As you read the
textbook and go through this lesson, think about the following questions:
What is e-business?
What
is electronic commerce (e-commerce)? A concept that describes the process of
buying, selling, or exchanging products, services, and information via computer
networks including Internet. Kalakota and Whinston (1997) define EC from
four perspectives:
From a communications perspective, EC is the
delivery of goods, services, information, or payments over computer networks or
by any other electronic means.
From a business process perspective, EC is the
application of technology toward the automation of business transactions and
workflow.
From a service perspective, EC is a tool
that addresses the desire of firms, consumers, and management to cut service
costs while improving the quality of customer service and increasing the speed
of service delivery.
From an online perspective, EC provides the
capability of buying and selling products and information over the Internet and
other online services.
We add two more perspectives to this
list:
From a collaborations perspective, EC is the
facilitator for inter- and intra-organizational collaboration.
From
a community perspective, EC provides a gathering place for community
members, to learn, transact, and collaborate.
E-BUSINESS: Some people
define the term commerce as describing transactions conducted between business
partners. When this definition of commerce is used, some people find the term
electronic commerce to be fairly narrow. Thus, many use the term e-business.
E-business refers to a broader definition of EC, not just the buying and
selling of goods and services, but also servicing customers, collaborating with
business partners, and conducting electronic transactions within an
organization. In this book we use the broadest meaning of electronic commerce,
which is basically equivalent to e-business. The two terms will be used interchangeably
throughout the text.
How are the following DEFINED?
- Brick-and-mortar organizations? Organizations that perform their primary business off-line, selling physical products by means of physical agents.
- Virtual (pure-play) organizations? Organizations that conduct their business activities solely online.
- Click-and-mortar (click-and-brick) organizations? Organizations that conduct some e-commerce activities, usually as an additional marketing channel.
- Electronic marketplace (e-marketplace)? An online marketplace where buyers and sellers meet to exchange goods, services, money, or information.
- Intranet? An internal 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.
What is the difference between pure and partial
e-commerce?
Electronic
commerce can take several forms depending on the degree of digitization (the
transformation from physical to digital) of (1) the product (service)
sold, (2) the process, and (3) the delivery agent (or
intermediary). Choi et al. (1997) created a framework, shown in Exhibit
1.1, that explains the possible configurations of these three dimensions. A
product can be physical or digital, the process can be physical or digital, and
the delivery agent can be physical or digital. These alternatives create eight
cubes, each of which has three dimensions. In traditional commerce, all three
dimensions are physical (lower-left cube), and in pure EC, all dimensions are
digital (upper-right cube). All other cubes include a mix of digital and
physical dimensions. If there is at least one digital dimension, we consider
the situation EC, but only partial EC. For example, buying a book from
Amazon.com is partial EC, because the physical book is delivered by FedEx.
However, buying an e-book from Amazon.com or a software product from buy.com is
pure EC, because the product delivery, payment, and agent are all digital. Pure
physical organizations (corporations) are referred to as brick-and-mortar or
old-economy organizations, whereas pure EC organizations are considered pure
online virtual organizations. Click-and-mortar organizations are those that
conduct some e-commerce activities, yet their primary business is done in the
physical world. Gradually, many brick-and-mortar companies are changing to
click-and-mortar ones (e.g., Qantas Airways).
How do the following five areas support e-commerce:
People;
Public policy; Marketing and advertising; Support services; Business
partnerships;
There are dozens
of EC applications, some of which were illustrated in the opening vignette
about Qantas; others will be shown throughout the book. To execute these
applications, companies need the right information, infrastructure, and support
services. Exhibit 1.2 shows how EC applications are supported by infrastructure
and by five support areas (shown as supporting pillars): people, public policy,
technical standards, business partners, and support services.
People - Sellers,
buyers, intermediaries, employees, and any other participants.
Public policy - Legal and other
policy issues, such as privacy protection, that are determined by the
government.
Technical
standards and protocols - Security and payment protocols, such as
SSL (secure socket layer). Companies need standards and protocols so that they
can communicate with one another or move money online in a secured manner.
Business
partners -
Joint ventures, exchanges, and business partnerships of various sorts.
E-commerce occurs frequently throughout the supply chain (the interactions
between a company and its suppliers, customers, and other partners) and between
or among business partners.
Support services
-
Market research advertising, payments, logistics, and security. Many support
services are needed in EC. All of these infrastructure components require good
management practices. This means that companies need to plan, organize,
motivate, devise strategy, and reengineer processes as needed.
How do we define the following classifications of
e-commerce:
- B2B - All of the participants in business-to-business (B2B) e-commerce are businesses or other organizations. Today most EC is B2B.
- B2C - Business-to-consumer (B2C) EC includes retail transactions from businesses to individual shoppers. The typical shopper at Amazon.com is a consumer, or customer. This EC type is also called e-tailing.
- B2B2C - In business-to-business-to-consumer (B2B2C) EC, a business provides some product or service to a client business. The client business maintains its own customers, to whom the product or service is provided. An example is Qantas’ Pan-Pacific market cited earlier. The term B2B frequently is used to describe B2B2C as well.
