Electronic Commerce

2. Electronic Commerce Session 3: Planning E-commerce Initiatives

3. Session Objectives1,2,3 • The objectives of this session are: • To describe how to prepare a simple business plan • To describe how to develop objectives • To analyse strategies used to fulfil objectives • And to analyse methods used to manage e-commerce initiatives

4. Business Plans • What is a business plan? • Why should I create a business plan? • What are the sections of a business plan? http://www.paragonventures.com/business%20plan%20d8dgvd8.gif

5. What is a Business Plan? • A business plan is a document which highlights (for the given year): • A plan of how the company will be run • The goals of the company • The money required to meet those goals • The strategy employed to meet those goals (including marketing)

6. Why Should I Create a Business Plan? • A business plan forces a business to assess the market place • It forces a business to identify a clear marketing strategy • It also serves as a benchmark which the companies performance can be measured against.

7. The Sections of a Business Plan • There are seven essential sections of a business plan. These are the: • Executive Summary • Business Description • Define Your Market • Identify and Analyse Your Competition • Design and Development Plan • Operations and Management Plan • Financial Statements

8. Executive Summary • The executive summary follows the title page of the business plan • The purpose of the executive summary is to explain to the reader what the business wants • The summary should be short and concise (maybe half a page, typically no longer than a page) • People do not have time to waste reading long documents

9. Executive Summary Cont’d The key elements of an executive summary are: 1. The business concept • What is the business you are proposing, its products and the advantages over the competition 2. The financial features • Highlight the forecasted sales, profits, cash flows and return on investment 3. The financial requirements • What are the start-up costs and the cost of expansion. How will this money be used?

10. Executive Summary Cont’d 4. Current business position • This includes any relevant information about the company, its formation date, its owners and key personnel 5. Major achievement • Are there any developments which are essential to the success of the business? These may include prototypes, patents or crucial contracts

11. Business Description • This section often begins with a short description of the industry, its present outlook and future possibilities • Include any products or developments that might affect your business • State whether the business is new or already in existence; and the type of operation, e.g. is it retail, food service, manufacturing or service-oriented? • State who your customers will be and how your product will be distributed and advertised

12. Business Description Cont’d • Describe the product or service you intend to market • Show how your business will gain the competitive edge • Explain how the business will be profitable

13. Define Your Market • Define the entire market for your industry • in terms of size, structure, growth prospects, trends and sales potential • Define the specific market that you will be targeting (market segmentation) • Define your niche in this market

14. Define Your Market Cont’d • After defining your market you must: • Estimate your market share for the period of time the business plan covers • Position your business • Price your product • Determine the distribution strategy • Create a promotion plan • Estimate your sales potential

15. Define Your Market Cont’d • After researching the market, the information gained should be used to: • Identify objectives • And develop strategies that will allow you to fulfil these objectives • This will be the focus of the next section

16. Identify and Analyse Your Competition • Determine who your competitors are • What strategies are they using to sell their products or service • What are they strengths and weaknesses

17. Design and Development Plan • The design and development plan allows investors to understand: • The design of your product • How it is produced • How it will be marketing • The development budget required to allow the company to meet its goals

18. Design and Development Plan Cont’d • The sections included in the development plan include: • Product development • Market development • Organisational development • Each of these sections should be described from a funding point of view • Finally, identify measurable goals for the overall design and development plan

19. Operations and Management Plan • Describes how the business functions • It explains business logistics: • The responsibilities of the management team • The task assigned to each company division • Capital and expense requirements related to the operation of the business • And the financial tables • The operating expense table • The capital requirements table • The cost of goods table

20. Financial Statements • The three common financial statements are: • The balance sheet • A statement of your assets, liabilities and equity • The Income statement • Reflects when sales are made and expenses are incurred • The statement of cash flows shows • The amount of cash required to meet obligations, when it is required and from where it will come

21. Planning E-commerce Initiatives • A successful business plan should include activities that: • Identify objectives • Link objectives to business strategy

22. Identifying Objectives • Objectives businesses strife to achieve using e-commerce include: • Increase sales in existing markets • Launching out into new markets • Improve service to existing customers • Identifying new vendors • Coordinating more efficiently with existing vendors • More effective recruiting

23. Types of Objectives • Vary with the size of the organisation, for example: • Small companies might want to build a Web site to encourage customers to do business using existing channels. • A site offering only product or service information is less costly do design and implement • Larger companies that might want to build sites that offer transaction handling, bidding, communication and other capabilities have to pay much more

24. SMART Objectives • Objectives must be: • Specific • Measurable • Achievable • Results-based • Time-bound

25. An Objective Example *In this example, Icon is the name of a software product.

26. Linking Objectives to Business Strategy • After identifying objectives a company must: • identify business strategies that will help to realise these objectives • e.g. a small company’s objective might be to become a global player within a year and as a result one of its activities is to build a brand

27. Linking Objectives to Business Strategy Cont’d • Businesses can use downstream strategies to improve the value that the business provides to customers • Or can pursue upstream strategies that focus on reducing cost or generating value by working with suppliers or inbound shipping and freight service providers

