Key Questions for Management Electronic commerce has opened a new universe for consumers and organizations, and

it demands new management approaches. If exploited cleverly, electronic commerce has the potential to increase corporate profits through better customer acquisition and retention, new information-based products and services, and more efficient operations. However, companies must rethink their strategy, products, and business processes in order to develop a cohesive management approach. During this effort, many difficult questions need to addressed such as: What should be the long term and short term corporate strategy? What is the new business model in the electronic commerce world? How should the corporation invest in electronic commerce technology? What new products and services should be offered or developed? What organizational structures will best reach, interact with, and serve customers? These questions have no easy answers. To respond to the new opportunities and competitive threats, management must anticipate technological and consumer behavioral changes. While these questions are generic, executives can use them to analyze their business environment and corporate situation.

Competitive pressure: Todays business environment is characterized by several dynamic forces. Theses dynamic forces are familiar to most managers, but they bear repeating as they form the basis for the new competitive framework of electronic commerce. These forces include: increased customer service and product expectations, shorter product life cycles, increased product/ feature/option proliferation, the erosion of product and geographic boundaries, consumer demand fluctuations, and increased pressure on margins. But this now familiar list of forces provides neither a framework for understanding the changes brought about by electronic commerce nor a way to think about how the future might evolve. What does provide such a framework, we believe, is a functional view of electronic commerce. All companies, whether online or off-line, require that certain basic functions be performed. For example, all companies that want to do business online require methods for collecting payments. In contrast, the institutional arrangements used to carry out the payment function may change overtime and differ across platforms. Fundamentally, the underlying business functions that electronic commerce affects differ very little from what exists today. Specifically, electronic commerce must provide the following functionality: Methods of making payments in order to facilitate the exchange of goods and services. Ways to transfer different types of content over time and across distances.

Mechanisms for pooling resources to manufacture products more efficiently. Methods of managing and coordinating decentralized decision making in various sectors of the firm. Although the set of functions does not change, the way each is peformed varies depending on the level of technology, sophistication of business processes, and other factors. Furthermore, the performance of each function changes over time as product innovation, improved technology, and competitive forces make increased efficiency of the function possible. Competition and technological improvements are sparking innovators to discover new, more efficient ways to fulfill such basic functions as reading news and managing stock portfolios. Finally, functions are performed more efficiently, and institutions adapt to the changes. For instance, stock brokers such as E trade provide online trading privileges, thereby allowing customers to bypass traditional brokers and undertake that function themselves. This has greatly reduced the cost of transactions and results in a change in the institutional form itself. External threat: Companies need to be careful when evaluating and identifying inter- and intra- industry competitors in the electronic commerce landscape. Management has the unenviable task of factoring technology trends, competitor motives, and customer behavior issues into coherent long-term strategies. The scale and scope of available choices makes strategic decision making extremely complex. Take for instance, financial services. Digital cash, online banking, stored value cards, and smart cards currently play a small role in financial services. Nevertheless, it has become increasingly clear that both depository institutions and their non depository competitors are planning for a future in which these new means of engaging in banking and commerce will play a major and perhaps dominant role. However, identifying competitors and threats is not easy given the interdependencies in the various financial products and services. With many competitors to worry about, management needs to determine what corporate goals they hope to accomplish through electronic commerce in an information driven economy. While this seems like common sense, it is often the step where corporations falter. To succeed, an organization must go through the following steps: (a) Develop a robust electronic commerce strategy, driven by the business problem at hand, the corporate objectives, and the core competencies( things that the company is good at); and (b) Integrate the technology into high value-added areas such as distribution, sales and marketing, and customer management. In the case of developing corporate strategy, it is often difficult to determine which approaches are suitable for electronic commerce. It is also difficult to determine which approaches are risky, and if the degree of risk can be quantified, how to minimize that risk. Whatever the approach, management should build a strong, quantifiable business case to ensure that they pursue only projects that have a high return on investment and that deliver a high value to the customer. It has been proven time and time again that consumers are not highly motivated by sophisticated technology or gadgets; technology-based products and services that offer real value must be communicated in a customer-specific context.

