Electronic Commerce MIS 4108 Planning E-commerce Initiatives

Planning E-commerce Initiatives Session Objectives The objectives of this session are: To describe how to prepare a simple business plan To describe how to develop objectives To analyse strategies used to fulfil objectives And to analyse methods used to manage e-commerce initiatives Planning E-commerce Initiatives

Planning E-commerce Initiatives Business Plans What is a business plan? Why should I create a business plan? What are the sections of a business plan? Planning E-commerce Initiatives

Planning E-commerce Initiatives

Planning E-commerce Initiatives What is a Business Plan? A business plan is a document which highlights (for the given year): A plan of how the company will be run The goals of the company The money required to meet those goals The strategy employed to meet those goals (including marketing) Planning E-commerce Initiatives

Why Should I Create a Business Plan? A business plan forces a business to assess the market place It forces a business to identify a clear marketing strategy It also serves as a benchmark which the companies performance can be measured against. Planning E-commerce Initiatives

The Sections of a Business Plan There are seven essential sections of a business plan. These are the: Executive Summary Business Description Define Your Market Identify and Analyse Your Competition Design and Development Plan Operations and Management Plan Financial Statements Reference: Tiffany, Laura, “Elements of a Business Plan”, http://wwww.entrepreneur.com/article/print/0,2361,287355,00.html, March 2001 “Purpose Of The Marketing Plan”, Online Women's Business Center, http://www.onlinewbc.gov/docs/market/mk_plan_why.html, May 1997 Planning E-commerce Initiatives

Planning E-commerce Initiatives Executive Summary The executive summary follows the title page of the business plan The purpose of the executive summary is to explain to the reader what the business wants The summary should be short and concise (maybe half a page, typically no longer than a page) People do not have time to waste reading long documents Planning E-commerce Initiatives

Executive Summary Cont’d The key elements of an executive summary are: 1. The business concept What is the business you are proposing, its products and the advantages over the competition 2. The financial features Highlight the forecasted sales, profits, cash flows and return on investment 3. The financial requirements What are the start-up costs and the cost of expansion. How will this money be used? Planning E-commerce Initiatives

Executive Summary Cont’d 4. Current business position This includes any relevant information about the company, its formation date, its owners and key personnel 5. Major achievement Are there any developments which are essential to the success of the business? These may include prototypes, patents or crucial contracts Planning E-commerce Initiatives

Planning E-commerce Initiatives Business Description This section often begins with a short description of the industry, its present outlook and future possibilities Include any products or developments that might affect your business State whether the business is new or already in existence; and the type of operation, e.g. is it retail, food service, manufacturing or service-oriented? State who your customers will be and how your product will be distributed and advertised Planning E-commerce Initiatives

Business Description Cont’d Describe the product or service you intend to market Show how your business will gain the competitive edge Explain how the business will be profitable Planning E-commerce Initiatives

Planning E-commerce Initiatives Define Your Market Define the entire market for your industry in terms of size, structure, growth prospects, trends and sales potential Define the specific market that you will be targeting (market segmentation) Define your niche in this market Planning E-commerce Initiatives

Define Your Market Cont’d After defining your market you must: Estimate your market share for the period of time the business plan covers Position your business Price your product Determine the distribution strategy Create a promotion plan Estimate your sales potential Planning E-commerce Initiatives

Define Your Market Cont’d After researching the market, the information gained should be used to: Identify objectives And develop strategies that will allow you to fulfil these objectives This will be the focus of the next section Planning E-commerce Initiatives

Identify and Analyse Your Competition Determine who your competitors are What strategies are they using to sell their products or service What are they strengths and weaknesses Planning E-commerce Initiatives

Design and Development Plan The design and development plan allows investors to understand: The design of your product How it is produced How it will be marketing The development budget required to allow the company to meet its goals Planning E-commerce Initiatives

