4.1 © 2006 by prentice hall 4 chapter the digital firm: electronic business and electronic commerce

4.1 © 2006 by Prentice Hall

4Chapter

The Digital Firm: The Digital Firm: Electronic Business Electronic Business

and Electronic and Electronic CommerceCommerce

The Digital Firm: The Digital Firm: Electronic Business Electronic Business

and Electronic and Electronic CommerceCommerce


OBJECTIVES

• Analyze how Internet technology has changed value propositions and business models

• Define electronic commerce and describe how it has changed consumer retailing and business-to-business transactions

Management Information SystemsManagement Information SystemsChapter 4 Chapter 4

The Digital Firm: Electronic Business and Electronic CommerceThe Digital Firm: Electronic Business and Electronic Commerce


• Compare the principal payment systems for electronic commerce

• Evaluate the role of Internet technology in facilitating management and coordination of internal and interorganizational business processes

• Assess the challenges posed by electronic business and electronic commerce and management solutions

OBJECTIVES (Continued)




• Challenge: trillions of product configurations, short lead times, many competitors

• Solution: Web extranet for order entry, customization, inventory, change orders, and shipping

• Demonstrates how IT and the Web coordinate the flow of information about orders, production, inventory and shipment

• Illustrates how systems in the digital firm connect demand, supply, and fulfillment to achieve operational excellence



Corrugated Supplies Case


ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

Internet Technology and the Digital Firm

• Information technology infrastructure: The Internet provides a universal and easy-to-use set of technologies and technology standards that can be adopted by all organizations.

• Direct communication between trading partners: Disintermediation removes intermediate layers and streamlines processes.





• Round the clock service: Web sites available to consumers 24 hours

• Extended distribution channels: Outlets created for attracting customers who otherwise would not patronize a firm

• Reduced transaction costs: Costs of searching for buyers declines



Internet Technology and the Digital Firm (Continued)



Business Model:

• Defines an enterprise • Describes how the enterprise delivers a product

or service• Shows how the enterprise creates wealth.

Example: Selling Books business models Example: Selling Books business models (Amazon.com)(Amazon.com)

New Business Models and Value Propositions





• Information asymmetry: One party in a transaction has more information than the other. The Internet decreases information asymmetry.

Example: Auto retailing sites.• Increases richness: The Internet increases the

depth, detail, and scope of information.• Increases reach: The Internet increases the

number of people who can be contacted efficiently.

The Changing Economies of Information





The Changing Economics of Information

Figure 4-1





• Virtual storefront: Sells goods or services online (Amazon.com)

• Information broker: Provides information on products or services (Edmunds.com). Generate revenue from advertising, or from directing buyers to sellers

• Transaction broker: Provides online transaction facility (eTrade.com, Expedia.com)

• Online marketplace: Provides a trading platform for individuals and firms (eBay.com)

Internet Business Models





• Content provider: Creates revenue by providing content (WSJ.com, TheStreet.com). The customer may pay to access the content, or revenue may be generated by selling advertising space (Banner ad).

• Online service provider: Provides online services, including search service. (Google.com, Xdrive.com). Generate revenue from subscription or transaction fee, from advertising, or from collecting marketing information from the users.



Internet Business Models (Continued)


•Portal: Provides initial point of entry to Web, specialized content, services (Yahoo.com, MSN.com)

Internet Business Models (Continued)

•Virtual community: Provides an online community to focused groups (Friendster.com, iVillage.com).

Social networking sites: are a type of online community which is considered as practice of expanding the number of one’s business by making connections through individuals. It links people and enable them to mine their friends ( and their friends’ friends)


ELECTRONIC COMMERCE

Categories of Electronic Commerce

• Business-to-customer (B2C): Retailing of products and services directly to individual customers (Wal-Mart.com)

• Business-to-business (B2B): Sales of goods and services to other businesses (Grainger.com, Ariba.com)

• Consumer-to-consumer (C2C): Individuals using the Web for private sales or exchange (eBay.com )




Business-To-Consumer

Advantages of E-commerce:

• Customer-centered retailing: Closer and more personalized relationship with customers is possible

• Web sites: Provide a corporate-centered portal for the consumer to quickly find information on products, services, prices, orders

ELECTRONIC COMMERCE




• Disintermediation: The elimination of organizations or business process layers responsible for certain intermediary steps in a value chain, reducing costs to the consumer

• Reintermediation: The shifting of the intermediary role in a value chain to a new source, adding additional value to the consumer.

