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									    Electronic Commerce
        Ninth Edition



           Chapter 12
Planning for Electronic Commerce
                        Learning Objectives

In this chapter, you will learn about:
• Planning electronic commerce initiatives
• Strategies for developing electronic commerce Web
   sites
• Managing electronic commerce implementations




Electronic Commerce, Ninth Edition                    2
      Identifying Benefits and Estimating
        Costs of Electronic Commerce
                   Initiatives
• Information technology projects
     – Keys to successful implementation
           • Planning and execution
• Successful electronic commerce initiative business
  plan activities
     – Identifying initiative’s specific objectives
     – Linking objectives to business strategies
• Setting electronic commerce initiative objectives
     – Consider strategic role of project, intended scope,
       resources available

Electronic Commerce, Ninth Edition                           3
                      Identifying Objectives

• Typical business electronic commerce objectives
     –   Increasing existing market’s sales
     –   Opening new markets
     –   Serving existing customers better
     –   Identifying new vendors
     –   Coordinating more efficiently with existing vendors
     –   Recruiting employees more effectively
• Objectives vary with organization size
• Compare e-commerce risk to inaction risk

Electronic Commerce, Ninth Edition                             4
           Linking Objectives to Business
                     Strategies
• Downstream strategies
     – Tactics to improve the value businesses provide to
       customers
• Upstream strategies
     – Focus on reducing costs or generating value
• Web use for businesses
     – Attractive sales channel for many firms
     – Complement business strategies, improve
       competitive positions


Electronic Commerce, Ninth Edition                          5
           Linking Objectives to Business
                 Strategies (cont’d.)
• Electronic commerce activities difficult to measure
• First-wave e-commerce activities
     – Existed without setting specific, measurable goals
     – Plenty of investors for highly speculative activities
     – Successes and failures measured in broad strokes
• Second-wave e-commerce activities
     – Businesses take closer look at benefits and costs
     – Good implementation plan
           • Sets specific objectives for benefits achieved and costs
             incurred

Electronic Commerce, Ninth Edition                                  6
      Identifying and Measuring Benefits

• Some electronic commerce initiatives
     – Obvious, tangible, easy to measure
     – Example: increased sales or reduced costs
• Other electronic commerce initiatives
     – More difficult to measure
     – Example: increased customer satisfaction
• Identifying objectives
     – Set measurable objectives
           • Include intangible benefits


Electronic Commerce, Ninth Edition                 7
      Identifying and Measuring Benefits
                    (cont’d.)
• Using Web sites to build brands or enhance existing
  marketing programs
     – Set goals in terms of increased brand awareness
           • Measured by market research surveys, opinion polls
• Companies selling goods or services online
     – Measure sales volume in units or dollars
• Complicated to measure brand awareness or sales
     – Increase due to other things company doing
     – Increase due to time or general improvement in the
       economy

Electronic Commerce, Ninth Edition                                8
      Identifying and Measuring Benefits
                    (cont’d.)
• Using Web sites to improve customer service or
  after-sale support
     – Set goals of increased customer satisfaction
     – Reduce customer service or support costs
     – Example: Philips Lighting
           •   Provided Web ordering system for smaller customers
           •   Primary goal: reduce cost of processing smaller orders
           •   Built pilot Web site and had smaller customers try it
           •   Results: customer service phone calls from test group
               dropped by 80 percent

Electronic Commerce, Ninth Edition                                      9
      Identifying and Measuring Benefits
                    (cont’d.)
• Measurements of other electronic commerce
  initiatives
     – Supply chain managers
           • Measure supply cost reductions, quality improvements,
             faster deliveries of ordered goods
     – Auction sites
           • Set goals for number of auctions, number of bidders
             and sellers, dollar volume of items sold, number of
             items sold, number of registered participants