Design and Development Plan Cont’d The sections included in the development plan include: Product development Market development Organisational development Each of these sections should be described from a funding point of view Finally, identify measurable goals for the overall design and development plan Planning E-commerce Initiatives

Operations and Management Plan Describes how the business functions It explains business logistics: The responsibilities of the management team The task assigned to each company division Capital and expense requirements related to the operation of the business And the financial tables The operating expense table The capital requirements table The cost of goods table Planning E-commerce Initiatives

Planning E-commerce Initiatives Financial Statements The three common financial statements are: The balance sheet A statement of your assets, liabilities and equity The Income statement Reflects when sales are made and expenses are incurred The statement of cash flows shows The amount of cash required to meet obligations, when it is required and from where it will come Planning E-commerce Initiatives

Planning E-commerce Initiatives A successful business plan should include activities that: Identify objectives Link objectives to business strategy Planning E-commerce Initiatives

Identifying Objectives Objectives businesses strife to achieve using e-commerce include: Increase sales in existing markets Launching out into new markets Improve service to existing customers Identifying new vendors Coordinating more efficiently with existing vendors More effective recruiting Planning E-commerce Initiatives

Planning E-commerce Initiatives Types of Objectives Vary with the size of the organisation, for example: Small companies might want to build a Web site to encourage customers to do business using existing channels. A site offering only product or service information is less costly do design and implement Larger companies that might want to build sites that offer transaction handling, bidding, communication and other capabilities have to pay much more Planning E-commerce Initiatives

Planning E-commerce Initiatives SMART Objectives Objectives must be: Specific Measurable Achievable Results-based Time-bound Planning E-commerce Initiatives

Linking Objectives to Business Strategy After identifying objectives a company must: identify business strategies that will help to realise these objectives e.g. a small company’s objective might be to become a global player within a year and as a result one of its activities is to build a brand Planning E-commerce Initiatives

Linking Objectives to Business Strategy Cont’d Businesses can use downstream strategies to improve the value that the business provides to customers Or can pursue upstream strategies that focus on reducing cost or generating value by working with suppliers or inbound shipping and freight service providers Planning E-commerce Initiatives

Linking Objectives to Business Strategy Cont’d E-commerce can inspire businesses to partake in activities such as: Build brands Enhance existing marketing programs Sell products and services Sell advertising Develop a better understanding of the customer’s need Improve after sales support and service Planning E-commerce Initiatives

Linking Objectives to Business Strategy Cont’d E-commerce can inspire businesses to partake in activities such as: Purchase products and services Manage supply chains Operate auctions Build virtual communities However, these can not be done in an ad hoc manner. It is important to measure the benefit and cost of each activity Planning E-commerce Initiatives

Planning E-commerce Initiatives Measuring Benefit Some benefits are tangible and easy to measure, for example increase sales, decrease cost Others are intangible thus difficult to measure, for example increased customer satisfaction Managers need to try to set objectives that are measurable even for intangible benefits E.g. increased customer satisfaction might be measured by counting the number of first-time customers who return to the Web site and buy Planning E-commerce Initiatives

Measuring Benefit Cont’d Build brand Surveys or opinion polls that measure brand awareness Enhance existing marketing program Change in per-unit sales volume Improve customer service Customer satisfaction surveys, quantity of customer complaints Planning E-commerce Initiatives

Measuring Benefit Cont’d Reduce cost of after-sale support Quantity and type (telephone, fax, e-mail) of support activities Imply supplier chain operation Cost, quality and on-time delivery of materials or services purchased Hold auctions Quantity of auctions, bidders, sellers, items sold, registered participants, dollar value of items sold Provide portals Number of visitors Planning E-commerce Initiatives

Planning E-commerce Initiatives Managing Cost IT projects are often difficult to estimate and control E.g. web development technologies change rapidly, thus it is difficult for managers to estimate cost These cost include hardware and software Even though hardware cost tend to decrease, new software often demands new hardware, thus increase cost Planning E-commerce Initiatives