Example: real estate agents, may be replaced by new intermediaries specializing in helping Internet users efficiently obtain product and price information, locate on-line sources of goods and services, or manage or maximize the value of the information captured about them in electronic commerce transactions)

ELECTRONIC COMMERCE



Business-To-Consumer

Advantages of E-Commerce: (Continued)


The Benefits of Disintermediation to the Consumer

Figure 4-2

ELECTRONIC COMMERCE




Clickstream tracking tools:

• Collect data on customer activities at Web sites and store them in a log

ELECTRONIC COMMERCE

Interactive Marketing and Personalization




Web Site Visitor Tracking

Figure 4-3

ELECTRONIC COMMERCE




• Create unique personalized Web pages for each customer

• Increased closeness to customer increases value to the customer, while reducing costs of interacting with the customer

ELECTRONIC COMMERCE

Web Personalization




Web Site Personalization

Figure 4-4

ELECTRONIC COMMERCE




• Compares information gathered about a specific

user’s behavior at a Web site to data about other

customers with similar interests to predict what

the user would like to see next. The software then

makes recommendations to users based on their

assumed interests.

ELECTRONIC COMMERCE

Collaborative filtering:




• The use of Web sites to provide customers with access to information and answers to questions

• Replacing human call center operators and clerks

• UPS.com: Customer tracking of packages

• Orbitz.com: Customer self-help for organizing and managing a trip

• Dell.com: “My Order Status” facility

ELECTRONIC COMMERCE

Customer self-service:




• Electronic Data Interchange (EDI): Enables the computer-to-computer exchange between two organizations of standard transactions. Currently 80% of B2B e-commerce uses this system.

• EDI is being replaced by more powerful Web-based alternatives.

Business-to-Business Electronic Commerce: New Efficiencies and Relationships

ELECTRONIC COMMERCE



4.24 © 2006 by Prentice HallFigure 4-5

Electronic Data Interchange (EDI)


ELECTRONIC COMMERCE

Net Marketplaces : They are sometimes called : They are sometimes called e-hubse-hubs, provide a , provide a

single digital marketplace based on Internet technology for many single digital marketplace based on Internet technology for many

different buyers and sellers.different buyers and sellers.

Net Marketplaces



Figure 4-7


1. Distributors: B2B online catalogs provide buyers with access to thousands of parts and other goods (Grainger.com)

2. Procurement platforms: Platforms for purchasing goods and materials and also sourcing, negotiating with suppliers, paying for goods, and making delivery arrangements (Ariba.com)

Four different types of Net Marketplaces:


ELECTRONIC COMMERCE

3. Independent exchanges: Third-party Net marketplace that is

primarily transaction-oriented and that connects many buyers

and suppliers for spot purchasing (Freemarkets.com,

GEPolymerland.com).• Exchanges are on-line marketplaces where multiple buyers can

purchase from multiple sellers using a bid–ask system. E-Steel is an example. Buyers log in and create inquiries, specifying details, terms, and suppliers for the steel they wish to purchase.



Net Marketplaces

Four different types of Net Marketplaces: (Continued)


4. Industry consortia: Industry-owned Net marketplaces

used primarily for long-term sourcing of direct inputs to

production (ChemConnect.com)

•There are several categories of exchanges. Vertical exchanges, also known as industry exchanges, are set up to service specific industries, such as the automobile, forest products, or energy industries.

•Horizontal exchanges focus on specific functions that can be found in many different industries, such as Maintenance, Repair, and Operating (MRO) supplies. MRO.com is an example.


ELECTRONIC COMMERCE

Private Industrial Networks • The largest Web-based form of B2B commerce.• A private industrial network, also known as a private exchange, A private industrial network, also known as a private exchange,

links a firm to its suppliers, distributors, and other key business links a firm to its suppliers, distributors, and other key business partners for efficient supply chain management and other partners for efficient supply chain management and other collaborative commerce activities. management and collaborative collaborative commerce activities. management and collaborative activities.activities.

• A private industrial network typically consists of a large firm A private industrial network typically consists of a large firm using an extranet to link to its suppliers and other key business using an extranet to link to its suppliers and other key business partners partners

• Example: Wal-Mart uses its own private network to coordinate

more than 15,000 suppliers to its stores.




