1 Introduction to E-Commerce Dr. Panagiotis Kanellis Arthur Andersen, Business Consulting Email:...

1

Introduction to E-Introduction to E-CommerceCommerce

Introduction to E-Introduction to E-CommerceCommerce

Dr. Panagiotis Kanellis Dr. Panagiotis Kanellis

Arthur Andersen, Business ConsultingArthur Andersen, Business Consulting

Email: [email protected]: [email protected]

Evangelia KopanakiEvangelia Kopanaki

National and Kapodistrian University of Athens, Dept of InformaticsNational and Kapodistrian University of Athens, Dept of Informatics

Email: [email protected]: [email protected]

In the latest of a string of bad news for ONLINE RETAILERS, Amazon.com reported its biggest-ever net loss, of $323m, in the fourth quarter of 1999; for the year as a whole, its net loss was $720m

-The Economist, February 4 2000

What is What is EE-Commerce?-Commerce?

„„The Electronic Support of one or more phases of The Electronic Support of one or more phases of a commercial transaction“ a commercial transaction“

OR „electronic buying & selling“OR „electronic buying & selling“

„„Electronic Commerce is a way to improve the Electronic Commerce is a way to improve the exchange of goods, services, information, and exchange of goods, services, information, and knowledge between organizations through the knowledge between organizations through the use of networked enabled technologies.“use of networked enabled technologies.“

Source:Source: Electronic Commerce: A Firmwide Perspective Electronic Commerce: A Firmwide Perspective

San Jose, July 98San Jose, July 98

Business-to-ConsumerBusiness-to-Consumer

E-Commerce: A Critical E-Commerce: A Critical AnalysisAnalysis

Business-to-Customer E-Business-to-Customer E-CommerceCommerce

Involves:Involves: Electronic RetailingElectronic Retailing Home BankingHome Banking On-line Banking On-line Banking On-line advertising and marketingOn-line advertising and marketing Stock Brokerage Stock Brokerage On-line publishing (electronic books andOn-line publishing (electronic books and

newspapers)newspapers) Virtual UniversitiesVirtual Universities Video-on-demandVideo-on-demand

Retailing over the Web: PromisesRetailing over the Web: Promises

Attractive new mediumAttractive new medium

Low cost compared to physical shopsLow cost compared to physical shops

Savings can be passed on to consumers Savings can be passed on to consumers

as as discounts discounts

Convenient for customers and vendorsConvenient for customers and vendors

User friendlyUser friendly

Global Market just a click away Global Market just a click away

‘‘Buying a shirt’Buying a shirt’

Producer ConsumerRetailerWholesaler


Cost per shirt

$52.72

$41.34

$20.45


Source: Wigand, R.T. and Benjamin, R.I. (1999)

Success StoriesSuccess Stories

Amazon.com online book salesAmazon.com online book sales virtual shelves hold 2.5m booksvirtual shelves hold 2.5m books

Airline tickets (EasyJet)Airline tickets (EasyJet) disintermediation of travel agentsdisintermediation of travel agents

Music CDs (CDNow)Music CDs (CDNow) IT products (Dell and Compaq)IT products (Dell and Compaq) Supermarkets (Tesco and Walmart)Supermarkets (Tesco and Walmart)

The Transaction CycleThe Transaction Cycle

InformationInformation company and productcompany and product marketing, public relations, advertisingmarketing, public relations, advertising detailed catalogue with pricesdetailed catalogue with prices

Order and PaymentOrder and PaymentDeliveryDeliveryAfter sales serviceAfter sales service

Electronic CataloguesElectronic Catalogues

A Buyer wants:A Buyer wants: search capabilitiessearch capabilities

“ “shopping basket”shopping basket”

order & paymentorder & payment

personalizationpersonalization

special offersspecial offers

relevant information on: relevant information on: product featuresproduct features

availability, delivery timeavailability, delivery time

A Seller wants:A Seller wants: fast updatesfast updates marketing marketing

capabilitiescapabilities to attract new to attract new

customerscustomers to capture customer to capture customer

information information integration with integration with

internal systemsinternal systems payment, distributionpayment, distribution

Strange BehaviourStrange Behaviour

Considerable investment in web sitesConsiderable investment in web sites Soaring stock prices for Internet firmsSoaring stock prices for Internet firms