- C2B - Consumer-to-business (C2B). This category includes individuals, who use the Internet to sell products or services to organizations, as well as individuals who seek sellers to bid on products or services they need. Priceline.com is a well-known C2B organizer.
- Intrabusiness EC - The intrabusiness EC category includes all internal organizational activities that involve the exchange of goods, services, or information among various units and individuals in that organization. Activities can range from selling corporate products to employees to online training and collaborative design efforts. Intrabusiness EC is usually performed on intranets or corporate portals (in general, gateways to the Web).
- B2E - The business-to-employees (B2E) category is a subset of the intrabusiness category in which the organization delivers services, information, or products to individual employees, as Qantas Airways is doing with its College Online.
- C2C - In the consumer-to-consumer (C2C) category, consumers sell directly to other consumers. Examples include individuals selling residential property, cars, and so on in online classified ads. The advertisement of personal services over the Internet and the selling of knowledge and expertise online are other examples of C2C (e.g., guru.com). In addition, several auction sites allow individuals to place items up for auction. A special type of C2C is where people exchange music, videos, software, and other digitizable goods electronically using a peer-to-peer (P2P) technology. A well-known organizer of P2P is Napster (napster.com). (As a result of legal challenges, Napster no longer offers free exchanges; in 2002 it tried offering only digital goods that people pay for.)
o Collaborative
commerce - When individuals or groups communicate
or collaborate online they may be engaged in collaborative commerce
(c-commerce). For example, business partners in different locations may design
a product together, using screen sharing, or they may jointly forecast market
demand.
o E-learning
- Nonbusiness
EC. An increasing number of nonbusiness institutions such as academic
institutions, not-for-profit organizations, religious organizations, social
organizations, and government agencies are using EC to reduce their expenses or
to improve their general operations and customer service. (Note that in the
previous categories one can usually replace the word business with
organization.)
o E-government
- Government-to-citizens
(G2C) and to others. In e-government EC, a government entity buys or provides
goods, services, or information to businesses or individual citizens.
o Exchange-to-exchange
(E2E) - An
exchange describes a public electronic market with many buyers and sellers. As
these proliferate, it is logical for exchanges to connect to one another.
Exchange-to-exchange (E2E) EC is a formal system that connects exchanges.
o Mobile
commerce - E-commerce
transactions and activities conducted in a wireless environment are referred to
as mobile commerce, or m-commerce. Such transactions targeted to individuals in
specific locations, at specific times, are referred to as location-based
commerce, or l-commerce.
What are the
typical e-commerce business models?
1.
Online, direct marketing - The most obvious model is that of
selling online, from manufacturers to customers (eliminating intermediaries) or
from retailers to consumers (making distribution more efficient). Such a model
is especially efficient for digitizable products and services. It is practiced
in B2C and B2B types of EC.
2.
Electronic tendering systems - Large
organizational buyers, private or public, usually make their purchases through
a tendering (bidding) system, also known as a reverse auction (Chapter 2). Such
a tendering can be done online, saving time and money. Pioneered by General
Electric Corp. (gxs.com), e-tendering systems are gaining popularity (for more
on e-tendering, Several government agencies mandate that all agency procurement
must be done through e-tendering.
3.
Name your own price - Pioneered
by Priceline.com, this model allows buyers to set the price they are willing to
pay for a specific product or service. Priceline.com will try to match the
customer’s request with a supplier willing to sell the product or service at
that price. Customers, usually individuals, may have to increase their bids
before they get the product or service.
4.
Find the best price - According
to this model, a customer specifies a need and then an intermediate company,
such as Hotwire.com, matches the customer’s need against a database, locates
the lowest price, and submits it to the consumer. The potential buyer then has
60 minutes to accept or reject the offer. A variation of this model is
available for insurance. For example, a consumer can submit a request for
insurance to Insweb.com and receive several quotes. Many companies employ
similar models to find the lowest price. For example, consumers can go to
E-LOAN (eloan.com) to find the best interest rate for auto or home loans.
5.
Affiliate marketing - Affiliate
marketing is an arrangement whereby a marketing partner (a business, an
organization, or even an individual) refers consumers to the selling company’s
Web site. The referral is done by placing a banner ad or the logo of the
selling company on the affiliated company’s Web site. The affiliated partner
receives a 3 to 15 percent commission on the purchase price whenever a customer
it refers to the selling company’s Web site and makes a purchase there. In
other words, by using affiliate marketing, a selling company creates a virtual
commissioned sales force. Pioneered by CDNow the concept is now employed by
thousands of retailers or manufacturers (see affiliateworld.com). For example,
Amazon.com has close to 500,000 affiliates, and even tiny Cattoys.com offers
individuals and organizations the opportunity to put its logo and link on their
Web sites to generate commissions.
6.
