Electronic Business Architecture and Design

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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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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