Total Cost of Ownership The project budget must include Hardware and software cost Costs of hiring, training and paying personnel Web site designers, developers, content providers, operators and maintainers Organisations tend to track cost by activity Planning E-commerce Initiatives

Total Cost of Ownership Cont’d The total cost of ownership (TCO) includes Cost of hardware (servers, routers, firewalls and load balancing devices) Cost of software (licenses for operating systems, Web server software, database software, and application software) Cost of outsourced design work Salaries and benefits for employees Cost of maintaining the site once operational A good TCO will include cost of future redesign Planning E-commerce Initiatives

Planning E-commerce Initiatives Change Management Every project involves change Change management is the process of helping employees cope with change Change management techniques include Communicating the need for change Inclusion in the change decision process Inclusion in the planning for the change Planning E-commerce Initiatives

Change Management Cont’d If change is not properly managed, employees feel Uncomfortable Inadequate Stressed which leads to reduced work performance Unable to do the job properly Powerless Planning E-commerce Initiatives

Planning E-commerce Initiatives Opportunity Cost Opportunity cost is the benefit that will be lost if a company chooses not to initiate an e-commerce initiative This is of great concern to management and accountants Planning E-commerce Initiatives

Planning E-commerce Initiatives Web Site Costs The cost required for a large company to build an entry-level e-commerce site is US$1 million 79% is labour cost 10% software cost 11% hardware cost Source: International Data Corporation and Gartner Inc. Planning E-commerce Initiatives

Planning E-commerce Initiatives Web Site Costs Cont’d The cost required for a large company to build a site that is comparable to leading sites is US$2 - $5 million To build a Web site that is noticeably better than competitors will cost a minimum of US$15 million 10 of the top 100 e-commerce sites spent over US$10 million for Web site development and implementation Source: International Data Corporation and Gartner Inc Planning E-commerce Initiatives

Planning E-commerce Initiatives Web Site Costs Cont’d A small company can put a Web site online for US$5000 For a business with full transaction and payment processing capabilities, it is difficult to keep it under US$10,000 per year Construction of new Web sites for small businesses actually averages US$140,000 Minimum amount to open a complete e-commerce Web site is US$150,000 Planning E-commerce Initiatives

Planning E-commerce Initiatives Web Site Costs Cont’d Web site costs include Start-up cost Ongoing costs (between 50% - 200% of initial cost) Planning E-commerce Initiatives

Planning E-commerce Initiatives Web Site Costs Cont’d The cost for a full portal magazine site To build: US$2.4 million US$4.3 million per year to maintain with a staff of 35 people The cost for a more limited site To build: US$150,000 US$270,000 per year to maintain with a staff of 2 people Planning E-commerce Initiatives

Planning E-commerce Initiatives Web Site Costs Example Kmart (http://www.kmart.com/) >US$140 million to create online retail website Much of the site’s cost is hidden from the user Cost of customising middleware that connects the Web site to Kmart’s vast inventory and logistics databases Planning E-commerce Initiatives

Web Site Costs: A Final Word The high cost of creating e-commerce Web sites can serve as a discouragement to small businesses Smaller organisations can control costs by: Using a combination of third party hosting services and packaged e-commerce software Sign up for mall-style service providers This provides low initial cost and controls annual TCO, however cost of related activities can not be ignored, e.g. creating and maintaining a product catalog Planning E-commerce Initiatives

Comparing Benefits to Costs Determine value of benefits Identify benefits Compare value of benefits to value of cost Determine value of costs Identify costs Planning E-commerce Initiatives

Return On Investment (ROI) Return on Investment techniques measure the amount of income (return) that will be provided by a specific expenditure ROI requires that all costs are stated in a dollar amount ROI focuses on benefits that can be predicted Many benefits are often hidden ROI tends to emphasize short-term benefits over long term benefits Planning E-commerce Initiatives

