Planning for Electronic Commerce

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Chapter 13

• Planning for Electronic Commerce

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Learning Objectives

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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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Measuring Benefit Objectives
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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.

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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

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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.

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Measuring Cost Objectives
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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.

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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.

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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.

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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.

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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

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Strategies for Web Site Development
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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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

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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.

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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.

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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.

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Fast Venturing
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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.

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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.

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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.

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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.

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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.

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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

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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.

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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.