© Prentice Hall, Chapter 1 Foundations of Electronic Commerce

© Prentice Hall, Learning Objectives zDefine electronic commerce and describe its various categories zDistinguish between electronic markets and inter- organizational systems zDescribe the benefits of electronic commerce to organizations, consumers, and society zDescribe the limitations of electronic commerce zUnderstand the forces that drive the widespread use of electronic commerce zDescribe and discuss the changes that will be caused by electronic commerce zDiscuss some major managerial issues regarding electronic commerce

© Prentice Hall, Opening Vignettes: Intel Corp. and Happy Puppy zIntel Corporation yBusiness-to-business (B2B) products selling yCustomer service yPurchasing from and dealing with suppliers zHappy Puppy yRetailing company’s games yMarketing others’ games yBusiness-to-consumers (B2C)

© Prentice Hall, Definitions and Content of Field zElectronic Commerce (EC) is where business transactions take place via telecommunications networks, especially the Internet. yElectronic commerce describes the buying and selling of products, services, and information via computer networks including the Internet. yThe infrastructure for EC is a networked computing environment in business, home, and government. yE-Business describes the broadest definition of EC. It includes customer service and intrabusiness tasks. It is frequently used interchangeably with EC.

© Prentice Hall, yA global networked environment is known as the Internet yA counterpart within organizations, is called an intranet yAn extranet extends intranets so that they can be accessed by business partners. Definitions and Content of Field (cont.)

© Prentice Hall, Pure Vs. Partial Electronic Commerce yThree dimensions xthe product (service) sold [physical / digital]; xthe process [physical / digital] xthe delivery agent (or intermediary) [physical / digital] yTraditional commerce xall dimensions are physical yPure EC xall dimensions are digital yPartial EC xall other possibilities include a mix of digital and physical dimensions

© Prentice Hall, Physical agent Digital agent Digital Product Physical Product Physical process Digital process Virtual process Virtual delivery agent Virtual product Electronic commerce areas The core of electronic commerce The Dimensions of Electronic Commerce Traditional commerce

© Prentice Hall, yFigure 1.2 shows that the EC applications are supported by infrastructures, and their implementation is dependent on four major areas (shown as supporting pillars) people, public policy, technical standards and protocols, and other organizations. yThe EC management coordinates the applications, infrastructures, and pillars. It also includes Internet marketing and advertisement. The Electronic Commerce Field

A Framework for Electronic Commerce 9 Electronic Commerce Applications Stocks Jobs On-line banking Procurement and purchasing Malls On-line marketing and advertising Home shopping Auctions Travel On-line publishing People: Buyers, sellers, intermediaries, services, IS people, and management Public policy, legal, and privacy issues Technical standards for documents, security, and network protocols payment Organizations: Partners, competitors, associations, government services Infrastructure (1) Common business services infrastructure (security smart cards/authentication electronic payment, directories/catalogs) (2) Messaging and information distribution infrastructure (EDI, , Hyper Text Transfer Protocol) (3) Multimedia content and network publishing infrastructure (HTML, JAVA, World Wide Web, VRML) (4) Network infrastructure (Telecom, cable TV wireless, Internet) (VAN, WAN, LAN, Intranet, Extranet) (5) Interfacing infrastructure (The databases, customers, and applications) Management © Prentice Hall, 2000

10 yA market is a network of interactions and relationships where information, products, services, and payments are exchanged. yThe market handles all the necessary transactions. yAn electronic market is a place where shoppers and sellers meet electronically. yIn electronic markets, sellers and buyers negotiate, submit bids, agree on an order, and finish the execution on- or off-line. Electronic Markets

11 Shopper/PurchaserSeller/Supplier Electronic Market (Transaction Handler) Electronic commerce network (Infrastructure) Product/service information request Purchase request Payment or payment advice Purchase fulfillment request Purchase change request Response to fulfillment request Shipping notice Payment approval Electronic transfer of funds Shopper/Purchaser’s Bank Payment remittance notice Electronic transfer of funds Transaction Handler’s Bank (Automated Clearing House) Seller/Supplier’s Bank Electronic Markets © Prentice Hall, 2000 Response to information request Purchase acknowledgment Shipping notice Purchase/service delivery (if online) Payment acknowledgment

© Prentice Hall, yAn interorganizational information system (IOS) involves information flow among two or more organizations. yIts major objective is efficient routine transaction processing, such as transmitting orders, bills, and payments using EDI or extranets. yScope: An IOS is a unified system encompassing two or several business partners. yA typical IOS includes a company and its suppliers and and/or customers. Interorganization Information Systems

© Prentice Hall, yElectronic data interchange (EDI) yExtranets yElectronic funds transfer (EFT) yIntegrated messaging systems yShared databases yElectronically-supported supply chain management Types of Interorganizational Systems

© Prentice Hall, yBusiness-to-business yBusiness-to-customer yIntra business transactions yOthers Classification of Electronic Commerce Classification of EC by the Nature of the Transactions © Prentice Hall, 2000

15 zMarketing zComputer sciences zConsumer behavior and psychology zFinance zEconomic zProduction/Logistic zManagement information systems zAccounting and auditing zManagement zBusiness law and ethics Electronic Commerce is Interdisciplinary

© Prentice Hall, The Benefits of Electronic Commerce yExpands the marketplace to national and international markets yDecreases the cost of creating, processing, distributing, storing and retrieving paper-based information yAllows reduced inventories and overhead by facilitating “pull” type supply chain management yThe pull type processing allows for customization of products and services which provides competitive advantage to its implementers zBenefits to Organizations

© Prentice Hall, Benefits to Organizations (cont.) yReduces the time between the outlay of capital and the receipt of products and services ySupports business processes reengineering (BPR) efforts yLowers telecommunications cost - the Internet is much cheaper than value added networks (VANs)

© Prentice Hall, Benefits to Customers yEnables customers to shop or do other transactions 24 hours a day, all year round from almost any location yProvides customers with more choices yProvides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparisons yAllows quick delivery of products and services in some cases, especially with digitized products

© Prentice Hall, Benefits to Customers (cont.) yCustomers can receive relevant and detailed information in seconds, rather than in days or weeks yMakes it possible to participate in virtual auctions yAllows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiences yElectronic commerce facilitates competition, which results in substantial discounts.