BUTBUTLittle evidence of profitabilityLittle evidence of profitability75% of E-Commerce initiatives fail75% of E-Commerce initiatives failLittle sign of global e-commerce or e-Little sign of global e-commerce or e-cashcashFailure of electronic mallsFailure of electronic malls

‘‘Can’t judge a book by its Can’t judge a book by its cover’cover’

‘ ‘Infinite’ no. of web sitesInfinite’ no. of web sites overloadoverload many poorly designed and structuredmany poorly designed and structured poor quality/out of date informationpoor quality/out of date information good sites are costly to develop and maintaingood sites are costly to develop and maintain

‘ ‘Infinite’ no. of usersInfinite’ no. of users but how many are frequent and expert buyersbut how many are frequent and expert buyers affluent American male surfers are not buyersaffluent American male surfers are not buyers

SearchingSearching

Sellers use customer preferences for targeted Sellers use customer preferences for targeted marketingmarketing Customers broadcast desired product Customers broadcast desired product requirements allowing different vendors to offer bidsrequirements allowing different vendors to offer bids Problems of getting customers to the siteProblems of getting customers to the site

Limitation of Web search enginesLimitation of Web search engines Privacy Issues Privacy Issues

Difficulty in locating and comparing storesDifficulty in locating and comparing stores Assumes Web expertiseAssumes Web expertise Issues of trust Issues of trust

Promotion and Advertising Promotion and Advertising

Revenue opportunity from advertising Revenue opportunity from advertising Facilitates joint promotions Facilitates joint promotions

ButBut Web discounts Web discounts and special offers (fairly and special offers (fairly uncommon)uncommon) Has yet to matureHas yet to mature New medium constrained by size of screenNew medium constrained by size of screen Need careful design Need careful design

Product’s InformationProduct’s Information

Offers detailed up-to-date informationOffers detailed up-to-date information on a wide range of productson a wide range of products fast updatesfast updates personalizationpersonalization

ButBut Poor product coverage Poor product coverage Customer cannot interact with productCustomer cannot interact with product Little product Information Little product Information Needs search engine/careful structuringNeeds search engine/careful structuring

Online Ordering Remains Online Ordering Remains RareRare

Fast, global, 24-hour serviceFast, global, 24-hour service Potential to provide help with product selection and Potential to provide help with product selection and ordering, service information, auctions, shopping ordering, service information, auctions, shopping basketbasket

ButBut No help with product selectionNo help with product selection Long load timesLong load times Remains rare in practiceRemains rare in practice

inappropriate for some industriesinappropriate for some industries problems with international tradingproblems with international trading lacks personal touchlacks personal touch

Online SettlementOnline Settlement

Advantages of immediate payment andAdvantages of immediate payment and availability of terms and conditionsavailability of terms and conditions widespread availability of credit cardswidespread availability of credit cards possibility of online distributionpossibility of online distribution

ButBut Suffers fromSuffers from

security worriessecurity worries inappropriate payment systemsinappropriate payment systems

Like ordering, still uncommonLike ordering, still uncommon

After Sales ServiceAfter Sales Service

Opportunity to capture customer Opportunity to capture customer information and provide value-added information and provide value-added servicesservices Opportunity for ‘push’ marketing for Opportunity for ‘push’ marketing for new products and upgradesnew products and upgrades FAQs and feedback forms commonFAQs and feedback forms common

ButBut User profiling and user groups rareUser profiling and user groups rare Need to address privacy issuesNeed to address privacy issues

Ease of UseEase of Use An attractive site is likely to gain customersAn attractive site is likely to gain customers

a poorly designed site will damage a firm’s a poorly designed site will damage a firm’s reputation and salesreputation and sales

Need for multiple languages Need for multiple languages Navigation problems, navigation guidanceNavigation problems, navigation guidance Need for InformationNeed for Information Problems of screen limitations, excessive Problems of screen limitations, excessive graphics, inconsistent designgraphics, inconsistent design

