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Title: The Digital Firm: Electronic Business and Electronic Commerce

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Title: The Digital Firm: Electronic Business and Electronic Commerce

1
The Digital Firm Electronic Business and
Electronic Commerce

Chapter 4 (9th Ed.)

2
Chapter 4 and Our Questions

What is the role of the Internet and networking
technology in modern organizations
Distinguish among internets intranets extranets
Describe the evolution of e-business and how
e-business is transforming organizations and
markets
Explain organizational implications of the
pervasiveness of the Internet

3
Outline of Ch 4

I. Big ideas
A. E-business e-commerce
B. Impact of Internet
C. Changes resulting from the Internet
II. Internet business models
III. Categories of e-commerce
A. B2C B2B
B. Other classifications
IV. B2C environment
A. Uniqueness
B. Benefits

V. B2B environment
A. Buying selling (sourcing and
procurement)
B. Transaction types
C. Auctions exchanges
D. Supporting technologies
1. EDI
2. Electronic payments
3. Digital signature/certif.
VI. Electronic business
A. Collaborative commerce
B. Extranets
C. Intranets
VII Management challenges
A. Unproven business models
B. Organizational change
C. Trust security and privacy
D. Examples

4
E-Business and E-Commerce

E-commerce concerns the processes for buying and
selling goods and services electronically
E-business is the use of the Internet and IT to
execute all of the business processes for the
firm. E-business includes e-commerce all
internal processes and coordination with
business partners such as customers and suppliers

5
The Internet and the Digital Firm

The Internet is the key enabling technology
required to build a digital firm
Internet technologies are becoming the
infrastructure of choice for most firms
Firms adopt Internet protocols for all networking
activity
The browser becomes the front-end for all
applications and access to internal databases
Internet enables seamless integration of
information
Within the firm and
Between the firm and its business partners

6
Changes Resulting from the Internet

Unbundling of information about products from the
products physical location
Retailing (e.g. books)
Financial services
Economics of information search costs
For customers for merchants
Information asymmetry
Richness and reach
Richness is the depth and detail of information
Reach is how many people you can connect with
Pre-Internet a business would have to choose one
New business models

7
Internet Business Models

Virtual storefront Sells goods or services
online (Amazon.com)
Information broker Provides information on
products or services (Edmunds.com)
Transaction broker Provides online transaction
facility (eTrade.com Expedia.com)
Online marketplace Provides a trading platform
for individuals and firms (eBay.com alibaba.com)

8
More Internet Business Models

Content provider Creates revenue by providing
content (WSJ.com TheStreet.com mp3.com)
Online service provider Provides online
services including search service. (Google.com
Xdrive.com)
Virtual community Provides an online community
to focused groups (Friendster.com iVillage.com)
Portal Provides initial point of entry to Web
specialized content services (Yahoo.com
MSN.com)

9
Categories of E-Commerce

Business-to-customer (B2C) Retailing of products
and services directly to individual customers
(Wal-Mart.com)
Business-to-business (B2B) Sales of goods and
services to other businesses (Grainger.com
Ariba.com)
Consumer-to-consumer (C2C) Individuals using the
Web for private sales or exchange (eBay.com
Consumer-to-government business-to-government
government-to-government

10
Other Way to Classify Businesses

Pure play
What happens when a pure player enters existing
markets
Clicks and bricks
Do Internet sales reduce conventional sales
How do you segment your product line
Should everyone sell directly to their customers
Bricks and mortar alone
Catalog
Where do catalog sales come in
Victoria Secret LandsEnd LL Bean

11
Uniqueness of the B2C Environment

Direct sales via the Web (a new channel)
Eliminate intermediaries (disintermediation)
New roles for intermediaries (reintermediation)
information brokers (edmunds.com)
Interactive marketing and personalization
Richness of information at the Web site
Ability to capture customers web behavior at low
cost (clickstream tracking)
Ability to customize/personalize for each
customer (Amazon and Dell)
Collaborative filtering
Corporate blogs
Customer survey and focus groups

12
Uniqueness of the B2C Environment (continued)

Customer self-service
Find information
Ask questions
Review transactions
Track shipments
Push to talk links
Online chats with tech support
Using email
Establish continuing relationships with customers
Encouraging purchases

13
Benefits of B2C to Consumers

Convenience (shop 24/7 from any location)
Time savings
Comparison shopping
More choices
Less expensive products due to more choices and
competition
Faster delivery for digital products
Participate in virtual auctions
Interact with other customers in virtual
communities