ROI Hidden Benefits Example CISCO systems created an on-line customer forum to discuss product issues The intended benefits were to Reduce customer service costs Increase customer satisfaction regarding the availability of product information Additional (hidden) benefit Cisco engineers were able to get feedback on new products Planning E-commerce Initiatives

Planning E-commerce Initiatives ROI Problems If managers rely only on ROI incorrect decision may be made Due to biases towards short term cost and benefits rather than long term Planning E-commerce Initiatives

Strategies For Developing E-commerce Web Sites 1994-1996 Static Brochures Contact information Logos and or other branding Some product information Financial statements Planning E-commerce Initiatives

Strategies For Developing E-commerce Web Sites Cont’d 1996 – 1999 Transaction Processing Static brochures plus Complete product catalog Shopping cart Secure payment processing Other information queries Shipment tracking Planning E-commerce Initiatives

Strategies For Developing E-commerce Web Sites Cont’d 1992 – Present Full Range of Automated Business Processes Transaction processing, plus Personalisation Interactive capabilities Frequently updated content Customer relationship Management tools Planning E-commerce Initiatives

Internal Development v. Outsourcing Definition: Outsourcing is the hiring of outside support to do all or part of a project E-commerce site development problems can not be avoided by outsourcing Success depends on how well the e-commerce initiative is integrated into and supports business activities Planning E-commerce Initiatives

Internal Development v. Outsourcing Cont’d Using internal people to lead e-commerce initiatives helps to ensure that the companies specific needs are addressed and that the plan fits the culture Outside consultants are seldom able to learn enough about the culture (in the contract period) in order to accomplish all the objectives Planning E-commerce Initiatives

Internal Development v. Outsourcing Example Few companies are large enough or have sufficient expertise to launch an e-commerce project without external help E.g. Wal-mart (with annual sales of $195 billion) in 2006 hired another company for outside support Planning E-commerce Initiatives

Planning E-commerce Initiatives Internal Teams In determining which parts of an e-project to outsource first create an internal team Include people: With technical know-how about the Internet Creative thinkers Already successful employees Planning E-commerce Initiatives

Planning E-commerce Initiatives Internal Teams Cont’d Do not select a technical wizard as project leader if he/she does not have the necessary business skills Is not well-known and respected by the operating function managers Is not creative Planning E-commerce Initiatives

Planning E-commerce Initiatives Internal Teams Cont’d Set aside between 5-10% of a project’s budget for quantifying the projects value and measuring the achievement (e.g using metrics) More and more companies are realising the importance of their staff’s knowledge about the business and its processes These resources do not appear in companies financial statements Planning E-commerce Initiatives

Planning E-commerce Initiatives Internal Teams Cont’d The internal team decides Which part of the project to outsource Who the parts will be outsourced to Which partners the company needs to hire for the project Planning E-commerce Initiatives

Planning E-commerce Initiatives Types of Outsourcing There are three types of outsourcing Early outsourcing E-commerce initiatives lend themselves more to early outsourcing Late Outsourcing Partial outsourcing Planning E-commerce Initiatives

Planning E-commerce Initiatives Early Outsourcing The initial site design and development is outsourced in order to launch it quickly An e-commerce site can rapidly become a source of competitive advantage for a company Outsourcing team trains company information system professionals in the technology and hands over the operation of the site It is best for the company’s own information systems people to work closely with the outsourcing team and develop ideas for improvements as early as possible Planning E-commerce Initiatives

Planning E-commerce Initiatives Late Outsourcing This is the more traditional way The company’s information system professionals do the initial design and development work, implement the system and operate it until it becomes a stable part of the business After the competitive advantage is gained, the system is outsourced, allowing the team to pursue new technology projects Planning E-commerce Initiatives