ELECTRONIC COMMERCE

A Private Industrial Network

Figure 4-6




ELECTRONIC COMMERCE

Electronic Commerce Payment Systems




ELECTRONIC BUSINESS AND THE DIGITAL FIRM

• Benefits

• Functional applications

• Good examples: CARE and Mitre Corporation

How Intranets Support Electronic Business





• Connectivity: Accessible from most computing platforms

• Can be tied to internal corporate systems and core transaction databases

• Platforms for interactive applications

• Scalable to larger or smaller computing platforms

Benefits of Intranets





• Easy to use, universal standard Web interface

• Low start-up costs

• Richer, more responsive information environment than corporate manuals

• Reduced information distribution costs



Benefits of Intranets (Continued)



• Finance and accounting

• Human resources

• Sales and marketing

• Manufacturing and production

Functional Applications of Intranets





Functional Applications of Intranets

Figure 4-8





• General ledger reporting

• Project costing

• Annual reports

• Budgeting

Finance & Accounting





Company:

• Online publishing of corporate policy

• Job postings and internal job transfers

• Company telephone directories, training

Human Resources





• Healthcare

• Employee savings

• Competency tests



Employees:

Human Resources (Continued)



• Competitor analysis

• Price updates

• Promotional campaigns

• Sales presentations

• Sales contracts



Sales and Marketing


• In manufacturing, information-management issues are highly complex, involving:– massive inventories– capturing and integrating real-time production data flows

• The manufacturing function typically uses multiple types of data, including graphics as well as text, which are scattered in many disparate systems.

• Developing intranets that integrate manufacturing data under a uniform user interface is more complicated than in other functional areas.

• Manufacturing Intranets coordinating the flow of information between controllers, inventory systems, and other components of a production system can make manufacturing information more accessible to different parts of the organization.

Manufacturing and Production



• Quality measurements

• Maintenance schedules

• Design specifications

• Machine outputs

• Order tracking



Manufacturing and Production (Continued)


The Internet and collaborative commerce:

• Collaborative commerce: When firms use the Internet to cooperate closely in the development, production, and distribution of products and services

• GE Plastics maintains an Intranet where its customers (selected fabricators) can find information on product design and new developments.

Business Process Integration






Collaborative Commerce

Figure 4-9




MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS

The Internet provides firms with extraordinary

opportunities to develop new products and

services, new distribution channels, new avenues

for marketing and sales, and even entirely new

business models.



Management Opportunities:


• Finding a successful Internet business model– Dot-com stock prices collapsed after many of these

companies failed to generate enough revenue to sustain their costly marketing campaigns, infrastructures, and staff salaries, losing money on every sale they made. Business models built around the Internet are new and largely unproven.

– Doing business over the Internet is not necessarily more efficient or cost effective than traditional business methods

– Businesses that are unclear about their online strategy and its relationship to their overall business strategy –can waste even millions of dollars building and maintain website that fail to deliver the desired results.




Management Challenges:


•Organizational change challenges•Channel conflictsChannel conflicts

–Using the Web for online sales and marketing may create channel conflict with the firm's traditional channels, especially for less information-intensive products that require physical intermediaries to reach buyers. A company's sales force and distributors may fear that their revenues will drop as customers make purchases directly from the Web or that they will be displaced by this new channel.

Management Challenges (Continued)


•Trust, Security, and Privacy

Management Challenges (Continued)

–Electronic commerce cannot flourish unless there is an atmosphere of trust among buyers, sellers and other partners involved in online transactions. Since online relationships are more impersonal than those in "brick and mortar" commerce, many consumers remain hesitant to make purchases over the Web from unfamiliar vendors. Consumers also worry about the security and confidentiality of the credit card and other personal data that they supplied over the Internet


• Determining how Internet technology can provide value for the business.

• Managing business process changes:Before embarking e-commerce or e-business,initiatives, mangers will need to identify carefully the organizational changes required to make them work.

• Safeguarding security and privacy : Firms engaging in e-commerce and e-business need a new security culture and infrastructure that enable them to straddle this fine line

Solution Guidelines:




4.1 © 2006 by prentice hall 4 chapter the digital firm: electronic business and electronic commerce

Documents

electronic commerce

books business models

new business models

prentice hall objectives

prentice hall challenge

flow of information

facilitating management

role of internet technology