E-Business Tenth Edition Chapter 12 Implementing E-Business Initiatives 1 1 1

Learning Objectives In this chapter, you will learn: How to identify benefits and estimate costs of electronic commerce initiatives How online business startups are evaluated and financed When and how to outsource online business initiative development How to manage and staff electronic commerce implementations 2 2 2

Identifying Benefits and Estimating Costs of Electronic Commerce Initiatives Information technology projects Keys to successful implementation Planning and execution Successful electronic commerce initiative business plan 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

Identifying Objectives Typical business electronic commerce objectives Increasing existing markets’ 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 Compare e-commerce risk to inaction risk

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 providers Web use for businesses Attractive sales channel for many firms Complement business strategies, improve competitive positions

Linking Objectives to Business Strategies (cont’d.) Electronic commerce activities difficult to measure First-wave e-commerce activities Existed without setting specific, measurable goals Plenty of investors for highly speculative activities Successes and failures measured in broad strokes Second-wave e-commerce activities Businesses took closer look at benefits and costs Good implementation plan Sets specific objectives for benefits achieved and costs incurred

Linking Objectives to Business Strategies (cont’d.) Third-wave e-commerce activities Impacted by smart phones’ and tablet devices’ pervasiveness Web access in many more locations Changed nature of online communication Technology benefits more easily acquired Example: Social media tools Smaller businesses’ electronic commerce activities increase anticipated

Identifying and Measuring Benefits Some electronic commerce initiatives Obvious, tangible, easy to measure Example: increased sales or reduced costs Other electronic commerce initiatives More difficult to measure Example: increased customer satisfaction Identifying objectives Set measurable objectives Include intangible benefits

Identifying and 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 due to other things company doing Increase due to time or general improvement in the economy

Identifying and Measuring Benefits (cont’d.) Using Web sites to improve customer service or after-sale support Set goals of increased customer satisfaction Reduce customer service or support costs Example: Philips Lighting Provided Web ordering system for smaller customers Primary goal: reduce cost of processing smaller orders Built pilot Web site and had smaller customers try it Results: customer service phone calls from test group dropped by 80 percent

Identifying and 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

Identifying and Measuring Benefits (cont’d.) Measurements of other electronic commerce initiatives (cont’d.) Virtual communities and Web portals Measure number of visitors, quality of visitors’ experiences Metrics Measurements companies make to assess value of site visitor activity benefits Online surveys Estimates: length of time each visitor remains on site, how often visitors return

FIGURE 12-1 Measuring the benefits of electronic commerce initiatives

Identifying and Measuring Benefits (cont’d.) Benefit unit of measure Convert raw activity measurements to dollars Compare benefits to costs Compare net benefit of a particular initiative to net benefits provided by other projects Difficult to measure value in dollars 14

Identifying and Estimating Costs Information technology project costs Difficult to estimate and control Web development Uses rapidly changing hardware and software technologies Hardware costs are downward Increasing software sophistications Provides ever-increasing demand for more newer, cheaper hardware Yields net increase in overall hardware costs

Identifying and Estimating Costs (cont’d.) Software costs often underestimated Web technology’s rapid changes add to project planning difficulty

Identifying and Estimating Costs (cont’d.) Total cost of ownership (TCO) Includes all costs related to activity Electronic commerce implementation TCO includes: Hardware costs, software costs, outsourced design work, employee salaries and benefits, site maintenance Good TCO number Includes assumptions about how often site would need to be redesigned in the future

Identifying and Estimating Costs (cont’d.) Opportunity cost Cost of not undertaking an initiative Largest and most significant costs associated with electronic commerce initiative Foregone benefits that company could have obtained from electronic commerce initiative not pursued Examples: customers never obtained; sales not made; suppliers not identified; and cost reductions not achieved in company’s supply chain

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

Identifying and Estimating 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 20

FIGURE 12-2 Estimated costs for business Web sites © Cengage Learning 2013 FIGURE 12-2 Estimated costs for business Web sites