Electronic Commerce, Ninth Edition                                 10
      Identifying and Measuring Benefits
                    (cont’d.)
• Measurements of other electronic commerce
  initiatives (cont’d.)
     – Virtual communities and Web portals
           • Measure number of visitors, quality of visitors’
             experiences
• Metrics
     – Measurements companies make to assess value of
       benefits
           • Use online surveys
           • Use estimates: length of time each visitor remains on
             site, how often visitors return
Electronic Commerce, Ninth Edition                                   11
     FIGURE 12-1 Measuring the benefits of electronic commerce initiatives


Electronic Commerce, Ninth Edition                                           12
      Identifying and Measuring Benefits
                    (cont’d.)
• Benefit unit of measure
     – Convert raw activity measurements to dollars
           • Can compare benefits to costs
           • Can compare net benefit of a particular initiative to net
             benefits provided by other projects
     – Difficult to measure value in dollars




Electronic Commerce, Ninth Edition                                       13
         Identifying and Estimating Costs

• Information technology project costs
     – Difficult to estimate and control
• Web development
     – Uses rapidly changing hardware and software
       technologies
           • Hardware costs are downward
     – Increasing software sophistications
           • Provides ever-increasing demand for more newer,
             cheaper hardware
           • Yields net increase in overall hardware costs

Electronic Commerce, Ninth Edition                             14
         Identifying and Estimating Costs
                      (cont’d.)
• Total cost of ownership (TCO)
   – Includes all costs related to activity
• Electronic commerce implementation TCO includes:
     – Hardware costs, software costs, outsourced design
       work, employee salaries and benefits, site
       maintenance
• Good TCO number
     – Includes assumptions about how often site would
       need to be redesigned in the future


Electronic Commerce, Ninth Edition                         15
         Identifying and Estimating Costs
                      (cont’d.)
• Opportunity cost
  – Cost of not undertaking an initiative
  – Largest and most significant costs associated with
    electronic commerce initiative
  – Foregone benefits that company could have obtained
    from electronic commerce initiative not pursued




Electronic Commerce, Ninth Edition                   16
         Identifying and Estimating Costs
                      (cont’d.)
• Web site costs
     – Total dollar amounts required to create and operate a
       Web site
           • Varied over the years
     – Relative proportion of costs remained stable
           • 10 percent: computer hardware
           • 10 percent: software
           • 80 percent: labor
     – Annual cost of operating an online business Web site
           • Remained stable
           • Ranges between 50 and 200 percent of site initial cost

Electronic Commerce, Ninth Edition                                17
         Identifying and Estimating Costs
                      (cont’d.)
• Web site costs (cont’d.)
     – Small online store
           • Placed into operations for less than $5000
     – Small to midsize online business operation
           • With full transaction and payment processing
             capabilities
           • Initial investment: between $50,000 and $1 million
           • Average $80,000




Electronic Commerce, Ninth Edition                                18
               FIGURE 12-2 Estimated costs for business Web sites


Electronic Commerce, Ninth Edition                                  19
         Identifying and Estimating Costs
                      (cont’d.)
• Web site costs (cont’d.)
     – Costs generally heading downward
           • Due to lower costs for broadband access and computer
             hardware
     – Comparison of Netscape with more recent startup
       companies
           • Netscape (early 1990s): more than $40 million
           • Digg (2004): less than $500,000
     – Important element of annual Web site operating cost
           • Choice of Web hosting service provider


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               FIGURE 12-3 Important Web hosting service features

Electronic Commerce, Ninth Edition                                  21
      Funding Online Business Startups

• Early Web businesses
     – Started by individuals with knowledge of computers,
       technology, business
• Late 1990s Web businesses
     – Started by investors wanting to make fast money
• Angel investors funded initial startup
     – Became stockholders hoping business grows rapidly
     – Sell interest to venture capitalist



Electronic Commerce, Ninth Edition                           22
      Funding Online Business Startups
                  (cont’d.)
• Venture capitalists
     – Very wealthy individuals, investment firms
     – Look for small companies about to grow rapidly
     – Hope for rapid growth and initial public offering
• Initial public offering (IPO)
     – Selling stock to public




