The Digital Firm: Electronic Business and Electronic Commerce

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Chapter
The Digital Firm Electronic Business and
Electronic Commerce
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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
Commerce
OBJECTIVES

• Analyze how Internet technology has changed value
  propositions and business models
• Define electronic commerce and describe how it
  has changed consumer retailing and
  business-to-business transactions

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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
Commerce
OBJECTIVES (Continued)

• Compare the principal payment systems for
  electronic commerce
• Evaluate the role of Internet technology in
  facilitating management and coordination of
  internal and interorganizational business
  processes
• Assess the challenges posed by electronic
  business and electronic commerce and management
  solutions

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Management Information Systems
Chapter 4
The Digital Firm Electronic Business and
Electronic Commerce
Corrugated Supplies Case

• Challenge trillions of product configurations,
  short lead times, many competitors
• Solution Web extranet for order entry,
  customization, inventory, change orders, and
  shipping
• Demonstrates how IT and the Web coordinate the
  flow of information about orders, production,
  inventory and shipment
• Illustrates how systems in the digital firm
  connect demand, supply, and fulfillment to
  achieve operational excellence

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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE
EMERGING DIGITAL FIRM
Internet Technology and the Digital Firm

• Information technology infrastructure The
  Internet provides a universal and easy-to-use
  set of technologies and technology standards that
  can be adopted by all organizations.
• Direct communication between trading partners
  Disintermediation removes intermediate layers and
  streamlines processes.

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE
EMERGING DIGITAL FIRM
Internet Technology and the Digital Firm
(Continued)

• Round the clock service Web sites available to
  consumers 24 hours
• Extended distribution channels Outlets created
  for attracting customers who otherwise would not
  patronize a firm
• Reduced transaction costs Costs of searching for
  buyers declines

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE
EMERGING DIGITAL FIRM
New Business Models and Value Propositions

• Business Model
• Defines an enterprise
• Describes how the enterprise delivers a product
  or service
• Shows how the enterprise creates wealth.
• Example Selling Books business models
  (Amazon.com)

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Management Information Systems Chapter 4 The
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Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE
EMERGING DIGITAL FIRM
The Changing Economies of Information

• Information asymmetry One party in a transaction
  has more information than the other. The Internet
  decreases information asymmetry.
• Example Auto retailing sites.
• Increases richness The Internet increases the
  depth, detail, and scope of information.
• Increases reach The Internet increases the
  number of people who can be contacted
  efficiently.

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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE
EMERGING DIGITAL FIRM
The Changing Economics of Information
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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE
EMERGING DIGITAL FIRM
Internet Business Models

• Virtual storefront Sells goods or services
  online (Amazon.com)
• Information broker Provides information on
  products or services (Edmunds.com). Generate
  revenue from advertising, or from directing
  buyers to sellers
• Transaction broker Provides online transaction
  facility (eTrade.com, Expedia.com)
• Online marketplace Provides a trading platform
  for individuals and firms (eBay.com)

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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE
EMERGING DIGITAL FIRM
Internet Business Models (Continued)

• Content provider Creates revenue by providing
  content (WSJ.com, TheStreet.com). The customer
  may pay to access the content, or revenue may be
  generated by selling advertising space (Banner
  ad).
• Online service provider Provides online
  services, including search service. (Google.com,
  Xdrive.com). Generate revenue from subscription
  or transaction fee, from advertising, or from
  collecting marketing information from the users.

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Internet Business Models (Continued)

• Virtual community Provides an online community
  to focused groups (Friendster.com, iVillage.com).

Social networking sites are a type of online
community which is considered as practice of
expanding the number of ones business by making
connections through individuals. It links people
and enable them to mine their friends ( and their
friends friends)

• Portal Provides initial point of entry to Web,
  specialized content, services (Yahoo.com,
  MSN.com)

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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Categories of Electronic 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 )

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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
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ELECTRONIC COMMERCE
Business-To-Consumer

• Advantages of E-commerce
• Customer-centered retailing Closer and more
  personalized relationship with customers is
  possible
• Web sites Provide a corporate-centered portal
  for the consumer to quickly find information on
  products, services, prices, orders

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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Business-To-Consumer
Advantages of E-Commerce (Continued)