Viral marketing - According
to the viral marketing model, one can increase brand awareness or even sales by
inducing people to send messages to other people or to recruit friends to join
certain programs. It is basically Web-based word-of-mouth marketing.
7.
Group purchasing - Discounts
are usually available for quantity purchasing. EC has spawned the concept of
electronic aggregation, wherein a third party finds individuals or SMEs
(small-to-medium enterprises), aggregates their orders, and then negotiates (or
conducts a tender) for the best deal. Thus, using the concept of group
purchasing, a small business or even an individual can get a discount. Some
leading aggregators are Accompany.com and Shop2gether.
8.
Online auctions - Almost
everyone has heard of eBay.com, the world’s largest online auction site.
Several hundred other companies, including Amazon.com and Yahoo.com, also
conduct online auctions. In these auctions, online shoppers make consecutive
bids for various goods and services, and the highest bidders get the auctioned
items.
9.
Product and service customization - Customization of
products or services means creating a product or service according to the
buyer’s specifications. Customization is not a new model; in fact, it is as old
as commerce itself! What is new is the ability to quickly customize products
online for consumers at prices not much higher than their noncustomized
counterparts. Dell Computer is a good example of a company that customizes
products for its customers. Many other companies are following Dell’s lead: The
automobile industry is customizing its products, and expects to save billions
of dollars in inventory reduction alone every year by producing cars
made-to-order. Mattel’s My Design lets fashion-doll fans custom-build a friend
for Barbie at Mattel’s Web site; the doll’s image is displayed on the screen
before the customer orders. Nike allows customers to customize shoes, which can
be delivered in a week. De Beers allows consumers to design their own
engagement ring.
10.
Electronic marketplaces and exchanges - Electronic
marketplaces existed in isolated applications for decades (e.g., stock and
commodities exchanges). But as of 1999, thousands of e-marketplaces have
introduced new efficiencies to the process. If they are well organized and
managed, e-marketplaces can provide significant benefits to both buyers and
sellers. Of special interest are vertical marketplaces, (also called vertical
portals, or vortals), which concentrate on one industry (e.g., e-steel.com for
the steel industry and Chemconnect.com for the chemical industry).
11.
Supply chain improvers - One of the major contributions of EC is
in the creation of new models that change or improve supply chain management.
Most interesting is the conversion of a linear supply chain, which can be slow,
expensive, and error prone, into a hub. An example of such an improvement is
provided in EC Application Case 1.2.
Any of the
preceding business models can be independent or they can be combined among
themselves or with traditional business models. One company may use several
different business models.
What are the benefits of EC?
Few innovations in human history encompass as many
potential benefits as EC does. The global nature of the technology, the
opportunity to reach hundreds of millions of people, the interactive nature of
EC, the variety of possibilities for its use, and the resourcefulness and rapid
growth of its supporting infrastructures, especially the Web, result in many
potential benefits to organizations, individuals, and society. These benefits are
just starting to materialize, but they will increase significantly as EC
expands. It is not surprising that some maintain that the EC revolution is as
profound as the change that accompanied the Industrial Revolution.
Benefits to Organizations:
The benefits
of e-commerce to organizations fall into several main categories, as described
in the following list:
§ EC expands the
marketplace. With
minimal capital outlay, a company can easily and quickly locate more customers,
the best suppliers, and the most suitable business partners nationally or
worldwide. For example, Boeing Corporation reported a savings of 20 percent after
it posted on the Internet a request for a proposal to manufacture a subsystem. A
small vendor in Hungary answered the request and won the electronic bid. Not
only was the subsystem cheaper, but it was delivered about twice as quickly as
Boeing had anticipated. EC also enables companies not only to find new
customers, but also to interact more closely with them. This promotes better
customer relationship management (CRM) and increases customer loyalty.
§ EC offers
significant cost savings. With
EC, companies no longer need to bear the costs of creating, processing,
distributing, storing, and retrieving paper-based information. For example, by
introducing an electronic procurement system, companies can cut purchasing
administrative costs by as much as 85 percent. EC also lowers
telecommunications costs—the Internet is much cheaper to access than VANs.
Further, EC enables efficient e-procurement that can reduce administrative
costs by 80 percent or more, reduce purchasing prices by 5 to 15 percent, and
reduce purchasing cycle time by more than 50 percent. By reducing the length of
the operating cycle (the transition from cash to inventories to receivables and
back to cash), companies are able to spend less on financing costs. The
Insights and Additions box, on facing page, lists some specific examples of
savings from EC.
§ EC improves
business organization and processes.
EC allows for many innovative business models that
provide strategic advantages and/or increase profits. Pulltype production
processing, such as that used by Dell, allows for inexpensive customization of
products and services, and it provides a competitive advantage for companies
that implement this strategy. In addition, supply chain inefficiencies, such as
excessive inventories and delivery delays, can be minimized with EC. For
example, by building cars to order instead of for dealers’ showrooms, the
automotive industry expects to save tens of billions of dollars annually, just from
inventory reduction. Group purchasing combined with electronic bidding is
another example of an innovative business model. In short, e-commerce provides
organizations with an unparalleled level of strategic control, offering a
tremendous competitive edge.
