Electronic Business Architecture and Design
Planning for Electronic Commerce
CHAPTER 12
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Learning Objectives
In this chapter, you will learn:
How to identify benefits and estimate costs of online business 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
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Introduction
Case study: Wevorce
Internet startup offering divorce mediation services
Founder worked with startup coaching enterprise Y Combinator
Works with startups to develop their business
Arranges “demo day” presentations to investors
Obtained more than a million dollars from investors
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Identifying Benefits and Estimating Costs of Electronic Commerce Initiatives
Keys to successful implementation of information technology projects is panning and execution
Successful electronic commerce initiative business plan activities
Identify initiative’s specific objectives
Link objectives to business strategies
Setting electronic commerce initiative objectives
Consider strategic role of project, intended scope, resources available
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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 the risks of e-commerce versus inaction
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Linking Objectives to Business Strategies
Downstream strategies are 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
Inspire businesses to undertake activities
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Linking Objectives to Business Strategies (cont’d.)
Electronic commerce activities difficult to measure
First-wave e-commerce activities
Existed without 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
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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
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Identifying and Measuring Benefits
Some benefits of electronic commerce initiatives are obvious, tangible, easy to measure
Example: increased sales or reduced costs
Other electronic commerce initiatives are more difficult to measure
Example: increased customer satisfaction
Set measurable objectives even if they are for intangible benefits
Example: measure customer satisfaction based on number of return customers
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Identifying and Measuring Benefits (cont’d.)
When using Web sites to build brands or enhance existing marketing programs set goals in terms of increased brand awareness
Measures: 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 or by general improvement in the economy
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Identifying and Measuring Benefits (cont’d.)
Using Web sites to improve customer service or after-sale support has possible goals of increased customer satisfaction or reduced support costs
Example: Philips Lighting
Supply chain managers’ goals include supply cost reductions, quality improvements, or faster deliveries of ordered goods
Auction sites’ goals include number of auctions, dollar volume of items sold, number of items sold, or number of registered participants
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Identifying and Measuring Benefits (cont’d.)
Virtual communities’ and Web portals’ goals include number of visitors, quality of visitors’ experiences
Metrics are measurements companies make to assess value of site visitor activity benefits
Examples in Figure 12-1
Businesses must convert raw activity measurements to monetary units to compare benefits to costs
Compare net benefit of a particular initiative to net benefits provided by other projects
Difficult to measure value in monetary units precisely
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FIGURE 12-1 Measuring the benefits of electronic commerce initiatives
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Identifying and Estimating Costs
Information technology project costs can be as difficult to estimate and control as benefits
Web development uses rapidly changing hardware and software technologies
Hardware costs trending downward but increasing software sophistications often requires more of the newer, cheaper hardware
Yields net increase in overall hardware costs and higher software costs than anticipated
Rapid changes in Web technologies can destroy manager’s plans
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Total Cost of Ownership (TCO) and Opportunity Costs
TCO includes all costs related to electronic commerce implementation
Hardware costs, software costs, outsourced design work, employee costs, site maintenance
Good TCO number includes assumptions about how often site would need to be redesigned in the future
One of the largest and most significant electronic commerce initiative costs is opportunity cost
Foregone benefits that company could have obtained from electronic commerce initiative not pursued
Lost customers, sales or cost reductions
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Web Site Costs
Total dollar amounts required to create and operate a Web site has varied with time and business type
Relative proportion of costs remained stable
10% hardware, 10% software. 80% labor
Small online store can be placed into operation for less than $1000
Small to midsize online business operation with full transaction and payment processing capabilities has an initial investment between $10,000 and $1 million
Annual cost of operating an online business Web site between 50% and 200% of site’s initial cost
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FIGURE 12-2 Estimated costs for business Web sites
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Web Site Costs (cont’d.)
