electronic commerce tenth edition chapter 12 planning for electronic commerce

Electronic CommerceTenth Edition

Chapter 12Planning for Electronic Commerce

Electronic Commerce, Tenth Edition 22

Learning Objectives

In this chapter, you will learn:• How to identify benefits and estimate costs of

electronic commerce initiatives• How online business startups are evaluated and

financed• When and how to outsource online business

initiative development• How to manage and staff electronic commerce

implementations


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


Identifying Objectives

• Typical business electronic commerce objectives– Increasing existing markets’ 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

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 working with suppliers or inbound providers

• Web use for businesses– Attractive sales channel for many firms– Complement business strategies, improve competitive

positions



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 took closer look at benefits and costs– Good implementation plan

• Sets specific objectives for benefits achieved and costs incurred

Linking Objectives to Business Strategies (cont’d.)

• Third-wave e-commerce activities– Impacted by smart phones’ and tablet devices’

pervasiveness• Web access in many more locations• Changed nature of online communication

– Technology benefits more easily acquired• Example: Social media tools

– Smaller businesses’ electronic commerce activities increase anticipated



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

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




• 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


• 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



• 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

site visitor activity benefits• Online surveys• Estimates: length of time each visitor remains on site,

how often visitors return



FIGURE 12-1 Measuring the benefits of electronic commerce initiatives


• Benefit unit of measure– Convert raw activity measurements to dollars

• Compare benefits to costs• Compare net benefit of a particular initiative to net

benefits provided by other projects– Difficult to measure value in dollars

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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


Identifying and Estimating Costs (cont’d.)

• Software costs often underestimated• Web technology’s rapid changes add to project

planning difficulty



• 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



• 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– Examples: customers never obtained; sales not

made; suppliers not identified; and cost reductions not achieved in company’s supply chain



• 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




– 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


FIGURE 12-2 Estimated costs for business Web sites

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• Web site costs (cont’d.)– Costs generally heading downward

• Due to lower costs for broadband access and computer hardware

• Development and maintenance costs decreasing– 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



FIGURE 12-3 Important Web hosting service features


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

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



• System of financing startup and initial growth of online businesses– Benefits

• Access to large amounts of capital early– Costs

• Investors• Most profits go to venture capitalists and angel

investors• Pressure to grow rapidly



• 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



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


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


FIGURE 12-4 Cost/benefit evaluation of electronic commerce strategy elements

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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, and internal rate of return

– Provides quantitative expression of comfortable benefit-to-cost margin

– Mathematically adjusts for future reduced value of benefits


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 second wave of Web-related expenditures– Being reviewed for ROI

• ROI built-in biases– ROI requires that all costs and benefits be stated in

dollars• Gives undue weight to costs

– ROI focuses on predicted benefits• Initiatives have returned benefits not foreseen




– ROI tends to emphasize short-run benefits over long-run benefits

– More information• CIO Budget site• ROI Knowledge Center Web pages

• Third wave electronic commerce– Highly sophisticated analyses of planned online

business activities

Strategies for Developing Electronic Commerce Web Sites


FIGURE 12-5 Evolution of Web site functions

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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

• Companies faced with challenges– Creating new markets through Web sites– Reconfiguring supply chains



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

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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



• The internal team– First step in outsourcing decision-making

• Create internal team– Team members

• People knowledgeable about Internet and its technologies

• Creative thinkers• Distinguished within the company




– Project lead• Mistake: technical wizard; not knowledgeable about

business; 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 monetary• Express in terms appropriate to initiative objectives



– 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



– Responsible for initiative • From setting objectives to final implementation

– Internal team decides:• Project parts to outsource• Outsourcer• Consultants or partners needed



• 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 as early as possible in project life

• Late outsourcing– More traditional approach


• Company’s information systems professionals– Perform initial design and development, implement

system, and operate system until stable – 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 initiatives– Lend themselves more to early outsourcing




• Partial outsourcing (component outsourcing)– Company identifies specific project portions

• Portion can be completely designed, developed, implemented, and operated by another firm

• Examples– Smaller Web sites outsource e-mail handling and

response functions– Electronic payment system



– 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

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, and Internet connections

– Very low monthly cost– May offer seed money, management advice, and

marketing assistance – Receives ownership interest in company


New Methods for Implementing Partial Outsourcing (cont’d.)

– Incubator sells all or part of its interest• Company grows to obtain venture capital financing,

launch stock public offering– Early Internet incubator: Idealab

• Helped CarsDirect.com, Overture, Tickets.com• Today’s focus: internally generated ideas



– Company-created internal incubators• Develop technologies for use in main business

operations• Unsuccessful and shut down

– Matsushita Electric’s U.S. Panasonic division• Started internal incubators to help launch new

companies to become strategic partners• Incubator development team become managers of new

company– Strategic partner incubators: more successful



• 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 or venture capitalists

• Equity partners sometimes offer money• Equity partners more likely to offer experience



– Operational partners: firms• Systems integrators, consultants• Experienced in moving projects along, scaling up

prototypes



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


Project Management

• Project management– Collection of formal techniques for planning and

controlling activities undertaken to achieve specific goal

– Developed by U.S. military and defense contractors– Project plan criteria

• Cost, schedule, and performance– Helps management make trade-off decisions

involving the three criteria

Project Management (cont’d.)

• Project management software– Specific application software to help project managers

oversee projects• Internal team personnel and tasks

– Examples:• Oracle Primavera, Microsoft Project• Open Workbench, OpenProj, Redmine: open-source

project management software packages with many of the same features as the leading commercial products

– Also helps manage tasks assigned to consultants, technology partners, and outsourced service providers



• Examining costs and completion times– Learn about project progression– Revise future estimated costs and completion times

• Risks of information systems’ development projects – Running out of control, ultimately failing– Causes: rapidly changing technologies, long

development times, and changing customer expectations

• Teams rely on project management software– Helps achieve project goals




• Electronic commerce uses rapidly changing technologies– Relatively short development times

• Technology and user expectations have less time to change

• Initiatives more successful (in general)

• For more information– Project Management Institute

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Project Portfolio Management

• Used by chief information officer (CIO)– Top technology manager

• Project portfolio management– Technique whereby CIO monitors project 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


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Project Portfolio Management (cont’d.)

• Project management software– Designed to handle individual projects – Not suited for consolidating activities

• CIO assigns ranking for each project based on:– Importance to the strategic goals of the business– Level of risk (probability of failure)

• CIO uses any methods financial managers use to evaluate risk of making investments in business assets



Staffing for Electronic Commerce

• Chief information officer (CIO)– 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

and reaching objectives set by internal team

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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




• Applications specialists– Maintain accounting, human resources, logistics

software, electronic commerce site software• Web programmers

– Design and write underlying code for dynamic database-driven Web pages

• Web graphics designer– Trained in art, layout, and composition– Understands how Web pages are constructed

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• 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


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• 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




• 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 and secure

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• 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




• 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

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,

and scheduled delivery dates• Blame identification approach

– Used more in the past– Focused on identifying individuals to blame for cost

overruns and missed delivery dates


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

• Administration of project• Appropriate project organizational structure in place • Specific project team(s) performance

– Should compare actual results to objectives


Change Management

• Information system projects involve change• Employee concerns

– Ability to cope with changes, ability to continue to do good work, and 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


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– Learn from project experiences

• Postimplementation audit


electronic commerce tenth edition chapter 12 planning for electronic commerce

Documents

electronic commerce

measurable objectives

edition22 learning objectives

edition5 slide

edition7 slide

intangible benefits

online business startups

inaction risk slide