1 Overview of Electronic Business Dr CK Farn

1. Overview of Electronic Business Dr. CK Farn Department of Information Management NCU 2004 Dr. CK Farn, NCU 1

Learning Objectives Define electronic commerce (EC) and describe its various categories. Describe and discuss the content and framework of EC. Describe the major types of EC transactions. Describe some EC business models. Dr. CK Farn, NCU 2

Learning Objectives (cont. ) Describe the benefits of EC to organizations, consumers, and society. Describe the limitations of EC. Describe the role of the digital revolution in EC. Describe the contribution of EC to organizations responding to environmental pressures. Dr. CK Farn, NCU 3

Wal-Mart—A New Way to Compete The Problem US-based, discount store Expanded to number one in the world in the 90’s, beat K-Mart Critical success factors Price competitiveness Adequate Efficient IT-based supply chain activities Extremely lean store inventory Dr. CK Farn, NCU 4

Traditional Order Fulfillment Model Price Negotiation Supplier Head Quarter Order Delivery Distribution Center Inventory level still high Out of stock Order Stock keeping Replenish Complicated Wholesale structure Problems Delivery Store W/H Resolve Store Front Dr. CK Farn, NCU 5

Continuous replenishment Price Negotiation Supplier Delivery Order Opportunity HQ Delivery Instructions D. C. Continuous Replenishment POS Sales informatiom 賣場 Dr. CK Farn, NCU IT-enabled visibility Innovative order fulfillment scheme Minimal inventory 6

Wal-Mart Special Issues CRP (continuous replenishment program) helps Wal-Mart links its front-end POS systems with its head quarters, and increased visibility Additional process innovations Cross-docking Collaborative replenishment by suppliers Provide suppliers with necessary information, even aggregate information of their competitors, encourage competition Elimination of inventory and logistic costs Dr. CK Farn, NCU 7

Wal-Mart (cont. ) The Results As of 2002, #1 enterprise in the world Largest employer in 21 states Employed more workers than US defense force 2001 Wal-mart 3, 200 stores/ 1000 supercenter/ gross 21%/ profit-5% (220 Bil sales) K-mart 2, 100 stores/ 750 supercenter/ gross-21% profit-1. 3% (35 Bil sales, 1/6 of Wal-mart) Dr. CK Farn, NCU 8

Wal-Mart (cont. ) What can we learn… IT-enabled visibility improvement Paradigm shift in business model Process innovation counts! Continuous innovation in processes Dr. CK Farn, NCU 9

Electronic Commerce: Definitions and Concepts The Internet has emerged as a major, perhaps eventually the major, worldwide distribution channel for goods, services, managerial and professional jobs This is profoundly changing economics, markets and industry structure, products and services and their flow, consumer segmentation, consumer values, consumer behavior, jobs, and labor markets The impact may be even greater on societies and politics, and on the way we see the world and ourselves in it Dr. CK Farn, NCU 10

Electronic Commerce: Definitions and Concepts (cont. ) E-commerce defined from the following perspectives: Communications: delivery of goods, services, information, or payments over computer networks or any other electronic means Commercial (trading): provides capability of buying and selling products, services, and information on the Internet and via other online services Dr. CK Farn, NCU 11

Electronic Commerce: Definitions and Concepts (cont. ) Business process: doing business electronically by completing business processes over electronic networks, thereby substituting information for physical business processes Service: a tool that addresses the desire of governments, firms, consumers, and management to cut service costs while improving the quality of customer service and increasing the speed of service delivery Dr. CK Farn, NCU 12

Electronic Commerce: Definitions and Concepts (cont. ) Learning: an enabler of online training and education in schools, universities, and other organizations, including businesses Collaborative: the framework for inter- and intraorganizational collaboration Community: provides a gathering place for community members to learn, transact, and collaborate Dr. CK Farn, NCU 13

Electronic Commerce: Definitions and Concepts (cont. ) e-business: a broader definition of EC, which includes: buying and selling of goods and services servicing customers collaborating with business partners conducting electronic transactions within an organization Dr. CK Farn, NCU 14

Exhibit 1. 1: The Dimensions of Electronic Commerce Dr. CK Farn, NCU 15

Electronic Commerce: Definitions and Concepts (cont. ) Pure vs. Partial EC depends upon the degree of digitization (the transformation from physical to digital) of: – the product (service) sold; – the process; and for – the delivery agent (or digital intermediary) Brick-and-Mortar organizations are oldeconomy organizations (corporations) that perform most of their business off-line, selling physical products by means of physical agents Dr. CK Farn, NCU 16

Electronic Commerce: Definitions and Concepts (cont. ) Virtual (pure-play) organizations conduct their business activities solely online Click-and-mortar organizations conduct some EC activities, but do their primary business in the physical world Electronic market (emarketplace) online marketplace where buyers and sellers meet to exchange goods, services, money, or information Dr. CK Farn, NCU 17