• Disintermediation The elimination of
  organizations or business process layers
  responsible for certain intermediary steps in a
  value chain, reducing costs to the consumer
• Reintermediation The shifting of the
  intermediary role in a value chain to a new
  source, adding additional value to the consumer.
• Example real estate agents, may be replaced
  by new intermediaries specializing in helping
  Internet users efficiently obtain product and
  price information, locate on-line sources of
  goods and services, or manage or maximize the
  value of the information captured about them in
  electronic commerce transactions)

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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
The Benefits of Disintermediation to the Consumer
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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Interactive Marketing and Personalization

• Clickstream tracking tools
• Collect data on customer activities at Web sites
  and store them in a log

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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
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ELECTRONIC COMMERCE
Web Site Visitor Tracking
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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Web Personalization

• Create unique personalized Web pages for each
  customer
• Increased closeness to customer increases value
  to the customer, while reducing costs of
  interacting with the customer

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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Web Site Personalization
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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Collaborative filtering

• Compares information gathered about a specific
  users behavior at a Web site to data about other
  customers with similar interests to predict what
  the user would like to see next. The software
  then makes recommendations to users based on
  their assumed interests.

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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Customer self-service

• The use of Web sites to provide customers with
  access to information and answers to questions
• Replacing human call center operators and clerks
• UPS.com Customer tracking of packages
• Orbitz.com Customer self-help for organizing and
  managing a trip
• Dell.com My Order Status facility

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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Business-to-Business Electronic Commerce New
Efficiencies and Relationships

• Electronic Data Interchange (EDI) Enables the
  computer-to-computer exchange between two
  organizations of standard transactions.
  Currently 80 of B2B e-commerce uses this system.
  
• EDI is being replaced by more powerful Web-based
  alternatives.

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Electronic Data Interchange (EDI)
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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Net Marketplaces
Net Marketplaces They are sometimes called
e-hubs, provide a single digital marketplace
based on Internet technology for many different
buyers and sellers.
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Four different types of Net Marketplaces

• Distributors B2B online catalogs provide buyers
  with access to thousands of parts and other goods
  (Grainger.com)
• 2. Procurement platforms Platforms for
  purchasing goods and materials and also sourcing,
  negotiating with suppliers, paying for goods, and
  making delivery arrangements (Ariba.com)

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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
Net Marketplaces
Four different types of Net Marketplaces
(Continued)

• 3. Independent exchanges Third-party Net
  marketplace that is primarily transaction-oriented
  and that connects many buyers and suppliers for
  spot purchasing (Freemarkets.com,
  GEPolymerland.com).
• Exchanges are on-line marketplaces where multiple
  buyers can purchase from multiple sellers
  using a bidask system. E-Steel is an example.
  Buyers log in and create inquiries, specifying
  details, terms, and suppliers for the steel they
  wish to purchase.

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• There are several categories of exchanges.
  Vertical exchanges, also known as industry
  exchanges, are set up to service specific
  industries, such as the automobile, forest
  products, or energy industries.
• Horizontal exchanges focus on specific functions
  that can be found in many different industries,
  such as Maintenance, Repair, and Operating (MRO)
  supplies. MRO.com is an example.

4. Industry consortia Industry-owned Net
marketplaces used primarily for long-term
sourcing of direct inputs to production
(ChemConnect.com)
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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE

• Private Industrial Networks
• The largest Web-based form of B2B commerce.
• A private industrial network, also known as a
  private exchange, links a firm to its suppliers,
  distributors, and other key business partners for
  efficient supply chain management and other
  collaborative commerce activities. management and
  collaborative activities.
• A private industrial network typically consists
  of a large firm using an extranet to link to its
  suppliers and other key business partners
• Example Wal-Mart uses its own private network to
  coordinate more than 15,000 suppliers to its
  stores.

