Electronic Commerce Eighth Edition Chapter 12 Implementing e-Business Initiatives Electronic Commerce, 9th Edition 1

2Electronic Commerce, Eighth Edition2 Learning Objectives In this chapter, you will learn about: Planning electronic commerce initiatives Strategies for developing electronic commerce Web sites Managing electronic commerce implementations

Electronic Commerce, 9th Edition3 Planning Electronic Commerce Initiatives Information technology projects –Keys to successful implementation Planning and execution Electronic commerce initiative business plan –Included activities Identifying initiative’s specific objectives Linking objectives to business strategies Setting electronic commerce initiative objectives –Consider strategic role of project, intended scope, resources available

Electronic Commerce, 9th Edition4 Identifying Objectives Typical business electronic commerce objectives –Increasing existing market’s sales –Opening new markets –Serving existing customers better –Identifying new vendors –Coordinating more efficiently with existing vendors –Recruiting employees more effectively Objectives vary with organization size

Electronic Commerce, 9th Edition5 Identifying Objectives (cont’d.) Resource allocations for electronic commerce initiatives –Decisions should consider: Expected benefits and costs of meeting objectives Risks inherent in electronic commerce initiative Comparison of inherent risks to risks of inaction

Linking Objectives to Business Strategies Downstream strategies –Tactics to improve the value businesses provide to customers Upstream strategies –Focus on reducing costs or generating value Working with suppliers or inbound shipping and freight service providers Electronic Commerce, 9th Edition6

7 Measuring Benefits Tangible benefits of electronic commerce initiatives –Easy to measure –Example: increased sales or reduced costs Intangible benefits of electronic commerce initiatives –More difficult to measure –Example: increased customer satisfaction Identifying objectives –Set measurable objectives even if for intangible benefits

Measuring Benefits (cont’d.) Using Web sites to build brands or enhance existing marketing programs –Set goals in terms of increased brand awareness Measured by market research surveys, opinion polls –Companies selling goods or services online Measure sales volume in units or dollars –Complicated to measure brand awareness or sales Increase may be due to other things company is doing at same time or general improvement in the economy Using Web sites to improve customer service or after-sale support –Set goals of increased customer satisfaction, reduced costs of providing customer service or support Electronic Commerce, 9th Edition8

Measuring Benefits (cont’d.) Measurements of other electronic commerce initiatives –Supply chain managers Measure supply cost reductions, quality improvements, faster deliveries of ordered goods –Auction sites Set goals for number of auctions, number of bidders and sellers, dollar volume of items sold, number of items sold, number of registered participants –Virtual communities and Web portals Measure number of visitors Measure quality of visitors’ experiences Electronic Commerce, 9th Edition9

Managing Costs Information technology project costs are difficult to estimate Web development uses rapidly changing hardware and software technologies –Most changes in hardware costs are downward –Increasing software sophistication Provides ever-increasing demand for more newer, cheaper hardware Yields net increase in overall hardware costs Electronic Commerce, 9th Edition10

Electronic Commerce, 9th Edition11 Managing Costs (cont’d.) Total cost of ownership (TCO) –Includes wide variety of costs related to activity Electronic commerce implementation TCO includes: –Costs of hardware, software, design work, outsourcing, salaries and benefits for employees involved in project, maintaining site once operational Good TCO number –Includes assumptions about how often site would need to be redesigned in the future

Managing Costs (cont’d.) Change management –Information system projects involve change –Employee concerns Ability to cope with changes, ability to continue to do good work, job security –Concerns lead to increased stress –Change management: process of helping employees cope with changes Includes tactics designed to help employees feel involved with change Helps employees overcome feelings of powerlessness Electronic Commerce, 9th Edition12

Electronic Commerce, 9th Edition13 Managing Costs (cont’d.) Opportunity costs –Largest and most significant costs associated with electronic commerce initiative Cost of not undertaking an initiative –Foregone benefits that company could have obtained from electronic commerce initiative not pursued –Lost benefits from action not taken

E- Business, Ninth Edition14 Identifying and Estimating Costs (cont’d.) Web site costs –Total dollar amounts required to create and operate a Web site Varied over the years –Relative proportion of costs remained stable 10 percent: computer hardware 10 percent: software 80 percent: labor –Annual cost of operating an online business Web site Remained stable Ranges between 50 and 200 percent of site initial cost

E- Business, Ninth Edition15 Identifying and Estimating Costs (cont’d.) Web site costs (cont’d.) –Small online store Placed into operations for less than $5000 –Small to midsize online business operation With full transaction and payment processing capabilities Initial investment: between $50,000 and $1 million Average $80,000 15

