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Planning for Electronic Commerce

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Strategies for developing electronic commerce Web sites ... Kmart's Web store, Blue-Light.com, cost more than $140 million to create. ... – PowerPoint PPT presentation

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Title: Planning for Electronic Commerce


1
Chapter 13
  • Planning for Electronic Commerce

2
Learning Objectives
  • In this chapter, you will learn about
  • Planning electronic commerce initiatives
  • Strategies for developing electronic commerce Web
    sites
  • Managing electronic commerce implementations

3
Planning the Electronic Commerce Initiative
  • A successful business plan for an electronic
    commerce initiative should include activities
    that will
  • Identify the initiatives specific objectives
  • Link those objectives to business strategies
  • Manage the implementation of those business
    strategies
  • Oversee the continuing operations of the
    initiative after it is launched

4
Identifying Objectives
  • Common objectives include
  • Increasing sales in existing markets
  • Opening new markets
  • Serving existing customers better
  • Identifying new vendors
  • Coordinating more efficiently with existing
    vendors
  • Recruiting employees more effectively
  • Resource decisions should consider the expected
    benefits and costs of meeting the objectives.

5
Linking Objectives to Business Strategies
  • Businesses can use downstream strategies, which
    are tactics that improve the value that the
    business provides to its customers.
  • Businesses can pursue upstream strategies that
    focus on reducing costs or generating value by
    working with suppliers or inbound logistics.

6
Linking Objectives to Business Strategies
  • The Web is an attractive sales channel.
  • The Web can be used to complement business
    strategies and improve competitive positions.
  • Electronic commerce opportunities can inspire
    businesses to undertake many activities.

7
Linking Objectives to Business Strategies
  • More companies are taking a closer look at the
    benefits and costs of their electronic commerce
    projects.
  • A good business plan will set specific objectives
    for the benefits to be achieved and costs to be
    incurred.
  • Companies use pilot Web sites to test an
    electronic commerce idea, and then release a
    production version when it works well.

8
Measuring Benefit Objectives
  • Many companies create Web sites to build their
    brands or enhance existing marketing programs.
  • These companies can set goals in terms of
    increased brand awareness, as measured by market
    research surveys.
  • Companies that sell goods or services on their
    sites can measure sales volumes in units or
    dollars.

9
Measuring Benefit Objectives
  • Companies can use a variety of similar
    measurements to assess the benefits of other
    electronic commerce initiatives.
  • Supply chain managers can measure supply cost
    reductions, quality improvements, etc.

10
Measuring Benefit Objectives
11
Measuring Cost Objectives
  • Many changes in the cost of hardware are
    downward.
  • The increasing sophistication of software
    provides an ever-increasing demand for newer
    hardware.
  • The project budget must include the cost of
    hiring, training, and personnel.

12
Measuring Cost Objectives
  • Based on data collected in separate recent
    surveys, International Data Corporation and the
    GartnerGroup both estimated that the cost for a
    large company to build and implement an adequate
    entry-level electronic commerce site was about 1
    million.
  • About 79 of that cost was labor related
  • 10 was the cost of software
  • 11 was the cost of hardware

13
Measuring Cost Objectives
  • Recent estimates of the cost to build small Web
    sites have continued to increase as more
    companies establish themselves on the Web.
  • Expensive features, such as shopping carts and
    search engines, have become standard on even the
    most basic sites.
  • Analysts have estimated the minimum dollar amount
    needed to open an entry level electronic commerce
    Web site at 150,000.

14
Measuring Cost Objectives
15
Measuring Cost Objectives
  • The McKinsey study estimated costs for two types
    of magazine sites a full portal site that would
    serve as a destination in itself and a more
    limited magazine companion site.
  • The full portal site cost estimate was 2.4
    million to build and 4.3 million per year to
    maintain, with a staff of 35 people.
  • The companion site cost estimate was 150,000 to
    build and 270,000 per year to maintain, with a
    staff of two people.

16
Measuring Cost Objectives
  • Kmarts Web store, Blue-Light.com, cost more than
    140 million to create.
  • The site is certainly well-designed and highly
    functional, but the typical visitor would never
    guess how much this site cost.

17
Comparing Benefits to Costs
  • If the benefits exceed the cost of a project by a
    comfortable margin, the company invests in the
    project.
  • Companies should evaluate each element of their
    electronic commerce strategies using this
    cost/benefit approach.
  • Managers often use return on investment (ROI) to
    evaluate any capital investment.

18
Comparing Benefits to Costs
  • Newspaper Web sites are a good example of this
    desire to establish a foothold in the online
    market space.
  • Profitable electronic commerce initiatives in the
    newspaper business, such as Gannets USA Today
    and The Wall Street Journals WSJ.com sites, are
    few.

19
Strategies for Web Site Development
  • The evolution of Web site functions
  • From the static brochures of the early days of
    electronic commerce
  • To transaction processing tools
  • To todays automated homes for business processes
    of all kinds

20
Strategies for Web Site Development
21
Strategies for Web Site Development
  • The transformation of Web site functions occurred
    rapidly, taking only a year or two in most
    companies.
  • Few businesses have caught up with the changes in
    terms of how they develop Web sites.
  • The purposes and scope of Web sites have
    increased greatly, but few businesses today
    manage them as the dynamic business applications
    they have become.

22
Strategies for Web Site Development
  • Many large and medium-sized companies have found
    it extremely difficult to develop new information
    systems and Web sites that work with their
    existing systems to create new markets or
    reconfigure their supply chains.

23
Internal Development vs. Outsourcing
  • The key to success is finding the right balance
    between outside and inside support for the
    project.
  • Hiring another company to provide the outside
    support for the project is called outsourcing.

