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E-mail systems, electronic payment systems, ... Currently, the two major firms offering SCM software are i2 Technologies and Manugistics. Electronic Commerce, ... – PowerPoint PPT presentation

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Title: E-mail systems, electronic payment systems, ... Currently

Tutorial 9
  • Planning for the Online Business

Learning Objectives
  • In this chapter, you will learn about
  • Identifying the value of electronic commerce
  • Aligning implementation plans with strategies
  • Deciding which electronic commerce project
    elements to outsource

Learning Objectives (cont.)
  • Selecting Web hosting services
  • Using incubators and fast venturing techniques to
    launch Internet business initiatives
  • Using project and portfolio management techniques
    to plan and control electronic commerce
  • Staffing electronic commerce activities

Planning the Electronic Commerce Project
  • A successful business plan for an electronic
    commerce initiative should include activities
    that will
  • Identify the initiatives specific objectives
  • Link those objectives to business strategies
  • Manage the implementation of those business
  • Oversee the continuing operations of the
    initiative after it is launched

Identifying Objectives
  • Common objectives include
  • Increasing sales in existing markets
  • Opening new markets
  • Serving existing customers better
  • Identifying new vendors
  • Coordinating more efficiently with existing
  • Recruiting employees more effectively
  • Resource decisions should consider the expected
    benefits and costs of meeting the objectives.

Linking Objectives to Business Strategies
  • Businesses can use downstream strategies, which
    are tactics that improve the value that the
    business provides to its customers.
  • Businesses can pursue upstream strategies that
    focus on reducing costs or generating value by
    working with suppliers or inbound logistics.

Linking Objectives to Business Strategies
  • The Web is an attractive sales channel.
  • The Web can be used to complement business
    strategies and improve competitive positions.
  • Electronic commerce opportunities can inspire
    businesses to undertake many activities.

Linking Objectives to Business Strategies
  • More companies are taking a closer look at the
    benefits and costs of their electronic commerce
  • A good business plan will set specific objectives
    for the benefits to be achieved and costs to be
  • Companies use pilot Web sites to test an
    electronic commerce idea, and then release a
    production version when it works well.

Measuring Benefit Objectives
  • Many companies create Web sites to build their
    brands or enhance existing marketing programs.
  • These companies can set goals in terms of
    increased brand awareness, as measured by market
    research surveys.
  • Companies that sell goods or services on their
    sites can measure sales volumes in units or

Measuring Benefit Objectives
  • Companies can use a variety of similar
    measurements to assess the benefits of other
    electronic commerce initiatives.
  • Supply chain managers can measure supply cost
    reductions, quality improvements, etc.

Measuring Benefit Objectives
Measuring Cost Objectives
  • Many changes in the cost of hardware are
  • The increasing sophistication of software
    provides an ever-increasing demand for newer
  • The project budget must include the cost of
    hiring, training, and personnel.

Measuring Cost Objectives
  • Based on data collected in separate recent
    surveys, International Data Corporation and the
    GartnerGroup both estimated that the cost for a
    large company to build and implement an adequate
    entry-level electronic commerce site was about 1
  • About 79 of that cost was labor related
  • 10 was the cost of software
  • 11 was the cost of hardware

Measuring Cost Objectives
  • Recent estimates of the cost to build small Web
    sites have continued to increase as more
    companies establish themselves on the Web.
  • Expensive features, such as shopping carts and
    search engines, have become standard on even the
    most basic sites.
  • Analysts have estimated the minimum dollar amount
    needed to open an entry level electronic commerce
    Web site at 150,000.

Measuring Cost Objectives
Measuring Cost Objectives
  • The McKinsey study estimated costs for two types
    of magazine sites a full portal site that would
    serve as a destination in itself and a more
    limited magazine companion site.
  • The full portal site cost estimate was 2.4
    million to build and 4.3 million per year to
    maintain, with a staff of 35 people.
  • The companion site cost estimate was 150,000 to
    build and 270,000 per year to maintain, with a
    staff of two people.

Measuring Cost Objectives
  • Kmarts Web store, Blue-Light.com, cost more than
    140 million to create.
  • The site is certainly well designed and highly
    functional, but the typical visitor would never
    guess how much this site cost.

Measuring Cost Objectives
Comparing Benefits to Costs
  • If the benefits exceed the cost of a project by a
    comfortable margin, the company invests in the
  • Companies should evaluate each element of their
    electronic commerce strategies using this
    cost/benefit approach.
  • Managers often use return on investment (ROI) to
    evaluate any capital investment.

Comparing Benefits to Costs
Comparing Benefits to Costs
  • Although most companies evaluate the anticipated
    value of electronic commerce initiatives in some
    way before approving them, many companies see
    these projects as absolute necessities.
  • These companies fear being left behind as
    competitors stake their claims in the online
    market space.
  • The value of early positioning in a new market is
    so great that many companies are willing to
    invest large amounts of money with few near-term
    profit prospects.