§ EC promotes
interactivity. EC
allow companies to interact with their customers and business partners and to
receive quick and accurate feedback.
Other benefits
of EC include improved corporate image, simplified business processes,
compressed time-to-market (time from the inception of an idea to its implementation),
significantly increased productivity, reduced paper and paperwork, increased
access to information, and increased flexibility. EC also allows for a high degree
of specialization that is not economically feasible in the physical world. For example,
a store that sells only dog toys can operate in cyberspace (dogtoys.com); in the
physical world, such a store would not have enough customers to be profitable.
Benefits to Consumers:
The benefits
of EC to consumer’s center mostly around convenience, speed, and cost. EC
allows consumers to shop or perform other transactions year round, 24 hours a day,
from almost any location. It provides consumers with more choices of more products,
from many vendors. Consumers can locate relevant and detailed product and
service information and conduct comparisons in seconds, rather than in days or
weeks. By enabling consumers to shop in many places and conduct quick
comparisons, EC facilitates competition, which results in substantially lower
prices for consumers. In some cases, especially with digitized products, EC
also allows for quick delivery. Another benefit to customers is the ability to
buy customized products and personalized services at a very reasonable cost. EC
offers consumers new forms of interaction, both commercial and social. Online auctions,
for example, allow individuals to sell things quickly and buyers to locate collectors’
items and find bargains. EC also allows customers to design their own products
and services, from a car to a shirt. Finally, EC enables customers to interact
with other customers in virtual communities, groups of individuals linked on
the Internet, where they can exchange ideas as well as compare experiences.
Benefits to Society:
EC benefits to
society are improvements in the standard of living and delivery of public services.
For example, people in less-developed countries and in rural areas are now able
to enjoy products and services that were otherwise unavailable. This includes opportunities
to learn skilled professions or earn college degrees.
Also, EC
enables more individuals to work at home and do less traveling for work or
shopping, resulting in less traffic on the roads and reduced air pollution.
Public services, such as health care, education, and distribution of government
social services, can be delivered via EC at a reduced cost and/or with improved
quality. For example, EC provides rural doctors access to information and
technologies with which they can better treat their patients.
WHAT
ARE THE LIMITATIONS OF EC?
EC has both technological and nontechnological
limitations. The major limitations are summarized in Exhibit 1.4. Despite these
limitations, EC is expanding rapidly. For example, the number of people in the
United States who buy and sell stocks electronically increased from 300,000 at
the beginning of 1996 to over 25 million by the spring of 2002. In Korea, about
67 percent of all stock market transactions took place over the Internet in the
spring of 2002 (versus 2 percent in 1998). According to the major financial
institution J. P. Morgan, the number of online brokerage customers in Europe
will reach 17.1 million in 2003 (versus 1.4 million in 1999). As experience accumulates
and technology improves, the cost-benefit ratio of EC will increase resulting
in greater rates of EC adoption.
The benefits presented here may not be convincing
enough reasons for a business to implement EC. Much more compelling are the
economic impact of EC and the digital revolution, along with the effects of EC
on business competition.
WHAT
IS THE DIGITAL REVOLUTION AND THE ECONOMIC IMPACT OF EC?
The Digital Revolution:
The digital economy refers to an economy that is based on digital technologies, including digital communication networks (the Internet, intranets, extranets, and private VANs), computers, software, and other related information technologies. The digital economy is also sometimes called the Internet economy, the new economy, or the Web economy. In this new economy, digital networking and communication infrastructures provide a global platform over which people and organizations interact, communicate, collaborate, and search for information. This platform includes the following characteristics:
o A vast array of digitizable products—databases, news and information, books, magazines, TV and radio programming, movies, electronic games, musical CDs, and software—that are delivered over a digital infrastructure anytime, anywhere in the world.
o Consumers and firms conducting financial transactions digitally through digital currencies or financial tokens, carried via networked computers and mobile devices.
o Microprocessors and networking capabilities embedded in physical goods such as home appliances and automobiles.
The term digital economy also refers to the convergence of computing and communication technologies on the Internet and other networks and the resulting flow of information and technology that is stimulating e-commerce and vast organizational changes. This convergence enables all types of information (data, audio, video, etc.) to be stored, processed, and transmitted over networks to many destinations worldwide. The digital economy is creating an economic revolution, which, according to the Emerging Digital Economy II (ecommerce.gov), is evidenced by unprecedented economic performance and the longest period of uninterrupted economic expansion in history (about 10 years) combined with low inflation. Web-based EC systems are accelerating the digital revolution by providing competitive advantage to organizations. In a study conducted by Lederer et al. (1998), “enhancing competitiveness or creating strategic advantage” was ranked as the number-one benefit of Web-based systems.