Electronic Commerce, Ninth Edition                         23
      Funding Online Business Startups
                  (cont’d.)
• System of financing startup and initial growth of
  online businesses
     – Benefits
           • Access to large amounts of capital early
     – Costs
           • Investors, capitalists got most profits, pressure to grow
             rapidly




Electronic Commerce, Ninth Edition                                   24
      Funding Online Business Startups
                  (cont’d.)
• Decrease need for venture capitalists and angel
  investors by:
     – Relieving pressure to grow rapidly
     – Becoming more creative
     – Learning from mistakes
• Trending toward more and smaller online ventures
     – Online business creation costs falling




Electronic Commerce, Ninth Edition                   25
             Comparing Benefits to Costs

• Capital projects (capital investments)
     – Major investments in equipment, personnel, other
       assets
     – Techniques to evaluate proposed capital projects
           • Range from simple calculations to complex computer
             simulation models
           • Reduce to comparison of benefits and costs




Electronic Commerce, Ninth Edition                                26
  Comparing Benefits to Costs (cont’d.)

• Key parts of creating electronic commerce initiatives
  business plan
     – Identify potential benefits
     – Identify costs required to generate benefits
     – Evaluate whether benefits exceed costs




Electronic Commerce, Ninth Edition                    27
           FIGURE 12-4 Cost/benefit evaluation of electronic commerce
           strategy elements




Electronic Commerce, Ninth Edition                                      28
              Return on Investment (ROI)

• Return on investment (ROI) techniques
     – Measures amount of income (return) provided by
       specific current expenditure (investment)
     – Examples:
           • Payback method, net present value method, internal
             rate of return
     – Provides quantitative expression of comfortable
       benefit-to-cost margin
     – Mathematically adjusts for future reduced value of
       benefits

Electronic Commerce, Ninth Edition                                29
   Return on Investment (ROI) (cont’d.)

• Electronic commerce initiatives
     – Seen as absolutely necessary investments
     – Not always subjected to close examination, rigid
       requirements
     – Companies fear being left behind
• Perceived value in new market early positioning
  allows:
     – Many companies to invest large amounts of money
           • With few near-term profit prospects
     – Example: first wave of newspaper Web sites

Electronic Commerce, Ninth Edition                        30
   Return on Investment (ROI) (cont’d.)

• Electronic commerce second wave of Web-related
  expenditures
     – Being reviewed for ROI
• ROI built-in biases
     – ROI requires all costs, benefits be stated in dollars
           • Gives undue weight to costs
     – ROI focuses on predicted benefits
           • Initiatives have returned benefits not foreseen




Electronic Commerce, Ninth Edition                             31
   Return on Investment (ROI) (cont’d.)

• ROI built-in biases (cont’d.)
     – ROI tends to emphasize short-run benefits over long-
       run benefits
     – More information
           • CIO Budget site
           • ROI Knowledge Center Web pages




Electronic Commerce, Ninth Edition                        32
    Strategies for Developing Electronic
           Commerce Web Sites




                     FIGURE 12-5 Evolution of Web site functions

Electronic Commerce, Ninth Edition                                 33
    Strategies for Developing Electronic
       Commerce Web Sites (cont’d.)
• Transformation occurred rapidly
     – Web site development and management: slower
• Today: Web site seen as collections of software
  applications
     – Companies using tools to manage site




Electronic Commerce, Ninth Edition                   34
  Internal Development vs. Outsourcing

• Initiative’s success dependency
     – How well initiative integrates into and supports
       business activities
• Internal people leading projects ensures:
     – Company’s specific needs are addressed
     – Initiative congruent with organization goals, culture
• Outside consultants
     – Seldom able to learn enough about organization’s
       culture to accomplish objectives


Electronic Commerce, Ninth Edition                             35
  Internal Development vs. Outsourcing
                 (cont’d.)
• Few companies launch an electronic commerce
  project without some external help
• Key to success
     – Finding balance between outside and inside support
• Outsourcing
     – Hiring another company to provide outside support for
       all or part of project