Trade off: simplicity vs. functionalityTrade off: simplicity vs. functionality

Need to Understand Need to Understand ShoppingShopping

As a leisure activityAs a leisure activity As a social/family activityAs a social/family activity Provides exercise and sensory Provides exercise and sensory stimulationstimulation Provides status and authorityProvides status and authority

personal service and hagglingpersonal service and haggling Provides opportunity to examine goodsProvides opportunity to examine goods Part of identity constructionPart of identity construction

Shopping in GreeceShopping in Greece

Greece is suburban; people live near Greece is suburban; people live near

shopsshops

Shopping areas and centres are safeShopping areas and centres are safe

Local phone calls are not freeLocal phone calls are not free

Perceptions of conventional mail order:Perceptions of conventional mail order: if goods are not in the shops, they are faultyif goods are not in the shops, they are faulty

Retailing ReconsideredRetailing Reconsidered

Instead of a huge open global retail Instead of a huge open global retail market, the Web is more likely to market, the Web is more likely to emphasise:emphasise: Information provisionInformation provision Niche marketsNiche markets Private Networks (intranets/extranets)Private Networks (intranets/extranets)

wholesale & collaborationwholesale & collaboration New (information-based) productsNew (information-based) products

Business-to-BusinessBusiness-to-Business

E-Commerce and the ‘Wired’ E-Commerce and the ‘Wired’ OrganizationOrganization

Issues to Address Issues to Address

What are the IOS? Where did they come What are the IOS? Where did they come from? from? What are the underlying technological What are the underlying technological requirements?requirements?

Internet-EDI Vs VAN-EDIInternet-EDI Vs VAN-EDI Organisational, Interorganisational, Organisational, Interorganisational, Managerial issuesManagerial issues

Interorganisational Interorganisational Information Systems (IOS) Information Systems (IOS)

“ “Information systems that cross organisational Information systems that cross organisational boundaries”boundaries”

“ “A computer-based Information System that A computer-based Information System that facilitates the exchange of information facilitates the exchange of information electronically using telecommunications between electronically using telecommunications between different organisations’ computer systems.”different organisations’ computer systems.”

“ “ They include all aspects of using networked They include all aspects of using networked computers for business purposes including office computers for business purposes including office automation, electronic mail, corporate intranets, automation, electronic mail, corporate intranets, extranets, Web and EDI systems for document extranets, Web and EDI systems for document exchange and purchasing exchange and purchasing

Changing Business Changing Business EnvironmentEnvironment

Complex turbulent business environment Complex turbulent business environment Increased Competition, Change and Increased Competition, Change and Uncertainty Uncertainty Organisational ResponsesOrganisational Responses

cost reductioncost reduction core competency/outsourcingcore competency/outsourcing improved logisticsimproved logistics improved quality & customer serviceimproved quality & customer service improved flexibility and speed of responseimproved flexibility and speed of response

Changing Technological Changing Technological EnvironmentEnvironment

Improved & standardized ICTImproved & standardized ICT Cheaper, deregulated telecommunicationsCheaper, deregulated telecommunications

(Internet, ISDN, Cable TV, wireless)(Internet, ISDN, Cable TV, wireless) Growth in organisational ISGrowth in organisational IS

experience and maturityexperience and maturity Changing role of IS Changing role of IS

more strategic and infrastructuralmore strategic and infrastructural IS for coordinationIS for coordination

CSCW (Computer Supportive Co-operative Work); CSCW (Computer Supportive Co-operative Work); email; Video-conferencing email; Video-conferencing

Electronic Data Interchange Electronic Data Interchange (EDI)(EDI)

“ “ The electronic interchange of formatted The electronic interchange of formatted data between computer applications using data between computer applications using agreed message standards”agreed message standards”

Preceded Web-based Electronic CommercePreceded Web-based Electronic Commerce Is appropriate for the exchange of Is appropriate for the exchange of structured business documentsstructured business documents

orders, invoices, delivery notesorders, invoices, delivery notes Links suppliers, customers and banksLinks suppliers, customers and banks

ComponentsComponents

OrganizationsOrganizations e.g. trading partners, suppliers e.g. trading partners, suppliers

(Reliable 3rd-party) networks (VANs)(Reliable 3rd-party) networks (VANs) SoftwareSoftware

EDI translatorEDI translator bridging; message passing; securitybridging; message passing; security store & forward / store & collectstore & forward / store & collectbatch batch

Message standardsMessage standards formats; product codesformats; product codes

Paper-based processes...Paper-based processes...