Electronic Commerce: Definitions and Concepts (cont. ) Interorganizational information systems (IOSs) allow routine transaction processing and information flow between two or more organizations Intraorganizational information systems enable EC activities to go on within individual organizations Dr. CK Farn, NCU 18

The EC Framework, Classification, and Content Two major types of e-commerce: business-to-consumer (B 2 C) : online transactions are made between businesses and individual consumers business-to-business (B 2 B): businesses make online transactions with other businesses intrabusiness EC: EC conducted inside an organization (e. g. , business-to-employees B 2 E) Dr. CK Farn, NCU 19

The EC Framework, Classification, and Content (cont. ) Computer environments Internet: global networked environment Intranet: a corporate or government network that uses Internet tools, such as Web browsers, and Internet protocols Extranet: a network that uses the Internet to link multiple intranets Dr. CK Farn, NCU 20

EC Framework EC applications are supported by infrastructure and by five support areas: People Public policy Marketing and advertising Support services Business partnerships Dr. CK Farn, NCU 21

Exhibit 1. 2: A Framework for Electronic Commerce Dr. CK Farn, NCU 22

Classification of EC by Transactions or Interactions business-to-consumer (B 2 C) : online transactions are made between businesses and individual consumers business-to-business (B 2 B): businesses make online transactions with other businesses e-tailing: online retailing, usually B 2 C Dr. CK Farn, NCU 23

Classification of EC by Transactions or Interactions (cont. ) business-to-consumer (B 2 B 2 C): e-commerce model in which a business provides some product or service to a client business that maintains its own customers consumer-to-business (C 2 B): e-commerce model in which individuals use the Internet to sell products or services to organizations or individuals seek sellers to bid on products or services they need Dr. CK Farn, NCU 24

Classification of EC by Transactions or Interactions (cont. ) consumer-to-consumer (C 2 C): e-commerce model in which consumers sell directly to other consumers peer-to-peer (P 2 P): technology that enables networked peer computers to share data and processing with each other directly; can be used in C 2 C, B 2 B, and B 2 C e-commerce Dr. CK Farn, NCU 25

Classification of EC by Transactions or Interactions (cont. ) mobile commerce ((m-commerce): e-commerce transactions and activities conducted in a wireless environment location-based commerce (l-commerce): m-commerce transactions targeted to individuals in specific locations, at specific times Dr. CK Farn, NCU 26

Classification of EC by Transactions or Interactions (cont. ) intrabusiness EC: e-commerce category that includes all internal organizational activities that involve the exchange of goods, services, or information among various units and individuals in an organization business-to-employees (B 2 E): e-commerce model in which an organization delivers services, information, or products to its individual employees Dr. CK Farn, NCU 27

Classification of EC by Transactions or Interactions (cont. ) collaborative commerce (c-commerce): e-commerce model in which individuals or groups communicate or collaborate online e-learning: the online delivery of information for purposes of training or education exchange (electronic): a public electronic market with many buyers and sellers Dr. CK Farn, NCU 28

Classification of EC by Transactions or Interactions (cont. ) exchange-to-exchange (E 2 E): e-commerce model in which electronic exchanges formally connect to one another the purpose of exchanging information e-government: e-commerce model in which a government entity buys or provides goods, services, or information to businesses or individual citizens Dr. CK Farn, NCU 29

A Brief History of EC 1970 s: innovations like electronic funds transfer (EFT)—funds routed electronically from one organization to another (limited to large corporations) electronic data interchange (EDI)— electronically transfer routine documents (application enlarged pool of participating companies to include manufacturers, retailers, services) interorganizational system (IOS)—travel reservation systems and stock trading Dr. CK Farn, NCU 30

A Brief History of EC (cont. ) 1969 U. S. government experiment—the Internet came into being initially used by technical audience of government agencies, academic researchers, and scientists 1995 the Internet commercialized and users flocked to participate in the form of dot-coms, or Internet start-ups Innovative applications ranging from online direct sales to e-learning experiences Dr. CK Farn, NCU 31

A Brief History of EC (cont. ) Most medium- and large-sized organizations have a Web site Most large U. S. corporations have comprehensive portals 1999 the emphasis of EC shifted from B 2 C to B 2 B 2001 the emphasis shifted from B 2 B to B 2 E, c-commerce, e-government, e-learning, and m-commerce EC will undoubtedly continue to shift and change Dr. CK Farn, NCU 32

A Brief History of EC (cont. ) EC successes Virtual EC companies e. Bay Veri. Sign AOL Checkpoint Click-and-mortar Cisco General Electric IBM Intel Schwab EC failures 1999, a large number of ECdedicated companies began to fail EC’s days are not numbered! dot-com failure rate is declining sharply EC field is experiencing consolidation most pure EC companies, are expanding operations and generating increasing sales (Amazon. com) Dr. CK Farn, NCU 33

