Chapter Foundations of Electronic Commerce © Prentice Hall, 2000 Learning Objectives Define electronic commerce and describe its various categories Distinguish between electronic markets and interorganizational systems Describe the benefits of electronic commerce to organizations, consumers, and society Describe the limitations of electronic commerce Understand the forces that drive the widespread use of electronic commerce Describe and discuss the changes that will be caused by electronic commerce Discuss some major managerial issues regarding electronic commerce © Prentice Hall, 2000 Opening Vignettes: Intel Corp and Happy Puppy Intel Corporation Business-to-business (B2B) products selling Customer service Purchasing from and dealing with suppliers Happy Puppy Retailing company’s games Marketing others’ games Business-to-consumers (B2C) © Prentice Hall, 2000 Definitions and Content of Field Electronic Commerce (EC) is where business transactions take place via telecommunications networks, especially the Internet Electronic commerce describes the buying and selling of products, services, and information via computer networks including the Internet The infrastructure for EC is a networked computing environment in business, home, and government E-Business describes the broadest definition of EC It includes customer service and intrabusiness tasks It is frequently used interchangeably with EC © Prentice Hall, 2000 Definitions and Content of Field (cont.) A global networked environment is known as the Internet A counterpart within organizations, is called an intranet An extranet extends intranets so that they can be accessed by business partners © Prentice Hall, 2000 Pure Vs Partial Electronic Commerce Three dimensions the product (service) sold [physical / digital]; the process [physical / digital] the delivery agent (or intermediary) [physical / digital] Traditional commerce all dimensions are physical Pure EC all dimensions are digital Partial EC all other possibilities include a mix of digital and physical dimensions © Prentice Hall, 2000 The Dimensions of Electronic Commerce Electronic commerce areas The core of electronic commerce Virtual product Digital Product Virtual process Digital process Physical process Digital agent Traditional commerce Physical agent Physical Product © Prentice Hall, 2000 Virtual delivery agent The Electronic Commerce Field Figure 1.2 shows that the EC applications are supported by infrastructures, and their implementation is dependent on four major areas (shown as supporting pillars) people, public policy, technical standards and protocols, and other organizations The EC management coordinates the applications, infrastructures, and pillars It also includes Internet marketing and advertisement © Prentice Hall, 2000 Electronic Commerce Applications • Stocks Jobs • On-line banking • Procurement and purchasing• Malls • On-line marketing and advertising • Home shopping • Auctions • Travel • On-line publishing People: Buyers, sellers, intermediaries, services, IS people, and management Public policy, legal, and privacy issues Technical standards for documents, security, and network protocols payment Organizations: Partners, competitors, associations, government services Infrastructure (1) Common business services infrastructure (security smart cards/authentication electronic payment, directories/catalogs) (2) Messaging and information distribution infrastructure (EDI, e-mail, Hyper Text Transfer Protocol) (3) (4) Multimedia content Network infrastructure and network (Telecom, cable TV publishing infrastructure wireless, Internet) (HTML, JAVA, World (VAN, WAN, LAN, Wide Web, VRML) Intranet, Extranet) (5) Interfacing infrastructure (The databases, customers, and applications) Management © Prentice Hall, 2000 A Framework for Electronic Commerce Electronic Markets A market is a network of interactions and relationships where information, products, services, and payments are exchanged The market handles all the necessary transactions An electronic market is a place where shoppers and sellers meet electronically In electronic markets, sellers and buyers negotiate, submit bids, agree on an order, and finish the execution on- or off-line © Prentice Hall, 2000 10 Benefits to Society Enables more individuals to work at home, and to less traveling for shopping, resulting in less traffic on the roads, and lower air pollution Allows some merchandise to be sold at lower prices benefiting the poor ones Enables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to them Facilitates delivery of public services at a reduced cost,increases effectiveness, and/or improves quality © Prentice Hall, 2000 20 The Limitations of Electronic Commerce Technical Limitations of Electronic Commerce Lack of sufficient system’s security, reliability, standards, and communication protocols Insufficient telecommunication bandwidth The software development tools are still evolving and changing rapidly Difficulties in integrating the Internet and electronic commerce software with some existing applications and databases © Prentice Hall, 2000 21 Technical Limitations of Electronic Commerce (cont.) The need for special Web servers and other infrastructures, in addition to the network servers (additional