Embedding the technology into the business functions requires firms to evaluate business processes and plan for, acquire, and implement the necessary architecture. The business strategy must take the lead in defining the role of electronic commerce. Also, electronic commerce should be seen as an enabler, not as a means to itself. We take the stand that the power of electronic commerce lies not so much in technology alone, as in the integration and application of technology to achieve a better product or service for the customer, resulting in a better market position for the corporation. Incorporating Changes: The prospect of building a completely new set of business applications can be daunting. In an endeavor to find the right approach, management has attempted many so-called business revolutions such as business reengineering, process innovation, time compression, and total quality management. These management ideologies endeavor to integrate business processes so that they react to market-induced requirements for flexibility and product/service quality while slashing both turnaround times and costs. These ideologies emphasized cost reduction through downsizing and improved operational efficiencies. Yet in nearly every industry this is only part of the equation for creating value. Success today lies in being smarter and faster than the competition, not just smaller and more cost-efficient. While recognizing the need for agility and capturing market share are important, the actual challenge lies in implementing the vision. This new vision requires a fundamentally different implementation approach. Interestingly, if one looks closely, the goals of the earlier so-called revolutions and electronic commerce are remarkably similar: reduce costs, shorten product cycle times, expedite customer response, and improve service quality. The basic difference is that while most earlier management ideologies fell short in practical application of good ideas, electronic commerce remedies this by providing the technological tools to facilitate the reengineering of most business processes. Electronic commerce implementations require a fresh perspective on the function of an application, the role of the user, and the use of development tools themselves. On the other hand, building a new class of applications affords companies with the rare opportunity of beginning with the right set of tools and a robust framework rather than a hodgepodge of technologies. But make no mistake, electronic commerce projects are often complex, as they combine leading-edge technologies with process change. From an application perspective, speed compliance, modularity and completeness, and extensibility are important, as is careful attention to business processes and organizational factors.

Designing New Organizational Structures: Electronic commerce can and will impact organizational structures. Why? Because, the organizational structure must grant companies the flexibility needed to do business in response to market requirements. Firms need to ask themselves how best to design and implement new organizational structures, how to measure the performance of these new organizational structures, and how to incorporate new innovations like mobile computing and software agents into business process design.

One of the immediate effects of technology on organization structure can be seen in advertising and marketing communications departments that are being revolutionized by Web-based publishing. For instance, Xerox Corp. has over three hundred employees from several departments involved in maintaining the quality and consistency of Xerox Web pages. Clearly, these large companies need to determine the right organization structure for managing large-scale Web efforts and to discern whether such management is a business operations issue where efficiency is key, or a software development issue where creativity is crucial. These and other questions become pertinent and crucial as companies move into the uncharted waters of electronic commerce. Managerial Options and Priorities: In the process of developing new business theories and strategies, managers must consider what king of tactics and strategy to adopt. Managers also need to consider the immediate impact of electronic commerce on key business areas such as management of sales and distribution channels, pricing policy, convergence of products and services, entrepreneurship, and managing new consumer interfaces. For most organizations, conducting a cost-benefit analysis is an important prerequisite for making a large investment. Unfortunately, few organizations have effective methods for evaluating the payback of new applications, especially early on. Often, payoffs are not predictable and applications must be in place and used for some time before benefits are realized. Even then, the benefits may vary widely, depending on the degree to which organizations change the way they work. Finally, the pressure for short-term payoffs can curtail or derail implementation. Organizations often overlook longer term, less tangible benefits such as improved customer service, the ability to gather more reliable information more quickly for more people, and improved efficiencies. Along with specifying long-term and short-term strategy, firms need to examine how electronic commerce will change fundamental business processes. For instance, banking professionals need to determine how widespread home banking, as well as the use of new forms of financial instruments (such as digital cash), will change existing banking processes. The banking industry may also experience employment shifts, such as a reduction in clerks and tellers, and an increase in information-processing specialists who monitor transaction trends, security threats, and so on. And finally, a portion of the dilemma in planning for electronic commerce is due to the fact that many organizations and managers assume a future in which electronic commerce on the Internet (or its progeny) will be a given. In this vision, high bandwidth internetworks are everywhere. Consumers surf in and out of multimedia databases all over the world and make payments using digital currency. Software agents help users at every turn. All security problems are solved; all consumer privacy fears assuaged. This future is free of complications. The hard part for most companies is managing the evolution of online commerce and charting a path that ensures future survival.