Electronic Commerce, Ninth Edition                          36
  Internal Development vs. Outsourcing
                 (cont’d.)
• The internal team
     – First step in outsourcing decision making
           • Create internal team
     – Team members
           • People knowledgeable about the Internet and its
             technologies
           • Creative thinkers
           • Distinguished within the company




Electronic Commerce, Ninth Edition                             37
  Internal Development vs. Outsourcing
                 (cont’d.)
• The internal team (cont’d.)
     – Project lead
           • Mistake: technical wizard, not business knowledgeable,
             not well known
           • Better choice: person with business knowledge,
             creativity, respect of firm’s operating function
             managers, good sense of goals and culture
     – Measuring team achievement: important
           • Not necessarily monetarily
           • Express in terms appropriate to initiative objectives


Electronic Commerce, Ninth Edition                                   38
  Internal Development vs. Outsourcing
                 (cont’d.)
• The internal team (cont’d.)
     – Intellectual capital
           • Employees’ knowledge about the business and its
             processes
           • Ignored in the past
           • Value recognized today
     – Human capital measures
           • Include employee competencies
           • Include value of customer loyalty and business
             partnerships


Electronic Commerce, Ninth Edition                             39
  Internal Development vs. Outsourcing
                 (cont’d.)
• The internal team (cont’d.)
     – Responsible for initiative
           • From setting objectives to final implementation
     – Internal team decides:
           • Project parts to outsource
           • Outsourcer
           • Consultants or partners needed




Electronic Commerce, Ninth Edition                             40
  Internal Development vs. Outsourcing
                 (cont’d.)
• Early outsourcing
     – Company outsources initial site design and
       development to launch project quickly
     – Outsourcing team trains company’s information
       systems professionals before handing site operation
       to them
     – Company’s own information systems people work
       closely with outsourcing team
           • Develop ideas for improvements as early as possible in
             project life


Electronic Commerce, Ninth Edition                               41
  Internal Development vs. Outsourcing
                 (cont’d.)
• Late outsourcing
     – More traditional approach
• Company’s information systems professionals
     – Perform initial design and development work,
       implement system, and operate system until stable
       part of business operation
• Once competitive advantage gained
     – Electronic commerce system maintenance
       outsourced
     – Company’s information systems professionals turn
       attention and talents to developing new technologies,
       providing further competitive advantage
Electronic Commerce, Ninth Edition                         42
  Internal Development vs. Outsourcing
                 (cont’d.)
• Partial outsourcing
     – Also called component outsourcing
     – Company identifies specific project portions
     – Can be completely designed, developed,
       implemented, and operated by another firm
       specializing in a particular function
• Examples
     – Smaller Web sites outsource e-mail handling and
       response functions
     – Electronic payment system

Electronic Commerce, Ninth Edition                       43
  Internal Development vs. Outsourcing
                 (cont’d.)
• Partial outsourcing examples (cont’d.)
     – Web hosting activity
           • Service providers usually willing to accommodate
             requests for variety of service levels
           • Service provider has continuous staffing and expertise
           • 24/7 operation: running 24 hours a day, seven days a
             week
           • Service providers offer wide range of services
           • Some service providers specialize



Electronic Commerce, Ninth Edition                                44
 New Methods for Implementing Partial
           Outsourcing
• New ways of implementing partial outsourcing
  strategy evolved specifically for Web businesses
• Incubator
     – Offers start-up companies physical location with
       offices, accounting and legal assistance, computers,
       Internet connections
     – Very low monthly cost
     – May offer seed money, management advice,
       marketing assistance
     – Receives ownership interest in company

Electronic Commerce, Ninth Edition                            45
 New Methods for Implementing Partial
        Outsourcing (cont’d.)
• Incubators (cont’d.)
     – Incubator sells all or part of its interest
           • Company grows to obtain venture capital financing,
             launch stock public offering
     – First Internet incubators: Idealab
           • Helped CarsDirect.com, Overture, Tickets.com
           • Today’s focus: own internally generated ideas