cost) Possible problems of interoperability, meaning that some EC software does not fit with some hardware, or is incompatible with some operating systems or other components © Prentice Hall, 2000 22 Non-Technical Limitations Cost and justification (35% of the respondents) The cost of developing an EC in house can be very high, and mistakes due to lack of experience, may result in delays There are many opportunities for outsourcing, but where and how to it is not a simple issue Furthermore, to justify the system one needs to deal with some intangible benefits which are difficult to quantify © Prentice Hall, 2000 23 Non-Technical Limitations (cont.) Security and Privacy (17% of the respondents) These issues are especially important in the B2C area, and security concerns are not truly so serious from a technical standpoint Privacy measures are constantly improving too Yet, the customers perceive these issues as very important and therefore the EC industry has a very long and difficult task of convincing customers that online transactions and privacy are, in fact, fairly secure Lack of trust and user resistance (4%) Customers not trust an unknown faceless seller, paperless transactions, and electronic money So switching from a physical to a virtual store may be 24 difficult © Prentice Hall, 2000 Non-Technical Limitations (cont.) Other limiting factors are: Lack of touch and feel online Many unresolved legal issues Rapidly evolving and changing EC Lack of support services Insufficiently large enough number of sellers and buyers Breakdown of human relationships Expensive and/or inconvenient accessibility to the Internet 25 © Prentice Hall, 2000 The Driving Forces of Electronic Commerce The New World of Business Business pressures Organizational responses The role of Information Technology (including electronic commerce) © Prentice Hall, 2000 26 Major Business Pressures Market and economic pressures Strong competition Global economy Regional trade agreements (e.g NAFTA) Extremely low labor cost in some countries Frequent and significant changes in markets Increased power of consumers Societal and environmental pressures Changing nature of workforce Government deregulation of banking and other services Shrinking government budgets subsides Increased importance of ethical and legal issues Increased social responsibility of organizations Rapid political changes Technological pressures Rapid technological obsolescence Increase innovations and new technologies Information overload Rapid decline in technology cost Vs performance ratio © Prentice Hall, 2000 27 Organizational Responses External Environment, Social, Economic, Political, etc The Organization’s Strategy Organization Structure and the Corporate Culture Management and Business Process Information Technology Individual and Roles Framework for Organizational and Societal Impacts of Information Technology 28 © Prentice Hall, 2000 Business Process Reengineering Reducing cycle time and time to market Empowerment of employees and collaborative work Knowledge management Customer-focused approach Business alliances — virtual corporation © Prentice Hall, 2000 29 Everything Will Be Changed Improving Direct Marketing Product promotion New sales channels Direct savings Time-to-market (reduced cycle time) Customer service Brand or corporate image © Prentice Hall, 2000 30 Other Changes in the Workplace Transforming Organizations Work will change Technology learning Organizational learning Redefining Organization New product capabilities New business models © Prentice Hall, 2000 31 Other Changes in the Workplace (cont.) Impacts on Manufacturing Pull processing, mass customization, shorter cycle time, integration (ERP), electronic bidding and procurement Impacts on Finance and Accounting Electronic payment systems, electronic cash, automating back office, home banking, electronic stock trading Human Resource Management Electronic recruiting, training, distance learning © Prentice Hall, 2000 32 Plan of the Book Part I Ch1 Introduction Part II EC Application Ch2 Retailing Ch3 Consumer Behavior and Market Research Ch4 Advertisement Ch5 Service Industries Applications Ch6 Business-to-Businesses Ch7 Intranet and Extranet Applications Part III Part IV Support and Implementation Ch8 Payments Ch9 Corporate Strategy Ch10 Public Policy Part V Technological Support Ch11 Infrastructure Appendix A Appendix B Appendix C Ch12 Economics, Global, Research in EC © Prentice Hall, 2000 33 Management Issues Is it real? How to evaluate the magnitude of the business pressures? What should be my company’s strategy towards EC? What is the best way to learn about EC? © Prentice Hall, 2000 34 ... possibilities include a mix of digital and physical dimensions © Prentice Hall, 2000 The Dimensions of Electronic Commerce Electronic commerce areas The core of electronic commerce Virtual product... the limitations of electronic commerce Understand the forces that drive the widespread use of electronic commerce Describe and discuss the changes that will be caused by electronic commerce Discuss... delivery of public services at a reduced cost,increases effectiveness, and/or improves quality © Prentice Hall, 2000 20 The Limitations of Electronic Commerce Technical Limitations of Electronic Commerce