Costs generally heading downward
Lower costs for broadband access and computer hardware and decreased software development and maintenance costs
Netscape (early 1990s) needed more than $40 million just to get started
Digg (2004): less than $500,000
Today, smartphone app development less than $1000
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FIGURE 12-3 Important Web hosting service features
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Funding Online Business Startups
Early Web businesses started by individuals with knowledge of computers, technology, and business
Late 1990s online startups attractive to investors wanting to make fast money (Internet boom)
Angel investors funded initial startup in hopes for rapid growth
Still an option today
Goal is to sell to venture capitalists at a profit
Venture capitalists are wealthy individuals or firms who have a goal of making profit by selling stock to the public through an initial public offering (IPO)
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Funding Online Business Startups (cont’d.)
System of financing startup and initial growth of online businesses has both benefits and costs
Benefit is access to large amounts of capital early
Costs include the pressure to grow rapidly and most profits going to angel investors and venture capitalists
Cost decreases of starting online businesses reduces need for venture capitalists and angel investors
Allows business owners to become more creative and learn from mistakes
Trend is towards more and smaller online ventures
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Comparing Benefits to Costs
Capital projects (capital investments) are major investments in equipment, personnel, other assets
Techniques to evaluate proposed capital projects range from simple calculations to complex computer simulation models
Reduces to comparison of benefits and costs
Key parts of creating electronic commerce initiatives business plan is to identify potential benefits and costs and evaluate whether benefits exceed costs
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FIGURE 12-4 Cost/benefit evaluation of electronic commerce strategy elements
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Return on Investment (ROI)
Return on investment (ROI) techniques measure amount of income (return) provided by specific current expenditure (investment)
Provides quantitative expression of comfortable benefit-to-cost margin and mathematically adjusts for future reduced value of benefits
Some see electronic commerce initiatives as necessary and may not subject them to analysis
Companies fear being left behind
Newspaper Web sites are an example of companies willing to incur losses to establish an online presence
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Return on Investment (ROI) (cont’d.)
Many companies turned to ROI as a measurement tool for evaluating projects because of past use
Easy to understand, but has some built in biases that can lead to poor decisions
ROI requires all costs and benefits be stated in monetary units which gives undue weight to costs
ROI focuses on benefits that can be predicted but initiatives have returned benefits not foreseen
ROI tends to emphasize short-run benefits over long-run benefits
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Strategies for Developing Electronic Commerce Web Sites
Web sites began as static “brochure”
Next generation added transaction processing and other capabilities making Web sites an important part of the information system infrastructure
Enhanced with personalization and customer relationship management features
Redesigned to work better with mobile devices
Recently, sites have become integrated with social media networks
Transformations required software development
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FIGURE 12-5 Evolution of Web site functions
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Internal Development vs. Outsourcing
Some companies use contractors to handle entire online business site development (outsourcing)
Most companies understand sites are too important to the future to risk outsourcing
Business initiative must be integrated into existing activities to ensure success
Having internal people lead projects ensures specific needs are addressed and initiative is congruent with organization goals, culture
Key to success is finding the right balance between inside and outside support for the project
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The Internal Team
First step in deciding what to outsource is to create an internal team that is responsible for the project
Team members need to be knowledgeable about Internet and its technologies
Creative thinkers, distinguished within the company
Good sense of company goals and culture
Technical expertise less important than other factors
Measuring achievements of team is important
Expressed in whatever terms are appropriate to the objectives of the initiative
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The Internal Team (cont’d.)
