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Information Systems: Creating Business Value John Wiley & Sons, Inc. Mark Huber, Craig Piercy, and Patrick Mc. Keown Copyright 2007 John Wiley & Sons, Inc.
Chapter 7: E-Commerce for Consumers and Organizations Copyright 2007 John Wiley & Sons, Inc.
What We Will Cover: • • E-Commerce: An Overview The E-Commerce Difference E-Commerce for Consumers E-Commerce Between Organizations Copyright 2007 John Wiley & Sons, Inc.
Student ROI (Return on Investment) Your investment of time and effort in this course will result in your being able to answer these questions: 1. What is e-commerce and how is it a part of today’s economy? 2. How does e-commerce make a difference to businesses and consumers? 3. How does e-commerce allow businesses to create value for their consumers? 4. How do businesses use e-commerce to enhance the products and services that they trade with business partners, as well as to improve their supply chain efficiency? Copyright 2007 John Wiley & Sons, Inc.
What is e-commerce? • E-commerce is the use of information systems, technologies, and computer networks to carry out transactions in order to create or support the creation of business value. • Note that we do not say “to buy and sell over the Internet” in our definition – why? – – Copyright 2007 John Wiley & Sons, Inc.
E-commerce (cont. ) Uneven penetration into areas of commerce – Travel Industry versus Retail Clothing Industry (clothing is trending upward) – Most people think of e-commerce as electronic shopping over the WWW or Business to Consumer e-commerce (B 2 C - transactions in hundreds of millions of dollars) – However, Business to Business e-commerce (B 2 B) transactions are valued in trillions of dollars! Copyright 2007 John Wiley & Sons, Inc.
Types of E-Commerce Transactions Transaction Description Example Web sites Business-toconsumer (B 2 C) www. landsend. com, www. overstock. com, www. amazon. com Business-to-business (B 2 B) www. manheim. com, www. boeing. com Business-togovernment (B 2 G) www. irs. gov, www. fedbizopps. gov, App. mt. gov/bustax Consumer-togovernment (B 2 G) www. irs. gov/individuals, express. hsmv. state. fl. us Consumer-toconsumer (C 2 G) www. ebay. com, auctions. yahoo. com Copyright 2007 John Wiley & Sons, Inc.
E-Commerce and Products: Physical and Electronic • Products can be divided into two primary categories: _____and _____. • Physical products include …. • Electronic products …. • E-commerce companies must have ____ - ________ to handle order fulfillment and to handle returns for physical goods, • Companies experienced in order fulfillment and returns have tended to be successful in dealing with physical goods using E-commerce. – Examples Copyright 2007 John Wiley & Sons, Inc.
Types of E-Commerce Transactions and Associated Goods Transaction Example Physical Goods Example Electronic Goods B 2 C B 2 B B 2 G C 2 C Copyright 2007 John Wiley & Sons, Inc.
Purchase of Physical Goods v. Electronic Products Physical Goods Electronic Products
The “E-Commerce Difference” • The use of computer networks, especially the Internet, to carry out transactions between a variety of buyers and sellers is creating a tangible “e-commerce difference” in our economy, especially with regard to – – – • Over 1 billion potential customers around the world in the marketspace due to increasing Internet access. • Universal standards make it work the same way no matter where in the world you might be. Copyright 2007 John Wiley & Sons, Inc.
Impact of E-commerce Technologies on Business Copyright 2007 John Wiley & Sons, Inc.
E-Commerce Differences • Innovative uses of the Internet have produced global competition with sellers being able to reach any potential buyer in the world. • This is true for both the large retailers and for those selling in niche market. • Technology has increased information density—the quality and quantity of information about products and services. • Customers can obtain product guides, reviews, and prices from a myriad of Web sites creating business challenges. • This sort of commerce can be developed when one thinks about products / services / processes / relationships in terms of leveraging information intensity – the extent to which these things are comprised of information (Note: this is the only Salisbury change to this slide). Copyright 2007 John Wiley & Sons, Inc.
Mass Customization and Personalization • One response to information density is to create business value based on a customization-oriented approach to e-commerce. • Two approaches to customization are: mass customization and personalization. • Mass customization - • Personalization • Richness versus Reach Copyright 2007 John Wiley & Sons, Inc. UDMIS. info
E-commerce and Competition • E-commerce is having a dramatic effect on competition between organizations in a number of ways including: – – – Copyright 2007 John Wiley & Sons, Inc.
Business and E-commerce Strategy • E-commerce has changed business strategy. • A strategy is a broad-based formula for how a business is going to compete, what its goals should be, and what plans and policies will be needed to carry out those goals. 1 1 Michael Porter “What is Strategy”, Harvard Business Review, November 1996, pp. 69 -84. Copyright 2007 John Wiley & Sons, Inc.