CustomerCustomer

ManufacturerManufacturer

Data Entry - orderorder

invoice

Data Entry - invoice

or

Notify Notify

ManufacturerManufacturer

Notify CustomerNotify Customer

EDIEDI

CRP, Purchase order,

purchase order change,

Purchase order acknowledgement,

invoices

Retailer

Supplier

Retailer’s Bank Supplier’s Bank

Payment

authorization

Electronic Transfer of funds

Tactical BenefitsTactical Benefits

Improved Communication Improved Communication speed; accuracyspeed; accuracy

Cost savingsCost savings stock reductionstock reduction decrease co-ordination costs; relatively cheap decrease co-ordination costs; relatively cheap

transmissiontransmission no rekeying; less paper-handling; fewer errorsno rekeying; less paper-handling; fewer errors

Improve customer serviceImprove customer service Reduce cycle timesReduce cycle times

Increase responsiveness to customersIncrease responsiveness to customers

Strategic BenefitsStrategic Benefits

Improved trading relationships Improved trading relationships vehicle for collaborationvehicle for collaboration

Improved logisticsImproved logistics JIT (Just-In-Time Manufacturing)JIT (Just-In-Time Manufacturing) QR (Quick Response)QR (Quick Response) ECR (Efficient Consumer Response)ECR (Efficient Consumer Response)

Competitive gainsCompetitive gains

Internal ProblemsInternal Problems

Slow growth of international standardsSlow growth of international standards Proliferation of competing standards Proliferation of competing standards Problems of integration with the internal Problems of integration with the internal processes/systemsprocesses/systems

Incompatibility of different VANs Incompatibility of different VANs

Reorganization of processesReorganization of processes

Interorganisational ProblemsInterorganisational Problems

Impacts trading relationshipsImpacts trading relationships Interdependence and dominationInterdependence and domination hub-and-spoke arrangementshub-and-spoke arrangements EDI becomes a requirement to tradeEDI becomes a requirement to trade

Inequitable sharing of costs and benefits Inequitable sharing of costs and benefits ““Hubs” gain more than “spokes”Hubs” gain more than “spokes” Initiators of the IOS project ( or powerful Initiators of the IOS project ( or powerful

organisations) gain more than non-initiators organisations) gain more than non-initiators (or smaller trading partners)(or smaller trading partners)

Little chance of sustainable advantageLittle chance of sustainable advantage

Coercion through FordnetCoercion through Fordnet

Ford locked their suppliers into a Ford locked their suppliers into a proprietary networkproprietary network

expensive, inconvenient, no supplier expensive, inconvenient, no supplier influence influence

Produced a coercive trading relationship Produced a coercive trading relationship whereby Ford tried to extend their whereby Ford tried to extend their computer systems into suppliers’ premisescomputer systems into suppliers’ premises Fordnet chrystalised power imbalance Fordnet chrystalised power imbalance This is not sustainable, since Ford This is not sustainable, since Ford changes to Odenetchanges to Odenet

Tesco’s use of EDITesco’s use of EDI

Very competitive marketVery competitive market price, quality, service & range price, quality, service & range

‘ ‘Hub & spoke’ network with suppliers Hub & spoke’ network with suppliers Exclusion of small suppliers, unable to Exclusion of small suppliers, unable to implement EDI implement EDI Growth by ‘message type’Growth by ‘message type’

supplier’s stock availability; self billing etc.supplier’s stock availability; self billing etc. Considerable efficiency gains Considerable efficiency gains Closer relationship with suppliersCloser relationship with suppliers

Small Businesses (SMEs) & Small Businesses (SMEs) & EDIEDI

SMEs traditionally lack:SMEs traditionally lack: expertise to set up and use technologyexpertise to set up and use technology expertise to realize the benefits of integrationexpertise to realize the benefits of integration the necessary capital for equipmentthe necessary capital for equipment the market power to set favorable standardsthe market power to set favorable standards enough willing partners enough willing partners

normally remain the ‘spokes’normally remain the ‘spokes’