The Future of EC 2004—total online shopping and B 2 B transactions in the US between $3 to $7 trillion by 2008: number of Internet users worldwide should reach 750 million 50 percent of Internet users will shop EC growth will come from: B 2 C B 2 B e-government e-learning B 2 E c-commerce Dr. CK Farn, NCU 34

E-commerce Business Models Business models—a method of doing business by which a company can generate revenue to sustain itself Examples: q Name your price q Find the best price q Dynamic brokering q Affiliate marketing Dr. CK Farn, NCU 35

E-commerce Business Plans and Cases Business plan: a written document that identifies the business goals and outlines the plan of how to achieve them Business case: a written document that is used by managers to garner funding for specific applications or projects; its major emphasis is the justification for a specific investment Dr. CK Farn, NCU 36

Structure of Business Models Business model: A method of doing business by which a company can generate revenue to sustain itself Dr. CK Farn, NCU 37

Structure of Business Models (cont. ) Revenue model: description of how the company or an EC project will earn revenue Sales Transaction fees Subscription fees Advertising Affiliate fees Other revenue sources Dr. CK Farn, NCU 38

Structure of Business Models (cont. ) Value proposition: The benefits a company can derive from using EC search and transaction cost efficiency complementarities lock-in novelty aggregation and interfirm collaboration Dr. CK Farn, NCU 39

Exhibit 1. 4: Common Revenue Models Dr. CK Farn, NCU 40

Typical Business Models in EC Online direct marketing Electronic tendering systems tendering (reverse auction): model in which a buyer requests would-be sellers to submit bids, and the lowest bidder wins Name your own price: a model in which a buyer sets the price he or she is willing to pay and invites sellers to supply the good or service at that price Dr. CK Farn, NCU 41

Typical Business Models in EC (cont. ) Affiliate marketing: an arrangement whereby a marketing partner (a business, an organization, or even an individual) refers consumers to the selling company’s Web site Viral marketing: word-of-mouth marketing in which customers promote a product or service to friends or other people Dr. CK Farn, NCU 42

Typical Business Models in EC (cont. ) Group purchasing: quantity purchasing that enables groups of purchasers to obtain a discount price on the products purchased SMEs: small to medium enterprises Online auctions Dr. CK Farn, NCU 43

Typical Business Models in EC (cont. ) Product and service customization: creation of a product or service according to the buyer’s specifications Electronic marketplaces and exchanges Value-chain integrators Value-chain service providers Dr. CK Farn, NCU 44

Typical Business Models in EC (cont. ) Information brokers Bartering Deep discounting Membership Supply chain improvers Business models can be independent or they can be combined amongst themselves or with traditional business models Dr. CK Farn, NCU 45

Example of Supply Chain Improver Orbis Group changes a linear physical supply chain to an electronic hub Traditional process in the B 2 B advertising field Dr. CK Farn, NCU 46

Example of Supply Chain Improver (cont. ) Product. Bank simplifies this lengthy process changing the linear flow of products and information to a digitized hub Dr. CK Farn, NCU 47

Benefits of EC Benefits to organizations Global reach Cost reduction Supply chain improvements Extended hours: 24/7/365 Customization New business models Vendors’ specialization Rapid time-to-market Lower communication costs Efficient procurement Improved customer relations Up-to-date company material No city business permits and fees Other benefits Dr. CK Farn, NCU 48

Benefits of EC (cont. ) Benefits to consumers Ubiquity More products and services Cheaper products and services Instant delivery Information availability Participation in auctions Electronic communities “Get it your way” No sales tax Dr. CK Farn, NCU 49

Benefits of EC (cont. ) Benefits to society Telecommuting Higher standard of living Hope for the poor Availability of public services Dr. CK Farn, NCU 50

Limitations of EC Dr. CK Farn, NCU 51

Barriers of EC Security Trust and risk Lack of qualified personnel Lack of business models Culture User authentication and lack of public key infrastructure Organization Fraud Slow navigation on the Internet Legal issues Dr. CK Farn, NCU 52

The Digital Revolution Digital economy: An economy that is based on digital technologies, including digital communication networks, computers, software, and other related information technologies; also called the Internet economy, the new economy, or the Web economy Dr. CK Farn, NCU 53

The Digital Revolution (cont. ) A global platform over which people and organizations interact, communicate, collaborate, and search for information Includes the following characteristics: A vast array of digitizable products Consumers and firms conducting financial transactions digitally Microprocessors and networking capabilities embedded in physical goods Dr. CK Farn, NCU 54

New Business Environment Customers are becoming more powerful Created due to advances in science occurring at an accelerated rate Results in more and more technology Rapid growth in technology results in a large variety of more complex systems Dr. CK Farn, NCU 55

New Business Environment (cont. ) Characteristics in the business environment A more turbulent environment with more business problems and opportunities Stronger competition Need for organizations to make decisions more frequently A larger scope for decisions because more factors More information and/or knowledge needed for making decisions Dr. CK Farn, NCU 56