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Management Information Systems Chapter 4 The
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ELECTRONIC COMMERCE
A Private Industrial Network
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Management Information Systems Chapter 4 The
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Electronic Commerce Payment Systems
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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
How Intranets Support Electronic Business

• Benefits
• Functional applications
• Good examples CARE and Mitre Corporation

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Benefits of Intranets

• Connectivity Accessible from most computing
  platforms
• Can be tied to internal corporate systems and
  core transaction databases
• Platforms for interactive applications
• Scalable to larger or smaller computing platforms
  

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Benefits of Intranets (Continued)

• Easy to use, universal standard Web interface
• Low start-up costs
• Richer, more responsive information environment
  than corporate manuals
• Reduced information distribution costs

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Functional Applications of Intranets

• Finance and accounting
• Human resources
• Sales and marketing
• Manufacturing and production

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Functional Applications of Intranets
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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Finance Accounting

• General ledger reporting
• Project costing
• Annual reports
• Budgeting

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Human Resources

• Company
• Online publishing of corporate policy
• Job postings and internal job transfers
• Company telephone directories, training

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Human Resources (Continued)
Employees

• Healthcare
• Employee savings
• Competency tests

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Sales and Marketing

• Competitor analysis
• Price updates
• Promotional campaigns
• Sales presentations
• Sales contracts

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Manufacturing and Production

• In manufacturing, information-management issues
  are highly complex, involving
• massive inventories
• capturing and integrating real-time production
  data flows
• The manufacturing function typically uses
  multiple types of data, including graphics as
  well as text, which are scattered in many
  disparate systems.
• Developing intranets that integrate manufacturing
  data under a uniform user interface is more
  complicated than in other functional areas.
• Manufacturing Intranets coordinating the flow of
  information between controllers, inventory
  systems, and other components of a production
  system can make manufacturing information more
  accessible to different parts of the organization.

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Manufacturing and Production (Continued)

• Quality measurements
• Maintenance schedules
• Design specifications
• Machine outputs
• Order tracking

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Business Process Integration

• The Internet and collaborative commerce
• Collaborative commerce When firms use the
  Internet to cooperate closely in the development,
  production, and distribution of products and
  services
• GE Plastics maintains an Intranet where its
  customers (selected fabricators) can find
  information on product design and new
  developments.

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Management Information Systems Chapter 4 The
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ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Collaborative Commerce
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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
Commerce
MANGEMENT OPPORTUNITIES, CHALLENGES, AND
SOLUTIONS
Management Opportunities
The Internet provides firms with extraordinary
opportunities to develop new products and
services, new distribution channels, new avenues
for marketing and sales, and even entirely new
business models.
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Management Information Systems Chapter 4 The
Digital Firm Electronic Business and Electronic
Commerce
MANGEMENT OPPORTUNITIES, CHALLENGES, AND
SOLUTIONS
Management Challenges

• Finding a successful Internet business model
• Dot-com stock prices collapsed after many of
  these companies failed to generate enough revenue
  to sustain their costly marketing campaigns,
  infrastructures, and staff salaries, losing money
  on every sale they made. Business models built
  around the Internet are new and largely unproven.
• Doing business over the Internet is not
  necessarily more efficient or cost effective than
  traditional business methods
• Businesses that are unclear about their online
  strategy and its relationship to their overall
  business strategy can waste even millions of
  dollars building and maintain website that fail
  to deliver the desired results.

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Management Challenges
(Continued)

• Organizational change challenges
• Channel conflicts
• Using the Web for online sales and marketing may
  create channel conflict with the firm's
  traditional channels, especially for less
  information-intensive products that require
  physical intermediaries to reach buyers. A
  company's sales force and distributors may fear
  that their revenues will drop as customers make
  purchases directly from the Web or that they will
  be displaced by this new channel.

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Management Challenges
(Continued)

• Trust, Security, and Privacy

• Electronic commerce cannot flourish unless there
  is an atmosphere of trust among buyers, sellers
  and other partners involved in online
  transactions. Since online relationships are more
  impersonal than those in "brick and mortar"
  commerce, many consumers remain hesitant to make
  purchases over the Web from unfamiliar vendors.
  Consumers also worry about the security and
  confidentiality of the credit card and other
  personal data that they supplied over the
  Internet

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Management Information Systems Chapter 4 The
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MANGEMENT OPPORTUNITIES, CHALLENGES, AND
SOLUTIONS
Solution Guidelines

• Determining how Internet technology can provide
  value for the business.
• Managing business process changesBefore
  embarking e-commerce or e-business,initiatives,
  mangers will need to identify carefully the
  organizational changes required to make them
  work.
• Safeguarding security and privacy Firms
  engaging in e-commerce and e-business need a new
  security culture and infrastructure that enable
  them to straddle this fine line