E- Business, Ninth Edition16 FIGURE 12-2 Estimated costs for business Web sites

17 Identifying and Estimating Costs (cont’d.) Trends in Web site costs – Costs generally heading downward Due to lower costs for broadband access and computer hardware –Comparison of Netscape with more recent startup companies Netscape (early 1990s): more than $40 million Digg (2004): less than $500,000 –Important element of annual Web site operating cost Choice of Web hosting service provider 17E- Business, Ninth Edition

Electronic Commerce, 9th Edition18 Managing Costs (cont’d.) Funding online business startups –Early Web businesses Started by individuals with knowledge of computers, technology, business –Late 1990s Web businesses Started by investors wanting to make fast money –Angel investors funded initial startup Became stockholders hoping business grows rapidly Sell interest to venture capitalist –Venture capitalists Very wealthy individuals, investment firms Look for small companies about to grow rapidly Hope for rapid growth and initial public offering –Initial public offering (IPO) Selling stock to public

Electronic Commerce, 9th Edition19 Comparing Benefits to Costs Capital projects (capital investments) –Major investments in equipment, personnel, other assets –Companies have procedures to evaluate Range from simple calculations to complex computer simulation models Always reduces to comparison of benefits and costs –Benefits exceed costs by comfortable margin Company invests in project

Electronic Commerce, 9th Edition20 Comparing Benefits to Costs (cont’d.) Key part of creating electronic commerce initiatives business plan –Identifying potential benefits –Identifying costs required to generate benefits –Evaluating if benefits exceed costs

Electronic Commerce, 9th Edition21

Electronic Commerce, 9th Edition22 Return on Investment (ROI) Techniques measuring amount of income (return) provided by specific current expenditure (investment) –Payback method, net present value method, internal rate of return Provide quantitative expression of comfortable benefit-to-cost margin Mathematically adjust for future reduced value of benefits

Strategies for Developing Electronic Commerce Web Sites Evolution of Web site functions –From static brochures (early days) –To transaction-processing tools –To today’s automated homes; all kinds of business processes Transformation occurred rapidly Now companies are seeing Web sites as collections of software applications –To manage development and maintenance Electronic Commerce, 9th Edition23

Strategies for Developing Electronic Commerce Web Sites E- Business, Ninth Edition24 FIGURE 12-5 Evolution of Web site functions

Electronic Commerce, 9th Edition25 Internal Development vs. Outsourcing Internal people leading projects ensures: –Company’s specific needs are addressed –Initiative congruent with organization goals, culture Outside consultants –Seldom able to learn enough about organization’s culture to accomplish objectives Key to success –Finding balance between outside and inside support Outsourcing –Hiring another company to provide outside support for all or part of project

Internal Development vs. Outsourcing (cont’d.) The internal team –First step in outsourcing decision making Create internal team –Team members People knowledgeable about the Internet and its technologies Creative thinkers Distinguished within the company Electronic Commerce, 9th Edition26

Electronic Commerce, 9th Edition27 Internal Development vs. Outsourcing (cont’d.) The internal team (cont’d.) –Project lead Mistake: technical wizard, not business knowledgeable, not well known Better choice: person with business knowledge, creativity, respect of firm’s operating function managers, good sense of goals and culture –Measuring team achievement: important Not necessarily monetarily Express in terms appropriate to initiative objectives

Electronic Commerce, 9th Edition28 Internal Development vs. Outsourcing (cont’d.) The internal team (cont’d.) –Intellectual capital Employees’ knowledge about the business and its processes Value recognized today –Human capital measurement networking approach Includes employee competencies Includes value of customer loyalty and business partnerships

Electronic Commerce, 9th Edition29 Internal Development vs. Outsourcing (cont’d.) The internal team (cont’d.) –Holds responsibility for initiative from setting objectives to final implementation Internal team decides project parts to outsource, outsourcer, consultants or partners needed

Electronic Commerce, 9th Edition30 Internal Development vs. Outsourcing (cont’d.) Early outsourcing –Company outsources initial site design and development to launch project quickly –Outsourcing team trains company’s information systems professionals before handing site operation to them Company’s own information systems people work closely with outsourcing team –Develop ideas for improvements as early as possible in project life

Electronic Commerce, 9th Edition31 Internal Development vs. Outsourcing (cont’d.) Late outsourcing –More traditional approach –Company’s information systems professionals Perform initial design and development work, implement system, and operate system until stable part of business operation –Once competitive advantage gained Electronic commerce system maintenance outsourced Company’s information systems professionals turn attention and talents to developing new technologies, providing further competitive advantage

Electronic Commerce, 9th Edition32 Internal Development vs. Outsourcing (cont’d.) Partial outsourcing –Also called component outsourcing –Company identifies specific project portions Can be completely designed, developed, implemented, and operated by another firm specializing in a particular function –Examples Smaller Web sites outsource handling and response functions Electronic payment system

Electronic Commerce, 9th Edition33 Managing Electronic Commerce Implementations Best way to manage complex electronic commerce implementation –Use formal management techniques Project management Project portfolio management Specific staffing Postimplementation audits

