E-Business Strategy and Implementation

1. E-Business Strategy and Implementation Introduction MIS 415/575 Spring 2011

2. Overview • E-business, what is it? • Why study e-business? • Characteristics • Expectations (Dotcom-boom vs. –bust) • Types of E-business • Impact of E-Business on Market Structures (example)

3. 1. E-Business, E-Commerce – what is it? • Electronic commerce • Shopping on the Web • Businesses trading with other businesses • Internal company processes • Broader term: electronic business (e-business) • Electronic commerce includes: • All business activities using Internet technologies • Internet and World Wide Web (Web) • Wireless transmissions and personal digital assistants • Dot-com (puredot-com) • Businesses operate only online

4. 2. Why Study E-Business? The Internet changes everything except the rules of business. Shapiro/Varian, Information Rules • E-commerce technology is different, more powerful than previous technologies • Traditional commerce: • Passive consumer • Sales-force driven • Fixed prices • Information asymmetry

5. 3. Unique Features of E-commerce Technology and Their Significance • Is ubiquitous (available everywhere, all the time) • Offers global reach (across cultural/national boundaries) • Operates according to universal standards (lowers market entry for merchants and search costs for consumers) • Provides information richness (more powerful selling environment) • Is interactive (can simulate face-to-face experience, but on a global scale) • Increases information density (amount and quality of information available to all market participants) • Permits personalization/customization • Social Technology (“Web 2.0”)

6. 4. Expectations: Amazon at 10: Profitable at Last • Story of Amazon in many ways mirrors story of e-commerce itself • Process of continuous change and exploration for profits • What are the reasons why people shop at Amazon? • Why wasn’t it profitable from Day 1? • How and when did it become profitable? • How many of you have used Amazon recently? • What was your experience? • Do you think Amazon will remain profitable?

7. Business-to-consumer (B2C): Consumer shopping on the Web Business-to-business (B2B): E-procurement Transactions conducted between Web businesses Supply Chain management Business processes Using Internet technologies to support organization selling and purchasing activities 5. Types of E-Commerce

8. Electronic Commerce, Eighth Edition

9. Types of E-Commerce (cont’d) • Web helping people work more effectively • Telecommuting (telework) • Consumer-to-consumer (C2C) • Individuals buying and selling among themselves • Web auction sites • C2C sales included in B2C category • Seller acts as a business (for transaction purposes) • Business-to-government (B2G) • Business transactions with government agencies • Paying taxes, filing required reports • B2G transactions included in B2B discussions

10. 6. Example: Economic Forces and Electronic Commerce • Economics • Study how people allocate scarce resources • Through commerce and government actions • Commerce organizations participate in markets • Potential sellers come into contact with buyers • Medium of exchange available (currency or barter) • Organization hierarchy (flat or many levels) • Bottom level includes largest number of employees • Transaction costs • Motivation for moving to hierarchically structured firms Electronic Commerce, Eighth Edition 10 Electronic Commerce, Eighth Edition

11. Transaction Costs Total of all costs that a buyer and seller incur Gathering information and negotiating purchase-and-sale transaction Brokerage fees and sales commissions Cost of information search and acquisition Sweater dealer example Electronic Commerce, Eighth Edition 11 Electronic Commerce, Eighth Edition

12. Electronic Commerce, Eighth Edition

13. Markets and Hierarchies General trend toward hierarchies Coase’s analysis of high transaction costs Hierarchical organizations formed Replace market-negotiated transactions Strong supervision and worker-monitoring elements Sweater example Oliver Williamson (extended Coase’s analysis) Complex manufacturing, assembly operations Hierarchically organized, vertically integrated Manufacturing innovations increased monitoring activities’ efficiency effectiveness Electronic Commerce, Eighth Edition 13 Electronic Commerce, Eighth Edition

14. Electronic Commerce, Eighth Edition

15. Using Electronic Commerce to Reduce Transaction Costs Electronic commerce Change vertical integration attractiveness Change transaction costs’ level and nature Example: employment transaction Telecommuting May reduce or eliminated transaction costs Electronic Commerce, Eighth Edition 15 Electronic Commerce, Eighth Edition

16. Network Economic Structures Neither market nor hierarchy Strategic alliances (strategic partnerships) Coordinate strategies, resources, skill sets Form long-term, stable relationships with other companies and individuals Based on shared purposes Strategic partners Come together for specific project or activity Form many intercompany teams Undertake variety of ongoing activities 16

17. Network Economic Structures (cont’d.) Network organizations Well suited to technology industries Information intensive Sweater example Knitters organize into networks of smaller organizations Specialize in styles or designs Electronic commerce role Makes such networks easier to construct, maintain Predominant in near future Electronic Commerce, Eighth Edition 17 Electronic Commerce, Eighth Edition

18. Electronic Commerce, Eighth Edition

19. Network Effects Activities yield less value as consumption amount increases Law of diminishing returns Example: hamburger consumption Networks (network effect) Exception to law of diminishing returns More people or organizations participate in network Value of network to each participant increases Example: fax machine Electronic Commerce, Eighth Edition 19 Electronic Commerce, Eighth Edition

20. Using Electronic Commerce to Create Network Effects E-mail account Provides access to network of people with e-mail accounts Smaller network E-mail generally less valuable Internet e-mail accounts Far more valuable than single-organization e-mail Due to network effect Need way to identify business processes Evaluate electronic commerce suitability For each process Electronic Commerce, Eighth Edition 20 Electronic Commerce, Eighth Edition

21. Identifying Electronic Commerce Opportunities Focus on specific business processes Break business down Series of value-adding activities Combine to generate profits, meet firm’s goal Commerce: conducted by firms of all sizes Firm Multiple business units owned by a common set of shareholders or company Industry Multiple firms selling similar products to similar customers Electronic Commerce, Eighth Edition 21 Electronic Commerce, Eighth Edition

22. Potential Limitations on the Growth of B2C E-commerce • Expensive technology • Complex software interface • Sophisticated skill set • Persistent cultural attraction of physical markets and traditional shopping experiences • Persistent global inequality limiting access to telephones and computers