Comparing Benefits to Costs
  • Newspaper Web sites are a good example of this
    desire to establish a foothold in the online
    market space.
  • Profitable electronic commerce initiatives in the
    newspaper business, such as Gannets USA Today
    and The Wall Street Journals WSJ.com sites, are

Strategies for Web Site Development
  • The evolution of Web site functions
  • From the static brochures of the early days of
    electronic commerce
  • To transaction processing tools
  • To todays automated homes for business processes
    of all kinds

Strategies for Web Site Development
Strategies for Web Site Development
  • The transformation of Web site functions occurred
    rapidly, taking only a year or two in most
  • Few businesses have caught up with the changes in
    terms of how they develop Web sites.
  • The purposes and scope of Web sites have
    increased greatly, but few businesses today
    manage them as the dynamic business applications
    they have become.

Strategies for Web Site Development
  • Many large and medium-sized companies have found
    it extremely difficult to develop new information
    systems and Web sites that work with their
    existing systems to create new markets or
    reconfigure their supply chains.

Internal Development vs. Outsourcing
  • The key to success is finding the right balance
    between outside and inside support for the
  • Hiring another company to provide the outside
    support for the project is called outsourcing.

The Internal Team
  • The first step in determining which parts of a
    project to outsource is to create an internal
    team that is responsible for the project.
  • Business knowledge and creativity are much more
    important than technical expertise in
    establishing successful electronic commerce.

The Internal Team (cont.)
  • Measuring the achievement of an internal team is
    very important.
  • Customer satisfaction, number of sales leads
    generated, and reductions in order-processing
    time are examples of metrics that can provide a
    sense of the teams level of accomplishment.

Early Outsourcing
  • In many electronic commerce projects, the company
    outsources the initial site design and
    development to launch the project quickly.
  • The outsourcing team then trains the companys
    employees in the new technology before handing
    the operation of the site over to them .
  • This approach is called early outsourcing.

Late Outsourcing
  • The company does the initial design, development,
    implementation, and operates the system until it
    becomes stable.
  • After the company has gained all the competitive
    advantages provided by the system, the
    maintenance of the electronic commerce system can
    be outsourced.
  • This approach is called late outsourcing.

Partial Outsourcing
  • In partial outsourcing, the company identifies
    specific portions of the project that can be
    completely designed, developed, implemented, and
    operated by another firm that specializes in a
    particular function.
  • E-mail systems, electronic payment systems, and
    Web hosting are examples of partial outsourcing

Partial Outsourcing
  • Another common example of partial outsourcing is
    an electronic payment system.
  • Web hosting is one of the most common elements of
    electronic commerce initiatives that companies
    outsource using partial outsourcing.

Selecting a Hosting Service
  • The internal team should be responsible for
    selecting the ISP that will provide the sites
    hosting service.
  • For smaller electronic commerce projects, teams
    can consult an ISP directory, such as The
  • For larger Web sites, the team will want to
    obtain the advice of consultants or other firms
    that rate ISPs and CSPs, such as Keynote

Selecting a Hosting Service (cont.)
  • The factors to evaluate when selecting a hosting
    service include
  • Functionality
  • Reliability
  • Bandwidth and server scalability
  • Security
  • Backup and disaster recovery
  • Cost

Selecting a Hosting Service (cont.)
  • Determine the functionality offered by a hosting
    service and carefully evaluate whether that
    functionality will be sufficient to meet the
    needs of your Web site.
  • Because the companys information on customers,
    products, pricing, and other data will be placed
    in the hands of the service provider, the
    vendors security policies and practices are very

New Methods for Implementing Partial Outsourcing
  • New ways of implementing the partial outsourcing
    strategy have evolved for Web businesses.
  • Two of the more popular methods are
  • Incubators
  • Fast venturing

  • An incubator is a company that offers start-up
    companies a physical location with offices,
    accounting and legal assistance, computers, and
    Internet connections at a very low monthly cost.
  • Incubators might offer seed money, management
    advice, and marketing assistance.
  • In exchange, the incubators receive an ownership
    interest in the company.

  • Some companies have created internal incubators.
  • A number of companies have used internal
    incubators in the past to develop technologies
    that the companies planned to use in their main
    business operations.
  • Recently companies, such as Matsushita Electrics
    U.S. Panasonic division, have started internal
    incubators to help launch new companies that will
    grow to become important strategic partners.

Fast Venturing
  • In fast venturing, an existing company that wants
    to launch an electronic commerce initiative joins
    external equity partners and operational partners
    to scale up the project rapidly.
  • Equity partners are usually banks or venture
  • Operational partners are firms that have
    experience in moving projects along.

Fast Venturing
Managing Electronic Commerce Implementations
  • The best way to manage any complex business
    software implementation is to use formal project
    management techniques.
  • Individual projects can become so large that it
    becomes impossible for managers to maintain
    control without some kind of assistance.