The use of the Internet The use of the Internet in B2B E-commerce (1)in B2B E-commerce (1)

Low cost of installation Low cost of installation Public network: provides ubiquitous accessPublic network: provides ubiquitous access Platform independentPlatform independent Facilitates inter-organisational transactions that Facilitates inter-organisational transactions that are not EDI-basedare not EDI-based Enables small suppliers to participate in business Enables small suppliers to participate in business transactionstransactions

ProblemsProblems Security and Reliability Security and Reliability Does not provide VAN’s servicesDoes not provide VAN’s services

The use of the Internet The use of the Internet in B2B E-commerce (2)in B2B E-commerce (2)

Internet-based EDIInternet-based EDI VAN providers are now offering Internet-VAN providers are now offering Internet-

based servicesbased services Suppliers use the Web to access Suppliers use the Web to access information provided by their customers - information provided by their customers - not EDI-based communication not EDI-based communication

XML Vs EDIXML Vs EDI

TESCO’s Internet-based TESCO’s Internet-based information Exchangeinformation Exchange

TESCO’s ECR trial: beginning of 1998TESCO’s ECR trial: beginning of 1998 The TESCO’s Internet-based Information Exchange:The TESCO’s Internet-based Information Exchange:

shares electronic point of sale data, as well as stock, shares electronic point of sale data, as well as stock, promotions and new product information with suppliers.promotions and new product information with suppliers.

Suppliers may also gain access to a directory of stores, Suppliers may also gain access to a directory of stores, people and news and can give feedback.people and news and can give feedback.

TESCO monitors the performance of suppliers.TESCO monitors the performance of suppliers. TESCO offers interchange links to smaller suppliersTESCO offers interchange links to smaller suppliers

After 2 years 60m pounds have already been saved After 2 years 60m pounds have already been saved by improving replenishment through better promotionby improving replenishment through better promotion

SMEs & Internet/WebSMEs & Internet/Web

Internet/Web offersInternet/Web offers expanded market coverage/market shareexpanded market coverage/market share access to information, ideas and R&Daccess to information, ideas and R&D facilitation of collaboration facilitation of collaboration time & cost efficiencytime & cost efficiency cheap technology & public open standardscheap technology & public open standards opportunity for creativityopportunity for creativity mechanism for implementing EDImechanism for implementing EDI

Dangers of the Internet for Dangers of the Internet for SMEsSMEs

SMEs still lack:SMEs still lack: the design, marketing and technical skills the design, marketing and technical skills

needed to implement and operate an needed to implement and operate an effective web siteeffective web site

the management skills requiredthe management skills required the credibility of a ‘household name’the credibility of a ‘household name’

Internet only delivers a limited marketInternet only delivers a limited market Much depends on the industry contextMuch depends on the industry context

Putting It All TogetherPutting It All Together

Difficult global socio-political environmentDifficult global socio-political environment Business challenges Business challenges Strategic ResponseStrategic Response IOS & management methodologiesIOS & management methodologies Organisational changeOrganisational change

The important issues are not only The important issues are not only technological but also (inter)organisational, technological but also (inter)organisational, managerial and socialmanagerial and social

Key Managerial IssuesKey Managerial Issues

How could an organization transform its How could an organization transform its structure and processes so as to function more structure and processes so as to function more effectively in the e-conomy?effectively in the e-conomy? How does an organization creates and How does an organization creates and maximizes value in the e-conomy?maximizes value in the e-conomy? How should we build and manage the How should we build and manage the organizational IT infrastructure for the e-organizational IT infrastructure for the e-conomy?conomy?

Organizational Organizational TransformationTransformation

Strategy

People

InformationTechnology

Structure and Processes

In SummaryIn Summary

Reengineer your companyReengineer your company Reexamine your old business modelReexamine your old business model ‘ ‘The buyer always wins’The buyer always wins’ ‘ ‘Hold your customer’s hand’Hold your customer’s hand’ Consider outsourcingConsider outsourcing ‘ ‘No web site is an island’No web site is an island’ Create an online sense of communityCreate an online sense of community

Source: Business Week

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