The Economics of Digital System:
The economics of EC are based on principles that sometimes differ from those underlying traditional markets. These EC principles are drawn from information and network economics. Consider the following examples. Products’ Cost Curves The average-cost (AVC) curve of many physical products and services is U-shaped. This indicates that, at first, as quantity increases, the average cost declines. As quantity increases still more, the cost goes back up due to increasing variable costs (especially administrative and marketing costs) in the short run, when production capacity is fixed. In contrast, the variable cost per unit of digital products is very low (in most cases) and almost fixed, regardless of the quantity. Therefore, total cost per unit will decline as quantity increases, as the fixed costs are spread (prorated) over more units. This relationship results in increasing returns with increased sales.
Web Resources
Evolution of E-Commerce (6:52 minutes)
E-Commerce (the growth of
e-commerce) (8:02 minutes)
Global E-Commerce in the Future (5:48 minutes)
Social Commerce: It's time to
make the move
(2:49 minutes)
Review questions
1.
What is electronic commerce?
Electronic Commerce is defined as: The use of electronic transmission
mediums (telecommunications) to engage
in the exchange, including buying and selling of products and services,
involving transportation, either physically or digitally, from location to
location.
2.
What is electronic business?
Electronic business encompasses all aspects of electronic commerce. Additionally, it is the exchange of
information not directly related to the actual buying and selling of
goods. Increasingly, businesses are
using electronic mechanisms to distribute information and provide customer
support.
3.
What are five potential benefits of electronic commerce
for businesses?
The potential benefits of electronic commerce are:
¨
Internet and web-based electronic commerce is
more affordable than traditional EDI;
¨
Internet and web-based electronic commerce
allows more business partners to be reached than with traditional EDI;
¨
Internet and web-based electronic commerce can
reach a more geographically dispersed customer base;
¨
procurement processing costs can be lowered;
¨
cost of purchases can be lowered;
¨
reductions in inventories;
¨
lower cycle times;
¨
better customer service; and
¨
lower sales and marketing costs.
4.
What is the production cycle?
The production
cycle time is the time it takes a business to build a product beginning
with the design phase and ending with the completed product.
5.
What are five potential benefits of electronic commerce
for consumers?
The five potential benefits of electronic commerce for consumers are:
¨
increased choice of vendors and products;
¨
convenience from shopping at home or office;
¨
greater amounts of information that can be
accessed on demand;
¨
more competitive prices and increased price
comparison capabilities; and
¨
greater customization in the delivery of
services.
U.S. Department of Commerce, 1998
6.
How does greater access to information translate into
greater buying power?
Greater access translates in customers having an
increased choice of vendors because they are no longer geographically
constrained by a reasonable walking or driving distance. Customers have a greater choice of services
they can receive from global Internet companies. Further, knowledge is power to the consumer
in the negotiation process.
7.
How long did it take the radio to reach 50 million
people? The Internet?
In only four years after it was opened “to the
public,” the Internet was able to reach 50 million people, which is just a
fraction of the time it took for radio (38 years), television (13 years), and
personal computers (16 years) to reach the same usage rate.
8.
What is the Internet and who built it?
The Internet is a network of networks. The Internet has evolved over time into its
current form, which is still evolving.
The Internet2 is now being implemented.
The Internet came “online” in 1969 as a joint project between the
Defense Advanced Research Projects Agency (DARPA) and four university host
computers.
9.
When was e-mail put into use?
Electronic mail was introduced in 1972.
10.
What three forces lead to the WWW’s emergence as the
single most dynamic force in information technology?
¨
increasingly powerful and inexpensive scalable
systems and applications;
¨
growing availability of telecommunications, and
¨
the spread of digital information.
11.
What is the traditional value chain?
The traditional value chain typically depicts the
information system data as flowing sequentially through the processes with
inputs/outputs from the supplier at the back-end stage and to the customer at
the front-end stage.
12.
What is the customer-oriented value chain?
The value chain with the customer set as the center
of focus to a firm is a customer-oriented value-chain. The firm’s information system is the “glue”
that links all phases of its processes together. This customer-oriented value-chain enables
the customer to access the firm’s (the supplier’s) information system at
virtually every phase in order to assess the progress of the order.
13.
What is a virtual enterprise?
The virtual enterprise is one in which the
underlying firms are so inter-meshed that it is difficult to tell where one
organization begins and the other ends.
This electronic nexus of firms appears seamlessly organized to the
customer/client.
14.
What are the four virtual spaces of Angehrn’s
model? What are the major electronic
commerce concerns of each?
Virtual
Information Space
¨
the information that is displayed is accurate
and current;
¨
the information that is displayed is only viewed
by authorized users;
¨
the customer can easily find the site and
navigate through it once they have reached the site; and
¨
the site is accessible without long wait times.
Virtual
Distribution Space.
¨
delivery of products and services only to
legitimate, approved customers; and
¨
reliable delivery of products and services.
Virtual
Transaction Space.
¨
Security over data;
¨
Accuracy and integrity of processing methods;
¨
Reliability of vendor;
¨
Reputability of trading partner; and
¨
Privacy concerns by customers.
Virtual
Communication Space.
