Introduction to E-Commerce

1. Introduction to E-Commerce Dr. Panagiotis Kanellis Arthur Andersen, Business Consulting Email: panagiotis.kanellis@gr.arthurandersen.com Evangelia Kopanaki National and Kapodistrian University of Athens, Dept of Informatics Email: evik@di.uoa.gr

2. 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

3. What is E-Commerce? • „The Electronic Support of one or more phases of a commercial transaction“ • OR „electronic buying & selling“ • „Electronic Commerce is a way to improve the exchange of goods, services, information, and knowledge between organizations through the use of networked enabled technologies.“ • Source: Electronic Commerce: A Firmwide Perspective • San Jose, July 98

4. Business-to-Consumer • E-Commerce: A Critical Analysis

5. Business-to-Customer E-Commerce • Involves: • Electronic Retailing • Home Banking • On-line Banking • On-line advertising and marketing • Stock Brokerage • On-line publishing (electronic books and newspapers) • Virtual Universities • Video-on-demand

6. Retailing over the Web: Promises • Attractive new medium • Low cost compared to physical shops • Savings can be passed on to consumers as discounts • Convenient for customers and vendors • User friendly • Global Market just a click away

7. ‘Buying a shirt’ Source:Wigand, R.T. and Benjamin, R.I. (1999)

8. Success Stories • Amazon.com online book sales • virtual shelves hold 2.5m books • Airline tickets (EasyJet) • disintermediation of travel agents • Music CDs (CDNow) • IT products (Dell and Compaq) • Supermarkets (Tesco and Walmart)

9. The Transaction Cycle • Information • company and product • marketing, public relations, advertising • detailed catalogue with prices • Order and Payment • Delivery • After sales service

10. Electronic Catalogues • A Seller wants: • fast updates • marketing capabilities • to attract new customers • to capture customer information • integration with internal systems • payment, distribution • A Buyer wants: • search capabilities • “shopping basket” • order & payment • personalization • special offers • relevant information on: • product features • availability, delivery time

11. Strange Behaviour • Considerable investment in web sites • Soaring stock prices for Internet firms • BUT • Little evidence of profitability • 75% of E-Commerce initiatives fail • Little sign of global e-commerce or e-cash • Failure of electronic malls

12. ‘Can’t judge a book by its cover’ • ‘Infinite’ no. of web sites • overload • many poorly designed and structured • poor quality/out of date information • good sites are costly to develop and maintain • ‘Infinite’ no. of users • but how many are frequent and expert buyers • affluent American male surfers are not buyers

13. Searching • Sellers use customer preferences for targeted marketing • Customers broadcast desired product requirements allowing different vendors to offer bids • Problems of getting customers to the site • Limitation of Web search engines • Privacy Issues • Difficulty in locating and comparing stores • Assumes Web expertise • Issues of trust

14. Promotion and Advertising • Revenue opportunity from advertising • Facilitates joint promotions • But • Web discounts and special offers (fairly uncommon) • Has yet to mature • New medium constrained by size of screen • Need careful design

15. Product’s Information • Offers detailed up-to-date information • on a wide range of products • fast updates • personalization • But • Poor product coverage • Customer cannot interact with product • Little product Information • Needs search engine/careful structuring

16. Online Ordering Remains Rare • Fast, global, 24-hour service • Potential to provide help with product selection and ordering, service information, auctions, shopping basket • But • No help with product selection • Long load times • Remains rare in practice • inappropriate for some industries • problems with international trading • lacks personal touch

17. Online Settlement • Advantages of immediate payment and • availability of terms and conditions • widespread availability of credit cards • possibility of online distribution • But • Suffers from • security worries • inappropriate payment systems • Like ordering, still uncommon

18. After Sales Service • Opportunity to capture customer information and provide value-added services • Opportunity for ‘push’ marketing for new products and upgrades • FAQs and feedback forms common • But • User profiling and user groups rare • Need to address privacy issues

19. Ease of Use • An attractive site is likely to gain customers • a poorly designed site will damage a firm’s reputation and sales • Need for multiple languages • Navigation problems, navigation guidance • Need for Information • Problems of screen limitations, excessive graphics, inconsistent design • Trade off: simplicity vs. functionality

20. Need to Understand Shopping • As a leisure activity • As a social/family activity • Provides exercise and sensory stimulation • Provides status and authority • personal service and haggling • Provides opportunity to examine goods • Part of identity construction

21. Shopping in Greece • Greece is suburban; people live near shops • Shopping areas and centres are safe • Local phone calls are not free • Perceptions of conventional mail order: • if goods are not in the shops, they are faulty

22. Retailing Reconsidered • Instead of a huge open global retail market, the Web is more likely to emphasise: • Information provision • Niche markets • Private Networks (intranets/extranets) • wholesale & collaboration • New (information-based) products

23. Business-to-Business • E-Commerce and the ‘Wired’ Organization

24. Issues to Address • What are the IOS? Where did they come from? • What are the underlying technological requirements? • Internet-EDI Vs VAN-EDI • Organisational, Interorganisational, Managerial issues

25. Interorganisational Information Systems (IOS) • “Information systems that cross organisational boundaries” • “A computer-based Information System that facilitates the exchange of information electronically using telecommunications between different organisations’ computer systems.” • “ They include all aspects of using networked computers for business purposes including office automation, electronic mail, corporate intranets, extranets, Web and EDI systems for document exchange and purchasing

