Lecture 9 ( Chapter 12 ) MIS 205_E- Business

1. Lecture 9(Chapter 12) MIS 205_E- Business Implementing E-Business Initiatives

2. Learning Objectives In this chapter, you will learn about: Planning electronic commerce initiatives Strategies for developing electronic commerce Web sites Managing electronic commerce implementations 2

3. Identifying Benefits and Estimating Costs of Electronic Commerce Initiatives Information technology projects Keys to successful implementation Planning and execution Successful electronic commerce initiative business plan activities Identifying initiative’s specific objectives Linking objectives to business strategies Setting electronic commerce initiative objectives Consider strategic role of project, intended scope, resources available

4. Identifying Objectives Typical business electronic commerce objectives Increasing existing market’s sales Opening new markets Serving existing customers better Identifying new vendors Coordinating more efficiently with existing vendors Recruiting employees more effectively Objectives vary with organization size Compare e-commerce risk to inaction risk

5. Linking Objectives to Business Strategies Downstream strategies Tactics to improve the value businesses provide to customers Upstream strategies Focus on reducing costs or generating value Web use for businesses Attractive sales channel for many firms Complement business strategies, improve competitive positions

6. Linking Objectives to Business Strategies (cont’d.) Electronic commerce activities difficult to measure First-wave e-commerce activities Existed without setting specific, measurable goals Plenty of investors for highly speculative activities Successes and failures measured in broad strokes Second-wave e-commerce activities Businesses take closer look at benefits and costs Good implementation plan Sets specific objectives for benefits achieved and costs incurred

7. Identifying and Measuring Benefits Some electronic commerce initiatives Obvious, tangible, easy to measure Example: increased sales or reduced costs Other electronic commerce initiatives More difficult to measure Example: increased customer satisfaction Identifying objectives Set measurable objectives Include intangible benefits

8. Identifying and Measuring Benefits (cont’d.) Using Web sites to build brands or enhance existing marketing programs Set goals in terms of increased brand awareness Measured by market research surveys, opinion polls Companies selling goods or services online Measure sales volume in units or dollars Complicated to measure brand awareness or sales Increase due to other things company doing Increase due to time or general improvement in the economy

9. Identifying and Measuring Benefits (cont’d.) Using Web sites to improve customer service or after-sale support Set goals of increased customer satisfaction Reduce customer service or support costs Example: Philips Lighting Provided Web ordering system for smaller customers Primary goal: reduce cost of processing smaller orders Built pilot Web site and had smaller customers try it Results: customer service phone calls from test group dropped by 80 percent

10. Identifying and Measuring Benefits (cont’d.) Measurements of other electronic commerce initiatives Supply chain managers Measure supply cost reductions, quality improvements, faster deliveries of ordered goods Auction sites Set goals for number of auctions, number of bidders and sellers, dollar volume of items sold, number of items sold, number of registered participants

11. Identifying and Measuring Benefits (cont’d.) Measurements of other electronic commerce initiatives (cont’d.) Virtual communities and Web portals Measure number of visitors, quality of visitors’ experiences Metrics Measurements companies make to assess value of benefits Use online surveys Use estimates: length of time each visitor remains on site, how often visitors return

12. FIGURE 12-1 Measuring the benefits of electronic commerce initiatives

13. Identifying and Measuring Benefits (cont’d.) • Benefit unit of measure • Convert raw activity measurements to dollars • Can compare benefits to costs • Can compare net benefit of a particular initiative to net benefits provided by other projects • Difficult to measure value in dollars 13

14. Identifying and Estimating Costs Information technology project costs Difficult to estimate and control Web development Uses rapidly changing hardware and software technologies Hardware costs are downward Increasing software sophistications Provides ever-increasing demand for more newer, cheaper hardware Yields net increase in overall hardware costs

15. Identifying and Estimating Costs (cont’d.) Total cost of ownership (TCO) Includes all costs related to activity Electronic commerce implementation TCO includes: Hardware costs, software costs, outsourced design work, employee salaries and benefits, site maintenance Good TCO number Includes assumptions about how often site would need to be redesigned in the future