Electronic Commerce is affected if such a community
is a service for which its members pay or if negotiation agents are used.
15.
What are the three major legal/regulatory constraints
facing electronic commerce?
Three major legal/regulatory constraints faced by
businesses engaging in electronic commerce are:
¨
taxation,
¨
privacy, and
¨
encryption.
16.
What are three pillars of electronic commerce?
The three pillars of electronic commerce are:
¨
Electronic Information
¨
Electronic Relationships
¨
Electronic Transactions.
17.
What is a differentiating feature of electronic
commerce from print and broadcasting mediums?
A differentiating feature of electronic commerce
from other mediums, such as print and broadcasting, is that it is interactive
and users expect to experience interaction when they visit a site.
18.
What are two primary impediments to electronic
transactions?
Two impediments to constructing the electronic
transaction pillar exist: the ability to engage in meaningful and sufficient
negotiation processes and security of transaction data.
19.
What are four security concerns of businesses?
The four security concerns of businesses are:
¨
revenue, information and data integrity loss;
¨
theft of trade secrets or data;
¨
infection with a computer virus; and
¨
manipulation of their internal systems or
software applications.
discussion questions
1. What
is one difference between EDI and electronic commerce?
EDI is a subset of electronic commerce. A primary
difference is that electronic commerce encompasses a broader commerce
environment than EDI. Electronic
commerce allows a marketplace to exist where buyers and sellers not previously
known to one another can transact.
2. How
did use of the Internet help General Electric reduce the cost of goods that it
purchased?
General Electric Company’s 1997 Internet activity
clearly demonstrates that electronic commerce can provide substantial, tangible
benefits to a firm when implemented properly.
In 1997, General Electric purchased approximately $1 billion worth of
supplies using the Internet.
3. How
can electronic commerce help to reduce inventory costs? Give an example.
Internet electronic commerce can help firms to more
optimally order the inventories by electronically linking suppliers and
purchasers together and allowing them to share updated production forecasts and
projected inventory levels in order to allow both parties to collaboratively
"fine-tune" their production and delivery schedules. Further, the carrying costs of inventory can
be reduced if firms are able to more effectively order goods with less
uncertainty. Firms can also use
electronic commerce to “unload” unwanted inventory.
Example: Wal-Mart’s link to its suppliers.
USAir’s unloading of excess capacity via e-mail notification to
customers.
4. How
can electronic commerce help to reduce the production cycle time? What industries can greatly benefit from
this?
Internet electronic commerce is enabling the
reduction of the cycle time by allowing engineers and production teams to
electronically share design specifications for initial approval and refinement
processes. The automobile industry, oil
refinement, chemical production and any manufacturing firm will benefit from
such reductions.
5. How
can electronic commerce enhance customer service? Give an example.
Customer service can be enhanced using electronic
commerce by helping the customer to access information before, during, and
after the sale. Before the sale is made,
customers can electronically retrieve product specifications, quantity, and pricing
information. During the product/service
fulfillment cycle, customers can electronically check on the status of the
order. For
example, Federal Express' customers can electronically track the status of
their packages without the need to speak with a human. For follow-up service, customers can
electronically access help desks, repair information, etc.
6. How
can electronic commerce help a firm reach its customers in a very low-cost
fashion? Give an example.
Some firms are able to shift some of their sales
and marketing functions to electronic processes. This shift in communication mediums allows
the firm to either reduce their overhead costs or better utilize their human
resources to engage in building customer relations rather than performing
tedious sales processing tasks.
7. Does
Internet access make employees more or less productive? Give an example.
Whether the availability to access the Internet for
personal use is abused or misused by an employee depends on the personal
characteristics of the employee and their work ethic. For busy employees that work long-hours, the
ability to take care of some errands may ease their tension and allow them to
actually devote more time that is of better quality to their tasks.
Example: A worker is so consumed
with surfing and managing his/her stock portfolio on the Internet that he/she
loses track of time and has wasted three hours of company time.
Example: A worker is able to
accomplish 2 or 3 errands during the day on the Internet making it easier for
him/her to work late.
8. Why
is it important for web sites to differentiate their sites from other similar
sites?
It is important for a web site to differentiate its
site from others in order to produce an effect.
Similar to traditional marketing, web site creation must create a brand
recognition strategy.
9. Why
do you think the travel industry’s Internet growth potential is so great?
The travel industry is a crossover industry in that
it serves both businesses and consumers.
Prior to the Internet, the only way to get prices was to call a travel
agent or each individual airline. The
Internet allows easier access to flights and other travel arrangements.
10. Why
is it so important to align the electronic commerce strategy with the overall
business strategy?
If electronic commerce applications are not placed
in the proper business context and the strategy aligned with the business’
overall business strategy, then the electronic commerce application is likely
to fail. A study by the Cambridge
Information Network found that over one-third of firms studied did not believe
that their company successfully implemented its electronic commerce
initiative. Approximately one-fourth of
these firms attributed the lack of success to a failure to connect the
electronic commerce effort with the goals of the business. Thus, new business models are necessary that
integrate electronic commerce initiatives with overall business goals.