Electronic Commerce, Ninth Edition                                46
 New Methods for Implementing Partial
        Outsourcing (cont’d.)
• Incubators (cont’d.)
     – Company created internal incubators
           • Develop technologies for use in main business
             operations
           • 1980s programs: unsuccessful and shut down
     – Matsushita Electric’s U.S. Panasonic division
           • Started internal incubators to help launch new
             companies to become important strategic partners
           • Individual management teams retained
                – More successful


Electronic Commerce, Ninth Edition                              47
 New Methods for Implementing Partial
        Outsourcing (cont’d.)
• Fast venturing
     – Existing company wants to launch electronic
       commerce initiative
           • Joins external equity partners and operational partners
             offering experience, skills needed
     – Equity partners: usually banks, venture capitalists
           • Equity partners sometimes offer money
           • Equity partners more likely to offer experience




Electronic Commerce, Ninth Edition                                 48
 New Methods for Implementing Partial
        Outsourcing (cont’d.)
• Fast venturing (cont’d.)
     – Operational partners: firms
           • Systems integrators, consultants, Web portals
           • Experienced in moving projects along, scaling up
             prototypes




Electronic Commerce, Ninth Edition                              49
                        FIGURE 12-6 Elements of fast venturing




Electronic Commerce, Ninth Edition                               50
         Managing Electronic Commerce
               Implementations
• Best way to manage complex electronic commerce
  implementation
     – Use formal management techniques
           •   Project management
           •   Project portfolio management
           •   Specific staffing
           •   Postimplementation audits




Electronic Commerce, Ninth Edition                 51
                       Project Management

• Project management
     – Collection of formal techniques for planning and
       controlling activities undertaken to achieve specific
       goal
     – Developed by U.S. military, defense contractors
     – Project plan criteria
           • Cost, schedule, performance
     – Helps management make trade-off decisions
       involving the three criteria



Electronic Commerce, Ninth Edition                             52
            Project Management (cont’d.)

• Project management software
     – Specific application software to help project managers
       oversee projects
     – Examples:
           • Primavera P6, Microsoft Project
           • Open Workbench: open-source project management
             software package offering many of the same features
             as the leading commercial products
     – Helps team manage tasks assigned to consultants,
       technology partners, outsourced service providers


Electronic Commerce, Ninth Edition                                 53
            Project Management (cont’d.)

• Examining costs and completion times
     – Learn about project progression
     – Revise future estimated costs, completion times
• Risks of information systems’ development projects
     – Running out of control, ultimately failing
     – Causes: rapidly changing technologies, long
       development times, changing customer expectations
• Teams rely on project management software
     – Helps achieve project goals


Electronic Commerce, Ninth Edition                         54
            Project Management (cont’d.)

• Electronic commerce uses rapidly changing
  technologies
     – Relatively short development times
           • Technology, user expectations have less time to
             change
           • Initiatives more successful (in general)
• More information
     – Project Management Institute




Electronic Commerce, Ninth Edition                             55
            Project Portfolio Management

• Project portfolio management
     – Technique whereby project is monitored like an
       investment in a financial portfolio
           • Allows tradeoffs between cost, schedule, and quality
             across projects as well as within individual projects
           • Provides more flexibility in allocating resources to
             achieve the best set of benefits from all projects in the
             most timely manner
• Project management software
     – Designed to handle individual projects
     – Not suited for consolidating activities
Electronic Commerce, Ninth Edition                                       56
 Project Portfolio Management (cont’d.)

• CIO assigns ranking for each project based on:
     – Its importance to the strategic goals of the business
     – Its level of risk (probability of failure)
• CIO uses any methods financial managers use to
  evaluate risk of making investments in business
  assets




Electronic Commerce, Ninth Edition                             57
        Staffing for Electronic Commerce

• Chief information officer (CIO)
     – Organization’s top technology manager
     – Responsibilities
           • Overseeing all information systems and related
             technological elements required to undertake and
             operate online business activities
• Business manager
     – Member of internal team setting project objectives
     – Responsible for implementing business plan
       elements, reaching objectives set by internal team