Planning E-commerce Initiatives Partial Outsourcing The company identifies specific portions of the project that can be completely designed, developed, implemented and operated by another firm that specialises in a particular function In both early and late outsourcing a single group is responsible for the entire design, development and operation of a project Planning E-commerce Initiatives

Partial Outsourcing Cont’d E-commerce initiatives can benefit from partial outsourcing Partial outsourcing is also called component outsourcing Planning E-commerce Initiatives

Partial Outsourcing Example Many smaller Web sites outsource their email handling and response functions Electronic payment systems A company may use an external vendor to take care of payment processing When the customer is ready to pay, he/she is taken to another site and then returned to the original site The most common part of an e-commerce project that is outsourced is the web-hosting activity Planning E-commerce Initiatives

Selecting a Web Hosting Service The internal team should be responsible for selecting the ISP to host the site For smaller e-commerce projects teams can consult an ISP dictionary (for ISPs, web hosting services or ASPs (application service provider)) Larger companies should use consultants or other firms that rate service providers Planning E-commerce Initiatives

Selecting a Web Hosting Service Cont’d The most important factors to use when evaluating a hosting service are: Functionality Reliability Bandwidth and server scalability Security Backup and disaster recovery Cost Planning E-commerce Initiatives

New Methods for implementing Partial Outsourcing In the past five years new ways of implementing partial outsourcing have been creating Incubators Fast venturing Planning E-commerce Initiatives

Planning E-commerce Initiatives Incubators A company that offers start-up companies a physical location with offices, accounts and legal assistance, computers, and Internet connections at a very low monthly cost Some also offer seed money, management advice an marketing assistance In exchange the company gives 10-50% ownership of the company to the Incubator Planning E-commerce Initiatives

Planning E-commerce Initiatives Incubators Cont’d When the company grows and can obtain venture capital financing or can publicly offer stock, the Incubator sells all or part of its interest and re-invests in a new incubator candidate Example: Idealab (www.idealab.com/) was one of the first Internet incubators and helped www.carsdirect.com/home Planning E-commerce Initiatives

Planning E-commerce Initiatives Internal Incubators Internal incubators are incubators that are set up by a company (using internal staff), e.g. Kodak internal venturing program of the 1980s Most of these were unsuccessful because employees found it difficult to maintain an entrepreneurial spirit when what ever they developed would be taken away and controlled by the parent company Planning E-commerce Initiatives

Internal Incubators Cont’d A new internal incubator model has emerged where the resulting technology is left under the control of the team, who form a company The parent company and the new company then become strategic partners This new internal incubator model promises to be more successful than the traditional model Planning E-commerce Initiatives

Planning E-commerce Initiatives Fast Venturing An existing company that wants to launch an e-commerce initiative joins with external equity and operational partners that can offer the experience and skills that can scale up the project rapidly Equity partners are usually banks or venture capitalist that can offer money or expertise Operational partners are firms, such as system integrators, consultants and Web portals who have the experience in moving projects along and scaling up prototypes Planning E-commerce Initiatives

Planning E-commerce Initiatives Fast Venturing Cont’d Venture sponsor Develop ideas. Staffs internal team. Create prototype. Provide all or most of the start-up funds. Equity partners Review and refine ideas. Provide advice. Evaluate prototype. Provide contacts (including operational partners). Operational partners Turn ideas into a business plan. Provide financial, technical and operations expertise. Provide industry best practice knowledge. Scale up prototype to an operating model. Planning E-commerce Initiatives

Managing E-Commerce Initiatives Project management Project portfolio management Specific staffing Post-implementation audits Planning E-commerce Initiatives

Managing Electronic Commerce Initiatives To manage complex e-commerce implementations formal management techniques should be used: Project management Project portfolio management Specific staffing Post-implementation audits Planning E-commerce Initiatives

Planning E-commerce Initiatives Project Management A collection of formal techniques for planning and controlling the activities undertaken to achieve a specific goal The project plan includes cost, schedule and performance Applications such as Microsoft Project and Primavera Project Planner help with project planning These type of projects (e-commerce projects) have a reputation for failing Planning E-commerce Initiatives