24
The Internal Team
  • The first step in determining which parts of a
    project to outsource is to create an internal
    team that is responsible for the project.
  • Business knowledge and creativity are much more
    important than technical expertise in
    establishing successful electronic commerce.

25
The Internal Team
  • Measuring the achievement of an internal team is
    very important.
  • Customer satisfaction, number of sales leads
    generated, and reductions in order-processing
    time are examples of metrics that can provide a
    sense of the teams level of accomplishment.

26
Early Outsourcing
  • In many electronic commerce projects, the company
    outsources the initial site design and
    development to launch the project quickly.
  • The outsourcing team then trains the companys
    employees in the new technology before handing
    the operation of the site over to them.
  • This approach is called early outsourcing.

27
Late Outsourcing
  • The company does the initial design, development,
    implementation, and operates the system until it
    becomes stable.
  • After the company has gained all the competitive
    advantages provided by the system, the
    maintenance of the electronic commerce system can
    be outsourced.
  • This approach is called late outsourcing.

28
Partial Outsourcing
  • In partial outsourcing, the company identifies
    specific portions of the project that can be
    completely designed, developed, implemented, and
    operated by another firm that specializes in a
    particular function.
  • E-mail systems, electronic payment systems, and
    Web hosting are examples of partial outsourcing
    projects.

29
Partial Outsourcing
  • Another common example of partial outsourcing is
    an electronic payment system.
  • Web hosting is one of the most common elements of
    electronic commerce initiatives that companies
    outsource using partial outsourcing.

30
Selecting a Hosting Service
  • The internal team should be responsible for
    selecting the ISP that will provide the sites
    hosting service.
  • For smaller electronic commerce projects, teams
    can consult an ISP directory, such as The
    List.
  • For larger Web sites, the team will want to
    obtain the advice of consultants or other firms
    that rate ISPs and CSPs, such as Keynote
    Systems.

31
Selecting a Hosting Service
  • The factors to evaluate when selecting a hosting
    service include
  • Functionality
  • Reliability
  • Bandwidth and server scalability
  • Security
  • Backup and disaster recovery
  • Cost

32
Selecting a Hosting Service
  • Determine the functionality offered by a hosting
    service and carefully evaluate whether that
    functionality will be sufficient to meet the
    needs of your Web site.
  • Because the companys information on customers,
    products, pricing, and other data will be placed
    in the hands of the service provider, the
    vendors security policies and practices are very
    important.

33
New Methods for Implementing Partial Outsourcing
  • New ways of implementing the partial outsourcing
    strategy have evolved for Web businesses.
  • Two of the more popular methods are
  • Incubators
  • Fast venturing

34
Incubators
  • An incubator is a company that offers start-up
    companies a physical location with offices,
    accounting and legal assistance, computers, and
    Internet connections at a very low monthly cost.
  • Incubators might offer seed money, management
    advice, and marketing assistance.
  • In exchange, the incubators receive an ownership
    interest in the company.

35
Incubators
  • Some companies have created internal incubators.
  • A number of companies have used internal
    incubators in the past to develop technologies
    that the companies planned to use in their main
    business operations.
  • Recently companies, such as Matsushita Electrics
    U.S. Panasonic division, have started internal
    incubators to help launch new companies that will
    grow to become important strategic partners.

36
Fast Venturing
  • In fast venturing, an existing company that wants
    to launch an electronic commerce initiative joins
    external equity partners and operational partners
    to scale up the project rapidly.
  • Equity partners are usually banks or venture
    capitalists.
  • Operational partners are firms that have
    experience in moving projects along.

37
Fast Venturing
38
Managing Electronic Commerce Implementations
  • The best way to manage any complex business
    software implementation is to use formal project
    management techniques.
  • Individual projects can become so large that it
    becomes impossible for managers to maintain
    control without some kind of assistance.

39
Project Management
  • Project management is a collection of formal
    techniques for planning and controlling the
    activities undertaken to achieve a specific
    goal.
  • The project plan includes criteria for cost,
    schedule, and performance.
  • It helps project managers make intelligent
    trade-off decisions regarding these three
    criteria.

40
Project Management
  • Project managers use specific application
    software called project management software to
    help them manage projects.
  • Microsoft Project and Primavera Project Planner
    are tools for managing resources and schedules.

41
Project Management
  • Project management software can help the team
    manage the tasks assigned to consultants,
    technology partners, and outsourced service
    providers.
  • The Project Management Institute is a
    not-for-profit organization devoted to the
    promotion of professional project management
    practices.

42
Project Portfolio Management
  • Project portfolio management is a technique in
    which each project is monitored as if it were an
    investment in a financial portfolio.
  • In project portfolio management, the CIO assigns
    a ranking for each project based on its
    importance to the strategic goals of the business
    and its level of risk.

43
Staffing the Operation
  • Regardless of outsourcing, an internal team must
    determine the staffing needs of the electronic
    commerce initiative.
  • The general areas of staffing include
  • Business management
  • Application specialists
  • Customer service staff
  • Systems administration
  • Network operations staff
  • Database administration

44
Staffing the Operation
  • Some companies outsource parts of their customer
    relationship management operation to independent
    call centers.
  • A call center is a company that handles incoming
    customer telephone calls and e-mails for other
    companies.

45
Post-Implementation Audits
  • A post-implementation audit is a formal review of
    a project after it is up and running.
  • The post-implementation audit gives managers a
    chance to examine the objectives, performance
    specifications, and cost estimates, to schedule
    delivery dates that were established in its
    planning stage, and to compare them to what
    actually happened.
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