Project Management
  • Project management is a collection of formal
    techniques for planning and controlling the
    activities undertaken to achieve a specific
  • The project plan includes criteria for cost,
    schedule, and performance.
  • It helps project managers make intelligent
    trade-off decisions regarding these three

Project Management (cont.)
  • Project managers use specific application
    software called project management software to
    help them manage projects.
  • Microsoft Project and Primavera Project Planner
    are tools for managing resources and schedules.

Project Management (cont.)
  • Project management software can help the team
    manage the tasks assigned to consultants,
    technology partners, and outsourced service
  • The Project Management Institute is a
    not-for-profit organization devoted to the
    promotion of professional project management

Project Portfolio Management
  • Project portfolio management is a technique in
    which each project is monitored as if it were an
    investment in a financial portfolio.
  • In project portfolio management, the CIO assigns
    a ranking for each project based on its
    importance to the strategic goals of the business
    and its level of risk.

Staffing the Operation
  • Regardless of outsourcing, an internal team must
    determine the staffing needs of the electronic
    commerce initiative.
  • The general areas of staffing include
  • Business management
  • Application specialists
  • Customer service staff
  • Systems administration
  • Network operations staff
  • Database administration

Staffing the Operation
  • Some companies outsource parts of their customer
    relationship management operation to independent
    call centers.
  • A call center is a company that handles incoming
    customer telephone calls and e-mails for other

Post-Implementation Audits
  • A post-implementation audit is a formal review of
    a project after it is up and running.
  • The post-implementation audit gives managers a
    chance to examine the objectives, performance
    specifications, and cost estimates to schedule
    delivery dates that were established in its
    planning stage and to compare them to what
    actually happened.

Purchasing, Logistics, and Support Activities
  • Electronic commerce possesses the potential for
    cost reduction and business process improvement
    in purchasing, logistics, and support activities.
  • An emerging characteristic of purchasing,
    logistics, and support activities is that they
    need to be flexible.

Purchasing Activities
  • Purchasing activities include
  • Identifying vendors
  • Evaluating vendors
  • Selecting specific products
  • Placing orders
  • Resolving any issues that arise after receiving
    the ordered goods and services

Purchasing Activities
  • Procurement includes all purchasing activities,
    plus the monitoring of all elements of purchase
  • By using a Web site to process orders, the
    vendors in this market can save the cost of
    printing and shipping catalogs, and the cost of
    handling telephone orders.

Purchasing Activities
  • Products that companies buy on a recurring basis
    are called maintenance, repair, and operating
    (MRO) supplies.
  • One of the largest MRO suppliers in the world is
    W.W. Grainger.
  • McMaster-Carr is another major MRO supplier
    through WWW.
  • Office Depot and Staples are also examples in
    this area.

Logistic Activities
  • The classic objective of logistics is to provide
    the right goods in the right quantities in the
    right place at the right time.
  • Businesses have been increasing their use of
    information technology to achieve this objective.
  • FedEx and UPS have freight tracking Web page
    available to their customers.

Support Activities
  • Online Benefits is a firm that duplicates its
    clients human resource functions on a secure Web
    site that is accessible to clients employees.
  • Support activities include
  • Finance and administration
  • Human resources
  • Technology development

Supply Chain Management
  • The part of an industry value chain that precedes
    a particular strategic business unit is often
    called a supply chain.
  • The purchasing department has traditionally been
    charged with buying all of these components at
    the lowest price possible.

Value Creation in the Supply Chain
  • The process of taking an active role in working
    with suppliers to improve products and processes
    is called supply chain management (SCM).
  • SCM was originally developed as a way to reduce

Value Creation in the Supply Chain
  • Today, SCM is used to add value in the form of
    benefits to the ultimate consumer at the end of
    the supply chain.
  • Supply chain members can reduce costs and
    increase the value of product or service to the
    ultimate customer.

Technology in the Supply Chain
  • Clear communications, and quick responses to
    those communications, are a key element of
    successful SCM.
  • Technologies of the Internet and the Web can be
    very effective communication enhancers.
  • Figure 9-10 lists the advantages of using
    Internet and Web technologies in SCM.

Technology in the Supply Chain
  • In 1997, production and scheduling errors costing
    Boeing over 1.5 billion.
  • Using EDI and Internet links, Boeing is working
    with suppliers so that they can provide the right
    part at the right time.
  • To further benefit customers, Boeing launched a
    spare parts Web site, Boeing PART.

Technology in the Supply Chain
  • Dell Computer has also used technology-enabled
    SCM to give customers exactly what they want.
  • Dell has been able to dramatically reduce the
    amount of inventory it must hold.
  • Dell has also shared this information with
    members of its supply chain.

Enterprise Resource Planning Software
  • Enterprise resource planning (ERP) software is
    designed to help a company integrate all of its
    manufacturing, finance, distribution, and other
    internal business functions into one information
  • Major ERP vendors include J.D. Edwards, Oracle,
    PeopleSoft, and SAP.

Supply Chain Management Software
  • Supply chain management software includes demand
    forecasting tools and planning capabilities to
    coordinate various activities.
  • Currently, the two major firms offering SCM
    software are i2 Technologies and Manugistics.
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