Intellectual capital is employees’ knowledge about the business and its processes
Hard to measure but value is recognized today
Internal team responsible for initiative decides what to outsource, outsourcer and consultants or partners needed
Partners can be important in the early part of the project because they often have skills and expertise in new technologies before other system professionals
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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
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Late Outsourcing
Company’s information systems professionals perform initial design and development, implement system, and operate system until stable
Once competitive advantage gained maintenance of the electronic commerce system is outsourced
Company’s professionals turn attention to developing new technologies to provide further competitive advantage
Online business initiatives are more suited to early outsourcing
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Partial Outsourcing
Also called component outsourcing
Company identifies specific project portions that can be completely designed, developed, implemented, and operated by another firm
Smaller Web sites outsource e-mail handling and response functions
Electronic payment system
Web hosting
Generally offers 24/7 operations
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Incubators
Offers start-up companies physical location with offices, accounting and legal assistance, computers, and Internet connections at a very low monthly cost
May offer seed money, management advice, and marketing assistance
Receives ownership interest in company that is typically between 10% and 50%
When company grows sells interest to venture capitalists or through an IPO
Early Internet incubator: Idealab
Helped CarsDirect.com, Overture, Tickets.com
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Incubators (cont’d.)
Some companies created internal incubators
Developed technologies for use in main business operations
Most 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 have yielded better results than old style method
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Accelerators
Company that performs a function similar to that of an incubator but with a different activity structure
Tend to work with entrepreneurs who have already developed their idea into a business
Formal application process with a competitive series of proposals and presentations
Proposals that survive work closely with a mentor network to covert idea into viable business
Accepted proposals receive a monetary investment in exchange for a small equity interest
Real value to entrepreneur is the mentor network
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Project Management
Collection of formal techniques for planning and controlling activities to achieve a specific goal
Developed by U.S. military and defense contractors
Plan includes cost, schedule and performance criteria
Helps management make trade-off decisions
Project management software helps project managers oversee projects, the internal team and outside consultants
Oracle Primavera, Microsoft Project, and open-source options: Open Workbench, OpenProj, Redmine
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Project Portfolio Management
Used by company’s top technology manager the chief information officer (CIO)
Technique to monitor each project like it was 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
CIO assigns a ranking for each project based on importance to goals and level of risk
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Staffing for Electronic Commerce
Chief information officer (CIO) oversees information systems and related technological elements needed to undertake and operate online business activities
Business manager is a member of internal team that sets project objectives and is responsible for implementing and reaching them
Project manager should have specific training, skills in tracking costs and accomplishing objectives
Project portfolio manager is responsible for tracking and managing online projects as a portfolio
Usually promoted from the ranks of project managers
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Staffing for Electronic Commerce (cont’d.)
Account manager keeps track of multiple Web sites in use or projects combining into a 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 designers trained in art, layout, and composition and knows Web pages construction
Must ensure Web pages are visually appealing and easy to use
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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 administrators responsible for managing Web virtual community elements
Online marketing managers specialize in specific techniques used to build brands and increase market share using Web site and other online tools
Customer service reps help design and implement customer relationship management activities in electronic commerce operations
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Staffing for Electronic Commerce (cont’d.)
Call center is a company that handles incoming customer calls, e-mails for other companies
Systems administrator is responsible for system’s reliable and secure operation
Network operations staff functions include load estimation and monitoring, resolving problems
Design and implementation of fault-resistant technologies and managing outsourced operations
Database administration function support activities
Transaction processing, order entry, inquiry management, shipment logistics
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Postimplementation Audits
Also called postaudit review
Formal review of project after up and running
Examine project items established in planning stage and compare them to what actually happened
Objectives, performance specifications, cost estimates, and scheduled delivery dates
Blame identification approach often used in the past
Focused on identifying individuals to blame for cost overruns and missed delivery dates
Generally unproductive and uncomfortable
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Postimplementation Audits (cont’d.)
Today audits are used to gather lessons learned from successes and failures
Create and update standards of best practices
Feedback on strategies used provides valuable information for planning future projects
Gives participants meaningful learning experience
Comprehensive audit report analyzes overall performance and how well project was administered
Considers if appropriate organizational structure was in place and specific project team(s) performance
Should compare actual results to objectives
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Change Management
Information system projects involve change which can be upsetting to people
Employee concerns include the ability to cope with changes, to continue to do good work, and job security
Concerns lead to increased stress
Change management is the process of helping employees cope with changes
Includes tactics designed to help employees feel involved with change
Helps employees overcome feelings of powerlessness
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