The Digital Firm: Electronic Business and Electronic Commerce Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce

Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce 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

Compare the principal payment systems for electronic commerce Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce OBJECTIVES (Continued) 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

Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce Corrugated Supplies Case 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

Internet Technology and the Digital Firm Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce 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.

Internet Technology and the Digital Firm (Continued) Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM Internet Technology and the Digital Firm (Continued) 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

New Business Models and Value Propositions Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM New Business Models and Value Propositions 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 (Amazon.com)

The Changing Economies of Information Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM The Changing Economies of Information 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 Economics of Information Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM The Changing Economics of Information Figure 4-1

Internet Business Models Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM Internet Business Models 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 (Continued) Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM Internet Business Models (Continued) 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) 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) Portal: Provides initial point of entry to Web, specialized content, services (Yahoo.com, MSN.com)

Categories of Electronic Commerce Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce 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 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE 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

Business-To-Consumer Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Business-To-Consumer Advantages of E-Commerce: (Continued) 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)

The Benefits of Disintermediation to the Consumer Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE The Benefits of Disintermediation to the Consumer Figure 4-2

Interactive Marketing and Personalization Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Interactive Marketing and Personalization Clickstream tracking tools: Collect data on customer activities at Web sites and store them in a log

Web Site Visitor Tracking Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Web Site Visitor Tracking Figure 4-3

Create unique personalized Web pages for each customer Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Web Personalization 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

Web Site Personalization Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Web Site Personalization Figure 4-4

Collaborative filtering: Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Collaborative filtering: 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.

Customer self-service: Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Customer self-service: 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

EDI is being replaced by more powerful Web-based alternatives. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Business-to-Business Electronic Commerce: New Efficiencies and Relationships 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.

Electronic Data Interchange (EDI) Figure 4-5

Management Information Systems Net Marketplaces Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Net Marketplaces Net Marketplaces : They are sometimes called e-hubs, provide a single digital marketplace based on Internet technology for many different buyers and sellers. Figure 4-7

Four different types of Net Marketplaces: 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: (Continued) Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Net Marketplaces Four different types of Net Marketplaces: (Continued) 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.

There are several categories of exchanges 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. 4. Industry consortia: Industry-owned Net marketplaces used primarily for long-term sourcing of direct inputs to production (ChemConnect.com)

Private Industrial Networks Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Private Industrial Networks The largest Web-based form of B2B commerce. A private industrial network, also known as a private exchange, links a firm to its suppliers, distributors, and other key business partners for efficient supply chain management and other collaborative commerce activities. management and collaborative activities. A private industrial network typically consists of a large firm using an extranet to link to its suppliers and other key business partners Example: Wal-Mart uses its own private network to coordinate more than 15,000 suppliers to its stores.

A Private Industrial Network Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE A Private Industrial Network Figure 4-6

Electronic Commerce Payment Systems Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Electronic Commerce Payment Systems

How Intranets Support Electronic Business Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM How Intranets Support Electronic Business Benefits Functional applications Good examples: CARE and Mitre Corporation

Connectivity: Accessible from most computing platforms Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Benefits of Intranets 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 (Continued) Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Benefits of Intranets (Continued) Easy to use, universal standard Web interface Low start-up costs Richer, more responsive information environment than corporate manuals Reduced information distribution costs

Functional Applications of Intranets Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Functional Applications of Intranets Finance and accounting Human resources Sales and marketing Manufacturing and production

Functional Applications of Intranets Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Functional Applications of Intranets Figure 4-8

General ledger reporting Project costing Annual reports Budgeting Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Finance & Accounting General ledger reporting Project costing Annual reports Budgeting

Online publishing of corporate policy Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Human Resources Company: Online publishing of corporate policy Job postings and internal job transfers Company telephone directories, training

Human Resources (Continued) Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Human Resources (Continued) Employees: Healthcare Employee savings Competency tests

Promotional campaigns Sales presentations Sales contracts Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Sales and Marketing Competitor analysis Price updates Promotional campaigns Sales presentations Sales contracts

Manufacturing and Production 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 (Continued) Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Manufacturing and Production (Continued) Quality measurements Maintenance schedules Design specifications Machine outputs Order tracking

Business Process Integration Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Business Process Integration 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.

Collaborative Commerce Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Collaborative Commerce Figure 4-9

Management Opportunities: Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS Management Opportunities: 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 Challenges: Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS Management Challenges: 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 (Continued) Organizational change challenges Channel 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 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

Solution Guidelines: Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS Solution Guidelines: 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