Introduction - East Carolina University

Introduction - East Carolina University

ELEVENTH EDITION ELECTRONIC COMMERCE GARY P. SCHNEIDER Chapter 12 Managing Electronic Commerce Implementations 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 Cengage Learning 2015 2 Introduction Case study: Wevorce Internet startup offering divorce mediation services Founder worked with startup coaching enterprise Y Combinator Works with startups to develop their business Arranges demo day presentations to investors

Obtained more than a million dollars from investors Cengage Learning 2015 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 Identify initiatives specific objectives

Link objectives to business strategies Setting electronic commerce initiative objectives Consider strategic role of project, intended scope, resources available Cengage Learning 2015 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 the risks of e-commerce versus inaction Cengage Learning 2015 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 Cengage Learning 2015

6 Linking Objectives to Business Strategies (contd.) Electronic commerce activities difficult to measure First-wave e-commerce activities Existed without 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 Cengage Learning 2015

7 Linking Objectives to Business Strategies (contd.) 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

Cengage Learning 2015 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 Cengage Learning 2015 9 Identifying and Measuring Benefits (contd.) Using Web sites to build brands or enhance existing marketing programs Set goals in terms of increased brand awareness Measures: 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 Cengage Learning 2015 10 Identifying and Measuring Benefits (contd.) Using Web sites to improve customer service or after-sale support Possible goals Increase 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 Cengage Learning 2015 11

Identifying and Measuring Benefits (contd.) Measurements of other electronic commerce initiatives Supply chain managers goals Supply cost reductions, quality improvements, or faster deliveries of ordered goods Auction sites goals Number of auctions, dollar volume of items sold, number of items sold, or number of registered participants Virtual communities and Web portals goals Number of visitors, quality of visitors experiences Cengage Learning 2015

12 Identifying and Measuring Benefits (contd.) 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 Cengage Learning 2015 13

FIGURE 12-1 Measuring the benefits of electronic commerce initiatives Cengage Learning 2015 Cengage Learning 2015 14 Identifying and Measuring Benefits (contd.) Benefit unit of measure Convert raw activity measurements to monetary units Compare benefits to costs Compare net benefit of a particular initiative to net benefits provided by other projects Difficult to measure value in monetary units precisely

Cengage Learning 2015 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 trending downward Increasing software sophistications Requires more of the newer, cheaper hardware Yields net increase in overall hardware costs

Cengage Learning 2015 16 Identifying and Estimating Costs (contd.) Software costs often underestimated Web technologys rapid changes add to project planning difficulty Cengage Learning 2015 17 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 Cengage Learning 2015 18 Opportunity Costs 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 companys supply chain Cengage Learning 2015 19 Web Site Costs Total dollar amounts required to create and operate a Web site

Varied with time and business type 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 Between 50 and 200 percent of sites initial cost Cengage Learning 2015 20 Web Site Costs (contd.) Small online store

Placed into operation for less than $1000 Small to midsize online business operation With full transaction and payment processing capabilities Initial investment: between $10,000 and $1 million Cengage Learning 2015 21 FIGURE 12-2 Estimated costs for business Web sites Cengage Learning 2015 Cengage Learning 2015

22 Web Site Costs (contd.) Costs generally heading downward Lower costs for broadband access and computer hardware Decreased software development and maintenance costs Comparison of Netscape with more recent startup companies Netscape (early 1990s): more than $40 million Digg (2004): less than $500,000 Today, smartphone app development less than $1000 Cengage Learning 2015

23 FIGURE 12-3 Important Web hosting service features Cengage Learning 2015 Cengage Learning 2015 24 Funding Online Business Startups Early Web businesses Started by individuals with knowledge of computers, technology, and business Web businesses in the late 1990s Started by investors wanting to make fast money

Angel investors funded initial startup Became stockholders in hopes that the business grows rapidly Sell interest to venture capitalist Cengage Learning 2015 25 Funding Online Business Startups (contd.) 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 Cengage Learning 2015 26 Funding Online Business Startups (contd.) 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 Cengage Learning 2015 27 Funding Online Business Startups (contd.) 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 Cengage Learning 2015 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

Cengage Learning 2015 29 Comparing Benefits to Costs (contd.) 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 2015 30

FIGURE 12-4 Cost/benefit evaluation of electronic commerce strategy elements Cengage Learning 2015 Cengage Learning 2015 31 Return on Investment (ROI) Return on investment (ROI) techniques Measures amount of income (return) provided by specific current expenditure (investment) Provides quantitative expression of comfortable benefit-to-cost margin Mathematically adjusts for future reduced value of benefits