Project Portfolio Management A technique used to manage multiple projects Each project is monitored as if it is an investment in a financial portfolio Each project is assigned a rank based on its importance to the strategic goals of the business and level of risk E-commerce projects are viewed as investments in assets Planning E-commerce Initiatives

Staffing for E-Commerce The internal team must determine the staffing needs for the e-commerce initiatives The general areas of staffing required are: Business, project and account managers Application specialists Web programmers and graphic designers Content creators, managers or editors Customer service System, and database administration Network operations Planning E-commerce Initiatives

Planning E-commerce Initiatives Business Manager Should be a member of the internal team Sets objectives for the project Responsible for implementing the elements of the business plan and reaching the objectives set Develops proposal for plan revisions and funding Should have the required domain knowledge (e.g. retail knowledge if a retail Web site is being built) Planning E-commerce Initiatives

Planning E-commerce Initiatives Project Manager Specific training or skills in tracking costs and accomplishing project goals Certification might be useful (e.g. Project Management Institute) or MBA Skills in the use of project management software Planning E-commerce Initiatives

Planning E-commerce Initiatives Account Manager Keeps track of multiple Web sites in use by a project Or keeps track of projects that will combine to make a larger Web site The account manager supervises the location of specific Web pages and related software installations as they are moved from test, to demonstration, to production In smaller companies they handle the project and account management functions Planning E-commerce Initiatives

Application Specialist Maintain accounting, human resources, and logistics software Must maintain e-commerce software, e.g. catalogs, payment processing Planning E-commerce Initiatives

Planning E-commerce Initiatives Other Roles Web programmers Design and write code for Web site Web graphics designers A person trained in art, layout, composition and understands how Web pages are constructed Content creators Write original content Content managers/editors Purchase existing material and adapt it Planning E-commerce Initiatives

Planning E-commerce Initiatives Other Roles Cont’d Customer service personnel Help design and implement customer relationship management activities, e.g. issue passwords, design customer interface features, handle customer e-mail and telephone requests for service and conduct telemarketing for the site Some companies hire a call centre to handle phone calls and e-mail Planning E-commerce Initiatives

Planning E-commerce Initiatives Other Roles Cont’d Systems administrator Responsible for system reliability and security Network operation staff Load estimation and monitoring, resolving network problems and managing network operations Database administration Support activities such as transaction processing, order entry, inquiry management or shipment logistics Planning E-commerce Initiatives

Post-Implementation Audits A formal review of a project after it is up and running Managers compare the the objectives, performance specifications, cost estimates, and scheduled delivery dates plans with the actuals Planning E-commerce Initiatives

Post-Implementation Audits Cont’d The purpose is not to lay blame but to: Provide project and business managers to raise questions about the objectives and use the feedback in other projects The audit should result in a comprehensive report that analyses the project performance, the administration, organisational structure and the performance of the project team Some audits contain a confidential section which evaluates the performance of individual team members – to help when choosing teams in future Planning E-commerce Initiatives

Planning E-commerce Initiatives Group Assignment # 2 By reading this handout carefully, you are requested to create a business plan for a particular business (Include the steps related to a business plan). Is it possible to present your business on the web? If so, you have to develop it as your final project of this course? Planning E-commerce Initiatives

Planning E-commerce Initiatives References [1] Tiffany, Laura, “Elements of a Business Plan”, March 2001. Online document available at http://wwww.entrepreneur.com/article/print/0,2361,287355,00.html [2] Online Women's Business Center, “Purpose Of The Marketing Plan”, May 1997. http://www.onlinewbc.gov/docs/market/mk_plan_why.html [3] Schneider, Gary, P., “Electronic Commerce: The second wave”, Thomson Course Technology, Fifth Annual Edition, 2004 Planning E-commerce Initiatives