1.4: The Business Environment Drives EC Characteristics in the business environment A more turbulent environment with more business problems and opportunities Stronger competition Need for organisations to make decisions more frequently A larger scope for decisions because more factors More information and/or knowledge needed for making decisions.

1.4: The Business Environment Drives EC Business Pressures Market (economic), societal, and technological factors have created a highly competitive business environment in which customers are becoming more powerful. These factors can change quickly, sometimes unpredictably. Business Critical Response Activities EC and technology in general, provides organisations with ways to operate their businesses more efficiently by providing services and functions that in the past have been performed by employees at less than optimum efficiencies Companies must not only take traditional actions such as lowering costs and closing unprofitable facilities, but also introduce innovative actions such as customising, creating new products, or providing superb customer service.

Exhibit 1.4 Major Business Pressures and the Role of EC Categories of business pressures market (economic) societal technological

1.4: The Business Environment Drives EC Organisational response strategies Strategic systems for competitive advantage Continuous improvement efforts Business process restructuring (BPR) Employee empowerment Supply chain improvements Business alliances Electronic markets Agile organisation Increased efficiencies Mass customisation

1.4: Organisational Response Strategies Strategic Systems provide organisations with strategies to increase their market share, better negotiate with suppliers, or stop competitors. Continuous Improvement Efforts aim to improve a company’s productivity and quality. Examples include: Improved productivity • Managing enterprise data Just-in-time (JIT) • Innovation and creativity Total quality management • Change management Knowledge management • Customer service

1.4: Organisational Response Strategies Business Process Restructuring (BPR) refers to the introduction of a major innovation in an organisation’s structure & the way it conducts business. The major areas in which IT supports BPR are the following; Reducing cycle time and time to market. Empowerment of employees and collaborative work EC allows the decentralisation of decision making and authority via empowerment and distributed systems, but simultaneously supports a centralised control Supply Chain Improvements EC can help reduce supply chain delays, reduce inventories, and eliminate other inefficiencies

1.4: Organisational Response Strategies Business Alliances.  Many companies realise that alliances with other companies, even competitors, can be very beneficial. Temporary joint venture = companies form a special company for a specific, limited-time mission. Electronic Markets. Doing business electronically is perhaps most promising strategy that many companies can pursue. Agile Organisations. Organisations that are able to react to improve productivity, even during times of change, through the appropriate uses of IT and EC.

1.5: EC Business Models Business Plan Business Case Business Model A written document that identifies the business goals and outlines the plan to achieve them. Business Case A written document that is used by managers to gather funding for specific applications for projects. Its major emphasis is the justification for specific investment. Business Model A method of doing business by which a company can generate revenue to sustain itself

The Structure of Business Models 1.5: EC Business Models The Structure of Business Models A description of the customers to be served and the company’s relationships with these customers (customers’ value proposition) A description of all products and services the business will offer A description of the business process required to make and deliver the products and services

The Structure of Business Models 1.5: EC Business Models The Structure of Business Models A list of the resources required and the identification of which ones are available, which will be developed in-house, and which will need to be acquired A description of the organisation supply chain, including suppliers and other business partners A description of the revenues expected (revenue model), anticipated costs, sources of financing, and estimated profitability (financial viability)

1.5: EC Business Models Revenue Models Major revenue models A revenue model: Description of how the company or an EC project will earn revenue Major revenue models Sales Transaction fees Subscription fees Advertising fees Affiliate fees Other revenue sources

How do e-marketplaces create value? (Amit and Zott 2001) 1.5: EC Business Models Value proposition The benefits a company can derive from using EC How do e-marketplaces create value? (Amit and Zott 2001) Search and transaction cost efficiency Complementarities Lock-in Novelty

1.5: Exhibit 1.6 Common Revenue Models

1.5: Typical EC Business Models Online direct marketing Manufacturer/retailer sells directly to consumers via Internet Electronic tendering systems Large organisational buyers issue needs via a reverse auction (lowest bidder wins) hosted by an EC intermediary, which then solicits bids from potential suppliers Name-your-own-price A buyer sets the price he is willing to pay and invites sellers to supply the good or service at that price Find the best price Customer specifies needs, then an EC intermediary matches the needs against a database, locates the lowest price, and submits the information to the customer.

1.5: Typical EC Business Models Affiliate marketing An arrangement whereby a marketing partner (a business, an organisation, or even an individual) refers consumers to the selling company’s Web site and takes a commission on sales from successful referrals. Viral marketing Word-of-mouth marketing in which customers promote a product or service to friends or other people. Group Purchasing Quantity purchasing that enables groups of purchasers to obtain a discount price on the products purchased e-co-ops Another name for online group purchasing organisations

1.5: Typical EC Business Models Online auctions Online shoppers make consecutive bids through an EC intermediary and the intermediary awards the product to the highest bidder Product and service customisation Creation of a product or service according to the buyer’s specifications or needs Electronic marketplaces and exchanges EC intermediaries bring together potential buyers and sellers via the Internet Supply chain improvers EC intermediaries who improve the speed and efficiency of existing supply chain relationships.

1.5: Typical EC Business Models Value-chain integrators Aggregate information-rich products into more complete package. Eg Carpoint.com provides financing and insurance Value-chain service providers Specialise in a supply chain function. Eg UPS.com for logistics or PayPal.com (now part of eBay) for logistics Information brokers Provide privacy, trust, matching, search, etc. Eg Google.com Bartering Exchange goods via a market maker. Eg Web-barter.com Deep discounting Companies such as Half.com offer products/services at deep discounting, as much as 50% off the retail price.

1.5: Example of Supply Chain Improver Orbis Group changes a linear physical supply chain to an electronic hub Traditional process in the B2B advertising field Case 1.5a

1.5: Example of Supply Chain Improver Product Bank simplifies this lengthy process by changing the linear flow of products and information to a digitised hub Case 1.5b

Benefits to Organisations 1.6: EC Benefits Benefits to Organisations Global reach Reduced costs Supply chain improvements Extended operating hours (24/7/365) Customisation Creation of new business models Vendor specialisation Improved time-to-market Lower communication costs Efficient procurement Improved customer relations Up-to-date company material No city business permits or fees Other benefits

1.6: EC Benefits Benefits to Consumers Ubiquity More products and services choices Customised products and services Cheaper products and services (cost) Instant delivery (speed) Improved information availability Participation in auctions Improved interactions with others through electronic communities No sales tax

1.6: EC Benefits Benefits to Society Telecommuting EC enables more individuals to work at home, thereby reducing pollution and traffic Improved standard of living because the less affluent can afford lower online prices Homeland security EC technologies allow for better communication, coordination, information interpretation and information sharing. Improve product availability in developing nations. Wider availability of public services

1.8: Networks for EC Task facing each organisation is how to put together the components that will enable the organisation to transform itself to the digital economy and gain competitive advantage by using EC Many employ corporate portals A major gateway through which employees, business partners, and the public can enter a corporate Web site

1.8: Exhibit 1.8 The Networked Organisation

Managerial Issues Is it real? Why is B2B e-commerce so attractive? There are so many EC failures—how can one avoid them? How do we transform our organisation into a digital one? How should we evaluate the magnitude of business pressures and technological advancement? What should be my company’s strategy toward EC? What are the top challenges of EC?