11. Give
examples of how the supplier’s information system can be used at every link in
the value chain by the customer?
A customer may link to the firm’s inventory data
such as price, quantity, and availability, prior to entering into a sales
contract.
Example: A general
contractor finding price availability before choosing Home Depot as a
supplier.
Further, the customer may be able to electronically
receive design and product specifications prior to entering into a sales
contract.
Example: An automobile
manufacturer that outsources its car seat manufacturing can ensure that a
supplier’s product will fit its design specifications.
The actual sales may be placed electronically and a
promised or expected shipping date given by the supplier’s information system
to the customer. Once the order is
placed, the customer may be able to check the status of the order/service
placed.
Example: Examining the status of an order placed
(waiting for shipment, shipped, or delivered).
12. Why
do you think web-based firms report more security breaches than other
companies?
The nature of the transactions and the vast number
of people who have access to the Internet are one of the primary reasons why
firms engage in web-based commerce report more security breaches. By connecting to the very public Internet, a
firm enters a completely new and exponentially larger network than firms not
connected or only connected to a private network. Greater connectivity poses greater risk and
vulnerability.
cases
1. Web
Site Comparison
For each of the following items, locate two web
sites that sell them:
¨
airline
tickets;
¨
personal
computers;
¨
compact
discs; and
¨
clothes.
a.
Mention how you
located each site. If you used a search
engine. Mention the search engine and
the search terms you used.
b.
For each
item, record the site’s URL and company name.
Compare the amount of information given and the relative prices.
c.
Mention which
site your preferred and why. Would you
return to the site or would you continue to look for a better site. Why?
Student’s answers are going to differ. The following is a possible example of an a
and b. Part c should be answered using
intelligible support from the information provided:
Airline:
¨
http://www.travelocity.com. Extensive information of hotel, airline, car
rental and getaway packages are offered.
Prices vary according to flights and times needed. It allows cross comparisons.
¨
http://www.americanairlines.com. Information was extensive, but limited to
American Airlines. Pricing was subject
to times and destination.
Personal Computers:
¨
http://www.dell.com. Extensive pricing and customer service was
easily assessable.
Compact Discs:
¨
http://www.cdnow.com/cgi-bin/mserver/redirect/leaf=from=bad:s:yhb:kmug:xswad. The
company name is CD Now. Extensive
information could be found through its own search mechanism. Prices are comparable to store prices. Shipping and handling are additional.
Clothes:
¨
http://www.llbean.com/products/guide_pages/holiday_gifts/home/?qs=4906900-exci.
Extensive information on current and back issues was located and pricing
information.
¨
Http:/www.jcrew.com. Information of store location and catalogs
were offered. Pricing data and other
information was given.
2. ICDT
Model
Visit Disney’s web site (www.disney.com) and using Angehrn’s ICDT
model, classify the activities found on the site into the four virtual spaces.
http://www.disney.com
can be classified as the virtual information space. The information is easily accessible and
current.
The on-line ordering process may be classified by
both the Virtual Distribution and Virtual transaction space because of the
nature of the procurement process and security issues involved.
Virtual communications is encompassed by the
on-line chat sessions available from the site and the corporate relations’
site.
Students should visit the site in order to grasp
the concept of the ICDT model.
3. Value
Chain Management using Electronic Commerce
Using the Internet, locate a consulting
service or software vendor that claims to help firms better manage their value
chains using some form of electronic commerce.
Prepare a report for class that includes the following items:
a. the name of the company;
Roadmap Technologies.
b.
type of firm
– consulting or software vendor;
Roadmap Technologies is a leading provider of value
chain analytical applications containing built-in business intelligence and
predictive capabilities for the decision support needs of an organization.
Roadmap software leverages investments in data warehouses, data marts and ERP
to deliver applications for sales forecasting, demand planning, contract.
(http://www.roadmap-tech.com/).
management, sales planning and tracking, customer and product
profitability.
c.
potential
benefits to customers of services/software;
To better manage the binding constraints within the
value chain.
d.
if a “client list” is given by the consultant or
vendor, list the names of three companies that use or endorse the
service/software.
No client list was given.
offices.
a.
Why did some
of the equipment used in the disaster recovery plan work initially and then
ultimately fail?
The back-up systems were not devised for use over
an extended period of time. The back up
systems were generally targeted for use for 24 to 48 hours, not three to five
days or even weeks.
b.
Domco, Inc.
switched its operations to a disaster recovery site. Why did it have to shut down business
operations for three days? Do you think
the disaster recovery plan included a three day business closure?
Domoco’s generators failed after three days causing
the firm to shut down. The firm did not
plan on a three-day closure, and they did not prepare for all scenarios of
disaster recovery. They did not
anticipate a lengthy disaster, nor did they prepare for obstructions of
roadways, cellular and telecommunications, or network lines.
c.
How did
advance communications networks help the New York state disaster recovery
headquarters?