Identifying and Estimating Costs (cont’d.) Web site costs (cont’d.) Costs generally heading downward Due to lower costs for broadband access and computer hardware Development and maintenance costs decreasing 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 22

FIGURE 12-3 Important Web hosting service features

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

Funding Online Business Startups (cont’d.) 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

Funding Online Business Startups (cont’d.) System of financing startup and initial growth of online businesses Benefits Access to large amounts of capital early Costs Investors Most profits go to venture capitalists and angel investors Pressure to grow rapidly 26

Funding Online Business Startups (cont’d.) Decrease need for venture capitalists and angel investors by: Relieving pressure to grow rapidly Becoming more creative Learning from mistakes Trending toward more and smaller online ventures Online business creation costs falling

Comparing Benefits to Costs Capital projects (capital investments) Major investments in equipment, personnel, other assets Techniques to evaluate proposed capital projects Range from simple calculations to complex computer simulation models Reduce to comparison of benefits and costs

Comparing Benefits to Costs (cont’d.) Key parts of creating electronic commerce initiatives business plan Identify potential benefits Identify costs required to generate benefits Evaluate whether benefits exceed costs

© Cengage Learning 2013 FIGURE 12-4 Cost/benefit evaluation of electronic commerce strategy elements

Return on Investment (ROI) Return on investment (ROI) techniques Measures amount of income (return) provided by specific current expenditure (investment) Examples: Payback method, net present value method, and internal rate of return Provides quantitative expression of comfortable benefit-to-cost margin Mathematically adjusts for future reduced value of benefits

Return on Investment (ROI) (cont’d.) Electronic commerce initiatives Seen as absolutely necessary investments Not always subjected to close examination, rigid requirements Companies fear being left behind Perceived value in new market early positioning allows: Many companies to invest large amounts of money With few near-term profit prospects Example: first wave of newspaper Web sites

Return on Investment (ROI) (cont’d.) Electronic commerce second wave of Web-related expenditures Being reviewed for ROI ROI built-in biases ROI requires that all costs and benefits be stated in dollars Gives undue weight to costs ROI focuses on predicted benefits Initiatives have returned benefits not foreseen

Return on Investment (ROI) (cont’d.) ROI tends to emphasize short-run benefits over long-run benefits More information CIO Budget site ROI Knowledge Center Web pages Third wave electronic commerce Highly sophisticated analyses of planned online business activities

Strategies for Developing Electronic Commerce Web Sites © Cengage Learning 2013 FIGURE 12-5 Evolution of Web site functions

Strategies for Developing Electronic Commerce Web Sites (cont’d.) Transformation occurred rapidly Web site development and management: slower Today: Web site seen as collections of software applications Companies using tools to manage site Companies faced with challenges Creating new markets through Web sites Reconfiguring supply chains 36

Internal Development vs. Outsourcing Initiative’s success dependency How well initiative integrates into and supports business activities 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

Internal Development vs. Outsourcing (cont’d.) Few companies launch an electronic commerce project without some external help Key to success Finding balance between outside and inside support Outsourcing Hiring another company to provide outside support for all or part of project 38

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

Internal Development vs. Outsourcing (cont’d.) Project lead Mistake: technical wizard; not knowledgeable about business; 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 monetary Express in terms appropriate to initiative objectives

Internal Development vs. Outsourcing (cont’d.) Intellectual capital Employees’ knowledge about the business and its processes Ignored in the past Value recognized today Human capital measures Include employee competencies Include value of customer loyalty and business partnerships

Internal Development vs. Outsourcing (cont’d.) Responsible for initiative From setting objectives to final implementation Internal team decides: Project parts to outsource Outsourcer Consultants or partners needed

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 as early as possible in project life Late outsourcing More traditional approach

Internal Development vs. Outsourcing (cont’d.) Company’s information systems professionals Perform initial design and development, implement system, and operate system until stable 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 initiatives Lend themselves more to early outsourcing