14
Characterizing the B2B Environment

B2B includes transactions between business
conducted electronically over the Internet
extranets intranets or private networks
In the B2B environment businesses are both buyers
and sellers
B2B activity is often called
Sourcing the process of identifying conducting
negotiations with and forming supply agreements
with vendors of goods and services
Procurement involves not only purchasing goods
and services but also sourcing negotiating with
suppliers paying for goods and making delivery
arrangements
B2B activity takes place along the entire supply
chain of a firm
Size
By 2004 market may reach 10 trillion much
larger than B2C market
About 10 of non-Internet B2B market by 2005

15
Characteristics of the B2B Transactions

Parties to the transaction
direct between buyer and seller
online intermediary that brokers the transaction
Types of transactions
spot sourcing where goods and services are
purchased as needed at prevailing market prices
systematic sourcing where purchases are made in
long-term supplier-buyer relationships negotiated
in private

16
More Transaction Characteristics

Types of materials or services
direct materials used in making a product (steel
in a car)
indirect materials such as office supplies or
used in maintenance repair and operations
(MRO).
Direction of trade
Vertical marketplaces involve one industry or
segment examples include electronics cares
steel or chemical
Horizontal marketplaces concentrate on a service
or product used by many industries (office
supplies PCs or travel services)

17
Auctions and Exchanges

An exchange is a public electronic market with
one or many buyers and one or many sellers there
may or may not be dynamic pricing
Auction a market mechanism by which a seller
places an offer to sell a product and buyers make
bids sequentially and competitively until a final
price is reached (dynamic pricing)
A reverse auction is when sellers are invited to
bid on the fulfillment of an order to provide a
product or service the lowest bid wins (e.g.
Priceline is a B2C reverse auction)

18
Exchange Types

Types
Sell-side with one seller to many buyers
(private)
Buy-side with one buyer from many sellers
(private industrial exchange)
Exchanges where there are many sellers and many
buyers (public)
Alibaba.com
Ariba.com
Converge.com (spot market)
Globalsources.com

19
Sell-Side with One Seller

Sellers may be click-and-mortar manufacturer or
intermediaries (wholesalers like avnetcom)
intermediaries may be pure-play (bigboxx.com)
Use the Internet to sell through electronic
catalogs
Cisco Dell Staples
Separate pages and catalogs for major buyers
Another type is a forward auction to dispose of
capital assets (GM does this)
Boeing sponsors a website for which airlines can
find maintenance and parts

20
Buy-Side with One Buyer

This model arises from the procurement needs of
firms where procurement involves the purchase of
goods and services needed to accomplish the
mission of the business
In this model a buyer opens an electronic market
on its own server and invites potential suppliers
to bid on the items the buyer needs. The
invitation is called a request for quote (RFQ).
This process is called the reverse auction of
bidding mode.
GE was one of the first to do this
Online directories exist for suppliers that list
open RFQs

21
Exchanges with Many Buyers and Sellers(Net
Market Places or E-Hubs)

A way to classify these exchanges is by (a) the
type of materials traded (direct or indirect) and
(b) the sourcing (systematic or spot)
Spot sourcing of direct materials occurs in a
vertical exchange (chemconnect.com)
Spot sourcing of indirect materials occurs in a
horizontal exchange (EmployEase.com)
Systematic sourcing of direct materials is often
done with an intermediary (plastics.com)
Systematic sourcing of indirect materials
(MRO.com)

22
Ownership of Exchanges

Industry giant
IBM established an exchange for selling patents
(www.delphion.com)
Neutral entrepreneur
ChemConnect.com
The consortia or co-op
Covisint (automobile)
Orbitz (airlines)

23
Services Provided by Intermediaries in an Exchange

Services for buyers
Automate buying contract management purchase
orders requisitions business rules enforcement
and payment
Services for sellers
Catalog creation and content management order
management invoicing and settlement

24
Perspective on Exchanges

Private exchanges are the fastest growing type of
B2B commerce
Early exchanges failed because suppliers were
reluctant to participate fearing competitive
bidding in spot buying would reduce prices.
Suppliers are much more willing to reduce prices
in systematic sourcing
There is only room for 2 to 3 exchanges at most
in a given industry

25
Technologies that Support B2B

Electronic data interchange
Proprietary
Web-enabled
Electronic payment systems
Electronic funds transfer
New methods of electronic payment
Digital signatures and digital certificates

26
Electronic Data Interchange

What is EDI
Exchange of standard business documents
electronic data using interorganizational
information systems
Shipping data payment data production/inventory
requirements
Set of hardware software and standards that
accommodate the EDI process
Forms of EDI
Earliest was through a VAN (since 80s)
Newest is through the Web

27
Electronic Data Exchange

How does EDI work
Suppliers proposal sent electronically to buyer
organization.
Electronic contract approved over network.
Supplier manufactures and packages goods
attaching shipping data recorded on a bar code.
Quantities shipped and prices entered in system
and flow to invoicing program shipping data and
invoices are transmitted electronically to buyer
organization.