The advanced communication network allowed the NY
state disaster recovery headquarters by allowing it to link up through
frame-relay and Integrated Services Digital Network (ISDN). The system combines underground ISDN lines
and IP (Internet Protocol) networks that don’t use regular phone lines to keep
the system running even when phone communication and electricity has failed.
d.
Should this
disaster have caught so many businesses off-guard? Was it that unpredictable?
For the geographic location in which these businesses exist in it should not have
taken them off guard. Due to past storms
it was not that unpredictable and could have been avoided although it would
have been extremely costly to be more risk adverse to such situations.
e.
Overall, what
worked well and what did not? What can
be done to improve disaster recovery planning for this region?
Reliance on traditional forms of communication and
transportation failed the companies. The
focus of short-term disaster recovery versus long term viability of a backup
proved to be disastrous. NY State’s
approach of investing in ISDN and IP technology proved to work well. To improve disaster recovery in this area and
all regions past scenarios would serve as possible predictors or the
future. Conducting extensive Dress
Rehearsals and preparing for a loss of manpower would serve the companies
well. Although this would help reduce
such future occurrences one must still keep in mind the exorbitant costs
associated with reducing control risk.
Chapter Quiz
1. Which of the following is a
technological limitation of EC?
A.
security and privacy concerns that
deter customers from buying
B.
order
fulfillment requirements of large-scale B2C
C.
difficulty obtaining venture capital
D.
unresolved taxation, public policy,
and legal issues
2. Ebay auctions are mostly:
A.
business-to-consumer
B.
business-to-business
C.
consumer-to-consumer
D.
business-to-employees
3. The type of EC transactions used
by Zappos are:
A. business-to-consumer
B.
business-to-business
C.
consumer-to-consumer
D.
business-to-employees
4. The second generation of
Internet-based services that lets people collaborate and share information
online in new ways, such as social networking sites, wikis, communication
tools, and folksonomies best defines:
A. Social Web
B. EC 2.0
C. Virtual Web
D. Web 2.0
5. Major barriers to EC include all
of the following except:
A.
implementation difficulties
B.
lack
of programmers
C. lack of potential customers.
D. competition
E. cost
6. A ________ is a company's method
of doing business to generate revenue to sustain itself.
A. marketing strategy
B. business plan
C. value chain
D. business model
7. Large private organizational
buyers and government agencies make large-volume or large-value purchases
through ________, also known as reverse auctions.
A.
name-your-own-price models
B.
viral marketing
C.
electronic
tendering systems
D.
online direct marketing
8. Economic, legal, societal, and
technological factors have created a highly competitive business environment in
which customers are becoming less powerful.
A.
True
B.
False
9. Electronic commerce is an
interdisciplinary field.
A. True
B.
False
10. The structure of a social network is
often very simple.
A.
True
B.
False
11. Benefits of e-commerce to
customers include:
A.
instant delivery.
B.
ubiquity.
C.
no sales tax.
D. all of the above.
12. A category of Internet
applications that helps connect friends, business partners, or individuals with
specific interests by providing free services such as photo presentation, e-mail,
blogging, and so on using a variety of tools best describes:
A.
public networking.
B.
intranet.
C.
social
networking.
D.
extranet.
13. A network that uses the Internet
to link ent intranets best defines:
A. extranet.
B.
corporate net.
C.
collaboration network.
D.
relational network.
14. The e-commerce model in which a
business provides some product or service to a client business that maintains
its own customers is called:
A.
consumer-to-consumer.
B.
business-to-business-to-consumer.
C.
business-to-consumer.
D.
business-to-business.
15. Collaborative computing is
an approach aimed at making the human-computer interface more natural.
A.
True
B.
False
16. Enterprise social networks are privately
owned by corporations and operate inside them.
A. True
B.
False
17. Pure-play organizations are old-economy
organizations that perform their primary business offline, selling physical
products by means of physical agents.
A.
True
B.
False
18. According to the ________
revenue model, customers pay a fixed amount, usually monthly, to receive some
type of service.
A. subscription fees
B.
transaction fees
C.
affiliate fees
D.
advertising fees
19. A broader definition of EC that
includes not just the buying and selling of goods and services, but also
servicing customers, collaborating with business partners, and conducting
electronic transactions within an organization best defines:
A.
e-collaboration.
B.
e-tailing.
C.
cyber business.
D. e-business.
20. Using Web 2.0 tools, companies can:
A.
provide incentives such as
sweepstakes and contests for customers to get involved in new product or
service design and marketing campaigns.
B.
encourage consumers to rate and
comment on products.
C.
allow consumers to create their own
topic areas and build communities.
D. do all of the above.
21. Many companies use a corporate
portal, which is a gateway for customers, employees, and partners to reach corporate
information and communicate with the company.
A. True
B.
False
22. Facebook is an example of an enterprise
social network.
A.
True
B.
False
23. Purchasing a computer from
Dell's Web site is partial EC because the merchandise is physically delivered.
A. True
B.
False