© Prentice Hall, Benefits to Society yEnables more individuals to work at home, and to do less traveling for shopping, resulting in less traffic on the roads, and lower air pollution yAllows some merchandise to be sold at lower prices benefiting the poor ones yEnables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to them yFacilitates delivery of public services at a reduced cost,increases effectiveness, and/or improves quality

© Prentice Hall, The Limitations of Electronic Commerce yLack of sufficient system’s security, reliability, standards, and communication protocols yInsufficient telecommunication bandwidth yThe software development tools are still evolving and changing rapidly yDifficulties in integrating the Internet and electronic commerce software with some existing applications and databases zTechnical Limitations of Electronic Commerce

© Prentice Hall, Technical Limitations of Electronic Commerce (cont.) yThe need for special Web servers and other infrastructures, in addition to the network servers (additional cost) yPossible problems of interoperability, meaning that some EC software does not fit with some hardware, or is incompatible with some operating systems or other components

© Prentice Hall, Non-Technical Limitations yCost and justification (35% of the respondents) xThe cost of developing an EC in house can be very high, and mistakes due to lack of experience, may result in delays. There are many opportunities for outsourcing, but where and how to do it is not a simple issue. Furthermore, to justify the system one needs to deal with some intangible benefits which are difficult to quantify.

© Prentice Hall, ySecurity and Privacy (17% of the respondents) xThese issues are especially important in the B2C area, and security concerns are not truly so serious from a technical standpoint. Privacy measures are constantly improving too. Yet, the customers perceive these issues as very important and therefore the EC industry has a very long and difficult task of convincing customers that online transactions and privacy are, in fact, fairly secure. yLack of trust and user resistance (4%) xCustomers do not trust an unknown faceless seller, paperless transactions, and electronic money. So switching from a physical to a virtual store may be difficult. Non-Technical Limitations (cont.)

© Prentice Hall, yOther limiting factors are: xLack of touch and feel online xMany unresolved legal issues xRapidly evolving and changing EC xLack of support services xInsufficiently large enough number of sellers and buyers xBreakdown of human relationships xExpensive and/or inconvenient accessibility to the Internet Non-Technical Limitations (cont.)

© Prentice Hall, The Driving Forces of Electronic Commerce yBusiness pressures yOrganizational responses yThe role of Information Technology (including electronic commerce) zThe New World of Business

© Prentice Hall, Major Business Pressures Market and economic pressures Strong competition Global economy Regional trade agreements (e.g. NAFTA) Extremely low labor cost in some countries Frequent and significant changes in markets Increased power of consumers Societal and environmental pressures Changing nature of workforce Government deregulation of banking and other services Shrinking government budgets subsides Increased importance of ethical and legal issues Increased social responsibility of organizations Rapid political changes Technological pressures Rapid technological obsolescence Increase innovations and new technologies Information overload Rapid decline in technology cost Vs. performance ratio

© Prentice Hall, Organizational Responses Framework for Organizational and Societal Impacts of Information Technology Management and Business Process Organization Structure and the Corporate Culture Individual and Roles Information Technology The Organization’s Strategy External Environment, Social, Economic, Political, etc

© Prentice Hall, yReducing cycle time and time to market yEmpowerment of employees and collaborative work yKnowledge management yCustomer-focused approach yBusiness alliances — virtual corporation Business Process Reengineering

© Prentice Hall, Everything Will Be Changed yProduct promotion yNew sales channels yDirect savings yTime-to-market (reduced cycle time) yCustomer service yBrand or corporate image zImproving Direct Marketing

© Prentice Hall, zTransforming Organizations yWork will change xTechnology learning xOrganizational learning zRedefining Organization yNew product capabilities yNew business models Other Changes in the Workplace

© Prentice Hall, zImpacts on Manufacturing yPull processing, mass customization, shorter cycle time, integration (ERP), electronic bidding and procurement zImpacts on Finance and Accounting yElectronic payment systems, electronic cash, automating back office, home banking, electronic stock trading zHuman Resource Management yElectronic recruiting, training, distance learning Other Changes in the Workplace (cont.)

© Prentice Hall, Plan of the Book Ch1 Introduction Part I Support and Implementation Ch8 Payments Ch9 Corporate Strategy Ch10 Public Policy Part III Technological Support Ch11 Infrastructure Appendix A Appendix B Appendix C Part IV Ch12 Economics, Global, Research in EC Part V Part II Ch2 Retailing Ch3 Consumer Behavior and Market Research Ch4 Advertisement Ch5 Service Industries Applications Ch6 Business-to-Businesses Ch7 Intranet and Extranet Applications EC Application

© Prentice Hall, yIs it real? yHow to evaluate the magnitude of the business pressures? yWhat should be my company’s strategy towards EC? yWhat is the best way to learn about EC? Management Issues