16. Identifying and Estimating Costs (cont’d.) Opportunity cost Cost of not undertaking an initiative Largest and most significant costs associated with electronic commerce initiative “Foregone benefits that company could have obtained from electronic commerce initiative not pursued”

17. Identifying and Estimating Costs (cont’d.) Web site costs Total dollar amounts required to create and operate a Web site Varied over the years Relative proportion of costs remained stable 10 percent: computer hardware 10 percent: software 80 percent: labor Annual cost of operating an online business Web site Remained stable Ranges between 50 and 200 percent of site initial cost

18. Identifying and Estimating Costs (cont’d.) • Web site costs (cont’d.) • Small online store • Placed into operations for less than $5000 • Small to midsize online business operation • With full transaction and payment processing capabilities • Initial investment: between $50,000 and $1 million • Average $80,000 18

19. FIGURE 12-2 Estimated costs for business Web sites

20. Identifying and Estimating Costs (cont’d.) • Web site costs (cont’d.) • Costs generally heading downward • Due to lower costs for broadband access and computer hardware • Comparison of Netscape with more recent startup companies • Netscape (early 1990s): more than $40 million • Digg (2004): less than $500,000 • Important element of annual Web site operating cost • Choice of Web hosting service provider 20

21. FIGURE 12-3Important Web hosting service features

22. Funding Online Business Startups Early Web businesses Started by individuals with knowledge of computers, technology, business Late 1990s Web businesses Started by investors wanting to make fast money Angel investors funded initial startup Became stockholders hoping business grows rapidly Sell interest to venture capitalist

23. Funding Online Business Startups (cont’d.) Venture capitalists Very wealthy individuals, investment firms Look for small companies about to grow rapidly Hope for rapid growth and initial public offering Initial public offering (IPO) Selling stock to public

24. Funding Online Business Startups (cont’d.) • System of financing startup and initial growth of online businesses • Benefits • Access to large amounts of capital early • Costs • Investors, capitalists got most profits, pressure to grow rapidly 24

25. Funding Online Business Startups (cont’d.) Decrease need for venture capitalists and angel investors by: Relieving pressure to grow rapidly Becoming more creative Learning from mistakes Trending toward more and smaller online ventures Online business creation costs falling

26. Comparing Benefits to Costs Capital projects (capital investments) Major investments in equipment, personnel, other assets Techniques to evaluate proposed capital projects Range from simple calculations to complex computer simulation models Reduce to comparison of benefits and costs

27. Comparing Benefits to Costs (cont’d.) Key parts of creating electronic commerce initiatives business plan Identify potential benefits Identify costs required to generate benefits Evaluate whether benefits exceed costs

28. FIGURE 12-4 Cost/benefit evaluation of electronic commerce strategy elements

29. Return on Investment (ROI) Return on investment (ROI) techniques Measures amount of income (return) provided by specific current expenditure (investment) Examples: Payback method, net present value method, internal rate of return Provides quantitative expression of comfortable benefit-to-cost margin Mathematically adjusts for future reduced value of benefits

30. Return on Investment (ROI) (cont’d.) Electronic commerce initiatives Seen as absolutely necessary investments Not always subjected to close examination, rigid requirements Companies fear being left behind Perceived value in new market early positioning allows: Many companies to invest large amounts of money With few near-term profit prospects Example: first wave of newspaper Web sites

31. Return on Investment (ROI) (cont’d.) Electronic commerce second wave of Web-related expenditures Being reviewed for ROI ROI built-in biases ROI requires all costs, benefits be stated in dollars Gives undue weight to costs ROI focuses on predicted benefits Initiatives have returned benefits not foreseen

32. Return on Investment (ROI) (cont’d.) ROI built-in biases (cont’d.) ROI tends to emphasize short-run benefits over long-run benefits More information CIO Budget site ROI Knowledge Center Web pages

33. Strategies for Developing Electronic Commerce Web Sites FIGURE 12-5 Evolution of Web site functions

34. Strategies for Developing Electronic Commerce Web Sites (cont’d.) • Transformation occurred rapidly • Web site development and management: slower • Today: Web site seen as collections of software applications • Companies using tools to manage site 34

