination
• CSCW (Computer Supportive Co-operative Work)
  email Video-conferencing

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Electronic Data Interchange (EDI)

• The electronic interchange of formatted data
  between computer applications using agreed
  message standards
• Preceded Web-based Electronic Commerce
• Is appropriate for the exchange of structured
  business documents
• orders, invoices, delivery notes
• Links suppliers, customers and banks

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Components

• Organizations
• e.g. trading partners, suppliers
• (Reliable 3rd-party) networks (VANs)
• Software
• EDI translator
• bridging message passing security
• store forward / store collect?batch
• Message standards
• formats product codes

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Paper-based processes...
Notify Manufacturer
order
Data Entry - order
or
Customer
Notify Customer
invoice
Manufacturer
Data Entry - invoice
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EDI
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Tactical Benefits

• Improved Communication
• speed accuracy
• Cost savings
• stock reduction
• decrease co-ordination costs relatively cheap
  transmission
• no rekeying less paper-handling fewer errors
• Improve customer service
• Reduce cycle times
• Increase responsiveness to customers

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Strategic Benefits

• Improved trading relationships
• vehicle for collaboration
• Improved logistics
• JIT (Just-In-Time Manufacturing)
• QR (Quick Response)
• ECR (Efficient Consumer Response)
• Competitive gains

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Internal Problems

• Slow growth of international standards
• Proliferation of competing standards
• Problems of integration with the internal
  processes/systems
• Incompatibility of different VANs
• Reorganization of processes

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Interorganisational Problems

• Impacts trading relationships
• Interdependence and domination
• hub-and-spoke arrangements
• EDI becomes a requirement to trade
• Inequitable sharing of costs and benefits
• Hubs gain more than spokes
• Initiators of the IOS project ( or powerful
  organisations) gain more than non-initiators (or
  smaller trading partners)
• Little chance of sustainable advantage

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Coercion through Fordnet

• Ford locked their suppliers into a proprietary
  network
• expensive, inconvenient, no supplier influence
• Produced a coercive trading relationship whereby
  Ford tried to extend their computer systems into
  suppliers premises
• Fordnet chrystalised power imbalance
• This is not sustainable, since Ford changes to
  Odenet

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Tescos use of EDI

• Very competitive market
• price, quality, service range
• Hub spoke network with suppliers
• Exclusion of small suppliers, unable to
  implement EDI
• Growth by message type
• suppliers stock availability self billing etc.
• Considerable efficiency gains
• Closer relationship with suppliers

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Small Businesses (SMEs) EDI

• SMEs traditionally lack
• expertise to set up and use technology
• expertise to realize the benefits of integration
• the necessary capital for equipment
• the market power to set favorable standards
• enough willing partners
• normally remain the spokes

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The use of the Internet in B2B E-commerce (1)

• Low cost of installation
• Public network provides ubiquitous access
• Platform independent
• Facilitates inter-organisational transactions
  that are not EDI-based
• Enables small suppliers to participate in
  business transactions
• Problems
• Security and Reliability
• Does not provide VANs services

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The use of the Internet in B2B E-commerce (2)

• Internet-based EDI
• VAN providers are now offering Internet-based
  services
• Suppliers use the Web to access information
  provided by their customers - not EDI-based
  communication
• XML Vs EDI

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TESCOs Internet-based information Exchange

• TESCOs ECR trial beginning of 1998
• The TESCOs Internet-based Information Exchange
  
• shares electronic point of sale data, as well as
  stock, promotions and new product information
  with suppliers.
• Suppliers may also gain access to a directory of
  stores, people and news and can give feedback.
• TESCO monitors the performance of suppliers.
• TESCO offers interchange links to smaller
  suppliers
• After 2 years 60m pounds have already been saved
  by improving replenishment through better
  promotion

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SMEs Internet/Web

• Internet/Web offers
• expanded market coverage/market share
• access to information, ideas and RD
• facilitation of collaboration
• time cost efficiency
• cheap technology public open standards
• opportunity for creativity
• mechanism for implementing EDI

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Dangers of the Internet for SMEs

• SMEs still lack
• the design, marketing and technical skills needed
  to implement and operate an effective web site
• the management skills required
• the credibility of a household name
• Internet only delivers a limited market
• Much depends on the industry context

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Putting It All Together

• Difficult global socio-political environment
• Business challenges
• Strategic Response
• IOS management methodologies
• Organisational change
• The important issues are not only technological
  but also (inter)organisational, managerial and
  social

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Key Managerial Issues

• How could an organization transform its
  structure and processes so as to function more
  effectively in the e-conomy?
• How does an organization creates and maximizes
  value in the e-conomy?
• How should we build and manage the
  organizational IT infrastructure for the
  e-conomy?

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Organizational Transformation
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In Summary

• Reengineer your company
• Reexamine your old business model
• The buyer always wins
• Hold your customers hand
• Consider outsourcing
• No web site is an island
• Create an online sense of community

Source Business Week