E-commerce Strategy • An e-commerce strategy is a … • • To build an e-commerce strategy requires two view of an organization’s strategy: what is wants to do (conceptual) and how it will do it (technology strategy). • One strategy being used by many companies is customer relationship management which enables them to create to one-toone marketing experience for their customers. • Other e-commerce strategies include virtual showrooms, increased channel choices, wider component choice, and use of mobile technology. • Mobile commerce is … Copyright 2007 John Wiley & Sons, Inc.
Benefits and Limitations of B 2 C E-commerce for Consumers 1 Benefits Limitations • Potential for channel conflict. (NOTE: THIS POINT IS THE ONLY CHANGE ADDED BY SALISBURY TO THIS SLIDE. 1 Some but not all of these were taken from E. Turban, et. al. , Electronic Commerce: A Managerial Prospective 2002, Prentice-Hall: Upper Saddle River, NJ, pp. 26 -28. Copyright 2007 John Wiley & Sons, Inc. UDMIS. info
Benefits and Limitations of B 2 C E-commerce for Businesses 1 Benefits Limitations Copyright 2007 John Wiley & Sons, Inc.
E-commerce Business Models • A business model defines how a company will meet the needs of its customers while making a profit. • An e-commerce business model is a … • The next three slides list and give examples of ecommerce business models (Source: adapted from Michael Rappa, http: //digitalenterprise. org/models. html. Copyright 2007 John Wiley & Sons, Inc.
E-commerce Business Models (cont. )1 Business Model Description Brokerage Brokers bring buyers and sellers together for a fee. There are many types of brokerage models in all types of e-commerce. Advertising An extension of the traditional media broadcasting model in which ads appear on Web sites. There are many different types of advertising, but all depend on a large volume of viewer traffic. Merchant Sell products, both physical and electronic, to consumers Commonly referred to as e -tailers, merchants can use pure e-commerce or a combination (click and mortar). 1 Adapted Examples from Micheal Rappa, http: //digitalenterprise. org/models. html. Copyright 2007 John Wiley & Sons, Inc. Comments
E-commerce Business Models (cont. )1 Business Model Description Manufacturer Direct Make and sell products directly to customer Products can be purchased (PCs), leased (servers), or licensed (software). Affiliate Web sites are paid a fee when purchases come through them. Can also include banner ad exchange between affiliated sites as well as revenuesharing. Community Based on user loyalty because of high investment of time and emotion. Revenue is generated through sale of ancillary products or voluntary contributions 1 Adapted Examples from Micheal Rappa, http: //digitalenterprise. org/models. html. Copyright 2007 John Wiley & Sons, Inc. Comments
E-commerce Business Models (cont. )1 Business Model Description Subscription Users are charged fee to subscribe to service or information source Subscription may be for premium services; advertising model may be combined with this model Infomediary Provides data on consumers and consumption habits Usually aimed at helping businesses rather than consumers Coopetitive Enable competitors to cooperate on a Web site Usually aimed at individuals or small businesses that cannot attract customers to their own Web site. 1 Adapted Examples from Micheal Rappa, http: //digitalenterprise. org/models. html. Copyright 2007 John Wiley & Sons, Inc. Comments
E-commerce Web site Purpose • The purpose of an e-commerce website is another way to understand businesses’ e-commerce business models. • No matter how good the business model, it will not generate a profit if not associated with a Web site that brings in customers or at least visitors. • There are eight commonly accepted types of Web sites: portal, search engine, Browse or search and buy, sales support, information service, auction, travel, and special interest or services. • A number of these match up with multiple business models. Copyright 2007 John Wiley & Sons, Inc.
Web Sites Classified By Purpose Web Site Type Purpose Example Portal A gateway to many other Web sites Advertising, Affiliate Search Engine Finds Web sites that contain a word or phrase Advertising, Affiliate, Infomediary Browse or search and buy Sell goods and services Merchant, Infomediary, Manufacturer Direct, Coopetitive Sales Support To provide information on a product before or after the sale Community, Infomediary Copyright 2007 John Wiley & Sons, Inc. Business Model
Web Sites Classified By Purpose (Cont. ) Web Site Type Purpose Example Information Service To provide news, information, commentary, and so on. Subscription, Community, Affiliate Auction Facilitate sales between third parties Brokerage Travel Sell travel tickets and tours Merchant, Brokerage, Coopetitive Special Interest Provide information, or Services product sales and support, and contacts between visitors Copyright 2007 John Wiley & Sons, Inc. Business Model Community, Merchant, Affiliate, Infomediary, Advertising
B 2 B e-commerce: E-Commerce Between Organizations • Doing business with other organizations (B 2 B) is by far larger than with consumers (B 2 C). • It is also quite different in terms of the scope of the purchases and the complexity involved in them— especially in the decision making required to make a purchase. • For example, while you buy one PC, a company may buy thousands. • What are Interorganizational systems (IOS)? Copyright 2007 John Wiley & Sons, Inc.
