1. Electronic Commerce Tenth Edition
Chapter 12 Planning for Electronic Commerce 1 1 1

2. 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
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3. 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
Electronic Commerce, Tenth Edition

4. 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
Electronic Commerce, Tenth Edition

5. 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
Electronic Commerce, Tenth Edition

6. 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
Electronic Commerce, Tenth Edition

7. 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
Electronic Commerce, Tenth Edition

8. 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
Electronic Commerce, Tenth Edition

9. 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
Electronic Commerce, Tenth Edition

10. 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
Electronic Commerce, Tenth Edition

11. 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
Electronic Commerce, Tenth Edition

12. 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
Electronic Commerce, Tenth Edition

13. FIGURE 12-1 Measuring the benefits of electronic commerce initiatives
Electronic Commerce, Tenth Edition

14. 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
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15. 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
Electronic Commerce, Tenth Edition

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

17. 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
Electronic Commerce, Tenth Edition

18. 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
Electronic Commerce, Tenth Edition

19. 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
Electronic Commerce, Tenth Edition

20. 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
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21. FIGURE 12-2 Estimated costs for business Web sites
© Cengage Learning 2013
FIGURE 12-2 Estimated costs for business Web sites
Electronic Commerce, Tenth Edition

22. 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
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23. FIGURE 12-3 Important Web hosting service features
Electronic Commerce, Tenth Edition

24. 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
Electronic Commerce, Tenth Edition

25. 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
Electronic Commerce, Tenth Edition

26. 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
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27. 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
Electronic Commerce, Tenth Edition

28. 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
Electronic Commerce, Tenth Edition

29. 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
Electronic Commerce, Tenth Edition

30. © Cengage Learning 2013
FIGURE 12-4 Cost/benefit evaluation of electronic commerce strategy elements
Electronic Commerce, Tenth Edition

31. 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
Electronic Commerce, Tenth Edition

32. 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
Electronic Commerce, Tenth Edition

33. 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
Electronic Commerce, Tenth Edition

34. 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
Electronic Commerce, Tenth Edition

35. Strategies for Developing Electronic Commerce Web Sites
© Cengage Learning 2013
FIGURE 12-5 Evolution of Web site functions
Electronic Commerce, Tenth Edition

36. 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
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37. 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
Electronic Commerce, Tenth Edition

38. 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
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39. 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
Electronic Commerce, Tenth Edition

40. 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
Electronic Commerce, Tenth Edition

41. 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
Electronic Commerce, Tenth Edition

42. 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
Electronic Commerce, Tenth Edition

43. 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
Electronic Commerce, Tenth Edition

44. 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
Electronic Commerce, Tenth Edition

45. 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 handling and response functions
Electronic payment system
Electronic Commerce, Tenth Edition

46. 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
Electronic Commerce, Tenth Edition

47. 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
Electronic Commerce, Tenth Edition

48. 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
Electronic Commerce, Tenth Edition

49. 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
Electronic Commerce, Tenth Edition

50. 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
Electronic Commerce, Tenth Edition

51. New Methods for Implementing Partial Outsourcing (cont’d.)
Operational partners: firms
Systems integrators, consultants
Experienced in moving projects along, scaling up prototypes
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52. FIGURE 12-6 Elements of fast venturing
© Cengage Learning 2013
FIGURE 12-6 Elements of fast venturing
Electronic Commerce, Tenth Edition

53. 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
Electronic Commerce, Tenth Edition

54. 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
Electronic Commerce, Tenth Edition

55. 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
Electronic Commerce, Tenth Edition

56. 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
Electronic Commerce, Tenth Edition

57. 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
Electronic Commerce, Tenth Edition

58. 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
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59. 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
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60. 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
Electronic Commerce, Tenth Edition

61. 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
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62. 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
Electronic Commerce, Tenth Edition

63. 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
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64. 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
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65. 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 and secure operation
Electronic Commerce, Tenth Edition

66. 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
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67. 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
Electronic Commerce, Tenth Edition

68. 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
Electronic Commerce, Tenth Edition

69. 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
Electronic Commerce, Tenth Edition

70. 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
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71. 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
Electronic Commerce, Tenth Edition