35. Internal Development vs. Outsourcing Initiative’s success dependency How well initiative integrates into and supports business activities Internal people leading projects ensures: Company’s specific needs are addressed Initiative congruent with organization goals, culture Outside consultants Seldom able to learn enough about organization’s culture to accomplish objectives

36. Internal Development vs. Outsourcing (cont’d.) • Few companies launch an electronic commerce project without some external help • Key to success • Finding balance between outside and inside support • Outsourcing • Hiring another company to provide outside support for all or part of project 36

37. Internal Development vs. Outsourcing (cont’d.) • The internal team • First step in outsourcing decision making • Create internal team • Team members • People knowledgeable about the Internet and its technologies • Creative thinkers • Distinguished within the company

38. Internal Development vs. Outsourcing (cont’d.) • The internal team (cont’d.) • Project lead • Mistake: technical wizard, not business knowledgeable, not well known • Better choice: person with business knowledge, creativity, respect of firm’s operating function managers, good sense of goals and culture • Measuring team achievement: important • Not necessarily monetarily • Express in terms appropriate to initiative objectives

39. Internal Development vs. Outsourcing (cont’d.) The internal team (cont’d.) Intellectual capital Employees’ knowledge about the business and its processes Ignored in the past Value recognized today Human capital measures Include employee competencies Include value of customer loyalty and business partnerships

40. Internal Development vs. Outsourcing (cont’d.) The internal team (cont’d.) Responsible for initiative From setting objectives to final implementation Internal team decides: Project parts to outsource Outsourcer Consultants or partners needed

41. Internal Development vs. Outsourcing (cont’d.) Early outsourcing Company outsources initial site design and development to launch project quickly Outsourcing team trains company’s information systems professionals before handing site operation to them Company’s own information systems people work closely with outsourcing team Develop ideas for improvements as early as possible in project life

42. Internal Development vs. Outsourcing (cont’d.) Late outsourcing More traditional approach Company’s information systems professionals Perform initial design and development work, implement system, and operate system until stable part of business operation Once competitive advantage gained Electronic commerce system maintenance outsourced Company’s information systems professionals turn attention and talents to developing new technologies, providing further competitive advantage

43. Internal Development vs. Outsourcing (cont’d.) Partial outsourcing Also called component outsourcing Company identifies specific project portions Can be completely designed, developed, implemented, and operated by another firm specializing in a particular function Examples Smaller Web sites outsource e-mail handling and response functions Electronic payment system

44. Internal Development vs. Outsourcing (cont’d.) Partial outsourcing examples (cont’d.) Web hosting activity Service providers usually willing to accommodate requests for variety of service levels Service provider has continuous staffing and expertise 24/7 operation: running 24 hours a day, seven days a week Service providers offer wide range of services Some service providers specialize

45. New Methods for Implementing Partial Outsourcing New ways of implementing partial outsourcing strategy evolved specifically for Web businesses Incubator Offers start-up companies physical location with offices, accounting and legal assistance, computers, Internet connections Very low monthly cost May offer seed money, management advice, marketing assistance Receives ownership interest in company

46. New Methods for Implementing Partial Outsourcing (cont’d.) Incubators (cont’d.) Incubator sells all or part of its interest Company grows to obtain venture capital financing, launch stock public offering First Internet incubators:Idealab Helped CarsDirect.com, Overture, Tickets.com Today’s focus: own internally generated ideas

47. New Methods for Implementing Partial Outsourcing (cont’d.) Incubators (cont’d.) Company created internal incubators Develop technologies for use in main business operations 1980s programs: unsuccessful and shut down Matsushita Electric’s U.S. Panasonic division Started internal incubators to help launch new companies to become important strategic partners Individual management teams retained More successful

48. New Methods for Implementing Partial Outsourcing (cont’d.) Fast venturing Existing company wants to launch electronic commerce initiative Joins external equity partners and operational partners offering experience, skills needed Equity partners: usually banks, venture capitalists Equity partners sometimes offer money Equity partners more likely to offer experience

49. New Methods for Implementing Partial Outsourcing (cont’d.) • Fast venturing (cont’d.) • Operational partners: firms • Systems integrators, consultants, Web portals • Experienced in moving projects along, scaling up prototypes 49

50. FIGURE 12-6 Elements of fast venturing