Comparing B 2 C to B 2 B Process Individual Business Organization Decision to purchase Made based on own needs Made based on the organization’s needs which are a combination of many different departmental and individual needs Decision where to buy Made after own research into market Made through a systematic process that involves considering what each vendor can provide the organization in terms of setup, networking, and so on. Number of Items One Many Actual Purchase Buy computer online or in person with personal credit card Buy computers only after significant negotiations over price and terms with vendor Payment Pay credit card bill with personal check Pay by company check only after assuring that all computers have been delivered and setup by vendor Copyright 2007 John Wiley & Sons, Inc.
B 2 B Transactions • B 2 B transactions can be divided into two types: spot buying and strategic sourcing. • What is spot buying? • Companies often use spot buying to purchase commodities, i. e. , uniform in quality differing only in price like gasoline, paper, and cleaning supplies. • What is strategic sourcing? • A company’s large-scale computer purchases often result from strategic sourcing. Copyright 2007 John Wiley & Sons, Inc.
B 2 B Business Models • Strategic sourcing is often carried out through a one-to-one business model, but company-centric and exchange models are also used. • In the one-to-one business model … • In the company-centric business model … • The single company dominates the market and controls the information systems that supports the transactions. Electronic data interchange (EDI) or an extranet is often used to link trading partners. • E-procurement is often the name for B 2 B e-commerce in the many-to-one business model. Copyright 2007 John Wiley & Sons, Inc.
Company Centric Business Model Copyright 2007 John Wiley & Sons, Inc.
Exchange Model • In the exchange business model, many companies use an exchange to buy and sell from each other through spot-buying transactions. Copyright 2007 John Wiley & Sons, Inc.
Types of Exchanges • Exchanges can be cooperative ventures among the companies or it can be run by a larger company that profits from the transactions. • What is a vertical exchange? • What is an horizontal exchange? • From an e-commerce point-of-view, exchanges are often Web sites that buyers and sellers post their needs and offerings. Copyright 2007 John Wiley & Sons, Inc.
Services in B 2 B E-Commerce Just as services are an important part of B 2 C e-commerce, they are also an important part of B 2 B e-commerce. Service or Electronic Product Comments Software Leasing Travel Copyright 2007 John Wiley & Sons, Inc.
Services in B 2 B E-Commerce (cont. ) Service or Electronic Product Comments Insurance Banking Stock trading Financing Copyright 2007 John Wiley & Sons, Inc.
Using B 2 B e-commerce and IOS to Improve Supply Chain Efficiency • What is a supply chain? 1 • Procurement is a big part of the supply chain and using e-commerce for e-procurement has resulted in money savings. • To see why, we first need to understand the traditional procurement process. 1 “An Introduction to Supply Chain Management”, Ram Ganeshan Terry P. Harrison, http: //lcm. csa. iisc. ernet. in/scm/supply_chain_intro. html Copyright 2007 John Wiley & Sons, Inc.
Traditional Procurement Process In the traditional procurement process, there are five steps involving three elements—purchase order, invoice, and receipt of goods: 1. Purchase order (PO) to vendor 2. Goods to buyer along with bill of lading (BOL) 3. Upon receipt of goods and BOL, signed copy of BOL returned to vendor and receipt of goods is filed 4. Vendor sends invoice to buyer 5. Buyer’s accounting department compares PO to receipt of goods and invoice. If there is a match, buyer pays the vendor. Copyright 2007 John Wiley & Sons, Inc.
Traditional Procurement Process Copyright 2007 John Wiley & Sons, Inc.
Interorganizational Systems (IOS) • An interorganizational system (IOS) is a networked information system used by two or more separate organizations to perform a joint business function. 1 • Electronic Data Interchange (EDI) • Extranets 1 Cash, J. I. Jr. , F. W. Mc. Farlan, J. L. Mc. Kenney, and L. M. Applegate. 1994. Corporate information systems management: text and cases. 4 th ed. Homewood, IL: Irwin, p. 339. Copyright 2007 John Wiley & Sons, Inc.
Using E-commerce to Improve the Procurement Process • What is Electronic Data Interchange (EDI)? • Even though often overshadowed by newer technology, EDI remains the engine behind the majority of e-commerce transactions worldwide. It is, however, too expensive for most small businesses. • What are extranets? • An extranet can be thought of as two connected intranets. Copyright 2007 John Wiley & Sons, Inc.
Extranets Copyright 2007 John Wiley & Sons, Inc.
Comparing EDI and Extranets EDI Security Cost Flexibility Trend Copyright 2007 John Wiley & Sons, Inc. Extranet