E- Business, Ninth Edition34 Project Management Project management –Collection of formal techniques for planning and controlling activities undertaken to achieve specific goal –Developed by U.S. military, defense contractors –Project plan criteria Cost, schedule, performance –Helps management make trade-off decisions involving the three criteria

Project Management (cont’d.) Project management software –Specific application software to help project managers oversee projects –Examples: Primavera P6, Microsoft Project Open Workbench: open-source project management software package offering many of the same features as the leading commercial products –Helps team manage tasks assigned to consultants, technology partners, outsourced service providers E- Business, Ninth Edition35

Project Management (cont’d.) Examining costs and completion times –Learn about project progression –Revise future estimated costs, completion times Risks of information systems’ development projects –Running out of control, ultimately failing –Causes: rapidly changing technologies, long development times, changing customer expectations Teams rely on project management software –Helps achieve project goals E- Business, Ninth Edition36

37 Project Portfolio Management Project portfolio management –Technique whereby project is monitored like an investment in a financial portfolio Allows tradeoffs between cost, schedule, and quality across projects as well as within individual projects Provides more flexibility in allocating resources to achieve the best set of benefits from all projects in the most timely manner Project management software –Designed to handle individual projects –Not suited for consolidating activities 37E- Business, Ninth Edition

38 Project Portfolio Management (cont’d.) CIO assigns ranking for each project based on: –Its importance to the strategic goals of the business –Its level of risk (probability of failure) CIO uses any methods financial managers use to evaluate risk of making investments in business assets 38E- Business, Ninth Edition

39 Staffing for Electronic Commerce Chief information officer (CIO) –Organization’s top technology manager –Responsibilities Overseeing all information systems and related technological elements required to undertake and operate online business activities Business manager –Member of internal team setting project objectives –Responsible for implementing business plan elements, reaching objectives set by internal team

40 Staffing for Electronic Commerce (cont’d.) Project manager –Person with specific training, skills in tracking costs and accomplishment of specific project objectives Project portfolio manager –Usually promoted from the ranks of the project managers –Responsible for tracking all ongoing projects and managing them as a portfolio Account manager –Keeps track of multiple Web sites in use or keeps track of projects combining into larger Web site 40E- Business, Ninth Edition

41 Staffing for Electronic Commerce (cont’d.) Applications specialists –Maintain accounting, human resources, logistics software Web programmers –Design and write underlying code for dynamic database-driven Web pages Web graphics designer –Trained in art, layout, composition –Understands how Web pages are constructed

42 Staffing for Electronic Commerce (cont’d.) Content creators –Write original content Content managers or content editors –Purchase existing material and adapt it for use on the site Social networking administrator –Responsible for managing virtual community elements of the Web operation 42E- Business, Ninth Edition

43 Staffing for Electronic Commerce (cont’d.) Online marketing manager –Specializes in specific techniques used to build brands and increase market share Uses Web site and other online tools: marketing Customer service personnel –Design and implement customer relationship management activities in electronic commerce operation 43E- Business, Ninth Edition

44 Staffing for Electronic Commerce (cont’d.) Call center –Company handling incoming customer telephone calls, s for other companies –Makes sense for smaller companies Systems administrator –Responsible for system’s reliable, secure operation

45 Staffing for Electronic Commerce (cont’d.) Network operations staff functions include: –Load estimation and load monitoring –Resolving network problems as they arise –Designing and implementing fault-resistant technologies –Managing any network operations outsourced to service providers or telephone companies 45E- Business, Ninth Edition

Electronic Commerce, 9th Edition46 Staffing for Electronic Commerce (cont’d.) Database administration function –Support activities Transaction processing, order entry, inquiry management, shipment logistics –Activities require: An existing database into which site being integrated Separate database established for electronic commerce initiative

Postimplementation Audits Postimplementation audit (postaudit review) –Formal review of project After up and running Examine project items established in planning stage –Compare to what actually happened Objectives, performance specifications, cost estimates, scheduled delivery dates Blame identification approach –Used more in the past –Focused on identifying individuals to blame for cost overruns, missed delivery dates E- Business, Ninth Edition47

Postimplementation Audits (cont’d.) Feedback on strategies used more today –Obtains valuable information Useful in planning future projects Gives participants meaningful learning experience Comprehensive audit report –Analyzes project’s overall performance How well project administered Appropriate project organizational structure in place Specific project team(s) performance –Should compare actual results to objectives E- Business, Ninth Edition48

Summary Key elements of e-commerce business plans –Setting objectives in measurable terms Derived from initiative’s overall goals Include planned benefits and planned costs –Evaluate cost-benefit ROI evaluation technique –Determine outsourcing strategy, staffing –Project management Postimplementation audit Managing change E- Business, Ninth Edition49