Cengage Learning 2015 32 Return on Investment (ROI) (contd.) Electronic commerce initiatives Seen as absolutely necessary investments Not always subjected to close examination, rigid requirements Companies fear being left behind Newspaper Web sites Example of companies willing to incur losses to establish an online presence Cengage Learning 2015

33 Return on Investment (ROI) (contd.) 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 monetary units Gives undue weight to costs ROI focuses on predicted benefits Initiatives have returned benefits not foreseen

Cengage Learning 2015 34 Return on Investment (ROI) (contd.) ROI built-in biases (contd.) ROI tends to emphasize short-run benefits over longrun benefits More information CIO Budget site Third wave electronic commerce Highly sophisticated analyses of planned online business activities Cengage Learning 2015

35 Strategies for Developing Electronic Commerce Web Sites Web sites Began as static brochure Next generation added transaction processing capabilities Personalization and customer relationship management aspects added Redesigned to work better with mobile devices Recently, sites have become integrated with social media networks Transformations required software development Cengage Learning 2015

36 Strategies for Developing Electronic Commerce Web Sites (contd.) FIGURE 12-5 Evolution of Web site functions Cengage Learning 2015 Cengage Learning 2015 37 Internal Development vs. Outsourcing Outsourcing: using an external company to do the work of completing a project

Business initiative must be integrated to ensure success Internal people leading projects ensures: Companys specific needs are addressed Initiative congruent with organization goals, culture Outside consultants Seldom able to learn enough about organizations culture to accomplish objectives Cengage Learning 2015 38 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 Technical expertise less important Measuring achievements of internal team is important Cengage Learning 2015 39 The Internal Team (contd.) Intellectual capital

Employees knowledge about the business and its processes Hard to measure Value recognized today Internal team responsible for initiative decides: Project parts to outsource Outsourcer Consultants or partners needed Cengage Learning 2015 40

Early Outsourcing Company outsources initial site design and development to launch project quickly Outsourcing team trains companys information systems professionals before handing site operation to them Companys own information systems people work closely with outsourcing team Develop ideas as early as possible in project life Cengage Learning 2015 41 Late Outsourcing Companys information systems professionals

Perform initial design and development, implement system, and operate system until stable Once competitive advantage gained: Electronic commerce system maintenance outsourced Companys professionals turn attention to developing new technologies Providing further competitive advantage Electronic commerce initiatives more suited to early outsourcing Cengage Learning 2015 42

Partial Outsourcing Also called 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 Web hosting Cengage Learning 2015 43

Incubators 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 Cengage Learning 2015 44 Incubators (contd.) Incubator sells all or part of its interest Company grows to obtain venture capital financing

and launch stock public offering Early Internet incubator: Idealab Helped, Overture, Other successful incubators Y Combinator SparkLabs Cengage Learning 2015 45 Incubators (contd.) Company-created internal incubators Develop technologies for use in main business

operations Most unsuccessful and shut down Matsushita Electrics 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 Cengage Learning 2015 46 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 Cengage Learning 2015 47

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 Cengage Learning 2015 48

Project Management (contd.) Project management software Specific application software to help project managers oversee projects Examples: Oracle Primavera, Microsoft Project Open Workbench, OpenProj, Redmine: open-source Can help manage internal team and outside consultants Cengage Learning 2015 49 Project Portfolio Management

Used by chief information officer (CIO) Top technology manager Project portfolio management Technique to monitor 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 Cengage Learning 2015 50

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 Cengage Learning 2015 51 Staffing for Electronic Commerce

(contd.) 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 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 Cengage Learning 2015 52

Staffing for Electronic Commerce (contd.) 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 Cengage Learning 2015

53 Staffing for Electronic Commerce (contd.) 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

Cengage Learning 2015 54 Staffing for Electronic Commerce (contd.) 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 operations

Cengage Learning 2015 55 Staffing for Electronic Commerce (contd.) Call center Company handling incoming customer telephone calls, e-mails for other companies Makes sense for smaller companies Systems administrator Responsible for systems reliable and secure operation Cengage Learning 2015

56 Staffing for Electronic Commerce (contd.) Network operations staff functions 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 Cengage Learning 2015 57

Staffing for Electronic Commerce (contd.) Database administration function support activities Transaction processing, order entry, inquiry management, shipment logistics Requires either: Existing database into which site being integrated Separate database established for electronic commerce initiative Cengage Learning 2015 58 Postimplementation Audits

Also called 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 Cengage Learning 2015 59

Postimplementation Audits (contd.) Feedback on strategies used more today Obtains valuable information Useful in planning future projects Gives participants meaningful learning experience Comprehensive audit report Analyzes projects overall performance Administration of project Appropriate project organizational structure in place Specific project team(s) performance Should compare actual results to objectives Cengage Learning 2015 60

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 Cengage Learning 2015 61

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