28
Electronic Data Exchange(How does it work)

Supplier ships the order.
Buyer organization receives packages scans bar
code and compares data to invoices actual items
received.
Payment approval transferred electronically from
the buyers accounts payable dept. to buyers
bank .
Bank transfers funds from buyer to suppliers
account using electronic fund transfer (EFT).

29
Electronic Data Interchange
30
Electronic Data Interchange Standards

EDI requires companies to agree on
Compatible hardware and software
Electronic form format
Established EDI standards
X.12 de facto umbrella standard in U.S. and
Canada
EDI for Administration Commerce and Trade
(EDIFACT) umbrella of standards in Europe

31
EDI Implementation

VAN suppliers
GE Information Services Sprint WorldCom
Sterling Commerce
Majority of EDI transaction take place with VAN
Web EDI
Rapidly overtaking VAN EDI
Use Web technologies
Accessible to businesses of all sizes
Success attributed to XML
Complements HTML by allowing users to put tags
around an element that tells the browsers about
the data content of an element
Businesses can create their own tags

32
Web Enabled EDI

Advantages of Web EDI
Lower cost
More familiar software
Worldwide connectivity
Fast communication
Real time information exchange
Disadvantages of Web EDI
Unpredictable speeds
Security is not always up to VAN EDI

33
Electronic Payment Systems

Electronic funds transfer (EFT)
Electronic checks
Automated bill paying
Digital wallet stores credit card and owner id
information and provides that information at
checkout
Digital cash (e-cash) in exchange for cash you
get electronic files that represent various
denomination you send files to merchant as
payment merchant exchanges files for cash
Smart card (or electronic purse)
Special card reader required
Recharging

34
Electronic Commerce Payment Systems
35
Digital Signatures and Digital Certificates

A digital signature is a digital code attached to
an electronically transmitted message (e.g. an
EDI document) that is used to verify the origin
and contents of the message. It provides a way
to associate a message with a sender similar to a
written signature.
Digital certificates verify (off line) that the
holder of a digital signature is who he/she
claims to be. Third parties called certificate
authorities issue digital certificates. One
company that does this is VeriSign.

36
Major Benefits of B2B to Business

Reduction of paper and administrative costs
Reduces cycle time (time compression)
Reduces search costs/time for buyers and sellers
Reduces inventory levels and costs
Reduction in errors and/or improved quality of
service
Enables JIT and production flexibility
Enables mass customization
Expands the marketplace

37
Electronic Business and the Digital Firm

Collaborative commerce
Intranets are internal networks based on Internet
and WWW standards that enable employees to
exchange ideas share information and work
together
Specific intranet applications for functional
areas
Coordination of cross functional supply
processes order processing accounting
shipping inventory procurement production
planning (ERP with Internet technologies)
internal processes
Provide external entities (customers suppliers
shippers) with access to the intranet extranet
concept

38
Collaborative Commerce

Collaborative commerce concerns the use of
digital technologies to improve planning
production and distribution of goods and
services
Aspects of interaction other than buying/selling
Coordination in product design
Sharing of information along the supply chain
Sharing shipping costs
Closely related to the extranet concept

39
Information Most Frequently Found in Corporate
Intranets

Customer databases
Corporate policies and procedures (Winthrop)
Corporate phone directories
Human resource forms (Winthrop)
Training programs
Product catalogs and manuals (Winthrop)
Data warehouse and decision support access
Internal purchase orders (Winthrop)
Travel reservations

40
Functional Applications of the Intranet Idea
41
The Extranet Concept

An extranet is created when authorized users from
outside the firm have access to the firms
intranet
Extranets enable the external entities to
coordinate their business processes with the
internal processes of a given firm
The extranet may or may not be involved with
direct sales.

42
Specific Extranet Examples

AMP is an electronic-connectors distribution
company customers use AMP Connect to access an
electronic catalog with product descriptions 3-D
models and comparative charts for all products
customers can place orders
Receives 100000 hits daily from 15000 business
customers worldwide
CSX (railroad) developed an extranet that allows
CSX customers to trace shipments initiate work
orders and view pricing data over the Internet

43
Management Challenges

Unproven business models
Making money via e-commerce is not easy
Need for clear strategies
Organizational changes
Direct sales impact on distributors/retailers
Inexperience with direct sales
Impact on sales force
Change in business processes
Trust security and privacy
Sharing information with business partners
requires considerable trust and confidence about
security
Privacy regarding collection of customer
information is an on-going issue

44
An Example of Process Changes