Electronic Commerce, Ninth Edition                              58
        Staffing for Electronic Commerce
                      (cont’d.)
• Project manager
     – Person with specific training, skills in tracking costs
       and accomplishment of specific project objectives
• Project portfolio manager
     – Usually promoted from the ranks of the project
       managers
     – Responsible for tracking all ongoing projects and
       managing them as a portfolio
• Account manager
     – Keeps track of multiple Web sites in use or keeps
       track of projects combining into larger Web site

Electronic Commerce, Ninth Edition                               59
        Staffing for Electronic Commerce
                      (cont’d.)
• Applications specialists
     – Maintain accounting, human resources, logistics
       software
• Web programmers
     – Design and write underlying code for dynamic
       database-driven Web pages
• Web graphics designer
     – Trained in art, layout, composition
     – Understands how Web pages are constructed


Electronic Commerce, Ninth Edition                       60
        Staffing for Electronic Commerce
                      (cont’d.)
• Content creators
     – Write original content
• Content managers or content editors
     – Purchase existing material and adapt it for use on the
       site
• Social networking administrator
     – Responsible for managing virtual community
       elements of the Web operation



Electronic Commerce, Ninth Edition                          61
        Staffing for Electronic Commerce
                      (cont’d.)
• Online marketing manager
     – Specializes in specific techniques used to build
       brands and increase market share
           • Uses Web site and other online tools: e-mail marketing
• Customer service personnel
     – Design and implement customer relationship
       management activities in electronic commerce
       operation




Electronic Commerce, Ninth Edition                                62
        Staffing for Electronic Commerce
                      (cont’d.)
• Call center
     – Company handling incoming customer telephone
       calls, e-mails for other companies
     – Makes sense for smaller companies
• Systems administrator
     – Responsible for system’s reliable, secure operation




Electronic Commerce, Ninth Edition                           63
        Staffing for Electronic Commerce
                      (cont’d.)
• Network operations staff functions include:
     – Load estimation and load monitoring
     – Resolving network problems as they arise
     – Designing and implementing fault-resistant
       technologies
     – Managing any network operations outsourced to
       service providers or telephone companies




Electronic Commerce, Ninth Edition                     64
        Staffing for Electronic Commerce
                      (cont’d.)
• Database administration function support activities
  include:
     – Transaction processing, order entry, inquiry
       management, shipment logistics
     – Activity requirements:
           • Existing database into which site being integrated
           • Separate database established for electronic
             commerce initiative




Electronic Commerce, Ninth Edition                                65
               Postimplementation Audits
• Postimplementation audit (postaudit review)
     – Formal review of project
           • After up and running
• Examine project items established in planning stage
     – Compare to what actually happened
           • Objectives, performance specifications, cost estimates,
             scheduled delivery dates
• Blame identification approach
     – Used more in the past
     – Focused on identifying individuals to blame for cost
       overruns, missed delivery dates

Electronic Commerce, Ninth Edition                                 66
     Postimplementation Audits (cont’d.)

• Feedback on strategies used more today
     – Obtains valuable information
           • Useful in planning future projects
           • Gives participants meaningful learning experience
• Comprehensive audit report
     – Analyzes project’s overall performance
           • How well project administered
           • Appropriate project organizational structure in place
           • Specific project team(s) performance
     – Should compare actual results to objectives

Electronic Commerce, Ninth Edition                                   67
                      Change Management

• Information system projects involve change
• Employee concerns
     – Ability to cope with changes, ability to continue to do
       good work, job security
• Concerns lead to increased stress
• Change management
     – Process of helping employees cope with changes
           • Includes tactics designed to help employees feel
             involved with change
           • Helps employees overcome feelings of powerlessness

Electronic Commerce, Ninth Edition                               68
                                     Summary

• Key elements of e-commerce business plans
     – Setting objectives in measurable terms
           • Derived from initiative’s overall goals
           • Include planned benefits and planned costs
     – Evaluate cost-benefit
           • ROI evaluation technique
     – Determine outsourcing strategy, staffing
     – Project management
           • Postimplementation audit
           • Managing change

Electronic Commerce, Ninth Edition                        69

								
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