Internal Development vs. Outsourcing (cont’d.) Partial outsourcing (component outsourcing) Company identifies specific project portions Portion can be completely designed, developed, implemented, and operated by another firm Examples Smaller Web sites outsource e-mail handling and response functions Electronic payment system

Internal Development vs. Outsourcing (cont’d.) Web hosting activity Service providers usually willing to accommodate requests for variety of service levels Service provider has continuous staffing and expertise 24/7 operation: running 24 hours a day, seven days a week Service providers offer wide range of services Some service providers specialize

New Methods for Implementing Partial Outsourcing New ways of implementing partial outsourcing strategy evolved specifically for Web businesses Incubator Offers start-up companies physical location with offices, accounting and legal assistance, computers, and Internet connections Very low monthly cost May offer seed money, management advice, and marketing assistance Receives ownership interest in company

New Methods for Implementing Partial Outsourcing (cont’d.) Incubator sells all or part of its interest Company grows to obtain venture capital financing, launch stock public offering Early Internet incubator: Idealab Helped CarsDirect.com, Overture, Tickets.com Today’s focus: internally generated ideas

New Methods for Implementing Partial Outsourcing (cont’d.) Company-created internal incubators Develop technologies for use in main business operations Unsuccessful and shut down Matsushita Electric’s U.S. Panasonic division Started internal incubators to help launch new companies to become strategic partners Incubator development team become managers of new company Strategic partner incubators: more successful

New Methods for Implementing Partial Outsourcing (cont’d.) Fast venturing Existing company wants to launch electronic commerce initiative Joins external equity partners and operational partners offering experience; skills needed Equity partners: usually banks or venture capitalists Equity partners sometimes offer money Equity partners more likely to offer experience

New Methods for Implementing Partial Outsourcing (cont’d.) Operational partners: firms Systems integrators, consultants Experienced in moving projects along, scaling up prototypes 51

FIGURE 12-6 Elements of fast venturing © Cengage Learning 2013 FIGURE 12-6 Elements of fast venturing

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

Project Management Project management Collection of formal techniques for planning and controlling activities undertaken to achieve specific goal Developed by U.S. military and defense contractors Project plan criteria Cost, schedule, and 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 Internal team personnel and tasks Examples: Oracle Primavera, Microsoft Project Open Workbench, OpenProj, Redmine: open-source project management software packages with many of the same features as the leading commercial products Also helps manage tasks assigned to consultants, technology partners, and outsourced service providers

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

Project Management (cont’d.) Electronic commerce uses rapidly changing technologies Relatively short development times Technology and user expectations have less time to change Initiatives more successful (in general) For more information Project Management Institute

Project Portfolio Management Used by chief information officer (CIO) Top technology manager Project portfolio management Technique whereby CIO monitors project 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 58

Project Portfolio Management (cont’d.) Project management software Designed to handle individual projects Not suited for consolidating activities CIO assigns ranking for each project based on: Importance to the strategic goals of the business Level of risk (probability of failure) CIO uses any methods financial managers use to evaluate risk of making investments in business assets 59

Staffing for Electronic Commerce Chief information officer (CIO) 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 and reaching objectives set by internal team

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 61

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

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 63

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: e-mail marketing Customer service personnel Design and implement customer relationship management activities in electronic commerce operation 64

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

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 66

Staffing for Electronic Commerce (cont’d.) Database administration function support activities include: Transaction processing, order entry, inquiry management, shipment logistics Activity requirements: 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, and scheduled delivery dates Blame identification approach Used more in the past Focused on identifying individuals to blame for cost overruns and missed delivery dates

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 Administration of project Appropriate project organizational structure in place Specific project team(s) performance Should compare actual results to objectives

Change Management Information system projects involve change Employee concerns Ability to cope with changes, ability to continue to do good work, and 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 70

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 Learn from project experiences Postimplementation audit