26. Changing Business Environment • Complex turbulent business environment • Increased Competition, Change and Uncertainty • Organisational Responses • cost reduction • core competency/outsourcing • improved logistics • improved quality & customer service • improved flexibility and speed of response

27. Changing Technological Environment • Improved & standardized ICT • Cheaper, deregulated telecommunications (Internet, ISDN, Cable TV, wireless) • Growth in organisational IS • experience and maturity • Changing role of IS • more strategic and infrastructural • IS for coordination • CSCW (Computer Supportive Co-operative Work); email; Video-conferencing

28. Electronic Data Interchange (EDI) • “ The electronic interchange of formatted data between computer applications using agreed message standards” • Preceded Web-based Electronic Commerce • Is appropriate for the exchange of structured business documents • orders, invoices, delivery notes • Links suppliers, customers and banks

29. Components • Organizations • e.g. trading partners, suppliers • (Reliable 3rd-party) networks (VANs) • Software • EDI translator • bridging; message passing; security • store & forward / store & collectbatch • Message standards • formats; product codes

30. Paper-based processes... Notify Manufacturer order Data Entry - order or Customer Notify Customer invoice Manufacturer Data Entry - invoice

31. Supplier CRP, Purchase order, purchase order change, Retailer Purchase order acknowledgement, invoices Payment authorization Electronic Transfer of funds Retailer’s Bank Supplier’s Bank EDI

32. Tactical Benefits • Improved Communication • speed; accuracy • Cost savings • stock reduction • decrease co-ordination costs; relatively cheap transmission • no rekeying; less paper-handling; fewer errors • Improve customer service • Reduce cycle times • Increase responsiveness to customers

33. Strategic Benefits • Improved trading relationships • vehicle for collaboration • Improved logistics • JIT (Just-In-Time Manufacturing) • QR (Quick Response) • ECR (Efficient Consumer Response) • Competitive gains

34. Internal Problems • Slow growth of international standards • Proliferation of competing standards • Problems of integration with the internal processes/systems • Incompatibility of different VANs • Reorganization of processes

35. Interorganisational Problems • Impacts trading relationships • Interdependence and domination • hub-and-spoke arrangements • EDI becomes a requirement to trade • Inequitable sharing of costs and benefits • “Hubs” gain more than “spokes” • Initiators of the IOS project ( or powerful organisations) gain more than non-initiators (or smaller trading partners) • Little chance of sustainable advantage

36. Coercion through Fordnet • Ford locked their suppliers into a proprietary network • expensive, inconvenient, no supplier influence • Produced a coercive trading relationship whereby Ford tried to extend their computer systems into suppliers’ premises • Fordnet chrystalised power imbalance • This is not sustainable, since Ford changes to Odenet

37. Tesco’s use of EDI • Very competitive market • price, quality, service & range • ‘Hub & spoke’ network with suppliers • Exclusion of small suppliers, unable to implement EDI • Growth by ‘message type’ • supplier’s stock availability; self billing etc. • Considerable efficiency gains • Closer relationship with suppliers

38. Small Businesses (SMEs) & EDI • SMEs traditionally lack: • expertise to set up and use technology • expertise to realize the benefits of integration • the necessary capital for equipment • the market power to set favorable standards • enough willing partners • normally remain the ‘spokes’

39. The use of the Internet in B2B E-commerce (1) • Low cost of installation • Public network: provides ubiquitous access • Platform independent • Facilitates inter-organisational transactions that are not EDI-based • Enables small suppliers to participate in business transactions • Problems • Security and Reliability • Does not provide VAN’s services

40. The use of the Internet in B2B E-commerce (2) • Internet-based EDI • VAN providers are now offering Internet-based services • Suppliers use the Web to access information provided by their customers - not EDI-based communication • XML Vs EDI

41. TESCO’s Internet-based information Exchange • TESCO’s ECR trial: beginning of 1998 • The TESCO’s Internet-based Information Exchange: • shares electronic point of sale data, as well as stock, promotions and new product information with suppliers. • Suppliers may also gain access to a directory of stores, people and news and can give feedback. • TESCO monitors the performance of suppliers. • TESCO offers interchange links to smaller suppliers • After 2 years 60m pounds have already been saved by improving replenishment through better promotion

42. SMEs & Internet/Web • Internet/Web offers • expanded market coverage/market share • access to information, ideas and R&D • facilitation of collaboration • time & cost efficiency • cheap technology & public open standards • opportunity for creativity • mechanism for implementing EDI

43. Dangers of the Internet for SMEs • SMEs still lack: • the design, marketing and technical skills needed to implement and operate an effective web site • the management skills required • the credibility of a ‘household name’ • Internet only delivers a limited market • Much depends on the industry context

44. Putting It All Together • Difficult global socio-political environment • Business challenges • Strategic Response • IOS & management methodologies • Organisational change • The important issues are not only technological but also (inter)organisational, managerial and social

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

46. Organizational Transformation

47. In Summary • Reengineer your company • Reexamine your old business model • ‘The buyer always wins’ • ‘Hold your customer’s hand’ • Consider outsourcing • ‘No web site is an island’ • Create an online sense of community Source: Business Week