28. Linking Objectives to Business Strategy Cont’d • E-commerce can inspire businesses to partake in activities such as: • Build brands • Enhance existing marketing programs • Sell products and services • Sell advertising • Develop a better understanding of the customer’s need • Improve after sales support and service

29. Linking Objectives to Business Strategy Cont’d • E-commerce can inspire businesses to partake in activities such as: • Purchase products and services • Manage supply chains • Operate auctions • Build virtual communities • However, these can not be done in an ad hoc manner. It is important to measure the benefit and cost of each activity

30. Measuring Benefit • Some benefits are tangible and easy to measure, for example increase sales, decrease cost • Others are intangible thus difficult to measure, for example increased customer satisfaction • Managers need to try to set objectives that are measurable even for intangible benefits • E.g. increased customer satisfaction might be measured by counting the number of first-time customers who return to the Web site and buy

31. Measuring Benefit Cont’d

32. Measuring Benefit Cont’d

33. Managing Cost • IT projects are often difficult to estimate and control • E.g. web development technologies change rapidly, thus it is difficult for managers to estimate cost • These cost include hardware and software • Even though hardware cost tend to decrease, new software often demands new hardware, thus increase cost

34. Total Cost of Ownership • The project budget must include • Hardware and software cost • Costs of hiring, training and paying personnel • Web site designers, developers, content providers, operators and maintainers • Organisations tend to track cost by activity

35. Total Cost of Ownership Cont’d • The total cost of ownership (TCO) includes • Cost of hardware (servers, routers, firewalls and load balancing devices) • Cost of software (licenses for operating systems, Web server software, database software, and application software) • Cost of outsourced design work • Salaries and benefits for employees • Cost of maintaining the site once operational • A good TCO will include cost of future redesign

36. Change Management • Every project involves change • Change management is the process of helping employees cope with change • Change management techniques include • Communicating the need for change • Inclusion in the change decision process • Inclusion in the planning for the change

37. Change Management Cont’d • If change is not properly managed, employees feel • Uncomfortable • Inadequate • Stressed which leads to reduced work performance • Unable to do the job properly • Powerless

38. Opportunity Cost • Opportunity cost is the benefit that will be lost if a company chooses not to initiate an e-commerce initiative • This is of great concern to management and accountants

39. Web Site Costs • The cost required for a large company to build an entry-level e-commerce site is US$1 million • 79% is labour cost • 10% software cost • 11% hardware cost • Source: International Data Corporation and Gartner Inc.

40. Web Site Costs Cont’d • The cost required for a large company to build a site that is comparable to leading sites is US$2 - $5 million • To build a Web site that is noticeably better than competitors will cost a minimum of US$15 million • 10 of the top 100 e-commerce sites spent over US$10 million for Web site development and implementation • Source: International Data Corporation and Gartner Inc

41. Web Site Costs Cont’d • A small company can put a Web site online for US$5000 • For a business with full transaction and payment processing capabilities, it is difficult to keep it under US$10,000 per year • Construction of new Web sites for small businesses actually averages US$140,000 • Minimum amount to open a complete e-commerce Web site is US$150,000

42. Web Site Costs Cont’d • Web site costs include • Start-up cost • Ongoing costs (between 50% - 200% of initial cost)

43. Web Site Costs Cont’d • The cost for a full portal magazine site • To build: US$2.4 million • US$4.3 million per year to maintain with a staff of 35 people • The cost for a more limited site • To build: US$150,000 • US$270,000 per year to maintain with a staff of 2 people

44. Web Site Costs Example • Kmart (http://www.kmart.com/) • >US$140 million to create online retail website • Much of the site’s cost is hidden from the user • Cost of customising middleware that connects the Web site to Kmart’s vast inventory and logistics databases

45. Web Site Costs: A Final Word • The high cost of creating e-commerce Web sites can serve as a discouragement to small businesses • Smaller organisations can control costs by: • Using a combination of third party hosting services and packaged e-commerce software • Sign up for mall-style service providers • This provides low initial cost and controls annual TCO, however cost of related activities can not be ignored, e.g. creating and maintaining a product catalog

46. Comparing Benefits to Costs Determine value of benefits Identify benefits Compare value of benefits to value of cost Determine value of costs Identify costs

47. Return On Investment (ROI) • Return on Investment techniques measure the amount of income (return) that will be provided by a specific expenditure • ROI requires that all costs are stated in a dollar amount • ROI focuses on benefits that can be predicted • Many benefits are often hidden • ROI tends to emphasize short-term benefits over long term benefits

48. ROI Hidden Benefits Example • CISCO systems created an on-line customer forum to discuss product issues • The intended benefits were to • Reduce customer service costs • Increase customer satisfaction regarding the availability of product information • Additional (hidden) benefit • Cisco engineers were able to get feedback on new products

49. ROI Problems • If managers rely only on ROI incorrect decision may be made • Due to biases towards short term cost and benefits rather than long term

50. Strategies For Developing E-commerce Web Sites • 1994-1996 Static Brochures • Contact information • Logos and or other branding • Some product information • Financial statements